Mid-Morning Look

Friday, April 08, 2022

U.S. stocks slide early, with the S&P 500 back-testing below its 200-day moving average support level (roughly 4,485), a magnet level over the last 2-weeks, while energy, financials, utilities, and healthcare among leaders. Early sector decliners consumer discretionary, technology, industrials, and transportation (common theme over the last week amid growing recession fear). Coming into the day, Healthcare top mover this week up 2.8%, Staples +2.3%, Utes +1.6% and REITS +1%. Energy stocks extend this week gains, with huge moves again for several majors, E&P, gas levered names (XOM, BP, MRO, COP, PXD, EOG, HAL), while oil prices rise but on track for a weekly decline that would Mark a second straight weekly decline and the fourth weekly retreat in the past five. Treasury yields making new 3-year highs again as 10-yr above 2.73%, rising as much as 8 bps before paring gains while 2-yr up 5.5bps to 2.518%; the 20-yr highest at 2.9% and 30-year yield rises to best since 2019 as well. Macro front all quiet today with no major economic data or Fed speakers or earnings. Several Fed members have reiterated their hawkish views over the last week to fight inflation; in fact, bespoke noted that the odds of 125 basis points of tightening by the June meeting (a combo of a 50-bps hike and 75 bps hike) are up from 18% to 32% over the last week. Markets also bracing for earnings season, with big banks kicking things off next Thursday in holiday shortened week (closed Friday for Good Friday).

Economic Data

·     Wholesale Inventories MoM for February Actual 2.5% above prior and forecast of 2.1%; Wholesale Sales MoM Actual 1.7% vs. Forecast 0.8% and the prior reading of 4.0%

Sector Movers Today

·     Bank movers; a rough week for banks despite rising yields and prospect of surging interest rates; in research, CFR upgraded to Neutral from Underperform, TFC and HBAN downgraded to Neutral from Buy at Bank America; UBS upgraded shares of FRC to Buy from Neutral, with $194 tgt saying the macro outlook has become significantly cloudier over the last month, with investors fretting over a US slowdown at best – says this is the type of environment where FRC can outperform. UBS also downgraded shares of USB to neutral from Buy and cut tgt to $56 from $64 saying a fast-moving Fed is not necessarily a positive for USB, as 15% of its deposits are custody — which can be quite sensitive to rising rates

·     Transports; the Dow Transport Index snapped its 6-day losing streak yesterday; Bank America downgraded several names in sector given deteriorating demand outlooks and rapidly falling freight rates, as cuts: UPS to Neutral from Buy, Railroads UNP and CP to Neutral from Buy, Truckload/Intermodal carriers SNDR to Underperform from Buy, and WERN to Underperform from Neutral, Less-than-Truckload carriers SAIA, TFII, and ARCB to Neutral from Buy, and container lessor RTN to Underperform from Buy; CHRW upgraded to Overweight from Neutral at JPMorgan; in airlines, SAVE said it would engage in discussions with JBLU over its $3.6 billion cash offer for the ultra-low-cost airline ($33 per share)

·     Metals & Materials; AA downgraded to Neutral from Outperform at Credit Suisse while raise tgt to $82 from $68 as believes London Metal Exchange aluminum prices are near peak and says Alcoa continues to deal with inflationary pressures; palladium (PALL) rises as London platinum and palladium market says suspends Russian refineries from its good delivery lists; In the packaging sector, Citigroup lowered tgts and estimates for group AVY, BLL, BERY, CCK, GPK, IP, OI, PTVE, SEE, SLGN, ahead of earnings season as expects the results to be generally OK, but says weaker consumer sentiment, sharper than expected inflation, and uncertainty around Europe/China have the potential to put fiscal guides at risk; palladium names rise as London platinum and palladium market says suspends Russian refineries from its good delivery lists

·     Software movers; CRWD hosted an Investor Briefing including product demos and several discussion topics e.g. an FY26 ARR Target of 5B and a potential FY25 TAM of 126B; TEAM investor meeting viewed positive by analysts saying co presented a series of data points that underscore solid business momentum and guidance for ~50% cloud revenue growth in both FY23 and FY24 was much stronger than expected; APPF upgraded to Overweight with $143 tgt at KeyBanc given incrementally positive views of property rental markets and alleviated competitive concerns

Stock GAINERS

·     CRWD +2%; hosted an Investor Briefing including product demos and several discussion topics e.g. an FY26 ARR Target of 5B and a potential FY25 TAM of 126B.

·     CTRA 3%; gas levered energy stocks outperform, but broad gains in energy OXY

·     KR +2%; upgraded to Buy from Neutral at Bank America and tgt to $75 from $61 as see significant EPS upside drivers

·     LEN +2%; small bounce for beaten up homebuilders following another week of 5-10% declines having left nearly every homebuilder in extreme oversold territory and down 20%+ YTD

·     PALL +9%; palladium names rise as London platinum and palladium market says suspends Russian refineries from its good delivery lists

·     SYF +2%; amid strength early in banks ahead of earnings next week – RJF, JPM, C COF higher

·     WDFC +11%; after earnings as net sales rose 16% top $130M above ests of $126M while net income rose to $19.5M, prompting an upgraded at Davidson

Stock LAGGARDS

·     AA -2%; downgraded to Neutral from Outperform at Credit Suisse while raise tgt to $82 from $68 as believes London Metal Exchange aluminum prices are near peak and says Alcoa continues to deal with inflationary pressures

·     ACMR -6%; said now sees Q1 revenue expected to be significantly below previous internal plan as subsequent lockdown of Pudong region has impacted operation of Chuansha production facility

·     BCRX -32%; pauses enrollment in bcx9930 clinical trials – patients currently enrolled in trials are continuing study drug at this time

·     HOOD -5%; downgraded to sell from neutral at Goldman Sachs, saying softening retail engagement levels and profitability concerns will likely limit any outperformance; cuts the price tgt to $13 from $15

·     RXT -12%; downgraded to Perform at Oppenheimer and cut ests and tgt to $18 saying prior positive stance was based on RXT’s pure-play cloud focus, but it is increasingly clear that reselling AWS/cloud is low margin

·     SHLS -8%; and FTCI both downgraded at Piper saying the decision by the U.S. Department of Commerce to investigate anti-dumping and countervailing duty circumvention in certain Southeast Asian countries will cause project delays

·     UPS -3%; one of several names downgraded in transport sector at Bank America today given deteriorating demand outlooks and rapidly falling freight rates