Closing Recap

Thursday, October 28, 2021

Equity Market Recap

·     Positive earnings results, optimism of a spending bill in Washington nearing, technicals and upside momentum all cited for the further advance, as U.S. stock markets continue to astound. The Nasdaq Composite officially joined the S&P 500 and Dow at record highs today (after the Nasdaq 100 touched a record yesterday), surpassing its previous all-time best of 15,403 as investors poured into stocks ahead of Apple (AAPL) and Amazon (AMZN) earnings tonight after the close. Investors largely ignoring the disappointing GDP report, showing growth of 2% vs. estimates of 2.7%, and well below last quarter reading above 6%, raising hope the Fed will postpone that start of its Fed tapering program which is expected to start next month. In Europe, the ECB said it will continue to reduce its pace of net asset purchases under its pandemic emergency program compared with its Q2 and Q3 purchases this year and kept its interest rates unchanged, while U.S. investors await the FOMC meeting next week. The dollar finished lower, while Treasury yields, gold advanced and energy prices were mixed.

·     Spending bill framework laid out today in D.C: The White House released a $1.85 trillion social-spending and climate framework (much slimmer than the original $3.5T package that GOP nixed). The plan includes a one-year extension of the expanded child tax credit through 2022, plus a provision making that break permanently available to low-income families that don’t pay income taxes. It funds six years of universal prekindergarten, six years of child-care subsidies, and $150 billion to support long-term care for elderly and disabled Americans. The framework also sets aside $555 billion for climate-related provisions, including $320 billion in 10-year expanded tax credits for utility-scale and residential renewable energy, transmission, electric vehicles, and clean energy manufacturing. A new surtax in the White House framework will be 5% on adjusted gross income above $10 million and another 3% on AGI over $25 million, senior administration officials said. Those taxes would effectively raise the top tax rate on ordinary income to at least 45% and raise the top capital-gains rate to 31.8%. It would also apply a 3.8% investment-income tax to active business income, hitting high-income owners of many closely held businesses. The plan also removed any plan to reduce prescription drug prices.

·     Stock/sector movers: autos higher as Ford surges to 7-year highs after its blowout quarter and reinstatement of dividend; electric vehicle stocks (LCID, FSR, TSLA, BLNK) surge early afternoon after President Biden talks about EV charging stations during speech regarding spending bill; surging energy prices have buoyed solar names as well; MRK jumps to 52-week highs, BUD spikes over 10% at highest daily levels, CAT rises on beat; EBAY plunges on weak guidance, while SHOP shakes off early weakness on its quarterly miss to go green, and OSTK rockets higher on its beat in ecommerce earnings; TWLO plummets almost 20% at morning lows, trades under $300 for the first time since mid-May on decelerating growth outlook and weaker guidance.

Economic Data:

·     Economy slows: Q3 GDP (initial estimate) rises a disappointing +2.0% vs. +2.7% consensus and down sharply from the +6.7% growth in Q2

·     Initial Jobless Claims fell -10K to 281K vs. 290K consensus, 291K prior; the 4-week moving average 4-week moving avg. at 299.3K in the week ending Oct. 23; continuing claims fell 237K to 2.243M in the week ending Oct. 16

·     U.S. Sept pending home sales index -2.3%, missing the estimate of flat and sales were down -8.0% from Sept 2020; prior month reading was +8.1%

Commodities

·     Oil prices rebounded off earlier losses, with WTI crude rising $0.15 or 0.18% to settle at $82.81 per barrel after slumping to its lowest level in two weeks after Iran said talks with world powers on its nuclear program would resume by the end of November and U.S. crude inventories rose by much more than expected. The move followed lower prices the day prior on bearish weekly inventory data with larger than expected builds in crude. Natural-gas futures suffered a drop of almost 7% on Thursday, with prices pressured by recent reports Russian President Vladimir Putin ordered Gazprom to send more natural gas to Europe next month. December natural gas fell 42 cents, or 6.7%, to settle at $5.782 per million British thermal units.

·     Gold prices edge higher, rising $3.80 or 0.2%, but was enough to get back above the $1,800 an ounce level ($1,802.60 an ounce), as the dollar sunk on weak GDP data. The U.S. dollar index (DXY) fell over -0.5% to below 93.50 as the euro jumped back near the $1.17 level at its best levels after the European Central Bank left its policies unchanged said it will continue monthly asset purchases under the Pandemic Emergency Purchase Program at a "moderately lower". The dollar drops ahead of next week FOMC meeting.

·     After one of the worst days in months for longer-term Treasury yields (30-yr fell 10 bps Wednesday), they bounced slightly across the board with the 2-yr back above 1.5%, 5-yr to 1.19%, 10-yr to 1.57% and the 20-yr yield topped the 30-yr yield for the first time ever (above 1.96%). The U.S. Treasury sold $62B in 7-year notes at a yield of 1.461% vs. 1.45% when issued prior, with the bid-to-cover at 2.25 and indirect bidders awarded 63.89%, directs 19.54% and primary dealers 16.57%.

Sector News Breakdown

Consumer

·     Retailers; BOOT reported another strong beat with 2Q22 top and bottom line above elevated bars, and Cowen says strong 3Q to date trends suggest estimates are going to meaningfully increase; mattress retailer SNBR posted Q3 comps and EPS well above expectations, and strong double-digit demand growth continuing; Solo Brands, Inc. (DTC) prices 12.9M share IPO at $17.00 per share; OSTK rises on earnings and saying 2022 consensus numbers are too low; IRBT posted a big Q3 beat but lowered year guidance; JAKK beats Q3 EPS but revs fall short; BJ downgraded to Neutral at Bank of America as wage hikes add incremental SG&A burden that should continue into next year; DBGI rises announces it launched DSTLD on Amazon Prime

·     Consumer Staples; HSY 3Q adj EPS $2.10 vs est. $2.00 on sales $2.36B vs est. $2.33B, guides FY adj EPS $6.98-7.11 vs est. $6.91 that reflects stronger than anticipated consumer demand, an improved tax outlook and optimized brand investment; TAP Q3 EPS $1.52 on sales $2.82B vs est. $2.92B; BUD rises as it posted strong Q3 sales with revenue $14.27B above est. $13.61B, adj EBITDA $5.1B vs est. $4.96B (+3% vs est. -1.17%) along with beats against estimates for organic rev +7.9% and volume growth +3.4%, raised the lower end of its FY21 adj EBITDA guidance to +10-12% from +8-12%, and MO also said it’s not planning to sell its investment in the world’s biggest brewer after review that preceded expiration of lock-up, eliminating what analysts perceived was on overhang on the stock; MO 3Q adj EPS $1.22 vs est. $1.26 on revenue $5.53B vs est. $5.62B, narrows FY adj EPS guide to $4.58-4.62 from $4.56-4.62 vs est. $4.62; KDP Q3 adj EPS 44c was in-line with consensus on sales $3.25B vs est. $3.17B, reaffirmed FY21 adj EPS outlook while raising sales growth forecast to +7-8% from +6-7%; PPC Q3 adj EPS 67 missed est. 73c on sales $3.83B vs est. $3.69B; FDP is raising prices on bananas, pineapples, and fresh-cut fruit November 1 due to inflationary and supply chain pressures

·     Autos, Casinos, Gaming, Lodging & Leisure sector; Ford (F) rises on better than expected 3Q earnings report which featured stronger than expected revenue, margin, EBIT, EPS, and FCF; in auto retail, ORLY reported 3Q results that handily beat consensus estimates on both the top- and bottom-lines but missed elevated buy side expectations while comps of +6.7% exceeded consensus’ +1.5% estimate; SGMS announces sale of lottery business to Brookfield business partners for $6.05 billion; deal consisting of $5.825 bln in cash & an earn-out of up to $225 mln based on achievement of certain ebitda targets in 2022 & 2023; CHDN Q3 EPS $1.57 vs $1.47 est. and revs $393.0M vs est. $406.8M; EBITDA $156.1M vs consensus $149.4M

Financials

·     Asset managers, Bank movers; Treasury yields recover partially after yesterday’s shellacking, helping bounce banks and brokers; TROW agreed to buy fund manager Oak Hill Advisors in a $4.2 billion deal which will be financed through 74% of cash and the rest in T Rowe’s common stock; FCF upgraded to Outperform at RBC post earnings on increased confidence that FCF has diverse engines of revenue growth

·     Bitcoin, FinTech & Payments; TIGR and FUTU shares tumble after a Peoples Bank of China official called cross-border online brokers illegal in an article; MA shares erase initial gains after earnings despite posting greater sales and earnings year over year in Q3 as gross dollar volume improved – revs grew to $4.99 billion, from $3.84 billion yoy and above views; recall Visa (V) shares tumbled yesterday after cautious guidance; crypto stock rebound as Bitcoin reclaims $60K; the SEC asked at least one asset manager not to proceed with plans for a leveraged bitcoin exchange-traded fund, according to a person familiar with the matter https://on.wsj.com/3GvG2qg

·     Consumer Finance & Lending; LC gives a boost to the sector Q3 EPS $0.26 vs est. $0.03 on revenue $246.2M vs est. $221.2M; sees Q4 revs $240M-$250M vs est. $235.7M, raised FY view for revenue to $796M-$806M from $750M-$780M; AGNC downgraded to Market Perform from Market Outperform at JMP Securities as we believe the stock is currently fairly valued at 0.99x estimated book value; ADS reported delinquencies for sept. of 3.8% vs. 4.70% YoY, Sept. delinquencies 3.8% vs. 4.70% YoY and Sept. net charge-offs $44.8 million, -8.9% YoY

·     Financial Services; MCO Q3 EPS and revs topped consensus; UPWK sink after earnings, with analysts noting shares have been strong going into the print and guidance that some could find disappointing, sent shares lower; PYPL bounces off lows (had been down for the 6th time in last 7-days) following the PINS news last week, failing to find a bottom – earnings Nov 8th as shares lowest levels since March; payments names remain weak GPN, FIS after falling in reaction to FISV guidance yest

Healthcare

·     Pharma movers; Dow component MRK reports adjusted earnings of $1.75, topping the $1.55 estimate while raises and narrows 2021 guidance for revenue and profit to $47.4 bln-$47.9 bln and $4.71-$4.76 per share respectively; TEVA downgraded at Raymond James saying near-term fundamentals are increasingly coming up short vs. their own and Street expectations; ELAN downgraded to Hold at Stifel as see a potential revenue air pocket on the horizon as share losses in one of its biggest divisions (Parasiticides) accelerate

·     Biotech movers; ALNY shares tumble after Q3 revenue miss ($187.6M vs. $218M est.) and CEO change; BMRN posted Q321 total revenue of $409M, below consensus $435M, on better EPS with several misses across the commercial franchise including those for Vimizim and Naglazyme ($6M and $18M miss, respectively), and Palynziq missed slightly; RFL tumbles after a saying a Phase III trial of CPI-613 (devimistat) in patients with relapsed or refractory acute myeloid leukemia failed to meet its primary endpoint; IBRX upgraded to strong buy at Raymond James based on new data from a high dose (2400mg biweekly) cohort of an open-label Phase 2a PoC study in pyoderma gangrenosum

·     MedTech Equipment; ALGN Q3 cases/revenue exceeded FactSet consensus by 0.3%/4.0%, with volumes better than investors expected; EW slips on Q3 miss and commentary that October trends have not yet improved, as well as a slightly softer than expected 4Q guide; ABMD slips after Q3 EPS beats but cutting year sales view to $1.01B-$1.03B from $1.03B-$1.05B (below est. $1.03B) citing Delta variant and hospital labor shortages

·     Healthcare Services; LH 3Q adj EPS $6.82 vs est. $4.92 on revs $4.1B vs est. $3.65B; raises FY EPS guide to $26-28 vs est. $23.16, sees FY revs +13-14% vs est. +8.9%; TDOC Q3 revenue, visits, and adjusted EBITDA beat consensus, but midpoint of the adjusted EBITDA guide for 2021 is below consensus, and membership of 52.5M lives was slightly behind consensus; In hospitals, UHS Q3:21 adj. EBITDA of $482M and adj. EPS of $0.69 (GAAP $0.85) vs. Street estimates of $407M and ($0.03) as the results reflect highest-YTD COVID-19 volumes; MOH 3Q results a bit soft (IRF strong, Home Health and Hospice weak), full-year guidance trimmed

Industrials & Materials

·     Aerospace & Defense; seeing continued weakness in defense stocks this earnings season as NOC joins recent declines in RTX, LMT after Q3 revs missed views saying labor issues and supply chain impacted qtr; NOC 3Q EPS $6.63 vs est. $6.03 on revs $8.7B vs est. $8.95B; raises FY transaction adjusted EPS guide to $25.20-25.60 vs est. $24.99

·     Industrial & Machinery; CAT Q3 profit and revenue topped analysts’ estimates, helped by higher sales volume on strong demand for equipment and services, as well as favorable prices; PCAR upgraded to Outperform from Neutral at Credit Suisse and raise our FY 2022-23 EPS to $6.75 and $8.30 from $6.25 and $6.75, respectively and increase our price target to $106 (from $89), which provides 24% upside; CARR 3Q adj EPS $0.71 vs est. $0.66 on sales $5.3B vs est. $5.38B; reaffirms FY FCF guide of about $1.9B, raises FY adj EPS guide to about $2.20 from $2.10-2.20 vs est. $2.20; Jacobs (J) awarded $8 billion us department of energy contract; AOS among top gainers in the S&P 500 index after earnings; TXT rises following Q3 beat and raised guidance

·     Transports; most earnings behind airlines, rails as overall transport group rising in sympathy with broader markets; rail company NSC upgraded to Buy at Bank America as co reported a Q3 EPS of $3.06, well above our consensus view of $2.91 as higher than anticipated revenue drove most of the upside; CAR downgraded to Neutral from Buy with $200 tgt at bank America on valuation following a nearly 40% return in just the last month and a 345% performance in the stock YTD; HTZZ a mover on earnings

Technology, Media & Telecom

·     Internet; SHOP reverses initial loss post earnings as Q3 gross merchandise volume (GMV), revenue and EPS that came in below analyst expectations, but was more upbeat about Q4; MIME rises after the WSJ reported late yesterday the company is working with advisers to explore a sale or potentially take a big investment; EBAY slides as Q3 adj EPS 90c vs est. 89c on revs $2.5B vs est. $2.46B, GMV $19.45B vs est. $19.12B, though Q4 revenue guidance $2.57-2.62B was below est. $2.65B with adj EPS view $0.97-1.01 vs est. $1.00; CHWY rose midday after a positive mention by Motley Fool newsletter; FB CEO Mark Zuckerberg said privacy and safety need to be built into the metaverse, as he opened the company’s annual conference on virtual and augmented reality on Thursday – the company also rebranded name to Meta and will change its symbol to MVRS!

·     Semiconductors; GlobalFoundries (GFS) 55M share IPO priced at $47.00; TER receives three analyst upgrades with Hallum, UBS, and Cowen all raising to Buy equivalents – UBS says new disclosure around its customer exposure this year leads us to conclude that AAPL – TER’s biggest customer – is now de-risked; PI posted better-than-expected Q3 results, exceeding both revenue and earnings estimates despite ongoing supply constraints that continued to prevent the company from meeting strong customer demand; KLAC delivered a strong beat-and-raise quarter and raised its C4Q21 and C1H22 outlook and said expects total revenue will grow by a HSD% in C1H22 over C2H21; WOLF reported September quarter results ahead of expectations, while December quarter guidance was solidly ahead of consensus. Management highlighted strong demand for its power portfolio

·     Software movers; TWLO posted Q3 revenue growth of 65% Y/Y, well above consensus of 52% Y/Y on the surface, but decelerating organic revenue growth of 38% (vs. 50% in Q2), weak Q4 guidance weighed on shares; NOW reported a strong 3Q with revenue, billings, cRPO, and operating income coming in above expectations and net new ACV continues to accelerate, but shares slipped early as 4Q subscription billings guidance of +26% y/y disappointed; DDOG with analysts positive on the infrastructure software company in the wake of its user conference, where it unveiled new products; CHKP beat estimates with a slight gain in Q3 profit and raised its 2021 estimates amid rapid growth in its consolidated cyber security platform; SWI shares fall following its lower Q4 rev guidance earlier $180M-$184M vs. est. $203M

·     Media & Telecom movers; CMCSA posts Q3 revenue and adjusted EPS above Wall Street estimates, despite a slowdown in cable subscriber growth after a spike in demand earlier in the pandemic/gained 300,000 broadband customers in the latest quarter, beating ests; SIRI posts Q3 beat and raise; VIAC said to acquire majority interest in Fox TeleColombia & Estudios