Closing Recap

Wednesday, January 19, 2022

Equity Market Recap

·     It was a choppy day on Wall Street, filled with swings both higher and lower before major averages succumbed to losses (ending near the lows of the day) as the late morning rally failed to hold up. The Nasdaq Composite falls 10% from its record closing high on Nov 19, on track to confirm correction territory (also down over 7% to start 2022) and falling further below its 200-day MA support of 14,735 (first break since April 2020), but the Nasdaq 100 holds above its 200-day MA. Meanwhile, the Russell 2000 is down over 15% from its all-time highs, not far from Bear market territory. The S&P 500 index also dipped below its 50-day MA support for a second day before paring losses (see stat below). The new trajectory for higher interest rate hikes from the Fed, most likely in the March meeting, has changed the market outlook for now with investors exhibiting caution to start 2022 after another incredible 2021 performance. The yield on the benchmark 10-year hits highs above 1.9% overnight but slipped as low as 1.82%.

·     With the S&P 500 below its 100-day moving average (MA) of 4,575, an interesting stat: Regarding the S&P 500: since June 2020, the benchmark has closed below its 100-day average eight times, data compiled by Bloomberg show. Three of those instances, it never traded lower after that, even intraday, and three times there was never a lower close after. One of the occurrences there was one lower close — by 0.03% — before it headed higher, and the worst time was one close 0.16% lower before it recovered, the data show.

·     Stock & Sector movers: UAL, AAL with earnings tonight/tomorrow AM respectively; broader airline sector in U.S. and Europe weak as some cancelling flights to the U.S. ahead of 5G wireless rollout on Wednesday – recall BA recently said that 5G signals may interfere with the radio altimeter on the widebody 777; PG jumps after reporting Q2 sales increased 6%, UNH rises after its beat; banks MS, BAC green after their EPS beats, CMA, STT, CFG slip despite beats in bank earnings; ADS sinks after losing their BJ credit-card account to COF while SOFI surges after receiving their national bank charter in other financial news; auto sector underperforms with F, GM, BWA among the S&P’s worst decliners while RIVN slumps to record lows below $70 (opened at $106.75 vs $78 IPO on 11/10, high of $179.47 on 11/16) among EV weakness; PLUG tumbles despite FY22 revenue guidance better than expected as fuel cell stocks weak.

Economic Data:

·     Housing Starts MoM for December coming in at 1.702M, rising 1.4% vs. est. +1.65Mm and Building Permits MoM rise 9.1% to 1.873M vs. est. 1.70M; November Housing Starts were revised to 1.678 mln units from prior 1.679 mln units; December single-family starts -2.3% to 1.172 mln unit rate; multifamily +10.6% to 530,000-unit rate

Commodities

·     Oil prices rose for a fourth day, with WTI crude up $1.53 or 1.79% to settle at $86.96 per barrel ahead of key weekly inventory data tonight and tomorrow, moving to its best levels since October 2014. Reports of a fire on a pipeline from Iraq to Turkey briefly stopping flows, added to increasing concerns about an already tight short term supply outlook. Supply concerns have mounted this week after Yemen’s Houthi group attacked the United Arab Emirates. Gold prices surged on Wednesday, rising $30.80 or 1.7% to settle at $1,843.20 an ounce in a rotation into more defensive assets today (precious metals broadly higher)

Currencies & Treasuries

·     The U.S. dollar edged lower along with Treasury yields in a volatile and choppy trading day. Markets await clues from next week’s policy meeting while remain cautious over the large and fast runoff in the balance sheet. Sterling rose to near 2-year highs vs. the euro and rose vs. a sliding U.S. dollar after higher-than-expected CPI British inflation data added to pressure on the Bank of England to raise interest rates next month (CPI rose more than expected to 5.4% in December, highest in almost 30 years).

·     Treasury yields jumped to highest levels in nearly 2-years overnight (10-yr above 1.9%) but slipped throughout the trading session after a strong run to start the year. The U.S. Treasury sold $20B in 20-year notes at a yield of 2.21% vs. 2.225% when issued prior, with the bid-to-cover at 2.48 an indirect bidders awarded 66.22% and directs 16.75% (yields moved lower following the auction). Note the selloff in Treasury prices has been quick amid worries over an aggressive FOMC rate hike cycle (note market hinted at a possible 50 bps March liftoff).

Sector News Breakdown

Consumer

·     Retailers; European high-end retailers with better comments as Burberry (BURBY) said it expects to beat profit expectations after its full-price sales accelerated in the third quarter, driven by a strong performance in outerwear and leather goods, while Richemont’s sales grew 32% in the last three months of 2021, adding to signs of strong jewelry demand; BBW upgrade from Buy to Conviction Buy with $93 tgt at Goldman Sachs after recent stock underperformance (-20% YTD vs S&P -5%), as believe there is upside potential to current consensus estimates given the expected rollout of the company’s loyalty program to the entire chain in mid-2022; for WHR, Raymond James noted AHAM’s 4Q report showed that U.S. wholesale major appliance industry unit shipments were roughly flat on a y/y basis, suggesting limited (if any) sequential improvements of late in daily throughput productivity

·     Auto sector; Ford (F) said it will record an $8.2B gain on its investment in Rivian; the gain, which was expected in the wake of Rivian’s November IPO, will be reported as a special item, and will also reclassify a 1Q $900M noncash gain on its Rivian investment as a special item; Piper boosted TSLA estimates to reflect better-than-expected Q4 deliveries, as well as a higher estimate for deliveries in 2022 (we now expect 1.53M units, up from 1.38M previously). We’re also nudging our 2022 margin expectations higher; FREY signs mutual supply agreement with U.S. industrial conglomerate HON

·     Housing & Building Products; industry pressured of late as mortgage rates moving higher in reaction to rising Treasury yields with Fed on track to raise rates this year between 3 and 4 times; Keybanc downgraded shares of IBP, BLD, DHI, to Sector Weight from OW and downgraded LEN, TOL, KBH to Underweight in homebuilding/building product sector saying with past Tightening Cycles = Down Builders 89% of Time (16 of 18) – builders face a Wall of Worry as inflation concerns supersede favorable housing fundamentals; U.S. mortgage market refinancing index falls 3.1%, 30-year mortgage rate rises 12 bps to 3.64%, highest since March 2020

·     Consumer Staples; PG beats market expectations for Q2 sales at $21b vs. est. $20.34B, as Q2 sales at PG’s fabric & home care division, which includes brands like Tide and Mr. Clean, rose 7% and co raises FY organic sales forecast to between 4%-5% from prior range of 2%-4%; UTZ downgraded to Equal weight from OW at Stephens and trim tgt to $18 from $23 as company appears set up to deliver lower than consensus EBITDA numbers in Q4 as margins pressures continue to linger; MKC downgraded to Neutral at Credit Suisse primarily because the stock has almost reached their target price of $100; GO downgraded to Underperform at Bank America

·     Restaurants; WEN announced that it is considering increasing its leverage to support its capital allocation policy, including growth of the Wendy’s brand and/or return of capital to shareholders; RBC Capital said that overall 4Q casual dining industry comp sales were roughly in line with 3Q levels, with the December deceleration offsetting strong November performance; ARCO upgraded to Buy from Neutral, price target $7 from $6 at Goldman Sachs; KOF downgraded to Neutral from Buy, price target $59 from $69 at Goldman Sachs

·     Casinos, Gaming, Lodging & Leisure sector; MGM said BetMGM, the U.S. sports-betting joint venture between MGM and UK’s Entain Plc is expected to turn a profit next year while revenue in 2022 is likely to exceed a previous forecast as the JV expands into more markets and launches new products; LVS upgrade from Neutral to Buy at UBS and raise tgt to $53 from $44 as believe LVS is the best way to play recovery in Macau gaming; FUBO said today subscribers can create custom sports viewing dashboard on Apple TV combining multiple streams (Multiview) with live stats and scores (FanView)

Energy

·     Energy stock movers; energy remains the top performing sector to start 2022, with the XLE coming into Wednesday up 16.7% as oil prices hit 7-year highs above $85 per barrel, but a little profit taking in energy complex names today; analysts have been getting more positive on oil names/E&P into earnings season; XOM upgraded from Underperform to Sector Perform at RBC Capital and raise tgt to $90 from $70 as believe the overall tailwinds for the sector are likely to outweigh company specific factors in 2022; RBC also said tactical ideas to buy into earnings include MRO (large buyback potential at attractive valuation) and OAS (could formalize and strengthen shareholder return strategy) @ RBC

Financials

·     Bank movers; BAC Q4 EPS $0.82 vs. est. $0.76 on Q4 revs $22.1B vs. est. $22.23B, Trading revenue excluding DVA $2.93B, FICC trading revenue excluding DVA $1.57B and Equities trading revenue excluding DVA $1.37B; MS Q4 adj EPS $2.08 vs est. $2 on revs $14.52B vs est. $14.44B, net interest income $2.09B vs est. $1.92B, equities trading revs $2.86B vs est. $2.5B; USB Q4 missed consensus with EPS $1.07 vs est. $1.10 on revs $5.68B vs est. $5.75B; STT Q4 adj EPS $2 beat est. $1.88 on revs $3.05B vs est. $3B, AUM $4.14T was higher than expected $3.98T, and announced planned retirement of President and CEO; CFG Q4 EPS $1.26 vs. est. $1.13 on revs $1.72B vs. est. $1.66B, NII $1.1B was stable reflecting 3% growth in interest-earning assets, largely offset by lower net interest margin; CMA Q4 EPS $1.66 vs est. $1.58, non-interest income $289M vs est. $271.8M; CBSH Q4 EPS in-line 94c on revs $355.4M vs est. $353.46M, net interest decreased 3% from Q3; CNXC Q4 EPS $2.99 topped est. $2.71 on in-line revs $1.46B, sees Q1 revs $1.51-1.54B ahead of est. $1.5B and FY revs $6.45-6.6B above est. $6.16B; FULT Q4 EPS 37c matched consensus and net interest income $165.6M fell $5.7M from Q3; HWC Q4 EPS $1.55 beat est. $1.36, core loan growth $652.5M offset impact of $404.3M in PPP loan forgiveness, deposits increased $1.3B and the stock was upped to Buy at Truist with a new $70 PT from $50 after the results; IBKR Q4 adj EPS 83c vs est. 82c on revs $683M that slightly topped est. $672M and KBW upgraded it Outperform; PNFP Q4 EPS $1.70 vs est. $1.58 on revs $339.5M vs est. $335.5M; BOKF, UCBI, OFG Q4 EPS missed consensus; SBNY 2.1M share Secondary priced at $352.00; PB authorized a 4.6M share buyback program over the next year

·     Banking research: TFC was upgraded to Buy with a $77 PT from $63 at UBS on its expense guidance and conservative outlook, but was downgraded to Neutral at Piper after a solid Q4 as much of its better results came on a negative LLP and its elimination of overdraft fees will impact fees; In Canadian banks, Barclays upgraded BMO to OW and downgraded CM to EW; Raymond James upgraded MBWM to Outperform after yesterday’s Q4 results included very strong core loan growth again and NIM that ticked up to drive better-than-expected NII growth; Wells recommends purchasing SBNY on its pullback due to its strong earning asset growth guidance, profitability profile that underappreciates how asset sensitive the balance sheet has become, and management’s hints of upcoming updates

·     Bitcoin, FinTech & Payments; ADS lost one of its biggest credit-card accounts (BJ) to COF, losing a partnership that accounts for roughly $1.5B in balances https://on.wsj.com/3FDswiL; SNEX announced its global payments division has expanded into digital payments; BTCM said it has achieved approximately 50 megawatts of power capacity at the Ohio mining site, also reported 491.5 PH/s total bitcoin computing power with estimated daily production of about 2.56 BTC, 4,747.2 GH/s total Ethereum computing power with estimated daily production of roughly 72.29 ETH; JPMorgan, Wedbush, and Canaccord all maintained SI at Buy/OP despite its -25% fall yesterday after results as they are positive on it benefitting from rate hikes; Citi lowered their target on COIN to $300 from $415 following the ~33% decline in total crypto market cap since mid-November, but they maintain their Buy rating on improving trading volumes and traffic that fully rebounded from Q3’s slump; AFRM maintained Hold at Deutsche Bank but said with large deal wins namely AMZN and SHOP ramping up, and expanded relationships with players like WMT, see potential for upside to ~112% Y/Y GMV growth in the qtr

·     Consumer Finance; SOFI received OCC and Federal Reserve approval for a national bank charter provided the new entity does "not engage in any crypto-asset activities or services" and was separately initiated at Outperform with a $20 PT at Wedbush; MA and Visa (V) active after retailers ask regulators to examine fees; JPMorgan’s very bullish outlook in consumer finance is moderating as higher rates are a headwind for mortgage originators, though elevated asset prices is great for lenders with asset-backed loans, such as auto finance companies and mortgage insurers, and they double-upgraded RKT to OW from UW as their top trade into the Q4 print, upgraded OPRT to OW, downgraded ALLY to N, and double-downgraded HMPT to UW from OW

Healthcare

·     Pharma movers; UCB has agreed to buy biopharmaceutical company ZGNX in a deal worth up to about $1.9 billion; UCB will launch a tender offer on all outstanding Zogenix shares for $26 a share in cash at closing, above Tuesday’s closing price of $15.64 https://bit.ly/3rsH4gd ; LPTX reported positive data from a Phase 2a study of DKN-01, its most advanced clinical candidate, in combination with BGNE’s tislelizumab; GMDA says planning to initiate rolling BLA submission for omidubicel; full BLA submission on track for 1h 2022

·     MedTech Equipment; shares of DXCM, TNDM both upgraded to Overweight from EW at Wells Fargo, upgraded GKOS to Equal-weight from UW, and downgraded NPCE to Equal-weight from OW with $11 tgt and cut rating on ZBH to Underweight

·     Healthcare Services; Dow component UNH posts Q4 top and bottom-line beat (Q4 adj EPS $4.48 vs. est. $4.31 on revs $73.7B vs. est. $72.75B) as quarterly profit rose 84%, helped partly by growth in its Optum unit that includes its drug benefits management business; WBA launches COVID-19 index to advance rapid detection of Omicron and track variant activity by state; CCRN announces CEO transition; also boosts Q4 adj. EPS view to $1.32-$1.42 from $1.01-$1.11 and ups Q4 revenue view to $630M-$640M from $580M-$590M (est. $587.1M)

Industrials & Materials

·     Industrial & Machinery; industrial metals stocks saw early weakness in another broad market pullback; FCX, X slide as well as AA ahead of earnings tonight (group rebounded with late morning market rally); industrials also pressured with names like CAT dragging the Dow down early; FAST Q4 results beat Wall Street estimates, driven by higher prices and a rebound in demand for manufacturing supplies; transports lagged, led by a decline in JBHT despite 4Q EPS beat of $2.28 vs est. $2.02 on revs $3.5B vs est. $3.23B; today the U.S. and Britain agreed to launch talks aimed at resolving their trade dispute over U.S. steel and aluminum tariffs

·     Metals & Materials; BHP said Q2 iron ore production rose 4% Y/Y to 66.1M metric tons, but production of metallurgical coal, copper and nickel fell; met coal production fell 7% to 8.8M metric tons in the December quarter, and as a result BHP lowers its annual forecast for met coal to 38M-41M; CMC upgraded to Overweight from Sector Weight at KeyBanc on stronger pricing power, M&A, and infra optionality, while adjust estimates across our carbon steel coverage list; GOLD said its Q4 production rose 10% sequentially, helped by strong performance from its Carlin and Cortez mines in Nevada as reported total preliminary gold output of 1.20 million ounces in the quarter ended Dec. 31, from 1.09 million ounces a quarter ago; shares of PAAS, HL, NEM and other precious metal miners seeing strength today with the spike in gold and silver prices.

Technology, Media & Telecom

·     Semiconductors; ASML posted increased sales and net profit for Q4 but warned that sales for Q1 of 2022 will be lower due to the delayed recognition of shipments; said the recognition of around 2B euros ($2.27B) of first-quarter shipments will be delayed into later quarters as it is introducing a fast-shipment process amid high demand; expects Q1 sales between EUR3.3B and EUR3.5B with a gross margin of around 49%; INTC and ASML announced the latest phase of their longstanding collaboration to advance the cutting edge of semiconductor lithography technology; Global semiconductor revenue rose 25.1% in 2021 to $583.5 bln, crossing $500 bln threshold for first time, market research firm Gartner’s preliminary results showed

·     Software movers; MSFT to pay co fee of $2.5B to ATVI if termination notice is provided after Jan. 18, 2023 & prior to April 18, 2023 under specified circumstances; PRGS reported last night and delivered a strong 4Q and mixed 1Q FY which is being held back by margins, eps, revs as Kemp, FX and higher comps is holding back margins and EPS; FTNT among top gainers in software after positive comments by Cowen and Barclays, calling attractive into the quarter

·     Hardware, Components & Services; AAPL ests raised for FY1Q revenue and EPS estimate to $119.6B and $1.91 from $117.5B and $1.85, respectively at UBS (street consensus of ~$117.9B and $1.88) driven by better iPhone units as well as stronger than expected Mac units; KeyBanc with transition coverage w OW ratings for Cloud Infrastructure with focus ideas VMW, NET, FFIV, and PSTG; CSCO downgrade from Buy to Neutral w/ $65 PT at Goldman Sachs as the stock approaches price Target while their fundamental outlook is now in line with consensus.

·     Media & Telecom movers; DIS said its streaming business has expanded rapidly, with 179 mln total subscriptions across Disney+, ESPN+ and Hulu as of end of fiscal 2021; VZ says 90 million people will get access to the new 5G service this month in major cities including New York, Los Angeles and San Francisco; AT said it plans to cover as many as 75 million people with its C-band network by the end of the year; TMUS has offered “mid-band” 5G since 2020 using different spectrum on the 2.5GHz band it acquired when it bought Sprint. TMUS says its network covers 186m people in the U.S