Closing Recap

Friday, February 04, 2022

Equity Market Recap

·     Stocks push higher (slips off its best levels in final minutes paring gains) on a day full of macro news, earnings, and economic data that provided enough ammo for stocks to close out the week firmly in positive territory. The big stories today included: 1) AMZN earnings results boosting tech, rising over 15% and helping offset the disaster from FB earnings the day prior; 2) January nonfarm and private payrolls added 467K and 444K jobs respectively, well above the +150K consensus for both (with massive upward revisions for Nov and Dec), while average hourly earnings rose 0.7% last month, and 5.7% y/y basis; 3) Winter storms hitting various parts of the country, raising energy demand fears as oil prices rise a 7^th straight week to fresh 7-year highs; 4) global treasury yields rising to multi-year highs as central banks get more hawkish (BOE raises rates yesterday – FOMC expected to hike in March). The jobs data, while showing an improvement in the economy, also raised expectations that the Fed will need to step up their pace of rate hikes in 2022, with futures now pointing to 5-hikes this year and potentially a 50-bps hike at the upcoming March meeting. Morgan Stanley strategy note warned today the safety net of forward guidance from the Fed is gone just as earnings revisions and PMIs appear set to decelerate—an unattractive risk/reward. They remain sellers of rallies and of the view that S&P 500 fair value closer to 4,000 tactically.

·     Stocks & Sector movers: AMZN surges to lead the S&P after strong earnings driven by AWS growth and on news it will increase its Prime membership fee; SNAP also skyrockets over 50% after posting its first quarterly net profit with strong users numbers and guidance, while PINS jumps after its Q4 beat caps off its first profitable year as all three rebound from massive losses y’day following FB results; Other tech names moving after earnings include Unity (U) spiking on its beat and guidance ahead of estimates, BILL rallying over 33% on its breakeven qtr with robust revenues and guidance, NLOK among S&P leaders; MCHP drops and SWKS hits 52-week lows in semis; Ford (F) rolls to YTD lows, RCL slides after their EPS missed estimates, while CLX plunges to its lowest since August 2018 after it missed on EPS with a decline in sales and slashed its annual guidance; shares of other auto names, cruises, staples followed these names lower; banks BAC C JPM WFC outperform while homebuilders DHI KBH PHM stumble on rising Treasury yields – the 10-year yield rises above 1.9% for the first time since before the pandemic in January 2020.

Economic Data:

·     Jobs data for January very strong as nonfarm payrolls rose +467K vs. est. +150K, with huge revisions in Dec to +510K from +199K and Nov to +647K from +249K). Private sector also strong adding +444K jobs vs. est. +150K while Dec revised up to 503K from 211K. factory jobs added 13K, less then the 25K expected but Dec revised up to 32K from 26K. Unemployment rate edges higher to 4% from 3.9% while labor participation rate jumps to 62.2% from 61.9% in December. Big jump in wages to +0.7% m/m vs. est. +0.5% and jumped +5.7% y/y

Commodities

·     Oil a huge story today, as prices make it a 7^th straight week of gains, with WTI crude rising $2.04 or 2.26% to settle at $92.31 per barrel (off earlier highs of $93.17) as a winter storm in the United States fueled concerns over supply disruptions. Note the average price of gasoline surged to the highest in more than seven years, as commodity price inflation the latest challenge for consensus. The weekly Baker Hughes (BKR) rig count showed the total count rose 3 to 613, with oil rigs up 2 to 497 and gas rigs up 1 to 116.

·     Gold posts its 3^rd positive week in the last four, rising 1.22% the last 5-days after settling at $1,807.80 an ounce on Friday, up about $3.70 (up 4 of last 5 sessions due to softening dollar); silver rises 0.78% on the week at $22.475 and copper rises over 4% this week to $4.4835 per lb.

Currencies & Treasuries

·     U.S. Interest rates futures imply around 5 hikes in 2022 after U.S. jobs data this morning blew away estimates, as rate futures show 34% chance of 50 bps hike in March post-payrolls, up from 18% just before data release. Odds are now for 75 bps in hikes total by June FOMC meeting. Big jump for Treasury yields with the benchmark 10-year hitting highs just shy of 1.94% vs. 1.825% Thursday, the shorter-term 2-year (most impacted by Fed moves) jumped 10 bps to 1.3% (highest since Feb 2020), the U.S. 3-year yield rises as much as 11 bps to 1.53% and the U.S. 30-year yield extends climb to 2.22%, highest since June.

·     It was a big “risk on” day for crypto following two weeks of underperformance/depressed levels as Bitcoin hits two-week highs, rising over 9% to $40,400 at highs while Ethereum jumps over 10% to near $3,000. The U.S. dollar rebounded off 2-week lows of 95.13 this week, getting a boost after better jobs data raised expectations the Fed will pick up the pace of interest rate hikes in 2022, with Fed futures now fully pricing in 5 rate hikes, with chances for a 75 bps move in total by the June meeting. However, the buck looks to close the week lower by more than 1.5%

Sector News Breakdown

Consumer

·     Retailers; AMZN surged 15% after the co Q4 revs of $137.4B was in-line w views but above $125.6B y/y as profit rose to $14.3B from $7.2B y/y – shares rise despite seeing op income between $3B-$6B below the $8.9B y/y (also boosted its Prime membership by $20 per year); SKX with strong Q4 results, liftin shares as Q4 adj EPS $0.43 vs est. $0.33 on revenue $1.65B vs est. $1.55B and guided Q1 sales above views along with a $500M share buyback; COLM posted a beat for Q4 EPS and sales driven by strong consumer demand and a favorable full price selling environment, while FY22 EPS $5.50-$5.80 tops est. $5.50 on better revs; KSS rejected a $9 billion takeover offer by an activist group for being too low, but said it would review other expressions of interest in the department-store chain – also adopted a poison pill, that makes it difficult for an activist group to acquire more than 10% of the company; DECK another move on earnings; BJ upgraded to Buy from Hold at Deutsche Bank following the stock’s ~10% pullback

·     Auto sector; Ford (F) shares tumble as reported a strong profit for 2021 and issued an upbeat forecast for this year, but posted Q4 EPS that missed estimates (EPS $0.26 vs est. $0.45, on revs $37.7B vs est. $35.5B); Morgan Stanley said auto investors they speak to still struggle with the idea that TSLA could ever be bigger than either GM or Ford. We expect Tesla revenues to be larger than GM + Ford (combined) by 2027; HTZ confirmed its named Stephen Scherr as CEO who spent three decades at GS and departed the CFO role last year

·     Consumer Staples; CLX shares tumble after missing Q2 profit estimates and sales dropped 8%, hurt by increased cost pressures and lowers FY22 adj EPS view to $4.25-$4.50 from $5.40-$5.70; SPB 1Q EPS ($0.06) vs est. $0.17 on sales $757.2Mm vs est. $728.2Mm; expects $310-330Mm additional inflation in 2022, intends to offset with additional pricing; BRBR Q1 EPS 25c vs est. 22c on in line revs. EBITDA $59.8mm vs est. $58mm, 8.5% sales growth vs est. 6.8% on stronger than expected price growth and reiterated both its sales and EBITDA forecast; POST Q1 EPS 29c vs est. 42c on in line revs. EBITDA $263mm vs est. $254mm. GM 25.8% vs est. 26.8%; EL upgraded to Buy from Neutral at Citigroup and raise tgt to $374 from $355 after stock has pulled back 20%+ YTD, primarily reflecting concerns about a slowdown in China and higher investment spending

·     Casinos, Gaming, Lodging & Leisure sector; RCL posts bigger-than-expected loss in Q4, misses revenue estimates saying Omicron created short-term operational challenges that have weighed on close-in bookings; in gaming, PENN upgraded to Hold from Sell at Loop Capital after positive FCF generation, new buyback, and bad news priced in, while Roth Capital downgraded to Neutral saying less attractive outlook; in earnings BYD with modest beat across the board as prop EBITDA $370m Bofa $360m, prop margins 42.1% which is -70bps sequentially but better than Bofa -140bps; in leisure, LESL beat on adj EBITDA and raised guidance across the board

Energy

·     Energy stock movers; energy related stocks were among the top gainers (APA, MRO, HES, OXY) in the S&P 500 today after crude prices hit fresh seven-year high. Big news in solar today as the Biden administration extended the tariffs on imported solar equipment (like RUN) but left in place an exemption for imported two-sided, or bifacial, panels (bad news for FSLR). The tariffs had been scheduled to expire in early February and will now run for another four years, under Biden’s proclamation. Former President Donald Trump introduced the tariffs in 2018. The decision is a victory for solar installers who had sought to have the tariffs removed or narrowed in scope to help lower the price of solar energy compared with alternatives. But it is a blow to domestic solar manufacturers who said the tariffs were necessary to create a level playing field against the Chinese competitors. FSLR responded in a tweet saying it was deeply disappointed in @POTUS’s decision to exclude bifacial panels from the Section 201 safeguard extension.

Financials

·     Banks movers; strength in banks, insurance and the like after monthly January jobs came in well above estimates, boosting expectations that the Fed will have to speed up its rate hikes, with futures now indicating the likelihood of 5 hikes this year while U.S. Rate futures show 34% chance of 50 bps hike in March post-payrolls, up from 18% just before data release.

·     In stock news, LAZ downgraded to MP at KBW despite its Q4 topping expectations as a fresh monthly record outflows in asset management outweigh outperformance elsewhere; LPLA Q4 adj EPS $1.63 vs est. $1.51 on revs $2.1B vs est. $2.08B and Citi raised their street-high PT to $258 as one of their top picks after the beat; Citi lowered its PT on SCU an after a board of directors member resigned over allegations of numerous corporate governance issues associated with the compensation structure for the current CEO; CLSA double-downgraded JHG to Underperform from OP despite its Q4 beat as net funds flow deteriorated in the quarter and they see net outflows likely continuing; CBOE Q4 adj EPS $1.70 vs est. $1.54 on total revs $866.4M vs est. $853.8M, sees Q4 organic net rev growth +5-7%; PFSI Q4 EPS and revenue missed expectations after declining from last year

·     Insurance; HIG Q4 core EPS $2.02 vs. est. $1.52, net income ROE for the trailing 12 months of 13.1% and core earnings ROE for the same period of 12.7%, book value per diluted share +8% YoY; PRU Q4 adj EPS $3.18 vs. est. $2.36, raises dividend 5c to $1.20, adjusted book value per Common share +14.7% YoY; RGA Q4 adj EPS ($0.56) vs est. $0.77, net premiums $3.407B vs est $3.38B, says global estimated covid impact of ~$3.95/shr; SIGI reported Q4 operating EPS of $1.56 vs. est. $1.41 driven by alternative investment results; AON Q4 adj EPS $3.71 vs est. $3.33 on revs $3.08B vs est. $3.15B, adj operating margin 32.8% v est. 31.8% up from 26.9% YoY

·     REITs; CPT Q4 FFO $1.51 vs est. $1.50, raised its div to 94c from 83, sees Q1 FFO $1.45-$1.49 vs est. $1.49 and EPS 38-42c vs est. 42c, midpoint of FY FFO view matches consensus but full EPS range below consensus; CUZ Q4 FFO in-line 69c on rev $190.1M vs est. $186.5M, sees FY22 FFO $2.70-2.78 vs est. $2.76

Healthcare

·     Biotech, Pharma movers; VNDA falls after reports results from the phase 3 study of Tradipitant in gastroparesis, as did not meet primary endpoint which was the difference between the drug and a placebo on the change of the severity of nausea from baseline at week 12 of treatment; BMY 4Q adj EPS $1.83 vs est. $1.80 on revs $11.99B vs est. $12.04B (Revlimid $3.33B, Opdivo $1.99B); guides FY22 revs about $47B vs est. $47.2B (Revlimid $9.5-10B), sees adj EPS $7.65-7.95 vs est. $7.86; announces $15B repurchase authorization; REGN reported results with Eylea and COVID antibody revs preannounced, while Libtayo, Praluent and collaboration revs light of consensus; EPS was solidly ahead $23.72 (vs. $20.40 cons) and guides GM’s to 90% to 92%

·     Healthcare Services & MedTech Equipment; AVTR 4Q revenue of $1,908mn beat consensus of $1,899mn while 4Q EPS of $0.36 beat consensus of $0.33 as total revenue growth of 7.9% came in above consensus of 7.4%; after earnings this week, Deutsche bank downgraded CI to Hold from Buy saying it appears to lack a catalyst for multiple expansion and lacks exposure to end markets that can produce meaningful earnings upside – and also downgraded MCK to Hold as next meaningful datapoint on MCK shares will be the F2023 guidance

Industrials & Materials

·     Materials, Industrials, Aerospace & Defense; GD upgraded to EW from UW at Morgan Stanley with $215 tgt by placing a ~15.5x multiple on base case 2023E EPS of $13.85 – said see a ~17.4x business jet multiple as warranted given new visibility into growth at Gulfstream; KPLUY said that 2021 earnings and cash flow beat previous outlook and expectations on higher agriculture prices and a better-than-planned one-off effect; said sees FY EBITDA came to 960M euros, above prior outlook of EU830M and consensus EU 863M (and EU 266.9M y/y) – positive for U.S. potash names MOS, NTR, IPI; MT plans to invest 1.7 billion euros ($1.95 billion) to accelerate the decarbonization of its Fos-sur-Mer and Dunkirk steelmaking sites in France by 2030; APD falls Q1 adj EPS $2.52 vs. est. $2.51; Q2 revs $2.99B vs. est. $2.74B; backs FY22 adjusted EPS view $10.20-$10.40 vs. est. $10.36; sees FY22 capital expenditures $4.5B-$5B

·     Transports; Dow Transports underperform today, down 2.3% or 360 points to 15,100 level – falling below its 200-day MA support today (at 15,345) – all 20 components were trading lower late morning led by ODFL, MATX, but no place to hide in rails, airplanes or truckers; UNP said to buy back shares up to 100m; KNX raises its dividend; in research, SKYW downgraded to OP from strong buy and MESA cut to market perform from outperform at Raymond James reflecting regional airline industry headwinds

Technology, Media & Telecom

·     Internet; SNAP shares helping the social media space rebound on good earnings after yesterday’s broad sell-off on disappointing FB results/guidance, as Q4 results topped views as Q4 DAU up 20% y/y to 319M vs. est. 316M and guides Q1 revs $1.03B-$1.08B vs. est. $1.02B; PINS another name rebounding after delivered its first annual net income as strong advertising revenue drove its Q4 results past expectations; FB with a late day rebound as investors look to buy shares of the beaten up social media giant after falling over 2% on Thursday

·     Semiconductors; MCHP reported F3Q results and gave F4Q guidance slightly ahead of expectations with strong FCF; SYNA reported Q2 results that beat expectations and gave a revenue forecast that is seen as stronger than expected; SWKS reported an inline quarter and outlook came in better than feared while Gross margin of 51.0% increased 40bps from the prior quarter and was at the low end of guidance (51-51.5%)

·     Hardware, Software movers; BILL shares jumped over 30% overnight as 2Q adj EPS $0.00 vs est. ($0.18) on revs $156.5Mm vs est. $131.1Mm on better guidance; Unity Software (U) as earnings and revs tops estimates though widened its loss – revs climbed 43% to $315.9M, exceeding the high end of guidance; in security software, FTNT Q4 EPS and revs beat which featured a continuation of very strong results, but perhaps more surprisingly, FY22 guidance was bullish; TTWO rises as Rockstar Games confirms that it’s hard at work on the next version of Grand Theft Auto; GPRO Q4 EPS easily topped views while subscriber count ended 2021 at ~1.6M, up 107% y/y, but guided Q1 revs $210M-$220M vs. est. $235.5M; BHE reported better results/guide; VIAV rises on revenue beat and guidance above views

·     Media & Telecom movers; few earnings results as LGF Q3 adj EPS $0.02 vs. est. $0.01; Q3 revs $885.4M vs. est. $891.92M; adjusted OIBDA was $91.6 Million; global streaming subscribers grew 44% y/y to 19.7M; NWSA Q2 EPS $0.44 vs. est. $0.31; Q2 revs rose 13% to $2.72B vs. est. $2.63B; Digital Real Estate Services segment revenues grew 35% in the quarter; News Media Segment EBITDA in the quarter grew 68%; WWE rises after 4Q adj EPS $0.70 vs est. $0.53 on revs $310.3Mm vs est. $325.9Mm; guides 1Q adj OIBDA $90-100Mm and FY22 adj OIBDA $360-375Mm: TGNA jumped midday on report its in advanced talks for a sale for about $24/share to Standard General https://bit.ly/3sfJT4w