Mid-Morning Look

Monday, May 09, 2022

U.S. stocks extend weekly their losing streak as the Nasdaq slides around 3% early, while the Dow and S&P 500 tumble around 2.2% to start week as recession and “hard landing” fears continue to ripple through the market. The U.S. Federal Reserve’s effort to tame inflation with aggressive interest-rate hikes (boosted 50-bps last week, now up 75-bps this year) has some investors worried that a recession is inevitable, leading to a plunge in stock prices this year. The Nasdaq comes into today down 5-straight weeks, longest streak in over a decade (as per CNBC), while the S&P 500 down 5-straight weeks in almost a decade as well and the Dow comes in down six-straight weeks (worst in the past 3-years). The Fed rate hike moves, Covid lockdowns in China, war in Ukraine with Russia all adding to investor fears. Several companies this quarter issuing cautious outlooks citing rising costs, labor, supply chain impacts. Bespoke noted that coming into today, roughly half of Nasdaq stocks have been cut in half and the average stock is down 46.5% from its 52-wk high. The Nasdaq today dropped below 12,000, hitting its lowest levels since November 2020. Surging Treasury yields and a 20-year high for the U.S. dollar also not helping sentiment as the yield on the benchmark 10-year Treasury note topped 3.2% this morning from 3.124% on Friday and has risen 160 bps since the end of 2021, leading some investors to reassess the valuations of technology and growth stocks. No place safe again today with crypto assets tumbling (Bitcoin below $33K to lowest since July 2021), bonds, stocks and commodity prices all falling. Last Wednesday, U.S. bonds and stocks rallied after the Federal Reserve approved a half-percentage point increase in its benchmark lending rate to a target range of between 0.75% and 1%. Fed Chairman Jerome Powell said officials weren’t considering an even larger increase at the central bank’s next meeting…but since then, markets have been under immense pressure, on fears the Fed remains behind the curve. As of last Friday, the Nasdaq had lost 22% YTD, while the S&P 500 was down 13% and the Dow was 9.5% lower. At this point, how much of selling is panic? Or forced liquidation? Seeing discretionary spending names among hardest hit today: travel (BKNG CCL WYNN), MedTech/elective surgery (ABMD DXCM ISRG) as well as energy (the biggest sector winner YTD).

Sector Movers Today

·     Auto sector; RIVN shares fall after CNBC reported Saturday that Ford Motor (F) plans to sell 8 million shares of the electric vehicle start-up; a stock lockup period for company insiders and early investors such as Ford expired on Sunday; UBER plans to slow down hiring and cut back spending on marketing and incentives, as the ride-hailing giant reacts to a “seismic shift” in the market, CNBC reported on Monday, citing an email from the company CEO; RIDE reaffirms Q3 2022 target for start of commercial production of endurance and initial production of approximately 500 units; Barron’s with bullish cover story on ways to play the future of transportation and highlights ORLY in auto retail

·     Consumer Staples; KHC and KO added to Bank America US1 list and removing TDC and DIS; COTY raises FY profit outlook on resilient demand for its high-end fragrances and skincare products after Q3 revs rose 15% to $1.19B above est. $1.15B; APRN reported a wider-than-expected loss in the first quarter and revenue fell short of expectations; in food, TSN EPS beat on better beef and prepared food and sales also higher while raises year sales view but lowers FY22 volume growth view to 1%-2% from 2%-3%; THS Q1 EPS loss (-$0.15) vs. est. loss (-$0.52); Q1 sales rose 7.9% to $1.14B vs. est. $1.09B and reaffirms annual outlook for sales and Ebitda; BRBR added to Top Picks at Mizuho saying FQ2 provided surprising visibility and confirmed capacity expansion on track and believe it places a floor under numbers, sentiment, and valuation

·     Bitcoin, FinTech & Payments; Crypto related plays in the stock market tumbled after weekend trading left bitcoin trading at roughly half its November peak – shares of COIN, MARA, RIOT, MSTR were among some of the biggest losers (and down big YTD as well). Bitcoin prices dropped below $33K, falling more than 9% and Ethereum dropped over 11% below $2,400

·     Media & Internet: SHOP extends declines after tumbling last week after reported its slowest quarterly revenue growth since going public in 2015 and reported a big miss on profit, prompting several Wall Street analysts to lower its price tgt; FWONA tracking stock mentioned positively in Barron’s noting shares had been racing ahead, but a recent pullback before the Miami Grand Prix could be a buying opportunity; IHRT downgraded to Neutral from Overweight at JPMorgan; MTCH upgraded to Overweight from Equal Weight at Wells Fargo; Wedbush said continue to favor IAC over ANGI, and continue to see a LT positive in Angi Services’ trajectory; FB’s Zuckerberg says will allow a small group of creators & collectors to share #NFTs on #instagram

Stock GAINERS

·     BNTX +6%; reported Q1 earnings and sales that topped Wall Street expectations; earned EUR14.24 a share in the quarter on revenue of EUR6.37 billion, which compared to earnings of EUR9.16 a share on revenue of EUR4.34 billion (a year earlier, the company earned EUR4.39)

·     CPB +1%; defensive food stocks getting a boost early KHC, CAG and consumer products CLX

·     COTY +3%; raises FY profit outlook on resilient demand for its high-end fragrances and skincare products after Q3 revs rose 15% to $1.19B above est. $1.15B

·     ENR +10%; posted Q2 sales or $685.4M vs. est. $655M while increasing fiscal year net sales guidance to low single digit growth & reaffirming fiscal year outlook for adj eps & adj ebitda

·     SWX +1%; announced that it has entered into a settlement agreement with Carl Icahn and his affiliated entities. Pursuant to the Agreement, at least three, and up to four, new directors will join the Southwest Gas Board of Directors

·     TSN +2%; EPS beat on better beef and prepared food and sales also higher while raises year sales view but lowers FY22 volume growth view to 1%-2% from 2%-3%

·     TOL +2%; homebuilders a standout to the upside early – MTH PHM TOL BZH all up 2% or more

Stock LAGGARDS

·     APA -6%; after energy top leader first part of the year, seeing selling pressure today with oil lower and investors taking profits on YTD winners – CTRA, MRO, SLB, OXY

·     COIN -10%; MARA, MSTR, RIOT, SI, SQ – names leveraged to price of Bitcoin as the crypto space tumbles – BTC -8.4% around $33K (lowest since July 2021)

·     IHRT -10%; after downgraded to Neutral at JPMorgan and cut tgt to $19 saying elevated costs to support this growth are weighing on EBITDA and FCF

·     JOUT -16%; as sales fell 8% in Q1 to $189.6M and margins fell to 36.2% citing supply chain issues hurting its ability to meet demand

·     PLTR -16%; Q1 EPS $0.02 vs est. $0.04; Q1 revs Revenue $446M vs est. $443.38M; sees Q2 revs $470M vs est. $483.84M; forecast adjusted operating margin of 20% for the current quarter, compared with 31% last year

·     RIVN -14%; after CNBC reported Saturday that Ford Motor plans to sell 8 million shares of the electric vehicle start-up; a stock lockup period for company insiders and early investors such as Ford expired on Sunday https://cnb.cx/3M0IlE9

·     SHOP -7%; extends declines after tumbling last week after reported its slowest quarterly revenue growth since going public in 2015 and reported a big miss on profit, prompting several Wall Street analysts to lower its price tgt

·     SPCE -6%; downgraded to Hold from Buy at Truist and cut tgt to $8 from $24 post earnings citing the combination of supply chain delays, timing risk, slide-out of comm’l flights to 1Q23, a lack of operational catalysts and rising interest rates