Closing Recap

Thursday, February 03, 2022

Equity Market Recap

·     The four-day win streak for major averages stopped dead in its tracks, with the S&P 500 falling as over 2.4% back below the 4,500 level (200-day MA support lower at 4,440), while the Nasdaq tumbled over 3.7% as Meta (FB), one of the largest components in the Nasdaq 100 (NDX) tumbled over 25% after its earnings miss and lower guidance – severely impacting shares of other social media, digital advertising, and Internet stocks. Ten of 11 S&P sectors are lower, with Info Tech and Consumer Discretionary the other big decliners, Consumer Staples was the only gainer, while several utility stocks touched 52-week highs today (D, ED, CNP, NI, PEG). Smallcaps continue to exhibit pain as Bespoke noted there are 12 times as many stocks in the Russell 2000 down 20% YTD (545) as there are up 20% (45). Concerns for big tech remains ahead of Amazon (AMZN) results tonight after the close, but not much being mentioned about the upcoming Jan payroll figures tomorrow AM (after the surprise ADP miss Wed of -301K jobs vs. est. +207K) – as both the Nonfarm and private payrolls expected to rise +150K and unemployment to hold steady at 3.9%, while wages are expected to increase +0.5% m/m and +5.2% y/y. As we are nearing the halfway point of earnings season, it’s a half glass full/empty sort of thing as revenues are coming in at record highs for lots of companies but slimmer profit margins at 12.7% vs. 13% prior and earnings beats have been far smaller and 2022 estimates not being raised (as noted by CNBC).

·     Stock & Sector movers: Tech underperforms after several companies report earnings – FB the story of the day after plunging over 25% due to a sequential decline in global DAUs for the 1st time with headwinds from AAPL privacy changes hampering its ad business and weighing on its Q1 guidance that was fully below consensus; SPOT also tumbles, hits lowest since May 2020 on its weak user forecast, and QCOM slipping despite its beat and stronger guide; fallout from the results above include social media getting hammered – SNAP sinks to lowest since Sept. 2020 ahead of its earnings tonight, PINS rolls to lowest since July 2020, TWTR weak; TTD gets hit in digital ad space; in digital music space, SQ (Tidal) WMG drop, while fellow big tech name AMZN stumbles into tonight’s report; managed care outperforms on the day as HUM UNH ANTM rise after the Centers for Medicare & Medicaid gave a proposed rate update for 2023 with the net increase for MA plan in 2023 well above investor expectations; CAH CI slip in the space after FY22 guides were below consensus; Pharma active after earnings – MCK record highs after its beat, BIIB dives to lowest since August 2013 on weak guidance due to minimal sales from its Alzheimer’s drug Aduhelm, LLY slides despite beat, MRK red on guidance below consensus; food and defensive staples rise behind HSY beat and raise, rotation out of growth.

·     Lot going on in the UK today as energy prices for millions will soar from April after a 54% hike to the regulatory price cap by regulator Ofgem, forcing the government to add 9 billion pounds ($12 billion) of fresh support for already cash-strapped households. The Bank of England also raised interest rates again by 25 bps on Thursday and said inflation would soon top 7%, leading to one of the biggest cost of living squeezes in recent decades. Four of the nine members of the Monetary Policy Committee wanted to raise interest rates by half a percentage point to 0.75%.

Economic Data:

·     Weekly jobless claims fell to 238K in latest week from 261K prior week and vs. consensus 245K; the 4-week moving average rose to 255,000 from 247,250 prior week; continued claims fell to 1.628M from 1.672M prior and U.S. insured unemployment rate unchanged at 1.2%

·     ISM Non-manufacturing sector shows PMI 59.9 in January vs. est. 59.5 and vs 62.3 in December; business activity index 59.9 in January vs 68.3 in Dec; prices paid index 82.3 vs 83.9 in Dec; new orders index 61.7 in vs 62.1 in December and employment index 52.3 vs 54.7 in Dec

·     Factory orders for December fell -0.4% vs. est. (-0.25) and vs. Nov +1.8%; factory orders ex-transportation +0.1% v. est. +0.8% and ex-defense +0.1% vs. Nov +1.6%

·     U.S. Q4 non-farm productivity jumped +6.6%, topping the +3.2% estimate and better than the Q3 reading of -5.0%; Q4 non-farm unit labor costs +0.3% vs. est. +1.5% vs. Q3 reading of +9.3%

·     IHS Markit U.S. Services sector final PMI for January at 51.2 vs flash reading 50.9 and final December 57.6; final input prices index for January at 71.9 vs flash reading 71.7 and final December 77.4; Composite PMI for January at 51.1 vs flash reading 50.8 and final December 57.0

·     Challenger, Gray & Christmas announced 19,064 job cuts in Jan., 76% lower than the 79,552 cuts announced in Jan. 2021; Health care sector announced the most job cuts, with 5,053, followed by warehousing, with 3,051

Commodities, Currencies & Treasury’s

·     Oil prices made a big push higher late day, with WTI crude topping $90 per barrel for the first time since 2014 (WTI crude rises $2.01 or 2.28% to settle at $90.27 per barrel). One factor cited for the jump late included reports of large scale cyberattack disrupts operations at oil terminals in North-West Europe Germany’s Hamburg and at least six other oil terminals in the Netherlands and Belgium (reports said “Black Cat” appears to be ransomware tied to attacks on Germany’s). Earlier this morning, an oil production vessel exploded off the coast of Nigeria early though it was not yet how much crude might have spilled into the sea.

·     Gold prices slip -$6.20 or 0.3% to settle at $1,804.10 an ounce, falling despite a sharp drop in the dollar and a pullback in stocks. Natural gas prices dropped 11.14% to $4.88 mln btu, erasing some of yesterday’s 16% advance driven by bets on weather, and on Europe’s energy crisis potentially impacting US supplies.

·     A huge decline in the U.S. dollar today (DXY fell over -0.6%), as the euro surged over 1% ahead of key monthly nonfarm payroll data tomorrow morning, while the 10-year yield hit highs above 1.84% before paring gains to 1.82% and the 2-yr was up 3 bps to 1.19% as spread widens. Jobs data likely to have a big impact on currency and bond markets tomorrow.

Sector News Breakdown

Consumer

·     Retailers; COST reported net sales of $15.76 bln for retail month of January, an increase of 15.5% from $13.64 bln last year; RL shares jump as net revs rose 27% to $1.82B topping ests and raises year rev view to 39%-41% from 34%-36% prior and announces stock buyback; OSTK added to Wedbush best ideas list noting it has established a niche by offering competitively priced home furnishings to ecommerce consumers; GPS downgraded at Barclay’s noting promotional analysis suggesting a negative inflection to year-over-year promos at Old Navy, Gap, and Athleta; GME announced it has entered into a partnership with Immutable X Pty Limited which establishes an up to $100 million fund in Immutable X’s IMX tokens; HBI with in-line Q4 results but EPS guidance falls short of views (FY22 EPS $1.64-$1.81 vs. est. $1.89) – announces buyback; BKE January comps +4.2% y/y and net sales +2.9% y/y to $64.9M; Q4 comps +20.0%

·     Auto sector; auto suppliers mixed after APTV posts Q4 revs of $4.13B vs $4.21B y/y, hurt by supply chain snags (but above ests $3.89B) while mid-point of year eps guidance below vies ($3.90-$4.80 vs. est. $4.56) –LEA, MGA, VC, VNE shares active in sympathy; ZEV and GM will collaborate on developing electric trucks for medium- duty commercial use; SLI shares tumbled over 20% after short seller Hindenburg Research alleged the co’s plan to produce lithium for electric vehicle batteries in Arkansas is based on technology that does not work

·     Housing & Building Products; AZEK Q1 adj EPS, EBITDA, sales top estimates, now sees stronger FY22 sales growth than before; FBHS Q4 adj EPS $1.32 vs est. $1.29 on sales $2B vs est. $1.9B, guides FY22 adj EPS fully above estimate, sales +5.5-7.5% vs est. +5.7%; CCS Q4 adj EPS $4.78 vs est. $4.07 on revs $1.21B vs est. $1.18B with record net new home contracts and homes in backlog; SKY Q3 EPS $1.18 vs. est. $0.74 on revs $534.7M vs. est. $499.2M, said near-term operating environment remains challenging due to ongoing disruptions in supply chain and covid-related labor headwinds; UBS upgraded PHM to Buy and NVR to Neutral post-Q4 due to stronger future EPS estimates driven by stronger pricing and margins

·     Consumer Staples; beauty products mixed as EL shares slip after guiding next qtr EPS $1.55-$1.65 below est. $1.92 citing industry-wide supply chain problems and higher raw material costs, but guided year sales to 13%-16% from prior 12%-15% rise; ELF Q3 sales and EBITDA top ests, as net sales were driven by increased strength in expansion across national and international retailers; HSY 4Q adj EPS $1.69 vs est. $1.62 on sales $2.3B vs est. $2.27B and guides FY22 adj EPS and sales above views (net sales +8-10% (driven primarily by list price increases) vs est. +5.4%); HAIN Q2 EPS $0.36 vs est. $0.33 and revs $476.9M vs est. $481.5M; EBITDA $59.3M vs est. $60.3M

·     Casinos, Gaming, Lodging & Leisure sector; PENN revs missed, Prop EBITDA missed, but FY22 online losses are better than expected (~$50m v prior $80-$100m) and says expects ‘meaningful’ EBITDA in 2023 (Canada not online yet but no NY) – co initiating $750m 3Y buyback and guiding a Revs + EBITDAR within consensus brackets; RRR Adj EBITDA ~190m v our $177m, Revs and property margins 48.5% v 47.7% last Qtr

Energy

·     Energy stock movers; An oil production vessel exploded off the coast of Nigeria early on Wednesday with 10 crew members on board though it was not yet how much crude might have spilled into the sea. The Trinity Spirit can process up to 22,000 barrels of oil a day and can store up to 2 million barrels at any one time – Reuters; energy stocks were broadly lower today

·     Utilities & Solar; FSLR downgraded to Neutral at Bank of America as it is increasingly likely that the Section 201 tariffs on bifacial panels will not be extended; Needham upgrades SEDG to Buy as its geographic and customer diversification shields the company from the outcome of CA NEM; After yesterday’s EXC spinoff of CEG, EXC was downgraded at Wells, RBC, and Vertical Research while CEG was initiated at OW by BMO and Wells; Note overseas, UK power regulator approves record price hike for power companies – has approved a rate hike of 54% to consumers starting April 1st – that follows an approved 12% hike this past October (can make adjustments every 6-months); in earnings, CMS Q4 EPS missed estimates while its revenue was better than expected and it raised the upper-end of its FY22 adj EPS guidance range; WEC posted a top and bottom line beat in Q4 while reaffirming FY22 earnings guidance; NRJ Q4 adj EPS missed

Financials

·     Bank, FinTech, Lending movers; Treasury yields move higher, helping pare early financial/bank related losses; PYPL shares touched lowest levels since May 2020, adding to yesterday -24.5% earnings related tumble, weighs on industry again (SQ, AFRM, GPN); in insurance; ALL Q4 operating EPS of $2.75 missed consensus of $2.77 as headline looks better than what the core result was due to strong investment income, and a lower tax rate (of 19.2%, better than our 20.0% estimate; LNC 4Q21 results missed Street consensus of $1.90 as operating results were driven by poorer underwriting results in Life Insurance and Group Protection segments

Healthcare

·     Pharma movers; MRK Q4 adj EPS $1.80 vs. est. $1.53 on revs $13.5B vs. est. $13.16B, sees FY22 adjusted EPS $7.12-$7.27 vs. est. $7.29 on revenue $56.1B-$57.6B vs. est. $56.64B; LLY Q4 EPS $2.49 vs. est. $2.18 on revs $8B vs. est. $6.88B, reaffirms FY22 guidance; RBC downgraded VRTX with shares +40% in 2.5 months to now trade at less of a significant disconnect to fair value

·     Biotech movers; BIIB Q4 bested expectations but FY22 profit outlook was well below estimates due to minimal sales from its Alzheimer’s drug Aduhelm; MRNS MAA for Ganaxolone in CDKL5 deficiency disorder will convert to a standard review and the EMA’s opinion on the MAA is now expected by the end of the year; Britain approved the NVAX Covid vaccine for those 18 and older; Guggenheim upgraded ALNY to Buy ahead of its Ph3 APOLLO-B readout in mid-2022 that has the potential to push shares to $200-210 on a primary endpoint win; MRSN announced a research collaboration and license agreement with JNJ (Janssen) to advance novel antibody drug conjugates; BCDA received FDA breakthrough device designation for CardiAMP cell therapy system for heart failure

·     MedTech Equipment; DXCM, PODD both upgraded to Buy in diabetes sector at BTIG saying both companies are embarking on new product cycles and continue to have meaningful market expansion opportunities. We also underscore both companies’ healthy balance sheets and profitability in the current volatile macroeconomic environment (DXCM tgt $535 and PODD $320); DGX slides as announces CFO to retire in 2022 and Chairman/CEO to remain through October 2022 – overshadows 4Q adj EPS and sales beat; CSII tumbles after results, guidance – due to Labor shortages and other constraints at hospitals overrun by patients with COVID-19 disrupted procedures with the company’s coronary artery disease systems; BDX rises early after raising FY 2022 guidance, strong FQ1 results

·     Healthcare Services; Managed care stocks were strong today (UNH, CNC, MOH, AGL) after the Centers for Medicare & Medicaid (CMS) gave a proposed rate update for 2023, as the net increase for MA plan in 2023 will be +4.48%, well above investor expectations of flat to -1% to +1%. Cowen said that “newly public MA pure-plays ALHC and CLOV will also be impacted” – Mizuho said HUM and UNH will be positively impacted the most (29% and 13% of MA biz respectively), followed by CVS (Aetna) ~12% of total medical membership then ANTM, CNC and CI; separately, CI reported earnings Q4 EPS $4.77 vs. est. $4.71; Q4 revs $45.69B vs. est. $43.88B; raises dividend; CAH 2Q adj EPS $1.27 vs est. $1.23 on revs $45.5B vs est. $45.6B; guides FY22 adj EPS $5.15-5.50 (was $5.60-5.90) vs est. $5.37, continues to experience significant inflationary impacts and global supply chain constraints on US medical products and distribution; MCK shares among early S&P leaders after its Q4 results

Industrials & Materials

·     Industrial & Machinery; shares of heavy-duty truckers CMI, PCAR, ALSN active after North American Class 8 truck orders fell to 21,400 vehicles in January y/y, which was the lowest in more than two months and the biggest monthly drop since Nov. 30, 2021; HON Q3 missed on revenues, while guided top and bottom lines lower for next quarter and the year on supply chain; ITW Q4 beat on the top and bottom line with its FY22 EPS guidance midpoint matching consensus; AME Q4 beat consensus but top-end of FY adj EPS guidance missed consensus estimates; GWW Q4 results and FY22 sales forecast were ahead of estimates; XYL 4Q adj EPS 63c vs est. 61c on revs $1.32B vs est. $1.31B but guidance was shy of expectations; FTV Q4 revenue was lighter than expected with a weaker Q1 view and FY22 adj EPS expected between $3-3.13 vs est. $3.10; Citi resumed SWK at Buy despite its slight Q4 miss due to solid FY22 EPS guidance

·     Metals & Materials; MP shares fell following a short call from Bonitas Research accuses the company of executing an "abusive transfer price manipulation scheme" with a Chinese partner https://bit.ly/34qvYAp in research, FNV upgraded to EW at Barclay’s and upgrades ERO and AEM to OW while downgrades FM to UW in mining stocks as remains Neutral on the sector as a whole but recommend tactical rotation from late-cycle copper miners into gold names; BERY 1Q adj EPS $1.25 vs est. $1.36 on sales $3.6B vs est. $3.38B; reaffirms FY adj EPS $7.20-7.70 vs est. $7.40 and FCF $900Mm-1B; expects to repurchase at least $350Mm shares

Technology, Media & Telecom

·     Internet; FB tumbles, dragging the rest of social media names lower after posting its 1^st ever sequential decline in global daily active users (DAUs) for Facebook while also guided Q1 rev guidance to $27B-$29B or 3%-11% YoY growth, well below the $30.15B estimate (shares of PINS, SNAP, TWTR all tumbled in sympathy); SPOT declined after quarterly results and its forecast of weaker than expected Q1 subscriber numbers; digital advertising companies tumbled behind weaker FB results/guidance, hitting TTD, APPS, PUBM, MGNI

·     Semiconductors; QCOM posted strong Q4 earnings and gave an upbeat sales outlook, as it generated $10.7 billion in sales and $3.4 billion in net income in the most-recent quarter, surpassing Wall Street expectations; QRVO reported in-line DecQ and MarQ guide at $1.15B/$2.94/52% (consensus $1.15B/ $2.87/52.3%) and guided MarQ Mobile flat q/q, (vs QCOM QCT up ~2% q/q, RF flat q/q) with volume phone launches and better supply; FORM posted another quarter of solid results although the guide was below expectations due to supply constraints and covid-related labor shortages

·     Hardware, Components & Services; A flaw in AAPL’s software exploited by Israeli surveillance firm NSO Group to break into iPhones in 2021 was simultaneously abused by a competing company, according to five people familiar with the matter – Reuters; LITE shares tumble after Q3 forecast of $1.01-$1.19 for EPS misses the $1.36 estimate saying revs negatively impacted by more than $65M due to supply shortages; DXC delivered a better all-around quarter highlighted by strong FCF generation and guides FY adj EPS $5.00-5.25 vs est. $3.67along with buyback news; LSPD slips after reported 3Q eps light, revs better named new CEO, guide is in line and a touch higher for the FY

·     Media & Telecom movers; TMUS posted higher Q4 revenue and total net customer additions of 1.8M, up from 1.7M y/y while logged $422M in Q4 net income, but down from $750M y/y due to a planned increase in merger-related costs; NOK reinstated its quarterly dividend, launched a share buyback program and introduced new, long-term goals; Q4 fell 2% to EUR6.41 billion from the same period in 2020, missing expectations of EUR6.51 billion; PLTK and RBLX shares each fell following “short” report calls from Grizzly Research and BearCave respectively this morning; for CMCSA NBC said that it sold "multiple spots" for a record-high $7 million per 30-seconds for this year’s Super Bowl.