Closing Recap

Monday, May 09, 2022

Equity Market Recap

·     Absolutely no relief for U.S. markets, falling sharply for a 3^rd straight day and on track for more big weekly losses with the S&P 500 hitting fresh 52-week lows below the 4,000 level (1^st time since April 2021) and the Dow hit a 2022 low as nearly all 11 S&P sectors were down, with Energy and Info Tech at the bottom and defensive Consumer Staples among the best performers. Coming into today, the Nasdaq and S&P 500 are riding 5-week losing streaks and the Dow has been down 6-straight weeks. The high growth technology-based Nasdaq Comp underperformed, down as much as 4.6% (down 15% M/M and down about 20% since the end of March) as all eyes focused on inflation data later this week with CPI data on Wednesday and PPI Thursday. Investors poured money into the U.S. dollar hitting new 20-year highs, while global stocks slid ever closer to a bear market, as the Federal Reserve’s aggressive tightening path and China’s Covid lockdowns worsen the outlook for economic growth. Risk continues to slide as concerns over stalling global growth and rising inflation batter the market. No sector was safe today with energy the biggest decliner. There was nowhere to hide with bonds, commodity, Bitcoin prices all tumbling along with equities as 2,875 stocks hitting new 12-month lows today (note there are about 8,500 stocks on the exchanges so that is 33% of the entire market). Where momentum was clearly to the upside post pandemic bottom, rising for months on end behind accommodative policy (QE) by the Federal Reserve – the script has flipped, with the Fed in QT now, while the economy is slowing.

Inflation:

·     Inflation comments/data comments in focus this week after FOMC 50-bps rate hike last week: today, NY Fed said longer term inflation expectations rose in April, at 3.9%, from March’s 3.7% and April-one-year -head inflation expectations at 6.3%, from March’s 6.6%. Also, this week, eyes on consumer price (CPI) inflation data for April which is expected on Wednesday 8:30 AM. Investors hoping to see that CPI has peaked, and for a possible decline (est. core CPI +0.4% M/M and core prices Y/Y +6% – while headline CPI M/M est. +0.2% and Y/Y +8.1% for April). Producer Prices (PPI) are expected the day after on 5/12

Commodities, Currencies and Treasuries

·     WTI crude falls -$6.68 or over 6% to settle at $103.09 per barrel, along with broader commodity prices and equities, weighed down by a strong dollar and demand concerns on the back of continued coronavirus lockdowns in China. Over the weekend, Japanese Prime Minister Fumio Kishida said it would take time to phase out imports of Russian oil, hours after he joined other G7 leaders to impose a ban on crude over the Kremlin’s invasion of Ukraine. Meanwhile in the EU, Bloomberg reported a meeting of EU’s 27 ambassadors ended on Sunday without an agreement on sanctions to ban Russian oil imports as Hungary continues to block proposals.

·     Gold prices dropped -1.3% to settle at $1,856.60 an ounce, while other precious and industrial metals also came under pressure as the dollar jumped to fresh 20-year higher around 104.30 for the dollar index (DXY) though fell as low as 103.40, with the euro hitting lows around 1.05, despite more calls from ECB hawks to raise rates up to three times this year as well as expressing concerns about the weakening of the EUR. Sterling reversed an earlier fall as the dollar slipped off highs. Bitcoin prices are now down roughly 50% from its November highs, hitting lows today below the $31,000 level, falling over 14% in a broad rout in crypto assets. Bitcoin has lost more than a quarter of its value in the year-to-date period in a broad “de-risking” of assets.

·     U.S. Treasuries tumbled early (rebounded late), pushing the yield on five-year notes to the highest level since September 2008 and the 10-year topped to 3.2% level amid speculation persistent inflation will prompt the Federal Reserve to tighten policy even more aggressively than they have to start the year (raising 75 bps between the last 2-meetings). The 10-year yield has risen 160 bps since the end of 2021, leading investors to reassess valuations of technology and growth stocks. As stocks slumped late, investors rotated into bonds sending yields lower.

Sector News Breakdown

Consumer

·     Retailers; ENR posted Q2 sales or $685.4M vs. est. $655M while increasing fiscal year net sales guidance to low single digit growth & reaffirming fiscal year outlook for adj eps & adj ebitda; JOUT drops over 30% as sales fell 8% in Q1 to $189.6M and margins fell to 36.2% citing supply chain issues hurting its ability to meet demand; TMX said it sold its pest management units in Norway and the U.K. to unnamed buyers to close its pending $6.7B acquisition of Rentokil Plc.; PRTY shares tumble after lower guidance for FY 22 revs and Ebitda

·     Auto sector; RIVN shares fall after CNBC first reported Saturday that Ford Motor (F) plans to sell 8 million shares of the electric vehicle start-up; a stock lockup period for company insiders and early investors such as Ford expired on Sunday; UBER plans to slow down hiring and cut back spending on marketing and incentives, as the ride-hailing giant reacts to a "seismic shift" in the market, CNBC reported on Monday, citing an email from the company CEO; RIDE reaffirms Q3 2022 target for start of commercial production of endurance and initial production of approximately 500 units; Barron’s with bullish cover story on ways to play the future of transportation and highlights ORLY in auto retail

·     Consumer Staples; KHC and KO added to Bank America US1 list and removing TDC and DIS; COTY raises FY profit outlook on resilient demand for its high-end fragrances and skincare products after Q3 revs rose 15% to $1.19B above est. $1.15B; APRN reported a wider-than-expected loss in the first quarter and revenue fell short of expectations; in food, TSN EPS beat on better beef and prepared food and sales also higher while raises year sales view but lowers FY22 volume growth view to 1%-2% from 2%-3%; THS Q1 EPS loss (-$0.15) vs. est. loss (-$0.52); Q1 sales rose 7.9% to $1.14B vs. est. $1.09B and reaffirms annual outlook for sales and Ebitda; BRBR added to Top Picks at Mizuho saying FQ2 provided surprising visibility and confirmed capacity expansion on track and believe it places a floor under numbers, sentiment, and valuation

·     Casinos, Gaming, & Leisure sector; in gaming, shares of DKNG tumbled again following earnings results last Friday, while the likes of WYNN fell on fears of a rising recession hitting discretionary spending for consumers; for CHDN, Rich Strike won the 148th annual Kentucky Derby as the 2nd biggest underdog ever to win the historic race. Attendance was down slightly vs. 2019, but all other wagering categories set new highs & showed accelerated growth vs. 2019 according to bank America and said CHDN expects the Kentucky Derby week to generate Adj. EBITDA of +$7M-$9M vs. 2019, in line with our $121M estimate

Energy

·     Energy stock movers: rough day of selling pressure, even for 2022 winners with energy among the hardest hit as oil prices pulled back – more than double-digit % decliners for likes of APA, MRO, EOG, FANG, OXY. The average U.S. price of regular-grade gasoline jumped 15 cents over past two weeks to $4.38 per gallon, just below the highest average price in history — $4.43, set on March 11. Energy prices jumped 4.9% last week to $109.77 per barrel and Brent added 4.9% to $112.39 per barrel and gasoline futures finished at a record high $3.76 per gallon. U.S. natural gas prices fell 8.4% on Friday to $8.043 per MMBtu, but still surged 11% for the week

Financials

·     Banks, Services & Insurance; another sector pressured by rising recession fears, as banks extend their recent pullback despite surging treasury yields; NDAQ, SCHW, MSCI, ICE, HOOD among financials falling on fears that trading activity may dry up with markets tumbling; MKTW shares fall as total Q1 paid subs fell to 909K from 972K in Q4 2021 and from 1,001K in Q1 2021 as total subscribers of 15.4M rose from 14.7M in Q4 2021

·     Bitcoin, FinTech & Payments; Crypto related plays in the stock market tumbled after weekend trading left bitcoin trading at roughly half its November peak – shares of COIN, MARA, RIOT, MSTR were among some of the biggest losers (and down big YTD as well). Bitcoin prices dropped below $32K, falling more than 12% and Ethereum dropped over 15% below $2,300

·     Consumer Finance: for credit cards AXP, COF, DFS, Bank America said Total card spending, as measured by BAC aggregated credit and debit cards, increased 24% on a 3-year basis and 8% year-over-year (yoy) in April on a seasonally adjusted basis, a slight improvement from March

Healthcare

·     Pharma movers; ELAN declines after guides 2022 revs to $4.7B-$4.76B below prior $4.75B-$4.8B citing the negative impact of for-ex and lowers year EPS view; NVS downgrade to Peer perform at Wolfe Research saying the stock has been adrift (recent defensive rally notwithstanding) and has underperformed peers over an extended period; ADCT announces CEO Transition

·     Biotech movers; BNTX reported Q1 earnings and sales that topped Wall Street expectations; earned EUR14.24 a share in the quarter on revenue of EUR6.37 billion, which compared to earnings of EUR9.16 a share on revenue of EUR4.34 billion (a year earlier, the company earned EUR4.39) – the report helped boost vaccine names early (MRNA)

·     MedTech Equipment; sector among one of the hardest hit over the last few days (ABMD ) amid fears that rising rates and inflation will crimp consumer spending on elective surgeries and procedures; ILMN shares tumble after Evercore/ISI said shares could be impacted in the long term if it were to lose its appeal in the patent infringement lawsuit filed by China-based rival BGI Genomics’ U.S. arm

·     Healthcare Services; hospital chains including HCA and UHS are said to be among hospital operators requesting higher payments from payors. Neither firm did not specify the level of the price hikes they seek, the WSJ reports. People familiar with the talks say that some healthcare providers are seeking a 7.5% – 15% increase in their prices compared to the 4% to 6% price increases that hospitals typically seek. https://bit.ly/387pVDe

Industrials & Materials

·     Aerospace & Defense; SPCE downgraded to Hold from Buy at Truist and cut tgt to $8 from $24 post earnings citing the combination of supply chain delays, timing risk, slide-out of comm’l flights to 1Q23, a lack of operational catalysts and rising interest rates; BA shares the biggest drag in the Dow, falling over 8% around midday following a further setback to its delayed 777X jetliner project when one of the AL leasing veteran Steven Udvar-Hazy, said its future could be at risk.

·     Transports; recession fears for the U.S. taking a toll on travel and freight names, with truckers, package delivery, airlines all lagging broader markets amid fears of slower consumer spending as interest rates rise along with food and energy costs. Industrials, Metals & Materials; sector has been one of the biggest winners in recent weeks amid supply fears due to war in Ukraine with Russia. Leading to higher pricing for likes of metals, fertilizers, chemicals, and others. However today, investors selling 2022 winners and losers with broad fear in stocks on the day

Technology, Media & Telecom

·     Semiconductors; The Information reported that the U.S. Department of Commerce is weighing a ban on American companies selling advanced chipmaking equipment to Chinese firms, according to two people familiar with the discussions. The rules would expand on an existing ban on U.S. companies selling such equipment to China’s leading chipmaker, Semiconductor Manufacturing International Corp. The wider ban would affect companies including state-backed names. New restrictions would fall most acutely on American companies including Applied Materials (AMAT), Lam Research (LRCX) and KLA Corp (KLAC) https://bit.ly/391qP43 ; ACMR downgrade from Buy to Neutral with $20 tgt at Goldman Sachs as see near-term headwinds on earnings (COVID, supply dynamics, higher R&D spending) and multiple contraction (due to regulatory uncertainty)

·     Hardware, Software movers; PLTR shares fall as Q1 EPS $0.02 vs est. $0.04; Q1 revs Revenue $446M vs est. $443.38M; sees Q2 revs $470M vs est. $483.84M; forecast adjusted operating margin of 20% for the current quarter, compared with 31% last year; AAPL MacBook Pro shipments ‘seriously delayed’ by China lockdowns, according to Digitimes. Saying orders for Apple notebooks now may not receive the devices until mid-July https://bit.ly/3KX4C4x

·     Media & Internet: SHOP extends declines after tumbling last week after reported its slowest quarterly revenue growth since going public in 2015 and reported a big miss on profit, prompting several Wall Street analysts to lower its price tgt; FWONA tracking stock mentioned positively in Barron’s noting shares had been racing ahead, but a recent pullback before the Miami Grand Prix could be a buying opportunity; IHRT downgraded to Neutral from Overweight at JPMorgan; MTCH upgraded to Overweight from Equal Weight at Wells Fargo; Wedbush said continue to favor IAC over ANGI, and continue to see a LT positive in Angi Services’ trajectory; FB’s Zuckerberg says will allow a small group of creators & collectors to share #NFTs on #instagram

·     Telecom movers; DISH downgraded to Neutral from Overweight at JPMorgan and cut tgt to $30 from $40 citing the weaker than expected Pay-TV and wireless results in Q1 and says a lack of guidance at the upcoming investor meeting and "softer launches" remove share catalysts; DISH upgraded to Outperform at Credit Suisse; RCI said Canada’s antitrust agency is opposed to its $16 billion takeover of rival SJR casting significant doubt on whether the companies will be able to close one of the country’s biggest-ever deals – Bloomberg https://bit.ly/3P75AOJ