Closing Recap

Friday, October 29, 2021

Equity Market Recap

·     So, if you were told that a day after Amazon (AMZN) and Apple (AAPL) both posted weaker quarterly revenues and forecasts that fell short of consensus, that the S&P 500 and Nasdaq Composite would both reach fresh all-time highs, what would you say? Think hard, because that is exactly what happened as investors continue to overlook any market concerns or warnings about rising inflation, labor shortage impacts, supply chain impacts that have prompted several companies this quarter to raise those issues (but after posting overall beats for earnings in Q3 – one of the better quarters ever). Markets also shook off weaker GDP data Thursday which showed 2% growth, down from 6% growth the prior quarter. Today’s market bounce also comes ahead of next week’s FOMC rate meeting, where interest rates are expected to remain near record lows, but markets await confirmation of the Fed’s asset purchase plan to be pared back starting next month and concluding mid-2022.

·     The Santa rally looks to have begun a bit early this year as October gains (S&P 500 looking at 6.9% MTD gain, Nasdaq about 7.2% gain, the Dow 5.6% and Russell 2000 +4.1%), erasing weak results in September when the Nasdaq fell (-5.2%) and the S&P (-4.6%) for its worst monthly return since March 2020. A late day tweet from activist investor and noted hedge fund manager Bill Ackman said “I gave a presentation to the Federal Reserve Bank of New York last week to share our views on inflation and Fed policy. The bottom line: we think the Fed should taper immediately and begin raising rates as soon as possible. We are continuing to dance while the music is playing, and it is time to turn down the music and settle down. (The comments echo that of another famed hedge fund manager, David Tepper, earlier this week). Markets didn’t budge.

·      In Washington, U.S. President Joe Biden was dealt a setback as the House of Representatives abandoned plans for a vote on an infrastructure bill with progressives seeking more time to consider his call for a separate $1.75 trillion plan for social initiatives. But despite the uncertainty in D.C. markets again don’t care and look to buy stocks on any dip. The dollar ticks higher with most currencies rangebound, oil prices snap their 9-week winning streak, precious metals prices are notably lower and Treasury yields tick lower. Overall, the continued resiliency of the broader stock market remains incredible heading into next week’s FOMC meeting.

·     Stocks/sector movers: AMZN slides after missing on the top and bottom lines with Q4 guidance worse than expected, while AAPL slips on its revenue miss with iPhone and accessories sales both coming in below estimates (but Nasdaq still sets new record highs); SBUX slumps to its lowest levels since early March after its revenue and comp sales misses with a FY22 operating margin forecast below its long-term target; US Steel (X) soars on its strong quarterly report, new buyback, and dividend raise, TEAM surges to record highs after its quarterly beat; in healthcare earnings, DXCM spikes to ATH on its beat-and-raise while GILD drops despite its beat with guidance above consensus, DVA rolls on its weak guide, and SYK sinks on its quarterly miss and guidance cut; in energy, CVX hits 52-week highs on its beat, XOM green after its report, and PSX red despite opening up on its beat in energy; WDC plummets over 10% to below $50 for the 1st time in over 9 months on its guidance well below expectations; ZEN nosedives to 52-week lows after receiving several downgrades after announcing it will acquire MNTV.

Economic Data:

·     U.S. PCE Core Deflator for Sept rose +0.2% MoM, in-line with ests (prior +0.3%), while core PCE Core Deflator rose +3.6% YoY vs. est. +3.7% (prior +3.6%); PCE Deflator for Sept rose +0.3%, also in-line with ests and overall PCE Deflator +4.4% YoY (in-line).

·     Personal Income for Sept falls a greater -1.0% vs. est. decline -0.3% (prior was +0.2%) and Personal Spending for Sept rises +0.6%, in-line with ests and down from prior month +0.8%; Real Personal Spending Sept rose +0.3%

·     September Chicago PMI reported at 68.4 vs. 64.2 consensus and 64.7 prior

·     University of Michigan surveys of consumers sentiment final Oct 71.7 (vs. est. 71.4) vs preliminary Oct 71.4; current conditions index final oct 77.7 vs prelim oct 77.9 and final sept 80.1; consumers expectations index final oct 67.9 vs prelim oct 67.2 and final sept 68.1

Commodities

·     Gold futures fell on the day, sliding -$18.70 or 1% to settle at $1,783.90 an ounce as the dollar ripped around 1%, pushing precious metal prices lower by -0.7% for the week. However, gold managed a modest 1.5% advance for October, following a loss of more than 3% in September. All eyes on the FOMC meeting next week and its impact on markets, currencies, and commodity prices where a dovish taper announcement is expected and no change to interest rates.

·     Oil prices end the day higher, with WTI crude rising $0.76 or 0.92% to settle at $83.57 per barrel, a sharp recovery off morning lows of $81.41, but wasn’t enough to extend its 9-week winning streak (closed $83.87 last Friday). For the month however, WTI crude closed out October with an 11% advance. Expectations that OPEC and its allies will keep supply tight countered rising U.S. inventories and the prospect of more Iranian exports.

Currencies & Treasuries

·     After a few days of profit taking, the U.S. dollar surged, rising around 1% against a broad basket of currencies (DXY to 94.25) ahead of next week’s FOMC meeting. The Canadian dollar weakened against the buck as oil prices fell and domestic data showed that economic growth likely flatlined in September. The Mexican peso fell over 1% vs. the dollar. The euro fell 0.6% to $1.1609 just one day after having booked its biggest daily percentage gain in five months. Forex volatility has increased during the week as they tried to digest central bank actions and economic reports. Next week could bring more of the same around policy meetings of the U.S. Federal Reserve, the Bank of England, and the Reserve Bank of Australia.

·     U.S. Treasury yields reversed lower following mixed economic data as the government’s index of core personal consumption expenditures (PCE) climbed 0.2% in September, showing an increase of 3.6% over 12 months. The 10-year yield fell from earlier highs of 1.615% to afternoon lows around 1.55% as longer-term yields underperformed shorter-term as the 10-year hit above 0.5% this week, best levels since early 202. Germany’s 10-year bond yield rose on Friday as much as 8 basis points to its highest level since May 2019. In cryptocurrencies, ethereum prices rose to a record above $4,400 and was up 4% on the day, while Bitcoin topped $62K.

Sector News Breakdown

Consumer

·     Retailers; AMZN shares slip amid a weaker Q3 as net sales increased 15% YoY to $110.8B, falls short of the $111.55B consensus estimates as operating income declined from $6.2B last year to $4.9B, missing estimates of $4.12B and EPS of $6.12 was below last year’s $12.37 and est. $8.90 – guidance also disappoints as Q4 revs seen $130B-$140B below est. $142.17B and operating income seen $0-$3B below the est. $7.71B; DECK missed on Q2 EPS $3.66 vs est. $4 and sales $721.9M vs est. $765.9M with comps +1% and guiding FY EPS $14.15-15.15 vs est. $15.15; COLM Q3 EPS $1.52 vs est. $1.33 on revs $804.7M vs est. $862M, cut full-year sales outlook to +21.5-23% from +25-26.5% (est. +26.5%), and said it believes it can achieve mid-teens or better sales growth in 2022 vs est. +10%; SKX Q3 EPS 66c vs est. 73c on revs $1.55B vs est. $1.62B, guides Q4 EPS 28-33c below est. 34c, and cut full-year guidance for EPS to $2.45-2.50 from $2.55-2.65 and revs to $6.15-6.2B from $6.15-6.25B; JPMorgan raised their price target on LULU to $570 from $500; Herman Miller (MLHR) is changing its names to MillerKnoll November 1; HVT slides amid supply chain headaches roll into Q4 despite Q3 beats

·     Auto sector; TSLA quietly topped the $1,100 level, up 13 of the last 15 trading days at new record highs after earnings this week; TM said overnight that vehicle sales were 16.9% below their 2020 levels in September, while worldwide production fell 38.0% Y/Y due to the parts shortages caused by factory closures in Southeast Asia; in auto parts, VC upgraded to Overweight from Equal Weight with a price target of $140, up from $114 at Barclays; electric vehicle names extend weekly gains early (LCID, QS, NKLA); Reuters reported electric vehicle batteries typically use lithium carbonate or lithium hydroxide. Benchmark Mineral Intelligence (BMI) assessment of the lithium carbonate price in China shows a jump of more than 300% over the last year to $28,675 a tonne in mid-October due to supplies falling short of stronger-than-expected demand (NIO, LI, XPEV); Amazon.com Inc. said it holds a 20% stake in electric truck and van maker Rivian Automotive LLC, from which it intends to buy 100,000 vehicles for its delivery fleet by 2030.

·     Consumer Staples; KO is nearing a deal to buy a controlling stake in sports drink maker BodyArmor, valuing it at about $8 billion, Bloomberg News reported late Thursday; CL Q3 adj EPS 81c vs est. 80c on in-line sales $4.41B, sees FY adj EPS at the low end of its outlook for mid- to high- single digit growth; NWL Q3 EPS 54c vs est. 50c on in-line sales $2.79B, sees Q4 adj EPS 29-33c vs est. 37c on sales $2.6-2.67B vs est. $2.59B, raised lower end of FY adj EPS outlook as it now sees $1.69-1.73 from $1.63-1.73, raised FY sales view to $10.38-10.4B from $10.1-10.35B; CHD Q3 adj EPS 80c topped est. 71c on sales $1.31B vs est. $1.28B, sees Q4 adj EPS 61c vs est. 69c, now sees FY adj EPS +6% from lower end of +6-8% and sales +5.5% from +5%, now expects incremental $170M in input costs from $125M; Citi downgraded HSY to Neutral despite its quarterly beat with raised guidance as the stock’s +18% YTD is one of the best performers under their coverage in the food space; MO cut to Equal-weight at Morgan Stanley after its weaker Q3 results with growing headwinds and a lack of near-term catalysts

·     Restaurants; SBUX shares slide as forecast FY22 operating margin to be ~17%, below its long-term target, due to inflation and investments while also missed quarterly comp sales estimates, and said China comp sales fell (-7%); TXRH reported 3Q EPS of $0.75, below consensus of $0.81, with sales and margins both below ests as commodity and labor inflation proved worse than feared/comp store sales increased 30.2%, below consensus of 31.9%; RUTH reports Q3 EPS $0.20 vs consensus $0.12 and revenue $104.2M vs consensus $104.2M; comps +66.8% vs consensus +65.3% (+7.6% vs 2019) – July +102.4% (+16.3% vs 2019)

·     Casinos, Gaming, Lodging & Leisure sector; in cruise lines, RCL total revenue was about $457M in Q3 vs. ests $567M after had recorded a negative revenue of $33.7M a year earlier as it reversed previously recorded income due to refunds and cancellations/Q3 adj EPS loss was (-$4.91) vs. est. loss (-$4.41); in leisure, BC upgraded to Outperform from Sector Perform at RBC Capital citing low inventory provides extended restock opportunity; LVS shares rallied midday after a report in Sportico said Steve Cohen is in talks on Sands Casino near Citi field

Energy

·     E&P and Majors; CVX Q3 adj EPS $2.96 vs. est. $2.21; Q3 revs $43B vs. est. $40.52B; posted net income of $6.11B vs. a loss of $207M a year ago; said Q3 average sales price per barrel of crude oil and natural gas liquids was $58, vs $31 a year earlier; XOM posts adj EPS of $1.58, beating by $0.02 which reflected soaring natural gas prices, improving refining margins and supply shortages that pushed oil prices higher/says buyback program up to $10b over 12-24 months starting 2022 and cap-ex $3.85B, in-line with ests; SLCA shares dipped following Q3 revenue miss

·     Equipment, Refiners, MLPS: Baker Hughes (BKR) weekly oil rig count up 1 to 444 – U.S. total rig count 544 – U.S. gas rig count up 1 to 100; IEP announced that its wholly-owned subsidiary, American Entertainment Properties Corp., has entered into a definitive agreement to sell 100% of the equity interests in PSC Metals, LLC to SA Recycling LLC, for total consideration of approximately $290 million

Financials

·     Bank movers; RILY announced a $4 dividend, composed of a $3 special one-time payout and a doubling of its regular quarterly dividend to $1, in addition to Q3 EPS and revenue growth; COWN Q3 adj EPS $1.32 vs est. $1.22 on revs $359.3M vs est. $340.4M; PIPR Q3 adj EPS $4.55 vs. est. $3.75 on adjusted net revenue $440.3M (+48% YoY)) vs est. $402.3M; AX Q1 EPS 99c vs est. 89c on revs $173.3M vs est. $166.7M; LPLA Q3 EPS $1.77 vs est. $1.75 on revenue $2.02B vs est. $2.05B, total advisory and brokerage assets $1.13 trillion (+40% YoY), organic net new assets $27B (+10% annualized) in the qtr, $110B over past 12-months (+14% annualized); CBOE Q3 adj EPS $1.45 and revs $369.5M both slightly topped estimates; LAZ Q3 adj EPS 98c vs est. 95c on revs $702M vs est. $710.4M, AUM $273B vs est. $276.7B;JPMorgan upgraded LOB to OW with a $95 PT from $70 as PPP-related headwinds are more manageable now and its core business results have dramatically accelerated; Raymond James raised HBNC to Strong Buy from Outperform; Stephens upgraded OFBC to OW

·     Insurance; AON Q3 adj EPS $1.74 on revs $2.7B vs est. $2.61B; AJG Q3 adj EPS $1.33 vs est. $1.21 on revs $2.14B above est. $1.89B, announced a $1.5B buyback program to replace its current authorization with $1B remaining; HIG Q3 core EPS $1.26 vs est. $0.86 on revs $5.69B vs est. $5.2B, net income ROE for TTM period ending Sept. 30 was 12.3%, core earnings ROE 12.5%; KMPR Q3 EPS loss ($1.18) vs est. ($0.07) on revs $1.455B vs est. $1.4B

·     FinTech & Payments; RBC said the market is misinterpreting FOUR’s press release yesterday as a negative as its October payment volume is up over 80% and active merchant counts up over 25% YoY; Evercore initiated BILL at In-Line with a $300 target as its current premium valuation makes it hard to rationalize additional upside; ENVA Q3 adj EPS $1.50 and revenue $320.3M widely beat consensus of $1.11, $286M; MGI Q3 adj EPS 13c vs est. 8c on revs $319.6M vs est. $309.4M, guides Q4 revs to approx. $325M (est. $335.5M), adj EBITDA approx. $60M (est. $56M), adj FCF approx. $24M; MSTR Q3 adj EPS $1.88 vs est. $1.25 on revenue $128M vs est. $127.5M, added nearly 9,000 Bitcoin in the quarter bringing its total holdings to over 114,000 Bitcoin with a carrying value over $2.4B

·     Consumer Finance; Citi upgraded SYF to Buy, opened a 90-day catalyst watch on DFS to reflect their view of improving loan growth and positive guides on Q4 calls in January, and announced a pair trade idea of DFS vs AXP as the latter is relatively expensive and its soft 2022 guide means a catalyst in Q4 results is less likely

Healthcare

·     Pharma movers; ABBV posts in-line Q3 revs of $14.3B while raises year EPS view to $12.63-$12.67 from prior $12.52-$12.62 as better performance of newer drugs such as Rinvoq and Skyrizi helped revs; RDY launched Ephedrine Sulfate Injection 50 mg/mL, a generic version of low blood pressure therapy Akovaz; several IPOs overnight: 4D Molecular (FDMT) 4.75M share Secondary priced at $25.00, AirSculpt Technologies (AIRS) 7M share IPO priced at $11.00, Aura Biosciences (AURA) 5M share IPO priced at $14.00, Entrada Therapeutics (TRDA) 9.075M share IPO priced at $20.00, Sonendo (SONX) 7.8M share IPO priced at $12.00

·     Biotech movers; GILD posts Q3 revs beat with much higher Veklury (remdesivir) driving the beat, and boosted its FY2021 guidance, now expecting revenues of $26B to $26.3B (vs. $24.4B to $25B prior) and EPS of $7.90 to $8.10 (vs. $6.90 to $7.25 prior); SGEN posted a strong 3Q report driven by outperformance of all commercial products (total revenue of $424mn tops est. $385mn) on the back of continued strength from Adcetris, and Padcev; MRNA said to double COVID-19 vaccine deliveries to COVAX in Q2 2022

·     MedTech Equipment; DXCM delivered another beat and raise quarter as adoption of its CGM technology increases globally. Revenue of $650.2M (up 30% y/y, up 28% organic), was well ahead of the consensus’s $618.6M; SYK posted Q3 miss amid weakness within Wright and T&E, plus margin weakness, and a soft 4Q guide; CDNA declines despite Q3 beat amid concerns over regulatory investigations

·     Healthcare Services; DVA reported 3Q results that was ahead on sales, driven by pricing though COVID/mortality weighed on treatments and the company saw higher operating costs, while lowered the high end of its EPS guidance to reflect some of these headwinds

Industrials & Materials

·     Industrial & Machinery; CAT upgraded to Buy from neutral at UBS and up tgt to $235 from $232 as expect headwinds of 2021 to fade, driving upside as the upcycle develops; GWW recorded better earnings and sales in Q3 on YoY basis and topped ests while reaffirmed previously issued guidance for its full 2021 results (Q3 sales $3.37B vs. est. $3.32B); MHK tumbled as much as 10% on day after Q3 rev miss last night and lower Q4 guidance

·     Transports; Dow Transports were higher early, before slipping led by weakness in truckers as WERN declined following weaker Q3 EPS while revs were $702.9 million, up from $590.2 million last year; SAIA upgraded to Buy from Neutral as its operations show increasing leverage as it adds volumes to its expansion network; most earnings behind the sector with airlines and rails rising following their mixed results the last two weeks

·     Metals & Materials; U.S. Steel (X) rises as announces a $300 million stock repurchase program and increases its quarterly dividend to $0.05 per share and big beat as Q3 adjusted EPS $5.36 tops consensus $4.85; Q3 revs $5.96B vs. est. $5.79B; POLY mixed Q2 as EPS $0.77 vs est. $0.56 on revs $419Mm vs est. $428.4Mm; guides FY adj EPS $2.30-2.70 vs est. $3.10; in chemicals. ECL to acquire Purolite, a leading global provider of fast-growing, high value separation and purification solutions to life sciences and critical industrial markets; Ecolab to pay approximately $3.7 billion in cash; HUN Q3 EPS of $1.08 topped the $0.93 estimate and revs jumped 51% to $2.29B; LYB shares slipped after quarterly EPS miss, though revs topped consensus

Technology, Media & Telecom

·     Apple: AAPL with a topline miss as Q3 revenue of $83.36 billion (+29% YoY) missed the $84.84 billion consensus, gross margins came in at 42.2% (vs. 42% est.) as Mac and iPad revs beat views but iPhone revs of $38.868B missed expectations of $41.19B and Wearables, Home and Accessories with revs of $8.785B missing est. of $9.283B – shares of key Apple suppliers such as AVGO, NXPI, STM, SWKS, and many others were impacted initially

·     Semiconductors; WDC shares tumble as the disk-drive maker forecasts Q2 and year outlook for adj EPS and revenue below consensus estimates as co’s businesses continue to be impacted by supply chain bottlenecks – also with disappointing F1Q22 (Sept) Flash rev. vs. expectations which is weighing on shares of STX, MU) – several analysts lowered price tgts

·     Hardware & Software movers; ZEN shares slide, downgraded by several analysts (Bofa, Opco, Piper, Jeff) after an agreement to purchase MNTV was met cautiously, saying that the deal is dilutive to Zendesk’s growth and adds uncertainty. Overshadowing solid Q3 results; SSNC beat 3Q21 consensus by $0.12 and raised 2021 adjusted EPS guidance at the midpoint by $0.19; TEAM posted 5% upside as $614M in total revenue grew 34% Y/Y as upside mainly caused by the continued strength in Cloud (+53% Y/Y to $318M) and DataCenter (+68% Y/Y to $111M); VCRA delivered Q3 revenue, adjusted EBITDA and adjusted EPS beating consensus estimates and FY21 guidance was raised for the 3rd time this year

·     Media & Telecom movers; in cable, CHTR shares slipped as weaker-than- expected broadband and wireless subscriber growth in Q3 overshadowed strong Ebitda and revs (Q3 revs rose over 9% to $13.15B vs. est. $12.93B and adj Ebitda $5.29B vs. est. $5B) – residential video net customer change -133,000 vs. +53,000 y/y, estimate -92,875; ATEN Q3 results beat top and bottom-line estimates as revs grew 15% Yoy to $65.36M, above the consensus of $62.5M