Market Review: Steel Strength, That’s All

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Equity Market Recap
  • It was a lackluster trading session today, with major averages ending mixed, failing to build on the string of record setting closing levels this week. There were a lot of recent “crowded trades” unwind a bit today as the dollar pulled back despite better economic data/rising rate expectations, bonds up slightly, and financials lagging but that comes after outperforming the last few days. Defensive/interest rate sensitive sectors leading (Utilities, REITs, and Telecoms). Overall, there really wasn’t much going on today outside of earnings and the better data, with markets getting a break from all the recent Fed speakers. So far this quarter, earnings have been better (but revs still disappointing) and economic data has been overwhelmingly positive of late, with rising inflation, but the political risks continue to rise.
Economic Data
  • Philadelphia Fed Index for February surges to best levels since 1984 with 43.3 reading, well above est. of 18.0 and above 23.6 in the prior month; segment breakdown: Feb prices paid fell to 29.9 vs 32.5, new orders rose to 38.0 vs 26.0 while employment fell to 11.1 vs 12.8; shipments rose to 28.6 vs 20.5 and inventories fell to -4.7 vs 12.2; prices received fell to 10.6 vs 26.8
  • Housing Starts for January fell to 1,246K from an upwardly revised 1,279K, but above est. of 1,226K; starts fell 2.6% in Jan after rising 11.3% the prior month, while single family starts rose to 823k; multifamily starts fell to 423k in January. Building permits rose to 1,285k vs 1,228k in Dec.; and above est. 1,230k (permits rose 4.6% in Jan. after rising 1.3% the prior month)
  • Weekly Jobless Claims rose 5K to 239K, but below est. of 245K; the four-week jobless claims average up 500 to 245,250; prior week claims unrevised; continuing claims fell 3k to 2.076m in the latest week
  • Total household debt rose 1.83% in 4Q from previous quarter, according to the Federal Reserve Bank of New York. Mortgage delinquency rate improved to 1.57% from 1.63% prior quarter. Student loan delinquency rate increased to 11.17% from 10.94% prior quarter and student loan debt total at $1.31T from $1.279T in 3Q

  • Crude oil futures closed up higher by 25c, or 0.5% to settle at $53.36 per barrel (after falling to lows of $52.68 per barrel earlier). The weakness in the dollar helped lift prices which have been stronger over the last few days despite bearish inventory data in the U.S.
  • Natural gas prices fell after weekly bearish inventory data (falling -114 bcf vs. est. -124 bcf), sending prices below the 200 day MA support of $2.89 mln btu; natural gas fell 7.1c or 2.4% to $2.854 mln btu (now down 27% from winter peak)
  • Gold futures bounced after a brief pause of late, rising $8.50, or 0.7% to settle at $1,241.60 an ounce, helped by an extended pullback in the dollar; closed at more than a 3-month high
  • The dollar ended near the lows vs. major counterparts after spiking initially early yesterday on “hawkish” commentary from Fed Chair Yellen and “hotter” inflation data (before those gains faded). The move today was its steepest one-day drop in over two weeks, due to lower U.S. bond yields and uncertainty over the timing of the Federal Reserve’s next interest rate increase. The Euro rebounds from 5-week lows versus dollar to around 1.066, while pares recent gains vs. the yen, falling from recent 2-1/2-week peak (now around 113.20). Overall, data has indicated a rate hike could be imminent, but the dollar has been sliding the last few days on likely profit taking – also investors awaited more detail on tax-policy plans from President Trump.

Bond Market
  • Bonds rebounded as yields dropped, despite another round of stronger economic data, which likely raises prospects for interest rate hikes by the Fed, possibly by the March meeting; the 10-year yield slips over 5 bps to under 2.44%; the 2-yr yield also down over 5 bps at 1.20%
Sector News Breakdown
  • Retailers; weakness in retailers/apparel on fears of the cross border tax;  CAB the latest in sporting good space to miss quarterly results (follows recent weakness in HIBB/BGFV/SPWH); BBW shares dropped as Q4 results short of estimates ($110.3M vs. est. $126M)  citing weaker traffic levels; KATE shares active as announces review of strategic alternatives; TPX bounces on earnings; weakness in department stores (KSS, JCP, M)
  • Consumer Staples; in food, KHC downgraded at Susquehanna despite Q4 beat saying stock has little upside in year ahead given slower Ebitda growth, delayed deal making; DF shares fall as Q4 EPS missed and guided Q1 and year EPS below views – Q1 12c-20c vs. 40c est.); NSRGY with a weaker forecast; in products, AVP Q4 profit falls short of consensus citing weak demand; GNC drops after 4Q EPS missed estimates/said to exit ~100 stores whose leases terminate in 2017 and same-store sales dropped (-12%)/suspends dividend; in research, HSY upgraded to buy at Argus, MFS upgraded at Baird; WFM positive mention by Hedgeye
  • Restaurants; WEN mixed Q4 as EPS missed, but revs and comp sales slightly better/boosts dividend and reports $150M share buyback; DENN rises on earnings
  • Casino, Lodging & Leisure; in casino’s, results from MGM which posted quarterly profit miss as costs of new casinos weigh on results/flat revenue growth from Macau in Q4; MPEL in-line Q4 EPS of 13c on better revs of $1.19B; in lodging, WYN downgraded at Wolfe Research on valuation, while H and CHH shares move on earnings
  • E&P sector; XEC shares dropped after earnings/guidance; ECA and MRO both acknowledge decrease in Eagle Ford drilling & completion costs at Karnes County according to one analyst; names leveraged to natural gas (RRC, EOG, CHK) slipped on bearish natural gas inventory data; OIS and HOS also movers on earnings
  • Solar/Utilities; SPWR misses Q4 earnings & reports net loss/guidance misses by wide margin (though shares upgraded to outperform at Oppenheimer)
  • Refiners CVRR and PBF active after earnings
  • Utility sector; after underperforming recently on rising rate expectations/higher yields, group leads markets today; also some earnings from DUK, PCG and SCG
  • MLPs; Energy infrastructure companies ENB and SE have agreed to settle FTC charges that the proposed merger of Enbridge and Spectra likely would harm competition in the market for pipeline transportation of natural gas in three production areas off the coast of Louisiana
  • Large Cap banks/financials take a breather after outperforming major averages the last few session amid a jump in yields and rising rate expectations; In research, WFC was downgraded at Credit Suisse on valuation, while RF was upgraded to buy at SunTrust
  • Lending and Finance; HAWK reported a weaker 4Q last night and guidance was 14% below consensus as mgmt expects EMV to continue to weigh on F17 results; ONDK Q4 loss widened and said to cut 11% of its workforce; ASPS Q4 EPS 55c below 83c estimate, though revs beat; CIT 4.82M share Block Trade priced at $42.50; PHH in pact to sell some assets of PHH Home Loans to Guaranteed Rate Affinity, a JV established by Guaranteed Rate and RLGY
  • Other movers on earnings included: CYS, JMP, JRVR, NMIH
  • Large Cap Pharma; SHPG Q4 profit topped estimates along with rev beat noting year profit could be held back 1%-2% on Fx headwinds; VRX active as the FDA approved its Siliq (brodalumab) – two analysts note was expected and in models; PGNX to join S&P Small Cap 600 index; WST slides as FY sales forecast trailed consensus views after Q4 miss
  • Managed care; MOH shares plunge as posted a meaningful miss for 4Q with EPS coming in at ($1.54) as compared to estimate of 75c as SGA ratio also missed expectations and guidance huge miss of $2.09 for year EPS vs. est. $3.69
  • Equipment and Devices; CFMS was cut at Canaccord as 2017 revenue guidance came in significantly below consensus and suggests the company remains in the rebuilding stages following the recall in H2/15; EXAS was mentioned positively by Hedgeye; ZTS shares active after year mid-point forecast misses estimates; other movers on earnings: LH,
  • Biotech movers; REGN was downgraded to hold at Goldman Sachs citing valuation; ALXN Q4 mixed with EPS beat by 1c on slightly worse revenue/announced $1B buyback boost; TSRO downgraded at FBR Capital
  • Services and providers; CHE rises on better 2017 outlook; CSLT moves on earnings; ICLR Q4 EPS results beat; OMCL slid early on Q4 revenue miss
Industrials & Materials
  • Industrials; in waste services, WM mixed Q4 as EPS missed/revs beat and mid-point of guidance just below consensus; CIR guided Q1 EPS/revs below consensus after better Q4; SRCL breaks out of recent trading range, jumping on Q4 revenue beat
  • Transports; car rental CAR shares fell after weak pricing and revenues in 4Q and FY17 guidance below consensus at the mid-point – the guidance weighed on the broader index; all components in the index were lower likely on profit taking after Dow Transports recently touched all-time highs, led by gains in airlines on Berkshire stake additions in several names (UAL, AAL)
  • Materials & Mining; Gold miners report earnings; ABX, GG, both with earnings beats (ABX later filed mixed securities shelf up to $4B as shares touched August highs); while NGD and KGC mixed Q4 results; AEM falls as Q4 EPS missed by 6c on lighter revs; CF posted weaker quarterly results but one analyst noted (BMO) CF has massive cash pile, safe dividend
Technology, Media, & Telecom
  • Internet; in Chinese Internet, NTES rises as Q4 ADS/revs handily top views and raised its dividend; ANGI downgraded to sell at Roth Capital after mixed Q4 results; in online travel, TRIP shares slide as Q4 results were below expectations across the board (EPS/revs/Ebitda) and guided 2017 EBITDA to be flat or down
  • Semiconductors; semi-equipment giant AMAT reported Q1 rev/EPS modestly above Street estimates and guided F2Q17 EPS also above the Street; overall semi space was relatively quiet
  • Networking and equipment; CSCO reported a mostly in-line Q2 results with in-line guidance and raised its dividend (switching and routing segment weak); NTAP top-line results were above consensus and grew for the first time in 13 quarters/margins weaker
  • Media & telecom; CBS, CHTR, LBTYA, TIME all reported earnings; DISCA said in new deal to create shows for Snapchat
  • Other gainers on earnings: CSCO, EPAM, NTAP, NTES, QTWO, SNPS, SSNC, TIVO
  • Other decliners on earnings: GDDY, TRIP

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.

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