In JPOW we trust, or do we?

A look at market moving headlines from the week so far.

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Swaggy's Top Stonks

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December 16, 2021

Welcome newcomers to Swaggy's Top Stonks and thank you for subscribing.

Today's edition is a complete breakdown of what happened in the markets so far this week. Are JPOW's words going to send us into a downward spiral or will we see a Christmas miracle? I'm not sure, but continue reading to see what the word on the street is.

Before we begin, big announcement coming in this Sunday's edition, so keep an eye out for it when it drops around 6pm EST.

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Today's Letter

• US Equity Market

• News Stories Moving the Market

• Notable Analyst Upgrades/Downgrades

• Trending Tickers

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US Equity Market

The week so far…

Monday

• S&P was down 14bps from the European close to finish nearly 1% lower on the day (4,668).

• Covid concerns were front and centre as the index fell 40bps in the last 10 minutes of trading. Overall volumes continue to be poor tracking 4% below the 30 dma as both treasuries and USD rallied. 

• Energy, tech and consumer discretionary were the worst performing sectors with Real estate and utilities the best. 
   

Tuesday

• S&P was up 1/3rd % from the European close to finish ¾ % lower on the day (4,634). Covid and inflation concerns were the reasons for the weakness after the stronger PPI data.

• Overall volumes tracked in line with the 30 dma as growth underperformed. 

• Tech and industrials were the worst performing sectors with financials and staples the best.

• Overnight USD is steady, treasuries are unchanged and commodities are lower as WTI breaks down through 200 dma ($70.28)

Wednesday 

• S&P was up 2% from the European close to finish 1.63% higher on the day (4,709).

• The index took off after a “no more hawkish than expected” Fed announcement. Overall volumes accelerated in to the close tracking 11% above the 30 dma as the treasury curve steepened. 

• Investors swiftly bought the dip in the mega-caps, which were dragging the S&P 500 lower by 0.3% prior to the Fed announcement.

• The heavily-weighted S&P 500 information technology sector went from a 0.7% intraday decline to a sector-leading 2.8% gain by the close.

• The health care (+2.1%), utilities (+1.7%), real estate (+1.5%), and consumer staples (+1.2%) sectors were strong all session. The energy sector (-0.4%), on the other hand, was the only sector that closed lower despite higher oil prices ($70.89)

Thursday

• S&P is down 10bps while Nasdaq is -1.4% (at time of writing).Declines in Megacaps like Apple, Microsoft and Tesla are weighing on the Nasdaq. Cyliclas that are positively correlated to inflation such commodities, financials and industrials are outperforming today

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News Stories Moving the Market

Fed to accelerate taper:

• Wednesday's FOMC developments where the Fed largely seen as more hawkish than expected with outlook for three rate hikes in 2022. As anticipated, the Fed left the target range for the fed funds rate unchanged at 0.00-0.25%, said it will double the reduction of asset purchases to $30 billion per month ($20 billion for Treasuries and $10 billion for agency MBS), and signaled three rate hikes in 2022 amid expectations for continued inflation pressures.

• The market was pleased to hear Fed Chair Powell talk positively on the labor market and the consumer, even as the Omicron variant poses a risk to the economy. He argued the Fed will tighten policy in a gradual, yet accommodative, way because of robust economic activity that is driving inflation higher. That was an optimistic point of view for the market.

• Strikingly, the fed-funds-sensitive 2-yr yield settled higher by just one basis point to 0.67% after hitting 0.72% in the wake of the FOMC statement. With three rate hikes forecasted for next year, the 2-yr yield might have already priced in the Fed's near-term path. The 10-yr yield rose three basis points to 1.46%. The U.S. Dollar Index lost 0.2% to 96.37

• The Fed pivot, which gained more traction on Wednesday, has been the big overhang on risk appetite in recent weeks. However, the post-FOMC bounce has played into thoughts that with the December meeting out of the way, the market may shift its focus back to some of the longstanding bullish themes. These include

• Deeply negative real rates that have been flagged as a key driver of the $1T+ in annualized equity inflows thus far this year.

• Also some focus on expectations for 9% S&P 500 earnings growth in 2022, despite the difficult comparison with the (expected) record 45%+ growth in 2021.

• In addition, profit margins expected to hit a record high in 2022 despite lingering supply chain and input price pressures.

• Also more evidence that supply chain pressures have peaked, which could dampen some inflation worries.

• Thoughts that the meeting simply removed a key overhang on a market that had been positioned defensively, paving the way for support from a seasonal tailwind.

Big tech, momentum names hit again as more investors express concern over monetary policy

• Despite no changes to narrative around Fed policy expectations, Tuesday’s weakness particularly concentrated in groups most exposed to tighter monetary policy, as iShares S&P 500 Growth ETF (IVW) underperformed Value (IVE) by ~100bps. FANMAG complex, growth software, Tesla/EV-linked names, other momentum-oriented stocks among groups that extended recent declines as strategists and investors reconsider groups that have seen gains driven by extended valuations and positioning this year.

• Recent surveys have also take on increasingly cautious tone given expected Fed move toward tighter policy. Today's BofA December Global Fund Manager Survey showed a surge in cash from 4.4% to 5.1% and more defensive asset allocation as hawkish central bank rate hikes now biggest tail risk for first time since quantitative tightening in 2018 (long tech and long Bitcoin again most crowded trades)

Uber Technologies: CEO Dara Khosrowshahi at UBS investor meeting commented on bookings and expects the company to meet the top half Of its 4Q guidance

• CEO expects results to reach top half of 4Q adj EBITDA guide. 

• CEO noted that the overall mobility business is getting closer to pre-COVID levels amid Omicron.

UK's Competition and Markets Authority (CMA) found that Apple-Google duopoly over operating systems, app stores, and web browsers limits competition, choice. Press Release

• UK CMA's current view is that the firms' market power will be dealt through the Digital Markets Unit (DMU).

Netflix cuts India prices in struggle for biggest foreign market - Bloomberg

Intel's first foray into the metaverse will be software to use others' chips. - Reuters

MELI acquiring Redelcom, payment services provider that offers POS terminals

FB sources state that Meta Platforms (Facebook) name was purchased from Meta Financial Group for $60M - Reuters

Significant falls in meme stocks, SPACs and Bitcoin signal market turbulence - Bloomberg

GRWG (GrowGeneration): disclosed resignation of EVP and COO Tony Sullivan, effective immediately

Amazon Web Services suffers brief outage. - WSJ

Software vulnerability expected to persist, possibly for months. - WSJ

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Notable Analyst Upgrades/Downgrades

Initiations

• Fiserv - initiated at buy at Loop Capital Markets, target $139, positive on valuation

• NVTS - initiated at neutral at BofA, target $20, 17% upside

Goldman Sachs initiates coverage on communication and collaboration names

• RNG initiated at buy, $240 target, 32% upside

• TWLO initiated at buy, $350 target, 34% upside

• LVOX initiated at neutral, $6 target, 21% upside

• TEAM initiated at neutral, $375 target, 3% upside

• ZM initiated at neutral, $200 target, 9% upside

• CTXS initiated at sell, $75 target, 10% downside

• EVBG initiated at sell, $55 target, 18% downside

Upgrades

JP Morgan updates software ratings for outlook for 2022

• AVLR upgraded to overweight from neutral, target $190, 33% upside

• CRWD upgraded to overweight from neutral, target $255, 28% upside

• SSNC upgraded to overweight from neutral, target to $95 from $86, 22% upside

• MODN upgraded to overweight from neutral, target $38, 31% upside

• PRO upgraded to neutral from underweight, target $37, 10% upside

Morgan Stanley updates ratings and targets in FY22 communications software outlook note.

• FIVN target to $180 from $200; maintains overweight rating, 37% upside

• TWLO target to $350 from $420; maintains overweight rating, 34% upside

• ZM target to $265 from $365; maintains overweight rating, 44% upside

• BAND target to $85 from $105; maintains equal-weight rating, 24% upside

• EGHT target to $18 from $28; maintains equal-weight rating, 6% upside

• VCRA target to $60 from $48; maintains equal-weight rating, 2% upside

• Chewy added as Best Idea Long at Hedgeye, seeing potential for stock trading at 3-4x sales on a sales acceleration in 2022, which would get stock to $75-100 over the course of a year.

• Unity upgraded to overweight from equal-weight at Morgan Stanley, target to $185 from $130, 32% upside

• Beyond Meat upgraded to neutral from underweight at Piper Sandler. Target $64

• Shopify upgraded to outperform from in line at Evercore ISI, target $1,770, 29% upside

Downgrades

JP Morgan updates software ratings for outlook for 2022:

• ADBE downgraded to neutral from overweight, target $680, 3% upside

• BCOR downgraded to neutral from overweight, target to $22 from $27

• DOX downgraded to neutral from overweight, target to $86 from $91

• PTC downgraded to neutral from overweight, target to $138 from $175, 13% upside

• SWI downgraded to neutral from overweight; target to $16 from $23, 10% upside

• AKAM downgraded to underweight from neutral, target $120, 4% upside

• DDOG downgraded to underweight from neutral, target to $195 from $212, 13% upside

• NET downgraded to underweight from neutral, target to $144 from $212, 1% downside

• SPNS downgraded to underweight from neutral, target $35

• ZS downgraded to underweight from neutral, target to $320 from $362, 4% upside

• CDNS downgraded to neutral from overweight, target $185

• CCCS downgraded to underweight from neutral, target to $12 from $14, 3% upside

• DOCS downgraded to underweight from neutral, target to $60 from $70, 8% upside

Morgan Stanley updates ratings and targets in FY22 communications software outlook note.

• NICE downgraded to equal-weight from overweight, target $315, 5% upside

• RNG downgraded to equal-weight from overweight, target to $220 from $390, 21% upside

Crypto

• Tesla announces it will accept Dogecoin as payment for merchandise

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WallStreetBets - Most Mentioned Equities

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