Closing Recap

Monday, June 13, 2022

Equity Market Recap

·     Another dreadful performance for U.S. stock markets, down between 3%-5% and settling just off the lows with sharp declines across the board in various asset classes (stocks, bonds, commodities and crypto) with no places to hide. Major averages came into the FOMC policy week with dubious marks, as the S&P and Nasdaq are both down 9 of the last 10-weeks and the Dow down 10 of the last 11-weeks on rising inflation, and interest rate expectations. With today’s close below 3,875, the S&P officially closed in “bear market” territory, defined as 20% below all-time highs. At one point this morning, there wasn’t one single S&P 500 stock that was in positive territory! Bank America noted the SPX is down 9 of 10 weeks now; this last happened in 2001, 1982, 1970. How many times down 10 of 11 weeks? Just 1970. Bespoke noted last Friday was the first time since at least 1990 that the S&P 500’s net Advance/Decline reading was -400 or less for three days in a row. Now, it’s the first 4-day streak. Meanwhile, the decline in the Nasdaq 100 from its peak last November (-31.7%) is larger than its decline during the 2020 Covid pandemic crash (-30.4%). After Friday’s CPI hot inflation report (showing inflation has not yet peaked), and ahead of tomorrow’s PPI report, U.S. rate futures imply 30% chance of fed raising rates by 75 bps at June meeting, while for July meeting, rate futures price in 83% chance of 75 bps Fed rate increase. Treasury yields surged (2-yr 30-bps move today alone), hitting multi-year highs as the benchmark 10-year topped 3.44%. Sentiment is uber bearish currently with national gasoline average above $5.00 a gallon, household utility bills surging, mortgage rates above 6%/slowing the housing market while prices remain elevated, job market cautious as supply chain continue to weigh on corporate America, forcing cost reductions, and the list goes on. In addition to the FOMC meeting on Wednesday, Brazil’s decision on the Selic Rate also comes on Wednesday, with the Bank of England (BoE) meeting on Thursday with another policy rise on the cards, the SNB on Thursday (no change expected) and the Bank of Japan (BoJ) on Friday.

·     A NY Fed survey showed median one-year ahead inflation expectations rose to 6.6% in May from 6.3% in April, median year-ahead household spending growth expectations rose to 9.0% from 8.0% in April, median expectations for year-ahead price increases for gas rose to 5.5%, median home price inflation expectations fell to 5.8% and mean reported probability U.S. Stock prices will be higher in one year from now fell by 1.7% to 36.2%. More record highs in Repo market as U.S. Fed accepts $2.212 trln, a new record high, in overnight reverse repo bids.

Commodities

·     Oil prices rise $0.26 or 0.22% to settle at $120.93 per barrel (off highs $122.25 and lows $117.47 per barrel), as energy remains one of the few places that investors have been able to hide. Gold prices stumble -$43.70 or 2.3% to settle at $1,831.80 an ounce as precious metals suffered sharp declines (palladium and silver slide as well) as the U.S. dollar rallied on bets for steep interest rate hikes by the U.S. Federal Reserve later this week. Gold hit a one-month bottom of $1,824.63 post the CPI data Friday but rebounded late last week.

Currencies & Treasuries

·     Treasury 10-year yield rises to 3.44%, up 25 bps to highest level since 2011 (started the year at 1.52%), taking out the high from late 2018, while yields across the curve saw massive spikes with investors bailing on most asset classes this morning (no place to hide) ahead of the FOMC policy meeting this week. The 2-year yield topped 3.35% up about 30 bps, the 5-yr jumped 28bps to 3.53% and the 30-yr rose 21bps to 3.39% as bets rise the Fed will get more aggressive this week on rate hikes. Italy’s 10-year bond yield rose to as high as 4.097%, the highest level since 2014.

·     Bitcoin hits 52-week lows and down -66% from all-time highs as other crypto assets tumble. Bitcoin falls as much as 22% below $23K, Ethereum down -29% to below $1,200 before paring losses for both after: 1) Binance, the world’s largest crypto exchange, briefly halted bitcoin withdrawals earlier today due to a “stuck” transaction causing a backlog; 2) Crypto lender Celsius said it is pausing all account withdrawals and transfers, citing "extreme market conditions.” The firm had more than $8 billion lent out to clients and almost $12 billion in assets under management as of May. In turn, the global crypto market cap tanked below $1T for the first time since January 2021.

·     The U.S. dollar index (DXY) moved back near 20-year highs today (above the 105 level before paring gains), supported by fears of a global economic slowdown and bets on steep interest rate hikes by the U.S. Federal Reserve at its meeting Wednesday and subsequent aggressive hikes to try and contain rampant inflation. The battered Japanese yen bounced off more than 20-year lows ahead of the Bank of Japan meeting on Friday. The British Pound hit its lowest level since May 2020, down over 1% (hit lows around 1.2125), while the Aussie dollar also fell 1%.

Sector News Breakdown

Consumer

·     Retailers & Staples; not many places to hide as surging inflation and fears of aggressive rate hikes ahead of the FOMC meeting later this week taking its toll on apparel and department store retail; restaurants also feeling the pinch of slowing spending fears while consumer staples held up among the best (KO one of few bright spots today); in tobacco (PM ) the WSJ reported the Biden administration intends to pursue a policy requiring tobacco companies to reduce the nicotine in all cigarettes sold in the U.S. to minimally or nonaddictive levels

·     Auto sector: TSLA late Friday said it seeks a three for one stock split; proposal would allow Co. To increase authorized common shares to 6B from 4B (shares upgraded to Outperform at RBC Capital); Reuters reported; Reuters reported Detroit three’ CEOs GM, Ford and STLA, and Toyota north America urge Congress to lift manufacturer cap on $7,500 EV tax credit

·     Casinos, Gaming, Lodging & Leisure sector; sector crushed led by weakness in casinos, cruise, and travel names on slower consumer spending fears amid rising prices; Barron’s was positive on business travel this weekend and highlights AXP, MAR, and LUV, while separately was positive on some retailer stocks including ASO, AZO, COST, DG, and HD but negative on GPS entered into a definitive agreement to acquire the franchise business, operations, and intellectual property of Radisson Hotel Group Americas for approximately $675 million; for cruise stocks (CCL ), the WSJ reported as Covid restrictions relax, cruise lines have been removing occupancy limits on ships and appear to be discounting to fill summer voyages.

Energy

·     Energy stock movers: oil prices were volatile moving between gains and losses while natural gas prices fell to a near two-week low with the decline in other energy futures on Monday as the shutdown of the Freeport liquefied natural gas (LNG) export plant last week cut U.S. demand for gas, leaving more of the fuel available to refill low stockpiles.

·     Stock news: BP agreed to sell its 50% interest in the Sunrise oil sands project in Alberta, Canada, to Calgary-based CVERefiners mentioned positively in Barron’s noting analysis shows that oil refiners, a middleman in the supply chain, such as VLO, MPC and PSX are the big winners, accounting for 18% of the price at the pump in March. That’s up from the average of 14% from 2012 to 2021

Financials

·     Bank movers; Banks stocks slip early amid a broader selloff by risk assets as traders lift their rate hike expectations following hotter-than-expected inflation data last week; SCHW slips after the SEC charged three Charles Schwab investment adviser subsidiaries with failing to disclose less profitable fund allocations and misleading its robo-adviser clients; in asset managers, IVZ and TROW were downgraded at BMO Capital noting it favors alternative asset managers over traditional players to hedge beta risk against the current macro backdrop

·     Bitcoin, FinTech & Payments; Crypto currency stocks tumbling along with broader stock markets, with Bitcoin (BTC) down as much as -21% below $23,0000, while Ethereum (ETH) crumbles as much as -27% to $1,225 as investors bail out of riskier assets; shares of Bitcoin mining stocks such as MARA, RIOT, investors such as MSTR, depository such as COIN, SI all tumble. Earlier today, crypto lender Celsius said it is pausing all account withdrawals and transfers, citing "extreme market conditions; FIS was upgraded from In Line to Outperform at Evercore/ISI and raised tgt to $135 from $115 saying although high PE multiple, disruptive stocks have sold off, the incumbents have yet to meaningfully outperform. That should soon change.

·     Consumer Finance: credit card names MA, Visa (V), COF, and others have seen pressure on fears of slowing spending habits of consumers amid rising inflation and rates; AXP mentioned positively in Barron’s calling it among the winners as business travel slowly returns given it has "plenty" of exposure to the sector. Oppenheimer also positive on AXP post mgmt meetings saying loan growth is likely to stay elevated vs. the industry and AXP isn’t seeing any inflationary impacts to discretionary spend among their customer bases

·     REITs: DRE to be acquired by PLD in a deal worth $26 billion, including the assumption of debt, the companies said as Duke Realty shareholders would receive 0.475 times a Prologis share for each Duke Realty share they own, an improvement from prior offer of 0.466 times. In May, Duke Realty rejected a nearly $24 billion buyout offer from Prologis

Healthcare

·     Pharma movers: AMLX had its ALS drug Albrioza approved by Health Canada, though is still under FDA scrutiny, and an approval decision is expected in September; DAWN surges following early data from a pivotal Phase 2 trial for its experimental therapy Tovorafenib in children with pediatric low-grade glioma, a brain tumor

·     Biotech movers: BLUE surges after a U.S. FDA panel unanimously backs company’s two gene therapies – eli-cel for a rare neurological disease and beti-cel for certain Beta-thalassemia patients. FDA decision for beti-cel and eli-cel expected by Aug 19 and Sept 16; CRSP and VRTX reported updated exa-cel (CTX001) Phase 2/3 data in beta thalassemia (BT) and sickle cell disease (SCD) with a total of 75 BT/SCD patients treated; SAGE and BIIB informed the FDA they have decided to submit a single NDA of Zuranolone for the treatment of both MDD and PPD – expect to complete the submission of single NDA in 2H’22 and seek priority review

·     MedTech Equipment; rising inflation, fear of higher rates and its impact on consumer discretionary spending has take a toll on medical device stocks of late, with fear individuals will put off elective surgeries and procedures; EKSO said it received 510(k) FDA clearance to market the EksoNR robotic exoskeleton for use with Multiple Sclerosis patients.

·     Healthcare Services: UNH and LHCG said late Friday the U.S. FTC asked for additional information from the companies regarding their deal, though did not provide details about what information and materials were sought by FTC

Industrials & Materials

·     Aerospace & Defense; ASTR slides as its mission to send tiny storm-monitoring NASA satellites to orbit on Sunday failed after a second-stage booster engine shut down early in space; failure occurred roughly 10 minutes after a successful liftoff of Astra’s Rocket 3.3 at 1:43 p.m. ET; Dow component BA touched 52-week lows, down for a 6^th time in last 7-days

·     Industrial & Machinery; PWR upgraded to Buy from Neutral at UBS and raise tgt to $156 from $140 now that the solar overhang has cleared, and they have more confidence in EPS growth ahead from electric grid investment and renewed upside potential from midstream; Citigroup said overall, they see potential for ~10%- 30% downside pressure on Multis stock prices in a recession (from today’s levels), with longer/later cycle stocks with self-help characteristics such as EMR, HON, and GE potentially more resilient vs. shorter-cycle peers.

·     Metals & Materials; no safety in gold miners (GOLD ) as the dollar rebounds while industrial metals remain pressured on a global economic slowdown; UEC said it is buying UEXCF in a deal where each holder of UEX shares will receive 0.0831 of one Uranium Energy share for each UEX Share; in Paper & Packaging, WRK, IP, PKG shares volatile as KeyBanc noted, citing the lead article in Fastmarkets RISI’s PPI Pulp & Paper Week that was about kraft linerboard export prices appearing to be flat this month for the first time in nearly two years, as domestic and global containerboard industry momentum has faltered as the global economy has deteriorated

Technology, Media & Telecom

·     Internet & Media; Reuters reported Alphabet (GOOGL) unit Google offers to let rival ad intermediaries place ads on YouTube to address EU antitrust concerns, citing sources; an all-out blitz in technology names as growth names continue to get crushed on rising rates and inflation fears, with GOOGL, AMZN, NFLX, META all down sharply; DWAC falls after the SPAC that is buying the company behind Donald Trump’s Truth Social said it received another subpoena from the SEC related to the acquisition

·     Semiconductors: another space seeing destruction with the Philly semi-index (SOX) down over 5% this morning to drop below 2,700 today, as all names were lower initially; in software, ZEN downgraded to EW from OW at Morgan Stanley following the co’s decision to end its strategic review & remain independent, as they now see fewer near-term catalysts for shares; DOCU downgraded at Wolfe and $50 tgt after earnings last week; ORCL earnings tonight