Closing Recap

Wednesday, November 24, 2021

Equity Market Recap

·     Stocks edged higher most of the day, erasing overnight declines as investors took the two-day sell-off on rising Treasury yields/interest rate expectations as another buying opportunity, with stocks closing near the highs of the day. U.S. stocks slipped overnight on possible increased Covid restrictions in Germany, while treasury yields pushed higher, with the 10-year yield nearing/but failing at the 1.7% level again (3^rd time this year). If you like economic data, today was the day for you with over seven data points that impacted markets (three days of data rolled into one due to Thanksgiving Day tomorrow and short day for markets on Friday) including: slightly slower growth (GDP) a plunge in weekly jobless claims to lowest levels since 1969, an unexpected decline in durable goods orders, a weaker new home sales print for Oct, rising personal income, improving sentiment and higher inflation data (PCE) on a MoM basis. Pressuring equities this week has been a surge in bond yields, as investors viewed the nomination of Fed Chair Jerome Powell as potentially leading to a tightening in monetary policy and rate increase sooner than expected (which was evident in today’s FOMC minutes). Reminder stock markets are closed tomorrow and have an early close of 1:00 PM ET on Friday.

·     Stocks pulled back (briefly) off highs mid-afternoon following the release of the November Fed meeting minutes which showed various participants noted that the committee should be prepared to adjust the pace of asset purchases and raise the target range for the federal funds rate sooner than participants currently anticipated if inflation continued to run high. The comments should come of no surprise to markets, but nonetheless weighed on sentiment for a few moments before extending gains back near highs.

·     Stock/sector movers: GPS, JWN crater after each receives downgrades on earnings misses with guidance below consensus, dragging other luxury names TPR, RL lower; shares of GES spike after its beat and dividend raise; HPQ soars to record highs as the S&P leader, PSTG surges to record highs, DELL, VMW rally after each posted top and bottom line beats; PLAN, ADSK plummet to 52-week lows as their EPS and revenue beats were overshadowed by weak billings and guidance; DE jumps after posting a Q4 beat with expected growth in FY22; ETSY outperforms, among the S&P leaders after Wedbush and Citi raise their respective price targets a day after Guggenheim initiated with a Buy rating; CVX upgraded at RBC Capital; DVN, FANG, MRO, BKR energy among leaders in the S&P 500 as oil prices rise; financials among top decliners as treasury yields slip.

Economic Data:

·     GDP data slightly weaker as prelim Q3 GDP reported at 2.1% from 2%, but was below estimate of 2.2% (Q2 GDP final was 6.75); the Q3 PCE price index rises +5.3% and core PCE +4.5%, both in-line with estimates; Q3 consumer spending +1.7% vs. prior +1.6%; durables -24.4% vs. prior -26.2%; Q3 business investment +1.5% and equipment -2.4%

·     Weekly Jobless claims fall sharply to 199K (lowest since 1969) vs. 260K expected and well below the upwardly revised 270K level last week; the 4-week moving average fell to 252,250 from 273,250 prior week; continued claims drop to 2.049M from 2.109M and U.S. insured unemployment rate fell to 1.5% from 1.6% prior

·     Durable Goods Orders for Oct unexpectedly declined -0.5% vs. +0.3% expected and -0.4% prior, while Durables ex: transportation/new orders rise +0.5% vs. +0.5% expected and +0.4% prior; core Durable Goods rise +0.5% vs. +0.6% expected

·     Advance international trade deficit in goods was $82.9B in October 2021, down 14.6% from September 2021 (seasonally adjusted).

·     New Home Sales for October rose +0.4% MoM to 745K vs. 790K expected and 742K prior (revised from 800K); Oct single-family home sales +0.4% vs Sept +7.1%; Oct new home supply 6.3 months’ worth at current pace vs sept 6.1 months; Median sale price $407,700, +17.5% YoY

·     Personal income for October rose +0.5%, topping the +0.2% estimate (Sept was down -1%); Personal spending jumped 1.3% topping the 1.0% est. (Sept was +0.6%); Oct real consumer spending +0.7% vs sept +0.3%

·     Inflation data showed: Oct overall PCE price index rose +0.6% vs. Sept +0.4% (prior +0.3%), while Oct core PCE price index +0.4%, in-line with estimates. On a YoY basis, Oct PCE +5.0% vs. Sept +4.4% and Core PCE rose +4.1%, in-line with estimates

·     University of Michigan November Consumer Sentiment reported at 67.4 vs. 66.9 consensus and 66.8 prior (Oct-F was 71.7); current conditions index final Nov 73.6 vs prelim Nov 73.2 and final oct 77.7; expectations index final Nov 63.5 (consensus 63.0) vs prelim Nov 62.8 and final oct 67.9

·     FOMC Minutes showed: Federal Reserve officials signaled greater doubts at their meeting earlier this month over how long it would take for elevated inflation to abate and how soon they would need to raise interest rates to cool the economy. The Fed closed a chapter on its aggressive pandemic policy response when it approved plans at the Nov. 2-3 meeting to shrink its $120-billion-a-month asset purchases by $15 billion each in November and December, a pace that would end the program by next June.

Commodities, Currencies & Treasury’s

·     Oil prices finish little changed, as WTI crude dips -$0.11 to $78.39 per barrel, coming off a more than two-week low after mixed inventory data, a surging dollar impacting commodity prices and a rising interest rate environment. Prices were up yesterday despite the White House announcing a coordinated effort with other oil producing countries to tap the SPR to soften oil prices. However, prices slipped today on OPEC reports. OPEC+ is not discussing for now pausing oil output increases despite U.S. and other stocks releases, three OPEC+ sources told Reuters. The headlines followed an earlier report from Dow Jones that top oil producers Saudi Arabia and Russia are considering a move to pause their recent efforts to provide the world with more crude after Washington and other countries said they would release stockpiles from their SPR.

·     The U.S. dollar extended its recent run, with the USD-JPY dropping back slightly from the 4 1/2 year high seen yesterday, but for now it is holding around the 115.0 mark, while the euro dropped below the 1.12 level to fresh 18-month lows. Firming Treasury yields and prospects for Fed rate hikes next year amid the nomination of Powell as Fed Chair this week lifted the buck.

·     Gold priced end little changed, edging higher $0.50 to settle at $1,784.30 an ounce, barely snapping its 4-day losing streak despite another jump in the dollar and upbeat economic data. Gold has swooned nearly $100 since touching a five-month peak of $1,876.90 per ounce last week after the nomination of U.S. Federal Reserve Chair Jerome Powell on Monday fueled bets of faster interest rate hikes, bolstering the dollar and Treasury yields.

·     Treasury markets end higher; after initially spiking on the stronger than expected data (jobless claims), yields have since pulled back (10-yr down around 1.64% after topping 1.69% earlier); the 30-yr yield dropped below the 2.0% level after hitting 2.039%, while the 2-year remains heavy at 0.634%, off 0.651% earlier. A combination of technicals and expectations for faster rate hikes to rein in inflation after Fed Chairman Powell was nominated again has supported the long end.

Sector News Breakdown

Consumer

·     Retailers; NKE raising concerns for retail supply chains following a report in Newsweek that it has canceled store’s orders until summer ’22 as supply chain issues wreak havoc on holiday shopping https://bit.ly/3FGqbUL. In a tweet shared by the co-host of the sneaker culture podcast Full Size Run, Nike reportedly wrote an email to a sneaker retailer announcing the cancelation. It was a rough overnight for department and specialty apparel as JWN tumbles on big profit miss as 3Q EPS $0.39 below est. $0.56 on revs $3.64B (above est. $3.39B), while qtrly digital sales -12% YoY and signals supply chain issues resulting in shortages of key items at its off-price stores heading into holiday season; GPS slides after the clothing retailer failed to meet expectations for quarterly results and slashed its full-year outlook to $1.25-$1.40 below est. $2.20; GES a bright spot in retail after Q3 earnings beat and dividend growth of 100% while the company saw revenue growth of 13% Y/Y and +4% vs. pre-pandemic levels and raises guidance

·     Auto sector; TSLA founder and CEO Elon Musk unveiled another batch of share sales, offloading just over $1 billion in the clean-energy carmaker. Musk recently said he planned to sell some of his shares to raise cash for a pending tax liability; NKLA founder Trevor Milton has now sold shares worth $284 million since the U.S. indicted him in July, according to Bloomberg report; seeing some of the “shine’ come off recent EV IPOs/momentum names with SEV, RIVN, LCID pulling back after strong runs to start

·     Casinos, Gaming, Lodging & Leisure sector; seeing early strength in travel names (BKNG, EXPE, ABNB) before fading as reopen stocks were mixed; Baird noted U.S. powerboat retail decreased 21% YOY in October and is now tracking down 9% YTD, according to Statistical Surveys (shares of BC, MCFT, MBUU leveraged to data); Truist noted Golf equipment retail sales grew 5% YoY for the month of October. This comes on top of a particularly challenging YoY comparison (+49% YoY in Oct. ’20) and brings YTD sales to +39% YoY (GOLF, ELY leveraged to data)

Energy

·     Inventory data showed: the EIA said weekly crude inventories rose +1.0M barrels vs. -0.5M consensus, -2.1M last week; Gasoline stockpiles fell -0.6M vs. -0.5M consensus and distillates fell -2.0M vs. -1.0M consensus, while Cushing +787K; The API showed a build of 2.31M barrels of oil for the week ending November 19; gasoline inventories show a build of 576K barrels, distillate inventories show a draw of 1.51M barrels and Cushing inventories show a build of 915K barrels

·     E&P and Majors; RBC upgraded CVX to Outperform with a $145 PT from $130 as they believe they are positioned to benefit from a strong commodity cycle over the coming years, given its business plans suggest much more stability in its portfolio than peers; RDSA secured a 15-year power purchase agreement for 240 mw of power to be produced from Phase C of Dogger Bank, the world’s largest offshore wind farm; Seaport started FLNC with a Buy rating; BENE said it entered into an agreement to take eCombustible Energy LLC public. The blank-check company said it is holding $116.5M in a trust account for Bennessere’s public stockholders; solar stocks (FSLR) got a little bounce late morning after reports the U.S. International Trade Commission recommends an extension of Section 201 tariffs on imported solar cells and modules; Baker Hughes (BKR) weekly rig count rises 6 to 569 with oil rigs rising 6 to 467 and gas rigs unchanged

Financials

·     Bank movers; a pullback in banks and insurance stocks (XLF, KRE) after leading markets to the upside in recent days amid a spike in Treasury yields on rising interest rate expectations – but as yields pulled back today, as did gains in the financial space; RJF client assets under administration at Oct. 31, 2021 of $1.23T, rises 4% from September, reaching a record level while financial assets under management also rose 4% M/M to a record of $199.3B

·     Bitcoin news; Bitcoin, Ethereum and other crypto assets extend recent declines (Bitcoin now down roughly 18% from all-time highs of $68,999 on Nov 10^th), with latest pull coming after India Parliament announced to introduce and list 26 new bills in the Winter Session, which included the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021

Healthcare

·     Pharma movers; IONS announces that PFE reports topline results from Phase 2b clinical study of vupanorsen- Study met its primary endpoint, achieving statistically significant reduction in non-high density lipoprotein cholesterol (non-HDL-C) compared to placebo; MRK and GILD announce temporary pause in enrollment for phase 2 study evaluating an oral weekly combination regimen of investigational islatravir and investigational lenacapavir; AVXL topline data from the second AVATAR Phase 2/3 ANAVEX 2-73-RS-002 study for the treatment of adult patients with Rett syndrome by EOY

·     Biotech movers; KURA shares slide after the FDA placed a partial clinical hold on a Phase 1b trial of Ko-539, a drug being developed to treat relapsed or refractory acute myeloid leukemia noting a patient death occurred in the trial that was "potentially associated with differentiation syndrome, a known adverse event related to differentiating agents in the treatment of AML; the XBI biotech index hit a 52-week low yesterday, down about 10% in November after successive days of decline heading into Thanksgiving and in 2021 down about 15% YTD; NVAX files for interim authorization of COVID-19 vaccine in Singapore; SYBX upgraded to Outperform at Oppenheimer with a $7 price target after the company presented interim data from its ongoing Phase 2 SynPheny-1 study of SYNB1618

Industrials & Materials

·     Industrial & Machinery; DE outperforms after posting Q4 profit and sales that rose above expectations, as strong demand for farm and construction equipment helped offset cost of sales growth that outpaced sales growth amid supply-chain challenges (Q4 EPS $4.12/$11.33B topping consensus of $3.90/$10.44B); TITN downgraded to Neutral from Outperform at Baird following a 96% YTD rally (S&P500: +25%) and valuation (price/book) reaching levels last seen in the 2011

·     Chemicals, Lithium; SLI announces $100M direct investment from Koch strategic platforms; Standard Lithium ltd to issue 13.5M common shares at a price of CDN$9.43 (US$7.42) per common share; Baird said based on our checks, TiO2 pricing (CC, VNTR, TROX leveraged to pricing) continues to diverge regionally—with U.S./Europe/Asia contract pricing pushing higher (4Q versus 3Q—positive bias into 1Q22)—while the spot markets in China have trended slightly lower to start 4Q; Reuters noted a global shortage of nitrogen fertilizer is driving prices to record levels, prompting North America’s farmers to delay purchases and raising the risk of a spring scramble to apply the crop nutrient before planting season (CF leveraged to nitrogen prices)

Technology, Media & Telecom

·     Tech; AAPL came into the day riding an 8-day win streak, its longest rally since 2019, but pulled back in a mixed tech tape; BABA downgraded to Hold from Buy at Argus saying the company is facing lower domestic consumption spending and increased competition, which is slowing growth in its core business; China has required TCEHY submit any new apps or updates for inspection before they can be uploaded after a number of its apps were found to have infringed users’ rights and interests, Chinese state media reported on Wednesday.

·     Software movers; ADSK with a modest beat on revs and EPS, but missed consensus billings/FCF expectations and lowered the midpoint of FY22 billings/FCF guidance by 3%/6% respectively, on a variety of macro headwinds (supply-chain/inflation/labor-shortages/Covid-pockets/China); VMW posts Q3 beat and raise for year (EPS to $7.19 from $6.90 and revenue view to $12.83B from $12.8B – above consensus $12.81B) as license revenue driving overall upside and offsetting a slight miss from subscription and software-as-a-service again; PLAN plunges as Q3 results were mixed with a $9M revenue beat overshadowed by decelerating billings (25.6% vs. 36.2%) and cRPO growth metrics (28% vs. 33%). These metrics coupled with the tepid Q4 outlook that subscription growth could slow further to 27% from 33% according to Piper (they downgrade)

·     Hardware, Components & Services; PC makers DELL and HPQ jump after quarterly profits for both show more than four-fold rise in quarterly profit, as demand for personal computers was boosted – DELL posts Q3 revenue of $28.39B, and HPQ Q4 revenue comes in at $16.68B, both higher than Wall Street’s estimate; PSTG shares jump to record highs and price tgt raised by several analysts after another beat-and-raise quarter, driven by strong growth in both product (+37% y/y) and subscription revenue (+38%) – raises full-year revenue forecast to about $2.1B from $2.04B prior; NTNX reported F1Q22 EPS of ($0.22) vs. est. ($0.34)) on revenues of $378.5M vs. est. $367.1M, while billings of $398.0M were above consensus of $394.9M and ACV billings of $183.3M exceeded consensus of $175.0M