Mid-Morning Look

Wednesday, December 22, 2021

U.S. stocks choppy to start before major averages extend the massive gains recorded on Tuesday as volumes dry up slightly heading into the shortened Christmas holiday trading week. Treasury yields steady with the 10-year around 1.47% after advancing yesterday, while fear all but erased after the recent 3-day market losing streak, as the CBOE Volatility index (VIX) tumbles back below the 20 level, down -7% to 19.50 (well off weekly highs 27.39) as stocks popping to highs. Economic data showing strength today (not changing outlook for Fed rate hikes) as GDP final Q3 of 2.3% modestly above prelim, with existing home sales above last month, but missing estimates, while Consumer Confidence comes in at the best levels since July, topping views. Vaccine names again lagging broader markets with MRNA, BNTX, NVAX sliding in a rough week, while consumer discretionary among S&P leaders along with Info tech and Industrials. Overall, another broad based rally for major averages.

Economic Data

·     U.S. 3Q Final GDP +2.3% vs. prelim GDP +2.1%; 3Q Final PCE Price Index +5.3%, in-line with prelim +5.3%; 3Q Final Core PCE Price Index +4.6% vs. prelim +4.5%; Consumer Spending +2.0% vs. prelim +1.7%

·     Existing Home Sales for November rises 1.9% at 6.46 mln unit rate above consensus 6.52 mln and vs. Oct 6.34 mln; inventory of homes for sale 1.11 mln units, 2.1 months’ worth; the national median home price for existing homes $353,900, +13.9 pct from Nov 2020

·     December consumer confidence index 115.8 (best number since July) and above consensus 110.8 vs November revised 111.9 (previous 109.5); consumer expectations index 96.9 in Dec vs Nov revised 90.2 (previous 87.6)

Sector Movers Today

·     Consumer Finance & Lending: LC was assumed at Outperform and $40 tgt at Wedbush based on the company’s high expected growth, better credit quality than peers, and reasonable valuation; Piper with several changes in card/consumer finance and lowered tgt to $108 from $127 on AFRM and cut ALLY tgt to $53 from $59 saying they would be buyers of most consumer lending stocks ahead of 4Q21 earnings season noting they now trade near the low-end of their historical P/E range despite some positive near-term credit trends and accelerating loan growth (note shares have pulled back in space as worries about increasing credit losses combined with a flatter yield curve have pressured consumer lenders)

·     Pharma movers; MRK and privately held Ridgeback Biotherapeutics said the UK government has ordered an additional 1.75 million courses of their COVID-19 antiviral molnupiravir. The new order brings the total ordered by the UK government to 2.23 million courses; However, France has cancelled its order for MRKs COVID-19 antiviral drug following disappointing trial data and hopes instead to receive PFE’s competing drug before the end of January; NVS agreed to acquire Gyroscope Therapeutics, a UK-based ocular gene therapy company for up to $1.5 billion

·     Metals, Industrial & Machinery; AGCO downgraded to Market Perform from Outperform at Bernstein, while the firm upgraded CAT and PCAR to Outperform saying concerns about the end of the machinery cycle in 2022 are overdone; MSM Q1 adj EPS $1.25 vs. est. $1.19; Q1 revs rose 9.9% to $848.5M vs. est. $838.9M; see low double-digit ads growth as a possibility for fiscal 2022; TX offers to acquire from its subsidiary Ternium Argentina a 28.73% participation in Ternium Mexico that the firm does not own directly for $1B

Stock GAINERS

·     CAT +2%; and PCAR upgraded to Outperform at Bernstein saying concerns about the end of the machinery cycle in 2022 are overdone (downgrade AGCO)

·     LYV +4%; among top S&P gainers as the “reopen” trade surges for a 3^rd straight day early, with travel, leisure, casinos, cruise lines again pushing higher despite surging Omicron variant cases around the globe, leading to several European countries with tighter restrictions to gatherings 9seeing strength in CCL, MAR, EXPE, WYNN, AAL)

·     PAYX +4%; raises FY22 adjusted EPS view to up 18%-20% from up 12%-14% and boosts FY22 revenue view to up 10%-11% from up 8% after Q2 EPS of $0.91 topped $0.80 est. on revs rising 13% YoY to $1.11B vs. est. $1.06B; shares up 3.4%

·     SEAC +53%; after short video app Triller agreed to go public through a merger with the company in a deal that will value the combined entity at around $5 billion, the companies said

·     TSLA +4%; after Elon Musk interview where he mentioned he was done selling shares for now

·     XLNX +1%; after INTC gets green light from China’s antitrust regulator for the $9 billion sale of its flash-memory chip business to South Korea’s SK Hynix Inc. (which is waiting for China’s antitrust regulator to rule on its planned sale to AMD)

Stock LAGGARDS

·     ALLK -87%; downgraded by several analysts after it did not achieve statistical significance on top-line results for its Phase 2/3 KRYPTOS trial in EOE and Phase 3 ENIGMA-2 trial in EG/ED

·     BABA -4%; after reports Chinese regulators have reportedly suspended a contract with subsidiary Alibaba Cloud over accusations that it failed to address a cybersecurity vulnerability

·     CAMP -25%; as Q3 adj EPS loss (-$0.08) vs. est. $0.08; Q3 revs fell -12% to $69M vs. est. $77.6M citing ongoing supply constraints

·     HUBS -3%; after Kerrisdale Capital “short call” saying trading at 20x forward rev, HUBS benefited from a one-time COVID boost that lifted shares 6x. But fierce competition & stale products will lead to low growth / margins, long before the biz grows into its sky-high valuation

·     RKLY -19%; pulled out of a prior non-core, telecom application related JV with a Chinese customer who was added to the US government entity list (RKLY guided FY22 revs $25M-$30M vs. est. $59.1M)