Closing Recap

Tuesday, April 19, 2022

Equity Market Recap

·     Strong day across the board (almost) for stocks, with ten of eleven S&P sectors higher, as major averages post their best day in over a month on nothing specific other than that there wasn’t bad news (some cited tax loss selling behind us). Earnings were mixed (JNJ, HAL, HAS, TRV, JBHT), economic data stayed strong (housing), oil and natural gas prices plunged following a string of gains, while commodity prices in general were down. Energy was the lone market laggard while most others found solid footing including REITs, industrials, transports, banks, technology, and consumer discretionary. Lone Fed speaker (Evans) echoing similar comments of others (Bullard yesterday), talking about needing to be more aggressive on rate hikes to fight inflation as he backed raising rates 225 bps this year. Stocks remained steadily higher all day, closing near their best levels of the day. Treasury yields, the dollar saw big gains, failing to dent market optimism.

·     Stock & Sector movers: Transports among top sectors, rising over 2%; $JBHT rises on better earnings; airlines rise after a U.S. judge on Monday overturned a federal mandate for passengers to cover their faces; AR CHK EQT RRC SWN natural gas levered energy players among biggest decliners (3% or more) as natural gas drops further from 14-year highs, down nearly 11% on profit taking/pullback; MRNA PFE vaccine names again lag in biotech; AXSM rises after positive AXS-05 update; JNJ mixed quarter and pulled sales forecast for year, but strong ortho rev numbers give a boost to likes of SYK BSX; SAVA slides on cautious NYTimes article; XRAY drops on CEO termination and guidance; MOS NTR names that have outperformed over the last few weeks on Russia/Ukraine conflict and its supply impact on commodity prices such as fertilizer names; as well as uranium names CCJ UUUU; and metals AA CENX VALE; in ag, ADM BG both downgraded at Bank America citing peak earnings.

Economic Data:

·     Housing Starts for March rose +0.3% m/m (vs. +6.5% in Feb) to 1.793M unit rate (above consensus 1.745 mln), vs February 1.788 mln units; March single-family starts fell -1.7% to 1.200 mln unit rate; multifamily +4.6% to 593,000-unit rate; Building Permits for March rose +0.4% vs. -1.6% last month to 1.873 mln unit rate (est. 1.825 mln)

Commodities, Currencies & Treasuries

·     It was a give-back day for oil prices, with WTI crude tumbling -$5.65 or 5.22% to settle at $102.56 per barrel as investors weighed demand concerns against tight global supplies after Libya halted some exports and as factories in Shanghai prepared to reopen following a COVID-19 shutdown. Bottom line was energy prices have jumped this month after sliding in March. Reports by the IMF which reduced its economic growth forecasts and warned of higher inflation also pressured prices. The bearish outlook added to price pressure from the dollar trading at a two-year high and Treasury yields at 3-year highs. Natural gas prices fell -8.24% to $7.17 mln btu

·     Gold prices tumbled in a down day for commodity prices, sliding -$27.40 or 1.4% to settle at $1,959 an ounce after hitting its highest levels in a month Monday, weighed down as well amid another spike in the dollar and Treasury yields. The U.S. Dollar Index (DXY) jumped to its highest in more than two years prompting prices for the metal to ease back from a more than five-week high seen a day earlier. The Japanese yen fell to 14-year low vs. the dollar.

·     It was another day of rising Treasury yields as bonds are on pace for their worst year in history. So far this year alone (not even 4-months), the 30-yr treasury yield from 1.91% to 2.95%, the benchmark 10-yr treasury yield from 1.51% to 2.86%, the 5-yr treasury yield from 1.26% to 2.79% and the 2-yr treasury yield from 0.73% to 2.46%. Today was no different with yields jumping across the board as the 10-year topped 2.94% and the 2-yr up 14 bps to 2.6%

Sector News Breakdown

Consumer

·     Retailers; department stories, Hardline and Softline retail all rally across the board; HAS posted earnings miss as Q1 adj EPS $0.57 vs. est. $0.64; Q1 revs $1.16B vs. est. $1.15B; said has a plan for continued growth in 2022, including low-single digit revenue growth despite the strengthening of the U.S. dollar; LULU upgraded to Buy from Hold and raise tgt to $495 from $390 at Truist as expect a robust new 5-year financial outlook at the April 20th analyst day

·     Auto sector; Car and auto-parts factories in China are gradually getting underway again as Covid-enforced lockdowns in the country’s northeastern Liaoning and Jilin provinces ease. BMW has resumed full production at its two plants; TSLA resumed production at its Shanghai plant on Tuesday, the Xinhua News Agency reported, after a stoppage of more than three weeks because of the city’s COVID-19 lockdown.

·     Consumer Staples; even the defensive food and household product names rallied with today’s action, with an all-out blitz higher for stocks; in research for Beauty space, Piper with tgt changes as EL (OW, lowering PT to $350 from $380), ELF (N, lowering PT to $29 from $32), OLPX (OW, lowering PT to $30 from $36), and ULTA (OW, lowering PT to $465 from $475) saying checks were rather positive (particularly for EL and OLPX). However, given the recent shutdowns in China, falling March real retail sales in China (-1.2% m/m), and U.S. Consumer Confidence still near 10- year lows, we’re tweaking our estimates for each of our beauty names today.

·     Restaurants: MCD positive mention by Cowen today saying following checks, maintain 1QE US SSS +3.5%, virtually in-line with 3.3% consensus and believe MCD is better suited to navigate a challenging industry backdrop vs quick service peers; Stifel said in casual dining preview that they are most confident that WING and BROS will deliver upside relative to consensus unit growth estimates, while we see potential downside risk for domestic development at DPZ

·     Casinos & Gaming: casinos (WYNN ) Macau VIP sector gaming revenue fell 47% in the first quarter from a year earlier to 4.84 billion patacas ($599.6 million), according to data (lowest since Q3’20) – VIP revenue -1.2% from the previous quarter 1Q mass-market gaming revenue -11% y/y to 12.9 billion patacas 1Q total gaming revenue -25% y/y to 17.8 billion patacas; also, Truist with PT Changes: Up: MCRI to $110 (from $88) / Down (reducing interactive valuations across coverage): PENN to $60 (from $65), CZR to $105 (from $110), MGM to $48 (from $51) and BALY to $38 (from $51) – remain positive on the resiliency of gaming with bias for physical / profitable gambling stocks

Energy

·     Energy stock movers; the one lone S&P sector under pressure today given a big roll in oil prices and natural gas (both falling after a strong of advance, with nat gas falling from 14-year highs); pure rotation day out of energy winners and into just about everything else; HAL Q1 adj EPS $0.35, in-line with ests; Q1 revs rose 24% y/y to $4.28B vs. est. $4.2B; N.A. revs $1.93 billion, +37% y/y, Middle East, and Asia revenue $1.03 billion, +17% y/y

·     Utilities & Solar; in research, Barclays with a few changes: POR upgraded to EW from UW and up tgt to $57, and NWE upgraded to EW from UW (tgt raised to $62 from $57) while downgraded CMS to EW from OW (tgt raised to $76) and PNW downgraded to UW from EW (tgt up to $78); PLUG announced an agreement with WMT in which it will deliver liquid green hydrogen to new and existing Walmart sites in the United States

Financials

·     Bank movers; big banks earnings mostly out of the way after last week (BAC, C ), but big week for regional banks results with several names posting today: FITB, SBNY, CFG, CBSH, FBK, HOPE and TFC; in insurance; Dow component TRV posted a 39% jump Q1 net income, with premium-rate increases and new business fueling revenue gains; sharply lower catastrophe costs compared with the year before also boosted profits; Q1 core EPS $4.22, consensus $3.60 and raises dividend

·     Lending and Finance; The Biden administration said today it plans to make it easier for lower-income student-loan borrowers to get debt forgiveness through an existing program that has enrolled millions of people but provided few with relief. The changes would apply to an income-based program for repaying student loans, allowing around 3.6 million people — nearly 10% of all student-loan borrowers — to receive at least three years of credit toward eventual debt forgiveness

·     Bitcoin, FinTech & Payments; rebound in crypto related stocks (COIN ); SI surges after the bank, which focuses on digital assets, reported Q1 earnings that far exceeded Wall Street’s expectations as net income was $27.4M more than double y/y; FOUR downgraded to Underweight from Equal Weight at Morgan Stanley as think shares look expensive on a relative basis

·     REITs; ACC to be acquired by PE giant Blackstone for about $12.8B including debt, with holders to receive $65.47 per share, a 14% premium; PLD boosts 2022 guidance after Q1 earnings highlight demand for warehouses – now expects 2022 core FFO of $5.10-$516 vs. prior guidance of $5.00-$5.10 per share; compares with consensus of $5.04; WE initiated Overweight and $10 tgt at Piper as think WE’s flexible workstation model fits well in this post-COVID office usage environment; NHI issued 2022 earnings guidance (AFFO $4.45) below the Street ($4.63) due largely to higher assumed deferrals

Healthcare

·     Pharma movers; JNJ Q1 adj EPS $2.67 vs. est. $2.61; Q1 revs miss at $23.43B below consensus $23.67B; guides FY adj EPS $10.15-$10.35 below est. $10.51; says given global supply surplus and demand uncertainty, company is suspending covid-19 vaccine sales guidance; ACAD reported a miss on top-line results from its Phase 2 trial of ACP-044 for acute postoperative pain; AZN and Daiichi Sankyo Co. said that Enhertu, a cancer treatment, has been accepted by the U.S. FDA for priority review for patients with previously treated HER2-mutant metastatic non-small cell lung cancer; SWTX entered into a clinical trial collaboration and supply agreement with Regeneron Pharmaceuticals to evaluate nirogacestat in combination with REGN5458 to treat myeloma

·     Biotech movers; AXSM received and agreed to post-marketing requirements/commitments proposed by the FDA with respect to the New Drug Application for its AXS-05 and anticipates potential FDA action on the NDA in the second quarter of 2022; MRNA said its first bivalent booster vaccine outperformed current COVID-19 booster; SAVA slides following a New York Times report that detailed new allegations related to the studies of the company’s experimental therapy, simufilam; CMPI to be acquired by REGN in roughly ~$250M all-cash deal, with holders to receive $10.50 per share, a premium of 335.68% to last closing price

·     MedTech Equipment; FLGT announced the acquisition of Inform Diagnostics for $170M in cash or 1.9x recurring revenues of $90M; XRAY announced they terminated its CEO immediately and board has initiated a search to identify next CEO, retained leading executive search firm to support process; JNJ said in earnings report said its medical devices unit should recover this year after pandemic delays in non-urgent surgeries hit sales last year (SYK rally today); NTRA shares fell in the afternoon after the FDA says genetic non-invasive prenatal screening tests may have false results

·     Healthcare Services: On Monday, CMS published FY23 proposed inpatient payment rates for hospitals (IPPS) that were roughly in-line with recent trends but do not reflect wage pressures hospitals are facing. Operating rates on average are expected to increase by 3.2% or $1.6B, partially offset by a $0.8B decrease in DSH payments, combining for a roughly $0.8B increase in hospital Medicare/DSH spending in FY2023 as per Goldman Sachs

Industrials & Materials

·     Aerospace & Defense; LMT posts a 5.7% fall in Q1 profit, hurt by supply chain snags caused by the COVID-19 pandemic while quarterly sales of $14.96B missed the $15.58B estimate, though maintained its outlook for the year; MOG was downgraded to Hold at Truist saying 1Q22 earnings for the A&D sector is setting up to be a challenge amid the supply chain, inflation, higher fuel prices, Omicron early in the qtr, and possible slowing growth amid Fed tightening; in A&D previews at Truist – see upside potential into results on: HEI, TDG, and see downside potential on ATRO, B, and WWD

·     Transports; most major U.S. airlines (AAL ) are no longer requiring travelers or employees to wear face coverings on domestic and some international flights after a U.S. judge on Monday overturned a federal mandate for passengers to cover their faces; JBHT 1Q EPS $2.29 vs est. $1.94 on revs $3.49B vs est. $3.28B while total operating income was 9% above Deutsche Bank model, with good attribution from all business segments – led by better Intermodal and ICS profits; trucking preview: Stifel said view is that 2Q and 3Q will be softer quarters for Truckload followed by a rebound into the holiday season in 4Q and prefer carriers that built more durable business models amid the freight demand upswing (KNX ) and would also expect the more defensively-oriented carriers (WERN ) to outperform as rates pull back from peak levels

·     Metals & Materials; gold miners lower as investors rotate out of haven assets and back into growth stocks despite another spike in Treasury yields; NEM downgraded at Credit Suisse on valuation; saw a pullback in names that have outperformed over the last few weeks on Russia/Ukraine conflict and its supply impact on commodity prices; fertilizer names MOS lag as well as uranium names CCJ ; and metals AA ; in ag, ADM both downgraded at Bank America citing peak earnings

Technology, Media & Telecom

·     Internet, Media & Telecom movers; NFLX expected to report earnings after the close tonight (shares are down 43% YTD coming into the day); EA, RBLX, and PLTK all assumed/downgraded to Neutral from Buy at Goldman Sachs and assumed/downgraded UBSFY to Sell from Neutral; TDS and USM downgraded at Morgan Stanley as competitive pressures mount in wireless and TDS Telecom goes full speed on fiber; SHOP tgt cut to $800 and ests lowered at Piper as see increasing execution risks tied to inflationary pressure on consumer spending, shift in consumer behavior that favors services, tough compares vs. stimulus aided tailwinds

·     Semiconductors: NXPI downgraded to Neutral from Buy at Citigroup and lower tgt to $190 from $240 saying their margin expansion thesis has played out; NTGR Negatively preannounces guidance, as KeyBanc said headwinds for AVGO, QCOM, QRVO, SLAB, SWKS, and SYNA which supply Wi-Fi and RF chips to NTGR, but also has negative implications for SLAB and SYNA, both of which having meaningful exposure to consumer IoT

·     Hardware, Software movers; ZEN rises after a report the software firm is exploring a sale amid pressure from activist Jana Partners; Bloomberg reported Zendesk is working with adviser Qatalyst Partners and has contacted possible buyers https://bit.ly/3jOROSy ; NTGR slides as guides prelim Q1 net revs $202M-$212M, below est. $231.8M and prior view of $225M-$240M; prelim Q1 adj operating margin -5.3% to -4.3%; said consumer Wi-Fi market declined in Q1; SMCI guides Q3 EPS $1.28-$1.38 vs. est. $0.80 and guides Q3 net sales $1.3B-$1.35B (from prior $1.1B-$1.2B) vs. est. $1.14B