Closing Recap

Tuesday, November 23, 2021

Equity Market Recap

·     U.S. stocks finished mixed on Tuesday, as market leaders financials and energy helped boost the S&P and Dow, while a second day of selling pressure in high growth technology stocks given rising yields and interest rate fears weighed on the Nasdaq Composite (pulling back from all-time highs early Monday). Treasury yields and the dollar both jumped, which weighed on interest rate sensitive sectors (housing, tech, etc.), while pushing banks and insurance names broadly higher. The White House said it would release oil from the SPR to lower prices, but the news had the opposite effect as oil prices jumped. Along with tech, Consumer Discretionary was among the top decliners amid weakness in Tesla (TSLA) on profit taking/momentum and after some retail earnings disappointments (BBY shares tumbled after results). Markets still dealing with news yesterday as President Joe Biden nominated Federal Reserve Board Chair Jerome Powell to another four-year term, which boosted bets on both a near-term acceleration of the Fed’s tapering strategy, as well as those linked to a 2022 rate hike. U.S. markets will be closed on Thursday in observance of Thanksgiving and will end early on Friday.

·     The inflation impact hitting consumers was further evident today after DLTR announced it would be raising prices to $1.25 by the end of April, after selling items at $1 for 35 years, while in the food space, GIS said it would be raising prices on hundreds of items in January. The Fed’s call over the last year that inflation was “transitory” appears to have been miscalculated with prices rising in all aspects of life weighing on Americans. Today, the U.S. along with several other countries announced they would be coordinating tapping their strategic oil reserves in a bid to temper gasoline prices and inflation (only the 3^rd time in last 35-years the U.S. has tapped the SPR), not due to demand needs, but simply to help ease prices.

·     Stock & Sector Movers: ZM plunges despite beating Q3 consensus and raising its full-year EPS, revenue as shares plunge on decelerating growth as workers return to the office, trade below $200 for the first time in 18 months; several retailers report quarterly results: In apparel, URBN plummeted on slowing comp sales growth and inventory affected by supply chain issues, ANF tumbles on declining margin due to supply chain issues, and AEO jumps on its beat; in off-price retailers, DLTR leaps to record highs after a relatively in-line quarter and a new $1.25 price point and BURL surges on its beat; in specialty stores, DKS (sporting goods) and BBY (tech) fall more than 10% at lows despite beat/raise quarters on slowing comp sales and e-commerce growth; SJM strong after its beat and raise, lifts other food names CAG, CPB, KHC, HRL; CBRL stumbles on its EPS miss while JACK drops on its same-store sales miss in restaurants; KEYS ATH after its results, MU, WDC outperform after Mizuho upgrades each to Buy on rebounding demand; A, MDT slip after results, ZBH comes close to 52-week lows on an Argus downgrade but pares losses intraday as MedTech names underperform; Turkish ETF craters and the Lira trades at its lowest vs the USD in the latest leg lower of its sustained selloff after President Erdogan defended the country’s central bank cutting rates in the past few months; SAN, CAIXY, BNPQY, BBVA Spanish banks also pressured given their large loan exposure to Turkey

Economic Data:

·     November U.S. PMI Composite Flash reported at 56.5 vs. 57.8 consensus and 57.3 prior, while the Manufacturing PMI at 59.1 vs. 58.6 consensus and 59.2 prior and Service PMI down at 57.0 vs. 59.0 consensus and 58.2 prior.

·     Richmond Fed Composite Manufacturing index +11 in Nov vs +12 in Oct, while manufacturing shipments index +4 in Nov vs +1 in Oct

Commodities

·     Oil prices move to 1-week highs, as WTI crude gains $1.75, or 2.28% to settle at $78.50 per barrel after falling below $76 in early-morning trading. The White House announced a release from the Strategic Petroleum reserve (SPR) with other countries, but the market was unphased (possibly fears what OPEC says/does in reaction). The United States said it would release millions of barrels of oil in coordination with China, India, South Korea, Japan, and Britain, to try to cool prices after OPEC+ producers repeatedly ignored calls for more crude. Recent talk of reserve releases (this was well telegraphed) along with a strong U.S. dollar and a potential hit to energy demand from a fourth wave of COVID-19 cases in Europe has pressured prices into the week (oil prices come into the week with a 3-week losing streak).

·     Gold prices slide -$22.50 or 1.2% to settle at $1,783.80 an ounce, falling for a 4th straight session amid a surge in the dollar (back to 16-month highs) and Treasury yields. Gold prices have fallen nearly $100 since scaling a five-month peak of $1,876.90 per ounce last week. With today’s close, the dollar moves back to 3-week lows as the renomination of U.S. Federal Reserve Chair Jerome Powell fueled bets of faster interest rate hikes, bolstering the dollar and Treasury yields. Other precious metals also slid with silver and palladium declining as well. Investors are betting Powell will step up the pace at which the central bank is normalizing monetary policy.

Currencies & Treasuries

·     The U.S. dollar index (DXY) held near a 16-month high (96.61) a day after Federal Reserve Chair Powell was picked for a second term by President Biden, reinforcing market expectations U.S. interest rates will rise in 2022. The euro bounced off 16-month lows, but held around the 1.125 level, helped by better economic data. But the big story in currencies was the Turkish Lira, falling to a record low for an 11^th straight day vs. the dollar after President Erdogan defended recent sharp rate cuts, and vowed to win his "economic war of independence" despite widespread criticism and pleas to reverse course. Erdogan has applied pressure on the central bank to pivot to an aggressive easing cycle to boost exports, investment, and jobs – even as inflation soars to near 20% and the currency depreciation accelerates. Bitcoin stabilized after sliding for the past two days, trading above $57,000, roughly 18% below its latest all-time highs 2-weeks ago.

·     Treasury yields moved higher across the board for a second day on rising interest rate expectations after President Joe Biden nominated Federal Reserve Board Chair Jerome Powell to another four-year term on Monday, which boosted bets on both a near-term acceleration of the Fed’s tapering strategy, as well as those linked to a 2022 rate hike. The 10-year Treasury note yield topped highs above 1.66% before paring gains posy 7-yr auction, while the yield on the two-year note climbed to 0.644%, the highest level since March 2020. The U.S. Treasury auctioned $59B in 7-year notes at a yield of 1.588% vs. 1.598% when issued prior, with the bid-to-cover at 2.42 (vs. 2.25 prior auction) as indirect bidders awarded 59.29% and directs receive 23.28%.

Sector News Breakdown

Consumer

·     Hardline/broadline Retailers; BBY tumbles as Q3 EPS $2.08 tops $1.91 estimate on better sales $11.91B vs. est. $11.58B) as sees FY enterprise comp sales +10.5% to +11.5%, vs. est. +10.7% after Q4 comp sales in the U.S. were up 1.2% vs. -1.3% consensus and international sales were -3% vs. -5.3% consensus; but shares fell as digital sales rose only 2% for the quarter (rose 22% same period last year), margins of 23.5% compared to 23.6% last year while warns still facing higher costs on supply issues; CENT F4Q with sales and EPS above Street estimates and introduced its FY22 guidance of EPS to be $3.10 or better versus the Street’s $3.08 estimate

·     Discount/Sporting goods/department stores: DKS Q3 adj EPS $3.19 easily tops consensus $1.97 on better revs of $2.75B vs. est. $2.5B while raises year EPS view to $12.88-$13.06 from $11-$11.45; also said Q3 comp sales increased 12.2% on top of a 23.2% increase in Q3’20 and a 6.0% increase in the third quarter of 2019; JWN earnings after the close; DLTR in-line results and narrows FY21 EPS view to $5.48-$5.58 from $5.40-$5.60 and narrows FY21 revenue view to $26.25B-$26.41B from $26.19B-$26.44B vs. consensus $26.26B 9also said is raising prices to $1.25); BURL 3Q adj EPS $1.36 vs est. $1.26 on revs $2.3B vs est. $2.22B, comps +16%, inventory 1.06B vs 1.004B YoY; sees +77 net new stores for FY21; not providing other sales or earnings guidance for FY; MOV 3Q adj EPS $1.36 vs est. $1.01 on sales $217.7Mm vs est. $211Mm

·     Specialty retailers; AEO Q3 results topped estimates as Consolidated store revenue increased 29% and total digital revenue increased 10%; ANF board approves $500M share buyback plan after Q3 EPS of $0.86 topped the $0.66 est. on better ales of $905M (est. $895m) saying digital sales rose 8%; URBN tumbles Q3 rev and EPS beat analysts’ estimates, but said comparable retail segment net sales at Anthropologie rose 9% in Q3 versus 14% in Q2 as supply chain issues hit inventory levels and said it saw mid-single-digit negative retail store sales due to reduced store traffic; GPS earnings after the close tonight

·     Consumer Staples; SJM rises early amid Beat and Raise quarter as Topline, GM, and EPS were better driven by coffee and pet food and guides sales higher while says Q3 GMs expected to be down 150bps then improve in Q4; Impossible Foods Inc. said it raised about $500 million in a funding round at an undisclosed valuation; defensive food related sectors outperformed broader markets as growth stocks slipped on rising interest rate expectations; GIS notified retail customers that it’s raising prices in mid-January on hundreds of items across dozens of brands

·     Restaurants; JACK slips after posted a Q4 margin decline and same-store sales that missed expectations rising +0.1%, missing the consensus for 3.1% growth, while restaurant-level margins were 20.1%, down 6.9% from the year-ago period, driven by higher costs; CBRL Q1 adj EPS misses at $1.52 vs. est. $1.55 on better revs $784.93M vs. est. $774.55M. Compared to the first quarter of fiscal 2019, comparable store restaurant sales increased 1.4% and comparable store retail sales increased 17.6%.

·     Casinos, Gaming, Lodging & Leisure sector; GENI posts a 70% rise in Q3 revenue to $69.1M, topping the $62.8M estimate while its sports technology & services business grew 159% as guides FY21 revs about $257M-$262M vs. est. $256.4M; LTRY shares rose after Chardan initiated it with a Buy rating and $17 PT; HC Wainwright lowered their estimates on VS and their PT to $5 from $7 as they now see the ad component to begin in 2H22 and accelerate from 2023-24, leading to their FY22 revenue model now at C$5.2M from C$11M, and they also reiterated their Buy rating and $11PT on ELYS as the successful launch of U.S. gaming in Washington, DC and acquisition of US Bookmaking means its US business should begin contributing positive results in Q4, which should serve as a catalyst with new contract announcements and location openings; Morgan Stanley resumed reinstated MGM at EW with a $51 PT despite its strong YTD EBITDA beats and forecast of Q4 outperformance as they see risks to 2022 if stops beating consensus and BetMGM loses share given increased competition

Energy

·     Energy stock movers; oil related stocks were the biggest market gainers on the day, helping support the S&P 500 index (paring its losses), led by gains in OXY, APA, SLB, HES, PXD and others; oil prices oscillated after the White House said the U.S., China, Japan and other countries would tap strategic oil reserves in a bid to temper gasoline prices and inflation. The U.S. and several other countries will tap their national strategic petroleum reserves, senior Biden administration officials said Tuesday, to bring down rising gasoline prices that have become a big contributor to inflation. India will release 5 million barrels of oil from its strategic reserves. For pressure pumpers (LBRT, NEX, PUMP), Stifel said they believe U.S. pressure pumping profitability will rise sharply in 2022 driven by high commodity prices, tightening pressure pumping supply and demand, and improved industry discipline

·     Pipelines & Refiners: CLMT upgrade from Market Perform to Outperform at Cowen (also upgraded to Outperform at Wolfe) and raises PT to $23 from $12 after the co announced that it had secured financing for phase 2 of its renewable diesel, noting the project is worth >$20/share alone, with additional upside to equity from other parts of the business; TRP formally opens one of the largest trade appeals ever against the U.S., seeking to recoup more than $15B in damages connected to President Biden’s decision to revoke a permit for the Keystone XL pipeline.

·     Utilities & Solar; in solar, Wells Fargo initiated a few names with an Overweight on SEDG and $441 tgt saying it stands to benefit from several long-term tailwinds in the solar market and an overweight and $313 tgt on ENPH while was neutral rated on FSLR ($115 tgt); ARRY shares slid CEO announced his intent to step down by end of 2022

Financials

·     Bank movers; SIVB’s investment-banking unit SVB Leerink is said in talks to purchase equities-research firm MoffettNathanson LLC, according to a Bloomberg report last night; The Financial Stability Board, a global group of regulators, recommended regulators require JPM, GS, BNP Paribas (BNPQY) to set aside a further 0.5% of common equity Tier 1 capital effective January 2023 to largely reflect the underlying activity, given growing balance sheets in response to increased central bank stimulus and government spending; Spanish banks pressured (CAIXY, BBVA) as Turkey-exposed European banks fell as the lira slumped after President Tayyip Erdogan defended recent sharp interest rate cuts

·     Insurance; Goldman reinstated coverage on several insurance stocks with Buy ratings on AIG ($74 PT), CB ($230), HIG ($84), PGR ($104), and WRB ($99), a Neutral rating on TRV ($165), and a Sell rating on ALL ($74); Argus reiterated UWMC as a Buy following Q3 results with an attractive valuation following its pullback since its SPAC merger in January

·     Bitcoin, FinTech & Payments; Ark Invest bought shares of HOOD, COIN, MELI, CND, SQ, STNE, TOST and sold shares of PYPL, OPEN across their ARKW (Internet) and ARKF (Financial) ETFs; UBS raised their PT on FDS to $471 from $415 after its meeting with the new CFO highlighted opportunities to show margin upside and run the company with more leverage over time, but they keep their Neutral rating with shares trading more than two standard deviations above its premium to the S&P 500 over the last five years

·     Consumer Lending & Services; TRU upgraded to OW with a $140 target at Atlantic after their FY22 guidance showed lower EPS dilution than feared from the company’s pending acquisitions, removing a key headwind; RMAX Q3 prelim adj EPS $0.71 vs est. $1.40 on revs $91M vs est. $88M, narrowed its FY guidance for revenue to $326.5-330.5M from $321-336M; CBRE approved a $2b share buyback program over the next 5 years and was upgraded to Outperform at KBW; Wells reiterated their OW rating on SLM and still believes its valuation is attractive

Healthcare

·     Pharma movers; PFE was awarded a $1.4B modification to a contract for an additional 200M doses of Pfizer’s COVID-19 vaccine for international donation; ARWR entered a drug development deal with GSK for development and marketing of ARWR’s drug candidate, ARO-HSD, for treating patients with fatty liver disease NASH as the co to get an upfront payment of $120M, and as much as $590M in sales-related milestone payments; BMY announced the European Commission has granted a Marketing Authorization for Zeposia, or ozanimod, for the treatment of adults with moderately to severely active ulcerative colitis

·     Biotech movers; AMYT slides after saying the U.S. FDA extended the review of its lead drug candidate, Oleogel-S10, by three months and will now give its decision by Feb. 28th; also says it is in the process of addressing the EMA’s questions on the drug and expects its opinion in January; AADI said the U.S. FDA has approved FYARRO, its lead candidate for treatment of malignant perivascular epithelioid cell tumor

·     MedTech Equipment; Agilent (A) posted a modest top-line beat on organic and a solid bottom-line beat, with an outlook on fiscal 2022 that brackets consensus. Strength was seen across the portfolio, with notable performance in Pharma (+21%), Diagnostics and Clinical (+11%), and the economically sensitive C&E market growing an impressive 12% according to Stifel; MDT reported sales short of expectations ($7.85B vs. est. $7.96B) and slashed its outlook for year sales growth to 7% to 8%, down from prior guidance of around 9%; ZBH downgraded to hold from Buy at Argus saying Zimmer is facing headwinds from the spread of the Delta variant, the deferral of elective procedures, and pricing cuts in China; DXCM files automatic mixed securities shelf

·     Healthcare Services; GDRX tgt raised to $52 from $42 at Cowen and updated model to reflect revised 2021 guidance as raise 2021 rev est. to $749.8M toward the midpoint of guidance and raised our adj. EBITDA est. to $234.8M for margin of 31.3% in-line with guidance; CVS and WBA shares slipped midday after a U.S. jury finds the pharmacy operators and WMT helped cause opioid epidemic in two Ohio counties

Industrials & Materials

·     Industrial, Aerospace & Defense; TDG upgraded to Buy at bank America calling it one of their top picks ahead of the commercial aerospace recovery as remain positive on TDG’s unique market position; AMWD shares slide on earnings miss (Q2 adj EPS $0.62 vs. est. $0.86; Q2 revs rose 1% to $453.2M vs. est. $467.25M) while said sees adj ebitda margins to improve as price realization better matches inflationary impacts, improve productivity; E&C names higher after DY Q3 adj EPS $0.95 vs. est. $0.69; Q3 revs $854M vs. est. $814.79M and said expects contract revenues for the quarter ending January to increase modestly from Non-GAAP Organic Contract Revs of $691.8M; Jacobs (J) Q4 adj EPS $1.58 vs. est. $1.57; Q4 revs $3.59B vs. est. $3.71B; backlog increased $2.8B to $26.6B, up 12% year-over-year; FLOW rises after a report that the company is seeing a lot of interest in its sales process. https://bit.ly/3FB81Ue

Technology, Media & Telecom

·     Semiconductors; MU (tgt raised to $95 from $75) and WDC (tgt to $75 from $55) both upgraded to Buy at Mizuho saying 1H22 demand trends are improving across all three markets with 1) 1Q22 PC/NB builds only FLAT to down 5% q/q (above prior assumption for down 10-15% q/q), with 2022 PCs FLAT to UP 5% y/y, 2) Handsets better as China OEMs could have a counter-seasonal FLAT 1Q22 (above previous assumption of down 10% q/q), 3) Server demand could improve in 1Q22 with AMZN orders returning potentially early 1Q22, despite >10 week DRAM inventory ; MRVL tgt raised to $100 from $75 at Oppenheimer; ADI posted a narrow Q4 EPS and sales beat with guidance above consensus views

·     Hardware, Software movers; ZM plunges despite beating Q3 consensus and raising its full-year EPS, revenue guidance ranges but shares plunge on decelerating growth as workers return to the office, trade below $200 for the first time in 18 months; MTTR rises after expanding regional coverage of Capture Services On-Demand; KEYS beat consensus by +2% on sales and +11% on EPS followed by a record backlog and orders +21%; PTC was among worst performers in S&P after filed a registration statement for the sale of 10.58M shares