Closing Recap

Thursday, May 05, 2022

Equity Market Recap

·     US equities rolled heavily and returned yesterday’s afternoon spike gains as productivity disappointed and Treasury yields resumed their climb. Despite Powell’s less hawkish comments yesterday, implied probabilities shifted to imply a 75% chance of a +75bps hike at the June meeting. Despite a modest attempt at a rally mid-day, indices still finished near the lows.

·     Pretty much every sector was hit with little relief. Consumer discretionary, tech and communication service led S&P sector declines, while utilities, energy and consumer staples fared a little better but still slid roughly 1.5-2.5%.

·     Neither growth, nor value was spared, but value did come out ahead as one may expect in a Fed-related slide. The Russell 1000 growth finished about -5.5%, while value slid about -3%.

Economic Data:

·     US Challenger Layoffs moved up to 24.286k versus a previous 21.387k and was led by the leisure and hospitality industry.

·     US jobless claims rose to 200,000 versus 182,000 expected and 181,000 the prior week, while the 4-wk average rose to 188,000 from 180,000 the prior week and unemployment rate was unchanged at 1.0%.

·     US 1Q non-farm productivity slid by an annualize 7.5% in 1Q versus -5.4% consensus and +6.3% pace in 4Q, while non-farm unit labor costs jumped at an 11.6% rate versus consensus of +9.9%.

Commodities

·     NatGas added to recent gains despite the US EIA Natural Gas report of BCF actual 77B vs and expected 69B and prior 40B. June gas futures settled at $8.7830/mmbtu, +4.37%.

·     Oil gave up most early gains, settling at $108.26/bbl (up $0.45, or 0.42%). The US said it is initiating a replenishment plan for the SPR, to open bids in Fall 2022, for 60Mm barrels with the first batch most likely delivered after 2023.

·     Gold also faded early gains as the Dollar and long Treasury yields pushed higher, settling up just $6.90, or 0.3%, to $1,875.70/oz after a slight decline yesterday.

Currencies & Treasuries

·     US Treasury 10-year yield hit its highest level since November 2018, rising above 3.1%.

·     The long end also saw strong gains, with the 20-year topping 3.4% and the 30-year hitting 3.2% (highest since December 2018), pushing US mortgage rates to their highest levels since August 2009.

·     The dollar rebounded, with the DXY rising back close to $104 before easing back a bit, but still finishing up more than $1.00.

Sector News Breakdown

Consumer

·     Retailer and apparel; W was hit hard after posting 1Q adj EPS ($1.96) vs est ($1.63) on revs of $3.0B vs est $3.16B and announced CFO transition. LOVE, BBBY, WSM, RH also were hit in the home space, all falling more than 5%. COST April comps beat expectations with total comps +12.6% vs est +9.1%. US comps ex-gas climbed 8.1%, also beating the est +7.7%. GIL 1Q adj EPS of $0.76 showed strength against the $0.51 est, with revs also beating expectations. Management noted, though, that while 1Q saw strong demand for activewear in North America, the early 2Q selling period has experienced some deceleration. KTB beat with 1Q adj EPS $1.43 vs est $1.23 on revs $680Mm vs est $655.3Mm, guides FY revs more than $2.7B vs est $2.7B and EPS $4.75-4.85 vs est $4.52. CROX posted 1Q adj EPS $2.05 vs est $1.55 on revs $660.1Mm vs est $621.9Mm; guides 2Q revs $918-957Mm vs est $960.5Mm; sees FY revs about $3.5B vs est $3.42B with adj EPS $10.05-10.65 vs est $9.98.

·     Consumer Staples; TWNK 1Q beat with adj EPS $0.27 vs est $0.22 on revs $332.1Mm vs est $296.8Mm, while raising the FY guide to adj EPS $0.93-0.98 vs est $0.97 and revs at least +12% vs est +7.45%. K also posted a beat with 1Q adj EPS of $1.10 vs est $0.93 and net sales of $3.73B vs est $3.67B, while also raising FY organic net sales growth guidance to +4% from +3%. Management indicated supply chain bottlenecks and shortages are likely to persist at least through the first half of the year but sees full commercial activity in the cereal portfolio resuming in the back half.

·     Autos – FSR came in just shy of consensus EPS results, ($0.41) vs est ($0.40), but indicated progress toward getting products to market despite volatile supply chain issues. Reservations climbed about 50% from the last earnings call to more than 45,000. NKLA managed an up day after posting upside results with 1Q adj EBITDA of ($79.2Mm) vs an expected ($108.8Mm). Management indicated the company expects to produce 310-510 Tre BEV trucks in 2022 and deliver 300-500.

·     Restaurants; PZZA 1Q adj EPS $0.95 vs est $0.94 on revs $542.7Mm vs est $540.4Mm, comps +1.9% North America and +0.8% international; sees global restaurant count growing +6-8% annually for FY23-25.

Energy

·     E&P and Majors; Warren Buffett’s Berkshire Hathaway (BRK) bought more OXY stock this week purchasing 5.9 million shares for about $345 million; APA Q1 EPS was 4.7% below consensus and cut its 2022 production guide by 1.7% due to the impact of production sharing contracts in Egypt but raised its 2022 capex guide by 7.8%; CLR Q1 EPS was 1.8% above consensus and 1Q22 capex was 8.4% below consensus while 1Q22 oil production and 1Q22 total production were pre-reported/reiterated its 2022 capex guidance; PXD Q1 EPS 1.8% above consensus, but 2Q22 oil production guidance was 1.8% below consensus, 1Q22 capex was 2.7% below consensus and reiterated its 2022 production and capex guidance; SHEL posted its highest quarterly earnings on record, as the company was buoyed by high oil and gas prices

·     Utilities & Solar; in solar, RUN wider Q1 loss of ($0.42) vs est. ($0.17) but revs of $495.8Mm, handily top consensus and raises guidance while announces CFO stepping down at end of May, appointed Danny Abajian to act as new CFO as of May 30 and files a mixed shelf offering

Financials

·     Financials movers; LNC, SBNY, ICE, BEN, IVZ all slipped more than 6% and were the S&P financials laggards.

·     OPAD Q1 homes sold grew 254% Y/Y, revenue of $1.4B came in 20% above the high end of guidance, and EBITDA of $50 million (3.7% margin) marked the sixth consecutive quarter of positive EBITDA

·     Bitcoin pretty much tracked the market moves today and faded with the equity indices during the afternoon, moving back below $36,000, about -9.6%.

Healthcare

·     Biotech; ZYME slid after mixed bag results, despite seeing an upgrade at GUGG.

·     MedTech Equipment; TNDM hit hard after results. Revs beat for the quarter and FY revs guide was in-line/above Street growth forecast, but growth trajectory and longevity concerns outweighed results.

Industrials & Materials

·     Industrial & Machinery; PWR 1Q adj EPS $1.37 vs est $1.22 on revs $4B vs est $3.6B; guides FY revs $16.2-16.7B vs est $16.2B and adj EPS $6.00-6.50 vs est $6.28 as company looks to work through $20.5B record total backlog.

·     Transports; EADSY said 1Q profit more than tripled to $1.28B as aircraft deliveries continue to recover. Management indicated the market for single-aisle jets is very strong and the company will build a second assembly at its Mobile, Alabama plant to increase production in the A320 family. The company continues to project delivery of 720 aircraft this year.

·     Metals & Materials; ALB reported 1Q22 EBITDA of $432M, beating consensus of $328M as beat our expectations in both Lithium and Bromine Specialties, while missing expectations in Catalysts and EBITDA margins came in better than expected at 38.3%; CTVA reported 1Q22 EBITDA of $1,039M, compared to consensus of $926M as beat in Crop Protection and missed in Seeds. WRK 2Q adj EPS $1.17 vs est $1.02 on revs $5.4B vs est $5.1B; authorizes additional 25Mm share repurchase program. BERY 2Q adj EPS $1.93 vs est $1.77 on sales $3.8B vs est $3.7B; reaffirms FY adj EPS and FCF guide, sees FY adj EPS $7.20-7.70 vs est $7.23, sees organic volume growth improving sequentially with 2H +low-single-digit.

Technology, Media & Telecom

·     Internet; in online travel, BKNG helped boost a beaten-up travel sector after reported better-than-expected 1Q22 results as bookings, revenue, and EBITDA came in 8%, 7%, and ~2x above consensus, respectively, while April demand improved from 1Q and summer bookings are already 15% above 2019 levels (group is down this week post EXPE, HLT results); ETSY beat expectations slightly in Q1, the Q2 outlook is below consensus; EBAY slides after warning the war in Ukraine, inflation and consumer confidence, will pressure results in the near term as provides lackluster Q2 sales and profit outlook.

·     Semiconductors; QRVO 4Q adj EPS of $3.12 came in ahead of the Street projection of $2.93 and revs of $1.166B also beat the estimate, but 1Q guide was soft with mention of challenges related to China Covid lockdowns, the war in Ukraine and other disruptions; SIMO rises after Bloomberg reported MXL is in talks to purchase the chipmaker, saying a deal may be announced in the coming days if negotiations are successful https://bit.ly/3MNI5s8 ; WOLF posted mixed quarterly results and guidance

·     Software movers; TWLO reported better-than-expected Q1 EPS of $0.00 vs. est. loss ($0.21)) on revenue of $875.4M, up 48% y/y (consensus $862.5M) and up 35% organically, while Q2 guidance was somewhat disappointing on revenue of $912.0M-$922.0M (consensus $919.3M); QLYS reported F1Q22 results with non-GAAP EPS of $0.89 (consensus $0.80) on revenue of $113.4M, up 17% y/y (consensus $113.0M) with slightly better year revenue guidance; ZETA slid after a Bear Cave short report saying the company is a roll-up of low-quality marketing and data gathering companies.

·     Hardware, Components & Services; TTMI 4Q results and 1Q22 revenue outlook were both better than est. as defense spending and price increases drive solid outlook