Mid-Morning Look

Thursday, March 17, 2022

Stocks open lower but quickly bounce as momentum remains to the upside, even after a more aggressive Fed interest rate outlook yesterday and uncertainty in the Euro region as the Russian invasion of Ukraine enters its 4^th week. The S&P 500 index comes into today with a 2-day gain of 4.4%, its best 2-day return since April 2020 and the Nasdaq has jumped 6.8% the last two days, after falling more than 20% from its all-time highs earlier in the week (bear market territory), despite a recent uptick in Treasury yields as the Fed boosted interest rates 25 bps and forecasts between 6-7 this year. Yesterday’s upside was driven by growth factor, with China tech (as Beijing would step in support the economy and financial markets), FANMAG complex, profitless tech, EVs and autos, semis among best groups. The bull-bear spread in the American Association of Individual Investors (AAII) weekly survey was -27.3 vs -21.8 last week as Bulls fall to 22.5% from 24%, Neutrals fall to 27.8% from 30.2% and Bears rise to 49.8% from 45.8%. Strong morning of economic data as jobless claims improve, Philly Fed manufacturing nearly doubles estimates, housing starts top expectations and Industrial Production was in-line, reinforcing the Fed aggressive rate hike outlook provided yesterday to slow inflation. The Bank of England joined the U.S. Fed yesterday by raising interest rates for a third meeting running, as expected, but softened its language on the need for further increases from here. They voted to raise Bank Rate to 0.75% from 0.5%, following the U.S. Federal Reserve’s decision on Wednesday to raise borrowing costs for the first time since the pandemic. The White House announced that President Biden will have a video call with China President Xi tomorrow saying, “the two Leaders will discuss managing the competition between our two countries as well as Russia’s war against Ukraine and other issues of mutual concern.”

Economic Data

·     Weekly Jobless Claims fell to 214K in latest week vs. est. 220K while prior week revised to 229K from 227K; the 4-week moving avg fell to 223,000 from 231,750 prior week; continued claims fell to 1.419M from 1.490M prior and U.S. insured unemployment rate fell to 1.0%

·     Philly Fed Business Index for March actual 27.4, well above the forecast 14.75 and previous 16.0; Fed employment index at 38.9 vs 32.3; prices paid index rises to highest levels since 1969

·     Housing starts for February rose +6.8% m/m to 1.769M vs. 1.69M expected and above the upwardly revised 1.657M reading (from 1.64M); Building permits dipped -1.9% m/m to 1.859M vs. 1.85M expected and 1.895M prior

·     Industrial output for February rose +0.5%, in-line with estimates and January unrevised at 1.4%; Feb mining output +0.1%, utilities output -2.7%; Capacity utilization rate 77.6% vs. est. 77.8%; Feb manufacturing output +1.2%

Sector Movers Today

·     Housing & Building Products; negative for housing stocks (TOL, MTH, LEN, PHM) the 30-year fixed mortgage rate is at 4.46% according to bankrate.com. Over the last decade, it has only been higher than this on ~6% of days; LEN Q1 adj EPS $2.70 vs est. $2.60 on revs $6.2B vs est. $6.1B; home sales revs $5.7B vs est. $5.76B with orders $7.8Mm on 15,747 homes, deliveries 12,538 homes, gross margin on home sales 26.9%; in home furnishing, WSM Q4 adj EPS $5.42 vs est. $4.82 on revenue $2.5B vs est. $2.58B, announced a $1.5B stock repurchase authorization and raised its dividend 10% to 78c, and reiterated long-term financial guidance of mid-to-high single digit revenue growth with revs increasing to $10B by FY24 (current est. $9.25B); KIRK Q4 adj EPS 84c vs est. 83c on sales $176.2M vs est. $172.5M, comps -8.5%

·     Metals: steel producers with monthly outlooks: NUE said it expects to achieve a new record for Q1 earnings in range of $7.20-$7.30 per diluted share, below consensus views of $7.56, said steel mill segment earnings in Q1 are expected to decrease from Q4 and earnings for raw materials segment are expected to be in line with Q4; STLD guides Q1 adj EPS $5.85-$5.95 vs. est. $5.09; said Q1 profitability from the company’s steel operations is expected to be historically strong, but significantly lower than record Q4 results; CMC posted mixed quarter as EPS topped expectations but sales of $1.61B missed expectations but highlighted ongoing robust demand across all major product lines; in precious metals/miners, GFI downgraded to market perform at BMO

·     Biotech movers; ALNY files patent infringement suits against PFE and MRNA seeking damages for infringement of U.S. Patent No. 11,246,933 in the parties’ manufacture and sale of their messenger RNA (mRNA) COVID19 vaccines; QURE upgraded to Buy and $40 tgt at UBS saying at current levels, see attractive long-term risk/reward ahead of key catalysts over the next 1-2 years with a potential approval in Hemophilia B (~late ’22/1H23) and key readouts for Huntington’s program (1H23); MRNA CEO Stephane Bancel has sold more than $400 million of company stock during the pandemic, CNBC reported; BGNE downgrade from Outperform to Market Perform w/ $177 PT from $300 at Leerink

·     Retailers; GES 4Q adj EPS $1.14 vs est. $1.15 on revs $799.9Mm vs est. $805.9Mm, guides 1Q revs +low-teens with no meaningful incremental covid shut-downs vs est. +4% with FY revs +low-single digit vs est. +5.7% and op margin 10.5%; JWN announced today that it is reinstating a quarterly dividend at 19c; DG Q4 EPS $8.57 and revs $8.7B were in-line with consensus, comp sales -1.4%, sees Q1 EPS $2.25-2.35 vs est. $2.73 with same-store sales down YoY, but sees FY22 growth in same-store sales of ~2.5%, EPS of 12-14%, and sales of ~10% (~$37.6B from FY21’s $34.2B vs est. $36.8B); SIG Q4 EPS in-line $5.01 on sales $2.81B slightly ahead of est. $2.78B with same-store sales +23.8%, and FY23 guidance was better than expected with adj EPS expected $12.28-13 vs est. $10.52 on sales $8.03-8.25B vs est. $7.9B; WRBY Q4 EPS (41c) on sales $132.9M vs est. $133.4M, sees FY22 sales $650-660M below est. $687.8M; DBI Q4 adj EPS 15c vs est. 16c on sales $822.6M vs est. $838M, sees full-year EPS $1.75-1.85 vs est. $1.66 and comp sales growth in the high-single digits; DXLG Q4 EPS 14c vs est. 13c on sales $133.5M vs est. $131.9M, announced a $15M buyback, and guided FY22 sales $510-530M fully above est. $503.5M

Stock GAINERS

·     ACN +2%; Q2 EPS $2.54 vs. est. $2.20; Q2 revs $15.0B vs. est. $13.44B; raises year rev outlook to up 24%-26% from prior 19%-22% and op margin 15.2% from prior view 15.2%-15.4%; raise year EPS to $10.61-$10.81 from $10.32-$10.60

·     AQST +7%; receives FDA fast track designation for AQST-109 for emergency treatment of allergic reactions including anaphylaxis

·     DG +2%; quarterly results missed projections, but the dollar store offered a better-than-expected forecast for 2022 for sales to rise 10% vs. estimates of 7%

·     OXY +7%; as Warren Buffett’s Berkshire Hathaway scoops up another $1 billion in shares of the energy company, bringing total stake to $7 billion.

·     PD +10%; qtrly report exceeds expectations as Q4 revs increased 32% y/y to $78.5M topping the $76.5M estimate on a smaller-than-expected EPS loss and said total paid customers hit 14,865 at-end Jan, up from 13,837 a year ago

·     SIG +7%; as met Q4 EPS expectations while revs jumped 28% from last year to reach $2.81B and provide a better outlook as guided Q1 revenue of $1.78B-$1.82B, vs. est. of $1.74B

Stock LAGGARDS

·     CSIQ -3%; after it reported Q1 revenue that fell short of analyst expectations and cut its forecast for 2022 total project sales

·     MRNA -4%; CNBC notes CEO Stephane Bancel has sold more than $400 million of company stock during the pandemic

·     NUE -2%; said it expects to achieve a new record for Q1 earnings in range of $7.20-$7.30 per diluted share, below consensus views of $7.56, said steel mill segment earnings in Q1 are expected to decrease from Q4

·     PDD -9%; U.S. listed Chinese stocks giving back some gains – group jumped yesterday as Beijing said would step in support the economy and financial markets, but Bloomberg notes the China Securities Regulatory Commission is considering allowing U.S. officials to inspect documents on firms that don’t possess sensitive data – appears China not offering full transparency

·     WRBY -2%; Q4 EPS (41c) on sales $132.9M vs est. $133.4M, sees FY22 sales $650-660M below est. $687.8M

·     ZION -3%; early weakness in banks, with large cap and regional names (PBCT, MTB, CFG) down despite rising Treasury yields and more aggressive rate outlook from FOMC yesterday

·     ZTO -14%; declines following quarterly results and guidance