Closing Recap

Wednesday, February 16, 2022

Equity Market Recap

·     Stock markets surged off lows (closed mixed) following the FOMC January meeting minutes where members spoke about a faster pace of rate rises in their looming rate rise cycle. The minutes showed that while the central bank intends to begin raising interest rates to combat inflation, it will make such decisions on a meeting-by-meeting basis. The headlines were nothing to get excited about, but also nothing exceptionally surprising/fearful than expected which was enough to push major averages sharply higher, erasing earlier losses and putting Bulls back in control as the S&P 500 once again topped its 200-day moving average resistance (key technical level). Stock markets continue to look past the surging inflation data after the producer price (PPI) jump yesterday to near record highs and the consumer spike last week (CPI) to 40-year highs, while data also showing decelerating growth. Inflation an issue all over the world, not just the U.S. after Great Britain overnight showed inflation rose to +5.5% YoY, its highest since March 1992, Retail Prices +9.9% YoY, highest since Mar 1991, and PPI Output +9.9%, highest since Sept 2008. Still, markets extended gains, also in the face of geopolitical concerns as the White House again warned today more Russian forces, not fewer, are on the Ukrainian border, and they are moving into combat positions, which is concerning (that a comment from US State Dept).

·     Stock and sector movers: several tech/media names hammered after earnings – SHOP plummets to lowest since June 2020 despite a quarterly beat as they see decelerating growth, RBLX plunges ~25% on its earnings miss and tough comps with the US/UK lifting restrictions, VIAC sheds over 20% after its EPS miss with streaming losses forecasted to peak in 2023, its rebrand to Paramount, and a Bank of America downgrade, WIX tumbles almost 30% at lows to complete a pandemic roundtrip and hit lowest since March 2020 on its miss and weak guide, TOST sharply retreats on its wide quarterly loss and weak EBITDA outlook, and AMCX sinks over 20% at lows despite its strong quarter; GNRC WAB CINF WELL among the S&P leaders after earnings, UPST surges to highest since Jan. 3 on its strong earnings, guidance, and buyback plan, KHC jumps on its beat; AKAM among worst S&P laggards despite a beat after it acquires Linode for $900M, LZB DENN other large decliners after they post misses; BKNG EXPE trading to record highs today as reopen stocks surge; ABNB HLT results helping online travel and reopen names; DIS also strong along with further SABR gains after earnings yesterday; CCL RCL NCLH cruise lines as CDC reduced its warning in response to a decline in onboard COVID-19 cases; social media names FB TWTR SNAP slide after GOOGL said it will follow AAPL and limit tracking by apps on Android phones.

Economic Data:

·     Retail sales rose an adj +3.8% in January from the previous month, far outpacing economists’ forecasts for a +2.1% increase (Dec revised to -2.5% from -1.9%), along with rapidly accelerating prices, with inflation jumping 7.5% on an annual basis in January. Retail sales x-autos rose +3.3% vs. est. +0.8% (Dec revised to -2.8%). January’s figure is a 13% year-over-year increase.

·     U.S. import prices increased by the most in nearly 11 years in January, rising 2.0% vs. est. +1.3% (after Dec fell -0.4%) amid a jump the cost of energy products and strained supply chains. In the 12 months through January, prices accelerated 10.8% after rising 10.2% in December. Petroleum prices surged 9.5%, while the cost of imported food accelerated 3.6%. Export prices advanced 2.9% in January 9vs. est. +1.3%) after dropping 1.6% in December.

·     Industrial production rose 1.4% v. est. +0.4% and vs. December unrevised at (-0.1%); Jan mining output +1.0% vs. Dec +1.5% and utilities output +9.9%; Capacity utilization jumps to 77.6% from 76.8% and vs. December at 76.6%

·     U.S. NAHB housing market index dipped -1 to 82 in January after slipping -1 to 83 in January. This is the lowest since October. The 84 reading in December was the best since the same 84 in February 2021. The index was at a record high of 90 in November 2020.

Commodities

·     Oil prices finish higher, but off best levels; WTI crude gains $1.59 or 1.73% to $93.66 per barrel (off highs $95.01), while Brent gains $1.53 or 1.64% to $94.81 per barrel. Prices moved back to the upside after the U.S. said earlier there was no evidence of Russia pullback off Ukraine borders. Natural gas rises 9.5% to settle at $4.717 mln Btus. Gold prices jumped $15.30 or 0.8% to settle at $1,871.50, bouncing back to 3-month highs and rising for the 11^th time in 13-days.

Currencies & Treasuries

·     U.S Treasury yields had a brief drop and pop after the 8:30 economic data, but yields finished higher with the 10-yr above 2.04% late day (little changed), while shorter-term 2-yr yield was down over 2 bps at 1.543% ahead of more data tomorrow. The U.S. Treasury sold $19B in 20-year notes at a yield of 2.396% vs. 2.396% when issued prior with the bid-to-cover at 2.44 and indirect bidders awarded 62.91% and directs 20.98% (a record). Treasury yields pulled back off highs following the release of the FOMC meeting minutes. The U.S. dollar (DXY) sunk to intraday lows around 95.70, down -0.3% following the release of the FOMC meeting minutes released, which Wall Street took as more dovish than hawkish initially.

Sector News Breakdown

Consumer

·     Retailers; CROX posted a Q4 EPS beat of $2.15 vs. est. $2.00 on slightly better revs but guidance weighs on shares as sees year adj EPS about $9.70-$10.25 vs. est. $10.11 and Q1 revs below views; in research, JWN downgraded to in-line from Outperform and Macy’s (M) upgraded to outperform from in-line at Evercore/ISI; heading into earnings season soon for retailers (WMT tomorrow); as Deutsche Banks said AEO, BBWI, M top ideas but lowers tgts for AEO, BURL, FL, GPS, JWN, KSS, M, ROST, TJX, URBN saying overall they expect in line reports for 4Q as the Omicron surge and higher than expected freight and supply chain costs are likely to keep a lid on any upside this quarter. Looking ahead, they anticipate 1Q guidance to come in below Street

·     Consumer Staples; grocers such as KR, SFM weak after retail major Ahold Delhaize beat Q4 market expectations but forecast a drop in earnings per share this year, and operating margin is expected to be at least 4.0%, compared with 4.4% in 2021; defensive food names among top S&P gainers amid unsure stock markets; KHC also posted a Q4 EPS beat for EPS and sales, while says expect q1 sales to be softer vs q2 because of the timing of Easter shipments

·     Restaurants: WING Q4 adj EPS 24c on revenue $72M missed estimates 31c on $73.5M with total domestic stores comp growth +7.5% above est. +6.67% – bone in chicken wing costs up 27.5% yoy; DENN Q4 also missed with EPS 16c vs est. 17c on revs $107.6M vs est. $111.8M, domestic comp sales +49% vs est. +49.6%

·     Casinos, Gaming, & Leisure sector; cruise operators CCL, NCLH, RCL add to recent gains after the CDC reduced its warning to level three from four in response to a decline in onboard COVID-19 cases, but still recommended that people who were not up to date with vaccines avoid cruises; SEAS said late Tuesday its offer to acquire amusement park operator FUN has been rejected and SeaWorld does not see a path to a transaction; in casino, WYNN reported a mixed 4Q21 result, with solid upside in Las Vegas and Boston offset by lower than forecast EBITDA in Macau (bad debt provision a drag) and to sell real estate of Encore Boston Harbor for $1.70B; CRSR will replace FMBI in the S&P SmallCap 600 effective the opening of trading on Friday, February 18; LVS was downgraded to BB+ at S&P, outlook negative

·     Lodging; ABNB shares jumped as Q4 revs jump 80% to $1.53B, topping the $1.46B estimate driven by rising domestic travel and longer stays, while strong demand pushed up prices charged by hosts; HLT Q4 adj EPS $0.72 vs. est. $0.74 on revs $1.84B slightly above est. 1.82B, system-wide comparable RevPAR -13.5% vs 4Q19 and -30% vs FY19, +104.2% vs 4Q20 and +60.4% vs FY20, sees FY22 net unit growth of ~5%; WH Q4 EPS 52c vs. est. 54c on revs $392M vs. est. $384.72M, adj EBITDA $131M vs est. $111M and U.S. RevPAR +9% vs 2019 levels, +58% vs 2020, sees FY22 adj EPS $3.28-$3.40 vs. est. $3.40 on FY22 revs $1.34B-$1.37B vs. est. $1.67B

Energy

·     Energy stock movers: concerns remain in Russia/Ukraine lifting oil prices; today OPEC president said oil supply now is not enough and they have to invest as quickly as possible so supply can meet demand; in earnings, DVN adj. EPS of $1.39 beat consensus estimates of $1.24 on a mix of items including strong production and lower opex / production taxes vs estimates. Total production of 611 Mboe/d topped management guidance of 583-601 Mboe/d; in pipelines, TALO and ENLC said they executed a memorandum of understanding to jointly develop carbon capture, transportation, and sequestration solutions in Louisiana.

·     Weekly inventory data showed: American Petroleum institute (API) reported weekly crude inventories fell -1.1M barrels, crude inventories at Cushing fell -2.4M barrels and gasoline inventories fell -0.9M barrels; the EIA said weekly crude rose +1.1M barrels vs. -1.572M consensus, -4.8M last week, Gasoline falls -1.3M barrels vs. +0.550M consensus and Distillates fall -1.6M vs. -1.463M consensus, -0.9M last week.

·     Utilities & Solar; SEDG guides Q1 revenues to $615M-$645M, above the $578.6M estimate following a top and bottom line beat for Q4, but BMO noted 1Q gross margins roughly 200 bps below expectations as cost pressures from the supply chain linger

Financials

·     Bank movers; sector continues to mover along with price of Treasury yields, as banks held up today early as the 10-year yield held above 2%; Compass Point still constructive on banks, upgrades CMA to Buy from Neutral with a price target of $115, up from $105, saying in a Q4 recap and Q1 outlook note on the group that he remains constructive on the banks; in FinTech & Payments; UPST shares jump as much as 35% overnight before paring gains as Q4 revenue more than tripled to $305M topping the $262.8M estimate and forecast Q1 revs $295M-$305M, above the $258.3M estimate

·     REITs; WELL reported normalized FFO of 83c (2c above the Street) and completed $1.5B in gross investments during 4Q21 including $1.4B in acquisitions and $142M in development funding; INVH reported Core FFO per share of $0.39 as results reflected higher-than-expected NOI, $342mm (A) vs $322mm (E), driven by a 66% NOI margin and new lease growth up 17% y/y; GEO will run a new U.S. pilot program that would place hundreds of migrants caught crossing the U.S.-Mexico border under house arrest, the U.S. Department of Homeland Security told Reuters

Healthcare

·     Pharma movers; MRTX slips after announcing that the FDA has accepted its NDA for adagrasib in 2L NSCLC with a PDUFA of 12/14/22, but feedback suggesting the timeline for the review is later than expectations; PACB reported 4Q21 results that were essentially in-line with its pre-announcement in January and placed 48 Sequel II/IIe Systems during the quarter; HOOK entered into an amended and restated collaboration and license agreement with GILD to advance the development of a novel arenaviral immunotherapy

·     Biotech movers; SAGE slides after Phase III Coral study meets primary and key secondary endpoints, though focus on durability – Wall Street raised questions about the durability of the experimental treatment for major depressive disorder that Sage is developing with BIIB said it is developing turkey mRNA manufacturing facilities based on a container solution to promote scalable vaccine production in Africa; Biotech space remains weak with the XBI down ~15% YTD while the S&P500 is down ~6%, which follows similarly poor relative performance of the biopharma/biotech sector in 2021 where the XBI was down ~20%

·     MedTech Equipment; MASI Q4 revenue of $323M and EPS of $1.21 (vs. $1.10 cons), with the results consistent with commentary from its mid-January preannouncement, indicating FY EPS would exceed guidance of $3.88. MASI also announced it would be acquiring Sound United, a consumer audio technology company, in a $1.025B deal; ATRC reported Q4/21 revenue of $73.2M (+26.8% Y/Y), in-line with its preliminary revenue announcement in early January and also re-affirmed its FY22 guidance ($315M-$330M) provided as part of the preannouncement

Industrials & Materials

·     Industrial & Machinery; GNRC Q4 adj EPS $2.51 vs. est. $2.40 on revs $1.07B vs. est. $1.02B, sees 2022 revenue growth 32%-36% that implies a midpoint of $5B vs est. $4.71B; VMC Q4 adj EPS $1.25 vs est. $1.20 on in-line revs $1.61B, sees 2022 aggregates shipments +5-+7% below est. +7.49% and adj EBITDA $1.72-$1.82B vs est. $1.76B; WAB Q4 adj EPS $1.18 vs est. $1.17 on revs $2.07B vs est. $2.18B, guides FY adj EPS $4.65-5.05 vs est. $4.87 and revs $8.3-8.6B vs est. $8.46B; OC reported a strong Q4 with adj EPS $2.20 and revenue $2.13B ahead of ests. $1.91 and $2.04B, sees Q1 YoY growth from 1Q20’s sales of $1.92B (est. $2B); MRC Q4 adj EPS 17c topped est. (2c) loss on sales $686M vs est. $685M and is targeting FY22 revenue of at least $3B (est. $3B) and adj EBITDA at least $190M (est. $182M)

·     Transports; GXO delivered strong 4Q21 results in its second quarter as a standalone publicly traded company as exceeded 4Q21 expectations from top to bottom and increased its 2022 guidance; airlines and other travel names outperform along with strength in reopen stocks; package delivery names remain weak with FDX falling; for railroads (UNP, CSX, NSC) North American freight railroad traffic turns positive, posting its first weekly gain of the year. Traffic rises 4.3% for the week ended Feb. 12 on a dozen reporting US, Canadian and Mexican railroads, with a 9.3% increase in carloads more than offsetting a 0.1% decline in intermodal units, data from the Association of American Railroads trade group show

·     Metals & Materials; in chemical space, CF earnings miss on top/bottom line, as Q4 EPS $3.27 below est. $3.55 and revs $2.54B vs. est. $2.63B while projects capital expenditures for full year in range of $500-$550M vs. est. $464M; CE downgraded to neutral from Overweight at Piper and cut tgt to $180 saying the company’s earnings growth will be slowed by supply chain issues, especially in autos, taking longer to resolve; shares of WLK, LYB, OLN outperform in chemical space amid oil and gas strength, follow thru strength off HUN results

Technology, Media & Telecom

·     Internet; social media stocks FB, SNAP, TWTR, PINS slump after GOOGL plans to adopt new privacy restrictions to curtail tracking across apps on Android smartphones, following AAPL in putting restraints on an advertising industry, including FB, that has covertly collected data across billions of mobile devices; SHOP Q4 adj EPS $1.36 vs est. $1.26 on revenue $1.38B vs est. $1.34B, GMV $54.1B vs est. $52.6B but sees headwinds in 1H22 due to the belief that the acceleration of e-commerce driven by Covid-19 will not repeat itself in the first half of 2022 and also forecast its annual rev growth will be below 2021’s 57%; WIX Q4 loss widened to (37c) per shares from (3c) YoY and vs est. (38c) on revenue $328.3M vs est. $331M, sees Q1 revenue $338-343M below est. $353.5M, and was downgraded to Neutral at Guggenheim; TTD Q4 ad EPS 42c vs est. 27c on revenue $395.6M vs est. $389.3M, sees Q1 revenue at least $303M and adj EBITDA about $91M, ahead of respective estimates of $287.2M and $80.9M; AKAM reported 7% normalized rev. and 10% EPS growth, respectively. 2022 guidance is a bit weak, at a normalized ~6% growth, with margins declining by 200 bps

·     Semiconductors; NVDA, AMAT earnings after the close tonight; ADI Q1 adjusted profit and revenue rose above expectations, provided an upbeat outlook and raised its dividend by 10%; LSCC results and near-term outlook beat consensus expectations handily with year-over-year growth metrics up strongly – margin and profitability metrics continue to improve with Q4 gross margin up 210 basis points on a year-over-year basis; IPGP upgraded from Hold to Buy w/ $170 PT at Stifel based on the fundamental view that IPG is diversifying and shifting away from the commoditized Chinese cutting market and the stock is likely at a bottom

·     Software movers; RBLX shares slide as posts a 20% rise in bookings in Q4 to $770.1M but was below the $772M consensus estimate while Q4 loss widens y/y to $143.3M from $58.7M; AYX posted a Q4 beat and above-consensus guide on revenue and ARR, and below-consensus EPS outlook due to dilution from Trifacta as large deal activity was particularly strong, resulting in a more heavily back-end loaded quarter than the weak 4Q20; TOST tumbles as reported strong 4Q results that came in above expectations on the top-line and in-line on EBITDA with 74% y/y growth in ARR, and 124% y/y growth in GPV, but issued light 1Q/FY22 guide on EBITDA; AI shares slipped as short seller SprucePoint Capital issued a strong sell call with 40%-50% downside risk; ZI Q4 adj EPS 18c vs est. 13c on revenue $222.3M vs est. $207.7M, sees Q1 revenue $226M-$228M vs est. $215.6M and FY revs $1.01B–$1.02B vs est. $982.2M

·     Media & Telecom movers; VIAC tumbles after Q4 adj EPS of $0.26 missed estimates of $0.43 on revenue $8B vs est. $7.5B; added 9.4M global streaming subscribers led by Paramount+ reaching over 56M subs as streaming revenue rose +48% YoY; announced name change to Paramount – was downgraded to Neutral at Bank America; DWAC shares active after former President posts on TRUTH Social platform; AMCX hammered early despite record revenue in 2021 and ended the year with more than 9 million paid streaming subscribers, posting fourth-quarter numbers that fell sharply from a year ago but blew past estimates.