Mid-Morning Look

Friday, June 10, 2022

U.S. stocks tumble with the eye-catching headline of consumer price inflation, on a Y/Y basis, hitting the highest levels in 40-years, as recent calls for peak CPI were too early. After hopes for a slowdown in rate hikes ahead of a likely 50-bps rise in June and July, markets now “baking-in” calls for another 50-bps hike in September as well – and forget about pausing! The U.S. dollar index (DXY) hits three-week high post-CPI, while energy continues to surge as the average price of gasoline hits new record of $4.99 per gallon today as per AAA. Consumer sentiment tumbled to record lows as tracked by the University of Michigan prelim figure at 50.2 (lowest reading prior to today was 51.7) – data has been around since 1978. That took markets to even lower levels on the day. Selling pressure much like yesterday, again broad based, but technology hit hard as growth stocks tumble on CPI report, as well as deceleration in revs and billings from software company DocuSign, showing slowing of demand. Financials no reprieve, down sharply despite rising Treasury yields (seeing inversion of curve again), while consumer discretionary, travel, and leisure hit hard on slowing demand fears given spike in prices. For the week, all the three major indexes are down between 4.2% and 5.2% as rate-sensitive growth stocks came under pressure from elevated Treasury yields.

Economic Data

·     Consumer Prices surge – CPI for May rose +1.0% vs. est. +0.7% M/M and jumped +8.6% Y/Y (a new 40-year high reading), topping the +8.3% estimate. Core CPI (ex food & energy) rose +0.6% vs. expected rise of +0.5% M/M and rose +6.0% vs. +5.9% Y/Y – “hotter” reading than expected for inflation. Price increases last year (CPI report): Fuel Oil: +106.7%, Gasoline: +48.7%, Gas Utilities: +30.2%, Used Cars: +16.1%, New Cars: +12.6%, Electricity: +12.0%, Food at home: +11.9%, Overall CPI: +8.6%, Transportation: +7.9%, Food away from home: +7.4%, Shelter: +5.5%, Apparel: +5.0%

·     University of Michigan surveys of consumers sentiment prelim falls to lowest level ever tracked (since 1978) as June reported 50.2 (below consensus 58.0) and final May 58.4 – lowest level prior to today was 51.7. The current conditions index prelim June 55.4 (below consensus 62.5) and final May 63.3 and expectations index prelim June 46.8 (consensus 54.5) vs final May 55.2

Sector Movers Today

·     Internet & Media: Goldman Sachs cut its recommendation on NFLX, RBLX and EBAY to sell from neutral, partly due to a weaker macroeconomic environment; LAMR downgraded to Equal eight and IHRT cut to Underweight at Morgan Stanley while lowering advertising estimates and tgts for OUT, IPG, OMC, CCO as see rising risk that ad budget growth will slow and perhaps dramatically in ’23 – see better risk/rewards in other areas of our coverage group that have less cyclicality

·     Semiconductors; AMD held its 2022 Investor Day yesterday, the Company’s first in person event since March 2020 as it now believes that its 2025 TAM has grown to roughly $300 billion, highlighted its 5nm and 4nm Zen 4 architecture and provided a glimpse towards the next generation 4nm and 3nm Zen 5 architecture; TSM May sales marked a new monthly high at NT$185.7B, up 8% M/M and 65% Y/Y, besting April’s record of NT$172.6B.

·     Hardware, Components & Services; for AAPL and SSNLF, Cowen said following their downward revision of CY22 smartphone shipment growth to 1% Y/Y last month, latest field work suggests full year units could be flat to down slightly Y/Y depending on C2H shipments; for NET 13G Filed by BlackRock for 4.9% stake; CMTL shares slide after in-line Q3 results were followed up by weaker Q4 outlook as sees 4Q net sales about $123Mm vs est. $157Mm and FY net sales about $482Mm vs est. $517.3Mm; DOCN at its analyst day, issued targets for $1B+ in revenue in 2024, a 33% CAGR over three years, with 20%+ FCF margins

·     Casinos, Gaming, Lodging & Leisure sector; Surging inflation having an impact on market sentiment, as rising prices in categories raising fears of reduced spending going forward as consumer discretionary, travel, leisure among hardest hit today; cruise lines extend recent losses (CCL ), while hotels (MAR ), online travel (EXPE ) and casinos (WYNN ) all decline dip

·     Asset managers with monthly AUM data: AB reports preliminary AUM $687B as of May 31, up from $685B at the end of April as increase was due to firm-wide net inflows and slight market appreciation; APAM prelim assets under management as of May 31, 2022 totaled $144.0 billion; BEN prelim month-end AUM of $1,445.9 billion at May 31, 2022, compared to $1,455.8 billion at April 30, 2022; IVZ reported preliminary month-end assets under management of $1.4516B, a decrease of 1.7% versus previous month-end (experienced net long-term outflows of $2.4B in the month); TROW preliminary month-end assets under management of $1.40 trillion as of May 31, 2022; VCTR reported assets under management (AUM) of $166.9 billion as of May 31, 2022.

Stock GAINERS

·     BGNE ; receives approval in China for head/neck cancer subtype, saying the approval was backed by data from a phase 3 trial called RATIONALE-309

·     NVAX +2%; healthcare and vaccine names small rebound

·     RENT +15%; beat 1Q EBITDA on higher revs/subs, and reiterated its projected timeline to adj. EBITDA profitability in 2-4 quarters

·     SCPL +1%; upgraded to Outperform with $17 tgt at Wedbush saying several growth drivers could ultimately enable SciPlay to comfortably surpass the Street’s expectations

·     UAL airlines get a boost on CDC to lift covid test requirements for travelers entering US

Stock LAGGARDS

·     BPMC 7%; downgraded to a Sell at Citigroup and lowers tgt to $41 saying re-arrangement of primary endpoints highlights concern with respect to the size of the Ayvakit ISM market

·     CMTL -17%; after in-line Q3 results were followed up by weaker Q4 outlook as sees 4Q net sales about $123Mm vs est. $157Mm and FY net sales about $482Mm vs est. $517.3Mm

·     CRBU -22%; after reported additional initial data from a phase 1 trial of its CAR-T cell therapy CB-010 to treat patients with relapsed or refractory B cell non-Hodgkin lymphoma

·     CTIC -6%; after the company disclosed data for its FDA-approved therapy pacritinib from patients with myelofibrosis and thrombocytopenia

·     DOCU -23%; after Q1 EPS miss of $0.38 vs est. $0.46 on revenue of $588.7M, up 25% y/y (vs. est. $582.9M), a deceleration from 35% y/y in Q4 (4^th straight deceleration) and billings of $613.6M up 16% y/y, a deceleration from 25% in Q4

·     FULC -50%; after shared proof-of-concept data from an ongoing Phase 1b trial for oral experimental therapy FTX-6058 in sickle cell disease

·     ILMN -10%; after saying Sam Samad will depart on July 8 after having been CFO for more than 5 years – DGX announced Mr. Samad will join as CFO on July 11, 2022

·     NFLX -5%; downgraded to sell along with RBLX, FTDR, and EBAY at Goldman Sachs

·     SFIX -12%; as analysts note the co is still having issues onboarding new clients, resulting in revenues that are now declining YoY- Q3 was in-line with guidance on the top line (-8% vs. outlook down 7-10%) but missed on the bottom line and Q4 sales are planned down 13-15%