Mid-Morning Look

Wednesday, November 24, 2021

U.S. stocks opened lower on rising Covid travel restriction fears in Europe, rising treasury yields and follow thru momentum after weakness the first part of the week. However, following mixed economic data, Treasury yields have pulled back from highs (10-yr to 1.65% from 1.695% high), travel stocks have since rebounded and investors again taking advantage of the minor two-day market pullback as stocks rebound off lows. A heavy dose of economic data to chew on Wednesday (three days of data rolled into one due to Thanksgiving Day tomorrow and short day for markets on Friday) which showed slightly slower growth (GDP) a plunge in weekly jobless claims to lowest levels since 1969, an unexpected decline in durable goods orders, a weaker new home sales print for Oct, rising personal income, improving sentiment and higher inflation data (PCE) on a MoM basis (recaps below). In earnings, hardware PC makers strong (DELL, HPQ) behind better earnings, while ADSK tumbles to 52-week lows in software. Industrial stocks get a boost behind better DE earnings results while retail stocks tumble behind poor earnings and guidance outlooks from JWN and GPS. Pressuring equities this week has been a surge in bond yields, as investors viewed the renomination of Fed Chair Jerome Powell as potentially leading to a tightening in monetary policy and rate increase sooner than expected. The yield on the benchmark 10-year U.S. Treasury note was 1.695% at highs on Wednesday but has since pulled back. European stocks slipped led by weakness in Germany after the Ifo business climate indicator decreased for the fifth consecutive month. Meanwhile, a resurgence in Covid-19 infections has hammered European stocks this week, as Austria headed into a new national lockdown and Germany appeared to be nearing the same. The U.S. Dollar Index touches 16-month high, while Treasury yields pullback off earlier highs.

Economic Data

·     GDP data slightly weaker as prelim Q3 GDP reported at 2.1% from 2%, but was below estimate of 2.2% (Q2 GDP final was 6.75); the Q3 PCE price index rises +5.3% and core PCE +4.5%, both in-line with estimates; Q3 consumer spending +1.7% vs. prior +1.6%; durables -24.4% vs. prior -26.2%; Q3 business investment +1.5% and equipment -2.4%

·     Weekly Jobless claims fall sharply to 199K (lowest since 1969) vs. 260K expected and well below the upwardly revised 270K level last week; the 4-week moving average fell to 252,250 from 273,250 prior week; continued claims drop to 2.049M from 2.109M and U.S. insured unemployment rate fell to 1.5% from 1.6% prior

·     Durable Goods Orders for Oct unexpectedly declined -0.5% vs. +0.3% expected and -0.4% prior, while Durables ex: transportation/new orders rise +0.5% vs. +0.5% expected and +0.4% prior; core Durable Goods rise +0.5% vs. +0.6% expected

·     Advance international trade deficit in goods was $82.9B in October 2021, down 14.6% from September 2021 (seasonally adjusted).

·     New Home Sales for October rose +0.4% MoM to 745K vs. 790K expected and 742K prior (revised from 800K); Oct single-family home sales +0.4% vs Sept +7.1%; Oct new home supply 6.3 months’ worth at current pace vs sept 6.1 months; Median sale price $407,700, +17.5% YoY

·     Personal income for October rose +0.5%, topping the +0.2% estimate (Sept was down -1%); Personal spending jumped 1.3% topping the 1.0% est. (Sept was +0.6%); Oct real consumer spending +0.7% vs sept +0.3%

·     Inflation data showed: Oct overall PCE price index rose +0.6% vs. Sept +0.4% (prior +0.3%), while Oct core PCE price index +0.4%, in-line with estimates. On a YoY basis, Oct PCE +5.0% vs. Sept +4.4% and Core PCE rose +4.1%, in-line with estimates

·     University of Michigan November Consumer Sentiment reported at 67.4 vs. 66.9 consensus and 66.8 prior (Oct-F was 71.7); current conditions index final Nov 73.6 vs prelim Nov 73.2 and final oct 77.7; expectations index final Nov 63.5 (consensus 63.0) vs prelim Nov 62.8 and final oct 67.9

Sector Movers Today

·     Software movers; ADSK with a modest beat on revs and EPS, but missed consensus billings/FCF expectations and lowered the midpoint of FY22 billings/FCF guidance by 3%/6% respectively, on a variety of macro headwinds (supply-chain/inflation/labor-shortages/Covid-pockets/China); VMW posts Q3 beat and raise for year (EPS to $7.19 from $6.90 and revenue view to $12.83B from $12.8B – above consensus $12.81B) as license revenue driving overall upside and offsetting a slight miss from subscription and software-as-a-service again; PLAN plunges as Q3 results were mixed with a $9M revenue beat overshadowed by decelerating billings (25.6% vs. 36.2%) and cRPO growth metrics (28% vs. 33%). These metrics coupled with the tepid Q4 outlook that subscription growth could slow further to 27% from 33% according to Piper (they downgrade)

·     Casinos, Gaming, Lodging & Leisure sector; seeing early strength in travel names (BKNG, EXPE, ABNB) and casinos as reopen stocks rebound; Baird noted U.S. powerboat retail decreased 21% YOY in October and is now tracking down 9% YTD, according to Statistical Surveys (shares of BC, MCFT, MBUU leveraged to data); Truist noted Golf equipment retail sales grew 5% YoY for the month of October. This comes on top of a particularly challenging YoY comparison (+49% YoY in Oct. ’20) and brings YTD sales to +39% YoY (GOLF, ELY leveraged to data)

·     Bitcoin news; Bitcoin, Ethereum and other crypto assets extend recent declines (Bitcoin now down roughly 18% from all-time highs of $68,999 on Nov 10^th), with latest pull coming after India Parliament announced to introduce and list 26 new bills in the Winter Session, which included the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021

·     E&P and Majors; RBC upgraded CVX to Outperform with a $145 PT from $130 as they believe they are positioned to benefit from a strong commodity cycle over the coming years, given its business plans suggest much more stability in its portfolio than peers; RDSA secured a 15-year power purchase agreement for 240 mw of power to be produced from Phase C of Dogger Bank, the world’s largest offshore wind farm; Seaport started FLNC with a Buy rating; BENE said it entered into an agreement to take eCombustible Energy LLC public. The blank-check company said it is holding $116.5M in a trust account for Bennessere’s public stockholders.

Stock GAINERS

·     BENE +21%; said it entered into an agreement to take eCombustible Energy LLC public. The blank-check company said it is holding $116.5M in a trust account for Bennessere’s public stockholders

·     DE +5%; after posting Q4 profit and sales that rose above expectations, as strong demand for farm and construction equipment helped offset cost of sales growth that outpaced sales growth amid supply-chain challenges (Q4 EPS $4.12/$11.33B topping consensus of $3.90/$10.44B);

·     GES +8%; after Q3 earnings beat and dividend growth of 100% while the company saw revenue growth of 13% Y/Y and +4% vs. pre-pandemic levels and raises guidance

·     HPQ +9=10%; PC makers DELL and HPQ jump after quarterly profits for both show more than four-fold rise in quarterly profit, as demand for personal computers was boosted

·     NTNX +7%; reported F1Q22 EPS of ($0.22) vs. est. ($0.34)) on revenues of $378.5M vs. est. $367.1M, while billings of $398.0M were above consensus of $394.9M and ACV billings of $183.3M exceeded consensus of $175.0M

·     PSTG +10%; price tgt raised by several analysts after another beat-and-raise quarter, driven by strong growth in both product (+37% y/y) and subscription revenue (+38%) – raises full-year revenue forecast

·     SLI +7%; announces $100M direct investment from Koch strategic platforms; Standard Lithium ltd to issue 13.5M common shares at a price of CDN$9.43 (US$7.42) per common share

Stock LAGGARDS

·     ADSK -13%; with a modest beat on revs and EPS, but missed consensus billings/FCF expectations and lowered the midpoint of FY22 billings/FCF guidance by 3%/6% respectively, on a variety of macro headwinds (supply-chain/inflation/labor-shortages/Covid-pockets/China)

·     GPS -19%; after the clothing retailer failed to meet expectations for quarterly results and slashed its full-year outlook to $1.25-$1.40 below est. $2.20

·     JWN -26%; as adjusted 3Q21 EPS missed the Street’s forecast by 18c, $0.39 vs. the Street’s $0.57 view, due mainly to an EBIT margin miss, while the company also maintained its FY21 guidance

·     KURA -21%; after the FDA placed a partial clinical hold on a Phase 1b trial of Ko-539, a drug being developed to treat relapsed or refractory acute myeloid leukemia

·     NKE -2%; following a report in Newsweek that it has canceled store’s orders until summer ’22 as supply chain issues wreak havoc on holiday shopping https://bit.ly/3FGqbUL

·     PLAN 18%; as Q3 results were mixed with a $9M revenue beat overshadowed by decelerating billings (25.6% vs. 36.2%) and cRPO growth metrics (28% vs. 33%). These metrics coupled with the tepid Q4 outlook that subscription growth could slow further to 27% from 33% said Piper