Equity Market Recap
It was another lackluster trading session for U.S. stocks, ending mixed with small caps underperforming again as major averages struggle for direction…but, still hold near all-time highs (another record close for the NASDAQ). Markets have yet to show any type of fear since the election results, as the S&P cash has rallied from a 2,083 level on 11/4 to settle just below 2,300 today, as evident by the “fear” index with the VIX holding down in the low 11’s. Defensive sectors led markets higher today with top gainers coming in utilities, telecom and REITs (Bloomberg noted the Dow Jones Utility Average and S&P 500 Utilities Index are breaking out of their two-month trading with today’s gains…the S&P 500 Consumer Staples Index is also attempting to break out). Other defensive assets were strong early on, but succumbed to selling pressure after the weaker bond auction at 1:00 PM, as gold and the yen also pulled back from earlier highs. The overall story of the day was earnings, with another heavy dose tonight after the close, and lack of volatility as the S&P extends its streak to 81 sessions without a single down day of 1% or worse, longest since 2006.
Gold prices closed higher, rising $3.40, or 0.3% to settle at $1,239.50 an ounce, up for a 5th consecutive day, but falling from earlier highs of around $1,246 an ounce, its best levels since mid-November (prior to plunging after stock market soared post President trump being elected). Gold pared gains late day as stocks recovered off lows.
After weakness early, oil prices ended the day higher by 17c at $52.34 (high $52.67 and low $51.22); prices dropped earlier after the American Petroleum Institute (API) reported a much bigger-than-expected increase of 14.2M barrels in U.S. crude supplies (5x the expected build and also the 2nd largest build on record) only to be follows by another massive build from the EIA, showing a 13.83M barrel build, though gasoline prices jumped on a surprise 869K barrel draw
The U.S. dollar recovered from earlier losses, as the dollar index (DXY) ended little changed on the day around the 100.30 level. The dollar bounced off lows of 111.63 against the yen (which was a weekly low), while the euro bounces moved back under the 1.07 level. There was no major economic data or Fed speaker today to move the currency market.
Bonds ended higher on the day, but off their best levels as yields bounced from lows; the yield on the 10-year touched lows of 2.325% (lowest in three-weeks) amid early pressure in the U.S. stock market and ongoing European political uncertainty – but ended near 2.36% (still down about 3 bps from the prior day). Yields recovered from lows after results from a midday auction, as the U.S. Treasury sold $23B in 10-yr notes at a yield of 2.333% (when/issued was at 2.314% before auction), with a bid-to-cover at 2.29 vs. prior auction of 2.58, though indirect bidders strong at 65.1%. The weaker auction results spurred selling pressure in defensive classes.
Sector News Breakdown
Retailers; URBN reported 4Q sales results below expectations (overall comparable sales were flat compared to consensus +1.4%); JWN cautious comments at Cleveland Research saying 4Q comp store sales appear to have trended below consensus expectations, in auto retail, ORLY Q4 results topped consensus, while Q1 EPS outlook misses views; THO was upgraded at Baird; DECK jumped late day after filing showed Marcato Capital took a 6% stake and said seeks to talk with board
Consumer Staples; MDLZ reports earnings, rev miss (downgraded by one analyst), but bounced early; USNA reported lower than expected profits and lowered guidance/also announced internal investigation into China ops (shares of HLF and NUS fell in sympathy); PFGC rises on earnings
Restaurants; BWLD disappoints again as Q4 results and 2017 guidance well below estimates (97c EPS vs. est. $1.26 and slowdown in comps); PNRA Q4 EPS beat by 5c on in-line sales, while Q4 total comp results missed (0.7% vs. est. 2%); YUMC Q4 EPS topped views/revs miss
Housing & Building Products; PIR backed holiday quarter guidance; TCS Q3 net sales and comps missed while guiding year to low end of sales range; lumber futures rise limit up $10 for 4th time in last 2-weeks – Vertical Research noted that lumber prices in North America surged early this week, tacking onto the $11 per thousand board feet, MBF, or 3%, rise seen in its lumber composite last week; roofing company OC slips despite earnings beat as outlook weighs
Leisure movers; 52-week highs today for some hotel stocks (MAR, WYN); SIX shares jumped after Bloomberg report that Saudi wealth fund weighs taking stake in Six Flags
Inventory data bearish for crude oil…but bullish for gasoline – the American Petroleum Institute (API) reported a much bigger-than-expected increase of 14.2M barrels in U.S. crude supplies for the latest week; while the DOE showed a crude build at 13.83M barrels, though gasoline prices jumped initially on surprise 869K barrel draw; MLPs were lower (PAA earnings)
E&P and Equipment movers; PXD helped lift the group after earnings and growth views yesterday (helped shares of APC, EOG, APA); NOV was upgraded at both Credit Suisse and UBS after better earnings; PE said would acquire certain undeveloped acreage and producing oil and gas properties in the core of the Midland Basin from Double Eagle Energy Permian for aggregate purchase price of ~$2.8B
Utilities; among top performing sectors today as defensive assets rise as yields end lower for bonds (making dividend playing sectors more attractive); EXC Q4 EPS missed by 1c, but guided Q1 below views (55c-65c vs. est. 72c); after the close Monday the three listed California electric utilities filed with the CPUC that they have reached an MOU with the ORA and TURN, the two key ratepayer advocacy groups. The settlement relates to the 2018 cost of capital cases which the CA utilities would otherwise have been filing in April (PCG, EIX)
Large Cap banks; bank stocks slid early with MS, C, BAC, GS weighing on major averages as bond yields drop to lowest levels in a month; PNC was upgraded to buy at Goldman Sachs and raise tgt to $143 as sees PNC as an underappreciated rate opportunity
Insurance; VOYA total AUM $287B at Dec. 31 vs $283B reported prior quarter; GNW profit dropped as mortgage stress rises;
Payments & Consumer Finance; INTU lowered its Q2 results, while reiterated its full-year outlook, citing a slower start to the tax season; RATE initiated outperform and $14 tgt at Oppenheimer and TREE outperform and $129 tgt; Fitch said cutting U.S. corporate tax rate from current 35% may present FNMA/FMCC with “significant” deferred tax asset (DTA) write-downs; WD jumped as Q4 results topped consensus
Large Cap & Generic Pharma; busy morning of earnings, with results out from AGN in generic, as well as European Pharma with SNY and GSK results; CHRS 4.7M share Spot Secondary priced at $24.25; in managed care, HUM Q4 EPS beat views, while revs fell short while also delayed 2017 guidance, and announced the retirement of its COO without immediate replacement; MNK down a second day after received an SEC subpoena for documents related to statements, filings and other disclosures on Acthar sales
Biotech movers; GILD Q4 EPS/sales topped consensus but guided year HCV and total revenue that was substantially below consensus (HCV guidance at $7.5B-$9B vs. consensus $12B); AMGN announced FDA has approved Parsabiv for the treatment of secondary hyperparathyroidism (HPT) in adult patients with chronic kidney disease (CKD) on hemodialysis; TSRO shares jumped late-morning after Reuters reported weighing options following takeover approaches https://goo.gl/w1Kx4R (shares of CLVS which makes comp drug advanced as well)
Equipment & medical devices; VCYT will extend access to its Afirma Gene Expression Classifier (GEC) through agreement with DGX; MYGN shares jump after Q2 EPS beat and upward 2017 guidance as Hereditary cancer testing revenue rose 3% from the 1Q despite expectations for a fourth consecutive quarter of sales decline
Industrials & Materials
Transports; index back to flat midday, around 9210 level as major averages recover off lows – note the 50 day moving average for index is 9185 (low today was 9158) and rallied late day – ALK leading in index after earnings, followed by UPS playing catch up after falling last week on poor earnings; there was a lot of focus in airlines ahead of tomorrow’s impending winter storm
Aerospace & Defense; WAIR Q1 EPS and revs miss (19c/$339.4M vs. 25c/$358.6M); Dow component BA among worst performers in the index today
Technology, Media, & Telecom
Internet; TWTR upgraded to buy at BTIG with $25 tgt as believe user growth and engagement has improved; AKAM reported strong Q4 results, powered by media upside, though margin guidance was modestly below prior forecasts (mid-point of Q1 revs also light); in online travel, PCLN to buy Momondo Group for $550M cash; ZG solid quarter with a strong EBITDA beat with noticeable improvement coming from all key business segments, but mixed guidance (higher revs, lower Ebitda outlook); FB added to Bank America U.S. 1 list; GRUB Q4 top/bottom line miss; 52-week high for NFLX and EBAY today as Internet names generally stronger (BABA, FB, AMZN)
Semiconductors; MCHP Q3 EPS/revs and Q4 guidance well above views, driven by both better organic growth and higher ATML accretion (new 52-week highs); UBS downgraded memory semiconductors to neutral from buy saying the average 103% rally from June 2016 has stocks trading within the upper band of their price-to-book range (MU weak in reaction); 52-week highs today for ADI, AVGO, AMAT and MCHP
Software movers; TWLO with Q4 top/bottom line beat on mixed guidance as membership climbs 44%; ULTI slips as Q4 EPS misses by 5c on in-line revs for quarter and next; CALD executed well in Q4 with normalized SAAS Billings up 36%; in video games, TTWO stronger than expected 3QFY17 results and a higher full year outlook
Media movers; DIS mixed as Q1 EPS topped estimates but Q1 revs trailed/ESPN trends remain mixed according to analysts but fact that Bob Iger is open to staying on in CEO role positive; TWX Q4 EPS and revs in-line with consensus as HBO revs in-line at $1.49B; VIAB (which reports tomorrow) is said to plan to narrow focus to 6-channel brands as per the WSJ (Nickelodeon, Nick Jr., MTV, Comedy Central, BET, and Spike); AMC 19.05M share Spot Secondary priced at $31.50
Comm equipment & Hardware/services; CTSH Q1 results top views, to buy back up to $3.4B in stocks, names independent directors bowing to pressure from Elliott Management; CSRA shares dropped on earnings/guidance
Optical & Photonics stocks active on earnings; COHR and EMKR both post quarterly results that beat, while LITE late yesterday posted mixed Q2 and weaker guidance; COHR with broad-based strength across most products and momentum in flat panel display (FNSR, OCLR also active); IPHI was upgraded at Cowen after Q4 results topped views (stock slid early)
Market commentary provided by Hammerstone Markets, a division The Hammerstone Group, a firm separate from and not affiliated with Regal Securities L.P. Regal Securities L.P. has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.