Mid-Morning Look

Thursday, April 07, 2022

U.S. stocks are mixed early, looking to rebound after back-to-back market declines amid fears a more aggressive Fed rate hike tightening will have a greater impact on the economy that speculated prior. Hawkish comment from Fed members Brainard, Harker and Bullard the last 3-days has pushed stocks lower, with the biggest hits coming in discretionary and travel names and pushing the S&P 500 back around its 200-day MA support about 4,485. The Dow and S&P came into today at lowest levels in 2-weeks while the Nasdaq slumped to lowest levels since March 21. Cyclical names among the hardest hit since the end of March (29^th) with transports (IYT) down about 11%, housing (XHB) down about 10%, retail (XRT) down 9% and banks (KBE) down around 9% as well. Today more of the same as Dow Transports on track for a 7th straight day of declines, led by airlines, along with weakness in Financials, REITs, Media, Utilities, Industrials and Discretionary while top gainers early Healthcare, Semi’s handful of Staples and Energy names. After briefly inverting last week by about 6 basis points, the yield curve has since widened back to about 20-bps between the 2 and 10-yr yield (2.615% to 2.425% for 2-yr down 7bps today). The rising yields, coupled with better economic data (jobless claims fall to lowest levels since late 1960’s) reinforces view of aggressive Fed. In geopolitical news, the United States has told Russia it is leaving talks on cyber security and shutting down a communication channel between the two countries, Interfax reported.

Economic Data

·     Weekly jobless claims fall to lowest level since late 1960’s, down to 166K from 171K prior week and below consensus of 200k; the 4-wk avg fell to 170K from 178K; continued claims rose to 1.523M in latest week from 1.506M prior; the U.S. insured unemployment rate unchanged at 1.1% from prior week

Sector Movers Today

·     Auto sector; Ford (F) and DAN downgraded to Equal Weight at Barclay’s and Ford tgt cut to $17 from $23 and DAN to $18 from $24 saying investors are still underestimating risks to the autos and auto parts sector, and particularly to suppliers, from inflation and production pressures as well as the impact of interest rate hikes; EV names active as the Biden administration says senior officials held a meeting with Tesla and General Motors bosses to discuss electric vehicles and charging; TSLA to recall 127,785 Model 3s in China; DIDI is in talks with China’s Haima Automobile Co about a partnership to manufacture electric vehicles, Bloomberg reported

·     Retailers; COST U.S. core comp up 12.7% was broadly in line with the previous month’s 12.9% and above the 11.2% est. and translated to a 2-year stack of 24.0% vs. 23.2% in February. Global traffic was steady at 8.2% vs. 8.0% in February. E-commerce growth decelerated to 9.2% compared with 10.4% in February, while transactions at 8.3% showed a nice acceleration from February’s 5.5%; LEVI with top and bottom-line beat (Q1 EPS $0.46 vs. est. $0.41; Q1 revs rose 22% to $1.59B vs. est. $1.55B) and reaffirms year revs +11% to +13%; BKE comp store sales fell (-9.7%) from comp store net sales for the 5-week period ended April 3, 2021 and overall net sales decreased 10.4%; XPOF 4.5M share secondary priced at $20.00

·     Consumer Staples; STZ a leader early as Q4 results top consensus ($2.37/$%2.1B vs. est. $2.10/$2.02B), though guidance disappoints as sees 2023 comparable EPS $11.20-$11.50, vs. consensus $11.53; CAG lowered its full-year profit forecast to adj. profit of $2.35, compared with previous estimate of about $2.50 citing rising transportation expenses and higher raw material costs eating into its margins (did raise organic sales view); LW posts Q3 EPS and sales beat boosted by higher prices and cost cutting measures & lifts lower end of FY gross margin forecast; BYND launches the Beyond Burger® and Beyond Meatballs® at about 2,000 Rite Aid stores

Stock GAINERS

·     CDK +11%; to be taken private by Brookfield Business Partners for $6.41 billion in cash, with holders to receive $54.87 for each share held, a premium of 12%

·     COUP +3%; upgraded to Outperform from In Line at Evercore ISI and raise tgt to $140 from $75

·     CXM +12%; rises as Q4 results beat and posted FY22 and Q1 revenue above Street’s estimates

·     HOWL +4%; after announced a licensing deal with JAZZ worth up to $1.2 billion

·     HPQ +11%; after Warren Buffett’s Berkshire Hathaway bought 11.1M shares of common stock on April 4th in a total transaction size of $398.5M, boosting its stake by about 10%

·     LW +8%; posts Q3 EPS and sales beat boosted by higher prices and cost cutting measures & lifts lower end of FY gross margin forecast

·     STZ +6%; Q4 results top consensus ($2.37/$2.1B vs. est. $2.10/$2.02B), though guidance disappoints

Stock LAGGARDS

·     APTX -47%; after saying an experimental treatment for painful diabetic peripheral neuropathy failed to meet the primary endpoint in a Phase 2b clinical trial

·     JBLU -3%; airlines tumble, sending the Dow Transports lower for a 7^th straight day

·     RAD -24%; after Deutsche Bank downgrades to sell and cuts tgt to $1 from $16 as believes the COVID-19 pandemic has hastened the decline of the retail pharmacy segment; sees co’s outlook as “unattainable”

·     RYAM -8%; after RBC Capital downgraded to Sector Perform saying increased competition in dissolving pulp and activist pressure decrease conviction in the company’s shares

·     SOFI -9%; cuts year revenue and Ebitda outlook as result of President Biden’s directive to extend the federal student loan payment moratorium from May 1, 2022, until August 31, 2022

·     VAPO 25%; plunges after withdrew its previously announced annual revenue, gross margin, operating expense, and adjusted EBITDA guidance for FY22