Closing Recap

Thursday, April 21, 2022

Equity Market Recap

·     Stocks tumble, failing to hold big gains early! What looked like another promising day for stocks, turned into a train wreck, as major averages went from massive gains to sharply lower levels. The S&P 500 topped its key technical 200-day MA resistance (of 4,497) early in the day and tapped its 100-day MA resistance of 4,513 (highs of day), before failing to push through, leading to a market slide midday that pushed major averages to as low as 50-day moving average support (4,413) in another volatile day filled with earnings, data, and more Fed commentary on rates. News was dominated by earnings early, but more hawkish Fed comments on interest rates and surging Treasury yields was too much to overcome as stocks bled into the close.

·     More Fed comments not helping market sentiment. Fed’s Daly said will deliberate with colleagues whether need rate hikes of 25 bps, 50 bps, or 75 bps – Reuters (comments about 75 bps did not help markets). While known hawk Bullard said the Fed is behind the curve but says not as far behind as you think and doesn’t believe they will have a hard landing. Fed Chairman Powell said "It is appropriate to move more quickly" than in the last tightening cycle to remove monetary accommodation during an IMF debate on the global economy. He also added 50 basis-point hikes are "on the table," particularly for the May meeting.

·     Stock and Sector movers: TSLA among top stories after big beat and margins strong, with shares rising as much as 10% before paring gains; CCL EXPE NCLH BKNG MAR early winners amid continued recovery in leisure/reopen names in cruise, hotels and online travel given upbeat commentary from airlines UAL AAL today on improved demand which lifted transports initially; ENPH SEDG SPWR SHLS solar names slide as NEE warned of solar build delays as a U.S. trade probe creates price and supply uncertainty; FTSI downgraded at Piper; AA tumbles over 15% on mixed results/lower guidance, while steel names STLD NUE rise early on good earnings; BHP cuts copper outlook and FCX drops sharply after results, all in mining and metals.

·     Consumers feeling the impact from housing yet? Check out this stat: In Jan 2021 the 30-yr mortgage rate was 2.65% and average new home price in the US was $401,700. Today the 30-yr mortgage rate is 5.11% and average new home price is $511,000. Assuming a 20% down payment, that’s a 72% increase in the monthly payment (from $1,294 to $2,222). Note the average 30-Year Mortgage Rate in the US: 1970s: 8.9%, 1980s: 12.7%, 1990s: 8.1%, 2000s: 6.3%, 2010s: 4.1%, 2020s: 3.2% and rate Today: 5.1%.

Economic Data:

·     Weekly Jobless Claims fell to 184K from 186K prior and vs. consensus 180K; the 4-week moving avg rose to 177,250 from 172,750 in prior week; continuing claims fell to 1.417M from 1.475M and vs. est. 1.455M; the U.S. insured unemployment rate fell to 1.0% from 1.1%

·     Philly Fed Business Index Actual reported at 17.6, below forecast 21.35 and prior 27.4

Commodities, Currencies & Treasuries

·     Oil prices finish higher, one of the few markets’ bright spots as WTI crude rises $1.60 to 1.57% to settle at $103.79 per barrel. Gold prices fall -$7.40 or 0.4% to settle at $1,948.20 an ounce hit once again by rising U.S. Treasury yields and a rebound in the dollar as stocks slipped from earlier highs. Not much in way of general news in the commodity space.

·     Treasury yields were on the mover higher yet again, as the U.S. 5-year, 7-year treasury yields rise above 3% and the 10-year hits highs around 2.95% as rising interest rate expectations by the Fed gets louder and louder. Fed’s Daly said today said today will deliberate with colleagues whether need rate hikes of 25 bps, 50 bps, or 75 bps. The 75-bps hike comment sent yields higher, and stocks lower, marking the 2^nd Fed speaker to mention 75-bps at a meeting. Fed’s Daly also was quoted as saying “Frothy labor markets are driving up inflation.”

·     The U.S. dollar rebounded off earlier declines, as the euro pared gains despite some hawkish policy comments recently at its ECB policy meeting. Meanwhile, after huge rallies fed by blockbuster commodity price surges, the tide may be turning for currencies such as the Aussie dollar and Colombian peso as fears of a global growth slowdown take hold in markets.

Sector News Breakdown

Consumer

·     Retailers; a bit of a breakdown after a recent rally in discretionary; SNBR drops after Q12 EPS and sales miss in mattress retail sector, and lower mid-point of guidance prompting downgrade to Neutral at Piper; TSCO posts Q1 sales and comp sales beats on slightly better margins but did not raise guidance; POOL Q1 results top consensus and raises FY22 EPS forecast to between $18.34 and $19.09 from $17.19 to $17.94 earlier

·     Auto sector; TSLA posted a top and bottom line beat on better margins after the co raised prices in response to inflation, offsetting the impact of a Shanghai factory shutdown (revs rose to $18.8B vs. est. $17.8B) – noted deliveries tracking up 60% y/y to ~1.5M for 2022; shares of other EV stocks NKLA and charging BLNK move on results CVNA shares slide after posting a bigger-than-expected quarterly loss, widens to $260M, or $2.89 per share in Q1, from $36M y/y as est. was for loss (-$1.44) saying several factors impacted CVNA and the used vehicle industry (also announced a stock offering); auto suppliers tgt changes for ADNT at Deutsche Bank as anticipate an eventful US autos earnings season, with 1Q22 results generally in-line to slightly below consensus expectations due to global LVP in the quarter playing out a bit weaker than expected a few months ag; AN, GPC earnings in auto retail

·     Consumer Staples; in tobacco, PM reported an EPS beat but guided adjusted year EPS $5.35 to $5.46, from prior $6.12 to $6.30 (estimate $5.88), while Q1 Cigarette shipment volume +1.9%, estimate -5.33% and EU cigarette shipment volume -0.9%, estimate -3.46%; RBC Capital noted MO announced to the trade that it will raise list prices on all Marlboro, Chesterfield, Basic, Basic Simple Tobacco, L&M, and L&M Simple Tobacco by $1.50 per carton, and on Benson & Hedges, Benson & Hedges Menthol Green, Merit, Nat’s, Parliament, and Virginia Slims by $2.00; in food, USFD posted a top and bottom line Q1 beat

·     Restaurants; Loop Capital said for QSR latest Tim Hortons Canada franchisee checks indicate same-store sales growth came in below expectations in 1Q; MCD active as Carl C. Icahn files definitive proxy statement and issues open letter to shareholders; Jefferies highlights the broader short-term consumer spending environment, PLAY’s comp store and unit growth opportunities, as well as the upside from the pending Main Event acquisition that make this stock attractive

Energy

·     Energy stock movers; energy stocks held up relatively well with higher oil; in majors, CVX downgraded to Sector Perform from Outperform at RBC Capital and upgraded XOM to Outperform from Sector Perform; LBRT rises after Q1 beat; in natural gas levered stocks, Piper upgraded RRC, SWN to overweight from Neutral and downgraded coal producer CNX to Neutral saying strong commodity price environment should translate into accelerated deleveraging and enhanced return; in pipelines KMI out with better earnings; refiner PBF was upgraded at Wells w/tgt to $30 from $20 reflects the shift to 2022 and slightly higher refining EBITDA multiple

·     Utilities & Solar; FTCI downgrade from Neutral to Underweight w/ $3 tgt at Piper as see an above average probability that FTCI cuts guidance as the company’s initial outlook Incorporated a soft-landing on AD/CVD; NEE shares slip early following large loss on hedges in Q1, delays in solar build as ongoing Department of Commerce probe on Asian solar panels will delay around 2.1 to 2.8 gigawatts of co’s solar build from 2022 to 2023 – the comments from NEE weighed heavily on solar stocks SEDG ; SWX slipped after activist investor Carl Icahn says he has no interest in making a bid after the utility recently said it would evaluate a sale following interest from an unnamed potential buyer

Financials

·     Bank movers; in regional banks, KEY said Q1 earnings dropped 28% missing estimates and revs drop 3% to $1.7B while created a provision for credit losses of $83 million; other earnings movers in banks included HBAN, SNV, TCBI; in research, CMA downgraded at Raymond James after earnings, while STT was upgraded to Buy at Argus; in financial services & Insurance: EFX shares slide as cut full year revenue and EPS to reflect a significant acceleration in the decline of the U.S. mortgage market; several financials hitting 52-week highs today including insurance names AFL ; Fintech continues to be source of funds with broad selloffs in likes of PYPL, SQ, AFRM among others (high growth names)

Healthcare

·     Pharma & Biotech movers: Recreational marijuana sales began Thursday in New Jersey, marking the first-time cannabis is legally available for nonmedical purposes in the New York City and Philadelphia regions. Thirteen outlets around the Garden State that were already selling medical cannabis products were authorized earlier this month to serve all customers at least 21 years old.

·     Healthcare Services; HUM agreed to sell a majority stake of a home hospice businesses it bought last year to a private equity buyer for $2.8 billion; THC reports better-than-expected Q1 revenue, mainly due to strong performance in its Ambulatory unit with upbeat guidance; RAD confirms a NY Post report yesterday that it rejected a nonbinding takeover proposal from private-equity firm Spear Point Capital Management, saying the bid wasn’t credible and didn’t warrant exploration; in MedTech, DHR shares rose early post earnings

Industrials & Materials

·     Transports; make it a third day of gains (helping pare/erase a lousy start to April on recession fears), led by another strong report in the airline space as UAL posted a slightly larger Q1 EPS loss and a 21% drop in revs, but shares jump after saying expects to return to profitability in Q2 on a robust operating revenue outlook with approximate 10% operating margin (followed a strong report/outlook from DAL last week); shares of AAL also rise on results, saying demand for travel has continued to strengthen despite higher fares driven by surging fuel costs; ALK also reported quarterly results in a strong airline/travel sector today

·     In rails/truckers/freight: CSX posted a slight EPS beat as revs rose 21% to $3.41B, above views as operating ratio increased by 150 basis points to 62.4%, and targets full-year double digit revenue and operating income growth; UNP Q1 EPS and revenue topped estimates while noted fuel costs will pressure full-year results; KNX, HTLD and LSTR active movers after earnings results; in freight, Barron’s reported AMZN takes aim at FDX, going to open up its delivery service to allow Prime members to use its payment and shipping facilities on rival retailers’ sites.

·     Metals & Mining; busy day of earnings as AA Q1 revs miss estimates after EPS beat, while lowers its forecast for shipments of bauxite ore for this year by two million dry metric tons; BHP cut its FY copper output to 1.57M-1.62M metric tons from an earlier estimate of 1.59M-1.76M saying downgrade reflects lowered production guidance for the Escondido mine; in steels, STLD 1Q adj EPS $6.02 vs est. .$5.66 on sales $5.6B vs est. $5.32B, qtrly steel shipments 2.9Mm tons; raises 1Q cash dividend by 31%, while NUE also posts EPS beat; in copper, FCX posted Q1 EPS beat $1.07 vs. est. $0.91 on better revs $6.6B

·     Chemicals & Materials: DOW Q1 EPS of $2.34 beats ests amid stronger product prices as supplies remained tight amid robust demand saying local prices across Dow’s three segments were up between 24% and 39%; SMG downgraded to Equal Weight from Overweight at Barclay’s and cut tgt to $110 from $150 as expect a -19% dip in EPS in FY22E due to weakness in consumer biz

·     Industrial & Machinery; DOV shares slide post earnings results and guidance; generator maker GNRC shares slide after Piper next four months hold updates surrounding NEM-3, BBB, European-solar, and AD/CVD and against this complex/uncertain backdrop, sticking with ENPH given the possibility for favorable LT earnings revisions, risking our LT GNRC estimates (but maintain OW given pullback along with our belief that the ’24-AD top-line Target remains achievable)

Technology, Media & Telecom

·     Hardware, Semiconductors; NVDA hits its lowest levels since October as semiconductors erase earlier gains (SOX down -9.5% MTD and -21% YTD); LRCX reported a modestly softer MarQ and guided to a softer JunQ at $4.2B (cons. $4.5B), with logistics delays constraining shipments and noted despite MarQ top line down ~5% q/q, China revenues were up ~15% q/q while deferred revenue rose ~40% q/q; XRX shares tumble after posting an unexpected EPS loss on slightly better revs of $1.67B, saying supply issues and inflationary pressures weighed on profit, though maintains its 2022 guidance

·     Internet, Media & Telecom movers; AT posted better quarterly core wireless revenue rising 2.5% to $29.7B as it benefits from the expansion of its fiber internet and 5G services while added 691,000 monthly phone subscribers in Q1 – said total global subscribers for premium TV channel HBO and streaming service HBO Max rose by 3 million q/q; NFLX extends losses from yesterday early after investor William Ackman liquidated a $1.1 bln bet on co after its results, locking in a loss of more than $400 mln as the stock plunged; WBD announced it was shutting down failed CNN+ venture; TWTR shares remain active after Elon musk said in a regulatory filing that he is exploring a tender offer to acquire shares of Twitter directly from shareholders. Twitter’s board hasn’t yet responded to his offer to buy the social-media company for $54.20 a share; FB shares tumble a second day; Florida lawmakers gave final approval to a bill that would end a special tax district that allows DIS to govern the land housing its theme parks, sending the measure to Republican Gov. Ron DeSantis, who has made clear he would sign it.