Closing Recap

Thursday, March 24, 2022

Equity Market Recap

·     Unstoppable…would be the best word to describe the U.S. stock market over the last 8-days, pulling back modestly yesterday before recouping all (and then some today) as major averages continue to blast through key technical levels with ease as investors/PMs continue to chase performance into the end of the first quarter. The S&P cleared 4,500 for the third consecutive day after being unable to break through that level once in the prior five weeks and the Nasdaq closed above 14,000 for the second time in the past three days after failing to do so since February 16 as equities have furiously snapped back from recent multi-month lows. The Nasdaq’s remarkable rally has nearly halved its YTD losses since last Monday alone in a stretch that has seen the index gain at least 1% in six of the past eight sessions, a rare feat it had last accomplished in 2009. Tech’s outperformance today was spearheaded by an incredible move in semiconductor stocks that came on very little news in the sector but paced by NVDA and AMD. On the economic front, initial weekly jobless claims were 187,000, the lowest reading since 1969 as the labor market remains strong. There were very few (if any) pockets of weakness with all S&P sectors closing higher. Every dip has been met with additional buying pressure, squeezing shorts and further defying odds as markets have gone from oversold to overbought in a short time. The S&P topped its 200-day MA essentially on its first try with the 100-day higher at 4,547 as the next stop. Rising interest rates, inflation, Ukraine conflict having zero impact on sentiment. AAPL finished an 8-day winning streak where the weakest daily return is 0.65% – amazing!

·     Stock/Sector news; SMH SOXX Semis surge with all 30 components in the Philly Semi Index rising over 1% on the day and NVDA, INTC, MPWR, AMD, TER, LRCX, AVGO pacing the S&P; AAPL gets a boost in the afternoon after Bloomberg reports it is working on a hardware subscription service; UBER jumps to highest levels in more than 3 weeks after company reaches a deal to list all NYC taxis on its app; ALK soars to hit its best levels of March after issuing a 2022 outlook of higher capacity than 2019 with robust network growth through 2025; KBH rolls to 52-week lows after missing on the top and bottom lines, COOK plunges to record lows after its weaker guidance overshadows a quarterly beat and draws multiple downgrades, DRI red early after reporting weak quarterly sales and lowering the top-end of its FY guidance range but shares flip intraday.

Economic Data:

·     U.S. Jobless Claims fell -28K to 187K in latest week (lowest since 1969), well below the consensus 212,000 from 215,000 prior week; the 4-week moving average fell to 211,750 in latest week from 223,250 prior week; continued claims fell to 1.350M from 1.417M prior week (est. 1.410M); the U.S. insured unemployment Rate unchanged at 1.0%

·     Durables Goods Orders for February fell (-2.2%) vs. est. (-0.5%) and vs. Jan +1.6%; Feb Durables ex-transportation orders -0.6% vs. est. +0.6% and vs. Jan +0.8%; Feb Durables ex-defense orders -2.7% vs Jan +1.4% and Machinery orders -2.6%, electrical equipment +0.2%

·     IHS Markit March flash composite PMI at 58.5 (vs 55.9 in February) and U.S. IHS Markit March flash services PMI at 58.9 (vs 56.5 in February)

Commodities, Currencies & Treasuries

·     Oil futures slipped as WTI crude fell -2.25% or -$2.59 to settle at $112.34 per barrel, while Brent crude dropped -$2.57 to $119.03 per barrel, paring a massive run over the last 6-days (crude had risen over 20% the last week on expectations the EU would follow the US in its decision to ban imports of Russian crude oil – but hasn’t to this point). Natural gas prices erased earlier declines and shrug off a bearish weekly storage report to finish 3.2% higher at $5.401mmBtu, the highest closing price since Feb. 2. Gold prices rose to a more than one-week high as concerns over soaring prices and uncertainty surrounding the war in Ukraine lifted bullion’s appeal as a safe-haven and an inflation hedge. Gold rose 1.3% at $1,962.20. Treasury yields opened higher but slipped throughout to end modestly higher while the dollar was again modestly higher, though extended its massive gains vs. the safe-haven Japanese yen, rising a 5^th straight session to highest since December 2015 at 122.40 with the BoJ expected keep its soft monetary policy in place.

Sector News Breakdown

Consumer

·     Retailers; COOK Q4 beat EPS and revenue consensus but shares opened at record lows after Jefferies and Stifel downgraded to Hold as revenue guidance for Q1 $208-212M vs est. $255.6M and FY22 $800-850M vs est. $955.9M overshadowed the beat, and shares of other grill maker WEBR also fell in sympathy; OLLI Q4 adj EPS 69c vs est. 66c on revenue $501.1M vs est. $513.1M, comp sales (-10.5%), and sees Q1 sales $417-422M vs est. $444.3M and comps down (-15%) to (-14%) vs est. (-10.8%); Northland upgraded IRBT to Outperform and raised their estimates after yesterday’s USTR confirmation it will reinstate an exclusion for robotic vacuum cleaners from Section 301 tariffs that management estimated would degrade gross margin $42-$44M on its Q4 call; MOV Q4 adj EPS $1.32 on sales $206M, raised its div to 35c from 25c, sees FY23 sales $780-800M vs est. $774M, and said it plans to complete buybacks under its current authorization at an accelerated pace; OXM Q4 adj EPS $1.68 vs est. $1.43 on revs $300M vs est. $294.6M, raised its div 31% to 55c, and issued stronger guidance for FY adj EPS; Deutsche lowered their PT on LULU to $410 from $453 ahead of next week’s earnings; SPWH with $75M share buyback program

·     Auto sector; JPM lowered estimates almost across the board for autos coverage (GM, F, etc.) given the ongoing conflict in Ukraine saying while the direct impact on production may not be large, the indirect impact on demand has the potential to be much greater; NKLA confirmed it started production of its electric commercial truck, the Tre, last week at its Coolidge, Ariz., factory; previously said full production to start by end of Q2; RIVN tgt trimmed to $95 at Mizuho on lower ramp expectations given 1H supply constraints and startup challenges

·     Housing & Building Products; housing stocks have been in downward spiral amid ramping Treasury yields and mortgage rates, as the XHB is tracking for its 11th down week in last 12; KBH overnight with mixed Q1 earnings as EPS $1.47 vs. est. $1.56 but Q1 revs rose 23% to $1.4B below the consensus est. $1.5B and said deliveries in the period were flat with a year earlier at 2,868, below estimates of 3,168 amid supply chain issues. The 30-year fixed mortgage rate has risen from 3.2% to start the year up to 4.53% in less than 3 months.

·     Consumer Staples; POST downgraded to Hold from Buy at Truist and cut tgt from $120 to $70 and lowering estimates to reflect the spinoff of BRBR on March 10, 2022, the Sum-of-the-Parts Trade has played out, but the stock still trades at a premium to packaged goods peers; Berenberg downgrades IFF to Hold from Buy, price target $144 from $165; PM canceled its plans to manufacture more than 20B Terea Sticks in Russia and related ongoing investment of $150M

·     Restaurants; DRI posted a top and bottom line Q3 miss ($1.93/$2.45B below est. $2.10/$2.51B) and tightens its FY22 sales and profit forecasts saying the Omicron variant hit demand and staffing (sees year EPS $7.30-$7.45, down from $7.35-$7.60); ARCO was upgraded to Buy at Bank America pointing to stronger than expected sales for the restaurant operator, impressive gross margin recovery and better operating leverage on leaner cost structures

·     Casinos, Gaming, Lodging & Leisure sector; UBER agreed to a deal to list all New York City taxis on its app as it looks to overcome a shortage of drivers in one of its biggest markets; deal was announced by Creative Mobile Technologies, and Curb, a ride-hailing app for licensed taxi and for-hire rides in North America; Guggenheim noted WWE and MBC Group announced a major broadcast partnership this morning for the Middle East and North Africa. MBC’s video on demand streaming service, Shahid, will become the home of WWE in the MENA region; TCOM reported a profit in Q4 vs expected loss with revenue above consensus

Energy

·     Energy stock movers; TTE said it is aiming to reduce greenhouse gas emissions from its fuel product sales by more than 30% from 2015 levels by 2030 and about half of its production to be renewables by 2050 and said Russia is impacting its cash flow but is still scheduling its $2B buyback in 1H; EOG downgraded to Hold at TD Securities but with a higher $140 PT from $130

·     Utilities & Solar; SOL Q4 adj EPS 4c vs est. 6c on revenue $22.8M vs est. $24.9M, guided Q1 revs $3-4M below est. $22M and FY revs $100-120M vs est. $128.4M; JPMorgan initiated AY at Neutral with a $40 tgt as its dividend, growth, and renewables exposure offers appeal, but its risk-reward is balanced; ATO entered into equity distribution agreement for sale of up to $1B in shares

Financials

·     Bank movers; Citi assumed coverage on regional banks after base case assumes a total of eight hikes in 2022 and two additional 25bp hikes in 2023, reaching a terminal rate of 2.5%. In this scenario, MTB is their preferred name and maintain Buys on CFG, CMA, and RF while FITB and KEY remain Neutral rated – also launched a pair trade of overweight CFG/underweight KEY

·     Services; FDS posted Q2 adj EPS $3.27 vs est. $2.98 on revenue $431.1M vs est. $427M and raised its FY guidance for adj EPS to $12.75-13.15 from $12-12.30 (est. $12.56) and revenue to $1.8-1.83B from $1.71-1.72B (est. $1.75B); Credit Suisse reinstated SPGI at Outperform after its transformational $44B merger with IHS and said investors should use recent issuance uncertainty as an entry point; Citi assumed COF at Buy as rising credit card and auto loan growth provides a revenue boost, its significant investment in tech infrastructure should pay dividends in years ahead, and its modestly asset sensitive balance sheet will benefit from rising interest rates

Healthcare

·     Pharma movers; cannabis stocks TLRY, CGC, CRON surged late day on reports Federal Marijuana legalization bill officially scheduled for House Floor vote next week (citing Marijuana moment article) https://bit.ly/3ix2Wmi ; PFE received FDA Breakthrough Therapy Designation to its RSVpreF vaccine candidate for the prevention of lower respiratory tract disease caused by respiratory syncytial virus in individuals 60 years of age or older; NVS said the FDA gave its prostate-cancer treatment, Pluvicto, the green light, and it is now expected to become available within weeks; APLS public offering of 7.45M common shares was priced at $47/share for total proceeds of $350M

·     Biotech movers; MRNA raises its full-year forecast for sales of its COVID-19 vaccine to roughly $21 bln, up from $19 bln forecast in February and option for $3 bln in additional purchases; PTGX CFO submitted his notice of resignation from his position to be effective on April 1, 2022.

Industrials & Materials

·     Aerospace & Defense; LDOS downgraded and BAH top picks in government services at Wells Fargo as see a positive setup for government services from here as COVID disruption and contract delays abate, while funding likely moves higher, particularly for defense; Cowen noted implications for likes of ATI and HWM after the International Aerospace Quality Group (IAQG), which certifies aerospace suppliers, stopped qualifying Russian-made aero parts – firm thinks it’s probable that U.S. aerospace titanium suppliers & forgers will see lasting share gains

·     Industrial & Machinery; The Architectural Billings Index (ABI) for February was 51.3 on a headline basis, a tick up from the 51.0 in January. Project Inquires was 62.5 last month compared to 61.9 in January. By sector, Commercial/Industrial was 55.4, up from 54.2. Multi-family Residential was 52.6 compared to 50.1 in January; TITN reported mixed Q4 results and softer guidance; JCI was upgraded to Buy at Deutsche Bank given 21% upside to our new $79 PT; Jefferies modestly cautious on TEX and OSK as reduce forecasts saying 90% of survey respondents indicating that they intended to spend at or below normal levels for equipment in 2022 the implication is minimal further fleet expansion once backlogs are delivered; the USPS placed its initial next gen delivery vehicle order with OSK for 50,000 vehicles at $2.98B

·     Transports; ALK announced plans to increase its network by an average of 4% to 8% per year through 2025, said Q1 bookings have improved dramatically since hitting lows in early January and that demand for travel has returned to above 2019 levels; and also renewed its partnership with BAC through 2030; Deutsche sees a less positive outlook for EU airlines after the EMEA Airlines index rallied +20% since the Mar 7 lows with concerns about a potentially weaker EU consumer due to inflationary pressures and lower EBITDA forecasts due to elevated oil prices, and they downgraded ICAGY, DLAKY, WZZZY to Hold from Buy and also lowered their PTs on Sell-rated AFLYY, Hold-rated ESYJYand Buy-rated RYAAY; Wells upgraded WERN to EW with a $46 PT from $38 after meeting with senior leadership increased their conviction that the business portfolio should reflect its increasing strength, though they think its earnings growth could underperform its peers near term given the ongoing strength in the transport market; CP was downgraded to Hold from Buy at Raymond James

·     Metals & Materials; several changes in metal space at Morgan Stanley as AA downgraded to EW from OW and SCCO downgraded to underweight and downgrading iron ore names VALE, CMIN, and CAP to EW (from OW) as we see limited upside to our new PTs and less appealing risk-rewards. Commodity prices remain elevated, yet downside risks are building on potential demand destruction. Tactically downgrading mining industry view to In-Line to reflect risks of a stagflationary shock and secular tailwinds from electrification trends; SCHN upgraded to OW at KeyBank; JPMorgan sees broad upside for steel equities after raising price forecasts in the wake of the Russia-Ukraine invasion with CLF remaining their clear top pick and STZHF upgraded to OW; GOLD sold its 12.9% shareholding in SKE for about C$132.5M; FCX tgt raised to $65 from $58 at Jefferies saying the company is in a position to deliver consistently high capital returns and we also expect it to use its FCF to invest in its LT growth options

Technology, Media & Telecom

·     Semiconductors; early market leaders paced by gains in NVDA, INTC, as chips broadly higher early as the Philly semi index (SOX) moved back above the 3,500 level as much as 4.3% at its best as investors go “all-in” on chips to end the week; VNE said today that the deal that will see it bought by QCOM and SSW Partners would close on April 1; WOLF added to Citi’s US Focus List as view SiC as a key enabling technology for improved energy efficiency and the push to meet COP26 emission standards; UBS added AVGO to its Global Equity List given attractive valuation, steady revenues growth, and strong FCF generation

·     Software movers; PING upgraded to buy at Stifel saying the security-software company may benefit following a breach at OKTA; MOMO shares tumbled following a Q4 profit miss and weaker outlook as sees total net revenue for Q1 to be between RMB3.1 billion and RMB3.2 billion ($486.7 million to $502.4 million), representing a decline of 10.7% to 7.8% y/y

·     Hardware, Components & Services; NTAP downgraded to Neutral from Buy at Bank America as upward momentum in PCS & AFA are counter-balanced by risk from investments, and n/t supply chain challenges; Bloomberg reported AAPL is working on a hardware subscription service for iPhones and is expected to offer the service by end of 2022 or in 2023

·     Internet, Media & Telecom movers; SPOT rises after GOOGL announced deal that allows Spotify’s app within the Google Play Store to offer a choice between its alternative payment method and Google’s own – other digital content providers active as well BMBL, MTCH, DUOL; Rosenblatt initiated INFN at Buy as its top pick in the optical systems space