Equity Market Recap
- Stock market surges (AGAIN), setting new all-time highs (AGAIN) for major averages, as fear remains absolutely non-existent in this market environment. Investors continue to take any and all opportunities to scoop up stocks, as optimism grows that President Trump policies will lift economic growth. Markets were unphased by Fed Chair Janet Yellen’s testimony on Capitol Hill regarding rates and monetary policy. The U.S. economy is expected to continue to expand at a moderate pace, which should allow the Federal Reserve to raise interest rates at a gradual pace, Fed Chairwoman Janet Yellen said. The comments lifted the dollar and weighed on bonds as yields jumped. With today’s gains, the S&P extended its winning streak to six-straight days and up nine of the last ten days. In healthcare, among top news stories were two M&A deals officially falling apart as AET walked away from HUM, while CI terminated its deal with ANTM.
- Interest-rate sensitive utilities and real estate sectors fell, while financials rose after Yellen’s comments. Defensive stocks such as consumer staples also lagged broader markets, while tech, industrials and materials followed the gains in financials (which jumped on a spike in yields).
- Eight of the 30 Dow components making 52-week highs today as the DJIA hits all-time highs – AAPL, MRK, CSCO (ahead of earnings tomorrow), HD all at highs…as well as four financial components in the index (AXP, JPM, GS, V) which are benefitting from higher rates and prospect of deregulation under the Trump administration
- In political news, White House National Security Adviser Michael Flynn resigned Monday amid controversy over whether he lied about his contacts with a Russian official which caused a little stress overnight. Earlier this morning, Richmond Fed President Jeffrey Lacker, who is retiring and isn’t a voting member of the Federal Open Market Committee, said that almost all policy rules are recommending higher interest rates.
- Federal Reserve Chairwoman Janet Yellen told the Senate Banking Committee today that more rate hikes are likely this year if the economy performs as expected. She didn’t signal there would be a March rate hike but left the possibility on the table. Yellen said the Fed will have its balance sheet reduced in an “orderly and predictable way.” Said they want to wait to reduce balance sheet, by not reinvesting proceeds of maturing securities, until normalization is well under way
- Commodity prices were quieter today, as gold ended down little changed, slipping 40c to $1,225.40 an ounce, as gold is now lower for four-straight days. Prices dipped as the dollar extended recent gains after Fed Chair Yellen was positive on the U.S. economy. WTI crude posted small gains, rising 27c, or 0.5% to settle at $53.20 per barrel ahead of inventory data tonight and tomorrow morning, helping pare some of yesterday’s losses.
Currencies & Bonds
- The U.S. dollar strengthened vs. most rivals, recovering from early losses after Federal Reserve Chairwoman Janet Yellen offered an upbeat outlook for the U.S. economy. Yellen said the economy was expected to continue growing at a moderate pace, while also noting signs of both inflation and wage growth. The ICE U.S. dollar index (DXY) rose 0.3% to 101.25 (touched highs of 101.38), best levels in about a month. The dollar posted broad gains against the, euro, yen , and pound after data showed Eurozone economic growth was weaker than previously reported in the fourth quarter, but underlying growth momentum remained robust. The Mexican peso erased earlier gains, weakening on the day. Bonds dropped early on, with the yield on the 10-yr rising above 2.50%, only to pare losses late day, as yields slipped.
- Inflation jumps; Producer price index for January jumped 0.6%, well above an est. for a 0.3% increase, while core prices (ex: food & energy) rose 0.4% MoM vs. est. 0.2%; the January PPI final demand largest increase since Sept. 2012
Sector News Breakdown
- Retailers; sporting goods stores under pressure early after HIBB prelim Q4 EPS/comp sales miss and year EPS forecast below views (Q4 comp sales fell -2.2% vs. est. up 1.3% citing weaker holiday-season traffic) – shares of DKS, CAB, SPWH, BGFV all active; MAT announced a partnership with BABA which includes selling Mattel toys in China; in general, little bounce in retail/department stores after weeks of underperforming; UAA was upgraded at Morgan
- Auto’s; GM shares active after reports PSA Group, the maker of Peugeot and Citroen cars, is exploring an acquisition of GM’s European business (Opel) in a deal that would transform the region’s automotive landscape https://goo.gl/pnzPGn; the South Korean government filed a criminal complaint against NSANY’s Korean unit for allegedly manipulating the results of fuel-economy tests of its Infiniti Q50 diesel model
- Consumer Staples; in beverages, TAP Q2 EPS and sales came in well below consensus views; DPS also declines on mixed Q4 (EPS miss/revs beat) and guides core EPS to $4.44-$4.54 vs. est. $4.74; in food, FLO shares fall on in-line Q4, but lower guidance
- Restaurants; a day after Reuters reported QSR was interested in PLKI, the NY Post reported the interest was a few months ago, but walked away from the deal https://goo.gl/Ubs5ix
- Housing & Building Products; products company TTS drops as Q4 EPS/sales/comp sales all miss consensus; homebuilders in general slipped today (LEN, DHI), perhaps on the spike in yields as it raises mortgage rates
- Little bit of catch-up for energy stocks after underperforming yesterday, but news outside of a few production updates was relatively quiet. In the E&P sector; GPOR reported an earnings beat and introduced generally bullish 2017 expense and differentials guidance that reflect the acquisition of the SCOOP acreage, which should close in the next 1-2 weeks according to one analyst; NBL beat and raise as strong oil production and low expenses drove a healthy 4Q earnings beat; APA slides, after presentation at Credit Suisse conference includes highly-anticipated Alpine results
- Large Cap banks on the rise again; Banks rally as yields rise, as KBW banks index rises for a 4th day, rising as much as 1% to highest since Feb. 2008 (GS nears life-time highs reached in 2007)
- Asset managers/brokers; AB posted quarterly beat largely on higher performance fees but also slightly higher management fees and lower expenses; online broker ETFC JAN DARTs were 201,464, up 8% MoM and up 15% YoY; SCHW reports January net new assets $11.1B
- Large Cap Pharma/Managed care; HUM and AET walk away from $34 billion deal after court ruling in January which said the combination would stifle competition in the private Medicare Advantage program for retiree – AET will pay HUM a $1 bln break-up fee; another deal also terminated as CI terminated its deal with ANTM – CI expended buyback to $3.7B, while CI files suit against ANTM in range of $13B seeking damages
- In specialty pharma, DEPO downgraded to Neutral from Buy at Mizuho and lowering PT to $17 from $24 because we see a deal as less likely; VRX tgt cut to $22 at RBC ahead of earnings on 2/28 largely owing to reduced derm outlook.
- Biotech movers; AMAG entered into an exclusive license agreement that provides AMAG with U.S. commercial rights to Intrarosa™ (prasterone); INCY takes over development of GITR/OX40 from AGEN under amended agreement
- Medical equipment; aesthetic surgery M&A busy this week as CYNO agrees to be bought by HOLX for $66.50 per share in a deal valued at $1.65B https://goo.gl/wLgEfb (deal follows acquisition of ZLTQ by AGN yesterday valued at $2.48B); other equipment related names that moved on earnings included BRKR, CRL and Q; BRKR was mixed as Q4 as results topped consensus, but organic declines continue and 2017 EPS guidance was below views; XRAY upgraded to buy at Stifel not about pending 4Q16 results or 2017 guidance but rather a long-term view of Dentsply Sirona, and catalysts that are on the horizon
Industrials & Materials
- Transports; all in all group news was quiet, failing to make new all-time highs; the life-time high for the Dow Transports 9502 back on January 26th (falling short at 9471 highs today); sector overall has been strong despite some weak airline metrics over the last month and a weaker UPS earnings report a few weeks back as rails have helped propel the group
- Aerospace & Defense; AYR solid Q4 beat, as EPS/revs (90c/$204.7M) beat est. (52c/$198.2M); defense names were little changed on day (GD, BA, LMT)
- Tankers & Shipping; NMM rises as Q4 EPS and revenue top consensus; SINO active again after surging yesterday on quarterly results; STNG upgraded to overweight at Morgan Stanley as sees as highly attractive with favorable optionality to the product tanker recovery as global inventories fall while the order book is at all-time lows
- Waste services; KeyBanc positive on sector as raises targets & estimates across the group as believe higher commodity prices and a generally positive fundamental backdrop could drive upward estimate revisions; raise CWST from $12 to $14), WM from $74 to $76 & WCN $90 PT
Technology, Media, & Telecom
- Internet; ZG upgraded to buy at Stifel with a Street high $43 tgt; SALE was a big winner after better earnings; GRPN shares rise ahead of earnings tomorrow; NFLX shares underperformed
- Semiconductors; AMKR mixed Q4 EPS/revs while guides Q1 EPS below views; GIG acquired by IDTI for total cash consideration of $3.08 per share, or approximately $250 million in cash https://goo.gl/LBBrV5 (shares of AAOI, FN, ACIA, OCLR rose in sympathy); MU shares were under pressure as Deutsche hosted a talk with some of Micron management yesterday which noted they no longer expects DRAM prices to increase in H2 of this year and 2018.
- Software & Hardware; AAPL shares traded to new intraday all-time highs as stock breaking out on recent positive analyst comments ahead of IPhone 8 cycle in 2H’17; CSOD 4Q billings of $156.3M well above Street at $135.5M/overshadowed in-line revs; GUID a mover on earnings
- Media & Telecom; DISCA mixed Q4 results as EPS beat by 5c, while revs and Oibda come in below views; RNG lower on quarterly results