Market Review: October 14, 2021

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Closing Recap

Thursday, October 14, 2021





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     Major U.S. stock averages surge, as all eleven S&P sectors rise led by technology stocks, strong quarterly results from banks (BAC, MS) and healthcare names (UNH, WBA), while better-than-expected economic data eased some concerns about higher inflation. Market fear non-existent as the CBOE Volatility index (VIX) drops below the 17 level despite the reality we should see asset tapering soon from the Fed (most likely November, but possibly December) as some Fed officials have recently suggested they would like to be done by mid ’22. Meanwhile, inflation is everywhere (note several bank CEO’s have said the last two days they believed inflation was NOT transitory while Fed’s Barkin said today “it turns out inflation isn’t transitory, there’s no shame in saying that”), but somehow sentiment has become more positive in recent days amid the news President Joe Biden wants to break a logjam at U.S. ports and stave off a holiday season of shortages and delays. Vaccine news also lifts sentiment the FDA will convene a meeting of an outside panel ahead of a potential authorization for the COVID-19 pill developed by MRK 9as per Bloomberg), while Biden said he expects U.S. regulators to decide whether to authorize PFE/BNTX covid-19 vaccine for kids in next few weeks. Oil prices pared gains after the EIA posted its biggest weekly crude inventory build since March. Healthcare was a standout in the Dow as managed car giant UNH and pharmacy retailer WBA post better quarterly results.

·     Stock/sector movers: Bank stocks were mixed despite earnings beat across the board this morning as falling yields pressured the sector to offset the beats and release of loss reserves: BAC, MS jump, USB, WFC slide; WBA, UNH pace the Dow after they both reported strong quarters; peers pop in sympathy; TSM rises after raising its revenue guidance on stronger demand to provide support for semi stocks; in other earnings, DPZ shares were weak early on its revenue miss and first quarterly decline in domestic same-store sales since 2011 but shares rally to go green, while PGR generally lower despite brief periods of green after its results; BA, SPR slide as defected parts for the 787 Dreamliner is the latest production problem for the plane; GTLB opens 22% above $77 IPO price, hits high above $100 in its debut.


Economic Data:

·     Producer Price Index (PPI) headline reading MoM for Sept rises +0.5% vs. est. +0.6% and on a YoY basis rose +8.6%, below the +8.7% estimate; on a core basis (ex Food & Energy), Sept MoM reading was up +0.2%, below the est. +0.5% and on a YoY basis rose +6.8%, also coming in below ests of +7.1%

·     U.S. jobless claims fell -36K to 293K in latest week (vs. time claims been below 300K since pandemic started) vs. est. 319K while prior week revised to 329K from 326K; the 4-week moving average fell to 334,250 from 344,750 prior (previous 344,000); continued claims fell to 2.593M from 2.727M prior (est. 2.675M); the U.S. insured unemployment rate fell to 1.9% from 2%


Commodities, Currencies & Treasuries:

·     Oil prices rise $0.87, or 1.08% to settle at $81.31 per barrel, up along with broader markets despite bearish weekly inventory data. Coming into the day, WTI crude was up about $2.00 this week, putting it on track for an eighth consecutive weekly increase as prices trade above $80 for the first time since 2014. The IEA said in its monthly report today that oil demand is set to jump by half a million barrels per day (bpd) as the power sector and heavy industries switch from other more expensive sources of energy, warning that the energy crunch could stoke inflation and slow the world’s economic recovery from the COVID-19 pandemic. In its monthly report, the IEA increased its global oil demand growth forecast by 170,000 bpd to 5.5 million bpd for 2021 and by 210,000 bpd to 3.3 million bpd for 2022. The agency now expects total oil demand in 2022 to reach 99.6 million bpd. Note as of midday, YTD gains for commodity prices staggering: Coal +216.8%, Natural Gas +124.3%, Heating Oil +72.2%, Crude Oil +67.4%, RBOB Gasoline +72.4%.

·     U.S. natural gas futures extend gains after the EIA reports smaller-than-expected storage build (of 81 bcf vs. est. +95 bcf). Total stocks now stand at 3.369 trillion cubic feet, down 501 billion cubic feet from a year ago. Gold prices rise $3.20 to settle at $1,797.90 an ounce, its third straight session advance with the dollar flat on the day. Treasury yields extend losses with the 10-year now down at 1.51% (down 10 bps this week after closing just above 1.61% last Friday) following in-line to tamer inflation data points from September CPI and PPI (though the prices are still notably higher historically).






WTI Crude















10-Year Note





Sector News Breakdown


·     Retailers; in home furnishings, Wayfair (W) downgraded to Underweight at Morgan Stanley given possibility of Home Furnishings category declines in both ’22and ’23 leading to declining near term sales and negative profit implications and BBBY also downgraded to Underweight from Equal Weight as the Home Furnishings category could decline in both ’22and ’23, which could be compounded by share loss in line with BBBY’s history; BURL, TJX and ROST all downgraded to Hold from Buy and cutting ests at Loop Capital warning that the chains could have understocked stores and supply chain issues through the holiday season after conducting some channel checks; Macy’s (M) shares popped in the afternoon after the WSJ reported an activist shareholder is urging a spin-off of its e-commerce business, citing people familiar with the matter.

·     Housing & Building Products; in homebuilders, JPMorgan reiterate Overweight ratings on larger-caps DHI, LEN and PHM, which remain top ideas in the space, while among smaller-cap and high-growth small-cap names, upgrade MTH to Overweight from Neutral, downgrade MDC and GRBK to Neutral from Overweight (as now expect more in-line performance from the latter two names) and reiterate OW ratings on TMHC and CCS as they anticipate a solid industry backdrop in 2022-23 driving further earnings growth over the next two years. The 30-year fixed-rate mortgage averaged 3.05% for the week ending Oct. 14, up from 2.99% in prior week and above from 2.81% averaged in same period a year ago, according to the Freddie Mac Primary Mortgage Survey.

·     Restaurants; DPZ 3Q EPS $3.24 vs est. $3.11 on revs $998Mm vs est. $1.04B; qtrly US comps -1.9%, qtrly international comps +8.8%; Jefferies said industry SSS was up +20bps for the week of Oct 4 from the previous week as traffic increased, they are optimistic about the upcoming holiday season despite choppy trends as restaurants face easy comps and healthy consumer demand, and remain positive on BLMN, EAT; Wells expects MCD will post low-teens SSS results in the U.S. vs 2019 with in-line numbers enough against the Delta dip in August, and sees room for some upside in IOM results even with tourism as a seasonal hurdle; Raymond James maintains generally positive stance despite Q3 underperformance due to optimism that sales could recover assuming Covid cases decline and labor market conditions can loosen, and their top long ideas are Strong Buy-rated PLAY, BLMN, TXRH, RUTH, followed by OP-rated CMG, DIN

·     Casinos, Gaming, Lodging & Leisure sector; GMBL rises after forecasting higher revenue in FY22 saying it expects net revenue to increase by at least 490% to $100 mln to $105 mln in FY22 driven primarily by the multiple acquisitions completed in calendar 2021; RBC lowered their estimates on UBER modestly after its recent business update and on LYFT with their PT going to $65 from $70 as their driver supply analysis shows potential share loss, though they reiterate their Outperform rating on both



·     Inventory data showed: the API showed a build of 5.21M barrels of oil for the week ending October 8, a draw of 4.58M barrels, distillate inventories show a draw of 2.71M barrels and Cushing inventories show a draw of 2.28M barrels. This morning, the Energy Information Administration (EIA) said Crude inventories rose a greater +6.1M barrels vs. +0.7M consensus, +2.3M last week, while gasoline fell -2.0M vs. -0.1M est. and Distillates Unchanged.

·     E&P and Majors; OXY agreed to sell its interests in two Ghana offshore fields for $750 million, with KOS paying $550M and Ghana National Petroleum Corporation paying $200M; Bank of America downgraded EOG and NOG to Neutral as they say it is premature to expect the company to resume spending on growth until there is better clarity on rebalancing of global oil markets, CLR to N as they see upside increasingly dependent on an upward reset at the long end of the oil curve after strong recent performance, resumed coverage on CTVA at Neutral, and double-upgraded RRC to Buy from Underperform as their preferred US gas play on the current cycle given it is among the most levered names to the current gas curve, but with significant exposure to strengthening NGL prices.

·     Alternative Power, solar and utilities; shares of OPTT, BWEN advanced initially after Interior Secretary Deb Haaland announced that her agency will formally begin the process of identifying federal waters to lease to wind developers by 2025.



·     Bank movers; WFC EPS $1.17 beat est. $0.99 and was aided by a 30c boost from the bank releasing $1.7B from its credit loss reserve, and its revenue $18.83B also beat est. $18.4B; BAC Q3 EPS 85c topped est. 71c on revenue $22.7B vs est. $21.68B, including net interest income $11.1B (+10% YoY), released $1.1B of its reserves, and net-charges $463M were 52% lower YoY; USB Q3 EPS $1.30 vs. est. $1.16; Q3 revs $5.89B vs. est. $5.77B; return on average assets 1.45% vs. 1.17% y/y; return on average equity 15.9% vs. 12.8% y/y; net charge-offs $147 million, -71% Yoy; Citigroup Inc. (C) reported a 48% jump in Q3 profit that comfortably beat market estimates, as the bank released loan loss reserves (took down $1.16B of loss reserves that were built in) and reaped fees from equity underwriting and investment banking as those revs rose 39%; MS Q3 profit rises 36% YoY with EPS of $1.98 topping the $1.69 est. and revs rise 26% to $14.75B vs. est. $13.93B helped as Investment banking fees jumped 67% to $2.85B, revs from advising on deals more than tripled to $1.27B and fees from arranging IPOs/stock offerings rose 16% to $1.01B (trading revs rose 6% to $4.52B a day after JPM said trading revs fell 5%)

·     Brokerage; U.S.-listed Chinese online brokerages FUTU and TIGR shares slipped after reports they face regulatory risks as China’s personal data privacy law takes effect Nov. 1, the official People’s Daily said in an analysis on its website. Such brokerages could violate data privacy rules and runs compliance risks; Citigroup reiterates a Buy rating on RJF with a $147 PT as see several key positives and/or points of differentiation for RJF based on JPM’s results and subsequent CC guidance/commentary

·     Bitcoin, FinTech & Payments; COIN shares rise as Bloomberg reported the waitlist for its not-yet-launched marketplace for nonfungible tokens (NFT) tops 1 mln signups on its first day after the company announced the Coinbase NFT marketplace on Oct. 12; MS CEO Gorman said today on conference call “doesn’t think crypto is a fad, it’s not going to go away"; will "wait and see how regulators handle it"; UPST shares surge again on upside momentum, having climbed nearly 11% in just five sessions, and is up about 1,625% in the past year

·     Consumer Finance; credit cards (AXP, DFS, COF) were weak yesterday on JPM comments, while today Citi noted revenue from Citi-branded cards in North America declined 1% and revenue from cards issued for retailers fell 6%



·     Vaccine news; shares of vaccine makers MRNA, PFE, BNTX higher as Bloomberg noted the FDA will convene a meeting of an outside panel ahead of a potential authorization for the COVID-19 pill developed by MRK, while Biden says expects U.S. regulators to decide whether to authorize PFE/BNTX covid-19 vaccine for kids in next few weeks; late day, U.S. FDA advisers vote in favor of MRNA vaccine booster shots for recipients aged 65 and over, some other high risk people

·     Pharma movers; in generics, PRGO was upgraded to Outperform at Raymond James with a $59 price target as recently disclosed strategic acquisition of leading branded consumer play HRA is expected to immediately boost profitability back to 2019 levels; JAZZ highlighted optimism for Xywav IH opportunity with launch early-November. As first drug approved for IH and with impressive efficacy, JAZZ will initially pursue ~37k diagnosed IH patients seeking treatment

·     Biotech movers; SRPT 6.17M share secondary priced at $81 per share; NRXP rises after announcing the publication of peer-reviewed results from a prospective, open-label, administratively controlled trial of aviptadil for the treatment of respiratory failure in patients with critical Covid-19; REGN said the FDA accepted its application for approval of its monoclonal antibody treatment for non-hospitalized COVID-19 patients and as a prophylaxis for some people who have been exposed to the virus; BTAI slides after filed an 8-K that its chief commercial officer, Will Kane, resigned as of 10/8

·     MedTech Equipment; KIDS said 3Q revenue was hurt by the surge in cases of Covid-19 delta variant and RSV within children’s hospitals combined with staff shortage; LUCD 5M share IPO priced at $14 per share; CDXS announced that the two large purchase orders received earlier this year (~$29M in total) were related to an enzyme product used to manufacture PFE’s COVID-19 pill (PF-07321332) not the product markets previously believed the orders were for (MRK’s molnupiravir)

·     Healthcare Services; managed care giant and Dow component UNH Q3 adj EPS $4.52 vs. est. $4.41 and Q3 revs $72.34B vs. est. $71.19B, helped by a jump in revenue from its Optum unit that manages drug benefits, rising 14% and raises FY21 adjusted EPS view; pharmacy retailer and Dow component WBA beat analyst expectations for both revenue and adjusted earnings with its Q4 FY21 financials as EPS beat by $0.15 per share while sales rose ~12.1% YoY topping views; EYE was upgraded to Overweight at Morgan Stanley as see healthy Optical category growth in ’22and ’23,amplified by EYE’s continued share gains; NEO was upgraded to Outperform at Raymond James supported by analysis of RaDaR and competitive MRD datasets


Industrials & Materials

·     Industrial, Aerospace & Defense; BA slips initially after a Dow Jones report said the plane maker is dealing with a new defect on its 787 Dreamliner, citing unidentified people familiar with the matter; for DE, more than 10,000 Deere & Co. workers went on strike Thursday after "the company failed to present an agreement that met our members’ demands and needs," the United Auto Workers union said in statement.

·     Transports; UPS was upgraded to buy from Hold at Stifel and up tgt to $224 saying despite tough comps, Ecommerce continues to drive secular volume growth in the company’s core small package unit; CAR was downgraded to Underweight with a $110 PT at Morgan Stanley on the back of what they see as 1) peak cyclical earnings, 2) a negative risk reward, and 3) a premature multiple re-rate and see better risk-adjusted opportunities for auto mobility; in trucking, Cowen said carriers expect rate increases of 5.1%, up 20bps from our 2Q survey and see the results as a positive for the group, and see KNX, SNDR as best positioned, while also like CVLG and USAK for investors capable of playing smaller cap names; Wells Fargo said XPO, GXO, KNX, JBHT, HUBG, and SAIA remain top ideas as believe that the current environment continues to be supportive of our sector selectivity; in airlines, ALGT reports traffic growth of 4.2% in September vs. September 2019 and Total system passengers in Q3 grew 92.1% Y/Y to 3.87M.

·     Metals & Mining; MT downgraded to Sector Weight from Overweight at KeyBanc citing the firm’s view of limited prospective positive catalysts and a pending downturn in global spot steel metal spreads amid rising costs; STLD CEO said steel prices, driven to nosebleed highs by surging demand, should start to "erode" by the first part of next year as COVID-related supply bottlenecks ease and new domestic production comes online; CMC 4Q adj EPS $1.26 vs est. $1.27 on sales $2.0B vs est. $1.93B, says anticipates strong operating and financial performance will continue in FY22; U.S. Steel (X) upgraded to Buy from Hold at Argus as expect the company benefit over time from recent efforts to strengthen its balance sheet and note that business fundamentals remain strong (has $25 tgt)

·     Paper & Packaging: WRK, IP, PKG shares were volatile, as analysts weigh in cautious after news of a new recycled containerboard mill – ~300,000 tons or ~1% of current supply – further adding to the notable capacity expected to begin production over the next few years. Truist noted in aggregate, they estimate that the US industry is now likely to see additional supply amounting to ~4.1 million tons (~10-11% of current supply) from 2020-2023 (versus a previous ~3.8-million-ton estimate) and think there is increased risk that containerboard prices will decline; GEF was downgraded to neutral from Buy at Bank America along with SON, BLL


Technology, Media & Telecom

·     Semiconductors; TSM lifted its revenue growth forecast for 2021, citing an "industry megatrend" of strong chip demand after Q3 rev climbed 22.6% to $14.88B, in line with co’s prior estimated range of $14.6B-$14.9B and vs. est. $14.83B; Q3 profit rose 14% from a year earlier; in research Cowen said its top idea into year-end is SWKS while downgrading CTS ($34 from $40) and AIRG ($14 from $18) and are lowering targets on SYNA ($180 from $200) and VSH ($22 from $27) as they struggle to see how #s (and multiples) move higher over the next couple of quarters

·     Software movers; GitLab (GTLB) 10.4M share IPO priced at $77.00; RMBS announced that Rahul Mathur, senior vice president and CFO, will resign from Rambus effective November 15; Credit Suisse cuts Unity Software (U) PT from $170 to $160; ETWO reported better-than-expected F2Q results, topping estimates for total revenues and Adj. EBITDA by $1.7M and $1.5M, respectively, while the FY22 revenue outlook is unchanged; The Information reported that the U.S. Army has put a MSFT contract for augmented reality headsets worth $21.88 billion on pause, reports defense intelligence company Janes. If Microsoft loses the contract, it could set back the company’s broader augmented reality hardware plans.

·     Media & Telecom movers; ATupgraded to Sector Weight from Underweight at KeyBanc saying that it appears more difficult to justify further downside from current levels given simplification of the business, reduced leverage, and peers that trade at premiums; GOGO shares slipped after TSLA CEO Elon Musk said in a tweet he was in talks with airlines about installing Starlink, a satellite-based broadband service owned by his rocket company SpaceX


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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