Equity Market Recap
- New day same story…as stocks opened mixed to lower, but ended the day with new all-time highs for the major averages. The S&P 500 index posted another record high, rising for a 7th straight session, led by financials which trade to their best levels prior to 2008 crisis, with Dow components JPM, GS and AXP all posting 52-week highs. The underlying theme remains “no fear” in the marketplace at all, as the CBOE Volatility index (VIX) holds at lows and investors continue to scoop up stocks at every opportunity. Note the Dow Industrials have moved higher by over 600 points in just 9-days since it last topped the 20K mark, while momentum grinds higher. The NASDAQ also posted its 7th consecutive daily gain.
- Among the top stories today, Fed Chair Janet Yellen in day two of her testimony on Capitol Hill remained positive about the U.S. economic outlook and was mostly to the “hawkish” side, while comments from Fed member Rosengren and Harker both called for three interest rate hikes this year (vs. two currently priced into the market). The data today certainly backed the case for rate hikes as inflation surged for a second time in as many days, with CPI jumping double expectations (after PPI rise yesterday), and retail sales also topped expectations. Fed fund futures pointed to a 42% chance for a rate hike in March following the data. The news sent the dollar higher and bonds lower initially, but pared those moves late. Oil prices slipped on bearish inventory data, but somehow managed to end little changed. Strength remains broad based for stocks, as eleven of the 30 Dow components posted 52-week highs today – AAPL, AXP, CSCO, GS, IBM, JPM, V, HD, MRK, PG and UNH. New highs for the NASDAQ, S&P 500, Dow and Russell 2000 (topping the 1400 level for the first time today) as runaway train to upside continues!
- Inflation surges again; the consumer price index (CPI) for January rose by a seasonally adjusted 0.6% in January, well ahead of the 0.3% increase forecasted by economists (the big jump in inflation comes a day after PPI surged the most in 5-years yesterday); a big increase in the cost of gasoline accounted for almost half of the increase in consumer inflation in January; core CPI (ex: food & energy) rose 0.3% also above estimates of 0.2%
- The Empire State manufacturing index jumped to its highest level in more than two years in February, rising to 18.7 from 6.5 in January and was well above estimates of 7.0; new orders index climbed to 13.5 in February from 3.1 in the prior month, shipments rose to 18.2 from 7.3 in January and unfilled orders index rose above zero for the first time in more than five years.
- Retail sales jumped 0.4% last month, well above consensus for a 0.1% gain, and follows a much bigger gain in December than originally reported (revised up to 1% from prior 0.6%); according to the report, every major retail sector reported higher sales except for auto dealers, though if you exclude autos, U.S. retail sales rose a robust 0.8%, vs. an expected 0.4% rise
- Industrial Production for January disappointed, falling (-0.3%) vs. an estimate of unchanged; the IP fell after rising 0.6% in December (revised down from up 0.8% last month); Capacity utilization fell to 75.3% from 75.6% in Dec., revised up from 75.5% – dragged down by Utilities, which fell 5.7% in Jan. after rising 5.1% in December
- Business Inventories for Dec rose 0.4% MoM, in-line with consensus; business sales rose 2% in Dec. after rising 0.3% the prior month
- U.S. Home Builders’ Confidence index (NAHB) in February falls to 65 vs 67 last month (estimate for this month also 67); the present single family sales falls to 71 vs 72 last month and the future single family sales falls to 73 vs 76 last month
- Commodity prices were mostly higher, bouncing from earlier lows after the dollar reversed lower on profit taking; oil prices ended down only slightly (9c at $53.11) even as EIA report shows U.S. crude stockpiles rose to a weekly record, with refineries in seasonal maintenance. U.S. crude exports also rose to record; the bearish inventory data overnight from API showed a 9.94M barrel build and this morning the EIA build 9.53M barrels was above est. of 3.5M. Gold prices reversed earlier losses, posting its first gain in the last five sessions, rising $7.70, or 0.6%, to settle at $1,233.10 an ounce
Currencies & Bonds
- After touching one-month highs of 101.76, the dollar index (DXY) ended the day lower around 101.20, losing early gains after stronger-than-expected U.S. CPI, manufacturing and retail sales data, coupled with yesterday’s commentary from Fed Chairwoman Janet Yellen lifted interest in the dollar on rising interest rate expectations. It probably wasn’t a good sign for the dollar that it failed to hold onto gains after higher-than-expected retail sales and inflation reports lifted the probability for a Fed rate hike next month, but not totally unexpected after the rise lately. The yen finished around 114.25 (off highs of 114.96), while the euro rose above 1.06 for a little while after earlier lows of 1.0521.
- Treasury market’s fell as yields touch their highest levels in more than 2 weeks on the rosier outlook for the U.S. economy; the 10-yr yield trades back above 2.50% on the increased odds of a Fed rate hike for the March meeting now, jumping after the strong data this morning; 2-yr yield up around 1.25% and the 30-yr around 3.10%
Sector News Breakdown
- Retailers; watch maker FOSL shares dropped after posting Q4 miss across the board (EPS/sales/comps) and guides Q1 to an unexpected loss (MOV, KORS among names active on the report); UAA was downgraded at Susquehanna and street low $14 tgt; Berkshire reduced its stake in WMT according to filings; some retailer heads (TGT, JCP, BBY) held meeting with President Trump today regarding the cross-border tax
- Consumer Staples; PG active as Trian Fund Management (Nelson Peltz’s firm) has taken a $3B stake in PG (which would represent ~1% ownership in PG) according to 13F filing; PEP for Q4 EPS topped views on in-line revs though says sees currency as a headwind in 2017; SODA Q4 EPS/sales both came in well above consensus views
- Restaurants; Baird retained Outperform ratings on JACK, SBUX, PNRA, HABT, WING, MCD, DNKN, ZOES, and BWLD saying final January survey data was consistent with the early read, showing a reassuring rebound in industry comps after December softness; Chuck E. Cheese’s private equity owner APO has hired firms to solicit acquisition bids for the company, or an initial public offering (IPO) https://goo.gl/8S5NYM ; PBPB rises on earnings
- Housing & Building Products; beaten up shares of RH were upgraded at KeyBanc; housing stocks (LEN, KBH, PHM) in focus as rising interest rate expectations boosts outlook for rising mortgage rates as well
- Lodging & Leisure; hotels active after earnings from HLT and WYN; overall, the group was broadly higher on the earnings results; in gaming, BYD and CZR movers on earnings
- Energy related stocks slipped amid volatility in the oil space; bearish data once again on the inventory front, as both the API and EIA reported large weekly crude builds of over 9M barrels; in the news, DVN a mover lower on earnings; Bloomberg noted OXY said to seek buyer for South Texas assets; frac sand stocks were mostly weaker today; SLCA, HCLP, FMSA; FANG also solid quarterly results lifting shares
- Utilities/alternative energy; SEDG shares advanced early on better earnings/guidance; utilities underperformed along with the rest of the interest rate sensitive sectors (staples, telco, REITs) as rising rate environment weigh on defensive/high dividend paying sectors; DYN outperformed after 13F filings showed at least five new hedge fund investors in 4Q.
- Large Cap banks and financials in general are once again outperforming the broader markets on the improved economic outlook for the economy given better data today, and as bond yields surge again on prospects of higher interest rates, which benefit banks (lending); banks jump again early after 52-week closing highs for Dow components GS, JPM AXP, V yesterday (adds to those gains today along with regionals and brokers); in insurance; AIG shares fall after earnings/lowers 2017 ROE target after missing CEO’s goal last year
- Monthly Master Trust credit card data shows: 1) JPM Jan Credit-Card Net-charge offs 2.29% vs. 2.25% MoM and delinquencies 1.19% vs 1.17% MoM; 2) COF Jan Credit Card net-charge-offs 4.91% vs. 4.89% MoM and card delinquencies 4.13% vs. 3.95% MoM; 3) ADS Jan NCO’s 6.1% vs. 5.3% MoM and card delinquencies 5.1% vs. 4.8% MoM; 4) DFS Jan net charge-offs 2.6% vs. 2.5% MoM and delinquencies 2.1% vs. 2% MoM; 5) SYF Jan NCO’s 4.59% vs. 4.88% MoM while delinquencies were 3.09% vs. 2.99% MoM
- Brokers/Asset Managers/Alternative; FIG to be acquired by Japan’s SoftBank Group Corp for about $3.3B https://goo.gl/SiF3qa (Jefferies said they haven’t believed that M&A would be a big theme in the alternatives group, though some of the smaller names may move today on the FIG deal…top picks in the space remain Buy-rated BX for diversification and APO for growth); OZM shares Q4 EPS missed and said suffered $13B in withdrawals, but said worst behind them
- Finance & Lending; LC shares weak as Q4 was okay, but Q1 and 2015 forecast trailed estimates on softer originations, tighter underwriting and rising expenses; PYPL to acquire Canadian Bill Payment Service TIO for $233M
- Large Cap Pharma; MRK shares dropped on news it is stopping protocol 017, also known as Phase 2/3 “Epoch” study of verubecestat in people with mild-to-moderate Alzheimer’s disease, as fails to show promise (Stephens said there could be some initial weakness in LGND shares due to the negative headline); EVOK shares jumped as the FDA exempted its late stage product Gimoti from a Human Factors (HF) Validation study requirement prior to submission of an NDA; INSY to provide an oral solution of its experimental cannabis-derived therapy for compassionate use studies in children with epilepsy; ACOR rises on Goldman upgrade
- Managed Health Care stocks jumped early after the Trump administration issued proposed regulations that would stabilize Affordable Care Act (ACA) markets, and insurers look to the future after two mega-mergers collapsed under regulatory scrutiny (AET, HUM, UNH, CI, CNC); move in group after two deals (AET/HUM and CI/ANTM) officially fell apart yesterday – managed care names slipped in afternoon trade from earlier highs
- Biotech movers; Biotechs to the highs today as the IBB trades to best levels since November; among top gainers in the bio space were NVAX, INSY, EDIT, ZGNX; EDIT jumped after Patent Trial and Appeal Board enters a judgment of no interference-in-fact in suit with Broad Institute vs University of California, according to Bloomberg (shares of CRSP, NTLA fell)
- Medical equipment; IART said it plans to acquire the Codman Neurosurgery business from JNJ for $1.045B in cash in a transaction that is expected to be GAAP accretive in three years; Agilent (A) shares move on earnings, as beat top/bottom line, though guidance mixed; ELOS slipped early despite better earnings/revs, paring recent gains after M&A in sector lifted shares the last few days (ZLTQ and CYNO were both acquired)
- Healthcare services; after recently touching 52-week highs on earnings, Q was downgraded at Baird on valuation; ESRX a mover on earnings; OHI was downgraded at SunTrust
Industrials & Materials
- AG & Machinery; BG shares jumped as Q4 EPS and sales both handily topped consensus ($1.70/$12.1B vs. est. $1.57/$11.4B)
- Transports; airlines particularly in focus today after Warren Buffett’s Berkshire Hathaway boosted its investments in airlines according to the latest 13F filings (showed new position in LUV, while raising stakes in AAL, DAL and UAL)
- Paper & Forest products; WRK informed its customers of $50/ton containerboard price hike for all linerboard, medium grades, effective with shipments from March 13 according to CIBC (follows recent price hike from KS to $50)
- Metals & Mining; AA 23M share Block Trade priced at $38.25; copper prices slid as union workers at Chile’s Escondida mine in the Atacama Desert said they would begin talking with management on Wednesday, after five days of striking (owned by BHP); TECK falls on Q4 profit miss
Technology, Media, & Telecom
- Internet; GRPN rises as Q4 EPS/revenue both top consensus with $1.7B billings and better Ebitda; YHOO was active after Bloomberg reported VZ close to deal for price reduction of at least $250M deal price, but could be as much as $350M https://goo.gl/V5heSk; SHOP with better Q4 EPS/rev results and Q1 revs seen $120M-$122M vs. est. $117.6M; TWTR shares active early after reports show CEO Dorsey bought $7M in stock; ANGI active after Q4 results (revs short of views, but shares were up early); AMZN tgt upped to $970 at Oppenheimer
- Semiconductors; sector was strong, led by gains in ADI after earnings, CY also rises in sympathy…followed by CRUS, CREE and ON; AMAT to report earnings in semi-equipment sector tonight
- Software & Hardware; AAPL touches fresh intraday all time high before sliding; CSCO to report earnings after the close (touched 52-week highs yesterday); HPE was upgraded to positive by OTR Global Research
- Optical stocks were under pressure early after Rosenblatt said ZTe and Huawei’s optical component inventory levels are high and believe their optical shipments are flattish year-over-year in Q1. Both ZTE and Huawei have tried to build inventory with concerns of the US government potentially sanctioning Chinese telecom vendors (OCLR, FNSR, ACIA moved)
- Media & Telecom; MDCA shares rose on news to receive $95M investment from Goldman Sachs; sector looks to earnings from CBS tonight and CHTR tomorrow morning
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.