Mid-Morning Look

Thursday, May 19, 2022

A very choppy and volatile start to U.S. markets, dropping overnight by as much as 1.5% after plunging on Wednesday (S&P lows around 3,856), rebounding in the early minutes of the trading session (back to 3,920), tumbling shortly thereafter back below 1% for major averages (to 3,875), before getting another boost back to intraday highs as investors look to buy beaten up stocks (highs above 3,920 again) – but now back down again! That was just in the first hour of trading. The S&P comes into the day down -17.5% YTD, its second worst start to this point in a year ever, while the Nasdaq is down about -27% YTD. Investors looking to beaten up stocks, buying at significant discounts from all-time highs for many names…but the rising interest rate environment by the Fed, persistently high inflation that has crushed some of the biggest retail names on Wall Street (WMT, TGT, AMZN) remains a concern. Bespoke noted as of yesterday, just over 41% of S&P 500 stocks had fallen below their pre-COVID highs. Treasury prices rise as the 10-year yield moves back under 2.8% and lowest rates since late April. So far, the old saying “Sell in May, go away” has held true, which followed a dreadful April, as the S&P and Nasdaq are on track to extend their weekly losing streaks to 7-straight and the Dow to 8-straight barring a significant rebound in the next day and a half.

Economic Data

·     Weekly Jobless Claims hit 4-month highs, rising to 218,000 from downwardly revised 197K (from 200K) last week and above consensus 200,000; the 4-week moving average rose to 199,500 from 191,250 prior week; continuing claims fell to 1.317M from 1.342M prior and the U.S. insured unemployment rate fell to 0.9% from 1.0% prior

·     Philly Fed Survey for May disappoints with actual reading of 2.6 (lowest since May 2020), well below the forecast of 15.0 and prior reading of 17.6

·     Existing Home Sales for April fell 2.4% to 5.61M annual unit rate vs. est. 5.65M and below March 5.75M; April inventory of homes for sale 1.03 mln units, 2.2 months’ worth; the national median home price for existing homes $391,200, +14.8 pct from April 2021

Sector Movers Today

·     Retailers: after a shellacking in recent days behind weak WMT and TGT results, club warehouse BJ posts better results as Q1 adj EPS of $0.87 tops the $0.71 est. as revs rose 16% Y/Y top $4.5B vs. est. $4.22B and said FY22 outlook of flat year-over-year remains unchanged; department store KSS reported a wide Q1 miss with adj EPS of $0.11 vs. est. $0.71 and sales $3.47B missing the $3.7B estimate while lowered year sales and comp sales view – stock pared losses after saying continues to engage with multiple interested parties 9recall there were two proposals in April for the co: Franchise group offered $69 per share on 4/12 and consortium led by SPG on 4/25 for $68 per share); BBWI posted better Q1 EPS and sales but lowers FY EPS cont ops $3.80-$4.15, from prior $4.30-$4.70; Truist reducing estimates across the board for others that have yet to report 1Q, including BBY, COST, DG, DLTR, FIVE and OLLI.

·     Materials, Industrial & Machinery; SQM rises following better quarterly results as revs jumped to $2.02B from $528.5M Y/Y and above ests $1.39B on better net income of $796.1M; SCHN downgraded to Sector Weight from Overweight at KeyBanc saying global ferrous scrap and aluminum trends have grown surprisingly bearish since our last update, supporting the shift in rating, while maintain OW on CMC, RS and TMST announces long-term contract for renewable power to support 2024 restart of San Ciprián aluminum smelter

·     Cisco impact: shares of networking equipment makers drop after Cisco cuts outlook, with JNPR, ANET, NTGR, CIEN all weak on results. Stifel noted for EMS/PCBs: Cisco remains a key customer for EMS providers FLEX and JBL as well as PCB manufacturer TTMI. For IT Distributors: Cisco accounts for ~40% of sales for PLUS which is scheduled to report earnings next week. For Hardware OEMs: HPE and PSTG all report April-Q earnings on June 1. Based on our read-through from major channel players during Q1 earnings season, as well as key EMS providers, supply disruptions appeared to worsen in the quarter

Stock GAINERS

·     BJ +5%; posts better results as Q1 adj EPS of $0.87 tops the $0.71 est. as revs rose 16% Y/Y top $4.5B vs. est. $4.22B and said FY22 outlook of flat year-over-year remains unchanged

·     FCX +4%; metals seeing an early rebound; group hoping that China lockdown could end this month as Covid cases slow

·     GOOS +10%; forecasts FY23 adjusted EPS of C$1.60-C$1.90 which is above consensus est. C$1.61, which followed mostly in-line Q4 revs of C$223.1M vs. est. C$223.9M

·     PLCE +60%; despite miss as Q1 adj EPS $1.05 missed the $1.41 estimate and sales fell -17% Y/Y to $362.4M vs. est. $402.5M and said tempering top line expectation for 2022

·     SNPS +9%; quarter results were above consensus expectations with strength across all product groups and geographies and materially raised its FY22 outlook for revs, earnings, and cash flow

·     SQM +4% following better quarterly results as revs jumped to $2.02B from $528.5M Y/Y and above ests $1.39B on better net income of $796.1M

Stock LAGGARDS

·     BBWI -6%; posted better Q1 EPS and sales but lowers FY EPS cont ops $3.80-$4.15, from prior $4.30-$4.70 and lower Q2 profit view as well

·     CSCO -12%; posted Q3 revs of $12.8B, missing the $13.34B estimate and guided Q4 below views – sees Q4 revs down 1%-5.5% Y/Y vs. est. $13.87B and guides Q4 EPS $0.76-$0.84, below the $0.92 estimate; Citi noted the deceleration in orders from +33% last quarter to +8% this quarter

·     CSX -9%; downgraded to Neutral from Buy at Citigroup along with NSC and UNP saying they think it’s prudent to factor in a more cautious scenario for 2023 across rails and LTLs

·     ENTA -5%; said its experimental treatment for respiratory syncytial virus did not meet the primary endpoint in a Phase 2b clinical trial; therapy did not reduce symptoms when compared to placebo

·     HOG -10%; said to suspend all vehicle assembly, shipments for two weeks (excludes Livewire) cite concerning a regulatory compliance matter relating to supplier

·     KSS -1%; reported a wide Q1 miss with adj EPS of $0.11 vs. est. $0.71 and sales 3.47B missing the $3.7B estimate while lowered year sales and comp sales view – stock pared losses after saying continues to engage with multiple interested parties

·     THO -5%; downgraded to underperform and WGO cut to neutral ($52 PT) at Davidson after visiting Elkhart, IN last week and conducting a fresh round of RV industry checks

·     UAA -9%; downgraded at Morgan Stanley on tempered medium-term operating model assumptions, while the retailer announced a CEO transition overnight effective June 1st