Mid-Morning Look

Friday, May 20, 2022

As expected, stocks volatile on this option expiration Friday, with lots of media talk about “the streaks”, as the S&P 500 Index and Nasdaq Composite on track for a 7^th straight weekly decline (and the Dow 8-straight – would be longest since 1932) barring a massive market rally today. Coming into the day, the S&P 500 index is down about -3% week-to-date, the Nasdaq down -3.5% WTD and the Dow down -2.9% WTD. Carrying bigger weekly losses are the Dow Transports, down about -7%. Futures were strong overnight on some positive China economy headlines (lowered prime rate help property market), but concerns about the impact of higher inflation and subsequent rate hikes to tame it, have plagued markets all week. Meanwhile the Smallcap Russell 2000 index has lost around 30% of its value from its early-November highs into its lows earlier this month. Disappointing forecasts from retailers including Walmart Inc and Target Inc have rattled market sentiment this week, adding to evidence that rising prices have started hurting the purchasing power of U.S. consumers. Markets are widely expecting 50-basis point interest rate hikes by the U.S. central bank in June and July. Asian markets jumped overnight as the Nikkei Index gained 336 points or 1.27% to 26,739, the Shanghai Index gained 1.6% to 3,146, and the Hang Seng Index surged 596 points or nearly 3% to 20,717. Move came as Chinese banks cut 5-year loan prime rate by 15bps, most since 2019 interest rate revamp, to boost weak mortgage demand amid a property slump, (15bp cut to 5-year LPR to 4.45% from 4.60%, but kept 1-year LPR unchanged at 3.7%)

Sector Movers Today

·     Retailers: ROST tumbles as F1Q results were below consensus, gross margin remains pressured and declined 295 bps in F1Q, inventory spiked 58% YoY and provided a lower outlook for F2Q and FY2022 from a top- and bottom-line perspective; FL reported Q1 EPS $1.60 vs. est. $1.54 on lighter revs. Comps -1.9% vs est. -4%. GM 34% vs. est. 31.8% and guides FY EPS upper end of $4.25 to $4.60 vs. est. $4.42; DECK crushed it with Q4 EPS $2.51 vs. est. $1.32 and revs rose 31.2% Y/Y to $736.0M which tops consensus $639.2M along with upbeat guidance FY23 EPS $17.40-$18.25 well above Street at $15.08; sees FY23 revenue $3.45B-$3.50B vs. est. $3.05B as UGG sales increased 24.7%, HOKA brand +59.7% and Teva brand net sales -18%; VFC miss on top and bottom line while guides FY23 EPS $3.30-$3.40 below est. $3.57; Piper said heading into discount retailer earnings next week, see buying opportunities for DG, we remain very bullish on OLLI for 2022, and we remain cautious on BIG double upgraded to Buy at Bank America as research suggests that the availability of closeouts has meaningfully improved

·     Banks came into Friday weak, with the XLF falling for the 9th time in 11 days closing at 32.98, trading 14.1% below its 200DMA and has an 14dRSI of 36; the SEC said it had charged WFC with anti-money laundering related violations; LPLA said Total advisory and brokerage assets at the end of April were approximately $1.10 trillion, a decrease of $67 billion, or 5.8%, compared to the end of March 2022. Total net new assets for April were $1.9 billion, translating to a 2.0% annualized growth rate. Chinese banks cut 5-year loan prime rate by 15bps, most since 2019 interest rate revamp, to boost weak mortgage demand amid a property slump, while keeping the 1-yr rate unchanged

·     Pharma movers; ABBV submits New Drug Application to U.S. FDA for Investigational ABBV-951 for the Treatment of Advanced Parkinson’s Disease; ATRA slides as receives notification of Bayer’s intention to end exclusive worldwide licensing agreement for next-gen CAR T-cell therapies (collaboration included funding and development of two of ATRA’s CAR-T cell anti-tumor treatments0; FHTX said the FDA placed a partial clinical hold on its Phase 1 dose-escalation study of FHD-286 in R/R myelogenous leukemia (AML) and myelodysplastic syndrome; LLY, INCY Olumiant get EMA panel nod for hair loss disorder alopecia areata

Stock GAINERS

·     CVET +15%; after disclosing that Clayton, Dubilier & Rice, LLC, and TPG offered to buy all of the outstanding shares of common stock of the company for $21.00 per share in cash https://bit.ly/3z5x563 (shares of comps IDXX, ZTS active on news)

·     DECK +18%; Q4 EPS $2.51 vs. est. $1.32 and revs rose 31.2% Y/Y to $736.0M which tops consensus $639.2M along with upbeat guidance FY23 EPS $17.40-$18.25 well above Street at $15.08; sees FY23 revenue $3.45B-$3.50B vs. est. $3.05B

·     JD +2%; U.S. listed China stocks rallying after China 5-year loan prime rate cut by Chinese banks (KWEB, FXI, NTES, JD, BIDU)

·     MRO +3%; among top gainers in the S&P as investors again rotate into energy (APA, DVN)

·     MTCH +3%; after saying earlier it won some concessions from GOOGL has and withdrawn a request for a temporary restraining order in response

·     PANW +11%; reported a better-than-expected F3Q, led by total billings growth of 40% Y/Y topping the Street’s roughly 25% forecast while product revenue growth of 22% Y/Y was very strong, and raised its billings, revenue, and next-gen ARR outlook

Stock LAGGARDS

·     AMAT -2%; reported AprQ Rev/EPS of $6.2B/$1.85 (slightly below consensus $6.4B/$1.91) and guided JulQ softer to $6.25B/$1.77 (consensus $6.7B/$2.05), and $150M AprQ impact from Covid-related supply constraints sustaining into the JulyQ

·     ATRA -2%; receives notification of Bayer’s intention to end exclusive worldwide licensing agreement for next-gen CAR T-cell therapies

·     DE -8%; reported Q2 profit and revenue that topped expectations citing strong demand helping offset supply-chain pressures; sales grew 10.9% to $13.37B above est. $13.23B while gross margin contracted to 33.3% from 34.3% and affirmed year sales

·     FHTX -20%; said the FDA placed a partial clinical hold on its Phase 1 dose-escalation study of FHD-286 in R/R myelogenous leukemia (AML) and myelodysplastic syndrome

·     PSTG -8%; HPE and PSTG downgraded to Neutral from Buy at Bank America and adjusting estimates to account for increased risk of slowdown; they see some risk to HPC revs from slower customer acceptance and associated margin pressure

·     ROST -22%; as F1Q results were below consensus, gross margin remains pressured and declined 295 bps in F1Q, inventory spiked 58% YoY and provided a lower outlook for F2Q and FY2022 from a top- and bottom-line perspective (BURL, TJX slip early in reaction)

·     UPST -9%; after Wedbush reiterated its Underperform and cut tgt to $15 from $20 citing new underwriting model introduced and that new ABS deal has higher expected losses