Closing Recap

Tuesday, April 26, 2022

Equity Market Recap

·     The saying normally goes “Sell in May, Go Away” but things appear to have started about a week and a half early, with stocks falling sharply for the 3^rd time in the last 4-sessions, erasing all of yesterday’s bounce as earnings season ramps up into big earnings tonight from tech giants MSFT and GOOGL. The tech-heavy Nasdaq touched intraday lows below 12,600, falling more than 3% as growth and high multiple stocks remain under pressure on rising interest rate concerns (stat of the day – 42% of Nasdaq stocks are 50% or more below their 12-month highs). Bond markets rallied, helped midday after demand for a stellar 2-year auction pushed yields down further (10-yr to 2.75%). Energy was one of the few S&P sector bright spots as oil prices rise, but it was a treacherous day for tech, communications, discretionary, and financials. Supply chain issues, ongoing Russia/Ukraine war impact, labor costs, inflation have all been prevalent themes in corporate earnings/guidance over the last few weeks – no one cared a month ago, but markets now fearful. Speaking of, the CBOE Volatility index (VIX) “fear index” takes out yesterday highs, rising over 17% to move above the 31 level. The latest downdraft also appears to be on technicals as well as rising rate fears. Economic data came in mixed, but at this point, market widely anticipating the Fed to raise interest rates by 50-bps at next week’s meeting, with a more aggressive outlook still in the cards to fight surging inflation/costs. Big night of earnings coming up with MSFT, GOOGL, Visa, TXN among them and tomorrow BA, TMUS, KHC, HUM, NSC.

Economic Data:

·     Philadelphia Fed non-manufacturing regional business activity index 29.3 in April vs 32.4 in March; business activity index 27.5 in April vs 38.1 in March; new orders index 13.6 in April vs 31.0 in March; non-manufacturing full-time employment index 14.9 in April vs 23.3 in March

·     Durables Goods orders for March rose +0.8% vs. est. +1.0% and Feb -1.7%; March Durables ex-transportation orders +1.1% vs. est. +0.6% and Feb -0.5%; March Durables ex-defense orders +1.2% vs. Feb -2.1%; Machinery orders +0.7%, electrical equipment +3.9%

·     New home sales plunged 8.6% to a seasonally adjusted annual rate of 763,000 units last month, vs. the 765,000 estimates while February’s sales pace was revised higher to 835,000 units from the previously reported 772,000 units. Sales fell in all four regions. Sales dropped 12.6% on a year-on-year basis in March. They peaked at a rate of 993,000 units in January 2021.

·     Consumer Confidence index for April 107.3 below consensus 108.0 and vs March revised 107.6 (previous 107.2); the present situation index 152.6 in April vs March revised 153.8 and expectations index 77.2 in April vs March revised 76.7 (previous 76.6)

·     Richmond Fed composite manufacturing index +14 in April vs +13 in March; Richmond Fed manufacturing shipments index +17 in April vs +9 in March

·     S&P CoreLogic Case-Shiller: February 20-metro area home prices +20.2% from year ago vs revised +18.9% in January- February home prices in 20 metro areas +2.4% seasonally adj vs revised +1.7% in January- February 20-metro area home prices non-adjusted +2.4% vs +1.4% in January

Commodities, Currencies & Treasuries

·     Commodity prices were mixed as oil and gold rebound; WTI crude gains $3.16 or 3.215 to settle at $101.70 per barrel ahead of weekly inventory data tonight (API) and tomorrow (EIA). May heating oil jumped over 8% today to $4.422 and natural gas rose about 2% to $6.801 mln btu. Gold prices settle higher, snapping a 5-day losing streak

·     Treasury yields dropped across the board with a rotation into haven assets as investors bailed on stocks for the third time in last 4-days. The yield on the 10-yr fell to lows around 2.72% before paring losses, after rising to highs just shy of 3% last week. The 2-yr yield fell 7 bps to 2.56%. The moves come ahead of next weeks FOMC meeting where a 50-bps hike is expected. The U.S. Treasury auctioned $48 billion of two-year notes at a yield of 2.585% vs. 2.596% when issued prior with a bid-to-cover at 2.74 and indirects awarded 65.97% and directs 21.44%

·     The U.S. dollar advanced vs. most major currencies, including by 0.6% against the euro, while weakens 0.5% against the yen, as investors look for havens. All eyes on next week Fed meeting as the buck rises to multi-year highs on rising interest rate outlook. Bitcoin prices fell more than $2,000 off earlier highs to trade just above $38,000, down over 4%. DXY +6% YTD, +12% over 52-wks while BTC -17% YTD, -30% over 52-wks

Sector News Breakdown

Consumer

·     Auto sector; TSLA tumbles as much as 10% on concerns Elon Musk will have to sell shares/put some as collateral in his $44B acquisition on Twitter (TWTR) which was confirmed yesterday; Ford (F) first all-electric F-150 pickup truck is rolling off the assembly line Tuesday; RIVN estimates trimmed for 1Q EPS at Barclays as deliveries lag expectations: Rivian earlier this month reported production of 2,553 vehicles in 1Q with deliveries lagging production by a significant margin – 1,227 deliveries were reported over the same time frame, below est of 1,800 deliveries

·     Housing & Building Products; homebuilder DHI Q2 EPS of $4.03 beat the $3.37 estimate and raises year rev outlook to $35.3B-$36.1B from prior $34.5B-$35.5B; in flooring, AWI slips as Q1 adj EPS $1.02 vs. est. $1.14; Q1 revs $282.6M vs. est. $289.92M, but backs 2022 EPS, adj Ebitda and rev outlook , appliance retailer WHR lowers FY ongoing EPS view to $24-$26, from prior $27-$29 and vs. est. $25.99; Q1 adj EPS $5.31 vs. est. $5.36; Q1 revs $4.99B vs. est. $5.32B; sees FY net sales growth of 2%-3%, down from prior view of up 5%-6%; in furniture, Wayfair (W) cautious mention at Wedbush as remain sidelines into earnings as believe two-year growth trends slowed in the month, putting 1Q22 y/y sales growth about in-line with consensus

·     Consumer Staples; in beverages, PEP raises 2022 organic sales outlook to up 8% from prior view up 6% while cuts FY22 core EPS view to $6.63 from $6.67 9est. $6.65) as Q1 adj EPS $1.29 vs. est. $1.23; Q1 sales $16.2B vs. est. $15.53B; sees 8% increase in core constant currency EPS in 2022; no real haven sectors today as even household products were lower earlier (CLX )

·     Casinos, Gaming, Lodging & Leisure sector; in leisure, PII shares slip on top and bottom line miss as Q1 adj EPS $1.29 vs. est. $1.78; reports Q1 revs $1.96B vs. est. $2.11B, but reaffirmed its EPS and revenue outlook for 2022; in online travel, JMP said they expect travel companies to report strong 1Q22 results and are most confident in BKNG as urban travel recovers and ABNB as U.S. alternative accommodation listings grew 25% Y/ Y in March; in theme parks/events, Rosenblatt initiates coverage on LYV Buy and $138 tgt, FUN neutral and $56 tgt, SEAS Buy and $92 tgt, SIX Buy and $56 tgt, BATRK Buy and $35 tgt, FWONK Buy and $81 tgt; in gaming, BYD upgraded from Neutral to Positive w/ $74 PT at Susquehanna

Energy

·     Pipelines: Wells Fargo with EPS preview for MLPs, saying the fundamental backdrop for midstream strengthened in Q1 driven by continued inflationary tailwinds and the ongoing Russia/Ukraine conflict. Overall, expect a positive earnings cycle for midstream companies: believe DCP, EPD, MMP, PAA, TRGP are best positioned to beat Consensus ests for Q1 earnings and believe OKE, CEQP, HESM (Bakken players) could fall short of Street ests due to severe winter weather in North Dakota and reduced gas output; ET shares outperformed in pipelines; VLO a market mover higher after profit beat in refiner space

·     Utilities & Solar; utility sector came into the day with first 3-day losing streak since January, while CSFB said today think the sector can outperform despite the expected rise in interest rates. Utilities pass through most costs to customers, offering an inflationary hedge to investors; monitoring customer bill inflation is important in the current backdrop; in solar, ENPH reports tonight; last night, ARRY said it is disappointed by the U.S. Department of Commerce’s decision to investigate an allegation of tariff circumvention on solar modules; in coals, ARCH posted record quarter of earnings in Q1, beating EBITDA consensus, announcing an increased variable dividend, guiding to improved Q2 and 2h results

Financials

·     Bank movers; CATY delivered a solid quarter on nearly all fronts as loan and deposit growth was stronger than expected on both a period end and average basis, Fee income was better than expected, and noninterest expense was well contained said Wedbush; ZION double downgrade from Strong Buy to Market Perform at Raymond James after earnings as do not see a specific positive catalyst that would drive ZION shares to outperform; NTRS posted Q1 profit rise helped by Fees on Asset Services, and assets under custody or administration rose 5% to $15.54 trillion

·     Brokers, Exchanges: Goldman Sachs assumes coverage of IBKR (Buy), SCHW (Neutral). Upgrade IBKR to Buy on strong account growth, underappreciated rates upside, and potential for stabilization in revenues from increasing client use of Options/Futures. 12m target, $90; insurance; WRB 1Q22 result came in ahead consensus, helped by higher interest rates while loss ratio improvement slows in 1Q22; Bitcoin, FinTech & Payments; the NY Times reported Fidelity to offer Bitcoin investment for pension plans

·     Mortgage, services and lending; RDFN downgraded to Underweight from Overweight at Piper Sandler citing challenging housing outlook with mortgage rates jumping; for ZG, RBC Capital said for ZG, out with another round of PA checks which came back decidedly more negative than our prior round 7 weeks ago; AAN Q1 EPS non-GAAP EPS $0.87 vs. est. $0.68; Q1 revs fell -5.2% to $456.1M vs. est. $461.1M; Q1 Adjusted EBITDA loss $54.7M vs. estimate profit $47.2M (shares of peer RCII were active on results)

Healthcare

·     Pharma movers; PTGX reported Phase II data for PN-943, a competing oral integrin program, in ulcerative colitis; PN-943 failed (Wells Fargo said argued MORF shares should be up on this data in line with their bull/positive scenarios from our recent deep dive); ARWR said it begins dosing in phase 2 trial of ARO-ANG3 to treat cholesterol disorder; PRTA said the FDA granted Fast Track designation for PRX012, a potential antibody therapy for the treatment of Alzheimer’s disease

·     Biotech, MedTech movers; NKTR announces strategic reorganization plan and corporate outlook; focusing on key pipeline programs NKTR-358, NKTR-255 and core research programs; cost restructuring plan results in cash runway into the first half of 2025; NKTX 13.33M share Spot Secondary priced at $15.00; QGEN increased the outlook for full-year 2022 in terms of net sales and adjusted diluted earnings per share (EPS).

·     Healthcare Services; hospital providers punished for a 2^nd day in the last three after UHS Q1 adj EPS $2.15 missed the $2.46 estimate while Q1 revs rose 9.3% to $3.29B vs. est. $3.21B; Q1 at behavioral health care facilities on a same facility basis, adjusted admissions decreased by 1.9% and adjusted patient days decreased by 1.3% y/y; shares fall over 7%; recall the group plunged last Friday following a miss and lower guide from HCA among other names in space); CNC a mover in managed care after earnings/guidance

Industrials & Materials

·     Aerospace & Defense; RTX cuts FY sales outlook on global sanctions on Russia and confirms share buyback of at least $2.5b of shares; HXL posted strong 1Q22 results, highlighted by ~48% growth in the commercial aerospace sales and incremental margins of just over 50% and reiterated its full-year 2022 guidance

·     Industrial & Machinery; Dow component MMM Q1 adjusted EPS $2.65 vs. est. $2.31; Q1 revs fell to $8.8B vs. est. $8.74B; guides 2022 EPS $10.75-$11.25 vs. est. $10.31; sees 3M reports Q1 adjusted EPS $2.65, consensus $2.31; GE reports top/bottom line Q1 beat but sees FY22 adjusted EPS at low end of $2.80-$3.50 view (est. $3.21) and sees FY22 organic revenue growth at the low end of HSD view; ROP 1Q adj EPS 43.77 vs est. $3.69 on revs $1.53B vs est. $1.48B; sees 2Q adj EPS $3.80-3.84 vs est. $3.79 and FY adj EPS $15.50-15.75 vs est. $15.54; PCAR Q1 profit and sales rose to record levels and beat expectations, as the undersupply of semiconductors boosted demand and prices for used trucks; waste stocks rise behind better WM earnings

·     Transports; UPS Q1 adj EPS $3.05 vs. est. $2.88; Q1 revs $24.4B vs. est. $23.79B; backs 2022 rev outlook of $102B and said plans to double the amount of share repurchases for 2022; in truckers, Barclay’s said Truck Spot Rates Not as Bad as Feared Following Data Errors which contributed to market participants believing spot trucking rates had declined much more than apparent reality in the past few weeks; we like shares of KNX, JBHT and WERN

·     Airlines, JBLU posted slightly larger EPS loss on in-line revs $1.74B while now planning to grow capacity between 0% and 5% from 2019, lower than earlier forecast of growth between 11% and 15%, due to staffing shortages; UAL said it plans to offer even more flights across the Atlantic this summer than it did in 2019 in a strong indication that it sees international travel booming in the years ahead; Brazilian airlines GOL and AZUL both upgraded to Buy at Seaport Global

·     Packaging & Materials; PKG reported 1Q results above expectations with adjusted EBITDA of $467 million ahead of consensus by 5.6% as corrugated products or box shipments increased 2.9% year over year in the quarter; OI reported 1Q results well above expectations with EPS of $0.56 above consensus at $0.40, sales volume increased 6.4% y/y in the quarter, which was above guidance of up to 2% and raised the high end of its 2022 outlook; CULP said now expects Q4 net sales to be down significantly y/y and expects a consolidated operating loss in the range of $(6.5) million to $(7.5) million for the quarter

·     Chemicals; paint coatings co SHW Q1 sales of $5B topped the $4.9B estimate while notes Q1 consumer bands group segment profit decreased due to lower sales volume and supply snags; VNTR reached an $85 million cash settlement with TROX over a break fee from a failed chemical plant deal dating back to 2018; AXTA Q1 adj EPS $0.31 vs. est. $0.26; Q1 sales rose 10.4% y/y to $1.17B vs. est. $1.11B; sees Q2 sales up around 11%-13%; sees Q2 EPS $0.35-$0.45

Technology, Media & Telecom

·     Semiconductors; MX shares rise after a report says South Korea’s LX Group is looking to buy the U.S.-listed chipmaker https://bit.ly/3rRlCm1; not much in way of chip movers, but the SOX Philly index dropped below the 3,000 level on supply glut fears heading into earnings season; TXN to report earnings after the close tonight

·     Software, Hardware, Components & Services; MSFT to report earnings tonight; CALX reported a solid beat and raise, with 1Q22 revenue/NG EPS +4%/$0.02 ahead of consensus, respectively, and 2Q22 revenue guidance 6% ahead; GLW a bright spot in the S&P after top and bottom line results topped consensus while mid-point of guide slightly above views; Videogame industry sales slipped year-over-year for a fifth straight month in March, as overall sales slid 15% from March 2021, to $4.853 billion, according to NPD Group (EA )

·     Internet, Media & Telecom movers; GOOGL earnings tonight in the sector; a day after Elon Musk agreed to acquire TWTR for $44B, CNBC David Faber said today it could take 6 months to close deal; For PINS Evercore/ISI said SensorTower data shows March MAU -9% Y/Y in the U.S. (1-pt deceleration on a 1-pt tougher comp) and – 5% globally (3-pt deceleration on a 1-pt tougher comp), with Y/Y growth turning negative since November and the trend persisting through April to date; in towers, SBAC a slight 1Q22 beat and 2022 increased guidance, driven by very strong Services business and aided by better FX rates