Closing Recap

Wednesday, March 02, 2022

Equity Market Recap

·     Another massive move for major averages, this time to the upside with U.S. stocks rallying late morning into the afternoon behind upbeat Fed Chairman Powell comments and no new negative developments in Ukraine/Russia conflict. Fed’s Powell said in day one of his two-day testimony on Capitol hill that it is appropriate to raise interest rates by 25 bps in March saying will propose and support that hike (stock markets rallied behind no 50-bps hike mention, which had a 50% probability just 2-weeks ago prior to the Ukraine invasion by Russia). Powell said, “we talk about getting to neutral rate of 2% to 2.5%, and it may need to go higher than that – and Fed can achieve a soft landing.” The comments helped ease stock markets while boosting Treasury yields after a week of declines and lifted financials/banks that had been clobbered of late on the drop in yields. The Nasdaq rallied more than 270 points off its lows while the S&P bounced over 70 points off its lows and the Dow about a 600-point rally. Treasury yields surged after tumbling in recent days, along with the dollar and oil pulled back from fresh 7-year highs.

·     Stock & Sector movers: CRM beat and raise report, HPE soars after its EPS beat with raised FY guidance and an upgrade at Bernstein; Ford (F) jumps after announcing it will split its EV and engine business separately; RIVN sinks after reportedly raising vehicle prices by up to 20%; retail earnings, JWN surges on a strong quarter and guide, URBN rises, ROST jumps on its beat with a div raise and new buyback plan, ANF plunges on its quarterly miss; AEO VSCO BBY BIG BJ BURL strong into reports tonight-tmrw AM; SOFI with a beat with robust membership and product growth while PSFE soars on its beat in fintech; FSLR rolls after guiding FY22 well below consensus to weigh on alt energy names SEDG ENPH RUN SPWR after a strong run over the past week; travel and leisure names also rise with airlines, casinos leading; financials rebound from heavy losses earlier this week with SBNY SIVB ZION MTB among S&P leaders.

Economic Data:

·     Private jobs data strong as ADP Jobs Report added +475K jobs vs. +388K consensus and upwardly revised +509K jobs (massive revision from prior month -310k jobs lost); goods producing sector gained 57K jobs, while service producing sector gained 417K jobs.

Commodities

·     Oil prices jump as WTI crude soars $7.19 or 6.95% to settle at $110.60 per barrel, its highest closing levels since 2011 ($112.51 intraday high) as OPEC holds output steady despite Russia’s war on Ukraine. the OPEC+ group that includes Russia also agreed to stick to its agenda of raising output by just 400,000 barrels a day despite a tightening global market and skyrocketing prices, helping oil higher. Prices briefly pared gains late morning/early afternoon after Fed Chairman Powell comments strengthened the U.S. dollar (fell to $106.78), but prices resumed upward momentum. EIA inventory data showed: Crude stockpiles fell -2.6M barrels vs. +2.748M consensus, and +4.5M last week, while Gasoline stockpiles slid -0.5M vs. -1.375M consensus and Distillates dropped -0.6M barrels vs. -1.726M consensus

·     Gold prices slipped -$21.50 or 1.1% to settle at $1,922.30 an ounce following an uptick in risk appetite and U.S. bond yields. Meanwhile palladium prices traded near 7-month highs on concerns over a supply crunch that may follow sanctions on Russia. Gold, silver, platinum, and other metals have jumped in recent session on war concerns and its import on exports. Western nations have ratcheted up sanctions on Russia, which accounts for 40% of global palladium production, including shutting out some Russian banks from the SWIFT global financial network.

Currencies & Treasuries

·     Volatility in bond and currency markets incredible right now as the benchmark 10-year yield rose 15-bps to 1.86%, just a day after hitting lows of 1.68% on defensive bond buying amid Ukraine fears, but still more than 20-bps off 2022 highs. The shorter-term 2-yr yield spiked 20 bps to 1.51%, the 5-yr rose 19 bps to 1.75%. Treasury yields rise in the wake of President Biden’s pledge to keep pushing against Russia’s invasion of Ukraine while supporting the economy. He went on to signal fighting inflation as his top priority during his State of the Union last night. It’s been a rollercoaster ride in crypto, with Bitcoin surging above $45K for the first time in nearly a month, before falling back. The 2022 high is just under $48K. The dollar index (DXY) pared gains, finishing flat after hitting highs above 97.80 as the euro remains pressured, falling to near 2-year lows below 1.11 vs. the greenback, before rebounding.

Sector News Breakdown

Consumer

·     Retailers; ; JWN shares jump after Q4 EPS $1.23 vs est. $1.02 on sales $4.35B vs est. $4.39B, qtrly GMV +24% while guiding FY revs +5-7% above est. +3.7% and Ebit margin 4.6-6.0%; DLTR posted Q4 EPS $2.01 vs est. $1.77 on sales $7.08B vs est. $7.12B, sees Q1 sales $6.63-6.78B vs est. $6.8B with FY EPS $7.60-8 vs est. $7.60 on sales $27.22-27.85B vs est. $28.04B; ANF Q4 adj EPS $1.14 missed est. $1.27 on sales $1.16B vs est. $1.18B, said its sales trend so far in Q1 has accelerated sequentially and see sales up low single-digits for the quarter and +2-4% for the full year from last year’s $3.71B (est. $3.83B); URBN Q4 EPS $0.41 vs est. $0.50 on in-line sales $1.33B, retail comps +14%, total inventory +39.1%; ROST Q4 EPS $1.04 vs. est. $0.97 on sales $5.0B vs. est. $4.96B, sees 2023 comp sales to be flat to up 3% versus a 13% gain in fiscal 2021, authorized a $1.9B stock buyback, and raises dividend; PRPL Q4 adj EPS loss (35c) vs. est. loss (27c) on revs $186.4M vs. est. $178.99M; named a new CEO, sees Q1 revs $125M-$135M below consensus $195.66M and FY22 revs $790M-$830M vs. est. $808.21M; RL CCO resigned after an investigation revealed conduct that violated the company’s code of conduct

·     Auto sector; Ford (F) said it reorganizes to run EV and engine businesses separately, while reaffirms 2022 adjusted EBIT forecast of $11.5B-$12.5B, said it expects to spend $5B on EVs in 2022 and sees annual production of more than 2mln EVs by 2026 – said total sales dropped 20.9% to 129,273 vehicles but said new vehicles orders rose four-fold to over 72K; Stifel downgraded VRM to Hold with a $4 PT from $10 and several analysts cut their price targets after disappointing Q4 results and guidance Monday PM; RIVN sinks after reportedly raising vehicle prices by up to 20%

·     Housing & Building Products; mortgage rates remain above 4% given recent spike in Treasury yields, pressuring homebuilding stocks lately. The MBA mortgage applications index fell 0.7% in week ended Feb. 25 after falling 13.1% in prior week while purchases were down 1.8% after falling 10.1% in prior week and refi’s increased 0.5% after falling 15.6% in prior week

·     Consumer Staples; BGS Q4 adj EPS and revenue missed consensus views with FY adj EPS guidance range also fully below estimates as input cost inflation continues to impact results; BROS Q4 EPS in-line 2c on revs $140.1M vs. est. $135M, sees FY22 revenue $700M-$715M vs. est. $692.6M; GO Q4 adj EPS in-line 20c on revs $782.7M vs est. $778.4M, guidance ranges for FY net sales and adj EPS fully below estimates; GRWG Q4 EPS loss (3c) narrower than est. loss (9c) on revs $90.6M vs. est. $89.09M, sees FY22 revenue $415M-$445M vs. est. $478.11M; IPAR Q4 EPS loss (4c) narrower than est. loss (20c) on in-line revenue $210.7M; WW Q4 EPS $0.42 vs est. $0.36 on revenue $275.8M vs est. $279.3M, sees Q1 EPS ($0.31)-($0.26) vs est. ($0.12) on revenue about $300M vs est. $343.6M; BODY posted a Q4 EPS loss of (48c), much wider than est. (19c) on revs $216.3M that beat est. $167.9M, sees Q1 revenue $170-180M vs est. $200.3M; CELH Q4 revenue $104.3M topped est. $92.1M but shares fell as it delayed its annual 10-K filing; Atlantic downgraded CHD to UW as normalizing conditions should lead to inevitable slowing growth

·     Casinos, Gaming, Lodging & Leisure sector; casinos strong early with LVS, WYNN, MGM among top gainers on upbeat market sentiment as headlines show China weighs methods for relaxing zero-Covid-19 grip; SGMS announced a co name change and new mgmt while posted Q4 AEBITDA (ex-lottery and sports betting) +6% to Consensus as gaming was ahead, driven by an improving game op mix and continued sequential recovery in tables and systems; DKNG positive mention at Morgan Stanley calling it top pick expect the US online sports betting / iGaming market to be very large, with a few market share winners, including DKNG.

·     In RV sector; CWH, THO downgraded to Hold from Buy at Truist saying they are taking a more cautious view of the RV space following recent dealer conversations. Early ’22 demand remains resilient; however, with inventory rebalancing in the latter stages and margins set to thin from record levels, we prefer names with better earnings visibility (LCII, WGO)

Energy

·     Energy stock movers: Oil prices on the rise again with WTI crude hitting highs of $112.51 (up nearly 9%) a barrel after the OPEC+ group that includes Russia agreed to stick to its agenda of raising output by just 400,000 barrels a day despite a tightening global market and skyrocketing prices. Oil prices have been surging as many European energy companies shun Russian crude. The West’s sanctions on Russian banks amid the Ukraine conflict continue to stoke supply concerns (Russian oil exports account for around 8% of global supply). Brent prices hit highs of $113.94 per barrel, up about 8% last around $113.40.

·     E&P and Majors; CNX, WHD, CNQ, CVX, COP, CTRA, E, EOG, EQT, OXY among energy names making 52-week highs; at Benchmark, the firm downgraded EOG, DVN and MRO to Hold from Buy on valuation saying prefers to focus on companies that are still reflecting oil prices at less than $75 per barrel, which the analyst estimates these three are not; XOM said it would exit Russia oil and gas operations that it has valued at more than $4 billion and halt new investment as a result of Moscow’s invasion of Ukraine

·     Utilities & Solar; solar stocks, which have been rising of late (ENPH, RUN, SEDG, SPWR) as seen as an alternative to oil with prices jumping to fresh 7-year highs, saw weakness early as FSLR posted a Q4 rev miss ($900M vs. est. $917.6M) and guided 2022 profit/revs below views – year sales $2.4B-42.6B vs. est. $2.73B; and sees year EPS flat to up $0.60 vs. est. $1.94; PLUG reported record 4Q21 revenues of $162Mm, which was 4% above the consensus but gross profit missed expectations, coming in at a loss of $32mm

Financials

·     Bank movers; broad rebound in banking/insurance stocks after recent pullback on plunging Treasury yields (SBNY, SIVB, CMA, ZION among top S&P gainers); Citigroup (C) hosted an investor day, saying it expected expenses to rise between 5% and 6% in 2022, excluding impact of divestitures and set new profitability targets, aiming for a medium-term return on equity of 11% to 12%, an improvement from its recent performance; said its expense efficiency ratio will improve to 60% to 63% in the near-term, compared to 65% in 2021 (also said on Monday its total exposure to Russia amounted to nearly $10 billion); FULT agreed to buy PBIP for about $136 million in cash and stock, at $17.52 a share

·     Insurance; ALL upgraded to Buy from Sell at Goldman Sachs and downgraded PGR to Neutral following their in-depth frequency/severity analysis of the auto insurance environment under various scenarios – have become more positive on the auto insurers, as see potential green shoots in declining used-car prices

·     Consumer Finance; SOFI posted a slightly smaller-than-expected loss for Q4 on in-line revs saying it added 523K new members, +39% sequentially, and 906K total products, +51% sequentially (guided Q1 revs below views but year revs above estimates); PSFE soars on its beat in fintech

Healthcare

·     Pharma movers; KPTI tumbles after saying it would need to conduct another study as part of its pursuit of expanded FDA approval of its Xpovio cancer drug in endometrial cancer – said it had held discussions with the FDA on its plans during which the agency said the study’s top-line results weren’t likely to support an approval; CCXI slides as Q4 revenue falls nearly 47% to $2.3M, missing estimates as recorded lower collaboration and license revenue in the qtr vs last year, while its net loss widened on higher expenses; PFE said FDA grants breakthrough therapy designation for its respiratory syncytial virus (RSV) vaccine candidate; JAZZ a big advance following better Q4 earnings results; ARDX upgraded at Jefferies to buy from hold, adding that Ibsrela alone can make the biotech firm profitable

·     Biotech movers; GILD said it received a complete response letter from the FDA regarding its application for an experimental HIV drug lenacapavir as the FDA raised questions about the use of a specific type of vial and whether it’s compatible with the drug solution; INO said that it has paused enrollment in an ongoing late-stage study of its lead COVID-19 vaccine candidate, INO-4800; said INO plans to seek approval from U.S. FDA to change the main goal of the study; SRPT shares rise following strong 2022 full-year net product revenue view to exceed $800M

·     MedTech Equipment; DXCM announced that the FDA has granted its CGM technology Breakthrough Device Designation for use in the hospital setting (Citi initiates a Positive Catalyst Watch on shares); ABT recalled some Similac PM 60/40 cans and cases produced at a Michigan facility, after an infant who was exposed to the powdered baby formula died, the U.S. FDA said

·     Healthcare Services; EHTH downgraded to Hold from Buy, and GOCO downgraded to Hold from Buy and cut tgt to $2 from $6, both at Truist following disappointing 4Q results. Results highlighted further expense pressure, but more importantly we see cash generation as the key for these stocks to work again and the road to positive OCF increasingly lacks visibility

Industrials & Materials

·     Aerospace & Defense; profit taking in the defense contractor companies LMT, RTX, LHX after recent gains on Ukraine/Russia conflict; BA said it has suspended parts and maintenance support for Russian airlines, adding further barriers for Russian airlines; ALK to modify its current order for 145 Boeing Co 737-9 aircraft to include the bigger 737-10 jets and longer range 737-8 jets

·     Transports, Industrial & Machinery; HYLN was upgraded to Neutral from Sell at UBS saying expectations have been reset to more reasonable levels (’23 consensus sales down 86% vs November); SWK entered into certain accelerated share repurchase agreements, to make initial payment of $1 bln to each of bank counterparties, to get initial delivery of about 10.8 mln shares of common stock; for rails (CSX, UNP, NSC) North American freight railroad traffic slips in the last week of February following strong gains a week earlier. Traffic falls 2.8% for the week ended Saturday on 12 reporting US, Canadian and Mexican railroads, a 5.5% drop in intermodal units more than offsetting a 0.2% gain in carloads

·     Metals & Materials; fertilizer stocks NTR, CF, UAN, MOS among gainers as price rally for grain prices of late (corn, wheat) likely a boon for them – wheat touching record highs recently given the Russian sanctions (SA notes Ukraine/Russia combined account for about 30% of wheat exports) – watch food names that may have trouble passing off costs GIS, K, CPB, CAG etc.; lumber related names advanced early RFP, LPX; shares of ADM, BG, MOS hitting 52-week highs

Technology, Media & Telecom

·     Internet; large cap Internet names were mixed with social media names slipping early SNAP, TWTR; WISH reported inline EPS on revenues that fell 64% YoY to miss estimates and announced a restructuring plan; IQ was upgraded to Overweight at JPMorgan, seeing multiple drivers to improve margins this year after Q4 earnings; DIBS downgraded at Raymond James to market perform citing slowing gross merchandise value growth and its current margin profile.

·     Services & Software movers; Dow component CRM reported quarterly results that handily beat Street expectations across the board with EPS beating by $0.11 on revs up 26% y/y to $7.33B (est. $7.24B), up 26% y/y, a slight deceleration from 27% last quarter and current RPO of $22.00B (consensus $21.42B); HPE was upgraded to Outperform at Bernstein with $20 tgt after earnings citing strong enterprise demand, a good setup, with a strong likelihood of upside to EPS and FCF and also an increasingly attractive valuation; huge night of earnings for software space with SPLK, SNOW, OKTA, PLAN, VEEV among names expected to report

·     Media & Telecom movers; ERIC shares were weak after it disclosed that the U.S. Justice Dept. informed the telecom company on Tuesday that its disclosures about its internal probe into its conduct in Iraq were "insufficient”; CHTR underperformed in cable space, pressured early; media space solid gains led by PARA, FOXA, DISCA, AMCX