Mid-Morning Look

Monday, April 25, 2022

Stocks drop as the April sell-off continues on rising global slowdown concerns; fear props back into the market as the CBOE Volatility index (VIX) trades back above the 30 level, its highest since mid-March. Asian markets tumbled overnight led by a 5% decline in China as Covid case spikes in the region, prompting stricter lockdowns and raising slowing growth fears. The weakness flowing into commodity markets, with oil and gold tumbling on those China growth concerns. Wall Street is also bracing for a stacked week of earnings, with about 160 companies in the S&P 500 expected to report this week including mega-cap tech names, including Amazon, Apple, Alphabet, Meta Platforms and Microsoft. The dramatic sentiment shift in central bank tightening expectations last week remains a huge overhang, but China now adding to the list market fears as COVID shutdown concerns spread to Beijing. No relief at all after stocks posted their worst one-day decline since October 2020 on Friday, dropping more than 900 points and marking the Dow’s fourth straight weekly loss. For the week, the S&P 500 and the Nasdaq are fresh off 3-straight losing weeks. The Nasdaq Composite is down about 10% for the month, while the S&P 500 and Dow are off by around 6% and 3% respectively. The S&P 500 is back in correction territory, down roughly 12% from its high. The Smallcap Russell 2000 nears its 52-week lows.

Sector Movers Today

·     Metals & Materials; NEM and GOLD both downgraded to Market Perform from Outperform at Bernstein saying the stock’s leverage to the gold price is at levels that can’t be sustained; precious metals tumbled with gold down over 2% weighing on miners; shares of metal miners tumble as fears grow in top consumer China that Beijing is on the verge of a Shanghai-style lockdown after another surge in Covid cases; shares of AA, CNEX, FCX, VALE in metals, ALB, LTHM in lithium, and MOS in fertilizers all tumble; oil names also a drag on same commodity concerns

·     Consumer Staples; KO reported Q1 EPS beat of $0.64 vs. est. $0.58 as unit case volume +8%, Q1 revs $10.5B vs. est. $9.84B, and adj organic revs rose 18% vs. est. 9.5%; Kellogg (K) downgraded to Hold from Buy at Deutsche Bank saying although encouraged by the structural progress it has made thus far they remain cautious (and below-consensus) going into 1Q22 results; in cosmetics, REV announced it has filed to sell up to $25M shares over time through an “at-the-market” offering program.

·     MedTech Equipment; in research, Wells Fargo downgraded TMO to Underweight, cut DHR to Equal Weight, while upgraded MTD to Overweight and WAT raised to Equal Weight in medical devices ahead of earnings – says are turning incrementally negative on some key growth drivers of our space over the past few years—Biopharma, MDx, and China—suggesting investors seek refuge in less favored stocks; BLFS was upgraded to Outperform at Oppenheimer based on view that stock is currently oversold, trading at a forward P/S of 2.7x our FY23E revenue estimate of $194M

·     Semiconductors; AMD upgraded to Strong Buy from Outperform at Raymond James with $160 price target as favor those semi companies with strong secular drivers, more muted cyclical exposure and attractive valuations, for which AMD appears well positioned; MRVL was upgraded to Outperform at Raymond James; NVDA cautious mention in Barron’s this weekend while Bank America noted NVDA is down -34% YTD vs SOX -24% on fundamental concerns: slowing demand from PC gamers/crypto-miners and macro concerns but says the risk reward remains attractive; SIMO said to be considering a potential sale amid takeover interest in the company and is working with advisers as it holds talks with possible bidders https://bit.ly/36Hgd9I

Stock GAINERS

·     AMD +1%; upgraded to Strong Buy from Outperform at Raymond James with $160 price target as favor those semi companies with strong secular drivers

·     KO +1%; hits record highs as reported Q1 EPS beat of $0.64 vs. est. $0.58 as unit case volume +8%, Q1 revs $10.5B vs. est. $9.84B, and adj organic revs rose 18% vs. est. 9.5%

·     NKTX +111%; after saying two of its experimental cell therapy treatments showed promise in patients with different blood disorders

·     PENN +2%; upgraded to Overweight at Morgan Stanley in gaming sector

·     PSB +10%; after it agreed to be acquired by Blackstone Inc.’s real estate unit in a deal valued at $7.6 billion. Blackstone will pay $187.50 a share https://on.mktw.net/3vcdgau

·     SIMO +8%; on reports is said to be considering a potential sale amid takeover interest in the semiconductor company. The Co is working with advisers as it holds talks with possible bidders, according to a Bloomberg report. https://bit.ly/36Hgd9I

·     TWTR +4%; following multiple reports this weekend in the WSJ and NY Times that the social media company is re-examining Elon Musk’s $43 billion takeover offer after the billionaire lined up financing for the bid

Stock LAGGARDS

·     AXSM -21%; informed by the FDA CMC issues identified during the review NDA for AXS-07 product candidate for the acute treatment of migraine are unresolved and based upon the time remaining in the NDA review cycle, expects to receive a CRL with respect to this NDA

·     BABA -3%; amid weakness in several U.S. listed China stocks (PDD, BIDU, TCEHY) as the Shanghai falls over 5% last night on as new measures to limit a Covid outbreak in Beijing reinforce slowdown concerns/Shanghai Composite sinks to lowest since June 2020

·     ELYM -57%; Phase 2a clinical trial of ETX-810 in diabetic peripheral neuropathic pain (DPNP) did not achieve the primary endpoint

·     FCX -3%; broad weakness in commodity stocks/metals/energy on China slowing growth fears after Shanghai index fell over 5% to 2-year lows on further lockdowns (AA fall)

·     GOSS -10%; said its Phase 2 clinical trial of GB004 in mild-to-moderate active ulcerative colitis didn’t meet its primary or secondary objectives at week 12

·     OSTK -5%; downgraded to neutral at Bank America and tgt cut to $38 from $85, turning more cautious on 2022 revenue trends and projects a decline of 9%

·     SPWR -2%; downgraded to Sell from Hold at GLJ Research with $6.99 tgt saying the euphoric stage rooftop solar investors were in for the majority of 2021 and the beginning of 2022 is decidedly over

·     RHHBY -3%; said a Phase II clinical study evaluating Giredestrant as a treatment for patients with advanced breast cancer did not meet its primary endpoint of progression-free survival

·     VALN -14%; says the European Medicines Agency has another list of questions regarding co’s COVID-19 vaccine candidate – questions include requests for additional data and further justification for VALN to receive regulatory approval for the vaccine candidate