Closing Recap

Wednesday, December 01, 2021

Equity Market Recap

·     Stocks slumped on Wall Street, erasing initial gains in an aggressive late day sell-off as momentum picked up to the downside, taking the S&P 500 index below its 50-day moving average support in the final minutes. U.S. stocks had opened the trading day sharply higher, appearing to recover nicely after yesterday’s precipitous drop on rising inflation/interest rate fears and more Omicron variant related concerns as cases rise, but the move turned out to be a head fake with markets giving back gains throughout the day, led by declines in Smallcaps and technology. Fed Chair Jay Powell reiterated to Congress that the FOMC will be considering faster tapering of asset purchases (echoing comment to the Senate yesterday and disappointing some that he would “walk-back” some of his hawkish comments on rates/asset purchases). Powell said it’s appropriate the Fed considers tapering faster at its Dec. 15 meeting, but he does not think it will be disruptive to financial markets. Market selling pressure picked up steam late afternoon after the U.S. confirmed the first case of Omicron coronavirus variant identified in the U.S. (California) – not exactly a shock but was not well received by markets. Stocks had already seen selling prior to the Omicron U.S. headlines, paced by weakness in high growth sectors (software) on inflation fears and reopen sectors (travel and leisure) after reports air travelers to the United States will face tougher COVID-19 testing rules to try to slow the spread of the Omicron variant and other countries tightened border controls.

·     Stock & Sector movers: MRK rises after its pill to treat Covid was approved by the FDA, weighing on vaccine makers MRNA, NVAX, BNTX; CRM stumbles on its soft guidance, NTAP jumps after its quarterly beat, BOX soars over 10% after its strong quarter, guidance, and new buyback authorization, while ZS opens higher but quickly rolls to red after lowering its profit forecast for next year in software earnings; CRWD, OKTA, SNOW, SPLK, ZUO all weak into their earnings tonight; semis outperform as AMBA surges over 25% to record highs after its beat and raise report, though GFS gives up early gains despite its profitable quarter and strong guidance; GIII climbs on its beat with raised FY22 guidance to lead other retail/apparel names; VRTX among the S&P leaders, tops $200 for the first time in three months after reporting positive Ph2 trial data; FinTech and payments names again pressured led by declines in SQ.

·     In an interesting stat (and one to note), CEOs and corporate insiders have sold a record $69 billion in stock in 2021. Sales by insiders are up 30% from 2020 to $69 billion, and up 79% versus a 10-year average. Sales come amid rising stock prices, as well as sellers like Elon Musk amid the threat of higher federal taxes.

·     In Europe, Britain’s FTSE 100 up 1.57%; best session in more than four-months, while Europe’s Stoxx 600 up 1.78%; best session in almost six months; the German Dax up 2.46%; best session in almost eight months along with gains in France’s Cac 40 up 2.48%, Spain’s ibex up 2.55%

Economic Data:

·     Jobs data mostly in line after ADP reported private payrolls rose +534K, slightly above the +525K consensus and below the +571K prior (unrevised)

·     Markit November final manufacturing PMI at 58.3 (vs flash 59.1) and final October 58.4; final output index for November at 53.2 vs flash reading 53.9 and final October 52.1; final input prices index for November at 87.6 vs flash reading 87.8 and final October 86.9

·     Construction spending for October rose +0.2% vs. est. +0.4% to $1.598 trln, vs Sept -0.1%; Oct private construction spending -0.2%, public spending +1.8%

·     U.S. manufacturing activity picked up in November amid strong demand for goods, as the ISM said its index of national factory activity increased to a reading of 61.1 last month from 60.8 in October 9est was 61). Supplier deliveries slipped to a reading of 72.2 from 75.6 in October, prices paid by manufacturers fell to a still high 82.4 from a reading of 85.7 in October

Commodities

·     Big reversal lower for oil prices with WTI crude sliding -$0.61 or 0.92% to settle at $65.57 per barrel, tumbling alongside the pullback in stocks and closing well off the morning highs of $69.49 per barrel. Investors are keeping an eye out for clues as to OPEC’s collective policy ahead of today’s ministerial meeting and the broader OPEC+ meeting Thursday. The current OPEC+ plan is to relax pandemic-induced production curbs by 400,000 barrels a day in January, but the onset of the Omicron coronavirus variant and the market ructions it has caused might change that. Natural gas had its worst November in 20 years (-16%), hitting 4-month low on warmer weather.

·     Gold prices rise $7.80 or 0.4% to settle at $1,784.30 an ounce, modest increase on rising inflation fears and omicron variant fueled fears, while the dollar index (DXY) flattish on day around 95.95. In testimony to the House Financial Services panel Wednesday, Fed Chairman Jerome Powell said the central bank’s plan to slow and end its asset purchases shouldn’t disrupt financial markets. He also noted for a second day that inflation is not “transitory.” Powell’s comments had pushed U.S. Treasury yields higher, especially at the short end of the curve, as the 2-yr rose 5 bps to 0.58% and the 3-yr yield up 4 bps to 0.85%, while the benchmark 10-yr was little changed at 1.44%, falling off earlier highs just above 1.5% which are nearly 3-month lows). U.S. 30-year yield falls to 1.774%, lowest since January.

Sector News Breakdown

Consumer

·     Retailers; GIII boosted its FY22 sales view to about $2.77B, above prior view of $2.7B and net income to be $180M-$190M or $3.65-$3.75 per share above prior views $155M-$165M or $3.10-$3.20; BBW said it generated record revenue in Q3, declared a special dividend, authorized up to $25 million in share buybacks and raised its full-year guidance but shares were volatile; BIRD Q3 exceeded estimates on top line, gross margins, adjusted EBITDA, and operating losses, while FY21 implies a slight deceleration in Q4

·     Auto sector; GM said it sees 2021 adj Ebitda about $14B, above its prior guidance of $11.5B-$13.5B; in Chinese EV space, LI delivered 13,485 Li ONEs in November 2021, up 190.2% Y/Y and an increase of 76.3% M/M from October’s 7,649 deliveries; total deliveries for the eleven months ended November 30, 2021 reached 76,404, taking cumulative deliveries to 110,001; NIO delivered 10,878 vehicles in November, up 105.6% from a year earlier; delivered 80,940 vehicles year to date, a rise of 120.4% from the same period last year; XPEV says delivered 15,613 vehicles in Nov, up 270% from a year ago; says 82,155 total vehicles delivered YTD, up 285% YoY; says deliveries in Nov consisted of 7,839 P7 smart sports sedans; plans to begin deliveries of its new flagship smart SUV G9 in Q3 of 2022; Hyundai (HYMTF) reports 20% Y/Y decline in U.S. total sales to 44,345 units during November; TM North America Nov. U.S. sales 153,593, down 25.4%

·     Housing & Building Products; LEN upgraded to Buy from Neutral at Goldman Sachs as look for company-specific catalysts, along with an underlying supportive macro backdrop, to drive peer relative outperformance, while firm downgraded DHI to Neutral saying although acknowledge DR Horton’s operational acumen, and look for it to continue to leverage gains in the entry level segment, they believe much of this is reflected in the current valuation; Loop Capital said conversations with industry contacts continue to point to a positive price environment for insulation in CY22…as a result, raising OC estimates on higher insulation pricing

·     Consumer Staples & Restaurants; PM adjusts its year EPS outlook as sees adjusted EPS $5.98 to $6.03, saw $6.01 to $6.06; DNUT downgraded to Sell from Neutral at Goldman Sachs and see 4% downside to our new $14 as view rising cost pressures across many key inputs for DNUT’s increasingly company-owned model as a key risk for margins; for QSR Loop Capital said latest Tim Hortons Canada franchisee checks indicate same-store sales growth is tracking below expectations to date in 4Q; in food (CPB, CAG, GIS), Credit Suisse said Data from Nielsen indicates that total food and beverage industry sales are up 4.9% in the four-week period ending November 20, down from 7.1% during the period ending October 23

·     Casinos, Gaming, Lodging & Leisure sector; In casinos (WYNN, MLCO, LVS), Macau’s gaming bureau reported November gross revenue from games of fortune in the region was up 0.01% year-over-year to 6.749B patacas; Truist noted Las Vegas Strip reported October gaming win was up +10% M/M and up +30% vs. 2019. Locals GGR fell -8% M/M but rose +3% vs. 2019, Downtown rose +4% M/M and up +11% vs. 2019 and Reno/Sparks fell -1% M/M but rose +18% vs. 2019; in online travel, SABR reports gross air bookings declined approximately 51% for November vs. 2019 levels; said net air bookings fell ~51% for the month vs. pre-pandemic level.

Energy

·     Inventory data for the week showed: the EIA showed crude fell -0.9M barrels vs. -1.237M consensus, while Gasoline rose +4M barrels vs. +0.029M consensus, and distillates +2.2M vs. +0.462M consensus. Overnight, the API reportedly a weekly draw of 747K barrels of oil for the week ending November 26; showed a build of 2.2M barrels, distillate inventories show a build of 800K barrels and Cushing inventories show a build of 1M barrels

·     E&P and Majors; XOM set annual capital spending through 2027 at $20 billion to $25 billion, allocating money to low-carbon projects and extending its previously projected spending rate for two years. Exxon announced last year it planned to spend $16 billion to $19 billion in 2021 and $20 billion to $25 billion from 2022 to 2025; CVE agrees to sell its Husky retail fuels network and the Wembley assets in its conventional business in separate deals totaling nearly $660M; Iraq’s government is considering a proposal from HAL to buy XOMs stake in the West Qurna-1 oilfield, Reuters reported

Financials

·     Bank movers; group again moving in tandem with Treasury yields, as recent plunge in yields (10-yr 1.7% to around 1.4% yesterday in less than 2-weeks) pressuring big banks and insurance sectors, despite the Fed getting more “hawkish” on interest rates; RY raised the quarterly dividend by 11% to 1.20 Canadian dollars (94 U.S. cents) from C$1.08 and unveiled plans to buy back up to 45 million shares; Q4 revenue C$12.38B vs. C$11.09B a year ago and qtrly provision for credit losses was a benefit of c$227 mln vs loss of c$427 mln

·     Bitcoin, FinTech & Payments; PYPL shares active after CEO said on CNBC yesterday that use of PayPal’s buy now, pay later (BNPL) option surged on Black Friday, up almost 400% YoY; RIOT acquires Ferrie Franzmann, d/b/a ESS Metron at ~ $50 million, consisting of up to 715,413 shares of Riot common stock and $25M in cash

·     Financial Services, Consumer Finance; MA announced an $8B share buyback and raised its quarterly dividend to 49c/share from 44c; COF upgraded to Neutral from Underperform at Baird with an unchanged price target of $145 noting card stocks have meaningfully lagged financials overall since the Q3 earnings season, and the risk/reward of Capital One is now more balanced in the low $140s; FICO authorized a new $500M share buyback authorization; COOP said expects pretax income at the higher end of guidance of $150M-175M.

·     REITs; BMO is taking a more positive view of retailer demand, upgrading defensive grocery-anchored REG and offensively-positioned FRT to Outperform and BRX to MP as they believe well-capitalized REITs are taking share and retail demand is growing with brick & mortar locations serving as key last-mile distribution centers; Stifel raised their price targets on DLR ($195 from $175) as they believe the current heightened M&A environment, lower interest rates, sustained level of solid operating results supported by a robust pipeline/backlog, possibility for better pricing and improved earnings heading into 2022 will lead to continued multiple expansion and LSI ($160 from $155) as they continue to believe the favorable operating environment and strong earnings growth will lead to continued multiple expansion

Healthcare

·     Pharma movers; MRK shares rebound after U.S. FDA advisers narrowly voted (13-10) to recommend authorization of its oral pill for treatment of mild-to-moderate covid-19 in adults at high risk of progressing to severe disease; SABS announces SAB-176 met its primary endpoint in phase 2a challenge study in adults infected with influenza virus; VRTX said it plans to advance its VX-147 drug candidate into pivotal development in Q1 after positive results from a Phase 2 proof-of-concept study in a severe genetic kidney disorder as it was well tolerated; TEVA announced the launch of an authorized generic of Epiduo(R)(1) Forte Gel in the United States;

·     Biotech movers; BYSI plunges after saying it receives Complete Response Letter (CRL) from the FDA for Plinabulin NDA; SAGE and BIIB announce positive one-year Zuranolone 50 mg data in the ongoing open-label SHORELINE study in patients with MDD; VBIV announces FDA approval of PreHevbrio for the prevention of hepatitis b in adults; BNOEF announces that the FDA has granted Fast Track designation to the BNC210 development program for the acute treatment of Social Anxiety Disorder and other anxiety-related disorders; KRYS 2.67M share Secondary priced at $75.00

·     Healthcare Services; PDCO posted Q3 EPS/sales beat ($0.58/$1.65B vs. est. $0.50/$1.58B) while boosts year adjusted eps view to $2.00-$2.10 from $1.95-$2.05 (est. $2.01); HUM reaffirmed its guidance ahead of investor presentation today

Industrials & Materials

·     Transports; The State Department tightened restrictions on travelers entering the United States late Tuesday as more countries around the world tweak regulations in order to tame the spread of the newly-discovered Omicron variant. Taking advice from the CDC and Prevention, travelers seeking to enter the U.S. must show a negative Covid test taken within the last day, compared to the previous three-day window. The CDC has also drawn a list of 80 countries deemed ‘Level Four’ risks for U.S. travelers and discourages visits by American citizens; LSTR raised Q4 forecast for EPS to $2.83-$2.93 from $2.55-$2.65 and revenue to $1.85B-$1.9B from $1.7B-$1.75B; in rails, UNP modifies fy21 guidance lowering volume growth to about 4%, productivity to about $250M and operating ratio improvement to around 150 basis points

·     Metals & Materials; in chemical sector, DOW guides lower after saying higher raw material costs in 4Q and lower pricing creates $150-200M ebitda headwind vs street consensus; in Paper sector, IP guided lower at Citigroup conference saying Q4 was adversely affected by issues at Prattville plant – volume loss and higher costs, with no set date for full recovery

Technology, Media & Telecom

·     Semiconductors; group strong behind earnings as GFS posted a strong beat and raise in its first quarter as a publicly traded company – forecast upbeat sales and profit on booming chip demand; AMBA spikes on quarterly beat as raise as revenue was guided to $90M at the midpoint (down 2.4% q/q and up 44.8% y/y), above the Street and our estimate of $88.2M, while gross margin was guided to 63.5% at the midpoint (up 40bps q/q and 40bps y/y), above est. 61.3%; Mizuho said they remain positive on handset suppliers QCOM and WDC with strong global 5G demand and improving content opportunities

·     Software movers; CRM shares slip following a mixed F3Q as current RPO growth of 23% Y/Y (+19% organic CC) was slightly above ests (22%) while revenue and operating margins showed upside, but forecast Q4 profit below estimates as competition in the cloud space intensifies; ZS reported a very strong quarter exceeding Street expectations as revenue and billings growth both accelerated against tougher comps amid momentum across its core products, ZIA and ZPA as well as emerging products, with the company calling out ZDX as seeing strong traction; more earnings tonight with CRWD all on deck to report

·     Hardware, Components & Services; HPE Oct-Q revenue of $7.354B was in line with estimates, while EPS of $0.52 beat Street by ~4-cents due to below-line items as co noted demand was strong, with orders up 9% q/q and up 28% y/y, but HPE was unable to deliver upside due to component constraints, which hit all segments, particularly Intelligent Edge; EGHT entered into a definitive agreement to buy software company Fuze for about $130M in cash and $120M in stock; NTAP posts Q2 beat and raised FY22 Public Cloud Services (PCS) ARR guidance to $510-540M vs. $450-500M previously; BOX delivered a strong 3QFY22 with revenue, EPS, and billings exceeding consensus estimates. Highlights include continued suites momentum (~30% of rev. attributed to suites), large deal activity (97 $100K deals +56% YoY), and meaningful net retention rate improvement (109%, +3pts QoQ/+6pts YoY).

·     Media & Telecom movers; T-Mobile USA, a direct wholly-owned subsidiary of TMUS to offer senior secured notes in a private offering; MTCH to pay $441M in settlement with Tinder found in valuation case; for Telco co’s (T, VZ), Oppenheimer said AWS Kicks Off re:Invent with Disruptive 5G Service saying the key takeaway: Negative for wireless and cable incumbents, as both enterprise and IoT are vital growth areas for 5G