Closing Recap

Thursday, December 02, 2021

Equity Market Recap

·     Stocks surged off oversold conditions, with major indices moving to its best levels late day as the Smallcap Russell 2000 rises nearly 3% after falling more than 12% from its record recently, while the Dow Jones Industrial Average rallied over 600-points, its best day since March as investors shake off interest rate and Omicron fears and once again “buy the dip”. The gains in the Dow came from financials, energy, and industrials such as Boeing and American Express. Technology shares rose despite weakness in Apple after reports the company warned component suppliers of slowing demand for the iPhone 13 lineup. Software stocks helped boost the Nasdaq behind better results from SNOW, CRWD, OKTA and ZUO. After briefly breaking below its 50-day moving average support yesterday, the S&P responded in strong fashion today. Markets remain very choppy/uncertain given the Omicron variant and its impact on growth, rising interest rate fears as the Fed turned more “hawkish” this week, and the upcoming debt ceiling (though Senator McConnell today said there won’t be a gov’t shutdown). Add to the mix possible increased China tensions after the U.S. SEC today moved a step closer to delisting Chinese companies with new listing requirements in place. Bespoke notes bullish sentiment has fallen 21.3 percentage points in the past three weeks. That is the largest three-week decline since March 2018. The AAII Bulls fall to 26.7% from 33.8%, while Bears rise to 42.4% from 35.7%.

·     Stock and Sector movers: AAPL takes a breather after Bloomberg reports the company is bracing its suppliers for lower holiday sales; shares of suppliers SWKS CRUS AVGO pressured on the report; BA higher after Chinese aviation authorities issued a directive that will allow the 737Max to return to service in its airspace, also boosting parts supplier SPR; KR soars to lead the S&P after its beat and raise report, lifting other grocers; COST slightly lower after November comp sales missed estimates; retailers active after earnings with DG, KIRK, LE sliding on results; OKTA jumps as its beat and strong guide draws a Piper u/g and CRWD rises after its beat in cybersecurity; other software reporters generally green as well: SNPS rips to ATH, ZUO rises on beats, SNOW soars on its revenue beat, SPLK bounces off yesterday’s 6-month low after its mixed results; AI posts a beat with raised guidance above consensus but plunges to all-time lows; reopen names rally from their recent Omicron-driven selloff; UBER LYFT bounces off yesterday’s 52-week lows after UBS initiates both at Buys, HLT DAL WYNN LUV MAR BKNG MGM among S&P leaders; shares of U.S. listed Chinese stocks BABA, JD, BIDU slipped after the SEC said U.S.-listed foreign companies must now disclose whether they are owned or controlled by a governmental entity, and must provide clarifying evidence of their auditing inspections certifications.

·     After hawkish rate commentary this week from Fed Chairman Powell to Congress and the Senate, Atlantic Fed President Bostic said today that tapering will allow greater flexibility on interest rate lift-off in 2022; says we do need to reduce bond purchases, says they have served their purpose. finishing taper by end of 1q22 would be good for Fed; says my interest rate path is to go slow and steady, get to neutral rate in late 2024, early 2025. There were several Fed speakers today (Daly, Bostic, Quarles, Barkin) all with similar echoed comments to Powell this week.

Economic Data:

·     U.S. Challenger reported announced layoffs declined -7.9k to 14.9k in November, largely unwinding the 7.1k cumulative increases in layoffs in September and October. This is the lowest monthly level of cuts since the 14.1k in May 1993

·     Weekly jobless claims rose to 222,000 in latest week vs. ests 240,000 and up from 194,000 prior week (revised from 199,000); the 4-week moving average fell to 238,750 in latest week from 251,000 prior week; continued claims fell to 1.956M from 2.063M prior week; the U.S. insured unemployment rate fell to 1.4% from 1.5% prior week

Commodities, Currencies & Treasuries

·     Oil prices were all over the place on Thursday, with WTI crude settling at $66.50, rising $0.93 or 1.42% after hitting earlier lows of $62.43 after OPEC+ said they would go ahead with planned January output rise. But given the “risk-on” trading attitude today, commodity prices rebounded along with stocks. The Organization of the Petroleum Exporting Countries and their allies, together known as OPEC+, decided to rollover their current policy and raise monthly overall production by 400,000 barrels per day in January

·     Gold dropped -$21.60 or 1.2% to settle at $1,762.70 an ounce, hitting lowest levels in about 7-weeks as markets hung on to the recently “hawkish” tilt in U.S. monetary policy that could rein in rising consumer prices. The Fed policy shift took some by surprise this week about stepping up the speed of paring back asset purchases. The U.S. dollar edged higher, rising 0.1% to 96.15 amid the stepped-up rhetoric by the Fed on rates.

·     Treasury yields edged higher, but mostly on the short-end of the curve, indicating an aggressive interest rate tightening cycle: CNBC noted that the 10-yr yield is roughly 28 bps off recent highs of 1.70%, while the 2-yr is only 2 bps off its recent highs of roughly 0.64% (around Thanksgiving) – right now it’s at 0.62%, up nearly 6 bps; 30-year yields are 42 bps off its recent high-water mark (last at 1.77%).

Sector News Breakdown

Consumer

·     Retailers; PVH Q3 adj EPS $2.67 vs est. $2.08 on revs $2.33B vs est. $2.4B, raised FY21 adj EPS view to $9.25 from $8.50; DLTH raises its 2022 profit forecast following its Q3 beat (raises FY21 EPS view to 81c-86c from 71c-76c vs. est. 82c and backs FY21 revenue $700M-$715M); LE lowers its FY21 EPS view to $1.04-$1.13 from $1.35-$1.51 (below est. $1.42) and also lowers FY21 revenue view to $1.64B-$1.66B from $1.67B-$1.71B (est. $1.69B); SIG boosts FY sales view to $7.41B-$7.49B from prior $7.04B-$7.19B after Q3 results; BKE reports November net sales up 35.9% to $117.3M, and comp store sales up 36%; EXPR Q3 sales $472M came in below est. $503M but shares popped on adj EPS 17c that blew past est. 2c and same-store sales +46% vs est. +30.2%; KIRK Q3 adj EPS 51c and sales $143.6M both missed consensus as they were impacted by inconsistent traffic patterns and broader supply chain constraints, and they project Q4 comps falling mid-high single digits due to continued constraints and a meaningful decline in e-commerce sales during Black Friday; REAL Nov GMV was ~146M, a 51% YoY increase and 46% jump from 2019, and avg order value ~$514, a +17% YoY and +10% vs 2019

·     Discount retailers: DG posted Q3 EPS $2.08 vs est. $2.01 on sales $8.52B vs est. $8.5B, comp sales -0.5% vs est. -0.6%, narrowed FY guidance ranges for EPS to $9.90-10.20 (est. $10.20) and net sales to +1-1.5% (est. +1.5%), added $2B to buyback program, announced 1k Popshelf stores by 2025 from the current 30; FIVE reported Q3 EPS 43c vs est. 29c, revs $608M vs est. $566.3M, comps +14.8% vs est. +5.4%, and guided FY EPS and revs above consensus

·     Retail research: Bank of America downgraded HIBB to Neutral with a new $88 target from $120 after lowering their FY24 EPS estimates due to seeing lower demand as they begin to lap significant consumer stimulus, Black Friday channel checks that imply more limited quantities with expected inventory availability headwinds, and rising freight and wage costs; UBS initiated buy ratings on AMZN ($4,700 PT), FTCH ($45), and EBAY ($80), Neutral ratings on MYTE ($30), SFIX ($30) and REAL ($17), a Sell on ETSY ($215)

·     Auto sector; Ford (F) was downgraded from Outperform to Peer Perform with $22 tgt (up from $17) saying since upgrading shares to Outperform in April, shares are up ~80% (+130% YTD) but now believe the stock now reflects the upside they expected; Wolfe upgraded auto supplier ALV to Outperform from Peer Perform as believe the underlying profitability has already been much better than it appeared, as they’ve mitigated massive margin pressure; CARS will replace DSPG in the S&P SmallCap 600

·     Consumer Staples; COST November sales increased 15.7% from last year to $18.13B, total comp sales +14.1% missed est. +15%, U.S. comp sales ex-gas +9.1% vs est. +11.4%; KR shares jump as Q3 adj EPS 78c topped est. 67c on sales $31.86B vs est. $31.18B, identical-stores sales ex-fuel +3.1% vs est. +1.23%, and now sees FY adj EPS $3.40-3.50 from $3.25-3.35; Kellogg (K) reaches an agreement with the union on a new five-year contract for its employees at a few of its breakfast-cereal plants, potentially bringing an end to a near two-month long strike; PFGC reaffirms its Q2 and FY 22 outlook which includes the impact of 10 months of Core-Mark’s business results; RLX rises as China’s tobacco regulator issues draft rules, further lifting the private e-cigarette industry away from a grey area and into the purview of the state

·     Casinos, Gaming, Lodging & Leisure sector; was a big day for the “reopen” sectors with big bounces in cruise (CCL), casinos (WYNN), theme parks (SEAS) and travel (BKNG); online travel space resumed at UBS as think a strong recovery can drive growth ahead of 2019 exiting 2022, with favorite name is Buy-rated BKNG ($2,838 tgt) and has Hold ratings on EXPE, ABNB, TRIP and TRVG, while also assume coverage of Online Advertising & launch coverage on eCommerce, Rideshare and Food Delivery as forecast accelerating rideshare revenue in 2022, with improving margins, for both UBER ($80 tgt) and LYFT ($60 tgt) both buy rate) and DASH with a neutral rating ($200 tgt); Loop Capital transferred coverage of lodging space, keeping prior ratings on HLT (Hold), MAR (Hold), and WH (Buy) but upgraded Hyatt (H) to a Buy and CHH cut to Hold – said are generally constructive on global lodging trends heading into 2022, but not forecasting a return to 2019 RevPAR levels until 2023

Energy

·     Energy stock movers; WTI and Brent crude prices fell initially after OPEC+ agreed to continue the previous policy of hiking output by 400,000 bpd in January (but prices rebounded off lows); CVX raises share buyback guidance range to $3B-$5B from $2B-$3B per year; announced a 2022 organic capital and exploratory spending program of $15B, at the low end of its $15B-$17B guidance range and up more than 20% from 2021 expected levels; CHK announced a $1B stock and warrant buyback authorization; RDS launched a $1.5B share buyback program; MUSA announced a new stock buyback program up to $1B

·     Utilities & Solar; RBC lowered their price targets on NOVA (to $58 from $61) and RUN (to $70 from $79) on decelerating California solar installation growth, but they still see a growing market opportunity and expect significant growth for both; BTIG sees gaining momentum in renewable energy and a commercial EV market that is ready to inflect, and their favorite 2022 ideas are FREY ($20 PT), ELMS ($15), WKHS ($14), REE ($20) in EV and energy storage, NETI ($25) in wind, and GTLS ($240), NFE ($60), and GLNG ($20) in LNG; BMO said EMRAF (Emera) investor supports their outperform rating and Top 5 Best Idea designation given its attractive growth guidance above Canadian peers, low-risk business profile, and its Florida utility assets; PNM, AGR active after majority of New Mexico regulators plan to vote against Avangrid’s purchase of PNM Resources and Citi said the deal is basically dead

Financials

·     Bank movers; TD to buy back up to 50M common shares; Q4 adjusted EPS C$2.09 vs. C$1.60 last year; reports Q4 adjusted revenue C$10.94B vs. C$10.42B a year ago; CLBK upgraded to Overweight from Neutral and raise tgt to $22 from $20 at Piper; in exchanges, CME November stats show overall ADV increased 20% year-over-year- Interest Rate ADV rose 40%, driven by SOFR futures ADV growth of 251%- Daily trading volume surpassed 25 million contracts eight times during the month of November; CLBK said it was buying RSI Bank, a New Jersey-based community bank; deal expected to close in Q2 2022 (RSI Bank had $620 mln in assets, $363 mln in loans, $510 mln in deposits, as of Sept. 30)

·     FinTech & Payments; SQ said it is changing its corporate name to Block Inc. from Square, with the change effective later this month, the company said Wednesday; KPLT shares slip after saying its gross originations over a two-month period were lower than 2020 levels; another broad-based selling day for shares of payment and FinTech names (high growth)

·     REITs and Services; PSA upgraded to Strong Buy with $375 tgt and CUBE upgraded to Outperform at Raymond James while reit OP on LSI (TP $145, +$10) saying self-storage continues to be the best-performing REIT sector in the post-pandemic world, though the recent good news seemed to have already been priced-in; GEO Board of Directors has unanimously approved a plan to terminate its Real Estate Investment Trust election and become a taxable C corporation and will no longer pay a dividend while lowers FY21 adjusted FFO view; WE said it would restate several quarters of its results, including its latest one, and that management has concluded there was a material weakness in its internal control; SLG boosts monthly ordinary dividend by 2.5% to $0.3108 from $0.3033 and declares $2.4392/share special stock dividend

Healthcare

·     Pharma movers; OMER agreed to sell its Omidria product to Rayner Surgical Group Limited in a deal that included an upfront payment of $125M with an additional $200M in a commercial milestone payments and w/royalties could exceed $1B; NVS said ahead of its R&D day that it expects sales to keep growing in the mid-term mainly thanks to its main in-market growth drivers, while several new assets could be approved by 2026.

·     Biotech movers; DCTH said results were positive in a Phase III Focus study for Hepzato in liver-dominant metastatic ocular melanoma as final analysis of the primary overall response objective, Hepzato further exceeded the predefined threshold for success with a median duration of response of 14 months (shares jumped initially before reversing; VIR rises along with GSK after saying early laboratory studies suggest their Covid-19 antibody treatment is effective against the Omicron variant, setting it apart from similar therapies that appear to work less well; NVAX tumbled after the vaccine company discussed its response to the Omicron Covid-19 variant saying it is conducting studies to evaluate multiple variants, and is "encouraged by our current and ongoing data, which shows efficacy and safety" with several variants.

·     MedTech Equipment; BRKR will replace KAR in the S&P MidCap 400; BSX initiates trial to evaluate industry’s first modular CRM SystemTrial studying communication between cardiac rhythm management devices aims to expand treatment options for patients who require an ICD; ABT and QGEN shares active after reports Private health insurers will be required to cover at-home COVID-19 tests, President Joe Biden was expected to announce, Reuters reports. Plan members could get reimbursed for over-the-counter tests, according to administration officials.

·     Healthcare Services; Jefferies initiated coverage in the Digital health space as highlight that the sector has lagged YTD as the economy recovers from the pandemic and as HC delivery and utilization becomes more normalized. Initiated with Buys on ACCD, DH, DOCS, GDRX, HQY, PHR, PGNY and RCMHold on AMWL, BBLN, HCAT, HIMS, TRHC and TALK. In addition, we assume coverage of VCRA at Buy and TDOC at Hold.

Industrials & Materials

·     Aerospace & Defense; BA a bright spot for the Dow Jones Industrial Average, with shares rising after China’s aviation authority issued an airworthiness directive on the Boeing Co 737 MAX that will help pave the way for the model’s return to service in China. The directive instructs airline operators on the revisions required before the MAX returns to service, although it does not specify when China will lift a ban on the MAX in its airspace (shares of parts supplier SPR rise)

·     Industrials and Materials; potash producers NTR, MOS advanced after earlier headlines that the UK announces new Belarus sanctions, including on Belarusian potash fertilizer producer OJSC Belaruskali; Britain, along with Canada and the U.S., imposed a new wave of sanctions on Belarusian individuals and entities

·     Transports; the Omicron variant still weighing on travel related names, as the JETS ETF comes into the day at 52-week lows; Freight Transportation industry view downgraded from In-Line to Cautious and downgraded USX to Equal Weight from Overweight and cut tgt to $10 from $12 and downgraded EXPD to Underweight with a $95 tgt (from $110) at Morgan Stanley saying the transportation cycle is probably closer to the end than the middle as thinks 2022 is likely to see momentum continue into the first half but then does not see significant upside to the cycle; the Baltic Dry Index extended gains to scale a one-month peak, helped by higher rates across all its vessel segments as the overall index, which factors in rates for Capesize, panamax and Supramax vessels, rose 68 points, or 2.2%, to 3,115. Capesize advanced 70 points, or 1.6%, to 4,534, its highest level since Oct. 28.

Technology, Media & Telecom

·     Software movers; CRWD reported strong FQ3 results with 67% ARR growth vs street 62% while guided FQ4’22 revenue slightly ahead of expectations (Q3 beat and raise); SNOW reported better than expected FQ3’22 results, outperforming on all key metrics and increasing its full year outlook as beat product revenue estimate by 10%, gross profit by 13%; OKTA rises on better than expected FQ3’22 results and guided FY23 slightly above expectations as beat street billings estimates by 3% and guided FY23 revenue 2% above forecasts; ESTC delivered a strong quarter with solid revenue growth and accelerating cc billings, driven by cloud adoption, strong customer adds and large customer momentum; VEEV falls as Q3 results once again exceeded expectations, although the magnitude of recent upside has moderated from recent quarters and the early FY23 revenue outlook is modestly below consensus; AI mixed results as posted smaller EPS loss on rev beat, up 41% y/y, the fourth quarter in a row of acceleration, billings of $31.2M, missing the consensus of $40.4M, but RPO of $465.5M, up 74% y/y and well above the consensus of $307.0M; ZUO with better-than-expected FQ3 results showcased solid execution across the board as net dollar retention rate expanded another 200bps sequentially to 110%

·     Hardware, Components & Services; Apple (AAPL) and iPhone supply chain pressured: Apple told its component suppliers that demand for the iPhone 13 lineup has weakened, people familiar with the matter said according to Bloomberg, signaling that some consumers have decided against trying to get the hard-to-find item. Last month, Apple’s main iPhone assembler, Hon Hai Precision Industry Co., predicted that its business will shrink this quarter from a year earlier — caused by declines in consumer electronics and computing — as it continues to suffer from the chip shortage. On Oct. 24, IQE Plc saw its shares fall 24% after it warned of softening smartphone demand, although the semiconductor company didn’t name any customer; semi suppliers to AAPL were weaker initially AVGO, SWKS, CRUS, TSM, QCOM

·     Internet; Bernstein noted key take away from software/internet cloud note is that the data for GOOGL is very worrying – says one quarter doesn’t make a trend, but GOOGL lost share of incremental cloud dollars for the first time; WB and SINA each announced stock offerings of 5,5M shares of ordinary shares; U.S. listed Chinese names BABA, JD, NIO, DIDI plunged in the afternoon after U.S. regulators move step closer to delisting Chinese companies