Market Review: May 18, 2022

Closing Recap

Wednesday, May 18, 2022





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     Elevator up, elevator down. Markets could not build on yesterday’s solid gains, with another “shot across the bow” in the retail/consumer discretionary sector hurting sentiment and sending major averages tumbling between 3%-6% in broad market selling. Concern arose as Target (TGT) followed Wal-Mart (WMT) yesterday with big earnings miss, margin compression, and cautious outlooks citing rising costs and change in pattern spending by consumers. The cautious tone on surging freight and transportation costs by Target as well as the notable shift to staples and away from general merchandise seen by both retailers was seen as a warning sign heading into the heart of retail earnings the next 2-weeks (ROST JWN URBN PLCE ANF KSS among them). The selling pressure in both companies (each seeing their worst one-day declines since the Black Monday 1987 crash this week), had ripple effects in the market with discount/warehouses tumbling (DLTR DG COST BJ), mall REITs (SPG MAC SKT), freight and truckers on fears of less delivery as well as record high gasoline prices today (JBHT LSTR ODFL FDX), and restaurants (EAT DRI YUM CMG) on rising inflationary wage, food costs. The news also opens the door to possible layoffs and job cuts in coming months if things can’t get ironed out. The Federal Reserve has gotten very aggressive in their rate hike cycle over the last few months, upping 75 bps thus far in 2022, with several large cuts anticipated upcoming to slow inflation – but at this point it appears too little-too late. The National average gasoline prices hit $4.57 Wednesday, a record, yet another impact to consumers wallets. In crazy stat of the day: AAPL, AMZN, TSLA, MSFT and GOOGL were responsible for over 25% of the S&P 500 decline today alone! The CBOE Volatility index (VIX) jumped 20 back above 30 as every bounce was met with heavier stock selling all-day.


Economic Data:

·     April Housing Starts fell -0.2% to 1.724M annual rate, below March 1.728M units and below consensus ests for 1.765M; single-family starts -7.3% to 1.100 mln unit rate; multifamily +15.3% to 624,000-unit rate. Building Permits fell -3.2% to 1.819M vs March +1.2% 1.879M


Commodities, Currencies and Treasuries

·     Oil prices reversed lower, with WTI crude down -$2.81 or 2.5% to settle at $109.59 per barrel, falling off earlier highs of $115.42 per barrel as investors sold several asset classes in a broad market rout. The National average gasoline prices hit $4.57 Wednesday, a record, while prices have already surpassed $6.00 per gallon in California and are over $7.00 per gallon in parts of the state. Inventory data was bullish as crude-oil inventories surprisingly fell last week and gasoline stockpiles declined more than expected, according to data released Wednesday by the EIA but failed to lift markets. The EIA said crude-oil stockpiles fell by -3.4M barrels, to 420.8 million barrels, and are now about 14% below the five-year average, while oil stored at Cushing, Okla., the delivery point for U.S. stocks, decreased by 2.4 million barrels from the prior week.

·     Gold prices edge lower by -$3.00 to settle at $1,815.90 an ounce, down -0.2%. Gold held up relatively well despite the dollar rebounding +0.4% top 103.75 for the dollar index, again pushing higher against the euro while the Japanese yen outperformed. Treasury yields jumped earlier this morning, with the 10-year hitting above 3% after the Housing Starts data but slid late day as investors rotated into haven assets such as bonds, with the 10-yr touching lows below 2.90%.






WTI Crude















10-Year Note





Sector News Breakdown


·     Retailers; TGT tumbled over 25% (worst one day drop since 1987) after reported a wide Q1 earnings miss on lower operating margins (sending shares down over 20%), similar results to Wal-Mart (WMT) saying that food inflation is causing dollars to shift to staples and away from general merchandise; BBWI among those hitting 52-week lows in retail; mall related retailers such as M, KSS, JWN, DDS, GPS fall on TGT warning as well as discounters and clubhouse stocks COST, BJ ; LVLU posted in-line Q1 EPS and better sales of $111.9M while raises year revs view to $490M-$500M or about 30%-33% growth vs. est. $486.9M; TJX Q1 adj EPS $0.68 vs. est. $0.60; Q1 revs $11.41B vs. est. $11.59B; sees Q2 U.S. Comp sales to be down 1% to 3% after Q1 comps rose 3%; guides Q2 EPS $0.65-$0.69, below the $0.75 estimate and sees year EPS $3.13-$3.20 vs. est. $3.15; RL FY23E EPS lowered at Credit Suisse to $8.50 from $9.75 prior (Street: $8.72), due to unfavorable FX headwinds lately; slower China trends in F1H; and checks that—after very strong trends this spring—US trends have slowed slightly relative to plan in recent weeks; WRBY downgraded to Neutral from Buy at Goldman Sachs following their 1Q22 earnings report; RL, LEVI, PVH tgts cut at Bank America

·     Housing & Building Products; LOW reported a drop in Q1 same-store sales, down (-3.8%) vs. est. (-2.5%) in a sign the retailer may struggle to keep pace with its main rival HD (which reported better results yesterday), while reiterated its outlook for the year – said because 75% of our customer base is DIY, our Q1 sales were impacted by the cooler spring temperatures; rising interest rates impacting housing market as U.S. MBA Mortgage Applications fell -11% last week, the first decline since April 22. Purchases dropped -11.9% after rising 4.5% in the previous week and the average 30-year fixed rate was 5.49% (builders include: TOL, LEN, PHM, MTH, KBH); TCS posts Q4 adj EPS beat of $0.46 vs. est. $0.26 on better Q4 revs $305.5M vs. est. $279.82M; guides Q1 EPS $0.15-$0.20 vs. est. $0.20

·     Restaurants, Consumer Staples; food stocks tumbling as consumer spending fears rise with CPB, CAG, HRL, HSY down sharply but selling included consumer products as well with defensive names like CLX, PG also tumbling; restaurants also feeling the pinch of slowing spending, as well as fears of rising wage related costs in inflationary environment with EAT, DRI, YUM and others falling; MNST upgraded to Outperform from Market Perform at Bernstein saying performance has rapidly improved and MNST gained share in the latest period

·     Casinos, Gaming, Lodging & Leisure sector; one of the hardest hit sectors along with retail, as TGT and WMT raise red flags about slowing consumer spending, more focus on staples related items vs. general merchandise as inflation impacts customers; NCMI shares rose after movie theater chain AMC revealed a 6.8% passive stake in NCMI, according to a regulatory filing; in gaming, PENN upgraded to Buy from Hold at Jefferies with $49 tgt



·     Energy stock movers: 2022 winners such as energy stocks even rolled with broad based market selling today; U.S. motor gasoline demand jumped nearly 4% last week but is still running about 6% below average levels. According to AAA, U.S. regular-grade gas is averaging $4.567/gal on Wednesday, an all-time high. That compares with $4.4 a week ago, $4.09 a month ago, and $3.04 a year ago. Not much stock news, but group saw profit taking

·     Inventory data showed: weekly API reported crude inventories fell -2.5M barrels in the latest week, crude inventories at Cushing fell -3.1M barrels on the week, gasoline inventories fell -5.1M barrels and distillate inventories rose 1.1M barrels

·     Stock movers: RIG Director Buys 2,000,000 Of Transocean Ltd at $3.75 per share for total purchase of $7.5M on May 13th, according to a Form 4 filing; CRK downgraded to Underweight from Neutral at Piper; Wells Fargo positive mention on refiners DK as see greatest upside potential in DK among the SMID caps and MPC among the large caps; better than mid-cycle conditions (BTMC) will likely persist throughout the summer; VLO raise tgt to $136



·     Financial & Insurance; no sector safe with banks, insurance, Fintech included in that mix as recession fears running rampant for the market and investors rotating back into safety of bonds, pushing yields lower; DLO shares rose as Q1 revs doubled along with a beat on Ebitda; PGR reported a Y/Y growth of 8% in net premiums written to $4,820.7M for April; net premiums earned saw a 12% growth and authorizes up to 25M share buyback no real news specific to Bitcoin, FinTech & Payments, but more pain for the most part as investors showing real concern these days in crypto markets after destruction of some stablecoins in the latest week – Bitcoin dropped back below $29,000 and Ethereum below $2,000. IN consumer finance, Goldman Sachs launched coverage in payments with Buys on V, MA, and FIS while initiated WU with sell, saying they are constructive on the payments sector, as relative valuations have fallen significantly.



·     Pharma, biotech movers; ABBV, VRTX, and MRK named top 3 picks at Wells Fargo largely due to strength of the base business, coupled with valuation as refresh rankings in Biopharma. Said M&A would also be a theme due to SMID weakness & lack of capital, coupled with large caps in need of pipeline and being flush with cash. BAN-2401 (BIIB) and REGN High-Dose Eylea data are the key data catalysts for 2H’22 as they continue to see high likelihood of HD Eylea success in 3Q and said BIIB risk/reward is really attractive into Phase 3 data in Fall’ 22; ENDP shares tumbled below $1 per share after the WSJ reported company begins debt restructuring talks w creditors; GILD a notable outperformer in biotech

·     Healthcare Services; DOCS shares fell as weaker Q1 guidance (sees Q1 revenue $88.6M-$89.6M vs. est. $96.78M), offset a Q4 beat EPS $0.21 vs. est. $0.15; Q1 revs $93.7M vs. est. $90.11M, while also raised its year rev outlook; in Healthcare REITs, VTR & WELL upgraded to Outperform from Neutral at Credit Suisse as believe the pullback in REIT stocks (and the broader market in general) amidst concerns about rising rates and inflation has created an attractive opportunity to gain exposure to VTR and WELL; CAH upgraded to Outperform with raised $68 tgt at Evercore/ISI


Industrials & Materials

·     Aerospace & Defense; BDRDF upgraded to Buy at UBS saying business jet strength is elevating BBD financials quickly ahead and we think the market should take note; MRCY upgraded to Outperform from Sector Perform at RBC Capital and up tgt to $72 saying the company is well positioned to return to at least mid-single-digit organic growth and free cash flow improvement, while the activist presence provides a floor; VSEC downgraded to Sector Perform at RBC and cut tgt to $48 from $65 saying the near-term outlook for margin upside is limited, and business mix headwinds have limited investor willingness to pay for the aviation upside; RBC Capital also upgraded AVAV to Outperform with $100 tgt as believe the acceleration in demand for the company’s Switchblade represents a positive inflection that should be sustained; TGI Q4 EPS miss on lights revs ($386.7M vs. est. $405.2M) amid declines in commercial widebody jet production

·     Transports: freight, truckers, and package delivery stocks (JBHT, CHRW, FDX, UPS) were weaker on fears of slowing consumer spending, impacting freight and delivery; in rails, CNI upgrading to Outperform from Market Perform at BMO Capital saying while maintaining target price of $170, see potential upside of $190-200 in a scenario where the demand environment remains favorable and CNR executes on the large self-help opportunity


Technology, Media & Telecom

·     Internet & Media: TWTR board said it plans to enforce its $44 billion agreement to be bought by Elon Musk; NFLX slipped early after a report in The Information said new data show that people who have been subscribers to Netflix for more than three years accounted for a significantly greater share of cancellations in the first quarter than they did two years earlier; TCEHY posted earnings while its chief strategy officer says WeChat video accounts continue to grow but costs still outweigh revenue

·     Semiconductors; ADI Q2 adj EPS $2.40 topped ests $2.11 on revs of $2.97B, above est. $2.84B as adj gross margins 74.2% and operating margin 50.3% both topping consensus views; Berenberg said the Semiconductor industry is unlikely to cut capex in the near term, benefiting chip-making equipment makers like ASML and AMAT – says strong demand from auto and industrial businesses for chip amid shortages has kept momentum upbeat; MX rises following report that South Korea’s LX Group and private equity firm Carlyle (CG) jointed submitted a letter of intent for the chipmaker

·     Software movers; KEYS with beat and raise quarter as analysts note the magnitude of the +4% beat on sales and +9% EPS beat was even more impressive considering KEYS stopped selling to Russia and overcame much of the widespread supply chain challenges; CRM was upgraded to Buy from Neutral at Roth Capital with $242 tgt; Mizuho lowered several price tgts in software names (ADSK, CRWD, MDB, OKTA, PANW, CRM, SNOW, SPLK, VMW, ZS) after the IGV is down ~20% since the end of March, and ahead of earnings in the group this and newt week; SAP CFO says we are "absolutely not" satisfied with current share price, see significant potential for growth in profitability, free cash-flow in coming years – Reuters; APPN announced the departure of its CRO while affirming its Q2 and 2022 guidance

·     Hardware, Components & Services; AAPL shares dropped, possibly likely on weak electronics sales from WMT and TGT as each noted that food inflation is causing dollars to shift to staples and away from general merchandise; BBY falling to 52-week lows ahead of earnings next week; CSCO expected to report earnings after the close tonight with investors listening for comments on supply shortages, not being able to meet demand; FLEX upgraded to Buy at Argus saying the supply environment remains challenging, but Flex is offsetting this challenge with focused execution; and expect supply challenges to resolve in coming months; DT posted a top and bottom-line quarterly beat with year ests just above consensus


Market commentary provided by Hammerstone Markets, Inc, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.