Closing Recap

Thursday, May 12, 2022

Equity Market Recap

·     Stocks finish mixed heading into Friday the 13^th (well off worst levels), with the S&P 500 hitting new 2022 lows and the Dow Jones Industrial Average now down -2,600 points during its 6-day losing streak as an apparent early market rebound once again petered out in further “sell-the-rip” action by investors. The S&P 500 is now down roughly 20% from its all-time highs, defined as “bear market territory” joining the Nasdaq and Russell 2000 in an all-out blitz on U.S. stocks. The Nasdaq 100 is down at least 30% from its high, which is the same decline as during the Feb-Mar 2020 crash according to one tweet. Every FAANG stocks is now down over 20% from its all-time highs now (AAPL, AMZN, FB, GOOGL, NFLX) with AAPL falling as much as 5% and MSFT 4% today. One of the market unknowns remain the crypto market as the amount of wealth destruction in just a few weeks in the crypto sector is staggering (Bitcoin, Ethereum, Litecoin, Luna, Tether) certainly weighing on market sentiment and adding to overall global economic recession fears. After hitting highs of 3.2%, the 10-year yield has fallen 4-straight days to around 2.8% as investors flee for the safety of bonds. The dollar at fresh 20-year highs sends metals lower. Today, more than 29% of issues on the NYSE have hit a 52-week low. On the Nasdaq, it’s more than 33%. There have been only 18 similar days since 1984, according to another released stat. Buying has completely dried up for the time being as markets brace for a recession (if not in one already) with the Fed in an all-out quantitative tightening (QT) cycle now after years of free and easy money policy, as they try and contain rampant inflation.

Economic Data:

·     Producer Price Index (PPI) M/M for April rises +0.5%, in-line with est. +0.5% while Producer Price Index (PPI) Y/Y for April rises +11.0% vs. est. +10.7%; on a core basis, PPI Ex: Food & Energy M/M for April rises +0.4% vs. est. +0.6% and core Y/Y for April jumps +8.8% vs. est. +8.9%

·     Weekly jobless claims rose to 203K in latest week from 202K prior week and above estimates 195K; 4-week moving average rose to 192,750 from 188,500 prior week; continuing claims fell to 1.343 mln from 1.387 mln prior week (est. 1.38M) and the U.S. insured unemployment rate unchanged at 1.0%

Commodities, Treasuries and Currencies

·     Oil prices rise $0.42 or 0.4% to settle at $106.13 per barrel, now up 5 of the last 7-sessions while Brent crude fell -$0.06 to $107.45 per barrel in a another up and down session. WTI crude drifted as high as $107 and as low as $102 on OPEC lowered outlook, inventory data, China lockdown fears, a 20-yerar highs U.S. dollar, and Russia/Ukraine war impact all playing a role.

·     Gold prices fall -$29.10 or 1.6% to settle at $1,824.60 an ounce in a broad sell off in industrial and precious metals as the dollar jumps (DXY +0.8% around 104.90). Spot silver fell 2.8% to $20.96 per ounce – it hit its lowest since July 2020 earlier in the session, while palladium slid 6.2% to $1,908.14, having earlier slid as much as 8.2% to its lowest since January at 1,867.68.

·     After hitting highs of 3.20% last week, the 10-year Treasury yield has fallen 4-straight days to around 2.8% as investors flee for the safety of bonds. The 30-year yield drops 5 bps below 3% and shorter term 2-yr falls over 10 bps to 2.52% as investors more fearful of market and place to put assets vs. the widely expected rate hike cycle.

·     The U.S. dollar rose to fresh 20-year highs amid ongoing concerns that tighter monetary policies to tame surging inflation will hurt the global economy dampened risk sentiment. The dollar index (DYX) approached the 105 level, its highest since December 2002, while the euro dropped 1.38% below 1.04 (lowest since Jan 2017). The yen rose 1% against the dollar but was not far from its lowest level since April 2002.

·     Bitcoin meanwhile fell to its lowest in 16 months as investors bailed further on risk assets. Bitcoin, the world’s largest cryptocurrency, dropped 3% to $27,584, after hitting its lowest since December 2020 of $25,402) and has lost a third of its value in the last eight sessions on massive declines in stable coins such as Tether. Terraform Labs, the company behind the Terra USD (UST) and Terra (LUNA) cryptocurrencies, briefly halted the Terra blockchain for two hours on Thursday following the Terra ecosystem’s meltdown this week, which caused its stablecoin, UST, to crash, taking with it the rest of the cryptocurrency market – TechCrunch. https://tcrn.ch/39X1GIl

Sector News Breakdown

Consumer

·     Retailers; TPR qtr beat across the board and lowered next qtr guide given China exposure and also authorized a new $1.5B buyback (had $350m left) – sees fy22 operating margin down over 70bp vs year ago – sees fy22 gross margin below year ago; DDS an outperformer post earnings results; DTC qtrly sales in line but DTC missed and was offset by wholesale as margins missed at 59.4% v est. 64.1% and guidance maintained $540-570MM sales; COOK posts Q1 Sales/EPS beat – helped primarily by a sales pull-forward from Q2, while sales trends into Q2 remain mixed; FOSL shares tumbled following its FY22 sales forecast revision, falls to 52-week lows

·     Auto sector; Ford (F) and GM both downgraded to underweight (double downgrade) as they are concerned 2022 could be the peak profits as Co’s will be forced to absorb battery-electric-vehicle (BEV) losses to meet high 2026 US regulatory hurdles; RIVN reported a softer MarQ at $95M vs. $131M consensus, as R1 preorders were 90k+ (as of 5/9), with the last ~10k preorders seeing stronger ASPs of ~ $93k/vehicle, almost 20% ABOVE current ASP estimates at ~$77k.

·     Consumer Staples; BROS slumps over 40% early after the drive-thru coffee chain’s guidance lagged estimates, Q1 EPS ($0.02) vs consensus $0.01, says Q2 comps will be flat to neg, and blaming gas prices from the spike in mid-March and FY SSS/EBITDA guide lowered meaningfully; BYND slides on wider Q1 EPS loss (-$1.58) vs. est. loss (-$1.01) and Q1 revs $109.5M below est. $112.3M; sees FY revs $560M-$620M vs. est. $588M; says operating environment continues to be affected by near-term uncertainty related to macroeconomic issues; UTZ beat on Sales & EBITDA with in line gross margin, but better sales drives beat and raised sales guide to 10-13% (prior 7-10%) – with org raise of 8-10% (prior 4-6%); NOMD rises after Co-Chairman Martin Franklin said he and the other co-chairman are reviewing alternatives; USFD reported earnings

Energy

·     Energy stock movers; energy stocks lagged as investors rotated into many of the beaten up technology names over the last few weeks, and selling winners (XLE); OPEC today cut its full-year 2022 world oil demand growth forecast to 3.36M bpd from prior forecast 3.67 mbpd in its monthly report citing impact of war in Ukraine, COVID-19 restrictions in China for demand downgrade and also cuts 2022 global economic growth forecast to 3.5% (previously 3.9%); in pipelines, PAA upgraded to Outperform at credit Suisse citing PAA now boasts one of the most compelling valuations on several metrics. Permian growth is mitigating re-contracting risk and expect accelerated capital returns in 2023 as PAA reaches its leverage targets.

Financials

·     Bank movers; financials again fail to bounce, in downtrend for last few weeks despite the significant bounce in Treasury rates and yield expectations (though yields dropped last 4-days); the lack of investment banking revs due to IPO pipeline drying up in 2022 remains an overhang, as well as possible declining trading revs given recent downdraft in stocks; big banks BAC, Citi, WFC, JPM and regionals PNC, FITB all lower

·     FinTech & Payments; MQ reported a solid 4Q print with a top-and-bottom line beat, reiterated its FY22 guidance, and introducing 2Q net revenue and TPV guidance above the Street but the 2Q margin guide (both gross and EBITDA) came in below expectations; saw a bounce/short squeeze in some of the hardest hit FinTech names over the last month with UPST, AFRM popping

·     Consumer Finance & Services; AXP and SYF both downgraded to Peer perform at Wolfe, and downgraded COF and DFS to Underperform as now models an 80% probability of a recession by 2024 and says credit card issuers with greater exposure to prime and super-prime credits are likely to come under further pressure amid the growing probability of recession; ZIP reported revenues ~3% above Street estimates with continued strong employer demand across industries and geographies and raised year guidance

·     Bitcoin news; the volatility in cryptocurrency-exposed stocks off the charts of late (COIN ) amid the sharp moves in Bitcoin and other stable coins. Digital tokens resumed declines after the collapse of the TerraUST stablecoin the last few days as well as Luna.

Healthcare

·     Pharma movers; large cap pharma holding up well of late with broader markets falling – MRK, BMY among them; BBIO signs exclusive license agreement with BMY to develop and commercialize experimental cancer drug BBP-398/eligible to receive up to $905M, including upfront payment of $90M and remaining in additional milestone payments and royalties; ADMA reported quarterly beat on revenue and issued upbeat outlook

·     Healthcare Services; WBA sells 6Mm shares of ABC at $150 per share and sees proceeds of $900m being used primarily for debt paydown – says no change to ongoing collaboration and long-term strategic partnership – WBA ownership of ABC decreased to about 25.2%; weakness in general for distributors CAH, MCK as well

Industrials & Materials

·     Transports, Aerospace & Defense; BA shares among the top drags in the Dow, falling for a 6th straight session after weak delivery orders this week sunk shares and rising recession fears weigh on industrial and materials; transports fell but finished better than some sectors

·     Metals & Materials; ag plays active with growing concerns of food around the world (Treasury Secretary Yellen repeats food crisis is `terribly worrisome’); WASDE reported that world soybean ending stocks 100m tons, corn ending stocks 305m tons and wheat ending stocks 267m tons; copper prices drop to their lowest in seven months to around $4.00 lb along with weakness in other industrial metals fell as traders worried that a slowing global economy would require less meta; (FCX, AA, CENX, CLF, X were weak); in chemicals, APD downgraded to EW from OW at Wells Fargo as confidence in its growth strategy, focused more on mega projects versus traditional industrial gas projects, driving multiple expansion going forward has been reduced; VVV shares rose initially following earnings results; ALB upgraded to OW from EW at Wells Fargo as sees a strong fundamental picture for the lithium industry unfolding through this decade as raises his 2022 and 2023 outlook

Technology, Media & Telecom

·     Media, Telecom, and Internet; DIS mixed results as Q2 adj EPS $1.08 below $1.17 consensus and revs $19.25B vs $20.03B on better Disney+ subscribers 137.7m vs 134.4m est. as Theme Parks upside were offset by lower OI in DTC and Content licensing; BMBL quarter was strong across the board with Revenue, ARPPU, and Adj. EBITDA margin beating the Street by 1%, 2% and ~50 bps, respectively. Total Paying Users missed but the core Bumble App Users; WBD upgrade to Outperform at Cowen and saying while they are still cautious on the highly competitive streaming space, think management’s approach to not trying to "win" the DTC spending war is a more sustainable strategy than we see from some peers; SQSP raised year rev view to $867M-$879M from prior $862M-$878M after better Q1 revs; WSJ reported that two senior executives at TWTR are leaving the company, a spokesman confirmed on Thursday.

·     Semiconductors; MU outperformed following comments at investor day; STM issued targets for the 2025-27 period ahead of the start of its capital markets day; expects to reach a goal of revenue of more than $20 billion sometime in the period which compares with revenue expectations of $14.8B-$15.3B for 2022; ON upgraded to Overweight and up tgt to $65 from $58 at Wells Fargo saying there is an opportunity for WOLF and ON and become top suppliers of SiC power devices to the electric vehicle market; early outperformance in equipment stocks KLAC

·     Hardware, Software movers; ZM downgraded to neutral from Overweight and cut tgt to $96 from $157 at Piper as see limited upside to paid video with adjacent products like Phone, CCaaS, and Rooms having a limited impact; APP rises following the company’s Q1 report and raised its FY22 Software segment revenue view by about $200M to $1.2B