Closing Recap

Wednesday, November 10, 2021

Equity Market Recap

·     U.S. stocks tumbled mid-afternoon, erasing an early rally as stocks finish lower for a second straight day with the S&P and Nasdaq posting their worst day in 5-weeks. Major U.S. averages were pressured initially after data showing that inflation (CPI) hit a three-decade high added to investors’ concerns about price pressures in the global economy. The Consumer price index (CPI) surged 6.2% in October, worse than expected and the highest since December 1990 as fuel prices soared 12.3% for the month. Still, stocks managed to recover off the news despite Treasury yields and the dollar rising. But early afternoon, a horrendous 30-year bond auction pressured markets as bonds tumbled, sending yields higher coupled with reports that China Evergrande Group today again defaulted on interest payments to international investors pushed stocks to their lows. The news sent the S&P 500 lower after ending an eight-day streak of record closes yesterday. Inflation hedges such as gold, silver and Bitcoin saw early buying momentum on the data (Bitcoin reached as high as $68.7K).

·     Stock/sector movers: RIVN makes its much anticipated debut at $106.75, well above its $78 IPO price that had already been raised from last week’s original $57-62 range; COIN slides on its revs miss with slowing trading volumes, TOST rolls despite its strong growth in its 1st report as a public company ahead of their lockup expiry tomorrow-Thurs, recent winner UPST plummets despite beat, LPRO plunges to YTD lows on lowered FY guidance, EPAY slips on EPS miss, while FOUR, RPAY surge after their results; SOFI, AFRM red into tonight’s reports; among “gig economy” names, FVRR soars on its beat and raise, DASH surges on its beat and acquisition of Finnish food-delivery startup Wolt, and OSH crashes to record lows on its quarterly miss; PRPL nosedives after receiving several downgrades on its miss and sustained manufacturing problems, FUBO tumbles as its large quarterly loss outweighed robust subscriber and revenue growth, NLS falls to 52-week lows, and WEN drops sharply to lowest levels since March on its same-store sales miss with lowered FY guidance in other post-earnings decliners.

Economic Data:

·     Inflation data “hotter” than expected as headline Oct consumer price index (CPI) rising +0.9% MoM topping the +0.6% estimate and on a YoY basis, jumped +6.2% above the +5.8% estimate; on a core basis (ex: food & energy), CPI MoM rose +0.6%, above the +0.4% estimate and jumped +4.6% on a YoY basis, beating the +4.3% estimate; U.S. Oct CPI food +0.9%, housing +0.7%, owners’ equivalent rent of primary residence +0.4%

·     Weekly jobless claims fell to 267K in latest week vs. est. 265K and down from prior week of 271K; the 4-week moving average fell to 278,000 from 285,250 prior; continued claims rose to 2.160M from 2.101M prior week; the U.S. insured unemployment rate unchanged at 1.6%

Commodities

·     Oil futures declined on Wednesday, with WTI crude falling -$2.81, or 3.3%, to settle at $81.34 a barrel, its first loss in four sessions amid a “risk-off” day for U.S. stocks on rising inflation fears. Prices fell sharply on the back of a weekly climb in U.S. crude inventories reported by the Energy Information Administration, while a sharp climb in the ICE U.S. Dollar index also weighed on dollar-denominated prices for oil. Traders also continued to weigh the possibility that the Biden administration will release oil from the Strategic Petroleum Reserve as the government looks for ways to ease prices of the commodity. U.S. crude inventories rose by 1 million barrels in the most recent week, short of estimates for a 2.1 million build in crude stocks, but still countering Tuesday’s API data that showed a surprising drop in stocks.

·     Gold prices jump, with Dec futures rising $17.50 or 1% to settle at $1,848.30 an ounce (but well off the earlier highs above $1,870 an ounce) amid bets on higher inflation. Gold prices extended its winning streak to 5-days and closed at the highest level in around five months after the CPI data early in the day showed that inflation hit a 30-year high in October and renewed fears that the recent rise in consumer prices may not be transitory.

Currencies & Treasuries

·     The U.S. dollar was strong, Treasury yields stronger! The U.S. dollar index (DXY) surpassed its recent peak, hitting its highest level since Sept. 25, 2020, up around 0.7% at 94.65. The buck hits session high against Japan’s yen, up around 0.9% at 113.92, while the euro (fell to 16-month low) and British pound fell over -0.7% following a big spike in inflationary data. The spike in consumer prices fueled speculation that the Federal Reserve may raise interest rates sooner than expected. If inflation doesn’t subside, the Fed may need to taper at a more substantial rate and hike interest rates, which could hurt stocks and bonds.

·     Treasury yields surged all day (still off very depressed levels), with the 10-year hitting highs of 1.59% following a dreadful Treasury auction (6bps tail), that send yields spiking. The spike in inflation is adding to worries the FOMC will have to raise rates sooner than expected, and coupled with the weak auction, bond selling accelerated. The U.S. Treasury sold $25B in 30-yr notes at a yield of 1.94% vs. when issued 1.888% prior, as the bid-to-cover stood at 2.2% from prior auction 2.36 and indirect bidders awarded 59%, down from prior 70.5% and directs 15.8%. Following the auction, the yield on the 30-year long bond rose nearly 10 basis points to 1.918%.

Sector News Breakdown

Consumer

·     Retailers; POSH shares tumble reported disappointing 3Q results and guided 4Q revenue and adj. EBITDA below prior forecasts as headwinds from IDFA impacted results to a greater degree than expected; PRPL also plunged as several analysts downgrade after its disappointing Q3 included a quarterly loss despite an expected profit and a revenue miss with guidance below consensus, and Piper downgraded peer CSPR (reports next week) to Neutral with a $3.50 PT from $8 in a read-through from this miss; WWW Q3 adj EPS 62c vs est. 60c on revs $636.7M vs est. $652.7M, and updated its full-year outlook for adj EPS to $2.05-2.10 from $2.20-2.30 (est. 42.28) and revenue to $2.4B at the upper-end of its prior range $2.34-2.4B; ELY Q3 adj EPS 14c vs est. 9c on revs $856M vs est. $845.6M, same-venue sales rose to about 100% of 2019 levels, guided FY net revs $3.11-3.12B above est. $3.01B and adj EBITDA $370-390M vs est. $380M; Gordon Haskett upgraded TJX, COST, BJ, TSCO to Buy and downgraded JWN

·     Auto sector; RIVN IPO priced at $78.00 as the deal size was increased to 153M shares from 135M and priced above the recently raised $72.00-$74.00 range as shares opened at $106.75 (with a higher valuation than GM and Ford); ADNT Q4 revenue $2.77B that fell -22.8% YoY and missed est. $3.09B as semiconductor supply chain disruptions, increasing commodity costs, and labor shortages impacted the quarter and are expected to persist through FY22, with their FY22 revenue guide $14.8B coming in below est. $15.67B; TSLA shares initially extended the week’s slide after Elon Musk’s Twitter poll ruled he should sell 10% of his stake over the weekend and amidst a second day of profit-taking in the EV space following Monday’s infrastructure bill-related gains, but shares quickly rebounded after falling below the $1,000 for the first time since October 25; NIO Q3 adj EPS (6c) and total revenues $1.52B (+116.6% YoY) beat estimates with vehicle sales more than doubling since last year, deliveries 24,439 were in-line with company’s guidance, sees Q4 revs $1.46-1.57B vs. est. of $1.75B; EVGO Q3 EPS 9c topped est. (8c) on revs $6.2M vs est. $5.4M, now sees FY revs $20-22M from $20M and throughput 24-26GWh from 24GWh, adj EBITDA ($58M)-($54M) from ($58M); VRM Q3 total revenue and its loss more than doubled from last year with adj EPS (70c) from (29c) on revs $896.8M from $323M, total units sold +89.6% to 31,192, ecommerce units sold +58.3% to 9,760 with ecommerce revenue more than tripling and wholesale revenue more than doubling; RIDE announced executive leadership changes with former GM, BMW, Ford exec Edward Hightower being named as its new President

·     Consumer Staples & Restaurants; COTY slips after announces sale of KKR’s remaining 2.4% ownership stake, as PE firm converts preferred shares into approx 20 mln common shares and sells at $10.50 per share; PFGC posted Q1 adj EPS 43c vs est. 42c on revenue $10.39B vs est. $10B, sees Q2 sales $12.7-12.9B vs est. $12.79B, FY22 sales $49.5-50.5B vs est. $49.3B; WEN Q3 adj EPS and revenue nearly matched consensus but its domestic same-store sales +2.1% missed est. +4.09% and margin 14.4% missed est. 16.6% due to higher labor costs, and it narrowed its full-year adj EPS range to 79-80c from 79-81c and fully below est. 82c; TWNK Q3 EPS adj EPS 21c vs est. 20c on revenue $288M vs est. $279.3M, raised FY revenue outlook to +9%-10% from +7.5%-9%; DNUT Q3 adj EPS in-line 6c on revs $342.8M vs. est. $337.7M; SKIN Q3 EPS ($1.68) vs est. ($0.02) on sales $68.1M vs est. $57M, raised full-year sales forecast to $245M-$255M from $230M-$240M, adj. EBITDA to ~$30M from ~$25M; GO Q3 EPS 17c and revs $768.9M missed consensus with comp sales -4.3% vs +9.1% last year, authorized a $100M share repurchase program, and sees Q4 comps falling 2.5-3.5%; TAST Q3 adj EPS (16c) vs est. (17c) on sales $421.7M vs est. $418M, comp sales for its Burger King restaurants +2.7%, Popeye’s -3.2%
NBEV Q3 EPS loss was narrower than expected but sales missed estimates; HSY acquired Dot’s Homestyle Pretzels and Pretzels, Inc. with the two deals totaling $1.2B

·     Casinos, Gaming, Lodging & Leisure sector; WYNN reported better-than-expected Q3 revenue of $994.5 million outpacing expectations of $940 million while an adjusted loss of $1.24 per share was better than the $1.40 per-share loss the street was expecting while Macau revs and Ebitda fell short of consensus ($181.3M/$12/1M vs. est. ests $251M/$30M); DASH shares jump on stronger 3Q21 results and sustained momentum into 4Q21 and after signed an $8 billion deal to buy Finnish startup Wolt to grab a slice of the European market

Energy

·     Energy stock movers; general weakness in energy space today, with OXY, FANG, HES, MRO among top S&P decliners; Keybanc with a quarterly earnings recap noting: Earnings reports from 37 U.S. E&Ps were generally good in 3Q21, as 60% of E&Ps beat on CFPS/EBITDA, 60% beat on 3Q21 production, and 76% came in below consensus 3Q21 capex. Additionally, 62% of E&Ps left 2021 production guidance unchanged and 76% of E&Ps left 2021 capex guidance unchanged. 26% of oil-focused E&Ps beat on 3Q21 oil production and 44% were in line; CNQ agrees to acquire Storm Resources (SRMLF), an oil producer in British Columbia’s Montney formation, for C$6.28/share in cash, valuing Storm at C$960M.

·     Pipelines: DCP was upgraded to Buy from Hold at Truist saying clearly the supportive commodity environment in 2021 has already served as a notable catalyst for the units year-to-date, as the firm raises ests; SMBC Nikko raised ests and price targets across most of their upstream and midstream coverage (LNG, PXD, ET, PAA, TRGP) as they factor in a combination of higher commodity prices, higher, but still moderate growth, and higher FCF available for increased buybacks and dividend growth

·     Utilities & Solar; solar stocks slip after FTCI Q3 revenue fell and loss per share widened; both missing ests while also lowers its 2021 revenue forecast to $239M-4249M, from its previous forecast of over $310M citing an abrupt delay of customer purchase order decisions from Q4 into 2022 (SEDG, FSLR, SPWR slip early); PLUG reported third-quarter revenue that was below expectations and said it would buy Frames Group.

Financials

·     Bank movers; financials one of few beneficiaries from the bounce in Treasury yields early, with large cap, midcap banks as well as insurance stocks leading; in asset Managers, BEN reported preliminary month-end assets under management of $1.5617T at October 31, 2021, compared to $1.5301T at September 30, 2021; IVZ preliminary month-end assets under management (AUM) of $1,593.7B, an increase of 4.3% versus previous month-end. Total net inflows were $18.8B; TROW preliminary month-end assets under management of $1.67T as of October 31, 2021. Client transfers from mutual funds to other portfolios, including trusts and separate accounts, were $3.1B in October; AB preliminary assets under management increased to $765B during October 2021 from $742B at the end of September; APAM preliminary AUM as of October 31, 2021 totaled $179.7B; CG 2M share Block Trade priced at $58.25

·     Bitcoin, FinTech & Payments; shares of Bitcoin leveraged stocks again outperform amid the surge in crypto assets following the higher CPI inflation reading (RIOT, MSTR slides from record highs the day prior after Q3 revenue falls short of consensus ($1.24B vs. est. $1.58B), reflecting reduced activity in the cryptocurrency market and was down from $2.03B in Q2 and Q3 MTUs of 7.4M slips from 8.8M in Q2 2021; MOGO Qtrly total revenue increases 58% year over year to $15.4M and 126% YoY growth in q3 subscription and services revenue to $9.5M; MARA out with quarterly earnings; PAY top and bottom line beat and follow through on guidance with 70.6 million transactions which was up 45% Y/Y, beating SMBC modeled 66mm considerably

·     Consumer Finance; UPST shares tumble after Q3 EPS and revs topped consensus but Q4 adjusted EBITDA guidance and adjusted net income indicate declines from the prior quarter as now sees adj Ebitda $51M-$53M vs. $59.1M in Q3 and Q4 adj net income of $48M-$50M vs. $57.4M QoQ; MA announces further expansion of Mastercard Installments, its unique Buy Now Pay Later (BNPL) program that delivers greater choice of flexible, digital-first payment options at checkout, both in-store and online; FOUR Q3 revs miss $377.8M vs est. $399.5M and mid-point of year guidance below views (FY2021 revenue $1.3-1.4B vs est. $1.38B), while Q3 payment volume $13.5b, +90% y/y and Q3 gross revs $377.8M, +76% y/y; GLBE Q3 revenues jumped 77% year-over-year to $59.1M, above the consensus of $55.66M while Q3 GAAP EPS loss of $0.19 was $0.03 above the estimates; LPRO better Q3 results while narrows year rev outlook

Healthcare

·     Vaccine related movers: VALN rises after saying that the European Commission has approved an agreement pursuant to which Valneva would supply up to 60 million doses of VLA2001, its inactivated COVID-19 vaccine candidate, over two years including approximately 27 million doses in 2022; MRNA shares fell after a German advisory panel said people aged under 30 should only receive the BNTX COVID-19 vaccine as it causes fewer heart inflammations in younger people than the MRNA

·     Biotech & Pharma movers: PRGO lowered its year EPS view to $2.00-$2.10, down from prior view of $2.50-$2.70 a share citing challenges including higher input costs and supply-chain disruption, and labor shortages; in cannabis space, ACB beat sales and EBITDA market estimates on the back of export strength (up 84% seq) and a lesser-than-expected drop in domestic rec sales; ACIU slips following phase 2 data on Alzheimer’s candidate semorinemab

·     MedTech Equipment; NUVA Q3 results in-line with its preannouncement while its EPS missed consensus and lowered 2021 revenue guidance given the miss and a variety of headwinds including procedure volume disruption from COVID and hospital staffing; ICAD reported a mixed 3Q, with sales of $9.4M (+31% YOY) missing consensus by $0.5M. Detection sales disappointed for a second straight quarter (-$1.2M),

·     Healthcare Services; GOCO shares rose initially despite lower than expected EBITDA on excess CCE costs, while RBC noted management delivered on its AEP preparation goals, with larger than expected, fully trained agent pool

Industrials & Materials

·     Industrial & Machinery; a day after announcing it would separate into three companies, GE price tgt raised by many analysts and was upgraded to Buy from Hold at Deutsche Bank (the plan to break up into three parts, consisting of a tax-free spin of GE Healthcare in early 2023, a tax-free spin of GE Power/Renewables/Digital in early 2024); MWA was downgraded to Perform on limited near-term earnings visibility at Oppenheimer; metals and mining stocks slumped (AA, CLF, X), giving back some profits along with industrials after recent gains post infrastructure bill.

Technology, Media & Telecom

·     Internet; FVRR posts Q3 beat with Q3 EPS $0.19 vs est. ($0.01) and revs $74.3M beating the est. $71.1M with higher Q4 rev guidance $74.5-77.5M vs est. $72.8M, citing YoY growth in number of active users as well as price spent per active user; Europe’s second-highest court dismisses GOOGL’s appeal against an EU antitrust ruling and 2.42 bln euro ($2.80 bln) fine saying the judgment relates to a very specific set of facts, will review it closely; BKNG upgrade from Hold to Buy w $3,060 pt at Argus as the travel industry continues to recover; CARG Q1 adj EPS 38c beat est. 32c on revs $222.9M vs est. $217.8M, guides Q4 adj EPS 28-30c vs est. 31c on revs $273-285M vs est. $222.3M

·     Software movers; RNG shares surge as delivered a strong 3Q with $21M in rev upside vs. cons and $31M of ARR upside vs. KeyBanc est. as ARR accelerated to 39% y/y (from 37% in 2Q21) led by Enterprise at 63% y/y (from 61%); Unity Software (U) shares slip after company said it will buy visual effects studio Weta Digital in a $1.63B cash-and-stock deal, offsetting a beat and raise quarter; PLTR downgraded to Underperform at RBC Capital based on government deceleration, commercial acceleration fueled by unsustainable SPAC investments, 30%+ growth hard to underwrite, and full valuation; SAIL soars as reported strong 3Q21 results, beating the high-end of guidance by 5.9%, highlighted by 71% Y/Y growth in SaaS revenue (27% of total); PUBM delivered across its platform growing impressions +100% with record NRR of 157% – strong with revenue and EBITDA well above expectations

·     Media & Telecom movers; Dow component DIS with earnings tonight; FUBO slides on larger EPS loss, while Q2 revenue beat of $156.7M was up 156% y/y and adj EBITDA Loss of $81.3mm was down 71% y/y on better EPS while raised its guidance again, for the 4th quarter in a row and added 263,000 subs during 3Q21, about 2x higher than Needham 136,000 sub est.; VMEO to acquire WIREWAX, a leader in interactive and shoppable video, and Wibbitz, a leading enterprise video creation suite; Frndly TV, founded two years ago by former DISH executives, said it had signed a deal with A+E Networks to carry seven of its networks; AAPL slipped after a U.S. judge denied AAPL’s efforts to pause orders handed down after an antitrust case brought by "Fortnite" creator Epic Games