Closing Recap

Wednesday, April 20, 2022

Equity Market Recap

·     Indices finished mixed after a boom day yesterday. The NASDAQ slid after NFLX posted weak net adds and cautious commentary last night, also pulling down DIS, PARA, WBD and ROKU in the streaming sector. FB was also a significant laggard after very cautious comments circulated from a broker survey. The S&P 500 was choppy and but managed to finish modestly in the green. Dow Transports surged a second day, rising nearly 2% as the group continues to rebound after an awful start to the month on recession fears – shares of CAR lead after broker upgrade. Outside of tech and Comm Services, most sectors were higher on the day, led by Healthcare, Industrials, and more defensive related sectors.

·     Stock & Sector movers: As mentioned above, NFLX pulled streaming names lower after a soft earnings report, while FB also lagged, leading the Communication Service sector lower by almost 3%. Other S&P sectors fared better, broadly showing gains on the day with Real Estate (AVB, ESS, EQR), Consumer Staples (PG MKC, CPB, STZ), Healthcare (HCA, TMO, EWUH) and Utilities (NRG, PEG, AWK) leading; RAD shares jumped late day on reports it rejected a takeover attempt in early April; ASML led semiconductor equipment names higher after earnings; LRCX reports tonight.

Economic Data:

·     Existing Home Sales for March fell -2.7%, reported at 5.77 mln unit rate slightly below consensus 5.80 mln and down from Feb downwardly revised 5.93 mln (vs. 6.02 mln); March inventory of homes for sale 950,000 units, 2.0 months’ worth; the national median home price for existing homes $375,300, +15.0% from March 2021

Commodities, Currencies & Treasuries

·     Gold rallied off overnight lows but still posted a second consecutive down day, slipping $3.40 or -0.2% to settle at $1,955.60 an ounce despite softer Treasury yields and a weaker Dollar. Silver followed a similar pattern, also ending modestly lower, settling down -$0.12 or -0.47% to $25.271 an ounce.

·     Despite a dip midday, WTI crude gained. US EIA crude oil inventories saw a draw of -8.02Mm barrels versus the forecast build of 3Mm barrels, reversing a large build last week. WTI crude settled $0.19 or 0.19% to $102.75 per barrel, while Brent slipped $0.45 or -0.42% to $106.80 per barrel.

·     Treasury yields faded off a strong day yesterday. The 10-yr slipped back to about 2.85% and the 30-yr faded to 2.88% after crossing 3% yesterday. Fed speakers were making rounds again today, but there was little new content to push yields higher after yesterday’s gains. The US Dollar also slipped after a strong move higher yesterday. The DXY fell back below $100.40 after briefly crossing $101 early. Canadian dollar strengthens to 3-week high to the U.S. Dollar after inflation data as Canada CPI +6.7% YoY, up from 5.7%; +1.4% MoM, up from 1%.

Sector News Breakdown

Consumer

·     Retailers; LULU outlines fresh 5-year financial targets, sees revenue doubling from 2021 levels by 2026, reaching $12.5 billion. Lululemon also expects to double it men’s business — having already doubled men’s sales from 2018 to 2021 (shares fell after hitting recent highs); HD and LOW were solid gainers despite growing uncertainties in the housing market after UBS had positive comments from a meeting with HD management; discount stores DG and DLTR both record all-time highs today

·     Auto sector; TSLA expected to report earnings tonight after the close; LAD easily topped earnings expectation as Q1 adjusted EPS $11.55 vs. est. $10.09; Q1 revs rose 54% to $6.71B vs. est. $6.28B; qtrly used vehicle retail revenues increased 65.2%; qtrly new vehicle retail revenues increased 39.6%

·     Housing & Building Products; The median monthly asking rent in the U.S. increased 17% year over year to a record high of $1,940 in March, according to a new report from Redfin (RDFN), the largest annual jump since at least February 2020. Meanwhile, the national median monthly mortgage payment for homebuyers rose twice as fast: It climbed 34% year over year to $1,910, also the biggest increase in Redfin’s records; Wayfair (W) announces “Way Day 2022”, invites customers to enjoy best savings of the year for all things home; annual two-day sale will run April 27-28 and feature up to 80% off top-sellers, free shipping on everything, and more; for homebuilders, MBA mortgage applications index fell 5.0% in week ended April 15 after falling 1.3% in prior week. purchases down 3.0% after rising 1.4% in prior week, refis fell 7.7% after falling 4.9% in prior week and the average 30-yr fixed rate 5.20%

·     Consumer Staples & Restaurants; PG Q3 profit and sales that beat expectations and raised its organic rev growth view to 6%-7% from prior 4%-5%; STZ and TAP gained after Heineken reported strong volumes and extended the pricing umbrella for the sector

·     Casinos, Gaming, Lodging & Leisure sector; hotel/lodging stocks extend recent gains MAR, HLT, HST as Covid fears behind, mask mandates for travel lifted and investors rotate out of tech and into discretionary; casinos, online travel also among market movers

Energy

·     E&P and Majors; oil services lag in energy after BKR misses Q1 revenue and profit estimates saying revs rose 1% to $4.8B, below consensus of $5.02B as results reflected a "very volatile market environment during the first few months of 2022" (follows HAL results the day prior, SLB shares also slump)

·     Pipelines: Target price changes at Raymond James as increases: ARIS from $18 to $23/share; CEQP from $34 to $35/unit; DCP from $40 to $45/unit; ENLC from $10 to $11; ET from $13 to $14; LNG from $150 to $165/share; MPLX from $37 to $39; OKE from $70 to $75/share; PAA from $12 to $13; RTLR from $15 to $16/unit; TRGP from $80 to $92; and WMB from $34 to $40.

·     Utilities & Solar; Nearly every name in utility sector (XLU) in the S&P higher to start the day amid rotation into defensive assets; EXC upgraded to Overweight from Neutral and up tgt to $55 from $47 at JPMorgan; ahead of earnings season, KeyBanc highlighting FE, EXC, DUK, XEL and NEE as our top regulated ideas; in solar, VVNT appointed form AT&T executive Rasesh Patel as its new COO, effective mid-May 2022.

Financials

·     Bank movers; CS warned it will make a loss in Q1 from rising litigation costs and loan losses related to Russia; CMA Q1 EPS just misses ests as Q1 net income of $189M vs $350M y/y saying deposits in the quarter were impacted by seasonality and customers using balances to fund business activity; FHN core EPS of $0.38 beat consensus of $0.32 driven by a lower provision expense of negative $40M vs. est. -$12M and lower core expenses; PACW reported an in-line quarter which saw better than expected net interest income offset by worse than expected noninterest income; HWC results were relatively positive and its forward outlook is little changed other than the expectation for NIM expansion; FULT EPS beat primarily due to another negative loss provision although pretax pre-provision income was also modestly better than projections

·     Brokers, Exchanges, & Asset Managers: NDAQ announces 11% increase in quarterly dividend, seeks approvals to execute 3-for-1 stock split after EPS beat on robust growth in solutions segment while raises year operating expenses to $1.7B-$1.76B from $1.68B-$1.76B; IBKR said profit and revenue fell (to $692M from $893M y/y) in Q1 as securities lending activity decreased and stock-trading volume failed to reach the highs of an unusually active period last year.

·     Insurance; TRV upgraded to Market Perform from Underperform at Raymond James saying while the stock traded down after reporting 1Q22 results, due in part to investors’ concerns of declining renewal rate changes and rising loss cost trends, it has outperformed on a YTD basis up 12.6% (S&P 500 -6.6%)

·     Bitcoin, FinTech & Payments; COIN launches NFT marketplace in search for growth; in payments, FIS tgt to $116 from $155 at Deutsche Bank saying given recent trends from the banks, networks, and consumer data points, they expect 1Q22 acquirer volumes for GPN to grow above pre-pandemic levels, but generally see limited upside in the qtr; broad weakness in high growth FinTech space with PYPL, SQ, UPST, AFRM falling

Healthcare

·     Pharma movers; TEVA said the FDA issued a Complete Response Letter (CRL) regarding the New Drug Application (NDA) for TV-46000/mdc-IRM (risperidone extended-release injectable suspension for subcutaneous use) for the treatment of schizophrenia; Dragonfly and ABBV to develop drug candidates in immune-mediated diseases using dragonfly’s proprietary tri-specific NK cell engager therapy platform; in biotech; IMAB is exploring options including a sale of the business amid takeover interest from other global drugmakers, according to a Bloomberg report

·     MedTech Equipment; ABT volatile after earnings results as EPS beat was all driven by covid tests, and possible reason for reversal as Covid cases slow – Q1 sales rose 14% y/y to $11.9B topping views of $11B while diagnostics sales rose 32% y/y to $5.29B

·     Healthcare Services; ANTM Q1 adj EPS $8.25 vs. est. $7.81; Q1 revs $37.9B vs. est. $37.35B; raises FY22 adjusted EPS view to greater than $28.40 from prior view greater than $28.25 (est. $28.48); Q1 operating gain grew by 13.2% over the prior year quarter to $2.4 billion; RAD shares popped in the afternoon after the NY Post reported the co rejected a takeover bid from private-equity firm Spear Point Capital Management that valued co at more than $800 mln, or $14.60 a share, a 56% premium to its closing price that day of $9.36 https://bit.ly/3vwu5My

Industrials & Materials

·     Industrial & Machinery; March US Architecture Billings Index (ABI) rises to 58.0 vs 51.3 in February; PWR downgraded to Neutral from Buy at UBS noting over the last 18 months, PWR stock has appropriately re-rated as investors have recognized the structural shift from oil & gas to electric that will require major grid investment

·     Transports; CAR upgraded to EW from UW and raise tgt to $245 from $164 at Barclays saying they are incrementally constructive on the rental car space in an inflationary environment; Trucking names generally worked higher, maintaining momentum from better JBHT earnings earlier in the week. Gains were paced by moves in USX, MRTN, KNX and WERN

·     Metals & Materials; ALB initiated as a Catalyst Call Buy at Deutsche Bank fueled by sharply higher lithium prices, and believe Albemarle is on track for another beat and raise with its Q1 earnings release on May 4; Deutsche also initiates TROX as a Catalyst Call Buy saying with the shares down 15% YTD believe upcoming Q1 results will act not only as a floor for the shares but could also propel the shares higher; in gold miners, KGC downgraded to Sector Perform from Outperform, and IAG downgraded to Underperform at RBC following its Global Mining equity research team’s updated precious metal price assumptions, and higher cost inflation for producers.

Technology, Media & Telecom

·     Internet, Media & Telecom: NFLX tumbles over 25% after reported disappointing 1Q results and guidance as subscriber growth turned negative in three out of the company’s four major regions – lost subs in EMEA (-300K) and LATAM (-350K), lost (-640K) subscribers in US/Canada; also lower Q2 rev guidance; shares of streaming co’s DIS, ROKU, PARA declined in sympathy; Citigroup said its survey of more than 3,000 internet U.S. users shows elevated levels of user engagement over the internet as top sector picks include AMZN (PT $4,100), SNAP ($50), ABNB (PT $200) and DASH ($155) as all these cos are disrupting their respective industries, focusing on innovation, improving execution and operational rigor, and have a "self-funding mentality"; FB and PINS shares slide on cautious analyst commentary; in advertising, OMC among top leaders in S&P after earnings as 1Q adj EPS $1.39 vs est. $1.31 on revs $3.41B vs est. $3.29B, and raises FY22 organic growth view to 6.0%-6.5% from 5%-6%

·     Semiconductors; ASML quarterly results lift semi-equipment names as posted Q1 sales of 3.5B euros ($3.80 billion) vs. est. of 3.45B euros, while Q1 net income also came in above estimates; Bookings remain strong at 226 billion euros; forecast Q2 sales of 5.1-5.3B euros and left a forecast for full year sales growth of 20% unchanged; LRCX earnings expected tonight

·     Software movers; PLTR upgraded from Underperform to Sector Perform at RBC Capital and raise tgt to $12 saying gov’t set up could translate to near-term, SPAC investments are likely coming to an end and does not look cheap but does better reflect the risk-reward

·     Hardware, Components & Services; IBM rises following Street beat, optimistic outlook as 1Q operating EPS $1.40 vs $1.39 cons, 1Q Revenue $14.20B vs. est. $13.78B as results were helped by outsized contributions from recent spin-off, Kyndryl, driving strength in both software and consulting segments, while gross and pre-tax margins were below consensus expectations