Closing Recap

Tuesday, February 22, 2022

Equity Market Recap

·     The market volatility and choppiness that has plagued investors over the last month was in full effect again today, tumbling throughout the morning amid uncertainty over the Russia/Ukraine conflict and as investors remain concerned over the growth, inflation, and Fed outlooks. All 11 S&P sectors were lower midday ahead of President Biden press conference on the Ukraine situation, falling over 2% for the Nasdaq and 1.7% for the S&P before his speech began at 2:22 PM on 2/22/22. Following the conclusion of his briefing, setting the first set of sanctions against Russia, markets responded with a swift move higher, paring losses in most sectors – but only to slide into the close with investors weary of being long overnight. Biden said he has authorized additional forces and equipment to bolster Baltics which are defensive moves saying the U.S. has no intention of fighting Russia. Biden says we will defend every inch of NATO territory. Biden said will begin to impose sanctions far beyond earlier ones including imposing sanctions on Russian elites, family members. The commentary comes on the heels of Russian forces having entered two separatist-controlled regions in Ukraine on Tuesday. The Ukraine headlines again dominated broader market action, ahead of another busy week of earnings.

·     Stock & Sector movers: HD posts a quarterly beat but shares tumble on weaker margins and an FY22 forecast of modest growth while Macy’s surges on its beat with a dividend raise and new $2B buyback authorization; Russia ETF plunges to 52-week lows after Ukraine headlines; Energy names HES MRO OXY FANG (eps tonight) outperforms as oil prices climb on the news; MDT DNUT jump, TPX rolls after earnings reports; gaming names WYNN PENN LVS among worst S&P laggards along with CZR into its earnings tonight; DKNG hits record lows since its Apr 23, 2020 SPAC debut after a Wells downgrade and several PT cuts following earnings Fri before bouncing to green; CMI acquiring MTOR for $36.50/share, a 48% premium to Fri’s close; SOFI stumbles after acquiring Technisys for ~$1.1B; HMHC soars 15% after being acquired by PE firm Veritas Capital in a $2.8B deal; AMD strong after Berenberg upgraded it to Outperform for the first time in almost a decade on attractive valuation.

Economic Data:

·     Consumer Confidence index for February 110.5 in-line with consensus 110.0 vs January revised 111.1 (previous 113.8); the consumer present situation index 145.1 in Feb vs Jan revised 144.5 (previous 148.2) and expectations index 87.5 in Feb vs Jan revised 88.8 (previous 90.8)

·     IHS Markit Feb. Services PMI at 56.7 vs 51.2 last month; Markit Manufacturing PMI Flash Actual 57.5 (Forecast 56, Previous 55.5); Markit Composite PMI Flash Actual 56 vs. prior 51.1

·     U.S. December 20-metro area home prices +18.6% from year ago vs +18.3% in November – S&P CoreLogic case-Shiller said as home prices in 20 metro areas +1.5% seasonally adj vs +1.2%

·     U.S. Home prices +1.2% in Dec from Nov with prices index 367.2 in Dec and Home prices +17.6% in 12 months through December

Commodities

·     Oil prices jump, with WTI crude up $1.28 or 1.41% to $92.35 per barrel but closes well off its highs of $95.82 per barrel (which was highest since 2014) late afternoon. Prices surged earlier after Russia ordered troops into two breakaway regions in eastern Ukraine, adding to supply concerns that are pushing prices towards $100 a barrel. European natural-gas prices jumped over 9% after Germany suspended the certification of the Nord Stream 2 gas pipeline in response to Russia’s actions. Russia is Europe’s largest gas supplier. Russia pumps roughly 80% of natural gas to Europe and is also responsible for about 10% of global oil production (as per CNBC).

·     Gold prices rise $7.60 or 0.4% to finish at $1,907.40 an ounce after earlier hitting its highest in almost nine months ($1,918.30) as investors sought the safety of precious metals waiting for more clarity in the Ukraine crisis. Escalating Russia-Ukraine tensions has boosted the appeal for safe-havens, lifting gold, silver, and other industrial metal prices too.

Currencies & Treasuries

·     The U.S. dollar was mixed, as concerns that conflict in Ukraine will add to already high inflation has led the U.S. Treasury yield curve flatter. The curve between two-year and 10-year Treasury yields flattened to 41 bps from 46 bps Friday. It reached 38 bps last Monday, which was the smallest yield gap since July 2020. The euro rose versus the dollar, after earlier touching its lowest level in a week, while the yen rallied late day as well.

·     Treasury yields edged lower throughout the trading day to around 1.92%, but off morning lows around 1.85% for the 10-year as haven asset buying gripped hold of bond markets amid the ongoing Ukraine/Russia conflict. The 10-year yield fell off multi-year highs above 2.06% last week as Fed rising interest rate concerns take a back seat for the time being. The U.S Treasury sold $52B in 2-year notes at a yield of 1.553% vs. 1.559% when issued prior, with a bid-to-cover at 2.64, down from 2.81 prior auction and indirect bidders awarded 65.5%, directs 18.77% and primary dealers a record low 15.65%. Bitcoin prices bounced off 2-week lows of $36,500.

Sector News Breakdown

Consumer

·     Retailers; Macy’s (M) Q4 adj EPS $2.45 tops consensus $1.99 on revs $8.67B ahead of est. $8.47B, comparable sales +28.3% on an owned basis vs 4Q20 and +6.6% vs 4Q19, sees FY22 adjusted EPS $4.13-$4.52 vs. est. $4.06 and authorized a new $2B buyback authorization; DDS Q4 EPS $16.61 beat est. $11.43 on revs $2.11B vs est. $2.05B, comps +37%, inventory -1%, gross margin 41.4% vs 31.9% YoY; TPX Q4 adjusted EPS 88c and revs $1.36B missed estimates 96c on $1.45B, raised quarterly dividend to 10c/share from 9c, sees FY22 EPS $3.65-$3.85 vs. est. $3.76 and sales growth +15-20%; Cowen increased estimates for TJX while lowering them and the PTs on BURL, ROST in off-price and their top picks remain DKS, RL, LULU; JPMorgan raised their PT on DLTR to $181 from $169 after raising their Q4 estimates to ahead of consensus

·     Auto sector; VC upgraded to Buy from Neutral at Goldman Sachs and raise tgt to $156 from $119 as believes that both company specific and cyclical factors will contribute to strong revenue and earnings growth; GT downgraded to Hold at Jefferies saying its cash flow warning was a disappointment as deleveraging is a crucial part of the equity story; Volkswagen AG is preparing an initial public offering of Porsche, seeking a listing of its most profitable asset to help boost the parent’s valuation and fund the push into electric vehicles as pre reports

·     Housing & Building Products; HD reported Q4 EPS and sales beat (Q4 EPS $3.21 vs. est. $3.17; Q4 revs $35.72B vs. est. $34.87B) on better comps as overall com sales +8.1% top estimate +5.27% and U.S. comps +7.6% vs. est. +5.36%, but margins raise concern; AWI results were mixed versus the Street for 4Q21 while guidance points to more double-digit gains in 2022; JELD posted reported mixed results with a top line beat but a bottom-line miss as the usual suspects of higher raw material, freight and labor inflation were the cause, with in-line 2022 guide on better Ebitda; BLD Q4 net sales jump 47% y/y to $1.06B topping ests $1.02B as margins rose (adjusted gross margin 28.1% vs. 27.5% y/y) and better EPS of $3.12 vs. estimate $2.92; DOOR Q4 adj EPS $2.01 vs. est. $1.94; Q4 revs $636M vs. est. $660.16M; sees FY22 adj EPS $9.10-$10.05 vs. est. $9.74; sees FY22 revenue growth 6%-10%; announces $200M additional share repurchase program

·     Consumer Staples: At CAGNY, MO reaffirmed its FY22 adj EPS guidance to be $4.79-$4.93, representing a growth rate of 4% to 7% from an adjusted diluted EPS base of $4.61 in 2021 and GIS also reaffirmed FY22 guidance for organic net sales +4-5% but sees results weighted in the back half with Q3 growth only +2-3% and adj operating profit down high-single digits to low-double digits YoY for the qtr due to acute supply shortages in North America; Argus upgraded SYY to Buy as it offsets lower sales to restaurants and hotels by cutting costs and focusing on sales to grocery stores, which are seeing stronger sales; KHC reiterated FY22 adj EBITDA guidance but raised long-term growth targets for organic net sales to +2-3% from +1-2% and adj EPS to +6-8% from +4-6%; FAT tumbles after reports its CEO under investigation

·     Restaurants; DNUT Q4 adj EPS 8c vs est. 9c on revs $370.6M vs est. $363.7M and introduced FY22 guidance for organic revenue growth +10-12% (ahead of long-term outlook of +9-11%) and adj EPS 38-41c vs est. 46c on revs $1.53-1.56B vs est. $1.55B; CBRL Q2 adj EPS $1.71 est. $1.61 on revenue $862.3M vs est. $866.1M with retail comp sales ahead of consensus but restaurant comps falling short; OpCo reiterated that PZZA represents a high-conviction top pick for 2022 and would take advantage of the 14% YTD pullback (vs. S&P 500’s -8.8%) into 4Q21 results 2/24; DIN raised its qtly dividend 15% to 46c/share and authorized share repurchases up to $250M; activist investor Carl Icahn nominated two directors to the board of MCD after his recent criticisms over the chain’s treatment of pigs; Bank of America added SBUX to its US 1 List

Energy

·     Energy stock movers to the upside on oil spike on supply disruption concerns with ongoing Russia/Ukraine situation; APA Q4 adj EPS $1.29 vs. est. $1.47; Q4 revs $2.3B vs. est. $1.92B; qtrly adjusted production, which excludes Egypt noncontrolling interest and tax barrels, was 331,000 boe per day; capital spend should return co to around 2019, pre-covid production levels on an adjusted basis in 2024; REI reported Q4 sales volumes of ~9.2K barrels of oil equivalent per day (85% oil), up 11% from Q3 and resulting in 2021 sales volumes of 8.5K BOEPD (86% oil)

·     Pipelines: Germany halted the Nord Stream 2 Baltic Sea gas pipeline project, designed to double the flow of Russian gas direct to Germany, after Russia formally recognized two breakaway regions in eastern Ukraine; WMB Q4 adj EPS $0.39 vs. est. $0.34; Q4 adjusted EBITDA $1.483B; expects 2022 adjusted ebitda between $5.6B-$6.0B; expects 2022 growth capex between $1.25B-$1.35B; dividend guidance increased 3.7% on an annualized basis to $1.70 in 2022 from $1.64 in 2021

·     Refiners: MPC oil refinery near New Orleans exploded into flames on Monday, threatening to crimp fuel supplies and raise pump prices at a time of already rampant inflation (the Garyville, Louisiana, plant is one of the nation’s largest and a key supplier of gasoline, diesel, and other fuels); Piper said PSX, VLO, PBF, best positioned in refiners while HFC offers the most idiosyncratic upside

·     Utilities & Solar; PPL upgraded to OP at RBC Capital taking advantage of the stock’s 7.2% decline on Friday following the company’s dividend cut announcement as upgrade reflects our belief that PPL will be successful in acquiring Narragansett Electric Company (NECO).

Financials

·     Bank movers; once again moving in tandem with treasury yields as financials slip as yields edge slightly higher, but below last week best levels; Treasury yield curve flattens as oil price jump adds to inflation fears; in financial Services: VRSK agreed to sell Verisk Financial Services, its financial-services unit, to TransUnion (TRU) which also reported Q4 adj EPS $0.81 vs. est. $0.91; Q4 revs $790M vs. est. $796.33M; sees FY22 adj EPS $3.84-$4.00 vs. est. $4.07; sees FY22 revs $3.752B-$3.81B vs. est. $3.68B

·     Lending, FinTech & Payments; SOFI entered an agreement to acquire Technisys, a cloud-based banking platform, in an all-stock deal valued at about $1.1 billion. Technisys shareholders will receive about 84 million SoFi shares, or less than 10% of its fully diluted share count as of Sept. 30; RKT downgraded to underperform from Neutral at Bank America and cut tgt to $11 from $21

Healthcare

·     Biotech movers: ADGI slips after the biotechnology company announced its CEO succession plan and outlined strategic initiatives for Co’s adg20 program; FIXX tumbles after the FDA notified the company that its pheNIX gene therapy trial of HMI-102 in adults with phenylketonuria (PKU) has been placed on clinical hold; KPTI shares fall after its medical chief decided to step down to pursue other opportunities; OCGN said the FDA has lifted its clinical hold on its investigational new drug application to evaluate the Covid-19 vaccine candidate known as Covaxin

·     Pharma movers: ABBV submits Vraylar sNDA for adjunctive treatment of depression; NVCT rises after positive data for NXP900 in triple negative breast cancer preclinical models with an Integrin-Linked Kinase (ILK) Loss; LLY launched the Lilly Institute for Genetic Medicine and announced an investment of ~$700M to establish a facility at a new site in the Boston Seaport

·     Healthcare Services, MedTech Equipment: MDT Q3 EPS $1.37 vs. est. $1.36; Q3 revs flat y/y to $7.8B vs est. $7.88B while grew 2% organic revs; qtrly cardiovascular revenue of $2.745 bln increased 1% as reported and 3% organic; qtrly cranial & spinal technologies revenue of $1.102 bln increased 2% as reported and 3% organic; SNN named a new CEO, and meets its annual profit and sales expectations; HUM said it will name two independent directors agreed upon by the health insurer and activist investor Starboard Value, while reiterating its long-term adjusted profit forecast of 11% to 15% growth.

Industrials & Materials

·     Industrial & Machinery: defense stocks LMT, NOC, LHX, HII active, exhibiting positive sensitivity to rising Russia-Ukraine tensions; CMI agreed to acquire MTOR for $2.6B in cash, with holders to receive $36.50 per share, a 48% premium to Friday’s closing price https://on.mktw.net/3v6HNa6 ; ALSN downgraded to Neutral from Outperform at Credit Suisse as believe the market appropriately recognizes ALSN as a high-quality industrial with above average margins and returns, but with the stock up 12% year to date and more limited upside they prefer CMI, PCAR Q4 adj EPS $0.42 vs. est. $0.44; Q4 revs $152.9M vs. est. $146.7M; sees FY22 adj EPS $1.25-$2.15 vs. est. $2.21; sees FY22 revs $570M-$630M vs. est. $564.07M

·     Transports: GXO reached a preliminary agreement to buy Clipper Logistics Plc for about 943 million pounds ($1.28 billion) in a deal that would combine two global supply-chain management giants; EXPD posts Q4 revs that top consensus but also operating losses of -$623.55M vs. profit of $282M y/y; Cowen said they continue to recommend investors be exposed to the trucking sector as are a believer in a longer cycle and our base case calls for supply chain disruptions to continue throughout the year (easing in 2H), demand to remain positive, inventories build to go beyond prior levels – favor ARCB, CVLG, DSKE, HUBG, KNX, and TFIIannounces expansion of field management training in North American less-than-truckload business

·     Metals & Materials; shares of aluminum and nickel producers (AA, ARNC, CENX, KALU, CSTM) active on surging prices of the metals overnight on Russian supply threat after Russian President Vladimir Putin recognized breakaway regions in east Ukraine and sent troops into the area; in rare earth, MP shares active after Bloomberg noted President Biden Seeks to boost rare earth element extraction in U.S. White House, as California Governor jointly announce investment Pentagon to award Las Vegas-based miner $35 million award

·     Chemicals: DD mentioned positively in Barron’s saying CEO Breen is shedding old businesses and buying new ones as he seeks to juice the performance of the stock, which has gained 14% to a recent $78.77 over the past 12 months and still looks reasonably priced; CE downgraded to underweight at Piper, just a week after downgrading to Neutral saying they sees a sizeable element of risk and uncertainty from the DuPont (DD) transaction as it raises considerable risk

Technology, Media & Telecom

·     Internet: BABA slides after Bloomberg reported over the weekend that China tells banks, state firms to report exposure to Jack Ma’s Ant; YNDX, which operates an Internet search engine and web portal in Russia, plunges amid intensifying tension between the West and Russia over Ukraine; shares of ETSY, FB hitting 52-week lows; GOOGL has now fallen 14.7% since gapping up 10% to an all-time high after earnings on 2/2

·     Semiconductors; AMD upgraded to Outperform from Market Perform at Bernstein after noting been very wrong, with first OP rating of stock in 10-years; not much in way of news for the volatile chip sector with earnings mostly behind the group

·     Software movers: sector was among better performers early in the session with rebounds for large caps like CRM (down 22% YTD) and ORCL (down 15% YTD) before slipping; DDOG upgrade from Buy to Conviction Buy t Goldman Sachs as are incrementally more positive given growth can continue to outpace the overall observability market as cloud adoption remains nascent, Datadog is well positioned to succeed outside of its core products

·     Media & Telecom movers: TGNA to be acquired by an affiliate of shareholder Standard General for $5.4B, with holders to receive $24 per share, a premium of about 15% to Friday’s closing price https://on.mktw.net/3sV8rAh ; DWAC shares rise initially after Trump’s new social media venture, Truth Social, launched late on Sunday in Apple’s App Store; the App was among top downloaded on Apple App store on Monday; CMCSA said NBC draws lowest Olympics ratings ever with Beijing Games; TV viewership dropped 42% from 2018; ‘This was probably the most difficult Olympics of all time; IRDM upgraded to Overweight at Barclays and raise tgt to $47 from $42 saying recent results show that in a post pandemic world, its growth engines are intact thanks to structural growth in demand and its competitive challenger position; LTRY signs an exclusive deal with TMUS for in-vehicle advertising