Closing Recap

Friday, November 05, 2021

Equity Market Recap

·     Just wow! The S&P 500 tops 4,700 for the first time, the Nasdaq Composite tops 16,000 and the Russell 2000 also hits a new all-time high (every day this week) as most major averages post gains all week to start the month in another broad sector rally. With today’s advance the Nasdaq extended its winning streak to 10-straight days and the S&P 500 7-straight following a slew of multiple positive catalysts. Stocks benefitted from: 1) a significantly strong October jobs report (payrolls rose +531K vs. est. +450K), 2) another string of strong earnings results in the tech space (FTNT, EXPE, DDOG, BIGC, BILL, NET, SYNA), 3) and a resurgence of shares in the “reopen” space (UAL, WYNN, SIX, MAR) after PFE said its COVID-19 pill ritonavir cut the risk of hospitalization or death by 89% compared to placebo in a Phase 2/3 trial. Truly a remarkable start to the month with the S&P up 2% this week, the Nasdaq 3% (with the SOX +9% on week), the Dow +1.4% and the Russell 2000 up around +6%– all despite the Fed starting its asset tapering this week, and no spending bill announced this week (expectations are for vote after the bell – but both sides appear to still be apart).

·     Stock/Sector movers: PFE surges after its oral Covid antiviral pill cut risk of hospitalization and death by 89% in a trial, providing a boost to reopen plays along with strong earnings reports from EXPE, ABNB, LYV (cruises, airlines, casinos among S&P leaders and other vaccine names MRNA, NVAX, BNTX plunge with MRK on the data; PTON nosedives after cutting its FY sales forecast by as much as $1B to go with a quarterly miss amid broad weakness among stay-home names on the Pfizer pill; UBER jumps on its revenue beat and 1st-ever profitable EBITDA quarter and PINS rallies on its beat, while SQ, DKNG slide on quarterly misses; other post-earnings movers include BILL spiking to ATH, MNST rising, GOOS ripping higher on beat/raise.

·     Stay at home beneficiaries that surged during the pandemic have extended losses over the last few months amid the vaccine push: shares of ROKU down 40% from July highs, ZM is down 50% from October peaks, PTON crashed today, falling over 30% and over 60% off Jan highs; ZG plunged this week after exiting its iBuying initiative, and now down over 65% from Feb highs; HOOD down nearly 50% from its post IPO intraday highs of $85 early August.

Economic Data:

·     Strong jobs data across the board: U.S. October nonfarm payrolls +531,000 topping ests +450,000) while prior month upwardly revised to +312,000 from +194,000 and Aug to +483,000 from +366,000); Private sector jobs +604,000 tops est. +400,000), on better revisions and manufacturing at 60K vs. est. 33K; unemployment rate slips to 4.6% from 4.8% and average hourly earnings in-line at +0.4%

Commodities

·     Oil prices closed out the week strong, as WTI crude jumped $2.46, or 3.12% to settle at $81.27 per barrel (well off morning lows of $78.96), but still declined on the week, down -2.8%. It was the 2nd straight week of declines after having risen 9-straight weeks prior. Natural gas prices finish the session 3.5% lower at $5.516/MMBtu but end the week with a small 1.7% increase that ends a streak of four straight weekly declines.

·     Gold prices jumped $23.30 or 1.3% to settle at $1,816.80 an ounce, helping prices finish the week higher by about 1.8%, its highest settlement since early September. A decline in Treasury yields and a small pullback off record highs for stock helped buoy precious metals.

Currencies & Treasuries

·     Treasury prices rise, yields end at weekly lows! So better economic data all week (including today’s big jobs beat), rising expectations of a rate hike timetable pushed up to mid ’22 and the Fed announcing on Wednesday it will start tapering its monthly $120B bond purchases by $15B in November and another $15B in December, why have yields tumbled? The 10-year Treasury yield drops 15 bps to 1.45% (lowest since late Sept) from 1.61% highs yesterday and intraday highs around 1.55%; while the 2-yr falls to 0.4%, more than 10 bps off last week 18-month highs above 0.51%. The ICE US Dollar Index falls slightly to 94.28 and is up 0.2% so far this week (and back near 1-year highs), while the U.S. dollar was flat against the euro and weakens 0.3% against a broadly stronger yen. Crypto assets were modestly lower as Bitcoin steady above 60k.

Sector News Breakdown

Consumer

·     Auto sector; AXL Q3 adj EPS 15c vs est. 1c on revs $1.21B vs est. $1.18B, said semi shortage negatively impacted sales by ~$245M, is targeting annual sales $5.15-5.25B vs est. $5.14B; GT Q3 adj EPS 72c vs est. 25c on revs $4.93B vs est. $4.77B, revenue per tire +10%, tire unit volumes +32% YoY; CVNA Q3 EPS loss (38c) was wider than est. (28c) on revs $3.48B vs est. $3.27B, retail units sold +74% YoY; HMC Q2 EPS 85c beat estimates, cut its FY22 net profit forecast vs its August guidance by over 17%, revenue by over 5%, and car sales target to 4.2M vs 4.85M; MGA Q3 adj EPS 56c missed est. 60c on revs $7.9B vs est. $7.9B as vehicle production was significantly lower than expected due to the ongoing semi shortage, lowered full-year sales view to $35.4-36.4B from $38-39.5B; BTIG downgraded NKLA to Neutral after the stock rose over 21% yesterday and about 50% over the past month, pushing it close to their prior $16 target; WKHS fell on reports the Justice Department has opened an investigation into electric-van startup

·     Consumer Staples; The Real Good Food Company (RGF) 5.333M share IPO priced at $12.00; MNST delivered strong +13.2% sales growth Q3, ~110 bps above consensus, and October sales were up a solid +8% Y/Y or ~12-13% adjusting for one less selling day; BGS earnings and downgraded at Piper to Underweight to recognize uncertainty to its fundamental outlook as elevated 2H21 headwinds from continued inflationary pressure that carryover into 1H22 make any meaningful margin expansion unlikely.

·     Restaurants; SHAK shares rose despite 3Q print missed expectations on softer sales & elevated costs, including 3Q 2-yr SSS of -7.3% & restaurant margin of 15.8% (consensus 16.5%). SHAK’s 4Q guide came in below the street, and includes revenue of $193.5-200MM; PZZA downgraded to Hold from Buy with $136 tgt on risk/reward at Deutsche bank; LOCO posts Q3 results (comp sales miss and EBITDA beat), and decelerating SSS trends to +8.5% in 4QTD, from +11.9% in 3Q21, primarily driven by staffing challenges at company stores; CHUY Q3 EPS $0.45 vs consensus $0.38 and revenue $101.9M vs consensus $102.7M; comps 20.5% vs consensus 21.7%;

·     Casinos, Gaming: DKNG posted a quarterly loss of $1.35 a share on revs $135M, missing the consensus views for a loss of (98cc) and $236.9M as Q3 marketing spend was up 49% to $304M (a jump of over $100M) and YTD marketing spend is $703M vs. $303M last year; sees FY21 revenue of $1.24B-$1.28B vs. $1.29B consensus and FY22 revs of $1.7B-$1.9B vs. $1.81B est.; PENN rebounds as several analyst defend shares (while cutting price targets)

·     Lodging & Leisure sector among top gaining sectors; PTON shares tumble as FY22 rev guide was lowered given N-T demand issues (as economies re-open) and mix shift to lower price bike while EBITDA losses are expected to be worse given lower rev and product gross margins coupled with higher supply chain costs; ABNB jumps as Q3 revenue and EBITDA came in 9% and 33% above consensus, respectively, as Airbnb continues to take share of the lodging market; EXPE getting a double boost, lifted on better Q3 EPS/revs ($2.26 vs est. $1.65 on revs $2.96B vs est. $2.24B), driven by superior performance from Vrbo and domestic travel, while online travel industry in general gets an early boost on positive PFE COVID pill news as BKNG, TRIP rise along with strength in casino stocks WYNN, LVS, MGM; UBER Q3 revenue topped expectations, while UBER achieved EBITDA profitability for the first time; gross bookings of $23.1B were in-line with the guidance range (of $22.8B-$23.2B; CNK Q3 revenue jumped to $434.8 mln from $35.5 mln a year ago, as moviegoers flocked to theaters

Energy

·     E&P and Majors; The weekly baker Hughes rig count rose 6 to 550 with oil rigs up 6 to 450 and gas rigs unchanged at 100; LBRT 9.5M share secondary at $11.65; OXY Q3 EPS $0.87 beat est. $0.66 on revs $6.81B vs. est. $6.55B, total average production from continuing operations 1.16K boepd, average worldwide realized crude oil prices $68.74/brl, increased of ~7% from Q2; DK Q3 adj EPS 13c vs est. (35c) loss on revenue $2.96B vs est. $2.55B; ENB Q3 adj EPS C$0.59 vs est. C$0.57; EOG Q3 adj EPS $2.16 vs. est. $2.04 on revs $4.77B vs. est. $4.53B, total crude oil production 449,500 boepd, increased regular dividend 82% to an indicated annual rate of $3.00 per share; NOG Q3 adj EPS 84c vs est. 89c on revs $259.7M vs est. $203.2M, total production 57,647 BOE/d (+98% YoY), narrowed FY production to 51,750-53,750 BPE/d from 49,500-54,250

·     Utilities & Solar; BE posted Q3 adj EPS loss (20c) wider than est. (8c) on revs $207.2M also below est. $240.7M, adj EBITDA loss ($9.78M) vs est. $10.2M profit as they were unable to bring costs down 10%-15% as targeted due to supply chain bottlenecks and price pressures; Dominion (D) posted Q3 operating EPS $1.11 vs est. $1.06 on revs $3.18B vs est. $3.96B, sees Q4 operating EPS 85-95c below est. 97c, narrowed FY21 operating EPS range to $3.80-3.90 from $3.70-4; ED Q3 adj EPS $1.41 vs est. $1.47 on revenue $3.61B vs est. $3.46B; PNW Q3 EPS $3 vs est. $2.78 on revs $1.31B vs est. $1.24B, sees FY22 EPS $3.80-4; SRE Q3 adj EPS in-line $1.70 on revs $3.01B vs est. $2.82B; CLNE Q3 adj EPS in-line 1c on revs $86.1M vs est. $83.8M; RUN Q3 EPS 11c vs. est. 1c on revs $438.8M vs. est. $414.3M, added 30,698 customers, net subscriber value $7,605 (+$2,031 vs Q2); FSLR Q3 EPS 42c and revs $584M missed consensus 59c on revs $685M, guided FY net sales $2.875-3.1B vs est. $2.9B, sees FY EPS $4-4.60 vs est. $4.15

Financials

·     Insurance giant AIG advanced following its profit beat; in FinTech & Payments; SQ shares decline after reported Q3 rev of $3.84B, missing estimates of $4.54B saying bitcoin revenue was lower than in Q2, as relative stability in the cryptocurrency’s price weighed on trading activity; PYPL earnings coming up next Monday; banks in general held up well despite the roll in Treasury yields

·     Consumer Finance; GDOT posted 3Q21 results that came in above consensus across the board, while the company raised its 2021 revenue outlook while continuing to reinvest the upside; RDFN Q3 revenue of $540MM grew 79% y/y, in-line with estimates and Redfin Now revenue was $238MM, above PSC at $236MM and up from $20MM in 3Q20

Healthcare

·     Vaccine movers; PFE’s oral antiviral candidate Paxlovid cut Covid-19 hospitalizations or death by 89% in trial, company says in statement and they plan to submit data to FDA for emergency use authorization as soon as possible; shares of MRNA, NVAX, BNTX, MRK and other vaccine names slide after PFE’s mental antiviral pill reduced the risk of death and hospitalization by 89% with those with COVID; NRXP shares tumble as the FDA has declined to grant Emergency Use Authorization for NRx Pharmaceuticals’ therapy, Zyesami® (aviptadil), in the treatment of critical COVID-19 patients; PBYI shares tank after its 3Q earnings missed estimates; OCGN rises after submits EUA to FDA for COVID-19 vaccine COVAXIN for ages 2-18 years

·     Other Pharma, Biotech movers; EBS falls after the U.S. government terminates contract with EBS for manufacturing COVID-19 vaccines, as the contract manufacturer will forego about $180 million due to contract termination; CALA slides after ending a Phase 2 study of its telaglenastat drug candidate after an interim analysis showed a lack of clinical benefit in non-small cell lung cancer patients with KEAP1/NRF2 genetic mutations; DCPH plunges after the company said its Qinlock drug failed to improve progression-free survival compared with sunitinib, the standard-of-care drug, in patients with second-line gastrointestinal stromal tumor; cannabis names slip led by CGC after pushing out its profitability tgt post earnings

Industrials & Materials

·     Materials, Industrial & Machinery; FLR 3Q adj EPS $0.23 vs est. $0.15 on revs $3.1B vs est. $3.2B; guides FY adj ESP $0.85-1.00 vs est. $0.72; JCI 4Q adj EPS $0.88 vs est. $0.87 on revs $6.4B vs est. $6.34B; sees 1Q adj EPS $0.52-0.54 vs est. $0.59; guides FY22 adj EPS $3.22-3.32 vs est. $3.30; MTZ edged higher early after mixed results last night; after a strong beat and raise from ALB in the lithium sector yesterday, LTHM reported Q3 EPS light of estimates saying the global supply chain disruptions along with steep costs offset stronger realized prices for electric vehicle battery; CC rises as reported Q3 adj. EPS and revenue that was higher than Wall Street estimates and boosted its full-year EPS forecast to ~$3.93-$4.13 vs. its previous forecast of ~$2.84-$3.56

Technology, Media & Telecom

·     Internet; FB has discussed opening physical stores to showcase its virtual reality and augmented reality devices, according to NY Times report; PINS 3Q21 revenue was in-line with PSC at $633MM while EBITDA was 25% better at $201MM. US MAUs declined again q/q to 89MM while Global were +1% versus 2020; another day of gains for GOOGL, FB, AMZN as large upside momentum continues yet again

·     Semiconductors; SWKS reported slight upside to the Sep-21Q. Dec-21Q guidance was largely in line, as the Mobile segment fared better, driven by iPhone 13 builds and (~5-10%) content gains (better than the QRVO report the day prior); SYNA spikes as reported SepQ rev/EPS of $373M/$2.68 and guided to a strong DecQ up 6% above consensus and GM to 59% (cons. 56.7%) on IoT strength; OLED reported Sep Q sales largely in line but EPS was below consensus expectations primarily due to lower materials GM; MCHP posted a slight beat but a material guidance raise its latest record quarter of revenue and profitability

·     Software movers; big beats in the sector (DDOG, BILL, BIGC): DDOG surges after beating top and bottom-line estimates as revs rise 75% YoY to $270.5M, topping estimates by $22.5M on better EPS saying customers with annual recurring revenue over $100,000 grew to 1,800 from 1,610 in the prior quarter with better margins; FTNT delivered another quarter of exceptional results exceeding Street Q3 forecasts and buy side expectations across all key metrics. In addition, the company guided Q4 revenue and billings nicely ahead of consensus; BIGC surges as Enterprise ARR grew over 50% organically for the fourth consecutive qtr and Subscription revenue was well ahead of expectations; BILL reported a high-quality organic revenue beat (11% above Street or 10%) and guided to mid-50s organic growth (up from mid 40s prior)

·     Hardware, Components & Services; NET posts better Q3 revs of $172.3M vs. est. $165.7M and EPS beat, while guides full-year loss per share of (5c-6c), smaller than the expected loss of (11c-12c); TDC reported a mixed 3Q w/ net new ARR of $11M below including new Cloud ARR of 9m below guide of 15m as mgmt attributed the Cloud ARR miss to deal slippage; LLNW reported largely in-line 3Q21 results and lowered its 2021 guidance; GPRO rises as Q3 adj EPS $0.34 vs est. $0.20 on revenue $316.7M vs est. $292.2M, adj EBITDA $60.4M vs est. $39.8M; subscriber count 1.34M, +168% YoY; avg selling price $381, +25% YoY

·     Media & Telecom movers; WWE slides after announced change of CFO and results were out last night (EPS better, revs lagged); LGF is exploring strategic options for its Media Networks (Starz) business which includes full or partial spin-off, split-off, issuance of tracking stock or other transactions; ATUS posted in-line 3Q21 results off the pre-announced downward revisions; CABO reported mixed 3Q21 rev/EBITDA highlighted by in-line HSD adds (vs. Street) with fundamentals largely intact mostly immune to Cable industry woes; VG upgraded to Overweight at JPMorgan saying trading at 3.4x EV/Sales which still represents a significant discount to peers; GCI shares slide as revenue declines and misses in Q3