Equity Market Recap
U.S. stock markets surge on more hopes, as major indexes touched their latest in a series of intraday records led by gains in energy and financial stocks. President Trump said this morning he will announce “something on taxes in next 2-3 weeks” (Trump called the tax promise “phenomenal”) and reiterates plan to roll back regulations. There was also extended gains in beaten up retailers on diminished prospects for the border tax (Dow components NKE and WMT among top gainers in the index today). Financials jumped amid a rebound in bond yields and the reduced regulation hopes. The Dow Jones Industrial Average touched a new intraday record off 20,206, the S&P 500 traded to a fresh all-time high of 2,310 and the Nasdaq Composite Index, which has closed at records for two straight sessions, trade to new high of 5,722. The day’s top performing sector was energy, which rose alongside a jump in crude oil. Volumes were lighter than normal as a winter storms along the Northeast crippled airports and lightened trading desks. Overall, the 10-year yields and dollar extend gains, while gold slips and stocks surge on light volume – no fear as VIX heads lower to 10’s. It has now been more than 83 days the S&P 500 index has failed to decline 1% or more – longest such streak since 2006 (94-day run then).
Weekly Jobless Claims fell 12K to 234K, well below the 249K estimate; the Four-week jobless claims average drops 3,750 to 244,250; continuing claims rose 15K to 2.078M in latest week; note the last time the U.S. had such a low level of layoffs was in 1973
Wholesale Inventories rose 1% in December, in-line with estimates; Dec. wholesale inventories increased to $601.1B vs. $595.3B in prior month (Nov. inventories unrevised at 1.0%); Wholesale sales rose 2.6% in Dec. after rising 0.5% the prior month
Gold prices ended the day lower, sliding -$2.70 to settle at $1,236.80 an ounce, snapping its 5-day win streak as the dollar recovered ahead of President Trump’s meeting with Japanese PM Abe tomorrow. Gold pulled back from 7-week highs. Year to date, gold has gained more than 7%, while the dollar index has lost around 1.8% so far this year
Energy futures advanced, as WTI crude rose 67c to $53.00 per barrel (high $53.21 and low $52.37), rising despite the huge weekly builds in crude inventories as reported by the API and EIA, and also in the face of a dollar recovery on the day. The recent drop in gasoline stockpiles signals higher demand, possibly buoying the energy complex
The dollar recovered, bouncing after yesterday weakness, as the dollar index (DXY) traded up over 0.3%. The dollar posted big gains against the yen, rising to highs of 113.30 (over 1%) before Japanese Prime Minister Shinzo Abe’s Friday meeting with U.S. President Donald Trump in Washington tomorrow at 1:00 PM. The peso rallied against the dollar after its central bank raised rates by 50 bps to 6.25%. The euro fell to lows around 1.0651 vs. the dollar.
Bond prices fell, as yields went higher; with today jump in yields, it snapped the strongest advance since June as yields fell from levels of around 2.48% earlier in week to 2.32% lows yesterday (before bouncing to 2.39% today – the 30-yr back above 3%). Overall, investors are still waiting on the implementation of President Donald Trump’s promised economic policies. Midday, the U.S. Treasury sold $12B in 30-yr notes at a yield of 3.005% (close to 3.007% w/i prior to auction) with weak demand as bid-to-cover was 2.25 vs. 2.32 previous auction and indirect bidders awarded 66.2% of auction. Recall yesterday the weak 10-yr auction results caused a sell-off in bond markets, while today’s was also weaker – lifting yields further.
Sector News Breakdown
Retailers; group got a bounce (despite earnings/guidance remaining weak), more so a rally on diminished prospects for the border tax given major opposition in the Senate thus far – the border tax adjustment calls for exempting exports from corporate tax, while not allowing companies to deduct taxes on imports; VSTO 3Q sales/full-year forecasts miss estimates and cautions experienced revenue, margin pressures back half of year (CAB, SPWH shares fell); mattress retailer SCSS posts Q4 comp/sales miss, but more upbeat that year sales on target
Auto’s; auto suppliers with mixed results as DAN Q4 EPS beats, while BWA revs missed/EPS beat (but announced a 10M share buyback); MPAA also a mover on earnings; TSLA rose after report of Model 3 test vehicles to be produced this month; ALV was upgraded to overweight at KeyBanc as expect revenue acceleration to support meaningful EPS upside potential
Consumer Staples; KO forecast a surprise decline in 2017 comparable EPS (down 1%-4%) vs est. up 2% and sees full-year rev. headwind of 18%-19% from acquisitions; grocer WFM posted a Q1 comp miss and said Q2 comps worsened as reduced year outlook; COTY reported quarterly sales miss; CALM in pact to buy the shell eggs operations of Happy Hen Egg Farms; Kellogg (K) Q4 EPS/sales beat while year profit view below/ to exit direct store delivery selling and distribution system; THS shares jumped as Q4 EPS/sales top consensus; RAI Q4 beats views in tobacco
Restaurants; YUM Q4 revs and comps both fall short of consensus (comps up 1% vs. 2.1% est.); DNKN Q4 EPS beat with in-line revs though comps were weaker; PNRA upgraded at Longbow after earnings
Housing & Building Products; homebuilders lower after mixed earnings results from BZH and CAA; in appliance, WHR mentioned negatively in Grant’s report; IRBT plunges as FY17 EPS and revenue guidance well below consensus expectations
Drillers and services; RIG initiated buy at Rafferty with street high $21 tgt; PDS and PTEN also movers on earnings; OII beat Street expectations and delivered strong FCF, while the 2017 outlook remains weak
E&P sector; EQT wins bankruptcy auction to buy 53,400 core net Marcellus acres from SGY for $527M; PXD adds to yesterday’s 3.8% gain on earnings trades above 190 level (well off 52-week low of 105.22 nearly a year ago – 2/11/16)
Utilities; DYN downgraded to sell at Deutsche Bank following New England FCM11 2020/2021 capacity auction clearing at $5.30/kW-month, down 25% from $7.03/kW-month last year; overall, utilities underperform with stocks rising, weighing on defensive sectors which outperformed the last few days; decline in DTE on Q4 operating EPS miss, follows EXC quarterly miss the day prior; overall the utility index slipped as bonds declined
Large Cap banks; banks bounce (JPM, GS, MS) as yields halt three days slide; BANC rises as board independent investigation concludes with no finding of violation of law; in insurance, PRU touches 52-week highs after results
Payments & services; PYPL disclosed in 10-K the receipt of subpoenas from the DOJ seeking documents related to the company’s historical anti-money laundering program; FLT reported a top and bottom line beat for Q4 and projects organic revenue growth to accelerate 10% in ’17; VNTV downgraded at Jefferies citing peak of organic growth has likely passed, and sentiment has very limited room for improvement; FISV reported quarterly top-line results below expectations. 2017 guidance was announced/with top line projections somewhat below expectations
Information services; DNB shares plunged on quarterly results, while EFX shares climbed on Q4 beat and guidance matching consensus
Large Cap Pharma/Managed care; a federal judge has officially blocked the ANTM/CI deal overnight, effectively ending the long 18+ month process; SRPT shares active after Marathon Pharma DMD drug was approved by the FDA (SRPT and PTCT have competing drugs)
Biotech movers; REGN active on earnings as said 2017 U.S. Eylea net product sales to show “single digit percentage growth over 2016” – also positive news as a federal appeals court has stayed the Praluent injunction pending the appeal in patent litigation vs AMGN, allowing Praluent to continue to be sold (allows REGN/SNY to sell Praluent beyond February 21); ARRY plans to file an NDA for binimetinib plus encorafenib as a treatment for BRAF-mutant melanoma in June or July; ACOR said Phase 3 study of CVT-301 showed statistically significant improvement in motor function in people with Parkinson’s disease experiencing off periods.
Services Suppliers, Equipment & Devices; OSUR a big winner on earnings as shares surge on record profits (upgraded at Raymond James); CVS slipped on earnings; other movers on earnings included FLDM, IVC, OHI, QDEL, and ALNY
Industrials & Materials
AG & Machinery; CMI shares jumped to 52-week highs after earnings topped views; 52-week highs today for HON, IR, AME
Packaging and containers; SEE shares plunge as Q4 sales missed lowest estimates ($1.74B vs. est. $1.78B), while EPS beat by 2c; KS earnings missed by a few pennies
Transports; the blizzard/Nor’easter in the Northeast cancelling several flights (U.S. Airlines cancels 2,769 flights today); AAL said January capacity up 1.2%, traffic down (-0.3%), and passenger load factor 78.6% vs 79.7% YoY; ALK capacity up 7.6% for Jan and traffic rose 6.9%; HA was upgraded to outperform at Wolfe Research
Metals & Mining; CDE shares drop on lower quarterly profit and sales; CLF Q4 results top estimates and sees iron sales vol 19M tons vs. 18.2M YoY; SCCO downgraded to underweight at Barclays citing aggressive ramp up in growth spending, uncertainty on timing for key projects; Goldman Sachs downgraded SLW to neutral on valuation and upgraded FNV to neutral saying the company is better-positioned to generate FCF; FCX reinstated neutral at JP Morgan
Chemicals; HUN boosts titanium dioxide (TiO2) prices in North America by 7c/lb, EAME & Latin America by $250/tonne and Asia Pacific by $160/tonne
Technology, Media, & Telecom
Internet; TWTR Q4 EPS beat/revs miss on in-line MAUs of 319M; Q1 guidance below views as sees Ebitda $75M-$95M vs. est. $187M; P, YELP, EXPE to report tonight
Semiconductors; CREE falls after the US CFIUS (Committee on Foreign Investment in the U.S.) claims that the proposed sale of Cree’s Wolfspeed business to Infineon poses a risk to national security and that it may not approve the deal; MU upgraded to buy at Bank America with street high $35 tgt; RMBS upgraded to overweight at Morgan Stanley citing pullback in shares; 52-week highs today for AMAT, ADI, QRVO in semi space; MCHP slips on $2B convert offering; NVDA reports tonight after the close; INTC CFO said sees gross margin down modestly over next 3-years
Media & leisure movers; VIAB jumps early after quarterly beat/turnaround plan (to rebrand Spike TV as Paramount Network) and upgraded at Wells Fargo with $48-$50 tgt; also results from GCI, MNI in media space; WWE Q4 revs beat while EPS misses; MCHX rises as partners w/FB and launches Omnichannel Analytics Cloud; SIX gave back yesterday’s gains after PIF denied report that its weighing a bid for SIX stake (link to yesterday report) https://goo.gl/jUhjEl
Internet security; IMPV Q4 beat with revs/margins well ahead of consensus and FY17 guidance also beats; QLYS slides on mixed Q4 results, with lower revenue but higher EPS (est cut at BTIG to account for slower growth and margin dilution as new products ramp and investments continue)
Software; PAYC 4Q revenue/EPS came in above consensus expectations, growing 35% on a difficult YoY comp; ZEN beats on billings re-acceleration, following challenging Q3 (shares of CSOD, RP, TWLO rising on the better ZEN/PAYC); TTWO and the NBA team up on new 2K e-Sports league; Ubisoft cuts FY sales forecast as 3Q revenue falls
Other gainers on earnings: BHE, BLKB, IMPV, TDC, PAYC, TRMB, TTMI, TYL, ZEN
Other decliners on earnings: GLUU, MXL, QLYS, SNCR
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.