Closing Recap

Tuesday, February 01, 2022

Equity Market Recap

·     U.S. stocks struggled for direction until a late day market melt-up added to recent stock market gains – though nothing like the recent volatility market participants have witnessed over the last few days, as investors await a busy night/week of corporate earnings. Note the Nasdaq came into the day up 8.77% from an intra-day low set late last week ahead of a big week of earnings with GOOGL, AMD tonight (but Nasdaq remains well below 200-day MA). Defensive sectors such as utilities and consumer staples were hit hard amid a recent rotation back into the high growth sectors/cyclicals that had been punished recently on rising interest rate hike concerns. With the FOMC meeting behind us, central bank focus turns to Europe this week with the BoE and ECB both set for rate decisions and comments on Thursday. Manufacturing data was disappointing as the ISM activity index fell to a 14-month low in January amid an outbreak of COVID-19 cases, with higher inflation, but showed labor improvement. A steady climb a day after the S&P 500 and Nasdaq each logged their largest two-day gains since April 2020. Note after 8 straight S&P sessions with at least one >100 point intraday day move – today’s range was slightly below that!

·     Stock & Sector movers: UPS surges to record highs and leads the S&P after its beat with strong guidance and a dividend raise; FDX follows higher along with broader Transports index; XOM soars to after its results with a div increase and $10B buyback, hits its highest levels since April 2019 along with the Energy ETF XLE as the sector outperforms yet again; NTR shares rise after saying they could boost production by up to 29% in coming years, depending on any sanctions facing rival producers in Russia and Belarus, also boosting other potash names MOS, CF; Homebuilders slip after several earnings within the sector: MDC 52-week lows, NVR red on misses; PHM shaky despite beat on top/bottom line; AT&T (T) rolls after saying it will spin off WarnerMedia to merge with DISCA and expecting to pay shareholders $1.11 dividend this year in dividends, down from last year’s $2.08; CRUS originally spikes after yesterday’s close on its earning beat and better guide, but shares open lower and stay weak all day on a cautious June qtr outlook; FUN rises after reports SEAS making a $3.4B takeover deal for Cedar Fair.

Economic Data (weaker):

·     The IHS Markit final U.S. manufacturing PMI decreased to 55.5 in January from 57.7 in December but rose from its preliminary reading of 55.0 (est. was 54.8); Data points to a deceleration as it came at the lowest level since October 2020. Market manufacturing sector final input prices index for January 80.0 vs flash 80.1 and final December 83.1

·     The Institute for Supply Management (ISM) said its index of national factory activity dropped to a reading of 57.6 last month, missing the est. of 57.5 and down from Dec reading of 58.8. That was the lowest reading since November 2020 and followed 58.8 in December. The ISM prices paid component of 76.1 for ISM is highest since August (when 79.4) and above Dec at 68.2 – the higher inflation reading weighed on mkt as well as overall ISM miss.

·     Construction spending for Dec rises +0.2% below consensus up +0.6% to $1.640 trln, vs Nov +0.6% from prior view +0.4%; Dec private construction spending +0.7%, public spending -1.6%

Commodities, Currencies & Treasury’s

·     Oil prices finish little changed as WTI crude edges higher $0.05 to $88.20 per barrel, staying close to a seven-year high ahead of weekly inventory data tonight and tomorrow (API/EIA) and an OPEC+ meeting this week. OPEC and its allies are expected to approve another modest oil-output increase this week, yet once again struggle to deliver all the extra supplies. The OPEC+ Joint Technical Committee (JTC) said today it expects the overall surplus in 2022 to reach 1.3 million barrels per day (bpd), slightly less than its previous forecast of 1.4 million bpd, – note the JTC met ahead of Wednesday’s ministerial meeting of OPEC+.

·     Gold prices edged higher to start the month, rising $5.10 or 0.3% to settle at $1,801.50 an ounce, adding to yesterday’s advance as the U.S. dollar retreated and ongoing tensions between the U.S. and Russia over Ukraine underpin safe-haven demand. Gold got a bounce on Monday after a handful of Fed speakers sounded much more dovish than recent comments which pressured the dollar and lifted metals prices.

·     Treasury yields were little changed by days end, with the 10-yr up slightly at 1.79%, while the shorter-term 2-yr was down around 1.16% (both pulling back off earlier highs following a higher inflation reading and mixed Fed commentary around interest rates). The U.S. dollar index (DXY) saw a modest dip as the euro recovers of more than 1-year lows last week ahead of the ECB policy decision later this week and after the Fed revealed their rate hike cards. Crypto assets were higher, but still only modest gains after the recent reset that saw Bitcoin, Ethereum prices fall more than 50% from record highs in January (Bitcoin last around $38K, Ethereum$2,750).

Federal Reserve comments

·     Fed’s Harker says if inflation stays where it is and starts to come down, he doesn’t see a 50-bps increase, but if there was a spike in inflation the Fed may need to move more aggressively. He also noted Fed is not behind the curve but needs to move now to try to control inflation while he said he supports a 25 basis-point increase in March.

·     Fed’s Bostic said U.S. inflation risks are being pushed to a permanently higher level if the Federal Reserve does not get the current bout of price increases under control. He said, "the mostly pandemic-induced episodic price pressures could grind on long enough to fundamentally alter expectations," and drive actual inflation higher.

·     Fed’s Bullard said in a Reuters interview that he would support a rate increase at March meeting and said would also prefer to raise rates at May meeting if he was deciding today noting that inflation is quite high right now – also said don’t think a 50 bps increase really helps us right now. He did say, “I think markets pricing in five hikes this year "is not too bad a bet."

Sector News Breakdown

Consumer

·     Retailers; news fairly quiet but in research, Cowen lowered price tgts for COLM to $110 (Prior $119) DECK $478 (Prior $494) ELY $26 (Prior $30) SKX $50 (Prior $57) YETI $104 (Prior $114) saying supply chain and China are biggest risks while expect Q4 upside to consensus but with limited positive estimate revisions for full year outlooks in nearly all cases; WISH edges higher early on mgmt changes; Cotton futures are at their highest levels in 10 years and up 60% over the last year – could put upward pressure on clothing/apparel prices (VFC, HBI); the January NICS firearm background checks showed 2.59M, down from the Dec figure of 3.098M and sharply lower YoY as well from 4.317M (shares of gun names SWBI, RGR, VSTO leveraged to data)

·     Auto sector; Chinese EV auto makers with monthly January sales numbers; NIO said deliveries rose 34% to 9,652 vehicles, XPEV said deliveries jumped 115% to 12,922 as cumulative deliveries surpassed 150,000 end of Jan and LI January deliveries rise 128% Y/Y to 12,268 vehicles; in research, ALV upgraded from Hold to Buy at Deutsche bank and up tgt to $123 from $117 as now view the supplier as offering one of the best ways to invest in the multi-year auto industry volume recovery ahead; in EV space, Cowen cuts tgts on BEEM $12 (Prior $37) BLNK $25 (Prior $40) CHPT $24 (Prior $37) EVGO $16 (Prior $22) QS $29 (Prior $36) and RMO $2.50 (Prior $4) saying while continued choppiness and limited visibility in 1H could translate to conservatism around ’22 top-line expectations, still think CHPT, EVGO and BLNK will deliver robust growth y/y; EVGO and Meijer Energize First of 5 New Public Fast Charging Stations in the Midwest; TM reported January 2022 U.S. Sales of 157,827 vehicles, down 5.1 percent on a volume basis

·     Housing & Building Products; homebuilders report as MDC misses on most metrics (EPS, revs below views), PHM Q4 EPS $2.51 vs. est. $2.31; Q4 revs $4.36B vs. est. $4.22B (but guided Q1 deliveries below street citing supply constraints); raises share repurchase authorization by $1B and gross margin on home sales rose to 26.8%, up 1.8%; NVR reports Q4 EPS miss and revs that fell -3.8% YoY; tools maker SWK with earnings and big stock buyback ($4B), while saying it sees about 60% of FY22 adj EPS in 2H sees about 13.5% of FY22 adj EPS in 1q sees high single digit FY22 tools & outdoor organic growth sees high-single-low double-digit FY industrial organic growth; LOW said it wants to attract more big-spending contractors, so it’s sweetening its rewards program and rolling out the perks; A recent study of national rent growth by rental listings site Zumper found that the median rent for one- and two-bedroom apartments has risen 12% and 14.1% respectively since January 2021 — a new all-time high – CNBC

·     Casinos, Gaming, Lodging & Leisure sector; in leisure, HOG upgraded from Underweight to Equal weight at Morgan Stanley with $40 tgt as positive on the turnaround from a margin standpoint and see the risk reward as more evenly skewed at today’s share price; in casinos, Macau’s January casino revenue fell -20.9% YoY, which was better than Bloomberg est. -30.5%; cruise lines (RCL, CCL, NCLH) saw early strength among top S&P 500 gainers; theme parks got a bounce late morning after Bloomberg reported that SEAS was said to have made a $3.4B takeover offer for FUN, saying the two are said to work with advisors on proposal https://bit.ly/349ABin (FUN later confirmed unsolicited non-binding proposal from SeaWorld).

Energy

·     Energy stock movers; XOM Q4 adj EPS $2.05 vs est. $1.95 on revenue $84.97B vs est. $85.01B, its dividend was raised to 34c/shr from 27c, it began a $10B buyback program, and it narrowed its CapEx forecast to $21-24B from $20-25B that compares to est. $17.87B; HP Q1 adj EPS loss (48c) was narrower than est. (51c) on revs $409.8M ahead of est. $392.9M and they said operating results were still negatively impacted by costs associated with reactivating rigs, though they expect a more moderate increase in Q2; Piper upgraded HLX, OII to OW; RBC added CNE to its best ideas list on the potential for stock-specific news-driven gain with ET joining it on the list as it is well positioned to generate meaningful cash flow growth as large-scale growth projects come online and capex is expected to slow, and these replace AZRE who was removed as it can be negatively affected from rising rates and a rotation out of growth and CNQ given its strong market performance on both an absolute and relative basis; IMO posted a quarterly profit that narrowly missed estimates, as extreme cold weather hit the company’s production.

·     Pipelines: EPD Q4 EPS 47c missed est. 54 on revs $11.37B vs est. $9.99B and Citi downgraded it to Neutral as it sees better value elsewhere and as part of its new relative pair trade of O/W ET and U/W EPD, and they also say WES remains an interesting Buy ratings, especially in light of a more positive stance on OXY; UBS downgraded CQP to Neutral on a more balanced risk/reward after the stock rallied ~21% over the last 6 weeks

·     Refiners: ETRN downgraded to Neutral at UBS  due to the belief that current fundamentals are priced in with increased uncertainty after the US Court of Appeals ruled against the Mountain Valley Pipeline last week, its elevated leverage, risk of a dividend cut, and a lack of near-term catalysts; Wells reiterated their bullish stance for the Independent Refining sector with VLO remaining their top pick and MPC, PSX, DK staying at OW

·     Utilities & Solar; Wells believes a scaled down version of BBB is more likely to pass and lists FSLR, PLUG, NEE, EXC and PEG as likely the biggest winners; WBX said it’s expanding its partnership with Uber nationwide so that drivers across the U.S. will soon have access to Wallbox’s discounted EV charging package

Financials

·     Banks, Asset managers: UBS posted qtrly net profit of $1.35 billion, down from $1.64 billion a year earlier, and also lower than the $2.28 billion reported the previous quarter, but bottom line was hit by an increase of $740 million in litigation provisions for a French cross-border tax case; BEN Q1 adj EPS $1.08 vs. est. $0.88 as assets under management $1.58 trillion, +5.3% y/y, and net inflows $29.9 billion vs. outflows $14.7 billion y/y

·     Insurance; KMPR reported quarterly operating EPS loss of ($2.05) widely missed consensus of ($0.52) amid worse-than-expected Non-Standard Auto Results ($1.70 miss) and worse-than-expected Preferred Auto Results ($0.33 miss; frequency/severity trends) – downgraded at Raymond James

·     FinTech & Payments; PYPL gets FinTech earnings underway starting tonight – seeing broad strength in beaten up sector with UPST, AFRM, GPN, FISV, SQ rising; FLYW upgraded to strong buy from outperform at Raymond James as the risk/reward has simply become too compelling to ignore (-44% over last 3 months vs. Russell 2000 –12%) noting has nothing to do with the fundamentals

·     Services, Consumer Finance; CACC Q4 adj EPS $14.26 vs. est. $12.69; Q4 revs $463.2M vs. est. $459.36M; said its provision for credit losses was $25.9M, down from $92.6M a year ago – but EPS beat was due to higher profit share on Gap insurance; LDI shares tumbles after missing top and bottom line for Q4 as EPS $0.09 vs est. $0.16 on revs $705Mm vs est. $714Mm; PBI shares tumble after Q4 EPS of $0.06 misses the $0.11 estimate and noted supply chain challenges and shifts in consumer buying behavior led to lower volumes

·     Bitcoin news; MSTR said in January, purchased about 660 bitcoins for about $25.0 million in cash at average price of about $37,865 per bitcoin; SI agreed to buy Blockchain Payments Network and other intellectual property assets from Meta Platforms Inc’s (FB) digital currency venture Diem Association

Healthcare

·     Pharma movers: AVXL said ANAVEX®2-73 (Blarcamesine) AVATAR Phase 3 trial met primary and secondary efficacy endpoint – while STAT News Adam F noted Anavex changed the primary and secondary endpoints of this Rett study on Jan. 18, allowing it to claim success when the drug most likely failed – called the press release entirely misleading; Bloomberg reported Private equity firms BX and CG are in talks about potentially teaming up on a bid for Swiss drugmaker Novartis’ (NVS) generics unit

·     Biotech movers: IONS downgraded to underperform from Buy at bank America as are broadly less bullish on the platform and overall risk/reward of the stock following yesterday’s setback to the Vupanorsen (ANGPLT3; LICA ASO) program; vaccine makers MRNA, BNTX, NVAX, seeing decent start to February after awful January sell-off; KOD shares rise after form 4 filing last night showed Holder Baker Bros Advisors LP Buys 347,665 shares

·     Healthcare Services, MedTech Equipment; WAT 4Q adj EPS $3.67 vs est. $3.47 on sales $836Mm vs est. $821Mm; guides 1Q22 constant currency sales +6-8% vs est. reported +3% and adj EPS $2.25-2.35 vs est. $2.38; sees FY constant currency sales +5-7% vs est. +5.5% and FY adj EPS $11.75-12.00 vs est. $11.78; PINC 2Q adj EPS $0.73 vs est. $0.65 on revs $379.2Mm vs est. $347.7Mm; guides FY adj EPS $2.45-2.55 vs est. $2.60 and revs $1.4-1.44B vs est. $1.4B; reports indicated JNJ and drug distributors (ABC, CAH, MCK) reach $590 mln opioid deal with Tribes

Industrials & Materials

·     Industrials, Aerospace & Defense; POWW guides Q3 revenues to $64.5M, below the $70M estimate, but an estimated 288% Y/Y increase compared to $16.6M; PLTR signs deal with satellite imagery firm SATL to use its Foundry platform to accelerate business; LII 4Q adj EPS $2.35 vs est. $1.99 on revs $965Mm vs est. $957.5Mm; guides FY22 revs +5-10% vs est. +6.5% and adj EPS $13.50-14.50 vs est. $14.01

·     Transports: UPS shares helped boost the Transport index after Q4 results beat estimates and FY22 revenue guidance also came in ahead of expectations, guiding to about $102 billion; FDX said it suspended its domestic express freight services due to a staff shortage as cases of the Omicron variant of the coronavirus rose; is suspending the economy domestic FedEx express freight, including FedEx two-day freight and FedEx three-day freight services; ARCB shares jumped after Q4 rev ($1.19B), adj Ebitda ($128.6M) and EPS ($2.79 vs. $2.27 est.) beats

·     Chemicals: lithium producers ALB and LTHM both upgraded to Neutral from Underperform noting shares have moved considerably off highs, at – 22% and -29% respectively, vs. -7% at the broader Materials index (XLB) and have also significantly underperformed many smaller cap peers, such as Pilbara and Allkem – notes underlying market has improved materially, with lithium prices rallying anywhere between 12% and 110% depending on the benchmark; AXTA reported 4Q adj. EBIT of $121mm, a touch below Mizuho’s estimated $123mm, but in line with the pre-announced range of $120-$125mm; SMG 1Q adj EPS loss ($0.88) wider than est. ($0.73) on sales $566Mm vs est. $561Mm; says to consolidate U.S. lighting manufacturing for Hawthorne into single location and to close another recently acquired assembly facility; GGG Q4 topped consensus (EPS 66c vs est. 63c on revs $539.6M vs est. $519.5M) and it guided Fy22 organic sales growth +HSD vs est. 7.3%; CBT Q1 adj eps $1.29 vs est. $1.11 on revenue $968M bs est. $870.5M, raised its FY adj EPS forecast to $5.50-5.90 from $5.20-5.60 and completely above est. $5.39, and said it remains on track to generate over $1B during the next three years; NTR shares rise after saying they could boost production by up to 29% in coming years, depending on any sanctions facing rival producers in Russia and Belarus (other potash names MOS, CF moved as well).

Technology, Media & Telecom

·     Semiconductors; CRUS surges initially after strong Q3 results (revs $548.3M vs. est. $510.4M) and guided Q4 revs $400M-$440M, well above the $355.8M estimate but analysts note cryptic messaging around seasonality for the June quarter expectations, which weighed on shares; NXPI Q4 EPS missed estimates on slightly better revs but announced a $2B share repurchase program and guided Q1 revs $3.03B-$3.18B above est. $2.96B; AMD earnings tonight after the close

·     Hardware, Software movers; AYX downgraded to Neutral from Buy and lower our PO to $65 from $84 at Bank America saying while continue to believe that demand for Alteryx’s core products (Designer and Server) remains healthy, the medium-term ARR/revenue growth algorithm for Alteryx includes two additional variables: (1) Designer Cloud demand; and (2) analytics platform demand; HLIT shares fell following a 4Q21 beat and a mixed outlook as one analyst attributed weakness to supply chain induced gross margin pressure while sales trends remain healthy

·     Media & Telecom movers; AT&T Inc (T) said it will spin off WarnerMedia in a $43 billion transaction to merge its media properties with DISCA AT&T will distribute shares of the new Warner Bros. Discovery as a dividend of $1.11 per share, down from $2.08 per share (cuts dividend which sunk shares); AT&T shareholders will own 71% of the new Warner Bros.; SIRI 4Q EPS $0.08 vs est. $0.07; guides FY22 adj EBITDA approx $2.8B vs est. $2.78B, revs $approx $9.0B vs est. $8.9B, self-pay net sub adds about +500,000 and FCF approx $1.55B; announces special dividend of $0.25 per share; AMC preliminary revenue and Ebitda for Q4 beat the average analyst’s estimates; GCI authorizes stock buyback of up to $100M and announces amendment to credit agreement