Closing Recap

Tuesday, November 30, 2021

Index	Up/Down	%	Last
DJ Industrials	-650.17	1.85%	34,485
S&P 500	-88.28	1.90%	4,567
Nasdaq	-245.14	1.55%	15,537
Russell 2000	-43.07	1.92%	2,198

 

Equity Market Recap

·     Markets end November on a sour note, selling off for the 2^nd time in 3 sessions on heightened Covid fears with concerns about vaccines’ effectiveness against the new Omicron variant and weaker economic data that includes consumer confidence at a 9-month low given surging inflation. Stocks took another leg lower this morning during Jerome Powell’s Senate Banking Committee testimony where he said it is time to retire the word “transitory” when describing inflation and the Fed may debate ending bond purchases a few months sooner at its meeting next month. Energy stocks underperformed today as oil prices plunged to 3-month lows below $65 and settled more than 15% lower than Wednesday’s close, while financials also slid given the steep decline in Treasury yields with the 10-year yield touching a low of 1.412%, its lowest since September 22, and the 30-year yield hitting its lowest levels since January 28. Smallcaps were especially pressured today, as the Russell 2000 suffered larger losses than the other indices is now trading more than 10% off its record intraday high from November 8, while the Dow is more than 5% off its record high from the same date, and the S&P and Nasdaq remain below last Monday’s respective records. The Nasdaq was the only index to go positive in November, as a rehash of the stay-home rotation occurred again given the rising cases and reimposed international restrictions. Meanwhile, several stocks exposed to reopen sentiment fell to 52-week lows today despite the S&P and Nasdaq both holding YTD gains of more than 20%. These laggards include DIS, UBER, travel names (NCLH, CCL, LUV, JBLU), multiple payment names such as MA and PYPL, MTCH and BMBL in online dating, several gaming names (DKNG, PENN, WYNN, LVS), brick-and-mortar retailers GPS and JWN, and multiple casual diners like QSR and EAT. The Pharmaceuticals and Biotech ETFs also touched 52-week lows today as those sectors have not participated in this year’s rally.

·     Stock/sector news; Cruise lines NCLH, CCL, airlines LUV, JBLU roll to 52-week lows as travel names (ABNB, EXPE, TRIP) underperform again due to Omicron fears, UBER, LYFT, WYNN, LVS, MGM, FUN, PLNT among other reopen plays rolling; AAPL one of the few green Dow components, leads the S&P as October was the first time it was China’s largest smartphone maker since Dec 2015; CRM among the Dow’s worst performer into tonight’s quarterly earnings report; TLT 10-year yield plummets to lowest level in over 2 months, drags banks and financial stocks (JPM, GS, AXP); Oil prices roll again, extending losses during its 5-week losing streak to weigh on energy names XLE, APA, MRO, HAL; TAN Solar stocks were weak after SEDG rolled on a Morgan Stanley downgrade, JKS slid as its earnings and guidance missed consensus, and ARRY plunged after an offering; T, VZ, ATUS, TMUS each hit 52-week lows in telecom

 

Economic Data:

·     Euro zone inflation soared to its highest rate on record this month on surging energy costs, as consumer price growth in the 19 countries accelerated to 4.9% in November, the highest level in the 25 years since the figure has been compiled, and up from 4.1% a month earlier

·     U.S. S&P CoreLogic Case-Shiller September home prices +19.5% from year ago vs +19.8% in August, the first slowdown since May 2020

·     U.S. November MNI Chicago PMI 61.8 vs est. 67.0

·     U.S. November Consumer Confidence 109.5 vs est. 110.9

 

Commodities, Currencies & Treasuries

·     Treasury yields plummeted to multi-month lows early as investors fled to safety on Omicron fears, but did slightly bounce after Jerome Powell indicated that the Fed will debate ending its bond purchases a few months earlier at their December meeting, possibly bringing earlier rate hikes into play as well.

·     The dollar index faded after Chicago PMI data for November missed expectations and came in at its lowest reading since February, but pared losses to go positive during the Powell testimony before settling with a modest decline.

·     Gold prices slipped -$8.70, or 0.5%, to settle at $1,776.50/oz, reversing an early climb as Powell’s more hawkish statement caused a retreat in precious metals.

·     Oil prices slumped -$3.77, or 5.39%, to settle at $66.18/barrel, its lowest settlement in more than three months as the Omicron variant continues to spark demand fears. OPEC+ is also scheduled for a technical meeting tomorrow, followed by a ministerial meeting Thursday to discuss any changes to their pace of supply increases, with some analysts expecting the group may delay its scheduled 400k bpd increase given Omicron concerns and the recent release of oil from strategic reserves.

 

 

Macro	Up/Down	Last
WTI Crude	-3.77	66.18
Brent	-2.87	70.57
Gold	-8.70	1,776.50
EUR/USD	0.005	1.134
JPY/USD	-0.48	113.03
10-Year Note	-0.083	1.446%

 

 

Sector News Breakdown

Consumer

·     Retailers; DLTR downgraded to Neutral from Buy at Goldman Sachs following 3Q results, as believe the stock now reflects the earnings uplift from the price increase at Dollar Tree as well as recent media reports around the potential for operational improvements; DDS initiated at Sell by UBS with a $190 PT (44% below current levels) given tough FY22 comps and macro headwinds, as well as their view that department stores will continue losing share vs other retailers; CTRN Q3 EPS $1.03 vs est. $0.45 on sales $228M vs est. $220.7M, comp sales +19.7% vs 3Q19, approved new share buyback program of $30M, raised FY guidance; CHS reported Q3 adj EPS 18c, a surprise profit vs est. (3c) loss on sales $453.6M above est. $428M, comps +27.9% vs est. +23.6%, guided Q4 EPS 0-5c vs est. 7c on sales $495-510M vs est. $481.8M; Jefferies believes strong retailers and brands with tangible catalysts present opportunities and assumed Buy ratings on ANF, AEO, GES, CURV, URBN, VSCO in specialty apparel given attractive valuation vs historical levels, TJX and BURL in off-price and reiterated DG as a top pick as they are constructive on off-price given the gravitation towards value-oriented purchasing, and BOOT, DECK, FL, SHOO in footwear as category leaders with strong brands; BNED Q2 EPS 41c widely missed est. 82c on sales $627M that also missed est. $663M, said it expects adj EBITDA to be positive in FY22 and approach pre-Covid levels in FY23; Adobe Analytics reported $10.7B in Cyber Monday sales (Nov. 25-29), a -1.4% YoY decrease that is the first annual decline it has recorded since it started tracking e-commerce in 2012

·     Auto sector; TM upgraded at UBS to Buy on strong potential demand in key markets, 2022 output above the historical peak given limited semiconductor constraints, and significantly higher est. FY23-26 FCF than competitors; Wells raised their PT on AZO to $2,050 from $1,825 ahead of next week’s Q1 earnings report as the auto part group remains structurally stronger while its reasonable valuation, DIY leadership, DIFM share gains, pricing power and big buybacks warrant further upside; VWAGY CEO said the worst of the supply chain issues are behind us, they are seeing a light increase in production volumes, and their outlook for next year is slightly better; LAD increased their share repurchase authorization by $750M

·     Housing & Building Products; SMRT is a new Buy at Deutsche due to it likely being one of the winner of smart home technology given its strong relationships with the largest customers in the multifamily industry; Wedbush remains buyers of KBH, CCS, DHI, MHO, TMHC, and TPH as they do not see Omicron having a clear negative impact on supply chain or municipal issues

·     Consumer Staples; RGF initiated with Buy ratings at Truist ($15 PT) and Jefferies ($16) on the company’s disruption in the frozen food category as a better-for-you option; Argus downgraded CENT to Hold as it is being hurt by supply-chain disruptions and labor shortages; HSBC initiated BYND and OTLY with Reduce ratings; Credit Suisse upped their PT on CHD to $105 from $100 after yesterday’s acquisition of TheraBreath; Telsey raised their price target on COST to a street-high $600 from $540 ahead of their November sales report tomorrow; HELE acquired Osprey Packs for $414M

·     Casinos, Gaming, Lodging & Leisure sector; RDBX is a new Outperform at Wedbush on its compelling long-term growth story driven by its 39M loyalty members, need to only convert 10-15% of its existing DVD kiosk customers to digital to achieve $1B+ annual revenue run-rate, and should benefit from ongoing shift to AVOD from linear broadcast with conventional channels losing shares; DIDI pressured after China outlined new rules to safeguard the rights of ride-hailing drivers that require operators to provide social insurance and make their earnings public, and said companies should improve income distribution mechanisms and they will step up anti-monopoly measures;

 

Energy

·     Energy stock movers; Tudor Pickering upgraded CVX to Buy; BOOM upgraded to Buy at Sidoti with a $52 PT; Barclays downgraded CQP to UW on valuation with shares trading at a premium of ~3x to LNG; Mizuho raised their PTs on EOG, APA, DVN, HES, MRO, OXY, COP, FANG, OVV, CTRA, CLR, PXD

·     Utilities & Solar; SEDG downgraded to EW at MSCO despite their forecast of robust revenue CAGR and operating margins as their new $338 PT (from $318) implies no upside after shares have outperformed the MAC Global Solar Energy Index by ~20% YTD; JKS Q3 EPS 1c vs est. 2c on revs $1.33B vs. est. $1.34B, sees Q4 revenue $1.8B-$2.2B below consensus $2.24B; ARRY announces $325M convertible senior notes offering; BMO initiated WEC at Market Perform and a $92 PT as it sees strong growth through 2026 with a supportive regulatory environment, but says shares currently discount its premium profile appropriately; Goldman initiated AES with a Buy rating and $30 PT after it transformed into a more simplified geographic footprint with an improved balance sheet, and FLNC at Buy with a $52 PT as they say it is positioned to be one of the fastest-growing companies in their coverage given it is established as a leading provider of integrated storage systems, an end market that is expected to experience high growth itself

 

Financials

·     FinTech & Payments; SQ upgraded to Neutral from Underperform at Bank America and raised its tgt to $221 from $210; Loop initiated FOUR at Buy with a $69 target due to its strong position for the future of fintech, robust long-term growth outlook vs traditional payment companies, and its substantial discount to several high-growth fintech peers despite stronger

·     Services, Lending & Consumer Finance; INTU 1.55M share Secondary priced at $668.95; RBC sees an attractive buying opportunity in NVEI with shares down over 30% since their highs despite its strong organic growth with underlying structural demand that is not only a short-term bump due to Covid disruptions; KBW initiated SOFI at Market Perform with a $21 target; COIN acquired Unbound Security, a leading cryptographic security company and will establish a tech center of excellence in Israel

Healthcare

·     Pharma movers; AZN said the FDA granted priority review to an application for expanded use of Lynparza, the cancer drug it developed with MRK, in BRCA-mutated HER2-negative high-risk early breast cancer; IMGN surges following positive mirvetuximab data in ovarian cancer; ELAN announced an overhaul of its organization structure, including consolidating its Europe and International operations, cut about 380 jobs, and reduce senior management by about 20%, and it now sees Q4 EPS (29c)-(20c) from prior (14c)-(7c) guidance and FY EPS ($1.06)-($0.96) from ($0.91)-($0.83); PETQ started at Buy with a $30 PT at Benchmark; MEIP shares rose after its Ph2 tidal study data evaluating zandelisib as a single agent in patients with relapsed or refractory follicular lymphoma demonstrated a 70.3% objective response rate and 35.2% of patients achieved a complete response; GSK hired PFE’s chief scientific officer for viral vaccines as its new global head of vaccines research and development

·     Biotech movers; MRNA CEO warned that the existing COVID-19 vaccines would be less effective against the Omicron variant than they have been against the Delta variant; REGN said that it is evaluating how well its Covid treatment works against Omicron. Those results aren’t known yet, but the company said that based on modeling and other forms of analysis, "there may be reduced neutralization activity of both vaccine-induced and monoclonal antibody conveyed immunity, including the current REGEN-COV antibodies; MOLN said its experimental COVID-19 antiviral therapy, ensovibep, retains activity against the individual positions that are mutated in the new Omicron coronavirus variant; IOBT initiated with OW ratings at both Cowen and Jefferies; Guggenheim and SMBC Nikko raised their price target on KRYS to $133 after its Ph3 dystrophic epidermic bullosa trial met primary and secondary endpoints yesterday

·     MedTech Equipment; EXAS enters into an amendment to the Amended & Restated Cologuard Promotion Agreement with PFE, where the Pharma giant will no longer promote the company’s Cologuard colorectal cancer screening test to health care providers; Piper said EW is the best beat and raise story and believe it is better than MDT that missed badly; JPMorgan sees few positive catalysts into year-end for the sector as the Omicron variant disrupts volumes, causes negative revisions, and further fatigues investors, but they think a 2022 recovery rally is likely given attractive absolute and relative valuations and unchanged long-term fundamentals with favorable demographics; Credit Suisse echoes that sentiment, saying Omicron should drive near-term volatility, but still expects their favorite names (SYK, EW, BSX, ABT, GMED) to substantially outperform over the next 12 months as higher levels of immunization should mean managing this next surge without significantly impacting surgical procedures

·     Healthcare Services; UNH raises FY21 adjusted EPS view to $18.75-$18.90 from $18.65-$18.90 vs. est. $18.85; sees FY21 revenue view $287B vs. est. $286.02B ahead of its annual investor conference which takes place on November 30; cash flows from operations are expected to range from $23 billion to $24 billion in 2022; Barclays initiated OW ratings on DCGO with a $14 PT as it has beat estimates and raised guidance in 7 consecutive quarters and they believe its growth is only on its first leg, and SGRY with a $73 PT as its EBITDA growth potential is not fully priced in after its expertly executed turnaround with more margin expansion to come; Jefferies said the recent pullback in CMTX provides a more attractive entry point for a company experiencing a temporary cost headwind with rising Covid cases but has also demonstrated robust growth

 

Industrials & Materials

·     Aerospace & Defense; Bank of America initiated RKLB with a Buy rating and $20 target because its revenue generation, mature launch capabilities relative to competitors, and growing satellite components business; Cantor started ACHR at OW with a $14 PT as it benefits from an innovative and disruptive business model, strong partnerships, first-mover advantage, high barriers to entry, and an attractive valuation after recent share price underperformance

·     Industrial & Machinery; Argus said they would buy CFX on recent weakness as an emerging leader with improving earnings from Covid’s impact and a bullish trend of higher highs and higher lows since March 2020; GWH initiated at Buy with a $18.50 target by Canaccord due to tis differentiated long-duration battery storage; Cowen reiterated ABB as a Top Pick on building momentum and multiple balance sheet catalysts

·     Metals & Materials; Following Q3 earnings, Wells think expectations are beginning to run a little hot with consensus baking in a large degree of the current strip, something they view as a risk given their conservative price outlook, and they upgraded KRP to OW and downgraded FLMN to EW; Bank of America reinstated MP with Buy rating and $52 target that is based on 18x 2023E EBITDA, well below the high end of pure play EV commodity suppliers at 21x, and it operates the only scaled rare earth mining and processing facility in the Western Hemisphere, materials that are critical for future-facing technologies like EVs and wind power; Loop raised their PTs on CBT ($86 from $81) and OEC ($28 from $26). saying they remain perplexingly inexpensive considering the recent upward estimate revision cycle and set-up for prospectively much stronger fundamentals and results; UBS double-upgraded TROX to Buy from Sell with a $32 PT from $22 as their negative thesis of weaker China TiO2 pricing has not played how, and they now expect TiO2 prices to rise given tight supply/demand and higher cost basis for the average producer

Technology, Media & Telecom

·     Internet; for FB, The U.K.’s Competition and Markets Authority (CMA) requires Facebook — which has recently renamed itself Meta — to sell Giphy, after finding that the deal could harm social media users and U.K. advertisers, according to a statement, per Bloomberg; BZUN reported a Q3 loss despite expected profit and revenue below consensus as short-term headwinds resulted in a weaker macro environment and softer consumption sentiment

·     Semiconductors; MRVL (reports Thurs 12/2) had its PT raised to $85 from $70 at BMO based on long-term earnings potential and was reiterated as a Buy with a $100 PT and a top secular pick at Rosenblatt who sees a strong quarter and a January guide above their estimates and consensus;

·     Software movers; INFA posted Q3 adj EPS 23c vs est. 18c on revenue $361.8M vs est. $362.3M, quarterly subscription ARR rose 36% to $736M, sees Q4 revs $393.5-398.5M vs est. $396.2M, and FY revs fully above consensus; Raymond James upgraded ESMT to Strong Buy from Outperform as they say the -36% selloff from its Q3 print on 11/10 is nearly unexplainable and is not due to any true fundamental concern, but shares now trade at a ridiculous ~33% discount to high-growth peers with their unchanged $40 target implying 95% upside; Wedbush started CCSI at Outperform with a $75 PT given their ample growth opportunities over the next 12-18 months and highlighted MTTR as one of their favorite ideas into 2022 with a new $38 PT (from $30) as they are in the early innings of a massive growth story; Daiwa upgraded ZM to Underperform from Sell

·     Hardware, Components & Services; DigiTimes reported AAPL was China’s largest smartphone maker in October for the first time since December 2015, driven by the iPhone 13 series; KeyBankc lifted their target on SYNA to $310 from $270 on broader long-term growth prospects for IoT and mobile/PC

·     Media & Telecom movers; DA Davidson started TREB at Buy with a $23 target, saying it is well positioned to profit from the growing demand for digital advertising; Wedbush initiated ZD at Outperform with a $150 PT as they believe their digital assets have been under appreciated for two decades; Loop lowered its PT on DIS to $190 from $205 but kept its Buy rating as the company plans a greater increase in content spend than anticipated, which should pressure Disney+ profits but help it hit its 230-260M subscriber target; VZ, ATeach hit 52-week lows, DISH falls to 10-month lows