Closing Recap

Thursday, January 27, 2022

Equity Market Recap

·     After a promising start to the day, markets were yet again unable to hold the big gains as the benchmark S&P 500 failed to move back above its key 200-day moving average resistance (4,434), coming within points before faltering as the latest theme has been to “sell-the-rips” vs. “buying-the-dips” which was a common occurrence throughout the Feds QE cycle. But now that the narrative has changed from the Fed, with rates hikes expected in March and fed fund futures seeing possibly 5-hikes this year, investors have been bailing out of anything growth related. Another busy night of earnings coming up, with one of the largest companies in the world expected to report tonight, Apple (AAPL), which can impact the semi supply chains (note the SOX already down 17% MTD). The Russell 2000 Smallcap index took out Monday lows, which is a new 12-month lows (and firmly in “bear” market territory defined as down 20% from highs). The market volatility has certainly been picking up, with huge swings in major averages from highs to lows each day this week, but on track for big losses again for the week, Year-to-date (YTD) the Russell 2000 is down about 14%, the Nasdaq -14%, the S&P 500 down -9% and the Dow down roughly 6%. The weekly AAI poll (a contrarian indicator) showed Investor Bull-Bear Spread -29.8: as bulls rise to 23.1% from 21%, Neutrals fall to 23.9% from 32.3%, and Bears rise to 52.9% from 46.7%. Note the VIX, a measure of expected volatility, hit its highest level in a year on Wednesday and volatile again today. Markets have been buffeted by concerns about central-bank policy around interest rates and inflation, and geopolitical tensions over Russia. Markets overlooked a strong GDP reading for Q4, jumping 6.9%, as higher inflation readings weighed.

·     Stock & Sector movers: TSLA stumbles despite a beat as concerns of slowing production due to supply chain headwinds; weakness across EV sector with RIVN hitting record lows again, LCID, NIO rolling, CHPT, BLNK nearing 52-week lows; in financials, BX soars on its strong quarter with record inflows, MA rises on its beat, LC plummets on its disappointing expense forecast, and SQ weak as $AAPL is planning a service that lets retailers accept payments on iPhones without any extra hardware in financials; among Dow components, DOW leads the index after its strong qtr, INTC was the index’s worst after stumbling to 52-week lows on its weak EPS forecast, MCD little changed after its mixed report; AAPL gives up early gains into tonight’s report; LUV, ALK, JBLU were strong early after their earnings reports, though each faded off morning highs; in cruises, CCL slides on guidance that sees higher cancellations, weaker bookings due to Covid.

Economic Data:

·     Weekly jobless claims fell to 260,000 in latest week, in-line w estimates while prior week revised to 290K from 286K; the 4-week moving average rose to 247,000 from 232,000 prior week, continued claims rose to 1.675M from 1.624M (est. 1.65M) and the U.S. insured unemployment rate unchanged at 1.2%

·     GDP figures strong headline – higher inflation: the U.S. 4q economy grows at 6.9% annual rate, topping the est. 5.5% and well above the Q3 +2.3%; Core PCE prices advance actual 4.9%, in-line with estimates and above prior 4.6% reading, while GDP Deflator advance actual 7%, above forecast for 5.9% and prior reading 6%

·     Durable goods orders for December decrease (-0.9%) vs. est. (-0.6%), while Durables Goods Ex-Transportation Dec P rises +0.4% vs. est. +0.3% and prior +1.1%

·     Pending Home sales index -3.8% for December vs. est. decline (-0.25)

Commodities

·     Oil prices reversed earlier gains, as WTI crude fell -$0.74 or 0.85% to settle at $86.61 per barrel after hitting earlier highs of $88.54, the highest since October 2014; but the bigger story in energy was Natural gas prices surging on cold weather forecasts, up as much as 60% to top $6.50 mln btu for first time since October 2021, before settling 46% at $6.265 mln btus helped by short covering, a bigger-than-usual weekly storage draw, and output that remains slow to return from freezing wells (note expiry roll to new contract today – the March contract up a more modest 6% at $4.28 mln btus). The EIA earlier said weekly drawdown in stockpiles was 219 billion cubic feet (bcf), the biggest weekly withdrawal since last year’s February freeze cut gas supplies.

·     Precious metals tumble as the dollar hits 18-month highs on higher rate fears, with February gold falling -$36.60 or 2% to finish at $1,793.10 an ounce (2-week lows and off recent 2-month highs), while April gold slides -$37 to $1,795 an ounce. Strong economic data this morning (GDP beat) strengthening the case for interest rate hikes by the Federal Reserve in March. If tensions increase between Russia/U.S. on Ukraine precious metals may see support. Silver prices dropped sharply for its biggest one-day decline since end-September.

Currencies & Treasuries

·     The U.S. dollar jumps, and Treasury yield curve flattens as 10’s fall and 2-yr yields move to highest in roughly 2-years after Federal Reserve Chairman Jerome Powell flagged multiple interest rate increases this year in his press conference yesterday, citing the economy’s strong labor market and persistently high inflation. The comments further narrowed the spread in 2s and 10s – with 2-yr yield up 9.5bps to 1.186% while the 10-yr falls -4bps to 1.803% (spread is now 61 bps). The dollar index (DXY) jumped to 18-month highs of 97.29, as the euro fell below 1.12. USD-JPY traded to better than two-week highs of 115.47, up from 114.48 lows seen overnight, driven by the Fed’s hawkish stance on Wednesday. Fed funds futures showed traders pricing in as many as five rate increases by December, after previously fully pricing for four. U.S. Treasury sold $53B in 7-year notes at a yield of 1.769% vs. 1.77% when issued prior, with the bid-to-cover at 2.36 vs. 2.21 prior and indirect bidders awarded 62.65% and directs 22.86%

Sector News Breakdown

Consumer

·     Retailers; FLWS tumbles after Q2 miss as adj EPS $1.34 well below consensus $1.79 and revenue $943.0M missed consensus $978.1M; while guides FY EPS $ 0.90-$1.00 vs prior “in-line with FY21 of $1.84” and revenue growth +7%-9% vs prior +10%-12%; LEVI reported 4Q21 adj EPS of $0.41, a penny above consensus as holiday (Nov/Dec) performance was above expectations, increasing 28% y/y and provided an upbeat outlook for 2022, calling for 11-13% sales growth; TSCO beat sales estimates for Q4, offered guidance that was above consensus and unveiled returns for shareholders in form of dividend hike and share buyback of an additional $2B; LOW and WOOF partnered for a store-in-store pilot that will bring Petco pet supplies/services to Lowe’s; GPS to move from the S&P 500 to the S&P 400 prior to the opening of trading on Thursday, 3-Feb

·     Auto sector; TSLA tumbled on good results, but no new announcements hits sentiment (EV names also fall as well – RIVN, NIO, XPEVQ4 revenue and earnings beat analysts’ estimates as revs rose to $17.72B from $10.74B a year ago citing better supply chain management and production discipline as they delivered record number of cars in Q4 – but expects supply chain issues to continue; in auto retail, KMX upgraded to Buy at Seaport saying shares have not screened this inexpensive since late August 2019; TRUE projects a 9% Y/Y decline in new vehicle industry sales that is estimated to reach 1M units in January. On month-on-month basis, the decline is estimated to be 17.5% from last month.

·     Housing & Building Products; in homebuilders, LEN downgraded to Neutral, TOL cut to Underperform, and KBH upgraded to Buy at Bank America; in tools, SWK said it plans to restate previous financial statements to correct an accounting error related to its recording of equity shares; in paints, SHW posted Q4 EPS miss and full-year earnings guidance below Street expectations as expect full year raw material costs to remain elevated but to moderate sequentially; in appliances, WHR Q4 adj EPS $6.14 vs. est. $5.84; Q4 revs $5.82B vs. est. $5.88B; sees FY22 adjusted EPS $27.00-$29.00 vs. est. $25.39

·     Restaurants & Consumer Staples; MO Q4 adjusted EPS $1.09 vs. est. $1.08; Q4 revs $5.09B vs. est. $5B; Q4 adjusted tax rate 25.5%; expects 2022 adjusted diluted EPS growth to be weighted toward second half of year; qtrly total cigarette shipment volumes 22.42 bln, down 5.9%; MKC Q4 EPS $0.84 vs est. $0.80 and revs $1.73B vs est. $1.71B; constant currency +11%; GM 40.9% vs consensus 40.0%; OM 17.8% vs consensus 17.5%; guides FY EPS $3.17-$3.22 vs consensus $3.09; MCD EPS $2.23 misses the $2.34 est. on in-line revs $6B, consensus $6.03B; Comparable sales +12.3% vs. -1.30% y/y, and above estimate +10.7%; US comp sales +7.5% vs. +5.50% y/y, and estimate +6.58% and int’l comps +16.8% vs. -7.40% y/y

·     Casinos, Gaming, Lodging & Leisure sector; in casinos, LVS posted $138 million in operating losses, compared to operating loss of $119 million in the prior-year quarter and revs down 12% YoY to $1.01B missing the $1.05B estimate; in marine sector, HZO rises after results (earlier reports Q1 EPS $1.59, consensus $1.13); BC also with 2022 EPS forecast above views; in cruise lines (NCLH ) Cleveland Research said bookings on a better path in the last week after an omicron suppressed start to Jan; 2h pricing remains intact – meanwhile CCL midday warned in 10K filing it sees higher cancellations due to covid – Carnival sees dampening of bookings for 2h of 2022 vs. 2019 (shares of RCL, NCLH)

Energy

·     Energy stock movers; Oil stocks extended gains early with oil prices hitting fresh seven-year highs above $88 a barrel before paring gains as the Ukraine crisis outweighed signs that the U.S. Federal Reserve will tighten monetary policy; still not into the crux of earnings season for energy names, but CVX touching all-time highs and several E&P names touching 52-week highs today (SLB); MRO raises dividend by 17% to $0.07; in refiners & Pipelines: MPC is evaluating a conversion of PSX Alliance refinery in Louisiana into a renewable fuel plant, Reuters reported.

Financials

·     Bank movers; DB reported higher fourth-quarter profit and revenue, beating analysts’ expectations, and said it would resume dividend payments; Quarterly revenue came to EUR5.9 billion, up 8%, beating analysts’ expectations of EUR5.67 billion; RJF posted Q1 net income growth of 43%, driven by record asset management ($1.26T) and related administration fees and record investment banking revenue as Q4 EPS of $2.12 beat the $1.76 estimate; BX Q4 EPS $1.92 beat est. $1.37 on revenue $5.76B, distributable income was a record $2.3B or $1.71/shr vs est. $1.37, quarterly inflows of $154.8B (better than est. $96B) were higher than any full year on record to push qtr-end AUM to $880.9B (up from $730.7B at Q3 end, $618.6B in 4Q20), and raised its dividend to $1.45 from $0.96; EWBC Q4 EPS $1.52 missed est. $1.57 on revenue $477.2M vs est. $471M, raised its div to 40c from 33c

·     Consumer Services; LC Q4 beat consensus (EPS 27c vs 22c on revs $262.2M vs est. $245.7M) but shares were pressured as several analysts cut their price targets in response to its disappointing expense guidance; TROW Q4 adj EPS $3.17 vs est. $3.14 on revs $2B vs est. $1.94B, AUM $1.69T vs. $1.47T YoY, forecasts FY22 net flows below their +1-3% long-term target; CNS Q4 adj EPS $1.24 vs est. $1.03 on revenue $159.6M vs est. $145M, qtr-end AUM $106.6B; AMP Q4 adj EPS $6.15 vs. est. $5.70 on revs $3.7B vs. est. $3.56B, announced a $3B share repurchase plan, AUM a record $1.4T; MSCI 4Q adj EPS $2.51 vs est. $2.49 on revs $549.8M vs est. $539.1M; SLM Q4 adj EPS $1.05 vs est. $0.96, guides FY22 adj EPS $2.80-3.00 vs est. $2.78, approved new $1.25B repurchase program; Truist upgraded EFX to Buy with a $280 PT from $245 as the top US credit bureau led by its differentiated EWS franchise with upside from share and price gains that outstrip mortgage headwinds, and downgraded TRU to Hold with a $105 PT from $135 due to lagging EFX’s innovation and are less bullish on their consumer credit/FinTech acceleration

·     FinTech & Payments; MA Q4 adj EPS $2.35 vs est. $2.21 on revenue $5.22B slightly ahead of est. $5.17B, purchase volume $1.66T vs est. $1.62T, cross-border volumes +53% vs est. +49.2% that are now above pre-pandemic levels; Visa (V) reports tonight; ADS Q4 EPS 34c, EPS from continuing ops 1.21, revenue $855M below est. $1.04B, expects FY22 revenue growth to be closely aligned with avg receivables growth; Goldman upgraded DLO to Buy and downgraded PAGS, STNE to Neutral; SMBC initiated AVDX at Outperform with a $15 PT trading at a considerable discount to other B2B payments names, FOUR at Neutral with a $60 PT with limited outperformance, and DLO at Neutral with a $32 PT; AAPL is planning a service that will let retailers accept payments on iPhones without the need for extra hardware, from providers such as SQ; KeyBank came away from their FinTech consumer survey most positive on SQ as having demonstrated the most progress against their SuperApp thesis given its top marks across BNPL, crypto/stock investing, and primary checking with card usage, and said PYPL also posted a strong showing that far exceeded general market perception given strong core checkout alongside robust progress against Venmo card and pay initiatives

·     REITs; DRE slightly missed on FFO in the quarter, partially driven by timing of dispositions and subsequent redeployment of proceeds. Initial SS-NOI growth guidance of 5.8% midpoint was in line with our estimate; SLG Q4 FFO $1.52 vs est. $1.55 on revs $194.6M vs est. $85.8M; Truist initiated PINE at Hold with a $20 PT despite its significant discount to triple-net peers due to its elevated leverage, external mgmt. structure, and limited growth profile before internalization which they expects to be a 2023 event and PLYM at Buy with a $31 PT as they expect cash flow per share to begin growing in 2022 and it trades at a significant discount to peers despite strong projected growth

Healthcare

·     Pharma movers; VRTX posted a 27% YoY increase in product revenue, as they handily beat EPS and revenue estimates for Q4 2021 as non-GAAP income soars 31%; product revenue rose to about $2.1B from $1.6B in the prior-year period; BHC launches $1B senior notes offering; TEVA downgraded to Hold at Argus noting the company has faced numerous challenges over the past several years, including the loss of exclusivity on key drugs, price erosion in the generics space, and various legal issues (though notes shares favorably valued); in cannabis, CRON upgraded to Hold at Jefferies saying now finally seeing some market share progress in Canada; PFE said CHMP issues positive opinion recommending the Conditional Marketing Authorization of PAXLOVID; TGTX tumbled after CEO said during a financial conference that the FDA has placed a partial clinical hold on some combination candidate studies for leukemia and lymphoma

·     MedTech Equipment; EW 4Q print missed on the top and bottom line due to lower-than-expected sales impacted by rising COVID-19 cases in December and the timing of investments; HAE downgraded to Hold at Needham as believe that consensus estimates do not adequately account for the end of the CSL contract; Barclay’s said tough tape for Life Science Tools and Diagnostics as still favor Large Cap Tools, reinstate TMO at Overweight and PT of $700; CTLT is Top Pick ; CROs remain group trade and we favor IQV and SYNH; ARAY another painful move lower for equipment names as Q2 revs beat, but warns of headwinds created by supply chain issues and COVID-19; DHR guided for FY1Q22 sales to grow ~10% YoY organic after posting a beat on top line ($8.51B vs. est. $7.9B) and bottom (EPS $2.69 vs. $2.54)

·     Healthcare Services; CNC shares got a bump after Bloomberg reported last night the managed care company drew takeover interest from CI in recent months; hospital and elective surgery sectors (ortho, etc.) pressured initially after HCA posts Q4 sales miss estimates as Omicron surge delays non-urgent surgeries – expenses incurred on salaries and benefits rose 10.6% (shares of ZBH, CYH, UHS, THC, SYK active); CCRN upgraded to Buy at Jefferies given view that demand and pricing fundamentals for the temp nurse staffers are durable and will remain strong even in a post-COVID world

Industrials & Materials

·     Aerospace & Defense; NOC Q4 adj EPS $6 vs est. $5.98 on revs $8.64B below est. $9B, authorized a $2B buyback, sees 2022 sales $36.2-36.60B below est. $37.03B; HXL Q4 adj EPS 16c vs est. 12c on revs $360.3M vs est. $359M, guides FY22 sales $1.50-1.63B vs est. $1.62B and adj EPS $1.00-1.24 vs est. $1.25; OSIS Q2 adj EPS topped estimates on in-line revenue and raised FY22 EPS $5.75-6.02 from $5.72-$6.00 (est. $5.80), while lowered FY22 revenue to $1.16B-$1.195B from $1.190B-$1.225B; TXT adj EPS 94c vs est. 95c on revs $3.32B vs est. $3.43B, sees full-year EPS $3.80-4 on revenue $13.3B below expected $4.03 and $13.57B; Needham initiated PL at Buy with a $10.50 PT; NASA selects VORB to provide future launch services through VADR contract

·     Transports; in airlines, LUV 4Q adj EPS $0.14 on revs $5.1B, expects losses in Jan/Feb with return to profitability in March, expects to be profitable 2Q-4Q, says leisure travel demand was strong and business revs continue to recover vs 2019; JBLU 4Q adj EPS ($0.36) vs est. ($0.39), load factor 76.4%, revs $1.83B vs est. $1.83B; guides FY22 capacity +11-15% vs 2019, sees month/month improvement leading to a profitable 2Q and very strong summer peak; ALK Q4 adj EPS 24c vs est. 22c on revs $1.9B vs est. $1.85B, sees Q1 load factor down 10-13% and revs down 14-17% vs 2019, has seen bookings strengthening for Presidents’ Day and beyond; in trucking, LSTR posts a top and bottom line beat for Q4 – quarterly record; KNX delivered a solid quarter and constructive 2022 outlook, with shares increasingly priced to weather a wide range of downside potential 2023 outcomes (EPS of $1.61, $0.19 above est.)

·     Packaging & Materials; PKG announces new $1B share repurchase plan, Q4 adj EPS $2.76 vs. est. $2.07 and a Q1 forecast above views but still sees higher inflation and freight/logistics expenses to offset the benefits of strong demand; IP Q4 misses profit expectations, posting Q4 EPS of 78c vs est. 89c with lower year EPOS view as well; BLL another top S&P performer after earnings

·     Chemicals and Metals; steelmaker NUE posted greater sales and earnings year over year in the last three months of 2021 as construction activity supported demand for steel products; in chemicals, ALB upgraded to Buy from Hold at HSBC with a price target of $280, up from $250 saying the global battery race has gained significant momentum over the last one year driven by the policy push to localize the supply chain, Seshadri tells investors in a research note; DOW forecast better-than-expected sales for the current quarter after Q4 results beat estimates, helped by higher prices for its products as supplies remained tight amid strong demand.

Technology, Media & Telecom

·     Internet; NFLX shares bounced overnight after Bill Ackman told investors that his hedge fund, Pershing Square Capital Management, started buying shares on Friday and now owns more than 3.1 million shares; TCEHY plans to take DouYu (DOYU) private amid disagreements over strategy among executives at the Chinese videogame streaming firm, Reuters reported

·     Semiconductors; busy night for earnings in the chip space, highlighted by Dow component INTC Q4 EPS/revenue beats estimates but Q1 earnings forecast of $0.80 falls short of the $0.86 est. as CEO Patrick Gelsinger says supply chain constraints may persist through 2022 and part of 2023; semi-equipment maker LRCX shares fall Q2 revs view missed citing shipment delays and warns that it expects even more delays this quarter, citing worsening supply-chain constraints; TER Q4 EPS of $1.37 beats by $0.08, revenue of $885M beats by $16.03M but tumbles as guides Q1 EPS $0.76-$0.98, well below the $1.30 est. on lower rev view of $700M-$770M vs. est. $877M; WOLF reported F2Q22 non-GAAP EPS from cont. operations of ($0.16) on revenue of $173.1M, vs. consensus estimates of ($0.18) and $169.3M and guidance of $165–175M and ($0.16)–($0.20); XLNX rises as China’s State Administration for Market Regulation said it will conditionally approve AMD’s $35 billion all-stock deal for them on condition that AMD and Xilinx do not force tie-in sales of products or discriminate against customers that buy one set of products but not another; Credo Technology (CRDO) 25M share IPO priced at $10.00; STM issues upbeat guidance; MKSI issues below consensus outlook for next quarter, sending shares lower

·     Hardware & Software movers; NOW Q4 revs and EPS topped estimates, helped by large customer wins as they added more customers in $1-million annualized contract value (Q4 $1.46/$1.61B vs. est. $1.43/$1.6B); SAP said sees FY22 cloud revenue up 23%-26%, reports Q4 non-IFRS EPS EUR 1.86 vs EUR 1.70 last year, to acquire majority stake in Taulia, terms undisclosed; AAPL earnings after the bell; Hard-disk drive maker STX rises as earnings results slightly above expectations, but provided an outlook for 2022 that was better-than-expected, both on the top line and the bottom line

·     Media & Telecom movers; CMCSA Q4 adj EPS 77c vs est. 73c on revs $30.34B vs est. $29.63B, high-speed internet +212k vs est. +238k, increased its div to 27c from 25c, said it is doubling Peacock’s content spend to $3B in 2022 and plans to spend up to $5B over next couple of years but the streaming service is expected to incur a ($2.5B) EBITDA loss in FY22 after losing ($1.7B) in FY21 and it may break even later than previously expected; CMCSA’s strong Universal park revenue provided a boost to other theme park related names (DIS, SIX, SEAS); CCI Q4 FFO/shr $1.77 vs est. $1.70 on revenue $1.65B vs est. $1.63B, guides Fy22 adj FFO $7.31-7.41 vs est. $7.34; RCI Q4 adj EPS C$0.96 vs est. C$0.95 on revs C$3.92B vs est. C$3.84B, post-paid net change +130k vs est. +138.3k, sees FY22 adj EBITDA +6-8%; DTEGY has had preliminary talks of a potential merger of its mobile towers with rivals VOD and ORAN and is also exploring other options including a sale, listing, or strategic partnership for the assets; Neil Young radio returned exclusively to SIRI after he pulled his music library from SPOT earlier this week; Benchmark slightly lowered its PT on CHTR to $900 from $925 off market conditions while not manipulating their fundamental valuation to acknowledge the freefalling stock chart and raised their estimates on MCS based on reported domestic box office results; In advertising, WPP downgraded to Underperform at Bank America