Closing Recap

Monday, February 07, 2022

Equity Market Recap

·     U.S. stock markets finish similarly to Friday, sliding sharply into the close with modest strength in Smallcaps (Russell 2000 outperformed), while tech lagged amid continued weakness in names with recent earnings disappointments as FB, PYPL and NFLX slumped, while AMZN added to last week gains. Financials advance led by gains in banks and insurance amid the rising Treasury yields/interest rate expectations ahead of this week’s CPI report (Thursday), while energy took a breather on profit taking. Leisure and “reopen” sectors such as travel, cruise, casino, and lodging outperformed amid lessening COVID fears/loosening restrictions which also helped boost market sentiment: New Jersey and Delaware said their states would lift school mask mandates in the coming weeks as the surge in coronavirus infections fueled by the Omicron variant abates in their states. Australia is set to finally reopen to fully vaccinated tourists and all Visa-holders from 21 February, marking the first time the country has eased all its border restrictions since they were introduced in March 2020. But earnings should continue to be the main market driver ahead of another busy week – note of the 278 companies in the S&P 500 that have posted earnings as of Friday, 78.4% reported above analysts’ expectations, according to Refinitiv data. Top sector movers below.

·     Stock & Sector movers: PTON posts a strong rally after the WSJ reports it is attracting M&A interest with AMZN, AAPL, NKE among possible suitors; TSN leads the S&P and spikes to record highs after its quarterly beat while seeing FY at the high-end of its prior guidance; ON soars after posting a beat with guidance ahead of consensus to lead the Philly Semi Index; SNOW jumps to top $300 for the first time in nearly a month after Morgan Stanley upgrades it to OW while CRNC shares collapse after cutting its annual guidance in its quarterly earnings; ZBH sinks to its lowest levels since June 2020 after its Q4 EPS, revenues missed estimates with FY22 guidance short of expectations; travel space active with cruises NCLH, RCL, CCL, airlines AAL, UAL, ALK among S&P leaders; ULCC climbs after buying SAVE for $25.83/share (~19% premium to Fri close); crypto space continues its rebound with Bitcoin back above $44K (33% above 1/24 lows), ETH Ethereum topping $3150 (45% off 1/24) lows; COIN, RIOT, MARA, MSTR joining bounce.

Commodities

·     Oil prices pullback off fresh 7-year highs reached last Friday (when oil made it a 7^th straight week of gains), as WTI crude slips -$0.99 or 1.07% to settle at $91.32 per barrel. Prices took a “breather” with headlines also noting signs that nuclear talks between the U.S.-Iran appear to be making a positive turn. Gold prices finish the day higher, rising $14.00 or 0.8% to end at $1,821.80 an ounce, getting a boost as the dollar trades mixed, and posting its biggest one-day advance in nearly 3-weeks (Jan 26^th).

Currencies & Treasuries

·     U.S. Treasury yields rise to highs of 1.94% to top 1.936% for first time since Jan 2, 2020 (highest level in 25-months), before slipping midday as expectations grow the Fed will raise interest rates more aggressively in 2022 to combat soaring inflation prices. The 2-year yield was down 2 bps at 1.30%, but still at best levels since early Feb 2020. All eyes on inflation data this week with January CPI on Thursday.

·     Cryptocurrencies gained Monday, with bitcoin rising over 8% from levels late Friday, topping the $44,200 level after spending two weeks below $40K and maintained it through the weekend and into Monday. The U.S. dollar was mixed, rising against the euro (after falling nearly 2% last week) and was little changed against the Japanese yen as the buck remains supported by expected tightening actions by the Fed in March (100% expectations for 25 bps interest rate hike expected and a 33% chance for a 50-bps hike) following a blowout jobs report last Friday. Meanwhile ECB President Lagarde said today there is no need for big monetary policy tightening in the euro zone as inflation is set to decline and could stabilize around the ECB’s target of 2%.

Sector News Breakdown

Consumer

·     Retailers; PTON shares surge after the WSJ reported late Friday afternoon it is attracting interest from potential suitors including AMZN while other potential buyers being mentioned in the media include NKE, AAPL (note Peloton’s market cap has declined more than 80% to $8.1B from a peak of $49B on 1/13/21) https://on.wsj.com/3snOPnU; HAS Q4 adj EPS $1.21 vs. est. $0.88; Q4 revs rise 17% to $2.01B vs. est. $1.87B; raises dividend to $0.70; expects revenue and operating profit growth at low-single digit rate for 2022; GCO authorizes $100M increase to its share repurchase; DTC said CFO Simmons will begin transitioning from the company this year

·     Auto sector; TSLA said in a filing its bitcoin holdings were worth nearly $2 billion as of Dec. 31; auto parts retailer AAP positive mention at UBS saying industry-wide demand has been steady recently which should’ve helped AAP achieve solid comp growth into earnings; Ford (F) sinks initially for third session following earnings, supply chain woes – but rebounded midday, while overall EV sector was mixed (LCID, CHPT, BLNK); Used car prices have held steady for a month as the Manheim used vehicle pricing index was 236.3 in January, essentially flat from December but up 45% from a year ago (shares of KMX, SFT, CARG, CVNA worth watching)

·     Housing, home improvement, & Building Products; ENR 1Q adj EPS $10.3 vs est. $0.95 on sales $846.3Mm vs est. $809.5Mm, continues to see escalating cost pressures; reaffirms FY adj EPS and EBITDA; tool maker SWK downgraded to Sell at Citigroup saying Techtronic, its main competitor, issued a press release reiterating its internal performance Target for 1H22E, despite the macro headwinds of cost inflation, rate hikes, and supply chain bottlenecks – says statement is in contrast to SWK’s weakness in volume growth

·     Consumer Staples & Restaurants; in poultry and meat space, TSN Q1 adj EPS $2.87 easily top $1.93 estimate on better revs $12.93B vs. est. $12.18B and said sees full-year sales at high end of $49B-$51B vs. est. $50.35B with operating margin 11.3% vs. 6.7% y/y; SAM mentioned positively in Barron’s saying over the past two years shares have tumbles, tracking the hard seltzer hype on the way up and now down, but reset expectations and a discounted stock price make it interesting again; NWL Newell brands board authorizes $375M share buyback after selling the Connected Home & Security business to security solutions provider REZI said it expects revenues to grow in excess of 300%, to over 150MRMB, and expects to turn a profit for fiscal 2022; CMG, and MCD top picks in restaurants at Cowen, while see a positive calendar 4Q EPS catalyst for WEN and a negative EPS catalyst for QSR

·     Casinos, Gaming, Lodging & Leisure sector; UBS lowers tgts across rideshare / food delivery space (UBER, LYFT, DASH) reflecting a more conservative valuation approach – as favor UBER while also clean up our ests reflecting UBS Evidence Lab data for 4Q trends; in lodging, Barron’s said hotels are readying for a surge in demand as people begin to travel, citing Truist analyst who said H, HGV and VAC are Buys; strength in cruise lines (RCL, CCL, NCLH), airlines, theme parks, hotels (H, MAR, HLT) and lodging on lessening COVID fears as cases continue to slide, while restrictions ease – Australia is set to finally reopen to fully vaccinated tourists and all Visa-holders from 21 February, marking the first time the country has eased all of its border restrictions since they were introduced in March 2020

Energy

·     Energy stock movers; in oil news, Libya has reopened oil export terminals that had been shut due to bad weather. A miles-long oil slick has emerged off the coast of Nigeria after a production and storage ship blew up last week. Saudi Arabia raised the Country’s official selling price over the weekend, as Aramco raised the premium the Country will receive for March cargoes by between 30c and $2.30, depending on crude oil grade and destination.

·     E&P and Majors; NOV downgraded to Neutral at JPMorgan based on weaker margin expectations in all three segments as the company grapples with inflationary and COVID-19 headwinds across its global manufacturing businesses – as well as its 24% move, limiting upside; CLR upgraded to Outperform at RBC Capital and raise tgt to $70 from $60 saying it remains a leading US oil producer, but in recent years investor confidence in the depth and quality of inventory has impacted valuation; Reuters reported the Biden administration is considering a CVX proposal to allow the U.S. oil major to accept and trade Venezuelan oil cargoes to recoup unpaid debt, four people close to the discussions said

·     Utilities & Solar; AWK upgraded to Neutral from Sell at UBS with a $161 tgt on limited downside given the 17% decline YTD vs. 4% for the XLU and -7.9% over the last 3 months versus +2.9% for the XLU; SO downgraded to equal weight at Wells Fargo saying nearer term perceived risks around Vogtle schedule and political/regulatory backdrop compels us to step to the sidelines; SO also downgraded at Bank America with $71 tgt; in solar, FTCI awarded supply contract for APA group’s 88 mw Australian solar project; in alt energy, BLDP downgraded at BMO Capital; NS was downgraded to market perform at Wells Fargo citing valuation and muted FCF generation

Financials

·     Bank movers; big jump in banks and insurance stocks last Friday amid the better jobs data , promoting a spike in treasury yields and rising expectations the Fed will boost interest rates several times this year to offset rising prices; NDAQ upgraded to Buy from Hold at Argus as believe that the company’s business fundamentals are strong and expect Nasdaq to benefit from growth in equity-related trading and ETF index revenues, secular trends in its core data business and the need for greater price transparency; WD agreed to buy commercial real-estate-technology company GeoPhy for up to $290 million; CG added to positive catalyst watch at Citi as sees expectations of when the company will reach $800M fee-related earnings weighing

·     FinTech & Payments; Mizuho said that MQ preemptively extending its agreement with SQ that ends in March 24 and accounts for ~70% of its sales can remove its largest overhang and may result in a substantial re-rating of the stock; FISV acquired the remaining ownership interest in Finaxct for ~$650M to accelerate its digital banking transformation; JPMorgan initiated the US-listed shares of LSPD at UW despite solid Q3 with signs of progress as they prefer other organic high-growth peers (FLYW, MW, TOST, SQ) and after the stock has moved lower on a short report, underwhelming results, and a re-rating in its primary comp SQ, and the company separately announced direct selling and advertising on TikTok

·     Bitcoin news; Cryptocurrency-exposed stocks rise as Bitcoin gains for a fifth straight day to climb back above the $43,000 level, up over 6% today alone along with gains in Ethereum and other crypto assets – lifts shares of MARA, COIN, RIOT, MSTR and others

·     Consumer Finance and Lending; TPG initiated with a Buy rating at UBS, Deutsche and at Neutral by Morgan Stanley, Wells, Evercore, KBW, Citi, Goldman; AMG Q4 EPS $6.10, revenue $691.8M, and AUM $813.8B each beat estimates

Healthcare

·     Pharma & Biotech movers; NGM said the FDA granted it the Fast Track designation for NGM621 as a treatment for geographic atrophy (GA) secondary to age-related macular degeneration; NTLA upgraded from Perform to Outperform at Oppenheimer and up tgt to $150 from $145 based on belief that the current share price represents an attractive entry point with several catalysts ahead and consider NTLA underappreciated; Texas attorney general says TEVA has agreed to $225 million opioid settlement

·     MedTech Equipment; MDT mentioned positively in Barron’s saying after a rough stretch, this year could make investors feel a whole lot better saying shares could gain 20%; ZBH weigh on ortho sector after Q4 EPS of $1.95 missed the $1.98 estimate on weaker revs $2.04B vs. est. $2.07B and guides FY22 adj EPS $6.40-$6.80 below est. $7.92/sees FY22 revs down 4% to flat; TMO launches Renvo Rapid PCR test to detect in-air coronavirus

·     Healthcare Services; CI downgraded to sector perform from Outperform at RBC Capital and lowers our PT to $235 (from $304) despite the 4Q21 EPS bear and in-line 2022 guide; for TDOC, Jefferies lowers ests to better reflect recent management commentary and our outlook for F22 as take a slightly more conservative outlook with respect to product adoption and the investments required to transition the model to whole-person primary care

Industrials & Materials

·     Industrials, Aerospace & Defense; AAL agreed to buy an additional 23 737 MAX 8 aircraft from Boeing Co (BA) by exercising existing purchase options and deferring the delivery of some 787-9 Dreamliner aircraft; in steel sector, Bloomberg reported the U.S. and Japan will announce a deal to restrict tariffs imposed on Japanese steel under former President Donald Trump – Washington will suspend the 25% levy on incoming steel imports from Japan up to a certain threshold; GE rises for an 8^th straight session; ATRA shares slipped after a rocket launch with for satellites onboard was scrubbed right before it was supposed to lift off.

·     Transports; big merger deal in airline space as Frontier (ULCC) and Spirit (SAVE) to merge creating 5th largest airline in U.S. as transaction value of the deal is $6.6 billion including the assumption of net debt and operating lease liabilities. Spirit shareholders will receive 1.9126 Frontier shares plus $2.13 in cash for each, equal to a value of $25.83 https://on.mktw.net/3ovG22e

·     Materials & Materials; iron ore futures in Singapore jump to highest level in five months, rising as much as 2.4% before settling +1.7% at 4,847 yuan/metric ton ($762.42), its highest since mid-October; in chemicals, DSEY downgraded to Neutral at Goldman Sachs as see limited upside amidst institutional business headwinds, difficult COVID-affected comps, negative estimate revisions due to Omicron and rising input costs; APD downgraded to Neutral from Buy at Bank America and cut tgt to $285 saying they have grown more cautious on the earnings growth prospects for Air Products in both near- and longer-term horizons

Technology, Media & Telecom

·     Internet; BABA shares tumble on speculation that SoftBank may be in line to sell at least some of its stake in the Chinese Internet and e-commerce giant https://bit.ly/3J8Ftn0 ; FB adds to recent losses after earnings and slowing rev growth sunk shares last week- drops below last week lows

·     Semiconductors; ON shares rise as Q4 EPS $1.09 vs. est. $0.94 and revs $1.85B top the $1.79B estimate; guides Q1 revs $1.85B-$1.95B above est. $1.78B; TSM upgraded to Overweight at Morgan Stanley saying it is repricing the value-add of foundry services and recently made a breakthrough with its enhanced 3nm (N3e) process and its move on to 2nm gate all-around; POWI upgrade from Neutral to Positive at Susquehanna and up tgt to $100 PT saying they underestimated the magnitude and duration of the current upcycle, which drove significantly better pricing, growth, GMs, OMs and ultimately EPS for most players in the industry

·     Software movers; SNOW upgraded to Overweight from Equal Weight at Morgan Stanley and raise tgt to $390 from $344 saying with the core data warehousing business outperforming, new nascent expansion opportunities gaining steam, and significant FCF generation within reach, investors are undervaluing the durability and quality of growth at Snowflake; CRNC tumbles after lowering its FF22 rev outlook to $365M-$385M from prior $400M-$425M citing chip shortages, unexpected delays in conversion from bookings to rev and said its CFO to retire

·     Media & Telecom movers; DIS reiterate OW rating at Morgan Stanley but lower our PT to $170 from $185 after lowering long-term DTC margin expectations saying download data suggests there may be risk" to our Q1 int’l subscriber growth forecast; DISH announced it reached a new carriage agreement with TGNA as local stations have been immediately restored on DISH TV, in time for the Winter Olympics and Super Bowl LVI; BMBL buys dating app Fruitz; no terms; CFVI shares jumped after Rumble offers Joe Rogan $100M over four years for his shows