Closing Recap

Tuesday, March 01, 2022

Index	Up/Down	%	Last
DJ Industrials	-598.64	1.77%	33,293
S&P 500	-67.75	1.55%	4,306
Nasdaq	-218.94	1.59%	13,532
Russell 2000	-39.57	1.93%	2,008

 

Equity Market Recap

·     Stocks tumbled as the Dow drops around 600 points, and major averages fell over 1% led by bank stocks on plunging Treasury yields (10-yr yield falls more than 10-bps back-to-back days) and as oil prices jump to fresh 7-year highs above $103 per barrel. Declines in financial Dow components AXP, GS, JPM, and Visa (V) made up roughly half the Dow 600-point decline as investors flocked to safe-haven instruments given uncertainty as to the war in Ukraine with Russia, while commodity prices jumped. Wheat surges limit up as Russia’s invasion strands shipments while corn futures rise by exchange limit as well to $7.2575/bushel; natural gas prices in UK also surging, along with industrial metals aluminum, copper, zinc. Reminder that Fed Chair Jerome Powell testifies before Congress on Wednesday and Thursday, in his first comments on the economy in nearly five weeks – more complex since January given the situation in Ukraine as well as volatility in oil prices and treasury yields. The Ukraine conflict has completely dominated news, but Fed and rates may soon take center stage once again ahead of the FOMC March rate meeting (25 bps hike baked in). Stocks got a late day boost on reports China signals willingness to mediate in Ukraine-Russia war.

·     Stock & Sector movers: in retail, TGT soars despite a mixed quarter as guidance of continued rev, EPS growth drives shares higher, KSS rises early on its mixed qtr with stronger guidance before paring gains; grocers also strong as ACI spikes after initiating a strategic review and KR higher after a Telsey upgrade; in food/restaurant earnings, TWNK record highs, HRL DAR jump after beats while DPZ pares early losses WEN SJM slide; transports tumble FDX UPS UAL DAL behind weakness in airlines, truckers, package delivery as oil prices jump over 10%, making fuel more expensive for them; Treasury yields extend their recent decline with the 10-year going below 1.7% for the first time since January 5, well off Friday’s highs above 2% to drag entire financial sector; JPM C IVZ CS DB 52-week lows, AXP (also exposed to travel) worst name in the Dow, SBNY RF SIVB HBAN KEY ZION some of the several banks among the worst S&P decliners; EV space active as LCID sinks after slashing its 2022 production forecast and a quarterly miss, XPEV NIO slide and LI gives up early gains after monthly deliveries data, STLA rolls after unveiling its long-term strategic plan with a fully electric Jeep lineup by 2025.

·     Several companies over the last few days have halted operations in Russia due to sanctions imposed by the U.S. and its allies – potentially hurting businesses: HOG suspended business and shipments of bikes; AER said it will stop doing business with Russian airlines; in energy yesterday, SHEL it would quit the flagship Sakhalin 2 LNG plant in which it holds a 27.5% stake, and which is 50% owned and operated by Russian gas giant Gazprom, EQNR said it would start divesting from its joint ventures in Russia and BP said it would exit its nearly 20% stake oil producer Rosneft; credit card co’s MA and Visa block Russian banks from their networks after sanctions; several autos also ceased exports to Russia including BMWYY, GM and others; NFLX said it won’t add Russian channels to service.

 

Economic Data:

·     ISM Manufacturing for Feb increased to a reading of 58.6 last month from 57.6 in January, which was the lowest since November 2020 and above est. 58; new orders sub-index increased to 61.7 last month from 57.9 in January, which was the lowest reading since June 2020; employment slipped to a reading of 52.9 last month from a 10-month high of 54.5; order backlog index dropped 6.4 points in January, the largest decrease since April 2020.

·     U.S. IHS Markit February final manufacturing PMI at 57.3 (vs flash 57.5); sector final output index for February at 52.5 vs flash 52.5 and final January 50.5; sector final input prices index for February at 79.2 vs flash 78.4 and final January 80.0

·     Construction spending for January rose +1.3% vs. et. +0.2% to $1.677 trln, vs Dec +0.8%; Jan private construction spending +1.5%, public spending +0.6%

 

Commodities

·     Another massive move for oil prices as WTI crude surged $7.69 or over 8% to settle at $103.41 per barrel (hit intraday highs of $106.78), its highest level in 7 ½ years as uncertainty in Ukraine, along with calls for the U.S. to stop importing about 600k bpd of Russian crude have driven prices higher (Last time Oil this high $107.68 June 13th, 2014). The U.S. and other IEA countries that are hoping to bring down oil prices confirmed a decision to release 60 mln barrels of oil from reserves, half of which will come from United States – but did not dent the oil rally. U.S. Energy secretary says U.S. Stands ready to release more oil if needed to help stabilize energy markets

·     Gold prices rise $43.10 or 2.3% to settle at $1,943.80 an ounce (13-month highs), along with gains in other precious metals as silver and palladium outperforms as commodity prices rise. The Bloomberg Commodity Index has surged to the highest since 2014, surging the most since March 2020.

 

Currencies & Treasuries

·     The U.S. dollar advanced as investors flocked to safe-haven currencies as the Euro hit 21-month lows against the dollar, falling over 1% to 1.1103; the benchmark 10-year German bund yield declined to minus 0.031% after spending the past four weeks in positive territory and UK yields tumbled over 30 bps in a full flight to safety for bonds. The U.S. dollar index (DXY) jumped and was last up 0.8% as investors were on edge over the latest Ukraine developments.

·     U.S. Treasury yields drop to five-week lows in a stunning turn of events recently after hitting multi-year highs just 2-weeks ago ahead of an expected aggressive interest rate cycle hike by the Fed in 2022 to fight off soaring inflation. The 10-year hit intraday lows of 1.68% before paring losses, but off overnight highs of 1.86% and is down over 30bps in just 2-weeks. Momentum out of Europe is adding to the rally as the flight to safety intensifies and as the markets price out central bank rate hikes. The Fed is now seen only increasing the funds rate band by 25 bps vs. the 50 bps in place very recently. The market is also taking out a BoE hike this month as well. The 2-year yield fell over 14 bps to 1.28%, more than a 34-bps slide in just three days. Bespoke noted it was the first back-to-back 10 bps declines in the 10-year yield since March 2020.

 

 

Macro	Up/Down	Last
WTI Crude	7.69	103.41
Brent	6.92	104.97
Gold	43.10	1,943.80
EUR/USD	-0.0102	1.1117
JPY/USD	-0.19	114.79
10-Year Note	-0.139	1.70%

 

 

Sector News Breakdown

Consumer

·     Retailers; TGT Q4 EPS $3.19 vs. est. $2.86 on revs $30.62B vs. est. $31.39B, comp sales +8.9% vs. est. +10.2%, gross margin rate was 25.7% vs 26.8% YoY that reflects pressure from increased supply chain costs, sees 2022 low- to mid-single digit revenue growth (est. +2.4%), high-single digit growth in adjusted EPS (est. -2.7% decline); KSS EPS $2.20 vs est. $2.12 on revs $6.5B vs est. $6.54B, guides FY net sales +2-3% vs est. +2.2%, op mgn 7.2-7.5% and EPS $7.00-7.50 vs est. $6.55 with plans to repurchase at least $1B in shares in 2022; KTB Q4 adj EPS 88c beat est. 79c on revs $681M vs est. $688.2M with FY22 guidance of EPS $4.65-4.75 and revs $2.7B ahead of consensus $4.58, $2.64B; CHS reported a Q4 EPS beat but a revenue miss with a stronger Q1, FY22 outlook; FTCH upgraded to Hold at SocGen following their results last week and its steep -37% YTD share price drop; FL received several additional downgrades (to Neutral at Goldman, B Riley and double-d/g to UW at Barclays) after last Friday’s guidance and loss of NKE share; OSTK up a 5th day following the announcement last week of ICE strategic investment in tZERO

·     Auto sector; auto stocks F, GM fell on concerns over the impact of escalating Russia-Ukraine conflict on commodity prices, European demand; in the EV space, LCID lowered its 2022 production for Lucid Air 12K-14K vehicles from 20K to reflect extraordinary supply chain and logistics challenges; monthly delivers out for China EV names as XPEV said it delivered 6,225EVs in February, up 180% from a year ago, while LI said February deliveries rose nearly four-fold (265.8%) to 8,414 Li ONE; NIO February deliveries rose 9.9% from a year ago to 6,131 electric vehicles; Hyundai Motor America reported total February sales of 52,424 units, an 8% increase compared with February 2021; AZO Q2 EPS $22.30 vs est. $17.79 on revs $3.4B vs est. $3.17B, same-store sales +13.8% vs est. +7.2%, inventory +6.2%; VRM was downgraded to EW at Wells after reporting a wider than expected loss; Toyota (TM) said U.S. Feb sales 162,587, -11.2% y/y

·     Consumer Staples; HRL Q1 EPS $0.44 in-line w ests; Q1 sales rose 24% to $3.04B vs. est. $2.93B as the company benefited from higher prices and it managed through supply-chain constraints; backs its year EPS and revenue outlooks; ACI said its board has started a strategic review to consider potential transactions and other moves, less than two years after the supermarket chain’s IPO; KR upgrade from Market Perform to Outperform w/ $54 PT (from $47) at Telsey as believe have higher visibility and confidence into Kroger’s multi-year omni-channel growth; FRPT reported implied Q4 results in line with pre-announcement and provided a mixed FY22 guide; shares of SJM, TWNK, also movers post earnings; note PEP, MDLZ, BF all with more than 2% exposure in Russia according to Citigroup note today

·     Restaurants; DPZ Q4 EPS $4.25 misses the $4.30 estimate on revs $1.34B vs. est. $1.38B; Total domestic stores comp sales growth +1%, below estimate +2.46% and Domestic franchise comparable sales growth +1.5%, also estimate +2.92% – for two- to three- year outlook, sees global retail sales growth, excluding foreign currency impact 6%-10%; WEN 4Q adj EPS $0.16 vs est. $0.15 on revs $473.2Mm vs est. $460Mm, US comps +6.1% ; guides FY system wide sales +6-8% and adj EPS $0.87-0.91 vs est. $0.89; PLAY added to the Analyst Current Favorites list at Raymond James ahead of the company’s 4Q (ended 1/30) EPS release

·     Casinos, Gaming, Lodging & Leisure sector; for casinos WYNN, LVS, MLCO, Macau casino revenue for February falls short of estimates as Macau gross gaming revenue gained 6.1% in February to 7.76B patacas ($0.96B) to trail the consensus estimate for a 7.0% increase; IGT Q4 EPS $0.09 vs. est. $0.49 on better revs $1.05B vs. est. $1.02B; guides Q1 revs $1B-$1.1B vs. est. $1.04B and year revs $4.1B-$4.3B vs. est. $4.2B; for cruise lines CCL, RCL, NCLH, UBS said heard across the board that booking volume has been strong the last 2-3 weeks, and some seeing close in bookings starting to firm up for the first time since the pandemic started; DKNG shares outperform, rising for a 6^th straight day since earnings

 

Energy

·     Energy stock movers; oil stocks biggest advancers on Monday (OXY, HES, APA, EOG) and rise again today, tracking crude prices (WTI topped $100 per barrel) as concerns over supply disruptions after failed talks between Russia and Ukraine outweighed discussions of a coordinated global crude stocks release to help ease prices

·     E&P and Majors; CVX raised its share buyback program to between $5B-$10B vs. prior tgt of $3B-$5B and forecast for operating cash-flow through 2026, benefiting from cost cuts and a recent surge in energy prices; Citi said public E&Ps may shift to increasing volumes from maximizing shareholder distributions as a patriotic duty to moderate energy inflation in the wake of Russia’s invasion of Ukraine with US OFS HAL, PTEN, PUMP, NEX possibly benefitting the most and larger E&Ps with purchasing power (PXD, EOG, DVN, FANG) could be better positioned

·     Pipelines: ET announced the signing of a definitive agreement to sell its 51 percent interest in Energy Transfer Canada to a joint venture which includes participation by PBA and global infrastructure funds managed by KKR at a valuation of approximately C$1.6 billion (US$1.3 billion) including debt and preferred equity; OKE Q4 EPS and EBITDA missed estimates with in-line full year guidance

·     Refiners: BPMP downgraded to Sell at Citi on skewed risk-reward to the downside and initiated it as part of a pair trade that is OW Neutral-rated SHLX

·     Utilities & Solar; Mizuho initiated CEG at Neutral with a $46 tgt; Argus said weakness in AES over the past three months offers a buying opportunity with its Q4 beat last Friday and noted their favorable view of OGE

 

Financials

·     Bank & insurance: the sector pulling back after a strong start to 2022 as interest-rate traders backed off bets for a 50-bps hike by the Federal Reserve at its March meeting given the conflict in Europe; JPM trades to 52-week lows; potential impact from the sanctions on Russia and its banking system also raising possible concerns; shares of C, BAC, JPM, WFC have been falling. Oppenheimer noted large cap bank exposure to Russia: largest exposure is Citi with $5.4B gross, but they put the net investment at ~$1.0B. For BAC and JPM, Russia is not mentioned in the top 20 exposure and neither in the top 10 for MS

·     Bitcoin, FinTech, & Payments; another strong day for names leveraged to Bitcoin (MARA, RIOT, MSTR, RIOT) as Bitcoin prices and other crypto surge a second day; JKHY upgraded to Outperform at OpCo walking away from investor meetings very bullish on its competitive positioning given 2Q22FY announced technology modernization strategy; FOUR Q4 adj EPS missed estimates on a revenue beat with payment volume that nearly doubled YoY and announced two acquisitions to expand international payments and cryptocurrency capabilities

·     Consumer Finance; WU expanded its partnership with Philippines-based non-bank financial institution M Lhuillier to offer money transfer services; UWMC Q4 EPS and revenue missed consensus; Visa (V) and Mastercard (MA) block Russian banks from their networks after sanctions

 

Healthcare

·     Pharma movers; LEGN and partner JNJ announced FDA approval for lead asset CARVYKTI (cilta-cel) after four or more prior lines of therapy (5L+) in r/r MM, making it the 6th auto CAR-T, 2nd CAR-T targeting BCMA, and 3rd China-developed drug to be FDA approved; CTIC said the FDA has approved Vonjo (pacritinib) for the treatment of adults w/Myelofibrosis and Thrombocytopenia; in generic pharma, ENDP shares slide as weaker Q1 guidance offset a Q4 beat (sees Q1 EPS $0.35-$0.45 vs. est. $0.48; sees Q1 revs $595M-$635M below consensus $685.5M)

·     Biotech movers: NVAX erased initial losses post earnings – now at highs up 8.4% above $90 – company fell short of revenue expectations for Q4 ($222.1M vs. est. $331.8M); AXSM advanced following smaller Q4 EPS loss and said expects cash to fund operations into 2024; HRTX falls as Q4 net product sales rose +0.24% Y/Y to $20.66M, which failed to beat analysts’ estimates.

·     Gene editing: NTLA’s CRISPR-based therapy for a genetic liver disorder reduced the levels of a disease-causing protein by 93% in a small study, surpassing earlier results reported last year. STAT news noted the updated study results remain preliminary but provide further evidence that its NTLSA-2001 treatment can be delivered through a one-time infusion and safely edit the damaged DNA of liver cells inside the body; EDIT rises after a U.S. tribunal ruled that patents on the breakthrough gene-editing technology known as CRISPR belong to Harvard University and the Massachusetts Institute of Technology. Editas, which licenses CRISPR technology from Harvard’s and MIT’s Broad Institute, says the decision reaffirms the strength of its intellectual property. The Broad Institute had obtained the first CRISPR patent in 2014 and later obtained related patents

·     Healthcare Services; GDRX tumbles as 2022 outlook fell well short of expectations on both revenue and EBITDA as expects ~23% Y/Y revenue growth for 2022, implying ~$917m vs. est. $1.02B and adj EBITDA margins of 28-30% (vs. est. 32.2%) with weaker Q1; EHTH shares also slide initially on Q4 results as revs fell 17% to $243.5M missing the $252.3M estimate and adj EPS of $0.49 also falls short of consensus at $0.95

 

Industrials & Materials

·     Transports, Aerospace & Defense; Dow transports tumbled early behind weakness in airlines, truckers, package delivery (DAL, JBHT, FDX) as oil prices jumped over 8% in volatile trading, making fuel more expensive for them; RKLB reported 4Q results that beat consensus for revenue and came in above the high-end of its prior guidance range on broad-based growth from Launch and strength across its evolving Space Systems business

·     Industrial & Machinery; WKHS and GreenPower Motor Company Inc. signed a multi-year supply agreement to allow for the manufacturing and delivery of electric step vans into the North American market; WMS upgraded to Overweight at Morgan Stanley as believe WMS is one of the biggest beneficiaries from price/cost over the next two years, and said see a path for margins to return to peak levels in the high-20s / low-30s; BLDR posted a strong Q4 with adj EPS $2.78 vs est. $1.71 on revs $4.6B vs est. $4.29B; B Riley upgraded PWR to Buy; TREX Q4 adj EPS $0.55 vs est. $0.53 on revenue $304M vs est. $302.5M; sees Q1 revenue $320M-$340M vs est. $316.6M, expects double-digit revenue growth rates for the full year

·     Metals & Materials; NUE said sees steel prices rising as Russia exports dwindle; early strength in the metals space with copper producer FCX among early top S&P gainers, with aluminum names higher too; palladium prices jumped – commodity space continues to be volatile given exposure to Russia

Technology, Media & Telecom

·     Internet; BIDU reported Q4 net profit of 1.72 billion yuan, down from CNY5.17 billion a year earlier and below est. of CNY2.09 billion while reported quarterly revenue of CNY33.09 billion – Q4 revenue from Baidu’s core businesses rose 12% to CNY26 billion; JOBS agreed to be acquired by an investor group backed by DCP Capital and Ocean Link Partners for $4.3B, with holders to get $61 ADS per share https://bit.ly/3prkTqm

·     Semiconductors; AMBA reported in-line F4Q22 (Jan) results, guided F1Q23 (Apr) slightly lower, and noted 14nm wafer shortages at Samsung are expected to negatively impact F2Q23 (Jul) by ~$5M, sending shares lower

·     Software movers; WDAY with Q4 beat, raises guidance for fiscal 2023 subscription revenue to be in a range of $5.53B-$5.55B and 24-month Subscription Backlog +22% y/y exceeded +20% expectation citing the strongest annual new ACV bookings; APP reached a definitive agreement to acquire Wurl for $430M in cash and equity; SAIL reported strong Q4 results, with revenue exceeding the high end of guidance by 19% with upside in the quarter coming from license revenue, though SaaS revenue was also very strong (+77% Y/Y); BIGC reported Q4 results ahead of consensus on the top-line but missing on non-GAAP operating income due to a pull forward in investment – guidance in 1Q22 and FY22 also imply much more significant investments that will push out BigCommerce’s path to profitability; ZM Q4 results beat for growth and profitability and delivered upside across key enterprise metrics but issued FY23 guidance significantly below consensus; USER generated 41% billings growth in 4Q2021, and management set a 32% to 35% top-line growth expectation for 2022 but guidance implies deceleration

·     Hardware, Components & Services; HPQ beat and raise as Q1 EPS $1.10 vs. est. $1.02; Q1 revs rose 8.8% to $17B vs. est. $16.52B; sees Q2 EPS $1.02-$1.08 vs. est. $1.02; LPSN rises after Starboard Value LP discloses an 8.5% stake in LPSN, as per a regulatory filing as also nominated four members for election to its board; in 3D space, DDD shares rise as post a top and bottom line Q4 beat

·     Media & Telecom movers; SBAC reported better than expected results with rev./adj. EBITDA /AFFOS of $595M (+11.1% y/y)/$409M (+7.5% y/y)/$2.81 (+12.9% y/y)