Market Review: December 22, 2021

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Closing Recap

Wednesday, December 22, 2021





DJ Industrials




S&P 500








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Equity Market Recap

·     Stocks surge into the close and finishing at the best levels of the day after a tentative open, with sentiment boosted by better-than-expected economic data, including the highest consumer confidence since July and a slightly better GDP reading. Some factors leading stocks higher into the final weeks of the year (and putting last week’s sell off in the rear-view mirror) include data showing the Omicron Covid variant being more contagious – but less dangerous – easing fears of shutdown/lockdowns (though Europe has gotten stricter), supply chains appear to be easing with less worries about inventory, inflation fears not impacting markets (for now) despite the Fed upping its timeline to taper assets and up interest rates, while the consumer remains strong/economic data improves. Oil prices settled near 4-week highs, on track for a 10% gain in December while gold prices moved back above the $1,800 an ounce level. A generally quiet news day heading onto the Christmas holiday weekend.

·     Stock & Sector movers: PAYX soars to record highs after its beat-and-raise report, KMX slumps despite revenue $1B above estimates, among worst S&P performers with CTAS despite its beat/raise; BB rolls early but pares losses after posting a breakeven qtr vs an expected loss; fertilizer stocks MOS, NTR, CF outperform as potash prices hit 13-year highs after U.S. sanctions on Belarus; PFE rises after the FDA authorizes Paxlovid, its oral antiviral Covid treatment; other vaccine names MRNA, NVAX, BNTX another leg lower on the news and on reports that Walter Reed researchers are set to announce human trials of its single vaccine showed success against all variants; BABA sinks after regulators reportedly suspended a contract with its subsidiary over cybersecurity concerns; TSLA jumps to hit $1K again after Elon Musk said he has sold enough stock to fulfill his goal of selling 10% of his stake; CAT climbs on a Bernstein upgrade.

·     Out of Washington DC, conversations with Senator Joe Manchin’s office will continue, the White House said on Wednesday after rejected the president’s Build Back Better plan earlier this week in its current form. White House press secretary Psaki said there was still broad agreement among President Biden and fellow Democrats to enact the legislation targeting social benefits.

·     Interesting Stat: A record of 39 million options contracts have traded daily on average this year, rising 35% from 2020, according to Options Clearing Corp. Retail investors account for more than 25% of total options trading activity, due to easy access via commission-free online brokers, CNBC reported


Economic Data:

·     U.S. 3Q Final GDP +2.3% vs. prelim GDP +2.1%; 3Q Final PCE Price Index +5.3%, in-line with prelim +5.3%; 3Q Final Core PCE Price Index +4.6% vs. prelim +4.5%; Consumer Spending +2.0% vs. prelim +1.7%

·     Existing Home Sales for November rises 1.9% at 6.46 mln unit rate above consensus 6.52 mln and vs. Oct 6.34 mln; inventory of homes for sale 1.11 mln units, 2.1 months’ worth; the national median home price for existing homes $353,900, +13.9 pct from Nov 2020

·     December consumer confidence index 115.8 (consensus 110.8) vs November revised 111.9 (previous 109.5); consumer expectations index 96.9 in Dec vs Nov revised 90.2 (previous 87.6)



·     Oil prices rise, with WTI crude up $1.64 or 2.31% to settle at $72.76 per barrel extending its December rebound after falling over 20% in November following Omicron-fueled global demand concerns. However, prices are on track for a near 10% bounce so far this month as variant fears fade and as some analysts see a return-to-normal year and the end of the pandemic. Inventory data earlier this morning was mixed with a larger-than-expected drawdown for crude stockpiles (bullish) but larger builds in gasoline (bearish).

·     Gold prices rise $13.50 or 0.8% to settle at $1,802.20 an ounce, snapping its 2-day decline as the dollar was mixed. Gold prices have failed to bounce despite lingering concerns over the Omicron coronavirus variant, but investors looking for haven plays heading into the new year amid inflation concerns. Palladium prices rallied with silver as well.


Currencies & Treasuries

·     Treasury yields were down slightly after rising on Tuesday, with the 10-year yield falling to around 1.46%, off earlier highs of 1.485%, while shorter-term 2-yr yield little changed at 0.67%. No FOMC comments expected through the end of the year after its “hawkish” outlook on rates last week at the FOMC meeting – but has not influenced rates or the dollar to the upside despite speeding up asset tapering and seeing 3 hikes in 2022. The U.S. dollar shrugged off the GDP revision, which was revised to a higher than expected 2.3% versus the expected 2.1% as the buck declined. EUR-USD sits near session highs at 1.133, while USD-JPY is steady near 114.20.






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10-Year Note





Sector News Breakdown


·     Retailers; sector mixed again with large caps WMT, TGT underperforming again, while specialty and department stores rising; Cowen lowered tgt prices on UAA to $30 from $35, DKS to $145 from $180 and ADDYY to €289.00 from €318.00 after analysis of Digital traffic & search highlight Holiday 2021 share gainers and those that lagged as it relates to traffic and search interest (said view DECK, RL, LULU valuation contraction in contrast to inbound data); n auto retail, KMX total retail used vehicle revenues increased 52.9% in Q3 due to an increase in the average retail selling price, which rose nearly 31% together with the growth in retail used units sold, as Q3 EPS/revs beat; WSM was upgraded to a Buy from a Hold rating at Loop Capital as it remains the nation’s premier multi-brand, omnichannel retailer.

·     Casinos, Gaming, Lodging & Leisure sector; among top S&P gainers are the “reopen” trades, surging for a 3rd straight day early, with travel, leisure, casinos, cruise lines again pushing higher despite surging Omicron variant cases around the globe, leading to several European countries with tighter restrictions to gatherings (shares of RCL, CCL, EXPE, HLT, MAR jumping)



·     Inventory data showed the American Petroleum institute (API) reports that crude inventories fell 3.67M barrels last week and gasoline inventories rose 3.7M barrels, and a decrease in distillate inventories of 800K barrels. The EIA showed a larger-than-expected draw or crude inventories to -4.7M barrels vs. -2.8M consensus, while gasoline stockpiles jumped +5.5M barrels vs. +0.5M consensus and Distillates +0.4M little changed vs. consensus



·     Bank movers; VOYA is joining the S&P MidCap 400 index, to replace COR at the opening of trading Dec 28; in FinTech & Payments; PAYX raises FY22 adjusted EPS view to up 18%-20% from up 12%-14% and boosts FY22 revenue view to up 10%-11% from up 8% after Q2 EPS of $0.91 topped $0.80 est. on revs rising 13% YoY to $1.11B vs. est. $1.06B

·     Consumer Finance & Lending: U.S. President Joe Biden says extending pause on student loan repayment an additional 90 days; LC was assumed at Outperform and $40 tgt at Wedbush based on the company’s high expected growth, better credit quality than peers, and reasonable valuation; Piper with several changes in card/consumer finance and lowered tgt to $108 from $127 on AFRM and cut ALLY tgt to $53 from $59 saying they would be buyers of most consumer lending stocks ahead of 4Q21 earnings season noting they now trade near the low-end of their historical P/E range despite some positive near-term credit trends and accelerating loan growth (note shares have pulled back in space as worries about increasing credit losses combined with a flatter yield curve have pressured consumer lenders)



·     Pharma movers; PFE extends record gains after the FDA authorized co’s antiviral drug Paxlovid, making it the first drug for COVID-19 that can be taken at home; MRK and privately held Ridgeback Biotherapeutics said the UK government has ordered an additional 1.75 million courses of their COVID-19 antiviral molnupiravir. The new order brings the total ordered by the UK government to 2.23 million courses; However, France has cancelled its order for MRKs COVID-19 antiviral drug following disappointing trial data and hopes instead to receive PFE’s competing drug before the end of January; NVS agreed to acquire Gyroscope Therapeutics, a UK-based ocular gene therapy company for up to $1.5 billion

·     Biotech movers; ALLK shares plunged over 80% after it did not achieve statistical significance on top-line results for its Phase 2/3 KRYPTOS trial in EOE and Phase 3 ENIGMA-2 trial in EG/ED; BIIB slips as the Japan health ministry says inconsistent trial results make it difficult to determine efficacy of Alzheimer’s treatment Aduhelm developed by BIIB and Tokyo-based Eisai Co; GILD announces clinical hold on studies evaluating injectable Lenacapavir for HIV treatment and prevention due to vial quality concerns

·     Healthcare Services and MedTech: ABT tgt raised from $134 to $150 at Raymond James saying durable enough to withstand covid pressures; CVS, WMT and AMZN among companies that have capped sales of at-home COVID-19 testing kits as demand surges due to spread of Omicron variant; MDT announced that the U.S. Centers for Medicare & Medicaid Services will expand Medicare coverage for all types of continuous glucose monitors, including adjunctive and non-adjunctive CGMs


Industrials & Materials

·     Aerospace & Defense; RCAT rises after saying its subsidiary Teal Drones has been awarded a customs and border protection contract worth up to $90 million over a five-year ordering period; AIR reported adj fiscal 2Q22 EPS of $0.53 with revenues of $437M as delivered its fifth straight quarter of margin improvement, and its adjusted operating margins are now ahead of pre- COVID levels according to RBC Capital; the FAA proposes directive to address Boeing (BA) 777 engines with Pratt & Whitney engines like one involved in emergency landing in February- Reuters

·     Metals, Industrial & Machinery; AGCO downgraded to Market Perform from Outperform at Bernstein, while the firm upgraded CAT and PCAR to Outperform saying concerns about the end of the machinery cycle in 2022 are overdone; MSM Q1 adj EPS $1.25 vs. est. $1.19; Q1 revs rose 9.9% to $848.5M vs. est. $838.9M; see low double-digit ads growth as a possibility for fiscal 2022; TX offers to acquire from its subsidiary Ternium Argentina a 28.73% participation in Ternium Mexico that the firm does not own directly for $1B; in ag fertilizers (NTR, MOS, CF), stocks jumped as Reuters noted global potash prices are set for an extended rally after the U.S. imposed sanctions on major supplier Belarus Potash Company

·     Transports; Maersk agreed to buy Hong Kong-based LF Logistics for $3.6 billion in an all-cash deal, as it seeks to expand beyond its core ocean freight business; RYAAY lowers F.Y. Guidance as Omicron variant weakens Christmas traffic as January capacity is cut by 33% and sees FY net loss 250-450 mln euros and FY traffic just under 100m passengers


Technology, Media & Telecom

·     Internet; AMZN shares dropped midday on reports federal investigators have contacted companies about its AWS unit, as per Bloomberg; BABA slips after reports Chinese regulators have reportedly suspended a contract with subsidiary Alibaba Cloud over accusations that it failed to address a cybersecurity vulnerability; FSLY said saw increased errors across multiple customers with origins in a common cloud provider, unrelated to Fastly’s edge cloud network; TikTok topped Google as the most visited website in 2021 – New research shows video-sharing app first topped the charts in February and has generally stayed No. 1 since August, according to Cloudflare

·     Semiconductors; CAMP shares tumbled as Q3 adj EPS loss (-$0.08) vs. est. $0.08 and Q3 revs fell -12% to $69M vs. est. $77.6M citing ongoing supply constraints; MX authorizes repurchase of up to $75M of the company’s common stock; South Korea’s SK Hynix Inc. said that it had received merger clearance from the Chinese antitrust authority for its acquisition of Intel Corp’s NAND memory chip business (which moved shares of XLNX which is waiting for China’s antitrust regulator to rule on its planned sale to AMD); RKLY downgraded to Neutral from Buy at Bank America and cut tgt to $6 from $14 noting the company pulled out of a prior non-core, telecom application related JV with a Chinese customer who was added to the US government entity list (RKLY guided FY22 revs $25M-$30M vs. est. $59.1M)

·     Software movers; BIGC upgraded to Outperform from Neutral at Wedbush as see the pullback in shares creating a strong buying opportunity with valuation now de-coupled from the strong long-term opportunity, and paired with near-term catalysts that should lead to better-than-expected growth; SKIL acquired Codecademy for approximately $525M, comprising of approximately 40% cash and 60% equity; SNPS chosen by JNPR to accelerate development of photonic ICS for next-gen data centers; SEAC surges after short video app Triller agreed to go public through a merger with the company in a deal that will value the combined entity at around $5 billion, the companies said; HUBS slips after Kerrisdale Capital “short call” saying trading at 20x fwd rev, HUBS benefited from a one-time COVID boost that lifted shares 6x. But fierce competition & stale products will lead to low growth / margins, long before the biz grows into its sky-high valuation

·     Hardware, Components & Services; BB Q3 adj EPS flat vs. est. loss (-$0.07); Q3 revs $184M vs. est. $177.25M; sees Q4 revs $175M-$190M below est. $208M; Citigroup said KEYS, MSI top Telecom & Networking stock picks for 2022 for large cap and CIEN for Midcap noting KEYS should benefit from semi cap equipment new buildouts, edge computing, and new automotive electronic complexity growth. MSI should benefit from first-responder upgrades using more technology plus government stimulus reaching to enterprises, government, and education. Ciena should benefit from optical buildout share gains, with India returning to growth.


Market commentary provided by Hammerstone Markets, Inc, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.

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