The S&P 500 gained 0.5% on Friday in a session featuring earnings relief from Amazon.com (AMZN 3152.79, +375.88, +13.5%) and Snap (SNAP 38.75, +14.25, +58.2%), a surprising January employment report, rising Treasury yields, and uncomfortably high oil prices ($92.30/bbl, +2.08, +2.3%).
The Russell 2000 (+0.6%) kept pace with the benchmark index while the Nasdaq Composite (+1.6%) outperformed and the Dow Jones Industrial Average (-0.1%) closed lower. The market was contending with dueling trading narratives throughout the day.
The first trading narrative was that the bullish earnings reactions in Amazon and Snap suggested that Meta Platform’s (FB 237.09, -0.67, -0.3%) earnings disappointment was more a company-specific issue. AMZN shares rose 13.5%, and SNAP shares rose nearly 60.0%.
Amazon carried the S&P 500 consumer discretionary sector (+3.7%) to the top of the sector leaderboard. The financials (+1.7%) and energy (+1.6%) sectors followed suit, while the materials (-1.7%), consumer staples (-1.2%), and industrials (-1.1%) sectors were among six sectors that closed lower.
The second trading narrative was that the January employment report, which included surprisingly strong jobs growth and higher-than-expected wage gains, would force the Fed to be even more aggressive with rate hikes. That could explain the mixed sector performances, as well as the 0.1% decline in the S&P 500 Equal Weight Index.
Specifying the jobs data, nonfarm payrolls increased by 467,000 (Briefing.com consensus 180,000), and private sector payrolls increased by 444,000 (Briefing.com consensus 160,000), which caught many people off guard given the disappointing ADP Employment Change report earlier in the week. December payrolls growth saw sizable upwards revisions.
In addition, the labor force participation rate increased to 62.2% from 61.9% in December, and average hourly earnings increased 0.7% (Briefing.com consensus 0.5%). The unemployment rate was 4.0% (Briefing.com consensus 3.9%), versus 3.9% in December.
Accordingly, the 2-yr yield rose 13 basis points to 1.32%, and the 10-yr yield rose ten basis points to 1.93%. The U.S. Dollar Index increased 0.1% to 95.44. Regarding the Fed’s policy meeting in March, the CME FedWatch Tool increased the probability for a 50-basis-point rate hike in that meeting to 36.6% from 14.3% yesterday.
In other earnings news, Pinterest (PINS 27.25, +2.74, +11.2%) was another company that provided better-than-feared earnings results, while Ford Motor (F 17.96, -1.93, -9.7%) and Clorox (CLX 141.41, -23.93, -14.5%) disappointed shareholders with a pair of EPS misses.
Reviewing the Employment Situation report in more depth:
January payrolls were not only strong, they were accompanied by large upward revisions to the payrolls data for December and November. The January employment report was also accompanied by a big pickup in the year-over-year change in average hourly earnings and a nice uptick in the labor force participation rate.
January nonfarm payrolls increased by 467,000 (Briefing.com consensus 180,000). December nonfarm payrolls revised to 510,000 from 199,000.
January private sector payrolls increased by 444,000 (Briefing.com consensus 160,000). December private sector payrolls revised to 503,000 from 211,000.
January unemployment rate was 4.0% (Briefing.com consensus 3.9%), versus 3.9% in December.
January average hourly earnings increased 0.7% (Briefing.com consensus 0.5%) versus a downwardly revised 0.5% increase (from 0.6%) in December.
The average workweek in January was 34.5 hours (Briefing.com consensus 34.7), versus 34.7 hours in December.
The labor force participation rate increased to 62.2% from 61.9% in December.
The employment-population ratio rose to 59.7% from 59.5% in December.
The key takeaway from the report is that it will inflame concerns about the Fed being behind the curve in fighting inflation.
Looking ahead, investors will receive Consumer Credit for December on Monday.
- Dow Jones Industrial Average -3.4% YTD
- S&P 500 -5.6% YTD
- Nasdaq Composite -9.9% YTD
- Russell 2000 -10.8% YTD
Overseas:
- Europe: DAX -1.8%, FTSE -0.2%, CAC -0.8%
- Asia: Nikkei +0.7%, Hang Seng +3.2%, Shanghai closed for holiday
Commodities:
- Crude Oil +2.26 @ 92.34
- Nat Gas -0.41 @ 4.51
- Gold +0.00 @ 1806.60
- Silver +0.05 @ 22.46
- Copper +0.02 @ 4.49
Spotlight Comment: Snap soars following Q4 results that alleviated many concerns prompted by Meta Platforms (FB)
Snap (SNAP 38.75, +14.25, +58.2%) shares have exploded following the company posted its widest earnings beat since it went public in 2017, capping off FY21 in the black, the first profitable year for SNAP. Q4 numbers were decent, but what really ignited today’s price action was that social media titan Meta Platforms (FB) delivered a disappointing Q4 report, undermined by Apple’s (AAPL) privacy changes, the day before. That stirred investors to flee the stock yesterday and raised red flags on other companies dependent on ad revenue. As a result, SNAP took a dive, its shares falling by nearly 25%.
Against this backdrop, SNAP’s Q4 results really stand out.
One such highlight was SNAP’s first year and first GAAP quarter of profitability. Going into Q4, analysts had already expected FY21 to end in the black, but it was still a significant milestone for SNAP. Additionally, adjusted EPS more than doubled to $0.22 in the quarter, beating consensus by the widest margin since SNAP’s March 2017 IPO.
SNAP’s revenue growth was robust at 42.4% yr/yr to $1.3 bln, surpassing its prior guidance of $1.165-1.205 bln, despite headwinds created by AAPL with its app tracking transparency (ATT). SNAP is still facing ATT-related challenges, but nothing quite like FB’s startling prediction. AAPL’s privacy changes resulted in FB forecasting that FY22 revenue would be negatively impacted by $10 bln.
Daily active user (DAU) growth was solid, up 20% yr/yr to 54 mln, but it was not as strong as the past three quarters, in which DAUs increased by at least 22% yr/yr. Also, the 54 mln figure translated to a sequential decline of 5%. Nevertheless, investors shrugged this off, especially after FB did not fare much better, maintaining the same DAUs qtr/qtr at 1.93 bln and growing that number by just 5% yr/yr.
Lastly, SNAP also provided an upbeat forecast for Q1, guiding to revs of $1.03-1.08 bln, a respectable 37% jump yr/yr at the midpoint, enough to top estimates. This upside illustrates management’s confidence in the company’s ability to surmount AAPL’s privacy changes in a shorter period than FB, which guided Q1 revs below consensus.
Overall, while SNAP is enduring similar challenges as FB, it still managed to deliver solid results, prompting investors to breathe heavy sigh of relief. Still, even with the enormous leap in share price today, SNAP trades about 60% below its all-time high from September 2021. Although this does point to further upside, SNAP is still navigating through its share of challenges - namely, trying to monetize Maps and its short-form video offering Spotlight. By trading at 32x FY23 earnings, SNAP is by no means cheap. Therefore, even though SNAP’s Q4 results are a good sign that things may be turning around, we maintain our view that remaining on the sidelines is the better play right now.
On a final note, SNAP’s stock snapping back in a major way indicates that FB’s challenges could perhaps be unique to the company. This is further bolstered by Pinterest (PINS) getting a huge push today after seeing a steep sell-off yesterday due to FB. Therefore, it is worth keeping other companies deriving most of their revs from advertising on the radar, such as TWTR, MGNI, RAMP, TTD, PUBM, and ROKU, all of which are set to report earnings this month.
Today’s News Summary:
Earnings/Guidance (Full Earnings Calendar):
Activision Blizzard (ATVI) beats by $0.13, misses on revs; last month Microsoft (MSFT) announced it will acquire ATVI for $95/share
Adient (ADNT) misses by $0.13, beats on revs; reaffirms FY22 revs guidance
Air Products (APD) beats by $0.02, beats on revs; guides Q2 EPS below consensus; reaffirms FY22 EPS guidance; Co increased quarterly dividend by 8% to $1.62/share
Amazon (AMZN) reports Q4 (Dec) results, revs in-line; guides Q1 revs below consensus; AWS sees nice growth; co to raise Prime subscription fees
Aon (AON) beats by $0.37, misses on revs
Avantor (AVTR) beats by $0.03, reports revs in-line
Benchmark Electronics (BHE) beats by $0.07, beats on revs; guides Q1 EPS above consensus, revs above consensus
Bill.com (BILL) beats by $0.18, beats on revs; guides MarQ EPS above consensus, revs above consensus; guides FY22 EPS above consensus, revs above consensus
Boyd Gaming (BYD) beats by $0.10, beats on revs
Bristol-Myers (BMY) beats by $0.03, reports revs in-line; reaffirms FY22 EPS guidance, guides FY22 revs in-line
Brookfield Renewable Partners (BEP) beats by $0.09, reports revs in-line; raises dividend
Camden Property (CPT) misses by $0.19, reports revs in-line
Cavco Industries (CVCO) reports Q3 (Dec) results, beats on revs
Cboe Global Markets (CBOE) beats by $0.16, reports revs in-line
CDK Global (CDK) beats by $0.09, beats on revs; guides FY22 EPS above consensus, revs in-line
Clorox (CLX) misses by $0.19, beats on revs; guides FY22 EPS below consensus
Columbia Sportswear (COLM) beats by $0.59, beats on revs; guides FY22 EPS midpoint above consensus, revs above consensus
Construction Partners (ROAD) beats by $0.01, beats on revs; guides FY22 revs in-line
Cousins Prop (CUZ) reports FFO in-line, revs in-line; guides FY22 FFO in-line
Deckers Outdoor (DECK) beats by $0.27, reports revs in-line; guides FY22 EPS in-line, revs in-line
Dolby Labs (DLB) misses by $0.05, misses on revs; guides MarQ EPS below consensus, revs below consensus; guides FY22 EPS in-line, revs in-line
Eaton (ETN) beats by $0.01, misses on revs; guides Q1 EPS in-line; guides FY22 EPS in-line
Enova International (ENVA) beats by $0.43, beats on revs
Exponent (EXPO) beats by $0.02, beats on revs
Ford Motor (F) misses by $0.15, reports revs in-line; FY21 adjusted EBIT at midpoint of guidance range; sees FY22 adjusted EBIT of $11.5-12.5 bln
Fortinet (FTNT) beats by $0.08, reports revs in-line; guides Q1 EPS below consensus, revs in-line; guides FY22 EPS above consensus, revs above consensus
GoPro (GPRO) beats by $0.06, beats on revs; announces buyback
GrafTech International (EAF) beats by $0.07; beats on revs
Hartford Financial (HIG) beats by $0.50, beats on revs
Leslie’s (LESL) reports EPS in-line, beats on revs; raises FY22 EPS and revenue guidance
Lions Gate Entertainment (LGF.A) misses by $0.18, misses on revs
LPL Financial (LPLA) beats by $0.12, reports revs in-line
Microchip (MCHP) beats by $0.03, reports revs in-line; guides Q4 EPS above consensus, revs above consensus, increases quarterly cash dividend to $0.253/share from $0.232/share
Mimecast (MIME) beats by $0.04, reports revs in-line
Minerals Tech (MTX) beats by $0.04, misses on revs
Mueller Water (MWA) beats by $0.05, beats on revs; raises FY22 revenue guidance
National Fuel Gas (NFG) beats by $0.15; raises FY22 EPS above consensus
News Corp. (NWSA) beats by $0.14, beats on revs
NortonLifeLock (NLOK) reports EPS in-line, revs in-line; guides FY22 EPS in-line, revs in-line
NOV Inc. (NOV) reports Q4 (Dec) results, beats on revs
Open Text (OTEX) reports EPS in-line, revs in-line; announces dividend
Paycor (PYCR) beats by $0.01, beats on revs; guides Q3 revs above consensus; guides FY22 revs above consensus
Paylocity (PCTY) beats by $0.22, beats on revs; guides Q3 revs in-line; guides FY22 revs above consensus
PennyMac (PFSI) misses by $0.93, misses on revs
Pinterest (PINS) beats by $0.03, beats on revs
Post (POST) misses by $0.12, reports revs in-line; gives update on BellRing spin-off plan
Power Integrations (POWI) beats by $0.08, beats on revs; guides Q1 revs above consensus
Regeneron Pharma (REGN) beats by $3.67, beats on revs
Reinsurance Group of America (RGA) beats by $0.42, beats on revs
Royal Caribbean (RCL) misses by $0.86, misses on revs
Sanofi (SNY) beats by 0.02, misses on revs; guides FY22 EPS in-line
Selective Insurance (SIGI) beats by $0.13, reports revs in-line
Skechers USA (SKX) beats by $0.09, beats on revs; guides Q1 EPS above consensus, revs above consensus; guides FY22 EPS below consensus, revs above consensus
SkyWest (SKYW) beats by $0.11, beats on revs
Skyworks (SWKS) beats by $0.03, reports revs in-line; guides Q2 EPS above consensus, revs in-line
Snap (SNAP) beats by $0.12, beats on revs; guides Q1 revs above consensus
Spectrum Brands (SPB) reports Q1 (Dec) results, beats on revs; reaffirms FY22 EPS guidance
Standex International (SXI) beats by $0.07, beats on revs; guides Q3 revs in-line
Synaptics (SYNA) beats by $0.14, reports revs in-line; guides Q3 revs above consensus
Twist Bioscience (TWST) beats by $0.15, beats on revs; guides FY22 revs above consensus
Unity Software (U) beats by $0.02, beats on revs; guides Q1 revs below consensus; guides FY22 revs above consensus
Viavi (VIAV) beats by $0.05, beats on revs; guides MarQ EPS above consensus, revs in-line
Werner Enterprises (WERN) beats by $0.16, beats on revs
World Wrestling (WWE) beats by $0.16, misses on revs
General News:
White House preparing for a weak jobs report today amid Omicron disruptions to labor market, according to CNN
White House confirms extension of solar tariffs put in place by Trump administration
Chinese President Xi met with Russian President Putin and offered full support for Russia’s stance on Ukraine and NATO, according to the New York Times
House passes America Competes Act by a vote of 222-210; bill provides funding for semiconductor manufacturing and research; bill now heads to conference committee to work out difference with Senate version
President Biden aiming to keep Trump administration tariffs on solar panels, but modify some restrictions on Asia imports, according to Axios
Financial Stability Oversight Council releases statement on nonbank financial intermediation; supports the SEC’s efforts to reform money market funds and strengthen short-term funding markets
Former President Obama and his wife are looking for a new podcast partner, according to Business Insider
AC Immune (ACIU) announces that preclinical data on the optimized formulation of its wholly-owned amyloid-beta vaccine program, ACI-24, were published in the peer reviewed journal Brain Communications
Anavex (AVXL) changes AVATAR study to Phase 3 after updating endpoints
Apple (AAPL) will introduce new 5G iPhone SE and iPad Air at event around March 8, according to Bloomberg
Apple (AAPL) and Broadcom (AVGO) convince U.S. appeals court to dismiss damages trial for infringing California Institute of Technology patents, according to Reuters
Apple (AAPL): Quarterhill’s (QTRHF) Wi-LAN confirms US Court of Appeals for Federal Circuit found that Apple infringes WiLAN patents
ArcelorMittal (MT) accelerates its decarbonization with a 1.7 billion investment program in France
Blue Bird (BLBD) will implement a price increase to offset rising material, freight and labor costs primarily driven by the global COVID-19 pandemic
Arqit Quantum (ARQQ) has signed a new Cooperative Research and Development Agreement with the US Air Force’s Research Laboratory, Directed Energy Directorate, Space Electro-Optics Division
Carlyle Group (CG) in discussions to acquire CBAM Partners, according to Bloomberg
Cboe Global Markets (CBOE) reports trading volume for January
Costco (COST) appointed Ron Vachris as President and Chief Operating Officer of the company effective February 2, 2022,
Cytokinetics (CYTK): FDA accepts NFA for omecamtiv mecarbil for the treatment of heart failure with reduced ejection fraction
Exponent (EXPO) increases quarterly dividend to $0.24/share from $0.20/share
General Motors (GM) plant workers in Mexico voted for an independent union, according to the New York Times
Harmonic (HLIT) authorizes $100 mln stock repurchase program
Hertz Global (HTZ) names Stephen M. Scherr as Chief Executive Officer
Impinj (PI) announces that Director Steve Sanghi will become Impinj Board Chair after Peter van Oppen’s current term ends; announces Hussein Mecklai’s promotion to chief operating officer
Invitation Homes (INVH) increases quarterly cash dividend to $0.22 per share from $0.17 per share
Johnson & Johnson (JNJ) created plan last year to limit lawsuits from talc products that caused cancer in some people, according to Reuters
Knight-Swift (KNX) increases quarterly cash dividend to $0.12/share from $0.10/share
Kohl’s (KSS) provides update on review of unsolicited expressions of interest - determined do not adequately reflect the Company’s value; adopted a limited-duration shareholder rights plan
News Corp. (NWSA) was target of cyber hacking incident, according to WSJ
Novavax (NVAX) receives provisional approval for NVX-CoV2373 in New Zealand
Open Text (OTEX) and Google (GOOG) Cloud to collaborate on next generation content services
Orchard Therapeutics (ORTX) Announces Historic Agreement Making Libmeldy Available by NHS England for MLD Patients
Otter Tail Power (OTTR) increases quarterly dividend to $0.4125/share from $0.39/share
Penn Natl Gaming (PENN) announces that its subsidiary, Score Digital Sports Ventures, has achieved registration as an internet gaming operator with the Alcohol and Gaming Commission of Ontario
Pfizer (PFE) and Valneva (VALN) report further positive phase 2 data for Lyme disease vaccine candidate
Reckitt Benckiser (RBGLY) weighing options for potential sale of infant nutrition unit, according to Bloomberg
Syndax Pharmaceuticals (SNDX) appoints COO Michael A. Metzger as CEO, effective today
TEGNA (TGNA) in talks with shareholder Standard General about potential M&A deal at approximately $24/share, according to Bloomberg
Tesla (TSLA) aiming to construct cathode building at Texas Gigafactory, according to Reuters
Tesla (TSLA): India rejects Tesla’s demand for tax breaks, according to Bloomberg
Union Pacific (UNP) announces repurchase authorization for 100 mln common shares
Vanda Pharma (VNDA) reports results from the Phase III study of tradipitant in gastroparesis; did not meet its prespecified primary endpoint
Viatris (VTRS) subsidiary receives FDA approval for ANDA for Cyclosporine Ophthalmic Emulsion 0.05%
Volaris Aviation (VLRS) reports preliminary January 2022 traffic results
Yelp (YELP) Chief Product Officer Vivek Patel to step down from his position effective February 14, 2022
Wynn Resorts (WYNN) confirms that its online sports betting platform is live in the state of New York
Upgrades:
BJ’s Wholesale (BJ) upgraded to Buy from Hold at Deutsche Bank; tgt raised to $74
Change Healthcare (CHNG) upgraded to Buy from Neutral at Citigroup; tgt $25.75
Estee Lauder (EL) upgraded to Buy from Neutral at Citigroup; tgt raised to $374
General Dynamics (GD) upgraded to Equal-Weight from Underweight at Morgan Stanley; tgt raised to $215
GitLab (GTLB) upgraded to Outperform from Sector Perform at RBC Capital Mkts; tgt $90
Jounce Therapeutics (JNCE) upgraded to Outperform from Market Perform at Cowen
Downgrades:
Biogen (BIIB) downgraded to Market Perform from Outperform at BMO Capital Markets; tgt lowered to $238
Cigna (CI) downgraded to Hold from Buy at Deutsche Bank; tgt lowered to $236
Clarivate (CLVT) downgraded to Neutral from Buy at Citigroup; tgt lowered to $16
Clorox (CLX) downgraded to Underweight from Neutral at Atlantic Equities; tgt $118
Exelon (EXC) downgraded to Neutral from Buy at Goldman; tgt lowered to $44
Kulicke & Soffa (KLIC) downgraded to Hold from Buy at Needham
Lazard (LAZ) downgraded to Mkt Perform from Outperform at Keefe Bruyette; tgt lowered to $49
McKesson (MCK) downgraded to Hold from Buy at Deutsche Bank; tgt raised to $270
Meta Platforms (FB) downgraded to Hold from Buy at China Renaissance; tgt lowered to $280
Meta Platforms (FB) downgraded to Sell from Hold at DZ Bank; tgt $225
Others:
BuzzFeed (BZFD) initiated with a Neutral at BofA Securities; tgt $5
Enviva (EVA) resumed with a Neutral at Citigroup; tgt $73
Fulgent Genetics (FLGT) assumed with an Overweight at Piper Sandler; tgt $80
