Closing Recap

Monday, April 04, 2022

Equity Market Recap

·     U.S. stock markets marched higher all day on Monday, closing near their best levels as technology related sectors outperformed. The S&P 500 steadily rose from the open, holding above its 100-day moving average support of 4,534 (which it topped in the final minutes of trading last Friday), and just continued to move higher without any meaningful pullbacks as there were no new developments in Ukraine/Russia or Fed speakers to dent the rally. Several energy companies hit 52-week highs as oil prices rebounded after a 13% drop last week, though there were a handful of banks that hit 52-week lows. The true market leaders were anything TMT related, led by shares of TWTR after Elon Musk revealed a 9% stake, while defensive sectors such as consumer staples, utilities, healthcare, and REITs were the top decliners. It was a relatively quiet day heading into the start of earnings season which begins late next week, and there were no specific catalysts to explain today’s melt-up throughout other than that there was no bad news over the weekend – though the yield curve remains inverted and Fed rate hike cycle remains on target as inflation remains high and data strong.

·     Stock & Sector movers; TWTR surges about 30% after Elon Musk disclosed a 9% stake; SBUX falls after suspends stock repurchases; PENN DKNG WYNN casinos and online betting names outperform; Transports extend declines from Friday with UNP UPS FDX among top decliners on recession fears; Defensive sectors such as utilities SRE SO EIX, Staples SJM BF/B STZ, REITs VNO EXR BXP among top decliners in the S&P amid rotation back into technology

Economic Data:

·     U.S. Feb Factory orders fell -0.5%, in-line with consensus (lowest number since April 2020) and vs Jan +1.5%; Factory orders ex-transportation +0.4% vs. Jan +1.2%; Feb Durables orders revised to -2.1% from -2.2% and nondurables orders +1.2% vs Jan +1.5%; Feb nondefense cap orders ex-aircraft revised to -0.2% from -0.3%; Feb shipments revised to +0.3% from +0.5%

Commodities, Currencies & Treasuries

·     Oil prices rise as WTI crude gains $4.01 or over 4% to settle at $103.28 per barrel and Brent crude advanced $3.14 or 3% to settle at $107.53 per barrel on renewed expectations European countries to impose sanctions on Russia’s energy sector, prompting new concerns from market participants’ around tighter supply. Note both WTI and Brent contracts were down more than $1 earlier in the session. Supply constraints have ben raised following Russia’s invasion of Ukraine in February given the increasing sanctions by foreign countries. Note crude dropped by about 13% last week after President Joe Biden announced a record U.S. oil reserves release from SPR

·     Gold prices rose $10.30 or 0.5% to settle at $1,934.00 an ounce as possible further sanctions on Russia over its invasion of Ukraine bolstered the precious metals appeal, but prices remain capped as the U.S. dollar ends near its highs of the day late afternoon (DXY +0.4% at 99 level). U.S. Coal prices top $100 a ton for first time since 2008. Treasury yields edged higher as the 10-yr rises over 2 bps to move above 2.4% but remains inverted against the 2-yr yield standing at 2.44% and the 3-yr yield even higher at 2.6%.

Sector News Breakdown

Consumer

·     Retailers; CROX downgraded to Hold from Buy at Loop Capital and cut tgt from $150 to $80 saying investor sentiment on the stock has changed materially as Crocs is put in the “Covid winner” camp; UBS said it expects Q1 earnings season to confirm the continuation of still strong trends in the European luxury sector, as pricing power helps the companies to fare better in higher inflationary environment. UBS says its "buy"-rated Richemont (CFRUY) is "the most consensual long in the sector combining both value and earnings momentum". It adds investors are still most skeptical on Kering (PPRUY) on Gucci concerns but says "Gucci’s numbers could be better than feared leaves room for a positive surprise"; OLLI upgraded to Overweight at Wells Fargo as believe the stock could be on the cusp of a meaningful move higher. The story has admittedly been ugly, but we expect momentum to turn positive in the coming quarters.

·     Auto sector; TSLA delivered 310,048 vehicles during Q1, a record number of shipments, and up 67.8% from 184,800 vehicles shipped y/y. Shipments also rose about 0.5% from Q4, when the company delivered its previous record of 308,600 vehicles.; Ford (F) said March total US sales of 159,328 units, down -25.6%. Ford (F) takes in record 50,000 f-series retail vehicles orders in March; Ford electrified vehicle sales post record; Ford pro continues strong momentum; Ford bronco family achieves record March sales; Lincoln SUV demand strengthens; in research, NIO upgrade from Neutral to Buy w/ $32 PT (from $46) at UBS saying while its sales volume growth has slowed with aging products, believe its three new model launches slated for 2022; LI PT raise from $47 to $52, reit Top Pick as believe Li Auto has outperformed other new EV makers in China, developing popular products and keeping costs and expenses under control

·     Restaurants; SBUX said that it will suspend its stock repurchasing program, effectively immediately, as Howard Schultz returns to the company as CEO for the third time; WEN revised 2022 EPS view to 82c-86c from prior 87c-91c and still expects sales growth of 6% to 8%; PZZA ests cut at Credit Suisse for 2022 EPS estimate to $3.77 from $3.84, reflecting the impact of suspension of all corporate operations in Russia and no royalties from near 200 franchised stores; BROS, PZZA, and TXRH are most conviction calls in restaurants at Stifel, but encourage investors to consider more recession resilient stocks, like DRVN and MCW, two of our favorite ideas; MCD was downgraded to Hold at Kalinowski Research

·     Casinos, Gaming, Lodging & Leisure sector; in gaming, online betting stocks DKNG, PENN outperformed general casino names; Stifel says for CZR the recent pullback creates compelling risk/reward story for 2h22 as see five potential 2h22 positive catalysts; pt to $127; in cruise line, CCL ended Q1 with $6.93 bln in cash, cash equivalents and short-term investments, vs $9.14 bln at the end of Q4 according to Truist which suggested the possibility on the possibility of debt and/or equity raises by Carnival

Energy

·     Energy stock movers; oil prices higher, lifting energy stocks with shares of CPE, CRK, EQT, EPD, GPOR, HES, KMI, MRO, MTDR, OVV among energy names hitting 52-week highs today; XOM said change in downstream refining margins estimated to positively impact q1 downstream earnings by $0.1 bln – $0.3 bln vs q4 and change in liquids prices expected to positively affect q1 2022 upstream earnings by $1.9 bln – $2.3 bln vs q4

·     Utilities & Solar; SPWR upgraded to neutral from underperform at Bank America after analyst day and raise tgt to $23 from $13 saying see 50% EBITDA CAGR through 2025; PPL downgraded to Hold from Buy at Argus as expect PPL to face earnings pressure due to slow growth in its service territories, limited opportunities to expand into faster-growing areas, and uncertainty about the pending acquisition of Narragansett Electric; SRE said its liquefied natural gas (LNG) unit has entered into an agreement with affiliates of TotalEnergies TTEF.PA, Mitsui & Co 8031.T, and Japan LNG Investment LLC to increase the capacity of its Cameron LNG Phase 2 export project in Hackberry, Louisiana; SPI said 2021 net sales rose 17% to $162 million

Financials

·     Bank movers; broad weakness in financials (banks, insurance) after cautious comments by JPM CEO; JPM CEO Jamie Dimon warns the bank may lose about $1B on Russia exposure, detailing extent of its potential losses resulting from conflict in Ukraine for first time. Dimon said the U.S. economy is facing unprecedented risks that have him preparing for dramatic upheavals. Dimon warned that the war in Ukraine could collide with rising inflation to slow the pandemic recovery and alter global alliances for decades to come. Dimon warned that the Federal Reserve could move interest rates "significantly higher than the markets expect." Wells Fargo lowers 2022E-2025E estimates for JPM and MS reflecting a combination of seasonal factors (IB, trading, asset values) and medium-term considerations, incl. non-US exposures and activity levels, higher card loss rates; CME said Q1 overall adv increased 19% and March adv was up 12% year-over-year with record Q1 equity index futures and options adv

Healthcare

·     Pharma movers; ACER said the FDA grants breakthrough therapy designation to company’s experimental therapy, celiprolol, for treatment of vascular Ehlers-Danlos syndrome; PLX said PRX-102 successfully met the primary endpoint on kidney function in active control, non-inferiority study vs. Agalsidase beta; PRGO launched a private offering of $500M of senior notes due 2030; INZY said it saw positive preliminary biomarker, safety and pharmacokinetic data from the first three patients treated in the Phase 1 portion of its ongoing first-in-human Phase 1/2 clinical trial of INZ-701 in adult patients with ENPP1 deficiency.

·     Biotech movers; CRIS shares fall after saying the FDA imposed a partial clinical hold on its TakeAim Leukemia Phase 1/2a study. FDA is also requesting safety, efficacy, and other data, including data related to rhabdomyolysis and the company’s determination of the recommended Phase 2 dose for emavusertib in this study; OCGN slips as the WHO on Saturday suspended supply through UN agencies of OCGN partner Bharat Biotech’s COVID-19 vaccine Covaxin

·     MedTech Equipment; DGX downgraded to Neutral at Citigroup and cut tgt to $140 due primarily to concerns around the margin outlook in 2022 and 2023 on the heels of higher internal investments, heightened labor pressures, and potential for reimbursement cuts; BAX downgraded to Sell from Neutral at Goldman Sachs and cut tgt to $77 from $88 saying the co is more exposed to macro headwinds relative to peers and it one of the least exposed to the developing COVID-19 recovery tailwinds; HOLX downgraded to In Line from Outperform at Evercore/ISI saying upgrade last year based on improved sales growth for the medical products maker is played out.; AVTR downgraded to Neutral at Citigroup as see limited upside to near-term revenue growth and margin expansion, specifically in 1H22 driven by a number of headwinds including lapping strong 1H21 comps, persistent inflation and adjacent pricing; GH announces partnership with epic to streamline access to company’s broad portfolio of cancer tests

Industrials & Materials

·     Aerospace & Defense; ATI, HAYN, and HWM ore OW ratings at KeyBanc via our preference for OE aero exposure via aggressive 2022-2025 growth aspirations and raise price targets for ATI and HWM said it has begun the next phase of flight testing in Spain with its 5th generation technology demonstrator, Phoenix 2 as plans to extend the flight envelope through full transition and high-speed flight over the coming months.

·     Transports; sector underperforms as Dow Transports are coming off worst week since June 2020 (down over 5%) led by weakness in truckers and airlines, while rails among top decliners early today (CSX, UNP), along with airlines; truckers tumbled on Friday, led by declines in CHRW, JBHT, ODFL in the S&P 500: Jim Cramer on CNBC spoke Friday about the weakness in transports, down 4.7% Friday at 15,511 today (most since June 2020) noting that in the last 4-weeks spot trucking rates have fallen by as much as 35% with another big decline this week; RYAAY narrowed its net loss for fiscal 2022 to 350 million to 400 million euros ($386.6 million to $441.8 million) range vs. prior loss in the EUR250 million to EUR450 million range

·     Metals & Materials; sector generally underperformed broader market; WDFC downgraded to Underperform from Neutral at DA Davidson; VTNR tgt upped to $20 at Hallum and reintroducing substantially higher estimates following the closing of the acquisition of the Mobile refinery from Shell

Technology, Media & Telecom

·     Semiconductors; Philly semi index (SOX) edged back above its 50-day MA this morning of 3,395 to 3,420 (200-day MA higher at 3,485) before paring gains, led shares of QCOM, SWKS, QRVO and NVDA; MU mentioned positively in Barron’s saying strong growth potential and expanding market opportunities, as well as low valuations, make the memory chip manufacturer a solid investment opportunity

·     Software, Hardware, Components & Services; ZBRA upgraded to Overweight from Neutral at JPMorgan saying margins continue to expand on product mix and scale benefits, coupled with positive impact from accretive acquisitions done over LTM, and solid pipeline of recent wins provides nice visibility into 22; ROKU enters multi-year extension of distribution agreement with AMZN, customers can continue to access Prime Video and IMDb TV apps on their Roku devices; PERI guides Q1 revenue to $125M, above estimates of $118.8M; APPN appoints new CFO; EVBG rises as Ancora issues statement regarding potential acquirer interest in company as believes multiple financial sponsors have interest in acquiring ethe co

·     Internet, Media & Telecom movers; TWTR rises as Elon Musk reports a passive stake of 9.2% as per SEC filing – seen as competitive to DWAC potentially if Musk can create policy changes at TWTR; CMCSA remains only OW in Cable/Satellite at Morgan Stanley as see Comcast delivering long-term EBITDA and adjusted EPS growth of 5%+ and 10%+, respectively; U.S. listed Chinese stocks rally again (BABA, BIDU, NTES, TCEHY as China confirmed plans to revise confidentiality rules regarding overseas listings in a move that could help Chinese companies avoid being delisted in the U.S.; WWE announced that WrestleMania 38 became WWE’s highest-grossing and most-attended event in company history; UPS says it partners with JMIA for expanding Africa logistics services