Market Review: Fresh Highs Ahead of Trump’s Tuesday Speech

eOptionDaily Market Report

Equity Market Recap
  • Stock markets took another “wait and see” approach, trading in a narrow range most of the day as investors await clarity on President Trump’s new policies/promises expected to be partially revealed tomorrow night in his address to Congress. Gains today were led by infrastructure and materials ahead of the speech as well as defense names after reports of Trump to propose a 10% defense increase in the budget plan, according to aides. Markets will also look to changes in the healthcare system as Trump has repeatedly said a plan to repeal/replace Obamacare is in the works. In the end, major averages posted another day of gains, with record closing highs for the S&P 500 and Dow Industrials again, while bonds fell and the dollar jumped as rate hike increase expectations jumped late day, though economic data was uninspiring.
  • Despite the Dow Jones Industrial Average matching its longest series of records in 30 years of 12-striaht days (up since Feb 9th) the total gain hasn’t even reached 4% (back in ’87, the DJIA climbed 9.2% in the previous 12-day run – according to Bloomberg). The S&P 500 added to Friday’s record closing high, while the NASDAQ was little changed amid a rebound in semiconductors. In Europe, stocks closed the session little changed, trimming earlier declines. Overall, it was a little bit of a reversal from last week’s winners/losers, as defensive names such as utilities and consumer staples slid the most, while the “Trump effect” had positive implications for metals/infrastructure sectors ahead of tomorrow’s joint address to Congress.
Commodities
  • WTI crude oil inched higher, rising 0.1% to settle at $54.05 per barrel – stuck in the $50-$55 range for a few weeks now, quietly holding levels. Not a whole lot in regards to news out of the energy space, as oil posted small gains despite bearish inventory and rig data last week.
  • Gold futures posted small gain on Monday, rising 50c to $1,258.80 an ounce, barely eking out a third straight session advance amid uncertainty ahead of President Donald Trump’s address to Congress Tuesday. Gold prices posted their highest finish in nearly 4-months on Friday, which was also its 4th straight weekly gain (while silver is up 9-straight weeks). Geopolitical concerns, uncertainty regarding Trump policies and a pullback in the dollar has lifted prices.

 

Currencies & Bonds
  • The dollar recovered after early “softness”, rising to highs late day against the yen (112.70 level vs. overnight lows of 111.92) and pared losses against the euro. The greenback weakened earlier ahead of Trumps’ speech to congress tomorrow evening, as expectations have been reduced that he will be able to implement his tax reform, spending plans on the “sooner” side.
  • Treasury yields ticked higher as bonds pared gains late day as investors sold positions ahead of President Donald Trump’s first congressional address and as fed fund futures jumped regarding expectations for a March rate hike (jumped above 50% late day). The yield on the 10-year Treasury note rose early 6 bps to above 2.36%, while the yield on the two-year rose to 1.2%.

 

Economic Data
  • Durable Goods data came in stronger, rising 1.8% vs. an estimate of 1.6%, but the gain was due entirely to a spike in contracts for commercial jets and military planes (prior month was revised down to -0.8% from -0.6%)…while Durable Goods Ex: transportation fell (-0.2%) vs. an expected rise of 0.5%. The increase in January was fueled by a 70% jump in orders for passenger planes and a 60% advance in bookings for fighter jets and related military goods. Orders for new cars and trucks also edged up 0.2%. Core capital-goods orders dropped 0.4% in January. It was the first decline in four months.
  • Pending Home sales for January with a surprise decline, falling (-2.7%) vs. an estimate for a 0.6% increase (falling to a 12-month low); while the prior month was downwardly revised to 0.8% from 1.6%

 

Sector News Breakdown
Consumer
  • BID advanced on better earnings/revenues
  • Consumer staples with a pullback after gains last week in food space – MDLZ, KHC, GIS early decliners; diet-stocks NTRI and WTW active ahead of earnings
  • Homebuilders active, trading higher despite weaker Pending Home sales data for January (followed strength in the group last week after better TOL earnings/economic data)
  • SSTK shares among top decliners after missed profit and sales expectations/provided a downbeat outlook (sees next quarter revs $545M-$560M vs. est. $578.2M)
  • Retailers; URBN downgraded to sell at MKM; HBI falls on downgrade at Morgan Stanley; UA downgraded at Nomura; TGT to report earnings tomorrow morning
  • TSLA shares slid as Goldman Sachs downgraded to sell and tgt to $185 citing near-term challenges including the launch of the mass-market sedan, the Model 3.

 

Energy/Utilities
  • AES a top decliner in utility stocks which are on track for first daily decline in seven days for the UTY (top losers AES, EXC, FE, AEE) as defensive names take a breather
  • Energy stocks bounced, led by Dow component CVX after Jefferies said it sees inflection points; integrated oil names were generally higher (COP, OXY) along with drillers (RIG, DO) and services (WFT, SLB)
  • Frac sand stocks get a bounce after plunging last week, led by bounce in EMES after earnings (group slid last week on SLCA report/comments and HCLP offering)

 

Healthcare
  • Several 52-week highs in medical equipment names – DHR, SYK, ISRG, BDX, DGX, LH
  • ILMN rises on upgrade to buy at Evercore/ISI
  • BCRX unveiled positive interim results from a phase two study of BCX7353 for the treatment of hereditary angioedema attacks/also reported Q4 results and guidance
  • LJPC announced positive results from a phase 3 trial of its hypotension treatment, sending shares soaring
  • PRS announced an exclusive license deal with Japan’s ASKA Pharmaceutical Co. Ltd. for the development and commercial rights to Pieris’ anemia treatment (PIRS to get an immediate upfront payment of $2.75M from ASKA, and eligible for up more than $80M)
  • SGMO said the FDA has given rare pediatric disease designation for SB-318, Sangamo’s in vivo genome editing product candidate for the treatment of Mucopolysaccharidosis Type I.

 

Industrials & Materials
  • Steel names/infrastructure stocks recover (STLD, X, AKS), after The Hill reported Trump may make big infrastructure announcement this week during his joint address to Congress on Tuesday – building names (FLR, ACM, VMC, KBR, MTZ) were among names active today
  • Defense and aerospace companies got a lift after President Donald Trump said his first budget will seek a big boost in defense spending (shares of BA, GD, LMT, NOC, LLL were active). Trump said he would seek $54 billion in extra spending on defense, to be offset by decreases elsewhere

 

Technology, Media, & Telecom
  • Telecom movers; TMUS said to give 1 free line of service to customers with at least two voice lines and also said it stopped new phone leasing program; AT&T (T) lowered the price of its unlimited data plans less than two weeks after opening them up to all subscribers (unlimited plan for a single phone now costs $90 a month, a drop of $10; AMT a mover on earnings
  • Semis nice recovery after leading tech lower last week – SOX index up led by 7% gains in AMD, rise in NVDA, gains for CAVM, MU, AVGO, QRVO; NVDA recovers after awful week last week on analyst downgrades; QRVO added to watch list at Citigroup; AVGO tgt raised to $220 at Nomura
  • Optical stocks were weaker (NPTN, OCLR, FNSR) after MKM Partners downgraded LITE, noting investors are becoming “fearful” of optical companies that don’t have exposure to 3D sensing

 

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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