Mid-Morning Look

Thursday, December 16, 2021

U.S. stocks opened higher initially, following a global rebound for stocks with both Europe and Asia rallying overnight after yesterday’s FOMC meeting failed to dent investor optimism, but stocks have since pared gains as the market gauged how hawkish global central banks are tilting. The CBOE volatility index (VIX) hits lowest level since Nov. 22, falling as low as 18.20 before rebounding; U.S. Treasury 10-year yield falls to session low 1.422%. Stocks rallied into the close yesterday despite after the FOMC announcement, despite faster tapering and three rate hikes in next year’s dot plot, but investors digesting that move today. Mixed economic data as U.S. manufacturing production near three-year high in November, while Jobless Claims in-line w views, Housing Starts a big jump above views while Philly Fed big miss as current business conditions index at lowest since December 2020. Early market strength dominated by financials, energy, industrials, and materials while technology lags.

Economic Data

·     Weekly Jobless Claims rose +18K to 206K vs. 200K consensus and 188K prior (revised from 184K); the 4-week moving average fell to 203,750 from 219,750 prior week (previous 218,750); continued Claims fell to 1.845M from 1.999M prior (est. 1.936M); the U.S. insured unemployment rate fell to 1.4% from 1.5%

·     Housing starts for Nov rose +11.8% to 1.679M unit rate (above est. 1.568M) and well above Oct -3.1% at 1.502M units; single-family starts +11.3% to 1.173M unit rate and multifamily +12.9% to 506,000-unit rate. Building permits 1.712M unit rate (vs. est. 1.663M)

·     Philadelphia Fed business conditions December 15.4, well below consensus 30.0 and November 39.0; prices paid index December 66.1 vs November 80.0; new orders index 13.7 vs 47.4 prior; employment index 33.9 vs 27.2 prior; six-month business conditions 19.0 vs 28.5 prior; Fed current business conditions index at lowest since December 2020

·     Industrial Production for Nov rises +0.5% vs. est. +0.7%, and below Oct +1.7%; November capacity use rate 76.8%, in-line with estimates and vs Oct 76.5%; Nov manufacturing output +0.7% (vs. consensus +0.7%) and vs Oct +1.4% (previous +1.2%)

·     IHS Markit December flash composite PMI at 56.9 (vs 57.2 in November), while IHS Markit December flash services PMI at 57.5 (vs 58.0 in November)

·     The European Central Bank (ECB) cut support for the euro zone economy by another notch on Thursday but promised some continued support for 2022, while keeping rates steady, confirming its relaxed view on inflation. ECB said expects to conduct net asset purchases under pandemic emergency purchase program (PEPP) at a slower pace than in previous quarter. ECB raises 2021 eurozone economic growth forecast to 5.1% from 5%1; lowers 2022 eurozone economic growth forecast to 4.2% from 4.6%

·     The Bank of England raised its benchmark interest rate to 0.25% from 0.1% by an 8-1 decision, while Monetary Policy Committee says holding rates steady risked fueling inflation expectations. The BOE said level of global GDP in 2021 Q4 is likely to be broadly in line with the November report projection, while Omicron variant poses downside risks to activity in early 2022.

Sector Movers Today

·     Biotech movers; REGN shares slipped after confirming its Covid-19 antibody treatment loses potency against the new Omicron variant. REGN had said it was evaluating how well the drug worked against Omicron in November, warning it expected the drug might not perform as well as with earlier strains; NVAX says application has been submitted with Ministry of Health, Labor and Welfare in Japan seeking approval for its COVID-19 vaccine; LEGN 7.5M share Secondary priced at $40.00; SABS shows data demonstrating that SAB-185, a therapeutic candidate for the treatment of COVID-19 infections, retains neutralization activity against the Omicron variant

·     Auto sector; GOEV upgraded to Buy with $14 tgt at Roth Capital; KXIN announces intention order for 10,000 electric vehicles; TSP said DHL Supply Chain, a subsidiary of Deutsche Post AG, places U.S. order for 100 trucks equipped with TSP self-driving technology; in auto parts, Barclay’s downgraded ADNT to EW (PT $43) while reiterating OW on GM and F (and raising F PT to $23) saying while investors seem largely inclined to buy auto suppliers for a ’22 production rebound, they are cautious about the impact of inflation on the group, while OEMs should continue to enjoy strong pricing with tight inventories; LEA downgrade to Equal weight at Wells Fargo on valuation as see the mid-term production recovery as priced-in

·     Retailers; Stifel downgraded COLM to Hold with a lower $111 PT from $126 after reducing 4Q21 and FY22 estimates on concern about the sell-through of outerwear and boots due to the unseasonably warm temperatures and cut UAA to Hold with a $24 PT from $30 to reflect lower confidence in potential for revenue and margin upside across FY23, and named LULU, LEVI, ONON, SKX, BIRD, COOK, DLTH as their top 2022 picks in sports/lifestyle; Truist initiated Buy ratings on NKE ($190 PT), RL ($141), ROST ($136), DKS ($161), BURL ($350), TJX ($92), and Hold ratings on PVH ($100), LULU ($435), UAA ($24), and VFC ($79); Bank of America lowered their estimates on OSTK and target to $100 from $110 as they believe Q4 sales and earnings will be lower than expected based on choppy holiday spending

·     Bank movers; rebound for banks early; Citigroup updated models mainly to reflect house view on rates including Fed lift-off in June 2022 with our models embedding seven consecutive quarterly hikes, and 2.25% 10yr by year-end 2022. Our top picks on higher rates are Buy-rated CMA, MTB, STT and BK and we are Buy-rated on BAC, TFC and USB; as well as GS; Bank America initiated ARES, CG, BX, IBKR, SCHW, NDAQ, TW initiated at Buy ratings, APO, HOOD, CME, TROW initiated Underperform as initiate on four industries: US Alternative Asset Managers (Positive), US Brokers (Modestly Positive), US Exchanges (Mixed) and US Traditional Asset Managers (Cautious) based on our view of long-term earnings relative to market expectations complemented by valuation; in trust banks, BK upgraded to Overweight at JPMorgan saying all trust banks benefit from higher rates and should all outperform the market, but raise BK relative to peers due to its greater benefit from rate hikes from materially higher money market fee waivers, which will abate with rate hikes; ACBI, SSB upgraded to Outperform, CFB upgraded to strong buy and PB downgraded to market perform at Raymond James

Stock GAINERS

·     ACN +8%; record highs as beats Q4 PS by $0.15, beats on revenue; raises full year outlook as now expects full-year revenue growth of 19% to 22% in local currency (prior 12-15% Y/Y revenue growth) vs. consensus growth of 13.67%; EPS of $10.32 to $10.60 vs. consensus of $10.13

·     DAL +1%; said expects to be profitable in 2022 on a strong holiday demand, even as travel restrictions have been reimposed due to the Omicron – sees full-year 2022 available seat miles (ASMs) about 90% vs. 2019; full-year 2023 ASMs about 100% vs. 2019

·     GNRC +4%; Bank of America upgraded to Buy with a $475 PT, reversing their 11/3 d/g to N with a $500 PT as they would take advantage of the 30% pullback

·     NEM +3%; gold miners rebound as gold prices jump 1.75% or over $30 to $1,795 an ounce

·     STLD +4%; said it expects adjusted 4Q EPS $5.69-$5.73, above analysts’ forecast of $5.58, which excludes the steelmaker’s continuing costs for the construction of a new steel mill in Texas and other charges

·     T +5%; Morgan Stanley upgraded AT&T (T) to Overweight from Equal Weight with a price target of $28, down from $32, as raised the firm’s Telecom Services industry rating to In-Line from Cautious following a sustained period of underperformance

Stock LAGGARDS

·     ADBE -8%; after a disappointing 2022 outlook guiding revenue of around $17.9B and EPS about $13.70, below estimates of $18.16B and $14.26 as well as weaker Q1 top and bottom line which followed in-line Q4 results

·     BLBD -4%; as Q4 adj EPS 7c missed the est. 19c on sales $192.2M vs est. $242.5M as supply chain disruptions resulted in more than 2,000 bookings being delayed to fiscal 2022

·     DNMR -17%; after the company said it intends to offer $175 million in convertible senior notes due 2026 in a private placement.

·     HOOD -4%; after being initiated with an Underperform rating and $22 tgt at Bank America

·     IRNT -25%; lowered its full year recurring revenue outlook (Q3 ARR of $27.5MM missed by almost 30% and cut year-end ARR target by 60% to $30MM (+16% y/y) from $75MM (+191% y/y)

·     LEN -3%; mixed quarter as 4Q21 EPS of $3.91 missed $4.15 consensus but excluding a $167M pre-tax Mark-to-market negative impact due to declines in public investment values, core EPS would have been $4.36, but guides Q1 delivery guidance is ~2,750 (18%) units below BTIG forecast

·     QURE -18%; as announces clinical update on first patients in phase I/II clinical trial of AMT-130 gene therapy; said treatment was well tolerated with no significant safety issues

·     REGN -1%; slipped after confirming its Covid-19 antibody treatment loses potency against the new Omicron variant. REGN had said it was evaluating how well the drug worked against Omicron in November