Mid-Morning Look

Wednesday, May 11, 2022

U.S. stocks slip then rip on CPI data, now what? Treasury yields spike as headline and core CPI inflation numbers came in above economist estimates but were down from prior month readings. Following the inflation data point, implied probabilities shift from 73% to 81% chance of +75bps from Fed in June. Inflation surged a higher-than-expected 8.3% in April, holding near 40-year highs of 8.5% in March, as the Federal Reserve scrambles to cool the economy. The headline data renewed concerns that the Fed needs to get more aggressive on rate hikes to combat inflation that remains stubbornly high. Oil prices are up over 5% above $104 per barrel leading energy stocks higher, while banks bounce behind the spike in treasury yields. Technology stocks are lagging a broader bounce in the market early, but overall NYSE breadth is strong, more than 2-1 advancers leading decliners. Bitcoin touched lows of $29,011 (lowest since June 2021), falling over 6% before recovering quickly back above $31,000 in mass volatility. Macro continues to direct stock markets, now that earning season starting to wind down with nearly 450 of the S&P 500 having reported thus far (awaiting big box retailers in weeks to come).

Economic Data

·     Inflation data remains high: April Consumer Price Index (CPI) headline +0.3% vs. est. +0.2% M/M while on a Y/Y basis rises +8.3% vs. est. +8.1% (breaks streak of 7-beats in a row as down from 8.5% prior month). Core CPI Ex food & energy, rises +0.6% M/M vs. est. +0.4% and rises +6.2% vs. est. +6.0% (but down from prior month of +6.5%

Sector Movers Today

·     Auto sector; TM issued an operating profit outlook for the fiscal year ending in March 2023 that was below analysts’ expectations; said it expects operating profit in the current fiscal year of 2.4 trillion; GOEV slides early after filed shelf and said last night sees doubt about ability to continue as a going concern; CVNA extends slump early as Stifel downgraded to Hold and cut tgt to Street-low $40 saying deteriorating capital market conditions and worsening trends in the used vehicle industry have eroded their conviction in the path for Carvana to secure the necessary capital

·     Retailers; KSS says all of its 13 directors have been re-elected according to preliminary voting data; BOOT EPS beat with comps +33% & +69% on 2-year, as all 52 weeks of FY22 grew >55% on 2-year and FY23 guide better; PRPL reported 1Q22 revenue and EBITDA that was better than its guidance and consensus expectations, while forward-looking guidance underwhelmed; BIRD slips after lowering its year rev outlook to $335M-$345M from $355M-$365M (est. $362.35M) citing impact on international business; REAL Q2 GMV +31% (slightly above guidance 25-30%) and revenues +49% (vs. guidance 32%-42%, while Q2 guidance was a bit light of expectations

·     Software movers; Unity Software (U) shares tumble following management’s disclosure of internal challenges within its monetization products that are curtailing its ability to meet FY22 FactSet Consensus/ Street expectations revenue and profitability expectations; EA Q4 net bookings missed by 2.4%, however better than expected cost management kept operating income and Adj. EPS in-line with forecast while provided its initial FY23 outlook; DV reported beat and raise 1Q22 results whereby revenue and EBITDA came in 6% and 7% above the high end of guidance, as improving sales execution drove strong product cross-sales

·     Bitcoin touched lows of $29,011 (lowest since June 2021), falling over 6% before a sharp recovery back above the $31,000 level as the crypto world has seen several negative stories over the last 48 hours. COIN shares tumble over 20% following revenue miss, larger quarterly loss, and less transactions, while the crypto space showing fears as Terra’s LUNA continued its third consecutive day of slide as the token fell 96% in the past 24 hours to reach price levels previously seen in August 2021. Meanwhile sister token TerraUST (UST), an algorithmic stablecoin, falls substantially further from its $1 peg during a broad selloff in cryptocurrencies. COIN posted a greater than expected Q1 loss while revs fell 35% to $1.165B, below consensus $1.48B and said retail trading volumes were down 38% and filed a mixed shelf (shares declined again after falling over 40% the prior 4-days into earnings) – shares of MSTR, SI, MARA, RIOT, SBNY, OSTK and other names leveraged to crypto fell initially

Stock GAINERS

·     APA +5%; energy/oil stocks doing the heavy lifting early with shares of MRO, EOG, FANG, XOM, CVX higher; OXY rises post earnings beat

·     ELY +15%; 1Q EPS of $0.36 vs Consensus $0.22 and EBITDA 20% above on better revs and guides 2Q revenues above and EBITDA also above at $185-$200M vs Consensus $173M

·     MOS +7%; materials among top gainers early – Goldman noted mgmt highlighted continued tightness in Potash and Phosphate markets – good news for pricing and profits

·     PRPL+23%; reported 1Q22 revenue and EBITDA that was better than its guidance and consensus expectations, while forward-looking guidance underwhelmed

·     RCL +5%; strength in travel and discretionary names early with cruise lines and airlines higher

·     REAL +2%; Q2 GMV +31% (slightly above guidance 25-30%) and revenues +49% (vs. guidance 32%-42%, while Q2 guidance was a bit light of expectations

·     SWCH +7%; after Digital Bridge agrees to purchase for about $11B in cash (including debt), paying $34 per share for an 11% premium to yesterday close https://bit.ly/3kY5qeX

·     VERU +7%; said it plans to request emergency-use authorization for its experimental Covid-19 treatment sabizabulin from the U.S. FDA in the second quarter

Stock LAGGARDS

·     COIN -24% posted a greater than expected Q1 loss while revs fell 35% to $1.165B, below consensus $1.48B, said retail trading volumes were down 38% and filed a mixed shelf

·     FVRR -23%; cuts FY22 revenue view to $345M-$365M from $373M-$379M (est. $377.24M) and cuts FY22 adj EBITDA to $10M-$17M from $27M-$33M after in-line Q1 rev quarter

·     INO -31%; as the current CEO resigned and was replaced by the COO, the INNOVATE, INO-4800 COVID-19 vaccine trial was discontinued due to higher hurdles for a COVID-19 vaccine, and prelim discussions with the FDA suggested a registration filing for VGX-was not possible

·     RCUS -25%; tgt cut to $42 from $67 at Wedbush noting Roche reported that the Phase 3 SKYSCRAPER-01 study failed to meet the Co-primary endpoint of PFS, which they believe casts a shadow on RCUS’s mNSCLC programs given the similarity of study designs

·     RHHBY -7%; after announced a failure to reach its primary endpoint of progression-free survival in a Phase 3 trial to address non-small-cell lung cancer (RCUS, ITOS shares fall in sympathy)

·     U -33%; following management’s disclosure of internal challenges within its monetization products that are curtailing its ability to meet FY22 Street expectations revenue and profitability expectations/said ad delay could hurt revenue for a year

·     WEN -9%; posted higher sales but lower profit as Q1 EPS $0.17 vs est. $0.18 on lighter revs. EBITDA $107mm vs est. $113mm. Comps 2.4% vs es.t 2.5% and margins 11.6% vs est. 14% and lowered year profit outlook