Closing Recap

Thursday, November 18, 2021

Equity Market Recap

·     Large caps tech leads, Smallcaps underperform – similar trading pattern this week as the S&P and Nasdaq rally, while the Dow and Russell slide. A massive push in large cap tech giants almost single handedly keeping the S&P 500 and Nasdaq higher throughout the afternoon, with shares of GOOGL nearing all-time highs up 1%, Apple rises over 3% to new ATH’s after good gains this week, NVDA surging over 10% on its earning beat lifting the semi-index to record highs (SOX) and Amazon (AMZN) rising over 3% on no specific news other than upside momentum and strength in retailers after earnings this week (M, KSS, TGT). The same players day-after-day have kept the broader stock averages higher consistently while breadth of the market remains weak, with decliners outpacing advancers by a wide margin most of the week. Economic data remains strong with jobless claims and Philly manufacturing the latest signs, boosting expectations daily that Fed will likely need to get more aggressive on rate hikes by mid-2022 to prevent inflation from getting further out of control – though stocks and bond markets remain unphased. European shares ended lower on Thursday, weighed by weakness in commodity-related stocks amid declining oil and metal prices, and breaking a record-breaking six-day rally fueled by strong earnings. The pan-European STOXX 600 index dropped 0.5%, its first fall in seven sessions.

·     Stock & Sector movers: NVDA surges to record highs after a quarterly beat an strong guidance, lifts Nasdaq-100 to their own record highs; retailers outperform with Macy’s soaring to 3-year highs, KSS spiking after both reported beats with raised guidance, LB spinoffs jump with BBWI touching highest since the 8/3 split and VSCO rising almost 20% at highs; BJ rockets to ATHs and PLCE to 2.5-year highs after both reported beats with new buyback authorizations; TDOC shares stumble and barely hold above September’s 52-week lows amidst another day of weakness in stay-home names; Z new 52-week lows for the 3rd straight day, PTON lowest since May 2020 more than 70% off January’s highs, ROKU 2021 lows, ZM tumbles, video games down; post-earnings decliners include CSCO reversing back to April levels on its margins miss and weak guide, WOOF dropping sharply despite its beat/raise; BABA plunges over 10% at lows after its quarterly miss to weigh on peers; AFRM sinks on its convertible notes offering as some other fintech names also pressured – SOFI extends declines since Monday night’s secondary, insurance names LMND ROOT both hit 52-week lows, PYPL dips below $200 for the 1st time since last November.

·     Calls get louder on Wall Street amid irrational market exuberance: Liberty Media Chairman John Malone said Thursday on CNBC that the current stock market has become a "land rush" that resembles the dot-com bubble of the late 1990s. Malone argued that a focus on growth over profitability and the entry of many competitors into certain fields reminded him of the dynamics that shaped trading in the late 90s and early 2000s. Meanwhile, Pershing Square’s Bill Ackman today at an S&P Global ratings conference that the Fed’s monetary policy created a "classic bubble," and he expects the Fed will need to tighten rates faster to curtail inflation.

Economic Data:

·     Weekly jobless claims fell to 268K from a slightly upwardly revised 269K prior week and above the 260K estimate; the 4-week moving average fell to 272,750 from 278,500; continued claims fell to 2.080M from 2.209M prior (est. 2.12M); U.S. insured unemployment rate fell to 1.5%

·     Philadelphia Fed Business Outlook for Nov jumps to 39.0 (highest since April when it was above 50, which was a 48-year high), topping the 24.0 estimate

·     Oct leading economic indicators +0.9% vs. consensus +0.8%

Commodities, Currencies & Treasury’s

·     Oil prices reverse to the upside, with WTI crude gaining $0.65, or 0.83% to settle at $79.01 per barrel, well off 6-week morning lows of $77.08 per barrel. Prices dropped overnight as China said it was moving to tap reserves after a Reuters report that the United States was asking large consuming nations to consider a stockpile release to lower prices. Bearish weekly inventory data on Tuesday and Wednesday have also pushed prices lower in recent days. Overall, a pullback seen in commodity prices of late with coal futures down 55% in past month, the Baltic Dry index, five-month low and gasoline futures, one-month low. Gold prices slip -$8.80 or 0.5% to settle at $1,861.40 an ounce after finishing at its highest levels since mid-June on Wednesday. Inflation fears have helped pop gold prices the last week or so, but with markets rallying yet again today, investors bailed on safe-haven precious metals.

·     Bitcoin prices fall, continuing a rough week (down 10% first 4-days), falling over 4% to drop below $58K, while Ethereum tumbles 5% to around the $4,000 level. The U.S. dollar edged back from a 16-month high following its recent surge fueled by diverging central bank tightening expectations amid surging inflation around the globe, had gone too far. The dollar index (DXY) reached its highest since mid-July 2020 on Wednesday at 96.226 but was down on the day. The euro bounced off a 16-month low hit on Wednesday below $1.13. Despite improving economic data and rising interest rate expectations amid rising prices, Treasury yields reverse to break-out meaningfully above the 1.6% level for the 10-year, ending little changed again today.

Sector News Breakdown

Consumer

·     Retailers; BABA shares tumble over 10% after missed expectations for Q2 revenue and forecasts its slowest annual revenue growth since 2014, as consumption in China slowed – revenue rose 29% to 200.69 bln yuan ($31.44 bln) in the qtr, below est. of 204.93 bln yuan and forecast 20% to 23% growth in fiscal 2022 revenue, short of the 27% estimate; VSCO 3Q EPS of $0.81 beat consensus of $0.69 on better margins which were 39.2%, 100bp better than expected due to significant merchandise margin improvement driven by strong product assortment; BBWI 3Q EPS of $0.92 beat consensus of $0.60 on sales and gross margin as sales decreased 1% vs 2020 (+53% vs. 2019), beating estimate due to stronger demand and strategic price increases/better guide; BJ Q3 adj EPS $0.91 vs. est. $0.80; Q3 revs $4.26B vs. est. $3.92B; Q3 comparable club sales, excluding gasoline sales, increased by 5.7%, reflecting two-year stacked comp of 24.2%; PLCE announces buyback authorization up to $250M; Q3 EPS $5.43 topped the $4.40 est. on better revs of $558.2M, rising 31.2% vs. est. $566.4M; said not providing guidance

·     Department stores; Macy’s (M) surges as Q3 adj EPS $1.23 crushed est. $0.31 on sales $5.44B vs est. $5.2B, comp sales +37.2%, raised FY guidance for adj EPS view to $4.57-4.76 from $3.41-3.75 and revenue to $24.12-24.28B from $23.55-23.95B, does not expect to be materially impacted by supply chain disruptions in Q4, announced plans to launch a digital marketplace platform in 2H22 that is expected to produce incremental revenue to the $10B in digital sales they are targeting in 2023; KSS Q3 adj EPS $1.65 also blew out estimates calling for $0.69 on revenue $4.6B vs est. $4.27B, comps +14.7% vs est. +12.7%, raised full-year outlook for sales growth to mid-20s% from low-20s% and adj EPS to $7.10-7.30 from $5.80-6.10, and nearly doubled its 2021 stock buyback plans to $1.3B from prior plans for $500-700M; JWN (reports next Tuesday) shares got a lift from these reports and also announced a digital-first partnership with Fanatics to expand into the licensed sports fan product category for the first time

·     Auto sector; Electric vehicles fare poorly in the latest reliability study from Consumer Reports, with Tesla Inc. and its battery-powered lineup finishing second to last for the second-straight year. Only Ford Motor Co.’s Lincoln division was worse, the publisher said Thursday. But there’s a twist: It’s not the battery or motor that makes EVs less reliable. It’s the glitchy new gadgets (shares of RIVN, NKLA, FSR, among movers on report); TSLA is recalling 7,600 vehicles in the United States because the driver’s air bag cushion may tear during deployment, the National Highway Traffic Safety Administration said; AAPL shares topped to highs on headlines the co accelerates car work, aims for fully autonomous vehicle, aiming for autonomous car without steering wheel, pedals (shares of VLDR rises in reaction – an Apple supplier)

·     Consumer Staples; COTY slightly edged up 2022 EPS guidance and said it is aiming to grow revenue by 6% to 8% annually, after adjustments, through fiscal 2025 during its investor day event; HAIN upgraded to Outperform from In Line at Evercore/ISI and raise base case target to $48 after a recent meeting with the company; OTLY on November 17, 2021, co announced that it has initiated a recall for a limited selection of products in Sweden; separately, OTLY upgrade to Overweight wat Morgan Stanley with $14 tgt despite lower estimates, as valuation has compressed too much; KHC announces offering of 30.6M shares of common stock for holders; shares of Sweetgreen (SG) 13M share IPO priced at $28.00; SJM said to invest $1.1 bln to build a new manufacturing facility for production of its Uncrustables sandwiches

·     Casinos, Gaming, Lodging & Leisure sector; travel and leisure names underperformed early (CCL, NCLH, UAL, WYNN, LVS) amid a surge in Covid cases in Europe; IHS upgraded to Overweight at JPMorgan with a $22 YE22 PT due to the strong 3Q results, current price level and announced addition of 5.7k towers in South Africa, which meaningfully contribute to revenue, EBITDA and AFFO growth; in gaming, CZR named an official sports betting partner of the Knicks, Rangers, Madison Square Garden Arena and MSG Networks; in lodging, HGV upgraded to Buy at Jefferies as believe the shares should begin trading on clearer, more visible earnings expectations post earnings

Energy

·     E&P and Majors; energy stocks slipped as WTI crude on track for a 3^rd straight week of declines; HP Q4 EBITDA of $18M came in below Street estimates of $40M despite higher than modeled revs of $344M, although $30M FCF was better than modeled with working capital release – Piper noted the cost-driven EBITDA miss included higher inventory and reactivation costs, as well as higher G&A due to the recent ADNOC transaction; FTI announces strategic investment and collaboration with Orbital Marine power to accelerate tidal energy; DCP was upgraded to Buy at Stifle after earnings; in solar, CSIQ Q3 EPS $0.42 vs. est. $0.18; Q3 revs $1.23B vs. est. $1.33B; Q3 solar module shipments of 3.9 GW in Q3; said it expects Q4 revenue $1.5B-$1.6B vs. est. $1.79B

Financials

·     Bitcoin, FinTech & Payments; selling pressure in the crypto asset sector today as Bitcoin falls below $59,000 and Ethereum below $4,100, pushing shares of COIN, MARA, RIOT, MSTR, SI lower (named leveraged to crypto movements); India may seek to disincentivize, but not ban, use of cryptocurrencies, according to a Reuters report saying the country may allow only pre-approved virtual currencies to be traded and the gov’t may levy high taxes on crypto gains and transactions – sources; shares of AFRM slide after announcing offering of $1.25B of convertible senior notes due 2026; IIIV F4Q results came in above expectations across the board as the company provided a FY22 outlook that compares favorably to consensus; payments space extends losses with MA, Visa (V) pressured all morning (amid rising BNPL competition) and after AMZN said yesterday it balked at rising credit card fees

Healthcare

·     Pharma movers; for PFE, BNTX, the Biden administration said today it will buy 10 million courses of Pfizer’s COVID antiviral pill if it gains an emergency use authorization from the FDA, in deal valued at around $5.3B; DRNA to be acquired by NVO for $38.25 per share in cash, in deal valued at $3.3B, an 80% premium from yesterday; SAVA initiates a second phase 3 study of simufilam for the treatment of patients with Alzheimer’s disease; CVAC publishes preclinical data of second-generation Covid-19 candidate, CV2CoV, demonstrating comparable antibody levels to licensed mRNA vaccine; cannabis names (MSOS) slip after Barclays said global cannabis market growth will largely be driven by the "legal" U.S. market, Canadian cos such as CGC, CRON however, can’t control a U.S. MSO (multi-state operator)

·     Biotech movers; ALNY rises following a Bloomberg report that the co may be a potential target for NVS as investor push for the drugmaker to make an acquisition https://bit.ly/3oC6si9 ; CRDF said PFE made a $15 million equity investment in the co, as purchased 2.4M shares for $6.22 per share; RCUS rises after GILD exercises options to its anti-TIGIT program (domvanalimab and ab308), etrumadenant (a2a/a2b adenosine receptor antagonist) and quemliclustat (small molecule cd73 inhibitor) with Arcus to receive option payments totaling $725; MRNA says first participant has been dosed in its mid- to late-stage study of mRNA-1345, its vaccine candidate for Respiratory Syncytial Virus (RSV); in research, Mizuho lowered prices tgts on AXSM to $51 from $55, SAGE tgt to $44 from $52 after recently conducted a proprietary physician survey to better understand physician interest into novel rapidly-acting antidepressants

·     Healthcare Services; TDOC introduced guidance at its Investor Day today, seeing FY22 revenue ~$2.6B vs est. $2.58B and is targeting annual sales growth of 25-30% from 2021-24 and greater than $4B in revenue in 2024; WOOF Q3 adj EPS 20c vs est. 18c on revs $1.4B vs est. $1.37B, comps +15% above est. +9%, raised FY21 ranges for EPS and revs; JPMorgan upgraded EVH to OW with a $37 PT from $26 as they see a clear path to 20% revenue growth next year and cheap valuation compared to both Healthcare IT peers and other value-based primary care providers; Cowen named CNC their Top Value pick in managed care with 40-60% upside on the belief in a path to higher sustainable margins and also reiterated HUM at Outperform as they see a discount of ~15% to the S&P; CVS announced steps to accelerate its omnichannel health strategy, management changes, new store formats beginning Spring 2022, closures of ~300 stores over the next 3 years, and expects an impairment charge in Q4 between $1-1.2B and 56-67c of EPS, lowering its FY EPS view to $5.46-5.67 from $6.13-6.23 while maintaining their adj EPS range $7.90-8; CLOV upsized its secondary offering to 52.17M shares from 35M and priced the offering at $5.75 for a total of $300M; BMO lowered their target on AVAH to $12 but still sees accelerating growth due to their uniquely strong position

Industrials & Materials

·     Aerospace & Defense; BA upgraded to Overweight from Neutral and raise tgt to $275 from $260 at JPMorgan (2^nd analyst upgrade this week) saying the co is not out of the woods; however, there is a defined catalyst path and the first of these – China’s MAX certification – is now in view; RKLB successfully deployed two satellites to orbit for real-time geospatial monitoring company BlackSky; BAH partners with U.S. Air Force to commercialize platform one; KOPN begins shipments on $3.5 million production order for its Brillian display for the U.S. army’s common helmet mounted display system

·     Industrial & Machinery; DE workers voted to approve a modified contract proposed by the company, ending a near six-week strike; the United Auto Workers members of Deere ratified a six-year agreement by a vote of 61% to 39%; TTEK reported Q4 adjusted EPS of $1.05, which beat consensus of $0.99, driven by both revenue (+17% organic, +15% organic excluding storm response) and margins (+20 bps vs. our estimate)

·     Metals & Materials; SLI shares slide following a short report call from Blue Orca’s Soren Aandahl; BERY shares slipped on mixed earnings and guidance as Q4 sales topped views, but Ebitda missed; NUE announced it would add a blast and prime line at its greenfield steel plate mill in Kentucky

Technology, Media & Telecom

·     Internet; U.S. listed China stocks hammered the last few days after quarterly results for many names (BABA, BIDU, JD, VIPS), disappoint, all reflecting the slowing Chinese economy, which is negatively impacting domestic retail sales, and a higher level of investment spend on newer growth initiatives (not necessarily a surprise, but stocks were punished broadly); social media related names extend recent declines with SNAP, TWTR, FB, PINS all pressured

·     Semiconductors: another record high for the Philly semiconductor index (SOX) topping the 3,9000 level, as chip giant NVDA reported a strong beat-and-raise quarter, with Gaming growing 42% Y/Y (and 5% sequentially) and Data Center growing 55% (and 24% sequential growth) – overall, sales of $7.1B, GMs of 67% and EPS of $1.17 exceeded expectations and the prior consensus outlook; just broad strength again in chip space AMAT, AMD, AVGO, MU, MRVL, LRCX)

·     Software movers; BILI announced a proposed offering of $1.4 billion of convertible senior notes; EVCM announces withdrawal of previously announced follow-on offering; ATVI was downgraded to Neutral from Overweight at JPMorgan as think recent negative headlines introduce a significant amount of uncertainty into this story (though notes down 23% last 3-months)

·     Hardware, Components & Services; CSCO shares slide after earnings guidance disappoints, reporting Q1 sales of $12.90B (8.1% y/y) vs. $12.98B consensus and lowered F2Q22 guide to 4.5-6.5% y/y growth vs. cons at 7.4% while maintaining FY22 guide at 5-7%; SONO announced that its Board has authorized a new $150mn share repurchase after a Q3 EPS beat an in-line revs result while FY22 Ebitda guidance mid-point above ests on stronger rev growth of 12%-16% YoY; GPRO was upgraded to Overweight from Neutral at JPMorgan as expect pivot to DTC strategy, high subscriber attach rate on GoPro.com, and increase in prices driving gross margins higher