Closing Recap

Friday, April 29, 2022

Equity Market Recap

·     Nowhere to hide for Bulls Friday, as April ends with massive declines, capping a dreadful month. U.S. markets close out a very volatile week at the lows (Nasdaq posts 3 trading days with 3%+ gains or losses), with major averages finishing a difficult April sharply lower as rising interest rates, stubbornly high record inflation, and disappointing profit/revenue outlook from some of the biggest companies in the world have pushed major averages to lowest levels in months. The S&P 500 and Nasdaq post their 4^th consecutive weekly decline as the Nasdaq posts its worst month since 2008 (down over 13%), while the Dow slides a 5^th straight week, with very few places for investors to hide (bonds, oil, crypto, stocks all tumble). Treasury yields rose late week with the 10-year not far from 3%, while the U.S. dollar touched its highest level in about 20-years this week ahead of next weeks FOMC meeting where rapid rate hikes are expected (and Europe and Japan remain less aggressive). Big disappointments from likes of AMZN, BA, GOOGL, NFLX over the last week really pressuring high growth/multiple stocks (note Q1 rev growth, YoY % change for NFLX was 10%, AMZN 7% and FB +7%, all notable as the slowest in company history for each!) Next week more earnings than this week (volume wise not on S&P basis which had 160 names this week), but many mega-market cap results are out. The investors that have been “buying-the-dip” over the last 2-years remained absent on the last trading day of April, scared away by the latest round of tech earnings.

·     Bloomberg reported that traders start pricing a possible a 75-bps hike in June. Fed policy pricing has again reached a new hawkish peak in the aftermath of Friday’s data, as the bid in policy-meeting swaps is starting to lean toward a 75-bp move in June. For the May meeting, a 50-bp hike has remained firmly locked-in but now there is currently a 45% chance that the move after this will be a 75-bp rise. At the start of the week, such a move was priced at just a 22% chance. While inflation appears to have peaked, it remains stubbornly high, and markets remain fearful ahead of next week’s FOMC meeting. Data this morning showed another high inflation reading as month-over-month and year-over-year core PCE readings came in at 0.3% and 5.2%.

·     Stock & Sector movers: AMZN the top story today, as shares fall over 13% to 2-year lows following a weaker guide for operating income and revs for Q2; AAPL shares fall despite beats on EPS, revs, margins, segment rev beats – warns y/y Q3 revenue growth to be impacted by COVID, as sees $4B-$8B in constraints in Q3; INTC lower Q2 guidance citing demand weakness in its largest end market of PCs, as well as increased supply-chain uncertainty the latest warning sign in semiconductor sector; PDD BABA BIDU JD and other U.S. listed Chinese stocks jump after China’s top leaders pledged more support to spur economic growth; CHTR extends declines in cable space as broadband slowdown fears ramp up (follows -43% new adds from CMCSA the day prior).

Economic Data:

·     March Personal Income rose +0.5% M/M vs. +0.4% expected and +0.7% prior (revised from +0.5%) driven by a boost in compensation, proprietors’ income, personal income receipts on assets and government social benefits; Personal spending rose +1.1% M/M vs. +0.7% consensus and +0.6% previously (revised from +0.2%). The Q1 Employment Cost Index: +1.4% Q/Q vs. +1.1% consensus and +1.0% prior.

·     March overall PCE price index rises +0.9% vs. Feb +0.5% and March core PCE price index +0.3%, in-line with ests and vs. Feb +0.3%; March year-over year PCE price index +6.6% vs Feb +6.3% and Core +5.2% vs. est. +5.3% and Feb +5.3%

·     April Chicago PMI Actual reported at 56.4, well below forecast of 62 and previous 62.9

·     University of Michigan consumers sentiment final April 65.2 vs. consensus 65.7 vs preliminary April 65.7 and final March 59.4; current conditions index final April 69.4 vs prelim April 68.1 and final March 67.2; expectations index final April 62.5 vs prelim April 64.1 and final March 54.3

Commodities, Currencies & Treasuries

·     Treasury yields remain volatile as the 10-year yield hit highs of 2.93% this morning before fading. The U.S. dollar hit 20-year highs this week before pulling back today (posting best month since Jan 2015), and oil prices slide late day.

·     Oil prices plunged late day, erasing earlier gains as WTI crude finished down -$0.67 or 0.64% to $104.69 per barrel (off earlier highs $107.99) in what appeared to be a drop in risk assets across the board as stocks plunged late day. Prices initially rose for as fears over Russian supply disruption trumped COVID-19 lockdowns in China.

·     Gold prices rose $20.40 or 1.1% to settle at $1,911.70 an ounce as the dollar made a small retreat, but precious metals prices finished the week and month down over 1% on bets of aggressive policy tightening by the U.S. Federal Reserve.

·     The U.S. dollar (DXY) snapped a 4-day win streak, having risen as markets expect 150 bps of rate hikes in the next three Fed meetings (posting a 5% jump in April, biggest one month gain in 7-years), far outpacing other global central banks. That allowed the euro and the yen, which have hit five-year and 20-year lows respectively on Thursday, to claw back some losses

Sector News Breakdown

Consumer

·     Retailers; AMZN tumbles over 15% to 2-year lows after reporting a Q1 net loss of $3.8B, or $7.56 per share, mainly due to a decline in the valuation of its stake in EV maker RIVN while guidance for next quarter well below views as sees 2Q operating income/loss between loss of $1.0B and income of $3.0B, assumes Prime Day in 3Q22 and Q2 revs seen $116B-$121B below est. $125.5B; COLM a mixed report as the top line missed ests but beat on bottom line

·     Auto sector; TSLA small relief rally early after Elon Musk sold roughly $4 billion worth of Tesla Inc. stock (more than 4.4M shares) in the two days after agreeing to buy Twitter Inc. for $44 billion, according to regulatory filings made public late Thursday; auto supplier MGA lowered its annual profit forecast to $1.3B-$1.5B from prior $1.7B-$1.9B citing Covid lockdown impact, rising inflation and raw material costs; SEV 10M share Secondary priced at $4.00

·     Consumer Staples & Restaurants; CL posts in-line Q1 EPS and sales but profit fell to $559M from $681M y/y, impacted by significant increases in raw material and logistics costs worldwide, while expects full-year 2022 net sales growth to be at higher end of 1% to 4% (shares of consumer product names CLX, KMB, among movers); BLMN raises year guidance for revenue and profit

Energy

·     Energy stock movers; major oils with earnings today as CVX Q1 adj EPS $3.36 (biggest profit since 2012) vs. Refinitiv est. $3.27 (Bloomberg est. $3.44); Q3 revs $54.37B vs. est. $47.94B; 1q net production 3.06m BOE/day; 1q downstream earnings $331m and 1q upstream earnings $6.93B; XOM boosts share buyback program to up to $30B through 2023; Q1 adjusted EPS $2.07 vs. est. $2.12; Q1 revs $90.5B vs. est. $92.73B; SHEL to acquire SPRNG energy group, one of India’s leading renewable power platforms: SLCA posted a smaller than expected Q1 loss and revenues that rose 30% y/y and 7% q/q to $305M, as foresees an active well completions env’t; NOV posts Strong Q1 Beat, Margins Better; Baker Hughes (BKR) said the weekly oil rig count is up 3 to 552 with the total rig count at 698; PSX swings to Q1 profit as fuel demand reaches pre-pandemic levels as earns a profit of $582M, or $1.29 per share, compared with a loss of $654M y/y and said it also plans to resume buybacks in Q2 this year

·     Utilities & Solar; in solar, FSLR reported mostly in line quarterly loss, while revs missed views, but reaffirmed its overall year outlook; utilities opened lower as investors looked to riskier assets vs. defensive, but when markets rolled to lows, utilities did as well, extending declines (not utilities have been one of the better sector performers in 2022 along with energy).

Financials

·     Brokers & Bank movers; Berkshire Hathaway’s Annual Shareholders Meeting is back in-person after a 3-year hiatus this weekend; HOOD hits all-time lows before bouncing in what has been a rough week for online brokers given extreme market volatility and reduced trading from retail – HOOD with a larger EPS loss on light revs saying Q1 monthly active users decreased 10% to 15.9M for March, compared with 17.7M y/y; zero lift still for big banks despite Treasury yields moving higher along with rate expectations into next week’s FOMC meeting

·     Insurance; HIG Q1 EPS beats as underwriting results were better as combined ratio was 90.4% versus our estimate of 91.3% and consensus of 92.7%; PFG posted an expense driven b while group claims improve; TRUP slides as Reported Subscription Revenue $139.8M below est. $141.7M while subscription pets (of 736,691) came in just below Piper estimate (of 739,550) as well as consensus (of 737,036) and +4.6% QoQ growth rate was below 3Q21’s (+5.0%)

·     Lending, Bitcoin, FinTech & Payments; WU top and bottom-line results beat estimates but cuts FY22 adj EPS view to $1.75-$1.85 from $1.90-$2.00 (est. $1.93) and lowers FY22 GAAP revenue view; Visa (V) and MA both downgraded to Neutral from Overweight at Piper as they are increasingly concerned that Europe could enter a recession in 2023; NCR shares spiked on reports of buyout interest https://bit.ly/38ACpCU

Healthcare

·     Pharma movers; BMY released quarterly earnings and announced that mavacamten/Camzyos was approved for class II-III oHCM, becoming the first reversible allosteric cardiac myosin inhibitor that addresses the underlying pathology of the disease; ABBV shares slip on Q1 revenue miss ($13.54B vs. $13.63B) and lowering FY EPS to $13.92-$14.12 from $14-$14.20 due to an $0.08 per share charge from acquired in-process R&D; ZYME rises as investment firm All Blue Capital approaches co with a $773M acquisition, or non-binding offer of $10.50 per share in cash; NVO raised its outlook for the full year after the increasing demand for its GLP-1-based diabetes therapies drove its first-quarter net profit to rise by 13% year over year; VRTX rises after ABBV said its competing triple combination drug for cystic fibrosis fails to meet Co’s criteria for developing it further

·     Cannabis sector: A resolution passed by the New Hampshire House of Representatives to set up state-run cannabis sales in the Granite State was nixed by the Senate as one of two bills that failed to pass the chamber, according to a report by Marijuana Moment. The cannabis sales bill as proposed by Rep. Daryl Abbas (R) lost by a voice vote. The other measure to allow home cultivation for adults as written by Carol McGuire lost by a Senate vote of nine to 15. The bill had won an approval from the Senate Judiciary Committee

·     Biotech movers; NVAX jumps as FDA announces vaccines and related biological products advisory committee review of Novavax’ COVID-19 vaccine – NVX-cov2373 would be first protein-based COVID-19 vaccine to be reviewed by VRBPAC in U.S.; GILD

·     MedTech Devices & Equipment; IQV was upgraded to Overweight at Piper as believe the investor response to slower public equity funding of early-stage biopharma is overblown and consequently presents a buying opportunity; LNTH reported earnings that surpassed analyst estimates and boosted its guidance; DXCM, SYK other movers post earnings

·     Healthcare Services; ACCD shares fall over -40% as forecasts FY2023 revs between $350M-$365M, below estimates of $387.4M noting a large customer said they would be ending their service relationship with ACCD after end of 2022

Industrials & Materials

·     Industrial & Machinery; HON boosted its full-year profit forecast as a recovery in aviation markets due to a pickup in travel boosted demand for the company’s parts, software, and aftermarket services as sees FY22 EPS $8.50-$8.80 from prior $8.40-$8.70; HUBG upgrade from Neutral to Overweight at JPMorgan as expect HUBG will be up substantially after another outstanding quarter and +56% raise to the midpoint of the guide

·     Metals & Materials; CLW shares soar EPS beats by $0.16 as sales top views driven by higher prices, strong demand, and increased production volumes; U.S. Steel (X) Q1 adj EPS $3.05 vs. est. $2.95; Q1 revs $5.23B vs. est. $5.27B; Q1 net $882M; Steel shipments 3.69 million tons vs. 3,911 y/y, estimate 3.7 million; in chemicals, CE posted a beat and guide higher for Q2; aluminum producer CENX reported 1Q’22 EBITDA of $106m, vs. our consensus of $85m but 2Q’22 EBITDA Target of $120-130m is below consensus of $195m on incremental cost pressures; RS upgraded to Outperform w/ $226 PT at Wolfe after another strong beat points to non-ferrous strength

Technology, Media & Telecom

·     Hardware and Services; AAPL with a strong quarterly report, beating on EPS, revs, margins, iPhone revs, Mac revs, while iPad revs miss, and services growth slowed – Q1 EPS beat $1.52 vs. est. $1.43; Q1 revs $97.28B vs. est. $93.89B; iPhone revs rose 5% y/y beat at $50.57B vs. est. $47.88B; services revs up 17% y/y to $19.82B vs. est. $19.72B – shares fall as warns y/y Q3 revenue growth to be impacted by COVID, as sees $4B-$8B in constraints in Q3

·     Semiconductors; INTC Q1 sales and profit beat estimate but guides Q2 EPS $0.70, below est. $0.83 and revs about $18B vs. est. $18.3B citing demand weakness in its largest end market of PCs, as well as increased supply-chain uncertainty; WDC posted first-quarter results that topped estimates with better guidance lifting shares of the HDD maker; KLAC reported revenue, GM, and EPS that beat consensus estimates and came in at the high-end of guidance

·     Software movers; TEAM delivered 10% upside to billings vs. consensus expectations, with non-IFRS EPS of $0.47 (consensus $0.32) on revenue of $740.5M, up 30% y/y (consensus $700.7M), down from 37% growth in F2Q22, and billings of $857.1M (consensus $773.8M), up 13% y/y , down from 34% growth last quarter; PEGA ACV accelerated to 23% Y/Y in constant currency, and PEGA’s cloud mix of new bookings climbed to 67% versus ~50% in FY21; ZEN announced mixed 1Q22 results with non-GAAP EPS of $0.12 (consensus $0.15) on better-than-expected revenue of $388M (consensus $385M) up 30% year over year, down from 32% last quarter; FIVN rises after results that came in above investors’ expectations, large deal wins, AI/automation record bookings, and FY22 guide raise

·     Internet, Media & Telecom movers; U.S. listed Chinese stocks BABA, BIDU, PDD, JD others rise after China’s top leaders pledged more support to spur economic growth and vowed to contain Covid outbreaks (lifting shares of U.S. listed China stocks early); ROKU 1Q beat was followed by below 2Q guidance – 1Q EPS ($0.19) vs est. ($0.18) on revs $805Mm vs est. $718Mm; added 1.1Mm incremental active accounts to reach 61.3Mm, ARPU rose to $42.91; guides 2Q net revs $805Mm vs est. $815.7Mm; CHTR follows CMCSA lower in cable space as broadband slowdown continues, with Charter saying it added 185,000 new broadband customers versus 355,000 last year (recall yesterday Comcast 1Q new additions were down 43% to 262,000); VRSN falls after quarterly results and narrowed guidance (was upgraded to Overweight at Wells Fargo largely attributable to the significant uptick in demand trends in 1Q22 reseller survey)