Closing Recap

Tuesday, May 10, 2022

Equity Market Recap

·     U.S. stocks closed mixed, snapping the 3-day losing streak for the S&P 500 and Nasdaq after oversold conditions (though the Dow was lower), ahead of key monthly inflation data tomorrow in the form of consumer prices (CPI). April consumer prices are expected to rise +0.2% M/M and +8.1% Y/Y on a headline basis (which is around 40-year highs), while core CPI, excluding the volatile food & energy, is expected to rise +0.4% M/M and +6.0% Y/Y. A larger increase will likely raise concern that inflation has not peaked, and the Fed may need to get more aggressive in its rate hike cycle, possibly upping the size and frequency. However, a smaller than expected reading could ease investor fears, and could lead to a much-needed stock market bounce as it may infer that the Fed actions are starting to take hold and curb inflation. Earnings busy again after the close but starting wind down as we near the tail end of quarterly results.

·     It looked earlier that it was going to be another “sell the rip” kind of day, as strong overnight gains in U.S. futures quickly evaporated, with major averages tumbling mid-morning, turning lower before recovering. The S&P 500 is now down 8% since the close last Wednesday after the Fed hiked 50 bps. Bespoke noted that stocks in the S&P 500 have lost $7.5 trillion in market cap since the 1/3/22 high while tech has easily lost the most at $2.87 trillion (into today).

·     U.S. stocks markets got an additional boost this morning (prior to the late morning market slide) after CNBC’s Jim Cramer noted in conversation with hedge fund manager David Tepper that he covered his Nasdaq short and is a buyer of the S&P. Legendary hedge-fund manager David Tepper said he believes "the sell-off could be concluding." "I was talking to my friend Dave Tepper, who’s been short," Cramer said on "Squawk Box," before the opening bell, following another day of broad declines on Wall Street." "He came in, covered his short on the Nasdaq. Again, he is a trader. He feels that the sell-off could be concluding

Commodities

·     Oil prices reverse lower, with WTI crude sliding -$3.33 or 3.23% to settle below $100 per barrel at $99.76 ahead of API inventory data tonight and EIA weekly data tomorrow morning WTI crude down over 3%, dropping back below $100 per barrel. Prices dipped to 2-week lows amid growing fears of a U.S. and global economic slowdown that could put a crimp in oil demand. Coronavirus lockdowns in China and growing recession risks, along with a strong dollar made crude more expensive for buyers using other currencies. Early in the session, comments from the Saudi and UAE energy ministers boosted Brent and WTI up by more than $1 a barrel. Delays to the EU Commission’s proposal to ban oil imports from Russia have also weighed on futures prices.

·     Gold prices reversed course, ending lower by -$17.60 or 0.9% to settle at $1,841 an ounce as the dollar rebounded off morning lows, rebounding back near its 20-year highs reached yesterday ahead of key CPI inflation data tomorrow. Gold rebounded after posting its lowest settlement value since February 15.

·     Investors now shift their attention to U.S. inflation data tomorrow morning for cues on the Federal Reserve’s monetary policy strategy. The dollar index (DXY) gained 0.2%, holding near a 20-year high in the previous session. Meanwhile, benchmark 10-year U.S. Treasury yields retreated from their near four-year peaks (10-yr hit 3.2% yesterday to 2.98% today). The U.S. Treasury sold $45B in 3-year notes at a yield of 2.809% vs. 2.812% when issued prior, with the bid-to-cover at 2.59 (vs. 2.48 prior) and indirect bidders awarded 61.95% and directs 18.04%. Bitcoin prices rebounded after falling below $30K overnight, moving back to $31,600.

Sector News Breakdown

Consumer

·     Retailers; PTON tumbles reports after reports wider-than-expected Q3 loss on rev miss $964.3M vs. $971.6M, offers weak Q4 guidance $675M-$700M vs. est. $820.9M and taps banks for a cash buffer, as to borrow $750M in 5-year term debt; TDUP Q1 results about in line with guidance, but guided below consensus for Q2 and lowered their sales/EBITDA outlook for FY22 by ~450bps (to 25-29% growth), and the adjusted EBITDA margin was lowered by 50bps to -14% to -16%

·     Auto sector; TSLA has halted most of its production at its Shanghai plant due to problems securing parts for its electric vehicles Reuters reported; China passenger vehicle sales tumbled 35.7% last month from a year ago to 1.06 million units, the biggest decline since March 2020; in auto retail, ORLY upgraded to Buy and GPC to Neutral at Bank America as reassess valuations and growth outlooks for the auto parts retail stocks in particular, which are often considered more defensive; FREY and Powin LLC have signed a conditional agreement for Powin to offtake battery cells produced by FREYR for energy storage system applications; Cathie Woods ARK investment buys 158,137 shares of GM yesterday; CARG better Q1 outweighed by disappointing CarOffer GMS and 2Q EBITDA guide-down; auto supplier ALV upgraded to Buy at UBS; TM revised down May production plan to 700,000 units from 750,000 as a result of lockdown in Shanghai

·     Housing & Building Products; TREX Q122 results beat expectations for both revenue ($339M vs. $326M consensus) and adjusted EBITDA ($105M vs. $93M). Revenue +38% y/y (Resi +40%, Commercial flattish). Price and volume each accounted for ~50% of growth in the quarter; MAS announces $500M accelerated share buyback

·     Consumer Staples; SYY raises FY adj EPS view to $3.16-$3.26 from prior $3.00-$3.10 and est. $3.05; USFD announces CEO Transition and Board Changes said Satriano Steps Down as CEO and will not stand for re-election as director at 2022 annual meeting of shareholders; IFF reported 1Q adj. EPS of $1.69, beating consensus of $1.29 and adj. EBITDA of $702mm was well above of ~$613mm while also raised year guidance; MO downgraded to market perform from outperform at Bernstein, which is increasingly worried about the deterioration in the company’s relationship with its former subsidiary Philip Morris International; ATER reported first quarter net revenue and a net loss per share that missed estimates.

·     Casinos, Gaming, Lodging & Leisure sector; IGT helping give the gaming sector a little post on better earnings and guidance; in cruise lines, NCLH forecast operating cash flow to be positive for the current quarter as it benefits from higher on-board spending and prices with helped offset both 1Q EBITDA and EPS misses; PLNT beat and maintained guide as KPIs were roughly in line with Street (16.2M members vs Street 16M, 15.9% comps matched the Street); ARMK Announced its plan to separate Aramark Uniform Services (AUS) into an independent, publicly traded company after reported top and bottom line beat

Energy

·     Energy stock movers; energy stocks were mixed amid the pullback in oil prices as WTI crude dipped under $100 per barrel ahead of inventory data tonight and tomorrow; E&P and Majors; EOG upgraded from Outperform to Strong Buy at Raymond James w/$170 tgt after posted a solid quarter operationally last week beating on most metrics.

·     Renewables, Utilities & Solar; PLUG slips after posting a larger-than-expected Q1 loss of (-$0.27) and say expect margins to remain under pressure in Q2 2022 driven by continued increase in natural gas prices; EIX downgrade to Neutral from Buy at Mizuho based on concerns about the impact of rising interest rates on the earnings of Edison’s utility subsidiary Southern California Edison; in solar, FTCI slips after quarterly results; in clean energy, CLNE upgraded to Outperform at Raymond James after being on the sidelines for a decade noting valuation has compressed towards levels of traditional fuel companies

Financials

·     Bitcoin, FinTech & Payments; UPST shares nearly cut in half after guides Q2 revs $295M-$305M below the $337M estimate; guides year revs about $1.25B, below prior estimate $1.4B, prompting several analyst downgrades of the name today (shares of AFRM tumbled in reaction as well); the Fintech space has been crushed over the last year with likes of SQ, PYPL

·     Business Services & Consumer Finance; SOFI released results early (expected tonight) as raises FY 2022 guidance; expect Full-Year 2022 Adjusted Net Rev of $1.505B to $1.51B and said quarter-End Total Members Up 70% Y/Y to Nearly 3.9M; Morgan Stanley noted TASK outperformance in 1Q22 was overshadowed by a prudent reiteration of CY22 outlook given potential for macro-driven volatility at certain customer (cut tgt to $35); LDI shares tumble as reports Q1 revs $503.3M below est. $589M citing lower rate lock volume, lower gain on sale margins, partially offset by lower expenses; in insurance, PGR upgraded to Hold at Jefferies as expect broader and less transitory personal auto loss trends, as well as a sequential decline in used car sales

·     REITs; PLD said it has offered to buy DRE in a $23.7 billion deal, as one of the country’s largest warehouse owners seeks to add more space serving the e-commerce market; SPG posted a 1Q22 beat and FY22 raise, a new $2B stock buyback program and another dividend increase

Healthcare

·     Pharma movers; PFE agrees to acquire BHVN for $148.50 per share in a deal total valued at $11.6B – the two companies have been partners for migraine therapy rimegepant, sold as NURTEC ODT, and zavegepant https://bit.ly/3KV5cj3 ; BHC shares tumble after the company missed revenue and earnings expectations for Q3 and offered revenue guidance for the year that lagged consensus ($8.2B-$8.4B vs. est. $8.6B)

·     Biotech movers; NVAX slides in vaccine space after top and bottom-line miss (1 EPS $2.56 vs. est. $2.69; Q1 revs $704M vs. est. $845.2M) – comes a day after better BNTX guidance in the vaccine sector; STAT News reported that yesterday, the closely watched XBI biotech index had its worst single day since 2015, falling to lows it hasn’t seen since drug pricing became a major issue in the 2016 presidential election. The day’s 8% decline means biotech has been roughly cut in half in the past 12 months, and notes more than 120 biotech companies are now trading at valuations below their cash reserves, according to Jefferies

·     MedTech Equipment; AXGN upgraded to Buy at Canaccord on the heels of improving underlying momentum as well as the positive top-line data in the RECON trial; SWAV reported a strong Q1 beat and raised 2022 guidance on broadly improved expectations and after relaxing prior COVID conservatism – raised 2022 revenue guidance by $30M at the midpoint; XRAY reported Q1 EPS miss on sales of $965M, down 6% Y/Y and missing views while says unable to file quarterly report amid internal investigation by audit committee

·     Healthcare Services; GDRX tumbles as Q1 results were ahead of consensus, but the company retracted FY guidance as a result of a key retail partner’s (temporary, per mgmt) inability to provide PBM discounts; AMWL, SDC, HIMS other healthcare related service names moving after quarterly results and guidance

Industrials & Materials

·     Aerospace & Defense; TDG posted Q2 EPS beat of $3.86 vs. estimate $3.64 and net sales of $1.33B top consensus of $1.31B and EBITDA $588 million, +27% Y/Y; ASTR says it is partnering with SaxaVord UK Spaceport to provide satellite launch services – expects rocket launches to begin next year; MAXR reported sales of $405M (up 3%) below est. $417M with adjusted EBITDA of $84M (a 20.7% margin) which was softer than expectations, due largely to higher stock-based comp, labor, and ERP expenses (shares were upgraded to Buy at Canaccord); AXON initiated at Outperform at Credit Suisse and $169 tgt implying ~76% upside potential; BA posts 35 overall deliveries in April was down from the 41 jets Boeing handed over in March

·     Transports: Dow transports underperformed broader market with declines in FDX, EXPD, NSC, UNP before the group rebounded late day; XPO delivered 1Q results that far exceeded consensus estimates and increased 2022 adjusted EBITDA and EPS guidance – North American Less-Than-Truckload segment revenue grew 15% y/y in 1Q22, primarily driven by 9% y/y yield

Technology, Media & Telecom

·     Media, Telecom, Internet; GRPN reported 1Q22 results below expectations, with 2Q22 revenue and EBITDA guidance well below expectations, and FY revenue also well below expectations; DISCA Discovery+ Launches as a Premium Subscription on The Roku Channel (ROKU) as both ad-free and ad-supported versions now available on The Roku Channel; BMBL April US rev and payers YoY growth slows; RPP growth flat YoY; Bumble 1-day premium plans plummet; FSLY shares fall after postponing its investor day yesterday

·     Semiconductors: TSM April sales were NT$172.6B, up 0.3% M/M and 55% Y/Y (vs. March’s NT $171.9B); MCHP reported an in-line MarQ and guided JunQ better than consensus, with top line up 6% q/q, and outpacing peers NXPI (~flat q/q), TXN (down 8% q/q), and ON (up 4% q/q) according to Mizuho; VECO earnings above expectations, and despite persistent supply chain issues, reiterated its 2022 outlook and highlighted its evolving business model; AMD announces three new Radeon RX 6000 series graphics cards and first games adding support for AMD FidelityFX Super Resolution 2.0

·     Video Gamers: SONY Q4 net profit rose 67% from a year earlier to 111.08 billion yen ($852.5 million) above estimate of Y94.24 billion; Q4 revenue increased 1.2% to Y2.264 trillion, which missed the estimate of Y2.322 trillion; also Nintendo (NTDOY) announced a 10-for-1 stock split as the Japanese gaming giant aims to make its shares more appealing to retail investors; said sales of the Switch console totaled 23.06 million units last financial year, down from 28.83 million in the previous 12 months due to the semi shortage.

·     Software: RNG beat consensus for total rev, ARR and margins but sub rev and Office ARR growth decelerated further and net ARR $’s added missed estimates – sequential ARR growth of 5% was below Q1 seasonal average of 8% Q/Q growth; PLTR downgraded to Underperform from Sector Perform and lowers PT to $6 from $12 following Q1/22 earnings at RBC Capital; PUBM reported in-line 1Q22 results on the top line, while EBITDA was slightly above expectations. Guidance for 2Q22 was also roughly in line, and FY22 was reiterated; APPN was awarded $2.036 billion in damages against PEGA

·     Hardware, Components & Services; in 3D sector, DDD narrows year revenue guidance to $580M-$625M from prior $570M-$630M; Q1 revs fell -9% Y/Y to $133M vs. est. $132M; adj EBITDA tumbles to $1.9M; DM posts Q1 rev beat of $43.7M vs. est. $41.6M but reports wider Q1 adj Ebitda loss of (-441.6m) vs. est. loss (-431.7M) and announces proposed convertible senior notes offering; AAPL said that today its iPod Touch will only be available while supplies last.