Closing Recap

Wednesday, October 27, 2021

Equity Market Recap

·     Stocks slip late day, but not before another record-setting move as the Nasdaq 100 joined the party, rising to all-time highs, while the Nasdaq Comp fell short of its all-time best level (of 15,403). The S&P 500 and Dow have already closed at record levels this week in strong reactions to large cap earnings, with big tech (GOOG, AAPL, MSFT, AMZN, TSLA) almost single handily boosting major averages, even as market breadth showed decliners led by 2 to 1 margin over advancers in the Nasdaq – in a very uneven rally. Smallcap stocks underperformed, with the Russell 2000 down nearly 2%, while market attention focused on bond markets too, as the U.S. 10-year Treasury yield fell to a two-week low, and the 30-yr fell over 10 bps to 1.94%, though the shorter-term 2-year yield hits its highest levels since March 2020. MSFT, GOOGL, AMD did the heavy lifting in tech after earnings overnight, while Dow components KO, MCD also rallied on results as market investors continue to push major averages higher. The U.D. dollar slipped, gold prices reversed higher, oil declined, and Bitcoin extends yesterday losses. More noise out of Washington D.C. late day on spending bills and taxes rattled markets in the final hour!

·     Stocks/sector movers: Tech earnings: MSFT jumps to ATH on its beat including record quarterly cloud revenue, GOOGL soars, FFIV spikes to its ATH, SPOT rallies to its highest since June after their beats; TWTR sinks on its quarterly loss as social media space; AMD rises to record high on quarterly beat and strong Q4 guide, also lifting XLNX as pending deal is on track to close by year-end; TXN tumbles on views of decelerating quarterly growth; payment stocks tumble FIS, GPN, behind disappointing FISV earnings; financial names weak on tumbling yields and earnings as Visa (V) drops sharply as the worst Dow component on disappointing guidance, HOOD plummets to its lowest levels since its 2nd day of trading in July after widely missing EPS and revenue estimates and ahead of lockup expiry today-tmrw, COF also among worst decliners despite both posting beat-and-raise reports; in other Dow components to report: BA opens green but goes red after reporting a miss on the top and bottom line, MCD gains on its EPS, revs, same-store sales beats, and KO rises on beat and raise; solar rises as ENPH surges as much as 25% to lead the S&P on it quarterly results and guidance above consensus.

Economic Data:

·     September Durable Goods fell (-0.4%) vs. (-0.9%) estimate and +1.3% prior (revised from +1.8%), while Durables-Excluding transportation, new orders rose +0.4% vs. +0.5% expected and +0.2% prior; Core Durable Goods rise +0.4%, in-line with expectations

·     U.S. Advance goods trade deficit unexpectedly jumped out to new record of (-$96.3B) in Sept, wider than (-$88.2B) in August, and easily beating the prior record shortfall of (-$92.0B in June); exports plunged -4.7% to $142.2B following the 0.8% prior increase to $149.1B and imports increased 0.5% to $238.4 after rising 1.0% to $237.3B

Commodities

·     WTI crude oil prices tumble -$1.99 or 2.35% to settle at $82.66 per barrel (pulling back from recent 7-year highs), weighed down by bearish inventory data as weekly U.S. crude oil stockpiles rose more than expected, even as fuel inventories dropped and tanks at the nation’s largest storage hub emptied further. Both WTI and brent closed last Friday with a seventh straight weekly gain, so some profit taking could also be to blame. Crude oil inventories rose by 4.3 mln barrels last week, according to the U.S. Energy Department, more than the expected 1.9-mln-barrel gain. Gasoline stocks dropped by 2 mln barrels, bringing them to levels not seen in nearly four years, as U.S. consumers grapple with rising prices to fill their vehicles’ tanks. Storage tanks at the WTI delivery hub in Cushing, Oklahoma, are more depleted than they have been in the past three years. Gold prices rose $5.40 or 0.3% to settle at $1,798.80 an ounce, rebounding off earlier losses as the dollar dipped and treasury yields (on the long end) tumbled; prices still finished below the $1,800 level for a 2^nd straight day. Natural gas prices rose 5.4% to $6.20.

Currencies & Treasuries

·     The Treasury yield curve flattening further as the 2-yr rises above 0.52%, its highest since March 2020 before paring gains to under 0.5%, while the 10-yr slips over 8bps to 2-week lows below 1.54%. Reuters noted The Fed is widely expected to begin tapering its $120 billion in monthly purchases of Treasury bonds and mortgage-backed securities next month, but Fed funds futures already priced a 70% chance of a June rate hike on Tuesday. The U.S. 30-year yield dips below 2% for first time since Sept. 28^th while shorter term 5-year around 1.18%. The U.S. dollar slipped slightly on the day but stays elevated (just off 1-year highs) amid rising rate hike expectations into mid-2022 while the Fed taper is expected to kick-off next month. The U.S. Treasury sold $61B in 5-year notes at a yield of 1.157% vs. 1.182% when issued prior, with the bid-to-cover (demand) at 2.55 (vs. 2.37 prior) and indirects awarded 64.78% (vs. previous auction 54.3%), directs 17.37% and primary 17.85%.

Sector News Breakdown

Consumer

·     Auto sector; Elon Musk confirms TSLA didn’t give Hertz (HTZZ) discount on 100k EV order, and UBER launched a new partnership with Hertz to offer 50k Tesla’s as a rental option to its drivers by 2023, starting next week in select California cities and Washington, DC before expanding; Hertz also announced a separate partnership with CVNA to boost online sales; GM Q3 adj EPS $1.52 beat est. $0.97 on revs $26.78B vs est. $26.51B, raised FY adj EPS view to $5.70-6.70 from $5.40-6.40 (est. $6.27), sees EV sales about $10B in FY23 and about $90B by 2030 which would be about 40-50% of total sales; QS shares fell initially on EPS while saying it believes that the addition of another global automotive OEM alongside the existing partnership with Volkswagen has major commercial implications; PAG Q3 adj EPS $4.46 vs est. $3.54 on revs $6.5B vs est. $6.42B, EBITDA $522.5M vs est. $424.8M; Cowen downgraded RMO to Market Perform with a $4 target from $7 as they await an update after the BWA JV closed and despite the commercial BEV space gaining steam has they have struggled on cell shortages and a lack of consistent business wins which only amplifies the insourcing risk of being a pack provider; RBC said yesterday’s 12% selloff in DAN was overdone as they still view the medium-term as favorable even though the company needs to regain trust after missing indications from last month’s analyst day

·     Consumer Staples; KO 3Q adj EPS $0.65 vs est. $0.58 on revs $10B vs est. $9.75B (organic revs +14%); raises FY guide, says expects FY organic revs +13-14% and adj EPS +15-17% including about 2% currency tailwind in 4Q; sees FY22 currency headwind of about 2-3%; KHC 3Q adj EPS $0.65 vs est. $0.58 on sales $6.32B vs est. $6.05B; guides FY21 adj EBITDA to more than $6.2B (was at least $6.1B) vs est. $6.13B, reflecting better organic sales and efforts to manage inflationary pressures; CHEF reported results that beat consensus on the top and bottom line. Revenue and EBITDA both exceeded pre-pandemic Q3 levels; U.K. pub operators advanced as Chancellor Rishi Sunak announced an overhaul of alcohol taxation that will cut the levies on rose, sparkling wine, beer and cider. J.D. Weatherspoon, Mitchells & Butler and Marston’s rise

·     Retail & Restaurants; Dow component MCD posts top and bottom-line beat, helped by stronger than expected comp sales as global Q3 same-store-sales at +12.7% vs est. +9.9% and U.S. comp sales +9.6% vs. est. 8.1%; Retailers; The national Retail Federation (NRF) said it sees holiday sales during November and December to grow between 8.5% and 10.5% over 2020 to between $843.4 billion and $859 billion; says expects online, other non-store sales, will increase between 11% and 15% to a total of between $218.3 bln and $226.2 bln

·     Casinos, Gaming, Lodging & Leisure sector; in gaming BITG initiates favorable outlook on mobile gaming, online sports betting, and digital gaming services saying RBLX, PLTK, FLTR, and IS are top picks as see substantial runway for growth along with rising competitive intensity and cost pressure; theme parks fall behind SIX earnings results, Q3 EPS $1.80 vs. est. $1.55; Q3 revs $638M vs. est. $587.07M; Attendance was 22 million guests, a decrease of 5 million guests compared to the first nine months of 2019; HOG reported Q3 adj EPS $1.18 and revs $1.37B above highest analyst estimates (consensus $0.80, $1.13B); in lodging, HLT reported a profit of $241M for the quarter, compared with a loss of $79M in the year-ago period as revs rise to $1.75B from $933M and systemwide comparable revenue per available room rose 98.7% on a currency neutral basis for 3Q YoY

Energy

·     E&P and Majors; HES Q3 adj EPS 28c vs consensus 23c on revs $1.81B vs est. $1.42B, Bakken net production 148k boe/d, a 25% decrease primarily due to lower drilling activity caused by a reduction in rig count; MTDR Q3 adj EPS $1.25 vs. est. $0.96 on revs $472.35M vs. est. $390.51M, increased midpoint of FY total NatGas production guidance by 4% to 80.5B cubic feet and total oil equivalent production by 2% to 30.95M boe; RRC Q3 adj EPS 52c was slightly below est. 53c on adj revs $795M vs est. $722.M, raised FY21 guidance for NatGas differential by about 7c/mcf and NGL differential by about 25c/barre

·     Equipment & Pipelines: NOV posted a top and bottom line miss with Q3 EPS loss (18c) on revs $1.34B; HESM Q3 EPS in-line 38c on revs $303.9M vs est. $291.1M; Refiners: PSX said it would buy the rest of PSXP it does not already own for $3.4 billion; Daniel Loeb’s Third Point LLC has taken a large stake in RDSA and is urging the oil giant to separate into two companies to retain and attract investors as many flee stocks seen as environmentally unfriendly, DJ reported

·     Utilities & Solar; AEP agrees to sell its Kentucky operations to Liberty Utilities, the regulated utility business of Algonquin Power & Utilities (AQN), for $2.846B including debt; in solar, ENPH shares jumped as Q3 EPS/revs top consensus and Q4 rev guidance of $390M-4410M beats the $371M estimate; NOVA announced a partnership with CHPT for EV charging solutions; PLUG forged a partnership with renewable green hydrogen producer Lhyfe to jointly develop green hydrogen generation plants across Europe

Financials

·     Bank movers; HOOD shares tumbled after reported 3Q21 EPS of -$2.06, well below consensus loss of (-$1.37) as quarterly results came in below expectations across revenue and account projections, with revenue of $365mn vs. estimate of $431mn; NYCB shares fall as Q3 EPS missed ests and the company said it doesn’t expect to close its pending acquisition of Flagstar Bancorp in Q4 as it waits for regulatory approvals; FHN declares $0.15 dividend, approves $500M in share repurchase program; CME Q3 EPS beats as lower expenses helps to offset activity decline

·     Bitcoin, FinTech & Payments; AFRM said eligible travelers can now book flights on AA.com and use Affirm to pay over time in simple monthly payments, with no hidden or late fees; payments sector FISV shares tumble following earnings and guidance; crypto assets/related stocks slide today as Bitcoin falls under $60K compared with its all-time high of just under $67 reached last week, while Ethereum drops to just under $4K and names that tend to move with crypto fall (BITO, MARA, COIN, RIOT); Brazilian focused payment processors STNE and PAGS both declined following a “short” report from Viceroy Research, noting both are dependent on Chinese company PAX Global Technology Limited for their POS terminals.

·     Consumer Finance; Dow component Visa (V) EPS of $1.62 topped consensus of $1.54 as payments volume rose 17% yoy in constant dollars with cross-border volume up 38%, and processed transactions up 21% – but guidance weighs as expects high end of the mid-teens revenue growth against Street est. of +20% growth

·     Insurance; PFG Q3 assets under management were $981.0B as operating EPS of $1.69 beat by $0.10; CB Q3 earnings and revs top expectations as P&C net premiums written rose by 17% to $9.9B, and P&C underwriting income grew 58% to $618M in Q3

·     REITs; BXP Q3 FFO of $1.73 beats the consensus estimate of $1.70, and beats the revenue estimate by $21.1M to $730.1M; AHT Q3 FFO of $0.11 beats by $0.11 as revs rose 165% yoy to $247.43M, beating by $15.99M; ESS Q3 funds from operations of $3.12 is in-line with est. and sees full year core FFO midpoint at $12.44 vs. $12.33 in the prior view with same-property revenues to improve slightly to -1.2%; EQR beats FFO by $0.02 on better revs; UDR with in-line Q3 FFO on better revs

Healthcare

·     COVID-19 Vaccine news: PFE and BNTX active after a panel of FDA advisors voted to recommend authorization of their COVID-19 vaccine for children between the ages of 5 and 11 years old saying the benefits outweigh the risks; NVAX announced the completion of its rolling regulatory submission to the U.K. Medicines and Healthcare products Regulatory Agency (MHRA) for authorization of its COVID-19 vaccine candidate; BMY touched new 52-week lows after earnings

·     Pharma movers: DBVT shares fall after saying the FDA requested a stepwise approach to DBV’s modified Viaskin Peanut (mVP) development program; BMY 3Q adj EPS $2.00 vs est. $1.92 on revs $11.62B vs est. $11.58B; guides FY adj EPS $7.40-7.55 (was $7.35-7.55) vs est. $7.47; TEVA Q3 adj EPS 59c vs est. 65c on revs $3.89B that also missed est. $4.03B, reaffirmed FY guidance, launched a $4B offering of sustainability-linked senior notes; GSK Q3 adj EPS 36.6 pence ($0.50) vs est. 29.1 pence on revs GBP9.08B vs est. GPB8.75B, now sees FY21 adj EPS falling between 2-4%, better than previous expectations of a mid-to-high single digit decline

·     Biotech movers; ANGN tumbles following a negative outcome of the first ANG-3777 trial for delayed graft function (DGF), which failed to meet its primary endpoint in a kidney transplant population; CRTX shares tumbled over 60% after it narrowed the pool for its Alzheimer’s drug after only certain patients responded to the twice-daily pill, as the study missed its primary goal: Improvement on two measures of cognition across all patients

·     MedTech Equipment; ABT upgraded to Overweight at Atlantic after the company’s recent Q3 report saying was impressed with the strong execution in the underlying business; MASI reported Q3 revenue of $307.4M (~$11.5M above consensus), a three-cent beat on non-GAAP EPS, and shipped 74,600 boards and instruments, roughly 10,000 more than consensus; BSX Q3 adj EPS $0.41 vs. est. $0.40; Q3 revs $2.93B vs. est. $2.97B; cuts FY21 revenue view to up 19%-20% from up 21%-22%; narrows FY21 adjusted EPS view to $1.60-$1.62 from $1.58-$1.62; TMO Q3 adj EPS $5.76 vs. est. $4.67; Q3 revs $9.33B vs. est. $8.39B; raising its revenue guidance by $1.2B to $37.1B and raising its adj EPS guidance by $1.30 to $23.37

Industrials & Materials

·     Aerospace & Defense; BA Q3 core EPS loss (-$0.60) vs. est. loss (-$0.21); Q3 revs $15.3B below consensus $16.04B; operating cash flow negative -$300M; commercial airplanes backlog of $290B, added 93 net orders; total company backlog end of qtr was $367B; evaluating the timing of a freighter version of the 777X; debt was down; GD posted Q3 EPS $3.07 vs est. $2.98 on revs $9.57B vs est. $9.84B, ended the quarter with a backlog of $88.1B (+8.1% YoY)

·     Transports; NSC Q3 EPS $3.06 vs est. $2.91 on revs $2.85B vs est. $2.75B; CHRW Q3 EPS $1.85 vs est. $1.42 on revs $6.3B vs est. $5.43B with strong results largely driven by strong Global Forwarding results; ODFL Q3 EPS $2.47 vs est. $2.37 on sales $1.4B vs est. .$1.37B; Ryder (R) Q3 adj EPS $2.55 vs est. $2.09 on revs $2.5B vs est. $2.38B, raised FY adj EPS range to $8.40-8.50 from $7.20-7.50 and above est. $7.52, announced two new buyback authorizations for up to a combined 4.5M shares; HA posted a loss of ($0.95) in Q3, narrower than est. ($1.33) on revs $508.8M vs est. $4888.8M that was -33% vs 2019, its first positive adj EBITDA quarter since the pandemic, and guided Q4 revs to be down 32-37% from 2019

Technology, Media & Telecom

·     Internet; GOOGL reported better-than-expected 3Q results with revenue and operating income coming in 3% and 16%, respectively, ahead of consensus on strength across all advertising revenue lines and regions and nearly all verticals; TWTR posted $1.28B in revenue, largely in line with expectations, with ad sales rising 41% yoy; DAUs rose 13% y/o/y to 211 million in Q3, topping the 11% increase seen in Q2, while international DAUs rose to 174M from 152M; SPOT Q3 revenue rose 27% to 2.50 billion euros, beating the 2.45 billion expected; reported a 19% jump in paid subscribers for its premium service to 172 million, just beating analysts’ expectations of 171.7 million; BTIG downgraded TRUE to Neutral as they see the co being a victim of forces beyond its control as it is a tough environment within the auto marketplace

·     Semiconductors; AMD reported better-than-expected Q3 results (EPS $0.73 vs est. $0.67 on revs $4.3B vs est. $4.12B) fueled by data center sales that doubled from the same period a year ago and issued Q4 rev guidance above estimates; TXN reported 3Q results and 4Q EPS outlook that were 1% above cons, but also a deceleration from the 40%, 20% and 15% beats vs. guidance the previous 3 Qs, which led to a negative stock reaction; SLAB posts a big beat and raise for Q3 and Q4 (guides Q4 revs $195M-$205M vs. est. $179.8M); AMBA announces $307.5mn cash acq of radar AI software leader targeting Auto/ADAS, Mobile Robotics, and Surveillance applications

·     Software movers; MSFT Q3 revs rose 22% Yoy to $45.3B, topping the $44B est. as Q1 Azure and other cloud-computing services grew 50% and Microsoft Cloud business, a broader representation of its cloud offerings, generated $20.7 billion in sales, up 36% Yoy; in security sector, TENB reported strong Q3 results with an acceleration in headline current billings growth and better-than-expected operating income and EPS. Most notably, reported billings growth improved to 25% y/y in Q3’21, ahead of our 19% estimate (Street 18%); MANH beat and raise as 3Q adj EPS $0.71 vs est. $0.54 on revs $169.2Mm vs est. $164.2Mm; guides FY adj EPS $2.12-2.14 vs est. $2.04, sees FY revs $653-655Mm vs est. $648.4Mm

·     Hardware, Components & Services; FFIV Q3 adj EPS of $3.01 topped estimate of $2.75 and Q1 profit guidance also above expectations as benefited from higher software revs in quarter, especially through subscriptions; NET downgraded to hold from buy at Jefferies citing valuation following recent gains.