Closing Recap

Wednesday, May 04, 2022

Equity Market Recap

·     US equities finished broadly higher in volatile afternoon trading after the Fed’s +50bps rate move met expectations and Powell eased fears. Stocks were generally softer much of the morning, but climbed heading into the FOMC statement, with growth lagging value, but the lack of “bad news” from the Fed sparked a brief relief rally, which Powell then cemented when he indicated +75bps increases not being actively considered. Stocks extended gains through the final hour.   

·     Energy, communication, technology, and financials paced S&P sector gainers as the market moved past a huge point of uncertainty. Utilities, healthcare, and real estate lagged, but still finished with gains. Growth rallied back from sluggish early trading to lead value higher post-Fed, with the Russell 1000 growth +1.75% and Russell 1000 value +1.58%.

Economic Data:

·     ADP national employment report weaker: shows U.S. Employment increased by 247K private sector jobs in April (smallest since April 2020), below the +395K estimate and prior month reviewed up to 479K from 455K

·     The U.S. posts its largest trade deficit since Jan 1992 at -$109.8B vs. est. deficit -$106.7B and wider than the -$89.8B in February (revised from -$89.2B). March exports were $241.7B, $12.9B more than February exports, while imports for the month were $351.5B, $32.9B prior

·     ISM U.S. Non-manufacturing sector shows PMI 57.1 in April vs 58.3 in March, which was also the estimate; business activity index 59.1 in April vs 55.5 in March; prices paid index 84.6 in April vs 83.8 in March; non-manufacturing new orders index 54.6 (lowest since Feb ’21) in April vs 60.1 in March; non-manufacturing employment index 49.5 in April vs 54.0 in March

Commodities, Currencies & Treasuries

·     Oil prices jumped as the European Union spelled out plans to phase out imports of Russian oil, offsetting demand worries in top importer China. The European Union intends to ban Russian crude imports over the next six months and refined fuels by year-end. A bullish weekly inventory report also helped oil prices rise. WTI crude settled at $107.81/bbl or up $5.40 (+5.27%). Natural gas prices hit highest levels since 2008, settling at $8.415/mmbtu, up $0.46 or +5.7%.

·     Gold action was fairly muted ahead of the Fed statement, settling slightly lower at $1,868.80 or -$1.80 (-0.1%). The move reversed part of yesterday’s small bounce as the Dollar and Treasuries also were largely on hold ahead of the Fed decision. Silver settled -$0.29, or -1.30%, to $22.37 and continued to lag as economic fears weighed a bit on its more industrial status. Both gold and silver jumped higher off their settlement levels after Powell downplayed future +75bps moves from the Fed.

·     The Fed announced a +50bps move, as expected.  Implied probabilities ahead of the meeting showed more than a 90% likelihood of the +50bps decision, with a small remainder looking for +75bps, so the move was generally as telegraphed. June probabilities pre-announcement saw about a 60% chance of +50bps, with 40% of +75bps, shifting to about 90% for +50bps and 10% for +75bps after the Fed statement and Powell’s comments. Futures are now suggesting a 94% probability of the Fed funds rate of at least 2.75% at year-end. The statement further indicated balance sheet trimming to begin on June 1, starting with $47.5 bln cap on monthly runoff, and rising to $95 bln monthly after three months.

·     10-year Treasury yields and the Dollar both slid late, after Powell downplayed consideration of +75bps Fed moves. The 10-year yield reversed back to about 2.94% after crossing the 3% threshold earlier in the day and the DXY slipped back below $103.

Sector News Breakdown

Consumer

·     Retailers; RVLV shares fell despite 1Q results beating expectations amid flow through concerns due to cost pressures (fuel price surcharges, higher return rates, inflation, etc.); BGFV shares fell early, pressuring sporting goods stores (HIBB, ASO, DKS) after Q1 results mostly in line but guided Q2 below estimates; TUP shares tumble, hitting fresh 52-week lows after posting a 16% drop in Q1 sales to $348M vs. est. $356.8M citing delays in its turnaround plan and pulled its earnings guidance.

·     Auto sector; DIDI disclosed in a regulatory form Tuesday that the SEC had contacted the company and made inquiries about the IPO, according to an annual report filed with U.S. regulators; CVNA downgraded to EW from OW at Morgan Stanley saying while CVNA’s auto retail/fulfillment infrastructure looks well positioned for the future, the company must take action to adjust its cost structure to remain a growing business; PRTS rises following better-than-expected quarterly results; sales rose 15% to $166.12M vs. est. $162.1M

·     Housing & Building Products; LL Q1 EPS $0.13 below est. $0.16; Q1 sales $279M vs. est. $281.5M and comp sales fell -3.6% vs. +6.9% Y/Y; homebuilders remain pressured overall amid the uptick in Treasury yields, impacting the rise in mortgage rates, with the 30-year now well above 5%

·     Consumer Staples; ANDE Q1 net income fell to $5.5M, or $0.18, from $15.1M, or $0.35, in the year-ago quarter, while revs rose 53% Y/Y; FRPT 4.32M share Secondary priced at $81.00; HLF downgraded to Hold at Jefferies post earnings saying business outlook has skewed lower vs. their model for several quarters, shaking confidence in our ability to estimate with conviction; defensive food stocks saw strength early while broader averages slid

·     Restaurants; SBUX posts better-than-expected revenue and in-line Q2 profit while suspended its forecast for the Q3 and Q4, citing inflation, its planned investments in its workers and COVID restrictions in China; EAT shares fall as Q3 EPS of $0.92 misses by a dime on in-line revs and better comps of +13.5% vs. est. +11.2% but lowers year EPS view to $3.05-$3.30 from $3.50-$3.80 and below consensus $3.47; YUM Q1 comp sales rose 3%, missing the 3.8% estimate and revs of $1.55B missed the $1.59B estimate; DENN Q1 adj. EPS of $0.11 was below consensus of $0.13 on comp sales growth of 30.6% vs. 27.7% est. and franchised SSS growth of 22.8% vs. 26.9% est.; WING Q1 EPS misses by $0.02 and revs only rose 7.6% Y/Y to $76.2M below est. $86.2M; QSR downgrade from Buy to Hold w/ $58 PT at Stifel saying Burger King U.S. and Tim Hortons Canada’s turnaround efforts remain early stage.

·     Leisure sector; online travel sector dropped on Monday after cautious guidance from HLT and mixed commentary from EXPE, but ABNB overnight forecast Q2 rev of $2.03B-$2.13B above ests $1.96B, lifting shares; in ride-hailing sector, LYFT shares tumble as it forecast Q2 adj EBITDA of $10M-$20M and Q2 revs of $950M-$1B vs. est. $1.02B (shares originally rose on Q1 Ebitda beat of $54.8M vs. prior guide $5M-$15M); UBER also followed lower despite Q1 revs beat ($6.85B vs est. $6.13B) as posts net loss of $5.9B with a $5.6B headwind relating to Uber’s equity investments; in RV space, CWH Q1 EPS $1.15 vs. est. $1.38; Q1 revs rose 6.7% to $1.70B vs. est. $1.64B; Q1 adjusted EBITDA was $182.1M, a decrease of $7.2M, or 3.8%; in gaming,

·     Lodging and Casinos; CZR posts in-line quarterly loss and revs – as delivered 1Q results that were largely better than expected. Combined land based (EBITDAR was +$28mn ahead of consensus, while Caesars Digital was $39mn below; MAR Q1 Adj EBITDA 759mn vs est. 657.2mn driven by stronger M+F fees, better owned & leased EBITDA, and lower G&A; RRR 1Q22 net revenue came in below our forecast, stronger than expected margins offset the shortfall and brought LV locals adjusted EBITDA in line with our $195 mm estimate

Energy

·     Energy stock movers; energy stocks were broadly higher early amid rising oil prices after the European Union revealed plans to phase out imports of Russian oil, offsetting demand concerns in top importer China. Oil prices also got a boost following bullish weekly inventory data

·     E&P and Majors; CRK delivered adjusted EPS and EBITDAX in line with estimates, while FCF fell short on higher capital spending and company is raising the FY22 capital budget 16% on higher than anticipated cost inflation in the current commodity price environment; MUR Q1 production 141kboe/d was at the top end of guidance, EBITDA $361mm vs cons $383mm and raised capex guidance raised by 7%

·     Equipment & Services; PUMP reported adj Q1 EBITDA of $67M — excluding the adjustments for stock comp and loss on disposals, $39M was comparable $41M estimate and post healthy sequential improvement in both activity and margins; Pipelines: OKE 1Q consensus in line on eps/ebitda and maintained 2022 EBITDA guidance; defensive utilities saw strength early as investors flocked to safety of dividend paying sectors

Financials

·     Bank, Brokers, Exchanges movers; after weeks of underperformance, big banks saw a rebound for a 2^nd day into the FOMC meeting; HOOD said it launches a stock lending option; in insurance; AIG Q1 profit topped ests as EPS $1.30 beat the $1.18 consensus helped by strong underwriting gains and lower catastrophe losses; VOYA earnings missed consensus on a normalized basis as full-service flows came in at the 1Q22 guide offered while investment Management earnings missed handily driven by lower fees; PRU reported operating EPS of $3.17, comfortably above consensus of $2.70; excess variable income above normal levels contributing $275M

·     Financial Services, Consumer Finance; for NRDS, Morgan Stanley said Credit Cards and Other Verticals strength offset weakness in Loans, as rate and macro volatility has accelerated and is likely persistent. Despite high S&M spend, engagement success and valuation dynamics (i.e., ~3x EV / Cash) are worth monitoring through a changing credit environment; PAYC 1Q22 results beat expectations across the board with revenue growth of 30% (~400 basis points better than expectations) as the company benefited from strong new client additions; AFRM said it will be offering its services to FISV’s merchant clients as part of an agreement announced Wednesday, who will be able to add an Affirm option to their checkout process later this year

Healthcare

·     Pharma movers; HZNP Q1 adj EPS above expectations ($1.34 vs $1.17 est.) on revenue about 2% above expectations ($885M vs $869B est.), reiterates FY guide. Q1 orphan net sales above estimates ($834.4M vs $807M est.) while Inflammation net sales below expectations; TEVA downgraded from Neutral to Underweight and cut tgt to $7 from $11 at Piper saying persistent challenges associated with the business model render the shares uninvestable, in their view

·     Biotech movers; MRNA Q1 revenue $6.1B vs $1.9B YoY and well above estimate of around $5B and EPS $8.58 vs. $2.84 YoY and estimate $5.37 saying had cash, cash equivalents $19.3B and expects to have four programs in Phase 3 in Q2: Omicron-containing bivalent COVID booster, flu, RSV, CMV; REGN reported 1Q results, with revenue ahead, where collaboration revenues were ahead while Libtayo and Praluent were light/higher R&D was offset by lower SG&A

·     MedTech Equipment; MASI 1Q22 revenue was in-line with its preannouncement while EPS beat consensus and management updated its prior 2022 guidance to account for Sound United/rev growth slowed to 3.2% CC Y/Y in 1Q22 from 11.5% CC; PKI 1Q revenue of $1,259mn beat est. of $1,189mn, 4Q EPS of $2.41 significantly beat consensus of $2.12 and 2Q22 EPS guidance of $2.00 to $2.05 was above consensus of $1.67; BRKR 1Q results, with revenue and EPS ahead. Underlying organic growth guidance and M&A contribution for FY was raised

·     Healthcare Services; ABC Q2 adj EPS $3.22 vs. est. $2.93; Q2 revs $57.7B vs. est. $57.27B; raises FY22 adjusted EPS view to $10.80-$11.05 from $10.60-$10.90 (est. $10.79); sees adjusted operating income to grow at least in the high-teens percent range, up from growth in the high-teens percent range; CVS Q1 adj EPS $2.22 vs. est. $2.15; Q1 revs $76.83B vs. est. $75.39B; raises year EPS forecast to $8.20-$8.40 from prior $81.0-$8.30 (est. $8.27) while reaffirms cash flow from operations of $12B-$13B

Industrials & Materials

·     Industrial & Machinery; GNRC posts beat and raise as EPS $2.09 vs $1.96 and revs $1.14bn beat by 5%, with ebitda in line and sales growth forecast raised to +36-40% from +32-36% while adj ebitda mid-point reduced to 22% from 22.5%; JCI slides early after better Q2 EPS on Ebitda miss but guides Q3 EPS 82c-87c vs street $1.02 (organic guided +HSD) and now sees FY EPS $2.95-3.05 vs prior midpoint $3.27; EMR raises FY22 adjusted EPS view to $4.95-$5.10 from $4.90-$5.05 after headline beat, driven by better than expected topline and expects topline +8-10% vs prior +6-8%. FCF guidance slightly lowered, still expects $3b by year end; TT Q1 EPS 1.12 vs 99c estimate, segment EBIT beat by 6% and didn’t change guidance; CMI, PCAR active after Class 8 truck orders declined -53% yoy in April vs -47% yoy in March (15,800 in April vs. 21,215 prior).

·     Metals & Materials; lithium producer LTHM surges on Q1 profit and sales beat while raises FY22 revenue view to $755M-$835M from $540M-$600M and raises adjusted EBITDA view to $290M-$350M from $160M-$200M (ALB, SQM, LAC move in reaction); MOS, NTR shares active on reports the EU proposes sanctions on main Belarus potash companies as proposed sanctions package also targets oil refinery Naftan

Technology, Media & Telecom

·     Internet, Media; AKAM shares fall as Q1 EPS missed by $0.03 and lowered its full-year EPS/rev forecast citing lost revenue from terminated Russian operations, strengthening dollar and lower internet traffic; MTCH reported 1Q22 revenue and EBITDA ahead of consensus, but 2Q guidance fell short of expectations and FY22 guidance is expected to now be at the low end of the previous 15-20% revenue growth guidance

·     Semiconductors; chip makers active following a bevy of reports with AMD 1Q adj EPS $1.13 topping est. $0.91 on revs $5.8B vs est. $5.5B and guides FY revs $26.3B vs est. $25.15B; SWKS posted in-line Q1 results but guided Q3 revs $1.2B-$1.26B below est. $1.3B, sending shares lower; CRUS with a top and bottom line Q1 beat while sees Q1 revenue $350M-$390M above est. $300M; LSCC also a beat and raise for its quarter; IPGP Q22 revenue and diluted EPS both beat its previous guidance and consensus

·     Software movers; AYX delivered a solid 1Q as ARR grew 33% Y/Y, accelerating for the 4th consecutive quarter; SPT reported Q1 results ahead of expectations with accelerating $50K+ customer growth for a seasonally strong Q1 showing for enterprise results. Total revenue came in at $57.4M representing 41% revenue growth and 9% FCF margin; FRSH posted Q1 total revenue increasing by $9.2M sequentially on another consecutive quarter of +40% y/y growth topping views, but shares fell early on mixed Q2 outlook; PLTR said it was chosen by Department of Health and Human Services (HHS) for an analytics solution as part of a 5-year, $90 mln, blanket purchase agreement

·     Hardware, Components & Services; INFN tumbles on wider Q1 EPS loss (-$0.07) vs. est. loss (-$0.04); Q1 revs $338.9M vs. est. $361.7M; sees Q2 revs $350M plus/minus $20m vs. est. $379.9M hurt by suspension of operations in Russia