Market Review: New Closing Highs, But Stock Moves Muted

eOptionDaily Market Report

Equity Market Recap
  • Today was a whole lot of nothing until the final minutes of trading, with major averages opening lower…only to pare its losses midday…and actually surge into the close to end the day higher for the first time all-day. With the late day push (and what a push it was), the Dow Industrials managed to post its 11-straight record all-time close while other averages followed suit. The difference today was that the gains were led by defensive/safe haven related sectors, with utilities, staples, telecom and real estate all leading the gains. Oil prices pulled back on the day as record U.S. crude inventories offset OPEC production curbs. Note data this week showed stockpiles rose 564K barrels to 518.7M last week, the highest level in weekly data going back to 1982. Stocks were mixed for the week as the Dow and S&P ended higher, but the NASDAQ slipped led behind weakness in semiconductors. Sector gainers were again led by defensive names as utilities climbed for a 6th-straight day on lower bond yields. Gold and bonds both saw interest late week, ending on a strong note. Financials were the biggest drag on the S&P 500 today given the focus on yields today. Nothing concrete on stimulus plan, corporate tax reform, trade policies, or Obama care repeal…but markets do not care = no fear!
  • Oil prices ended Friday lower, slipping 46c, or around 0.85% to settle at $53.99 per barrel, but still posted a weekly gain following yesterday’s 1.6% jump after a mixed reading on U.S. stockpiles helped lift prices. Crude remained lower following the weekly rig count data, which showed 3 more rigs came online this week, adding 5 oil rigs (lost -2 gas rigs), and brought the total oil rig count to above 600 for the first time since October 2015.
  • Gold prices climbed $6.90, or 0.6%, at $1,258.30 an ounce, rising for the 4th straight week, and posted a 1.6% weekly gain. Gold got a lift this week amid weakness in the dollar, as investors await details and timeframes for President Trump’s tax plan/reform plans. Political news out of Europe also moved currency markets. By week’s end, several “defensive” related assets, such as gold (along with the yen, bonds and utility stocks) saw strength in a bit of rotation.


  • The U.S. dollar reversed earlier losses to close flat on the day, as the dollar index (DXY) traded back above the 101 level (week highs 101.72 and low 100.66). The dollar eased against the Japanese yen and a handful of other rivals on Friday, but managed a comeback late day vs. the euro (euro slipped to lows of 1.056 vs. the USD from earlier highs of 1.0618). The direction of interest rates, political uncertainty, and expected details surrounding President Donald Trump’s fiscal-policy plans are all potential catalysts for currency direction over the next few weeks. Earlier in the week, Treasury Secretary Steven Mnuchin said the administration would implement its tax-policy plans by Congress’s August recess.


Bond Market
  • Bonds extended their weekly gains, as yields fell to their lowest levels of 2017; defensive assets have bounced over the last week, with noticeable gains in gold, bonds and the safe haven yen (yet stocks remain not far from record levels). The yield on the benchmark 10-yr fell below 2.32% its YTD low close of 2.324% on 1/17 and down around 30 bps from 2017 highs above 2.60%.


Economic Data
  • The University of Michigan Final Sentiment fell to 96.3 from 98.5 last month, but slightly above estimates for 96 reading; the expectations index fell to 86.5 vs. 90.3 last month, while the current economic conditions index rose to 111.5 vs. 111.3 last month
  • New Home Sales for January rose 3.7% to 555K, below estimate of 571K; the previous three months’ new home sales data revised down 27K; said the median new home price rose 7.5% YoY to $312,900 and 19% of new homes sold cost more than $500,000, up from 17% last month


Sector News Breakdown
  • Retailers; mixed results in department store space as JWN mixed Q4 results as EPS topped highest estimates, while revs missed slightly (Full-line and Rack store comps fell 7% due to increased full-price selling and less promotions); JCP EPS beat on slightly worse comps (-0.7%) while said to close between 130-140 stores; in footwear, FL Q4 EPS beat by 5c on slightly better comps of up 5% and in-line revs; GPS expects FY comp sales to rise after two years of decline; retailers leveraged to border tax proposal (DLTR, WMT, TGT, BBY) jumped after report this morning of “no go on House version of border adjustment tax”
  • Consumer Staples; a sector that has seen much interest over the last week or so – starting with the potential major M&A deal in food space last week when KHC offered $143B for UN (which was later rescinded), lifting food and consumer names…but group has remained active over the last week; earnings results out of product names overnight moving some shares (HLF, BGS); STZ bounces back after border tax comments yesterday; NUS added to S&P MidCap 400
  • Restaurants; ZOES drops over 10% on larger Q4 loss and weaker guidance; BJRI also reported quarterly results; JACK downgraded at Cowen after earnings
  • Housing & Building Products; furnishing products company RH rises on Q4 EPS/revenue beat and $300M stock buyback (had 40% short interest into today); it has been a good week for homebuilders on better earnings (TOL) and economic data


  • Baker Hughes rig data was out at 1:00 PM ET – total rigs rose 3 to 754 (up 10 rigs last week), with oil rigs up 5 to 602 (rose 6 last week) and gas rigs fell -2 to 151 (rose 4 week prior); oil rig count tops 600 for the first time since October 2015; other movers, SWN declined as earnings missed views; in MLPs, PAGP 34M share Spot Secondary priced at $31.00
  • Frac-sand stocks pummeled yesterday following SLCA commentary on adding production capacity – several analysts said they see buying opportunity (upgraded to outperform at Scotia today), while RBC says the frac sand sell-off was an acceleration of institutional intra-sector rotation into offshore from U.S. land; today, HCLP 20.5M share Spot Secondary priced at $18.00 (EMES, FMSA also active in space)
  • Utilities; group remains strong, with the UTY rising a 6th straight day – Bloomberg noted that utility stocks and Treasuries aren’t in sync like their options. The S&P 500 Utilities Index has recovered more than half its loss from July through November, while the 10-year Treasury yield is languishing near post-election lows; all 20 components in the UTY utility index are higher, led by gains in EXC, FE, PEG and AEP


  • Large Cap banks led declines for major averages, as MS, JPM, GS, BAC, C, all lower as well as weakness in Euro banks with declines in BCS, CS, DB – a recent drop to year low levels for the 10-year weighing on group (down less than 30 bps from highs above 2.6%
  • Finance and lending; INTU shares outperformed on better earnings/guidance; RWT shares dropped after Q4 EPS missed by 5c
  • Brokers, asset managers and exchanges; CBOE to replace PBI in the S&P 500 index; BEN was upgraded to hold from sell at Deutsche Bank
  • Private Prison REITs (GEO, CXW) rise as DOJ reverses Obama decision; as U.S. Attorney, General Jeff Sessions rescinds Aug. 18 memorandum issued by former Deputy Attorney General; mall REITs came under pressure on reports of JCP store closures (SPG, GGP, CBL, MAC, SKT)


  • Large Cap Pharma; MRK said it was taking a $1.9B impairment charge on MK-3683 Hep C drug as its market share shrinks; BMY arthritis drug Orencia (abatacept) was designated an orphan drug to treat giant cell arteritis and idiopathic inflammatory myopathy; IPCI gets FDA approval for generic version of BMY type 2 diabetes med Glucophage XR in the 500 mg and 750 mg strengths.
  • Biotech movers; ACHN slides after Q4 EPS loss/registered to sell over 18M in shares; INCY rises on news to replace SE in the S&P 500 index; CEMP rises on positive results from a 716-subject Phase 3 clinical trial assessing CEM-for the treatment of acute bacterial skin and skin structure infections; BMRN & LGND declines on earnings/guidance
  • Facilities & Services; ACHC Q4 mixed as EPS beat/revs missed, while Q1 EPS below views (45c-47c vs. 56c); CERN was downgraded to neutral at Citigroup on limited upside; THC upgraded at Mizuho; EHTH rises on earnings; MGLN also declined on mixed results
  • Equipment & Devices; AXDX rises as the FDA granted its de novo request to market its automated Accelerate Pheno system and Accelerate PhenoTest BC kit; DHR was upgraded to buy at Citigroup


Industrials & Materials
  • Industrials & Machinery; MTZ shares outperform as reported better than forecast Q4 results w/rev growth of 31% & improved profitability; WSO 4.24M share Spot Secondary priced at $144.00 (UTX sold stake); MMM traded a new 52-week high today
  • Transports; Transport index tracked high of 9541 on 2/21 to lows of 9262 on 2/24 (while closing higher today in middle of range; group was hit this week by weakness in rails…MATX on earnings…and analyst cautious on UPS after earnings last week
  • Metals & Mining; HL upgraded at BMO Capital on improved outlook, reasonable valuation, and free cash flow profile for 2017; GTLS upgraded to buy at LakeStreet given positive demand trends and early signs of a recovery in the E&C segment


Technology, Media, & Telecom
  • Internet; Snap Inc. IPO expected next week; AMZN shares slipped on cautious analyst checks (M Science); BIDU shares slipped on mixed quarterly results (revs missed); Morgan Stanley with various changes in sector saying they think growth drivers are shifting from MAU (monthly active user) growth to rising monetization and diversification (top picks are BABA, Tencent, MoMo, CTRP, and JD and Underweight SOHU, CMCM, and YY) –also upgraded TOUR and CYOU
  • Semiconductors; after falling over 9% on two analyst downgrades yesterday, NVDA bounced back, trading higher in the semi space; biggest declines in semi index (SOX) came from IDCC (falling 2nd day on weaker guidance), IDTI, ON and CY
  • Software movers; SPLK shares slide on mixed 4Q17 results and guidance/several 7 metrics were well ahead of consensus, but billings outperformance was a bit less than expected and decelerated to 35% from 37% (despite easier comps)/also Q1 rev guidance light; WDAY upgraded to positive at OTR Global following partner checks; WAGE and PEGA rise on earnings
  • Optical & Equipment; ACIA shares drop as Q4 EPS/revs beat, but guidance for Q1 well below views (63c-70 on revs $108M-$114M vs. 78c/$137M) amid a pause in orders from key customer; AAOI trades to 52-week highs after Q1 results top consensus; OLED another strong gainer in sector following its quarterly beat driven by new material sales and industry capacity gains
  • Services; HPE shares underperform after earnings, downgraded at BMO Capital to market perform, as revenues that came in below estimates with EG underperforming due to cutback in spending at a Tier 1 customer while ES declined too

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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