Closing Recap

Friday, January 21, 2022

Equity Market Recap

·     An absolute bloodbath for U.S. stock markets this week, as the Nasdaq is off to its 3rd worst start to a year in its history (Nasdaq posting its worst week since March 2020 down around 7.5%, and S&P worst week since October 2020 down over 5.6%). So far month-to-date, the Nasdaq is down over 12%, led by a 13% drop in the SOX index and mega cap FANG weakness (AMZN, FB). The Smallcap Russell 2000 is down over 10% MTD and the Dow 5.7%. In subsectors, the Biotech ETF down over 15.5% with very few places for investors to run and hide. Largest market caps hitting new 12-month lows today included: DIS, NFLX, PYPL, TMUS, SHOP, CHTR, SE, SQ, RIVN, COIN, ZM, NIO. Netflix (NFLX) inflicted major damage on high growth tech sentiment as guidance overnight disappointed, with sub numbers below views crushing the name. Consumer staples such as household products/food names one of the few sectors to rise today, while investors rotate back into treasuries, sending yields lower after touching 2-year highs earlier this week. After breaching its 200-day moving average (MA) earlier this week for the Nasdaq, the S&P 500 followed suit today, dropping below 4,430 level (last time below 200-day MA was June 2020) while the Russell 2000 approaches Bear market territory, defined as a 20% drop from all-time highs. Markets being tested ahead of next weeks FOMC meeting, where the rhetoric from Fed members has been overly “hawkish” on rates, calling for hikes between 3 or 4 times in 2022 to fight off inflation getting further out of hand. The change in their stance the last few weeks has caught investors and markets by surprise, running for the exits in high growth stocks.

·     Stock & Sector movers: NFLX craters more than 20% to trade below $400 for the first time since May 2020 after its earnings report includes weak forecasts for profit, revenue, and subscribers to prompt several downgrades; other streaming names ROKU, DIS, FUBO also dragged to 52-week lows; PTON rebounds after issuing improved adj EBITDA guidance and calling yesterday’s production halt report false to recover about half of yesterday’s losses on the news; SIVB, HBAN, ALLY latest financial names to slide in reaction to quarterly earnings while TCBI jumps; crypto space rolls with Bitcoin hitting 5-month lows and Ethereum hitting lowest levels in almost 4 months; COIN hits record lows, RIOT 52-week lows, MARA, SI sink as well; recent IPOs also a area of weakness with RIVN, HOOD, FIGS, ONON, CPNG all hitting record lows; defensive consumer staples a place to hide today, with CLX, MDLZ, CL, CHD among top gainers in the S&P 500.

Commodities

·     Oil prices slide back-to-back days after hitting 7-year highs earlier this week, with WTI crude down -$0.41 or 0.48% to settle at $85.14 amid an unexpected rise in U.S. crude and fuel inventories while investors took profits. Despite the pullback in oil prices today, WTI crude rises for a fifth straight weekly gain, up over 1% and brings its YTD advance around 10% on concerns over tightening supplies. Markets getting even more bullish on oil as Bank of America said it sees Brent crude rising to $120 in mid-2022 – recall earlier Morgan Stanley said it expects Brent crude oil prices to advance to $100 a barrel in the second half of this year.

·     Gold prices slip on Friday but close out the week with a modest +0.8% gain as investors rotate into “haven” assets as stocks post their worst weekly return in months. Gold declined -$10.80 or 0.6% to settle at $1,831.80 an ounce on Friday after failing to break above the $1,850 an ounce level. Gold edged higher for a second consecutive week on Friday as inflation and geopolitical risks underpinned its safe-haven appeal Silver with its best week since May, up around 6% while palladium jumped over 12%, its best week in 2-years. Focus now turns to next week’s FOMC meeting where expectations are for them to talk about tightening policy at faster pace.

Currencies & Treasuries

·     An absolute wild week for Treasury’s and currencies as investors position themselves ahead of next week’s FOMC meeting. The dollar index (DXY) rises about 2% over the last 5-days, getting a boost on rising interest rate hike expectations by the Fed. The Russian Rouble extends losses, falling to 9-month low vs the greenback following high-level talks between Moscow and Washington to discuss soaring tensions over Ukraine. Bitcoin crashed 10% to a six-month low below $38,000 this morning and Ethereum 4-month lows below $2,700.

·     Treasury yields finish the week at the lows after what looked like a breakout to multi-year highs at the beginning of the week. The 10-year yield hit 2-year highs above 1.9% this week and the 2-year above 1% but came crashing down the last few sessions as investors look to safety of bonds with stocks crashing below key technical levels. The 10-year yield fell to 1.75% today,

Sector News Breakdown

Consumer

·     Retailers; PTON rebounds after yesterday’s plunge as the co reports prelim Q2 revenue $1.14B vs consensus $1.14B and EBITDA ($270M)-($260M) vs guidance ($350M)-($325M) and consensus ($332.5M) saying ending connected fitness subscriptions ~2.77M vs guidance 2.8M-2.85M and consensus 2.81M; UAA was upgraded to Buy at Citigroup with $29 tgt saying it is emerging from the pandemic in a much stronger position in North America with inventory clean, distribution rationalized, the brand identity more clearly defined; pockets of strength in retail today with names like NKE helping lead the Dow and hardlines like HD also strong

·     Auto sector; TM said Thursday that production at as many as 12 plants will be halted, beginning this week, that could bring down the month’s production by 47,000 vehicles (compares to the company’s target to build a record 800,000 vehicles in January 2022); rough week overall, with pullbacks in anything auto as F, GM, TSLA and other EV names tumble; GM to invest $6.5 billion at 2 Michigan sites for EV, battery production

·     Consumer Staples; a stellar day for defensive consumer products names such as CLX, CHD, MDLZ, CL as investors flock to safer assets; for KR, more than 8,000 workers at nearly 80 Kroger Co-owned King Soopers stores on Friday called off their strike after reaching a tentative deal with the U.S. retail giant; COTY upgraded to Buy from Hold at Davidson

Energy

·     Energy stock movers; Oil prices fell on Friday, pressured by an unexpected rise in U.S. crude and fuel inventories while investors took profits after the global benchmarks touched seven-year highs this week; Morgan Stanley said it expects Brent crude oil prices to advance to $100 a barrel in the second half of this year, with the market heading for a simultaneous "triple deficit" of inventories, spare capacity and investment; bank America sees Brent to $120 by mid-year

·     E&P and Majors; SLB Q4 adj EPS 41c vs est. 39c on revenue $6.23B vs est. $6.09B and said they see oil demand exceeding pre-pandemic levels by the end of the year, barring any Covid-related disruption; Goldman downgraded DVN to Neutral and upgraded AR to Buy; JPMorgan upgraded CDEV to Neutral and downgraded CPE to UW based on relative valuation metrics and their 2022 outlook for both companies; Several analysts raised their price target on BKR after yesterday’s earnings; Baker Hughes (BKR) weekly rig count rose 3 to 604 with oil rigs down 1 to 491 and gas rigs rising 4 to 113

·     Utilities & Solar; SPWR said it sees Q4 adjusted EBITDA at low end of prior guidance range and Q4 revs within prior guidance of $361M-$421M (est. $379.5M); to replace certain connectors within light commercial value-added reseller and commercial & industrial solutions; in alt fuels, Truist reiterates Buys on GPRE, REGI, AMTX, REX saying remain positive on the secular growth trends surrounding our alt. fuels & products group

Financials

·     Bank movers; a busy week of earnings in banking sector, with regionals mostly coming in better and large caps mixed as the GS miss early in week hit markets; HBAN and SIVB among biggest decliners today after earnings results; in FinTech & Payments; Deutsche bank slightly raised revenue and EPS ests. for V and MA primarily due to better-than-expected cross-border recovery and slightly higher domestic volumes despite Omicron; Fintech space pressured early with declines in SQ, PYPL, AFRM and others

·     Consumer Finance; ALLY reported a 5c beat for Q4 EPS at $2.02 vs. est. $1.97 on better revs, rising 11% YoY to $2.2B, but spending rose 7% amid a 21% spike in comp expenses on raises, while provision for loan losses were $210M vs. $102M YoY

·     Bitcoin news; COIN tumbles early along with weakness in other stocks leveraged to crypto/Bitcoin including MSTR, RIOT, MARA, SI, SQ, NCTY, OSTK, BITO as Bitcoin, Ethereum, others tumble – Bitcoin hit lows around $37,700, Ethereum below $2,800

Healthcare

·     Vaccine names; MRNA upgraded to neutral from Underperform and raise tgt to $180 from $135 at Bank America after being bearish for some time based on what we thought were overly optimistic Street assumptions on C-19 boosters; NVAX was initiated Outperform at Cowen saying it is entering the competitive COVID-19 vaccine market with a differentiated profile with improved tolerability compared to the mRNA options; BNTX tgt cut to $170 from $300 at UBS after taking a detailed look at mRNA pipelines and relative valuations, saying as enter the next chapter for COVID-19, they think the pandemic trade premium baked into BNTX shares has begun to unwind; UBS initiated MRNA with a Neutral and $221 tgt

·     Biotech movers; ALNY presented positive 18-month results from Helios-a phase 3 study of investigational vutrisiran, as met all 18 month secondary endpoints, including statistically significant improvements in neuropathy impairment; CVAC downgraded to Underperform from Neutral at Bank America and slashed tgt to $20 from $55 citing a challenging outlook for the company in 2022; KURA said the U.S. FDA lifted the partial clinical hold on the KOMET-001 phase 1b study of KO-539 in patients with relapsed or refractory acute myeloid leukemia

·     Healthcare Services & MedTech Equipment; ISRG shares fell despite Q4 EPS and revs topped views, but shares slipped as company called out lower gross margins due to higher investments (shares were upgraded to Buy at Citigroup following pull-back in shares)

Industrials & Materials

·     Transports; in rails, CSX Q4 EPS $0.42 vs. est. $0.41; Q4 revs $3.43B vs. est. $3.32B; Q4 2021 operating ratio was 60.1% compared to 57.0% in prior year period; Q4 operating income improved 12% to $1.37B; it was a big week of earnings in airlines and rails, with the Dow transports ending the week down around 3%

·     Metals & Materials; in chemicals, ECL slides after saying it expects to report a 10% Y/Y sales increase in Q4 but sees earnings coming in below expectations, citing COVID-related effects on broad business activity; guides Q4 EPS $1.26-$1.28, below consensus of $1.41; PPG reported 4Q adj. EPS of $1.26, above consensus of $1.16, though 1Q guidance of $1.02-$1.20 is below views as Mizuho said release a negative given margin pressures will likely drive increasing skepticism

Technology, Media & Telecom

·     Internet; NFLX shares weigh on technology stocks as the company reported qtrly subscriber growth that missed expectations – guides 1Q EPS $2.86 vs est. $3.46, sees revs $7.9B vs est. $8.1B, sees 1Q global streaming paid net adds 2.5Mm after adding 8.28M in Q4 (shares of other streaming names DIS and ROKU were volatile in sympathy); NET upgraded to Outperform from Neutral with $140 tgt Because of the company’s (1) differentiated serverless architecture; (2) efficient and rapidly expanding global network; (3) cloud-native approach for integrated network, application, and Zero Trust services; and (4) emerging opportunity and strong positioning in edge computing, we expect Cloudflare to sustain significant revenue growth—within the high 40% to +50% range—for multiple years, which is not reflected in conservative consensus estimates

·     Semiconductors; super volatile day that saw the Philly semi index (SOX) rise as much as 1.3% and down over 1% with a 90-minute time frame; INTC said it will invest $20 billion in two new plants in Ohio to make advanced chips, the company said on Friday; President Biden said working on securing raw materials needed for semiconductor chip manufacturing in U.S.; several semi names breaking down below key technical support levels into earnings season

·     Media & Telecom movers; DIS shares slide on subscriber concerns following the guidance drop off from rival NFLX in overnight (also hit shares of ROKU); VIAC and NXST renew multi-year affiliation agreements which covers CBS affiliated television stations in 39 markets owned by Nexstar and its operating partners; RBBN guides Q4 revs $231M, below est. $248.7M and said its operating loss is expected to be $4M and adjusted EBITDA is expected to be $26M; Considering a 10%-15% pull back to start 2022, Deutsche Bank said they believe Tower stocks screen increasingly attractive (AMT, CCI, SBAC)