Closing Recap

Friday, November 04, 2022

Equity Market Recap

·     Today’s jobs data sent the markets higher to start but may not have been enough to change overall sentiment. The jobs data for October came in above expectations and September results were revised higher, giving investors an opportunity to revive hopes for a soft landing. That said, the Fed still has work to do, and questions remain about how the jobs data translates into future inflation and peak Fed Funds rates. The market currently is pricing in peak rates in the 5.1-5.25% range in June. By around midday, markets had given back the early gains to tread water around the unchanged level for the S&P futures and move slightly back into the red for NASDAQ futures. An early afternoon rally pushed both indices back to solid gains, with breadth trending about 2:1 to the upside, with a little more conviction in US equities heading into the weekend.

·     From a sector viewpoint, again a mixed bag. Consumer Discretionary (XLY), Healthcare (XLV) and Utilities (XLU) led the laggards lower for much of the day. Materials (XLB) paced the gainers with more than a 3% move higher, while Financials (XLF), Energy (XLE) and Industrials (XLI) enjoyed more modest gains. Today’s results continue the recent trend of mixed results with money mostly just moving back and forth across sector groups, especially with earnings having been more a tale of extremes this quarter than other recent periods. Growth and Value split today with Value the outperformer. The Russell 1000 Growth index slipped by less than 50bps, while the Value component gained about 50bps

·     Fun facts coming into the day: The 2s10s curve is at its deepest level of inversion in forty years (around 70-bps this morning). For only the fourth time on record and for the first time since 2009, bearish sentiment has fallen double digits in back-to-back weeks (as per Opco). The median price to sales ratio in the QQQ has moved down to 4.2x, its lowest level since Feb 2016. It peaked last November at 8.5x and the QQQ is down over 35% since (as per Opco).

Economic Data:

·     October Nonfarm payrolls rose +261,000 vs. est. +200,000 vs September +315,000 (upwardly revised from +263,000); October private sector jobs +233,000 also above ests. 200K and September upwardly revised to +319,000; Manufacturing jobs +32,000vs. est. +15,000); Oct. Unemployment rate rises to 3.7% vs 3.5% (est. was 3.65); average hourly earnings rose +0.4% vs. est. +0.3% M/M; labor participation rate fell to 62.2% from 62.3%

Commodities, Currencies & Treasuries

·     WTI crude rose $4.44 to settle at $92.67 per barrel, up over 5% on the day and pushing to 4-week highs as the dollar eased, with an EU ban on Russian oil looming large and investors weighing the prospects for an easing of China’s COVID curbs. Though fears of global recession capped gains, prices still ended the week higher by more than 5.4% for WTI.

·     Gold prices jumped $45.70 or 2.8% to settle at $1,676.60 an ounce, helped by a sharp retreat in the US dollar, which fell 1.5% for the dollar index (DXY) to 111.22, off overnight highs around 113. Treasury yields bounced all over the place, with the 2-year hitting a 15-year high above 4.75% while posting its largest inversion (as much as 70-bps) against the 10-yr before narrowing. More concerns of longer and higher rate hikes by the Fed pushed the short-end of the curve higher than the long-end this week.

Sector News Breakdown

Consumer

·     Retailers: FNKO downgraded at both Truist, and JPMorgan after Q3 miss and lower guidance as see a challenging near-term setup for the stock with valuation handcuffed until there is more visibility on the earnings outlook for 2023 – shares tumbled over 50%; consumer discretionary was among the early market leaders, with the XLY rising as much as 2.4% before giving it all up and falling further in another stocks market meltdown.

·     Auto sector: AXL cut its full year forecast for adjusted Ebitda and said it is “not engaged in any discussions to sell the company” and that it’s not otherwise for sale; CVNA 3Q results and 4Q commentary came in below consensus, but some analysts said believe the tough industry headwinds were fairly baked into the price heading into the quarter; TSLA fell as lows near $200 with broad weakness again in autos and suppliers

·     Housing & Building Products: LOW announced the divestiture of the company’s Canadian operations and reiterated financial guidance for the balance of F22; FTDR downgraded at William Blair and Raymond James on tough housing market conditions as rev growth and margins are under pressure from several macro factors, including a weakening housing market and inflation; FND Q3 results top views while lowered its full-year guidance that now includes comps of +9%-10% (from +10%-11%) due primarily to macro- and housing-related uncertainties

·     Restaurants & Consumer Staples: ACI rises after a Washington state court commissioner temporarily blocked a $4 billion dividend that Albertsons had intended to pay its shareholders next week, the WSJ reported; HSY raises 2022 sales growth view to 14%-15% from 12%-14% and raised 2022 adjusted EPS view to $8.20-$8.27 from $8.05-$8.20; MNST posted +15.2% Y/Y sales growth in Q3, ~200 bps below consensus, with int’l markets driving the downside, while US trends were solid at +14.8% (above cons. +13.4%); SBUX posts top-line driven EPS beat and Q4 U.S. comp of 11% was driven by 10% avg. check growth and a 1% increase in transactions while mgmt expects FY23 U.S. SSS growth in the 7-9% range; CHUY, LOCO reported earnings

·     Casinos, Gaming, Lodging & Leisure sector: casino stocks with exposure to Macau rise (WYNN, MLCO, LVS, MGM) after former Chinese disease control official told a conference the country will make substantial changes to its "dynamic-zero" COVID-19 policy in coming months; in food delivery, DASH reported solid 3Q22 results as GOV and EBITDA came in above the high end of guidance while 4Q22 GOV guidance came in above consensus as DoorDash continues to see only a minimal impact to demand from macro; in travel, EXPE Ebitda beat expectations, though room nights stayed growth in 3Q came in below expectations due to the hurricane in Florida; online gambling site DKNG introduces FY 2023 revenue guidance of a range of $2.8B-$3.0B, which equates to 33% Y/Y growth based on the midpoints of $ 2022 revenue guidance and its FY 2023 revenue guidance; FY 2023 Adjusted EBITDA guidance is a loss of between ($575m) and ($475m)

Energy

·     E&P and Majors: EOG Q3 EPS beat, says it has improved its competitive advantage by adding a new position in Utica shale basin, increased its quarterly dividend by 10%, and declares special dividend of $1.50 per share; BE reported a strong sales ramp in 3Q as it benefits from capacity expansion at its Fremont facility, while KeyBanc says 4Q should be more of the same as the Company maintained 2022 guidance on all metrics; MGY 7.5M share Spot Secondary priced at $24.40; Utilities PPL and Dominion (D) among movers post earnings

Financials

·     Insurance: TRUP mixed Q3 results with larger loss but slightly better revs with subscription revenue slightly below expectations, once again offset by stronger growth within the Other Business segment; LNC upgrade from Underperform to Neutral at Credit Suisse noting the stock declined over (33%) Thursday following the sizeable Individual Life assumption charge – and see downside from here limited

·     FinTech & Payments: SQ delivered better than feared Q3/CY22 results (reduced S&M expenses), featuring mixed performance at CashApp, while Seller’s growth remains stagnant while 17% YoY revenue growth performance, embedded decelerating growth in transaction based revenues from the prior quarter’s 21.7% to 17.2%; PYPL Q3 results mixed with softer guidance as Q3 TPV was slightly below expectations, NNAs were fine, total take rate expanded 3bps, FXN sales growth was in-line but issued downward revision of the FY revenue guide from ~11% to ~10% (including FXN TPV down from ~16% to ~12.5%) and lower NNA guide (8-10mn vs. 10mn prior)

·     Bitcoin news: COIN reported weaker than expected Q3/CY22 results with lower trading volume, reflecting continued crypto related headwinds, but reiterated operating within 2022 adj. EBITDA loss of ($500MM) – said subscription and services revenue grew 43% Q-Q

Healthcare

·     Pharma movers: BNTX and PFE rise after German Chancellor Olaf Scholz announced an agreement to let expatriates in China use their COVID-19 vaccine and pressed for Beijing to allow the shot to be made freely available to Chinese citizens. Also, BNTX said new data from a Phase 2/3 trial showed that the booster for companies’ omicron BA.4/BA.5-adapted bivalent COVID-19 vaccine demonstrated a "robust neutralizing immune response" after one month; TEVA downgraded to Sell at UBS as expect significant downside to near-term consensus estimates and expect a phase of uncertainty as the company experiences a transition in leadership, while litigation risk persists; APLS slides after announced they will now include 24-month data from the DERBY/OAKS studies of pegcetacoplan. This move is expected to trigger a major amendment and will push out the PDUFA date by three months – shifting now to 2/26/23.

·     Biotech movers: KPTI upgraded to OP from SP and raises tgt to $10 at RBC Capital saying its lead drug Xpovio’s activity breadth across many different tumor types should enable layered-on indications, which could ultimately manifest in nearly $700M+ in U.S. sales; NTLA declines following quarterly loss as gene editing names remain pressured

·     MedTech Equipment; PODD announced impressive Q3’22 results which exceeded expectations on the top and bottom lines. Guidance for the year was raised (even with FX headwinds) – was upgraded to Overweight at Piper with higher tgt $340; CDNA shares slide after Q3 rev miss $79.3M vs. est. $82.6M and cuts FY22 revenue view citing lower Q3 revenue and a higher than anticipated shift in payer mix to commercial payors; shares down -10%

·     Healthcare Services: after better Q1 results from CAH, the company said it sees FY23 pharmaceutical profit growth 2%-5%, sets double-digit l-t adj EPS growth Target and sees FY23 pharmaceutical rev up 10%-14%; SYNH slides after Q3 EPS $1.23 missed the $1.32 estimate and revs of $1.34B light of expectations $1.37B – said Q3 clinical solutions reported revenue decreased 3.5% and trimmed year guidance; GDRX upgraded to Neutral at JPMorgan as now believe the risk/reward is more balanced at current levels

Industrials & Materials

·     Aerospace & Defense: KTOS downgraded to hold from Buy at Canaccord after guidance lowered on cost growth, program delays & funding cancellations; China’s state aircraft buying agency officially signed orders to buy 140 Airbus (EADSY) planes worth about $17 billion on Friday, China Aviation Supplies Holding said in a statement

·     Materials, Industrial & Machinery: MTZ reported adj. EPS of $1.34, which beat guidance of $1.29 and consensus of $1.27 while adj. EBITDA coming in roughly in line as Power Delivery reported a healthy beat on margins (12.1% vs. 2H22 guidance of 9.5%), which offset a miss in Clean Energy; chemical names saw strength post HUN results (DOW, LYB, OLN, EMN rise early)

·     Metals & Mining; gold miner AUY rises after PAAS and AEM deliver binding offer to acquire the company https://on.mktw.net/3FLAsCq ; shares of industrial metals AA, CENX, FCX, CLF, and steel names among some of the biggest movers in the S&P today following jump in China markets overnight on hopes/reports that China may soon further shorten quarantine requirements for inbound travelers

Technology, Media & Telecom

·     Media, Internet: WBD reported Q3:F22 results that missed on revenue but beat handily on EBITDA while mgmt reiterated their CY22 EBITDA Target but expressed some caution around the $12B FY23 EBITDA Target; GTN reports Q3 EPS of $1.03, increasing more than 400% YoY but below consensus of $1.41 and revs $909M missed the $950M est.; Elon musk said that Twitter saw a slump in revenue after activist groups pressured advertisers. "Twitter has had a massive drop in revenue, due to activist groups pressuring advertisers, even though nothing has changed with content moderation, and we did everything we could to appease the activists," he tweeted.

·     Semiconductors: SWKS reported SepQ in line and guided DecQ lower, down 6% q/q, with handsets we estimate down ~9% q/q, despite a major launch; SYNA reported SepQ in-line but guided the DecQ down ~19% q/q to $365M (below cons. $443M) with Consumer IoT significantly weaker. GM was guided down only 160bps to 61% (cons. 60.4%); MCHP slight beat & raise, setting another quarter of records, incl. non-GAAP (NG) GMs of 67.7%, NG OMs of 46.9% and NG EPS of $1.46. Sep Q raised outlook

·     Software movers: an absolute disaster in tech land as high growth names getting punished the most on disappointing earnings/guidance from another batch of names overnight; rough sector after results/guidance as TWLO plunges due to disappointing Q4 guidance (revs $995M-$1B vs. est. $1.05B), lowering of mid-term revenue guidance to 15-25% with no GM trend, and lack of detail on 2023 Op margin; TEAM tumbles following results amid a slowdown in subscription billings, in-line revenue result, miss in cloud and guided cloud down of +50% to 40-45%, and Q2 guide miss by 3%; BL reports GAAP EPS of $0.21/$134.3M vs. est. $0.09 but revs decelerated from 26% last quarter, subscription revenue growth of 22%, down from 27% last quarter; APPN shares fell as FX weighed on 3Q but cc revenue and cloud sustained at least 30% growth.

·     Hardware, Components & Services: NET slips after results attributed to a lower beat and raise of +$4.5M, at the mid-point versus last quarter of +$13M in the 2022 revenue guidance due to a higher level of conservatism; ANET upgraded to Overweight at Piper following earnings and Analyst Day this week; CGNX reported 3Q above the high end of the revenue guide and guided 4Q above Street; DBX reported better-than-expected 3Q22 results on EPS beat, revs of $591.0M, up 7% y/y (up 10% y/y in CC), but down from 8% growth last quarter and ARR of $2.43B up 10% y/y driven in part by pricing and packaging changes; GPRO downgraded at Oppenheimer after reported decent 3Q22 results despite a challenging macro environment, but significantly reduced its Q4 and FY22 guidance; VIAV drops early on Q1 rev miss and guides 2Q and EPS $0.10-0.12 vs est. $0.24 and net revs $261-281Mm vs est. $332.7Mm