Closing Recap

Thursday, November 03, 2022

Index	Up/Down	%	Last
DJ Industrials	-148.42	0.46%	31,999
S&P 500	-40.01	1.06%	3,719
Nasdaq	-181.86	1.73%	10,342
Russell 2000	-9.40	0.53%	1,779

 

Equity Market Recap

·     US equities tried to rally off a weak open but continued to slip after trading lower in reaction to Powell’s press conference comments yesterday and a move back up in yields. While investors expected some commentary on the potential to slow the pace of rate hikes in the future, sentiment had swung far enough in the direction of some Fed pivot expectations that the market was not happy with the idea of higher end-game rates. In fact, the last 90 minutes of trading yesterday was the worst for a Fed Day for the S&P since 1994 (per @bespokeinvest), so a bit more weakness today probably shouldn’t be much of a shock. That said, today’s market, like earnings season thus far, was a bit of a mixed bag. Breadth was negative, but by less than 2:1 so not overwhelming. Perhaps the upside of this mini reset is today’s Fear & Greed Index swung back to Neutral after a recent period of Greed readings.

·     Sector-wise, again a bit of mixed bag. Energy (XLE) and Industrials (XLI) led gaining group with advances of 1-2%, with Materials (XLB) and Utilities (XLU) also strong performers. The other end of the performance spectrum saw Technology (XLK) and Communications (XLC) each slide by around 2-2.5%. Financials (XLF), Healthcare (XLV) and Consumer (both Discretionary XLY and Staples XLP) all also finished in the red. Growth and Value each lost ground today, but as indicated in the sector performance, Value outperformed. The Russell 1000 Growth index slipped by about 1% while the Value component eased by less than 50bps.

 

Economic Data:

·     3Q22 nonfarm productivity rose +0.3% (q/q) vs. +0.6% est. & down from (-4.1%) prior; unit labor costs rose +3.5% vs. +4%.1 est. & vs. +8.9% prior (revised down from +10.2%)

·     Weekly Jobless Claims fell to 217K in latest week from 218K prior and consensus 220K; the 4-week moving average fell to 218,750 from 219,250 prior; continued claims rose to 1.485M from 1.438M prior; the U.S. insured unemployment rate unchanged at 1.0%

·     September International Trade in Goods and Services deficit (-$73.30B) vs. (-$72.20B) consensus and (-$65.70B) in August; exports were $258.0B, down $2.8B from August, while imports rose by $4.8B to $331.3B; goods deficit increased $6.6B to $92.7B and the services surplus of $19.5B slid $1.0B; China sept trade deficit $37.29B vs aug deficit $37.44B

·     ISM U.S. Non-manufacturing sector shows PMI 54.4 in October vs 56.7 in September; business activity index 55.7 in October vs 59.1 in September; prices paid index 70.7 in October 68.7; new orders index 56.5 in October vs 60.6 prior and employment index 49.1 in October vs 53.0

·     Sept factory orders +0.3% in-line with estimates and vs. Aug +0.2% while factory orders ex-transportation -0.1% vs Aug +0.1% and factory orders ex-defense +0.8%

·     October S&P Global U.S. PMI Composite (Final) 48.2 vs. 47.3 consensus and 49.5 prior.

 

Commodities

·     WTI crude oil falls -$1.83 or 2.03% to settle at $88.17 per barrel, but that didn’t stop energy from steaks leading the S&P gainers along with industrials on better earnings. Oil slipped as an increase to U.S. interest rates pushed up the dollar and heightened fears of a global recession that would crimp fuel demand, though losses were capped by concern over tight supply. Brent crude futures settle at $94.67/bbl, down $1.49, or 1.5%.

·     Gold prices slide -$19.10 or 1.2% to settle at $1,630.90 an ounce, lowest levels since April 2020, again pressured by a jump in the dollar (rising over 1%) and Treasury yields after FOMC meeting results yesterday laid groundwork for longer and higher rates into next year, but likely not at the same aggressive pace.

 

Currencies & Treasuries

·     Treasury yields jumped across the board, though finished well off the morning/overnight highs, getting a further boost after yesterdays FOMC policy meeting comments. The 10-year yield up 6 bps to 4.12% after earlier highs above 4.22% and the 2-year gains over 12-bps to 4.7% with highs around 4.74% (highest since 2007) – spread inversion between 2s, 10s topped 60-bps.

·     The U.S. dollar extended Wednesday gains, with the index (DXY) rising 1.4% to around 113 after the Fed signaled U.S. interest rates will likely peak at a higher rate than markets had expected, while the pound fell after the Bank of England raised rates by 75-bps (the new norm by central banks) but warned of a "very challenging outlook." The BoE lifted UK interest rates to 3% from 2.25% in its largest single increase since 1989 while forecast inflation will hit a 40-year high of around 11% during the current quarter. The euro fell 0.7% against the dollar to $0.975 and the pound dropped -1.8% below $1.12.

 

 

Macro	Up/Down	Last
WTI Crude	-1.83	88.17
Brent	-1.49	94.67
Gold	-19.10	1,630.90
EUR/USD	-0.0066	0.9751
JPY/USD	0.28	148.18
10-Year Note	0.052	4.113%

 

 

Sector News Breakdown

Consumer

·     Retailers: ETSY rises after reported Q3 revenue that topped expectations and delivered guidance for Q4 in line with analyst consensus; UAA 2Q adj EPS $0.20 vs est. $0.16 on revs $1.6B vs est. $1.55B, gross margin 45.4% -560bps; sees FY revs +low-single-digit % vs est. +4%, gross margin down 375-425bps and adj EPS $0.44-0.48 vs est. $0.43; CROX 3Q adj EPS $2.97 vs est. $2.61 on revs $985.1Mm vs est. $944.2Mm, comps +18.2%; HEYDUDE revs +87%; adj op margin 27.9%; guides FY revs $3.455-3.52B vs est. $3.46B; EBAY delivered 3Q results that exceeded expectations as GMV beat estimate by ~3% and EBITDA by 8% while analysts note macro factors like FX will weigh on 4Q and spill into ’23; COST reported total and U.S. core October comp growth of 6.7% and 6.1%, respectively, compared to consensus of 6.1% and 6.3%; VSTO weighs on sporting goods names after lowering year earnings forecast and announced CFO leaving; GIL and PTON among other retailers down early on earnings; BKE Oct. Net Sales $98.8M vs. $96.5M

·     NRF says sees holiday retail sales during 2022 November & December to grow between 6% and 8% over 2021 to between $942.6 billion and $960.4 billion saying while consumers feeling pressure of inflation and higher prices, consumers remain resilient and continue to engage in commerce. NRF sees holiday season online & other non-store sales, to increase between 10% and 12% to between $262.8 bln & $267.6 bln

·     Housing & Building Products: ZG Q3 results came in well ahead of the muted guidance provided last quarter for y/ y revenue declines as users, visits, segment revenue, and adj. EBITDA all came in solidly ahead of consensus, but analyst caution macro pressures; SKY downgrade to SP at RBC Capital saying a significant erosion in orders and backlog creates meaningfully more uncertainty around underlying demand and results looking through 2H’23 and FY’24; Wayfair (W) in home furnishing posted earnings beat but noted decline in active customers and orders per customer drove its quarterly loss 

·     Consumer Staples: a day after weak EL results in beauty space, ELF posts strong quarter that beat across all metrics, and raised FY’23 guidance of $30M on the top line and $10M on adj. EBITDA; in food, Kellogg (K) posts top and bottom-line beats with improved organic sales and raises view; TWNK reported better than expected 3Q results with sales and EBITDA above consensus; in restaurants, PZZA adj EPS missed, SHAK in-line and QSR adj EPS beat, RRGB tumbles on results

·     Lodging & Leisure sector: MAR posted a 34% jump in Q3 revenue above ests and EPS just above as the summer travel boom and the continuing recovery in business travel drove the hotel company’s results – said global RevPAR topped 2019 levels for the quarter; Hyatt (H) Q3 EPS topped estimates and said continue to see demand accelerating and our outlook remains optimistic based on our latest booking trends; BKNG reported total bookings and revenue of $32.1bn and $6.1bn, above Street consensus by ~5% and ~3% respectively. In addition, BKNG generated $2.66bn in 3Q EBITDA, modestly ahead of consensus estimates (EXPE EPS tonight)

·     Gaming & Casinos: MGM Q3 results fell a bit shy of some expectations, though posted another solid quarter, with strength in Vegas offsetting a margin driven miss in the Regionals; PENN slides on earnings results

 

Energy

·     E&P and Majors: COP raises qtrly div by 11%, boosts existing buyback by $20B following stronger earnings results; CPE delivered a high-quality EBITDA beat due to strong production and modestly increased 2022 capex; MRO delivered a mixed 3Q22 with adjusted EPS and EBITDA ahead of ests but FCF coming in lower as increased FY22 capex to $1.4bn to maintain operational momentum while maintaining production guidance – also said is acquiring Ensign Natural Resources for $3B; APA delivered a 3Q22 beat with adjusted EBITDA and FCF coming ahead of ests, driven by better than project opex relative to our estimate and guided ~5% adjusted production growth and ~12% adjusted oil growth in 4Q22 as North Sea volumes returned to normalized levels; CRC lifts dividend by 66% to $0.2825/share, boosts share buyback plan by $200M; MUR declines on production cut for year

·     Utilities & Solar: in solar, RUN Q3 exceeded expectations on most key metrics and maintaining its FY guidance as net earning assets increasing 10% q/q, up from 3% in 2Q; DQ subsidiaries Xinjiang Daqo and Inner Mongolia Daqo sign a five-year polysilicon supply agreement with a leading solar manufacturing company in China; in coal, BTU Q3 results top views and said quarterly tons sold increased more than 4 mln tons from previous quarter to 32.7 mln tons; Q3 earnings dominate the news flow for utilities as PEG, CNP, AVA, OTTR, WEC, EIX, and ETR reported results earlier this week and results from EXC, PNW, SRE this morning and ED, DUK, AEE, and D are on tap for the remainder of the week; XEL receives ND PSC approval in its gas rate case settlement

 

Financials

·     Bank & Broker movers: HOOD reached profitability earlier than expected, while reported $361M revenues, a bit below the Street’s $362.5M, primarily due to lower crypto and other revenue, while net interest revenue and EBITDA were meaningfully above; CFR, ZION downgrade from Outperform to Peer Perform at Wolfe noting they have outperformed

·     Insurance: LNC tumbles, downgraded at Morgan Stanley and tgt to $54 saying investor confidence in Lincoln is likely to be severely impacted by an outsized charge that drove a large EPS loss of ($10.23), and drove book value per share (ex-AOCI) to decline 17% to $64; MET earnings were above consensus but below Piper ests as variable investment income (VII) was ~$0.60 below plan and tax rate was ~$0.09 higher than their estimate; ALL reported Q3 loss in-line with recent preannouncement FinTech & Payments;

·     FinTech, Bitcoin news: RIOT produced 509 BTC, an increase of approximately 10% as compared to October 2021 production of 464 BTC; MARA produced a record 615 BTC in October 2022. As of November 1, operating mining fleet consisted of approximately 69,000 active miners, producing approximately 7.0 EH/s; COIN earnings tonight after the close; FIS tumbles after Q3 miss and guides FY22 EPS $6.60-$6.66, below consensus $7.02 and revs $14.47B-$14.52B vs. est. $14.64B; (FISV, GPN down in reaction – PYPL results tonight)

·     REITs: LSI Q3 results exceeded expectations with quarterly FFO of $1.73 beating consensus by $0.06 and the high end of management’s quarterly guidance; NSA reported in-line 3Q results, management decreased the FY22 Core FFO guidance midpoint by lowering the high end of the range, which now sits $0.01 below consensus; RLJ saw favorable improvement in portfolio fundamentals relative to 2Q22 and vs. expectations, as adjusted EBITDA and adjusted FFO came in ahead of consensus. RevPAR in 3Q22 remained below 2019 levels; KRG reported a big 3Q22 beat, with FFO as adjusted topping consensus by $0.03, or $0.04 including ~$0.005 of cash collections from previously reserved amounts; INN reported mixed 3Q22 results, with adj. EBITDA missing expectations by ~5% and adj. FFO in line with consensus. Operating results in the quarter vs. the comparable 2019 period improved modestly vs. 2Q22; GMRE Q3 FFO missed expectations, which may reflect the impact from prior occupancy loss and the timing and volume of investment activity; EPR reported a 3Q22 beat (+$0.01 vs. consensus) and management increased its FY22 FFOAA (FFO, as adjusted) guidance by 0.9% at the midpoint; SKT reported a $0.03 3Q22 beat and management increased FY22 FFO guidance by 2.6% at the midpoint; RPT reported a $0.02 3Q beat and management increased its FY22 guidance range by ~0.5% at the midpoint by lifting the low end of the range by $0.01/sh. Consensus of $1.03 is just below the revised midpoint

 

Healthcare

·     Pharma movers: TEVA Q3 adj EPS $0.59/$3.6B vs. rest. $0.62/$3.83B while still sees FY adj EBITDA $4.7B-$5.0B and EPS $2.40-$2.60 (est. $2.53) and NY AG says company will pay up to $4.2B nationwide to settle opioid claims, settlement concludes New York opioid trial; ALKS upgraded to OW from Neutral at Piper and raising our PT to $30 from $26 amid management’s announcement that it is planning to separate its oncology segment; KURA receives $25M equity investment from BMY; AUPH slides as said sales of its lupus nephritis therapy Lupkynis are expected to be lower than analysts estimated for the year

·     Biotech movers: MRNA tumbles after Q3 sales miss and cutting its annual sales forecast for COVID-19 vaccine to $18B-$19B from prior view $21B citing short-term supply constraints that would push some deliveries to next year; REGN Q3 adj EPS $11.14 vs. est. $9.72; Q3 revs $2.94B vs. est. $2.91B; Q3 Eylea Net Product Sales $2.45B vs. est. $2.53B; guides FY R&D Expenses $3.52B-$3.6B, up from prior view of $3.49B-$3.66B; SAVA filed a lawsuit in federal court against certain individuals who executed a "short and distort" campaign against company

·     MedTech Equipment & Services: TNDM tumbles as Q3 results which missed slightly on the top-line and cuts FY22 revenue view to $800M-$805M from $835M-$845M (est. $836M); CI Q3 adj EPS $6.04 tops consensus $5.71 and revs $45.28B beats est. $44.76B; Now expects adjusted EPS of at least $23.10, higher than at least $22.90 per share earlier and above estimate of $23 per share – also boosts year rev outlook

 

Industrials & Materials

·     Industrial & Machinery: a ton of earnings results out; for heavy duty truckers (CMI, PCAR), Cowen notes October Class 8 orders came in at a strong 42.5K units following 53K in September, which had marked a big recovery from 21K in August and 11K in July but said this won’t last; IR 3Q adj EPS $0.62 vs est. $0.59 on revs $1.516B vs est. $1.45B; sees FY organic revs +12-14% vs prior +11-13%; PWR narrows FY adj EBITDA to $1.65B-$1.70B from $1.64B-$1.71B while also narrowed year earnings outlook; JCI, CMI, PH among others with earnings results; WCN reported 3Q22 adj. EBITDA of $588M, which beat consensus of $583M driven by margins, which expanded by 20 bps; in auto suppliers, AXL shares spiked on a Bloomberg report midday saying it was attracting preliminary interest from suitors https://bloom.bg/3t1xYIc ; GNRC hits 52-week lows

·     Chemicals: CF reported 3Q22 adjusted EBITDA of $983M vs. est. $1.14B, with miss largely driven by realized selling prices in Urea and Ammonia, and somewhat lighter than expected volumes; NTR was downgraded to Sector Perform from Outperform at Scotiabank which follows weak results (drag on MOS); APD outperforms early following quarterly results

·     Materials: CCK rises after the WSJ reported activist investor Carl Icahn has accumulated a $700M stake, making him the 2nd largest holder with a stake of about 8% https://on.wsj.com/3NvRA0B ; BALL also reported better results lifting shares; in lithium space, ALB mixed Q3 results as EPS beat and revs come up short while guides FY sales and profit midpoint below views (followed weaker results from LTHM the day prior that dragged shares lower) – both names bounced today

 

Technology, Media & Telecom

·     Media, Internet: Elon Musk plans to eliminate about half of the jobs at Twitter in a drive to cut costs following his takeover, people familiar with the matter told Bloomberg; FSLY post a second consecutive beat in 3Q22 on top line [by 2% in 2Q22, 5% in 3Q22 (which was raised 3% on 2Q call)]. 4Q top line was also raised 2.5%; ROKU tumbles as Q3 results generally better but Q4 rev guidance of approx $800Mm sharply below the est. $895Mm (Q3 net loss of $122.2M compared with net profit of $68.94M a year ago); WWE Q3 EPS $0.49 vs. est. $0.50; Q3 revs rose 19% y/y to $304.6M vs. est. $281.9M; sees FY22 adjusted OIBDA at upper end of $370M-$385M range

·     Semiconductors: QCOM posted in-line F4Q results but shockingly bad F1Q, impacted by weak smartphone sell-through compounded by OEMs drawing down buffer inventories and lowered its CY22 smartphone outlook from +MSD to LDD declines; QRVO reported an in-line SepQ but guided the DecQ down 37% q/q to $725M (est. $1.13B) with high inventory and a soft consumer market as noted several DecQ challenges; MKSI reported 3Q22 EPS of $2.74, above consensus of $2.39 and revs of $954M was 1% above consensus of $947M; POWI delivered 3Q results slightly below midpoint of guidance range, but guided 4Q revs significantly below expectations as demand deteriorated further in the qtr across Handsets, Consumer, and parts of Industrial

·     Software movers: HUBS delivered a strong Q3 revenue beat, despite the worsening macro environment with lengthening sales cycles, tighter budgets, and more levels of approval; PCOR delivered another solid quarter, beating on the top and bottom line as an uptick in large deal activity helped contribute to an acceleration in both 3Q rev growth (organic +35% y/y) and ST RPO (organic +38% y/y); DDOG 3Q adj EPS $0.23 vs est. $0.16 on revs $437Mm vs est. $414.3Mm, and guides 4Q revs $445-449Mm vs est. $446.6Mm; CTSH was downgraded by a couple of analysts following earnings/guidance results; FROG Q3 revs of $72M grew 34% y/y (5 pts deceleration q/q) and was 1.4% above the midpoint of guidance/NRR moderated in the quarter, ticking down two points q/q to 130% on a TTM basis; CFLT strong as cloud rev growth proves more resilient than peers with nice outperformance in cloud

·     Security software movers: FTNT quarter itself was good and growth impressive off a tough comp, but focus was on the billings guide, backlog trends preliminary thoughts around CY/23 including product growth trajectory; RPD reported a mixed quarter that missed ARR expectations but beat OM and EPS estimates, prompted downgrades at Truist and Mizuho; QLYS posted beat on top and bottom line for Q3 narrowly but focus on Q4 billings performance coming in at $124.6M (vs. est. at $132.8M) due to significant FX headwinds and a multi-year prepaid deal expiring

·     Telecom movers: ATUS reported lower-than-expected broadband net adds while revenue and EBITDA also came under pressure in the quarter, sending shares lower; SBGI downgraded to Underweight from Overweight, and PT cut to $16 from $30 at Wells Fargo saying while stock is inexpensive, it faces multiple headwinds; LUMN falls as eliminates the dividend while announcing a $1.5B/2-year buyback; also will sell its EMEA business to Colt Technology Services for $1.8B