Market Review: December 20, 2021

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Closing Recap

Monday, December 20, 2021





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     Just a few days removed from the S&P 500 hitting new all-time highs, U.S. major averages extended recent losses, with the Smallcap Russell 2000 falling now as much as 14% vs. its recent all-time highs, and growth/cyclical stocks most sensitive to the economy remains pressured amid rising omicron cases and a rising interest rate policy from the Fed. Major averages fall for the 5th time in the last 6-sessions, led by a fatal blow to a $1.75 trillion U.S. domestic spending bill. Goldman Sachs cut its U.S. real GDP forecast for Q1’22 after U.S. Senator Joe Manchin said he would not support the Build back Better (BBB) package this weekend. He did say this afternoon he would accept $1.8 trillion for social policy bill but his counteroffer excluded expanded child tax credit. Not helping markets, news that CNBC Jim Cramer, Senators Warren and Booker got Covid this weekend despite being fully vaccinated (boosters) along with mass cancellations in NBA, NHL sports world, also with players fully vaccinated weighing on vaccine names. Oil prices lower as investors feared that new restrictions would weigh on fuel demand.

·     Stock & Sector movers: Travel names EXPE, NCLH, AAL open red on Omicron fears and 48 people on an RCL cruise ship testing positive for Covid this weekend, but quickly turn green after the opening bell led by CCL after its earnings report included 2H22 advanced bookings at a historical high; lithium stocks ALB, LTHM, SQM lower after Chilean leftist Gabriel Boric secured victory in the country’s presidential election on Sunday defeating his far-right rival, prompting a Bank of America downgrade of SQM due to his platform considering the creation of a state-owned National Lithium Corporation; alt energy stocks in solar SEDG, RUN, NOVA, ENPH, EVs/charging TSLA, RIVN, LCID and fuel cells BE, FCEL, BLDP slide with industrials after Sen. Manchin announced he does not intend to support President Biden’s ~$2T Build Back Better Act; Vaccine stocks were choppy with MRNA rolling off early strength after saying its 3rd dose protects against the Omicron variant and NVAX also going red despite a strong open on EMA’s recommendation for EU authorization; PFE hits record highs before slipping; defensive staples outperform with CLX, KMB, KR, among the top S&P gainers; Financials PFG, COF, DFS, PRU and energy DVN, FANG, OXY, APA among the weakest with falling Treasury yields and oil prices.


Commodities, Currencies & Treasury’s

·     Oil futures ended sharply lower Monday, but off session lows, with WTI crude slipping -$2.63 or 3.71% to settle at $68.23 per barrel, while Brent fell -$2.00 or 2.72% to settle at $71.52 per barrel as the spread of the omicron variant in Europe and the U.S. underlined worries over the outlook for demand. The Netherlands went into lockdown on Sunday and the possibility of more COVID-19 restrictions being imposed ahead of the Christmas and New Year holidays loomed over several European countries. Gold prices pullback under $1,800 an ounce after settling above on Friday for the first time since November 22nd, sliding -$10.30 or 0.6% to settle at $1,794.60 an ounce.

·     The U.S. dollar was mixed, falling vs. the euro, but rising against emerging market currencies; the Turkish lira weakened to record lows vs. the buck after President Erdogan further praised the unorthodox monetary response of lowering interest rates amid double digit inflation. For the second time this month, Erdogan cites religion to justify the country’s current monetary stance of lower borrowing costs to boost economic growth. The lira, which was down more than 11% at around 18.4 versus the dollar earlier, strengthened some 10% after the announcement by Erdogan. It traded at 14.90 versus the dollar. Meanwhile the Canadian dollar touches weakest level since December 2020 to the U.S. Dollar, as currencies leveraged to oil drop. Chile’s peso closes at record low after leftist wins election.

·     Treasury yields stay under pressure, but end near the best levels of the day, with the 10-yr rising back above 1.41%, roughly 6bps off the morning lows. Yields have tumbled over the last few weeks despite the FOMC going more hawkish on rates and asset purchases slowing. The 10-yr yield is down around 30 bps from its December highs above 1.7%. The yield on the three-year Treasury note was at 0.8936%, down 3.2 basis points in afternoon trading.






WTI Crude















10-Year Note





Sector News Breakdown


·     Retailers; NKE earnings after the close tonight, with footwear and apparel stocks watching closely; rough start to the week for consumer discretionary stocks as VSCO, LULU, AEO, DDS among biggest pullbacks n fears rising Covid cases will soften consumer demand; SCVL announces stock buyback; PTON tgt cut to $30 from $65 at UBS and maintain sell saying they expect PTON to lower guidance for FY, but so does the market; however, the extent of the guide-down is what should determine whether the stock has troughed

·     Consumer Staples; CLX, PG among top gainers in the S&P 500 as defensive staples outperform in another rout in large cap growth names early; SAM upgraded to hold at Jefferies following pullback of more than 60% in the shares related to "massive" reset in expectations for hard seltzers, removing the only negative rating on the stock; BYND said it continues to strengthen its global innovation capabilities with new plans for a state-of-the-art R&D center in Shanghai; DNUT updates fiscal year 2021 expected results incorporating higher organic growth and reaffirms long-term outlook/reiterated long-term outlook for organic revenue growth, adjusted EBITDA growth; LW increases quarterly dividend, approves additional $250 million for share repurchase program

·     Casinos, Gaming, Lodging & Leisure sector; Cruise line operators pressured initially (before paring losses/rebounding) after RCL said 48 people on its Symphony of the Seas cruise ship this weekend tested positive for COVID-19/had 6,091 guests and crew members on board the ship, which ended a week-long cruise in Miami on Saturday after setting sail on Dec. 11; CCL posted larger Q4 loss of $1.96B vs. est. loss $1.65B but tried to spin 2022 positive saying booking volumes continue to build; gaming, casino, theme parks remains pressured on virus fears.



·     Energy stock movers; another sector punished amid rising Omicron variant fears as surging cases in Europe and the United States stoked investor worries that new mobility restrictions to combat its spread could hit fuel demand; renewables such as NOVA, ARRY, RUN, ENPH, FTCI, FSLR volatile after Senator Manchin announced this weekend that he does not intend to support President Biden’s ~$2T Build Back Better Act which includes > $550M in clean energy and climate investments across numerous subsectors. The market previously anticipated the bill wouldn’t pass until 2022 but still expected passage in some form. As it pertains to solar, the most critical component of the BBB was the extension of the solar investment tax credit at the higher 30% rate which would have provided line of sight to much stronger demand primarily beginning from 2024; RUN was downgraded to Sector Weight from Overweight at KeyBanc citing significant uncertainty created by the last week’s PD in CA. Firm said believe that there exists room for modification and ultimately a more constructive outcome; however, we also see a wide potential valuation range in various scenarios ranging from the PD being implemented as written or modified in a variety of ways; AQUA has agreed to acquire the assets of the renal business historically operated by Mar Cor Purification and Cantel Medical, subsidiaries of STE for $196.3M.



·     Bank movers; shares of major U.S. bank stocks and insurers fell, tracking Treasury yields lower and muted broader markets and declining U.S. Treasury yields following a blow to Democratic spending plans in Washington and on concerns about the continued spread of the Omicron coronavirus variant; the 10-yr yield fell as low as 1.35% before paring losses hurting financials (Higher yields help bolster profitability/margins of insurers); BNP Paribas SA (BNPQY) has agreed to sell Bank of the West to BMO for a total consideration of $16.3B in cash in a deal that will generate a one-off capital gain, net of taxes, of about 2.9B euros ($3.26B) and boost its common equity Tier 1 ratio by about 170 basis points; CIT shares rose after its planned merger with First Citizens BancShares received approval from the board of governors of the Federal Reserve System, following earlier approvals from the Federal Deposit Insurance Corporation and the Office of the North Carolina Commissioner of Banks; BX acquired BRG in a $3.6B deal and will buy 30 multifamily properties comprising ~11k units

·     FinTech & Payments; Cowen trimmed estimates for the large cap processors and lowered price targets on FIS to $155 from $176, FISV to $144 from $152, and GPN to $216 from $228 to reflect some potential softness, namely in international markets and select (travel, etc.) verticals stemming from Omicron as well as F/X headwinds due to recent increased strength in the USD, with FIS most impacted near term given relatively higher UK and the travel vertical exposure; Wedbush lowered their estimates and price targets on FISV to $130 from $138, MA to $380 from $400, Visa (V) to $240 from $270, and PYPL to $220 from $240 to reflect continued choppy consumer spending and renewed pandemic-driven brick & mortar restrictions and travel slowdowns, and SQ to $190 from $250 due to the moderating trends, a likely CFPB probe though they say it is manageable given the company’s stringent disclosure practices, and concerning AfterPay data that suggest incrementally more consumers missing payments

·     Consumer Finance; RKT acquired Truebill for $1.275B in cash; Citi initiated SOFI with a Buy, High Risk rating and $20 target as they like their differentiated combination of consumer and enterprise services targeted at large markets with longer-term benefits that outweigh short-term risks



·     Covid vaccine news; Covid vaccines clearly less effective against Omicron than anticipated, with a drop in effectiveness, says EMA head – FT reported; MRNA said that a booster dose of its COVID-19 vaccine protects against the Omicron variant more effectively than a two-dose regimen; NVAX said the European Medicines Agency, the regulator for the EU has recommended granting a conditional marketing authorization to the COVID-19 vaccine developed by the co to prevent the illness in people aged 18 and older; New Zealand health authorities said they believe a man’s death may be linked to the PFE’s COVID-19 vaccine, per Bloomberg

·     Pharma movers; BGNE announced an option, collaboration, and license agreement with NVS to develop, manufacture and commercialize BeiGene’s investigational TIGIT inhibitor ociperlimab in North America, Europe, and Japan; BGNE will receive an upfront payment of $300 million up to $700 million more on exercise by Novartis of a time-based option prior to mid-2023; NVO said it would not be able to meet demand for its new obesity drug due to U.S. supply issues; CYTK agreed on an exclusive license and collaboration agreement with Ji Xing Pharmaceuticals Ltd. to develop and commercialize omecamtiv Mecarbil for the proposed treatment of heart failure with reduced ejection fraction in China, where CYTK will receive committed capital of $70 million, which includes $50 million from Ji Xing upfront; GNFT upgraded to Buy with $8 tgt at HC Wainwright on renewed outlook /signs elafibranor licensing deal worth up to $570M

·     Biotech movers; ITCI shares jump after the company said the U.S. FDA approved its antipsychotic medicine Caplyta for the treatment of depressive episodes associated with bipolar I or II disorder (it was previously approved to treat schizophrenia); BIIB shares rallied after the co announced a nearly 50% price reduction for its newly approved medicine for Alzheimer’s disease, Aduhelm to $28,200 for a patient with an average weight, saying the cost-cutting measures are anticipated to yield nearly $500M in annualized savings; EDIT said the FDA cleared the company’s IND for gene editing medicine EDIT-301 as a treatment for transfusion-dependent beta-thalassemia (TDT) – will initiate a Phase 1/2 clinical trial in 2022; BLUE tumbles after saying the FDA has placed a partial clinical hold on patients below the age of 18 in its lovo-cel sickle cell gene therapy program

·     Healthcare Services; ORCL confirmed a last week WSJ report as they announced agreement to acquire CERN through an all-cash tender offer for $95.00 per share, or approximately $28.3 billion in equity value; in research, Mizuho upgraded ANTM to Buy, while raising price targets on UNH, HCA, CVS, MCK, IQV, and LH and lowering our price targets on CI and MD as believe the managed care industry is set to outperform in 2022 due to increased earnings visibility, reduced legislative risk, an improved economic backdrop, less exposure to supply chain and inflationary risks, and, finally, because it is leveraged to rising interest rates; DVA boosts share buyback program by $2B; CGC downgraded to Underweight from Neutral and cut tgt to $7 from $11 at Piper saying Canopy’s sales trends remain under pressure across its business


Industrials & Materials

·     Transports, Industrial & Machinery; MTZ said it would acquire Henkels & McCoy Group Inc. in a $600 million deal. Henkels is a U.S. electrical power transmission and distribution utility services company. Henkels had about $1.5 billion in fiscal 2021 revenue; DOV upgraded to EW from UW and raise tgt to $184 from $165 at Wells Fargo saying the announced transactions last week now contribute to solid earnings growth expectations in 2022, and the larger deal sizes along with current balance sheet capacity could mean deals in 2022 leave upside bias to 2023 estimates; FDX said it entered into an accelerated share repurchase agreement with Goldman Sachs & Co. LLC where it has agreed to repurchase an aggregate of $1.5 billion of its common stock from Goldman, with an initial delivery of approximately 4.8 million shares

·     Metals & Materials; lithium stocks (ALB, SQM, LTHM) pressured after Chilean leftist Gabriel Boric secured victory in the country’s presidential election on Sunday defeating his far-right rival – Bank America noted in its downgrade of SQM today that Boric’s gov’t program considers the creation of the National Lithium Corporation, a state-owned enterprise in charge of developing the Lithium industry; in metals, broad weakness in copper, aluminum, and steel stocks; CRS said a mechanical failure has forced an unplanned outage of its 4,500-ton press at its Reading, Pa., facility, increasing headwinds for the specialty-materials company.

·     Paper & Packaging; VRS shares rise following Swedish pulp maker BillerudKorsnas’ buyout proposal of $27 per share in a deal valued at $825M, a 35% premium over Friday closing price (KeyBanc noted Billerud’s acquisition of Verso spells potential trouble for N.A. boxboard producers such as GPK, WRK, CLW, PTVE – noting Billerud expects to convert one of the mill’s three paper machines by 2025 and another by 2029, resulting in total boxboard capacity of around 1.2 million tons, and estimates the cost of the conversion project will be up to $1 billion); SON announced it has entered into a definitive agreement to acquire Ball Metalpack, a leading manufacturer of sustainable metal packaging for food and household products and the largest aerosol producer in North America, for $1.35 billion in cash; PTVE upgraded to Buy at Deutsche Bank saying the setup is favorable in 2022 following a transition year in 2021 that was marred by a number of one time disruptions


Technology, Media & Telecom

·     Media & Telecom movers; DIS and GOOGL reached a deal over the weekend the returned the entertainment group’s sports and movie channels to YouTubeTV following a dispute over carriage fees; SONY’s "Spider-Man: No Way Home," opened to a record-setting $253 million at the box office this weekend; in cable, KeyBanc lowers ests for CABO, CHTR, WOW while reiterate OW across Cable/Wireless coverage as see competitive intensity increasing; AT was upgraded to Overweight from Equal weight with $30 tgt at Barclay’s saying the timeline is getting more aligned with the opportunity due to upcoming catalysts such as proximity to the 2022 guidance cycle across telecom companies and potential decision on Warner Media deal structure, as a result of which we expect more focus on the name in the coming months.


Market commentary provided by Hammerstone Markets, Inc, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.

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