Mid-Morning Look

Thursday, March 31, 2022

U.S. stocks trading mixed early, failing to bounce after yesterday’s market decline, snapping the 4-day win streak for the S&P 500 and Dow, but also continues to hold the bottom range of recent support, with major averages on track for better weekly results. West Texas Intermediate crude fell more than 5% as President Biden’s team considers releasing a million barrels of oil a day to ease gasoline prices, though energy stocks holding higher early. Technology shares are mixed with software outperforming, but semiconductors lag led by shares of AMD after an analyst downgrade. PC related stocks also lag after Morgan Stanley downgraded DELL and HPQ, cautious in the near-term as PC demand data points are deteriorating. Headlines out of Europe related to Ukraine and Russia not really impacting market moves early and no Fed speakers to mention thus far. Economic data mostly better this morning, showing a slight uptick in Jobless Claims, while personal income strong, but spending weak (misses and below prior month) and PCE inflation readings surge. Treasury yields little changed on the morning with the 10-year down at 2.33%, more than 20bps off weekly highs. Markets thus far trading calmly on the final trading day of the quarter and month, which has been quite volatile to say the least.

Economic Data

·     Weekly Jobless Claims rose to 202K from 188K prior week (est. 197K0; the 4-week moving average fell to 208,500 from 212,000 prior week; continued claims fell to 1.307 mln in latest week from 1.342 mln prior; the U.S. insured unemployment Rate fell to 0.9% from 1%

·     Personal income rises +0.5%, in-line with ests and vs. Jan +0.1%, while the personal saving rate was 6.3% vs. Jan 6.1% and Personal Spending rose +0.2%, less than expected of +0.5% and sharply lower than the +2.7% in January; Real consumer spending -0.4% vs Jan +2.1%

·     Inflation data: the Feb overall PCE price index +0.6% vs. Jan +0.5%, while Feb core PCE price index +0.4% vs. Jan 0.5%; on a year-over-year basis, Feb PCE price index +6.4% vs. est. +6% and Jan +6.0% pct, while core PCE y/y rises +5.4% vs. est. +5.5% and above Jan +5.2%

·     Chicago PMI for March reported at 62.9 beating the forecast of 57 and previous 56.3

Sector Movers Today

·     Hardware, Components & Services; in PC sector, recall yesterday TSM CEO was quoted as saying demand for smartphones, PCs starting to slow; today Morgan Stanley upgraded CDW to Overweight on the back of attractive valuation and a diversified IT portfolio, but the firm downgraded DELL to equal weight and HPQ to underweight and cut tgt saying as they are more cautious in the near-term as PC demand data points are deteriorating; FLEX said still sees FY adj EPS $1.85-$1.90 vs. est. $1.89; still sees FY rev $25.4B-$25.8B vs. est. $25.65B and reaffirms Q4

·     Retailers; KSS sends letter to shareholders to reject activist Macellum’s proposal ahead of annual meeting; FIVE upgraded from Neutral to Buy at Citi and up tgt to $205 after mgmt laid out their long-term financial targets through F25 at its investor day, which call for an industry-leading sales growth CAGR of 19% from F22-25; TPX slides after saying it expects revenue growth of approximately 15% from last year, below the 21% growth analysts expecting to about $1.3 billion; attributed the weaker growth to recent geopolitical events, falling consumer confidence, and outbreaks of new variants of Covid-19; PVH downgrade from Overweight to Equal weight at Morgan Stanley and cut tgt to $89 from $122 saying new, higher tax rate impairs cash flow generation, and see limited catalysts; BBY shares fall sharply after Morgan Stanley downgraded of HPQ, DELL citing caution near-term as PC demand data points are deteriorating

·     Semiconductors; AMD was downgraded to equal- weight from overweight at Barclays, saying they see corrections across several end markets and move to the sidelines until they have better clarity; Bloomberg reported overnight that AAPL is considering sourcing memory chips for its iPhones from China, following a production disruption out of Japan earlier this year, saying it is testing NAND flash memory chips from Yangtze Memory Technologies; INTC said it is buying Israel-based developer and optimization software company Granulate Cloud Solutions Ltd. for an undisclosed sum; AVGO commencement of private offering of senior notes

·     E&P and Majors; Mizuho raised price tgts on several oil companies and upgrade APA from Neutral to Buy with $56 PT – said raise targets for E&Ps by 35% on average, re-emphasizing bullish view on the E&Ps and energy broadly relative to the broader market. In oil services, BKR upgraded to OW (tgt to $43 from $28), LBRT downgraded to EW at Wells Fargo, while maintain Overweight on SLB and GTLSEW on HAL and Underweight rating on NOV; Cowen raised tgt on SLB to $48 from $42 but lowering estimates to reflect supply chain challenges and impacts from Russia; HESM 8.9M share Secondary priced at $29.50 in pipelines

Stock GAINERS

·     CCJ +6%; upgraded to Outperform at BMO Capital in uranium sector as think Cameco’s advantageous geographical production base and its position as the largest and most liquid uranium stock means there should be further upside to its stock price

·     CEG +2%; another strong day for utility stocks, with several setting fresh 52-week highs (several over the last week), amid rotation into defensive sectors

·     CLVS +42%; said it Rubraca treatment showed a benefit for some ovarian cancer patients and reached its primary endpoints in a Phase 3 trial

·     PANW +2%; cyber security names outperform in software, CRWD, FTNT rising

·     RRC +4%; energy stocks levered to natural gas outperform in broader energy complex – AR, CHK, CTRA, EQT, RRC higher

·     SURF +9%; to get a $30 million milestone payment from GSK after first patient dosed in a trial testing experimental treatment for solid tumors

Stock LAGGARDS

·     AMD -4%; downgraded to equal- weight from overweight at Barclays, saying they see corrections across several end markets and move to the sidelines until they have better clarity

·     AMLX -11%; said an advisory committee of the U.S. FDA voted against the approval of AMX0035, an investigational therapy for amyotrophic lateral sclerosis

·     IFRX -12%; after saying its experimental therapy did not show statistically significant reduction in 28-day all-cause mortality among COVID-19 patients in Phase 3 of a mid-to-late stage study

·     IQ 9%; said it was identified by the U.S. SEC under the Holding Foreign Companies Accountable Act of the United States (the “HFCAA”) on March 30, 2022

·     MASI -6%; as guides prelim Q1 product revs $285M-$315M saying shortages of critical components in combination with other supply chain issues, including freight carrier delays, have led to lower-than-expected sales in the first quarter

·     MSGM -26%; downgraded to Hold from Buy and cut tgt to $5 from $12 at Canaccord as reported Q4 results that reflected some progress with NASCAR:21 Ignition game sales, but total revenue of $8.2M missed consensus of $13.7M

·     PATH -23%; reported strong FQ4 results with ARR growth accelerating to 59.4% y/y and record net new ARR of $106.9M growing 72.2% y/y, but guidance fell well below consensus with full-year ARR of $1.200-1.210 billion (29.7-30.8% y/y) vs. consensus $1.264 billion (40.0% y/y)

·     TPX -5%; said it expects revenue growth of approximately 15% from last year, below the 21% growth analysts expecting to about $1.3 billion; attributed the weaker growth to recent geopolitical events, falling consumer confidence, and outbreaks of new variants of Covid-19

·     WBA -5%; posted a top and bottom line beat as EPS $1.59 beats $1.37 estimate on sales $33.7B vs. est. $33.2B, but only reaffirmed year outlook despite the beat (and fell short of consensus)