Market Review: While We’re up Here, May as Well Hit $240 SPY

eOptionDaily Market Report

Equity Market Recap
  • Not much one can say in an environment like this, with markets breaking out to new highs on a daily basis, defying odds as market sentiment levels are extraordinarily high! Today saw major averages break through key psychological levels, as the Dow Industrial Average spiked above 21K (actually above 21,100) – rising more than 340 points (last went up by that much on 11/7), while the Nasdaq Comp topped the 5,900 level for the first time and the benchmark S&P 500 topped the 2,400 for the first time. Financials pushed broader markets higher on a jump in rate expectations, while the Dow Transports also touched a record high, up over 2%. Interest rate sensitive sectors such as utilities underperformed, while gold prices fell, but pared losses. Stock gains were not relegated to just the U.S., as Asia also jumped overnight, and in Europe, the German DAX hits 22-month highs while the FTSE 100 Index closed at 7,382.90, its highest level in record. Today’s move came on momentum after Trump’s speech last night, strong economic data, and rising rate expectations. The Fed’s Beige Book report said the economy continued to expand at a modest to moderate pace and the labor market remained tight. Note in the technology sector, the highly anticipated SNAP IPO is expected to price tonight.
  • Stat of the day: The blue-chip gauge closed at 20,000 just about 35 trading days ago, marking a then-second-fastest push (42 days) to a 1,000-point milestone. The move from 20,000 to 21,000 marks a 5% rise, while the move from 19,000 to 20,000 was a 5.3% move. The record 24-day move between 10,000 and 11,000 in May 1999 marked a 10% rise.
  • Big warnings signs flashing for U.S. stocks, but not no let-up yet – according to newsletter writers classified as bulls by Investors Intelligence, they rebound to 63.1%, the highest since 1987 versus a reading of 61.2% last week (bulls have been above 60% level in 7 of last 9 weeks). While those considered bearish tumble to 16.5%, lowest since July 2015, from 17.5% last week (those expecting a correction slips to 20.4% from 21.3% last week) – sentiment is a contra-indicator. Also, the Atlanta Fed’s GDP model for GDP growth was cut on Thursday to 1.8% from 2.5%, marking its lowest forecast for the quarter…but market sentiment remains highs. Disconnect?
  • Overnight, President Trump laid out broad agenda priorities of jumpstarting the economy, fixing the Affordable Care Act improving national security and infrastructure spending but more details are expected over next few weeks – regardless, markets liked his tone and crux of comments.
Economic Data
  • Personal Income for January rose 0.4% vs. est. up 0.3%, while Personal consumption rose 0.2%, slightly below the 0.3% estimate. Real personal spending fell (-0.3%) vs. est. (-0.1%); core inflation rose 0.3% (in-line with consensus) while rose 1.7% YoY; PCE prices rose 0.4% slightly below est. 0.5% (rose 1.9% YoY); the savings rate at 5.5% in January vs. 5.4% the prior month
  • Construction Spending for January unexpectedly fell (-1.0%) vs. est. rise of 0.6%, while December was revised to 0.1% rise from (-0.2%); Private construction rose 0.2% in Jan. to highest level since June 2006 and Private residential construction rose 0.5%
  • ISM Manufacturing for Feb rises to 57.7, above est. of 56.2 (and prior month 56.0); gains led by new orders which rose to 65.1 (3-year high) vs 60.4 prior, while employment fell to 54.2 vs 56.1; inventories rose to 51.5 vs 48.5 prior and prices paid fell to 68.0 vs 69.0
  • U.S. Feb. Manufacturing PMI 54.2 vs. Flash Reading 54.3 according to Markit; the index falls to 54.2 from 55 in January (vs year ago 51.3); said new orders fall to 56.2 vs 57.4 in January


  • Gold futures ended lower, falling -$3.90 or 0.3% to settle at $1,250 an ounce, touching its lowest level in a week, but finished well off earlier losses as the dollar pared gains late day. Gold prices touched a low of $1,237.20 an ounce earlier before recovering – falling initially on rising expectations for an interest-rate increase from the Fed and as money rotated into riskier assets.
  • Energy futures slipped with WTI crude closing down 18c to $53.83 per barrel, reversing earlier highs on mixed inventory data. The API reported a climb of 2.5M barrels in U.S. crude supplies for the latest week, while the DOE reported a 1.5M barrel build (which was smaller than the 3M build estimate); DOE showed a draw of 545K barrels of gasoline; inventory data bullish, while the stronger dollar weighed on commodities.


  • The U.S. dollar touched 2-week highs vs. the yen, rising to highs above 114.05 before paring gains, while the euro only dropped slightly. Hawkish commentary from the Fed’s Dudley and strong sentiment about the U.S. economy after Trump’s speech last night to congress helped push the greenback higher. The Mexican peso extended recent gains vs. the US dollar – and has been rising ever since news that Banxico is considering requesting a swap line with the Fed, like the one it used during the financial crisis (the peso pared gains after U.S. denial of Fed swap lines)


Bond Market
  • Treasury markets dropped in the early going, with yields spiking off yesterday’s levels, and then held steady throughout the rest of the session. The yield on the benchmark 10-year was up over 10 bps to trade above 2.46%, while the shorter term 2-yr is around 1.28%; a combination of stock market rally and rising rate expectations given comments from the Fed’s Dudley yesterday weighed on bond prices.


Sector News Breakdown
  • Retailers; consumer electronics/appliance store BBY reported an unexpected decline in 4Q comp sales (-0.7% vs. est. +0.5%), as well as a weaker Q1 EPS view (35c-40c vs. est. 49c); also noted a 4Q shortfall in phones, tables, wearables (FIT, GPRO); in dollar stores, DLTR reported mixed 4Q results and forecast that included improved gross margin and operating margin rates vs last year; in apparel, AEO Q4 sales miss, while Q1 EPS view 15c-17c misses 21c est.; CROX with Q4 loss and FY revs outlook trails estimates; other earnings reported BGFV, ROST, ODP; the border tax still remain an overhang for retailers (WMT, BBY, DLTR)
  • Auto’s; monthly auto sales data released today: 1) GM Feb. sales rise 4.2% vs est. up 2.5%; 2) Ford (F) Feb. U.S. light-vehicle sales down (-4%) vs est. down (-4.3%) and says overall car sales down 24% as customers continue to shift to trucks and SUVs; 3) FCAU Feb U.S. auto sales fell (-10%) vs. est. loss (-8.4%); 4) NSANY U.S. Feb auto sales rose 4% to 135,740; 5) HMC Feb U.S. auto sales rose 2.3% vs. est. 2.4%; 6) TM Feb U.S. auto sales down (-7.2%) vs. est down (-4.8%); auto retailers slide after Jim Chanos reported a short position in KMX (according to CNBC’s Wapner)
  • Consumer Staples; HSY said to cut 15% of global workforce and sees $375M-$425M in pre-tax charges; BUFF reiterated its long-term guidance for annual sales of 10%+ and EPS of +20% after in-line Q4 EPS; after strong results from NTRI in the “diet” sector yesterday, WTW follows up with strong Q4 results and better guidance ($1.30-$1.40 vs. est. $1.17)
  • Restaurants; MCD held investor day today, spoke of importance of coffee market and guides EPS growth to high single-digits long-term; CHUY falls as Q4 top/bottom line results miss estimates and year view trails; DIN falls after weak sales report, CFO exits
  • Housing & Building Products; LOW shares lead housing/improvement retail higher after quarterly results all topped views (EPS/sales/comps) on better guidance (follows recent strength in HD report); OC was upgraded to buy at Bank America and upped its price target to $69 from $61
  • Casino, Lodging & Leisure; gaming stocks outperform (WYNN, LVS, MGM, MPEL) as Macau February Casino revs rises 17.8% YoY vs. Bloomberg est. 10%; CHDN Q4 EPS beat


  • Utilities snap their recent move higher (had risen 6 of last 7 days coming into today), falling amid the jump in bond yields and rising interest rate expectations; shares of FE, D, EXC, PEG, AES among top decliner in the index; CMS filed an automatic mixed securities shelf
  • Dow component XOM hosted annual analyst day as it looked to reassure investors about its growth potential, highlighting short- and long-term projects it says will continue to help fund dividend payouts (reaffirms its outlook for capital spending growth of 16% to $22B in FY 2017)
  • Equipment & Services; FRAC upgraded to buy at Citigroup noting shares are down ~20% (vs. 3% for the OSX index) during the OFS sell-off over the past two weeks and believe investors should take advantage of the sell-off to add exposure to shale services; several names in oil service index higher with early leaders CRR, SLCA, TDW, SPN, RDC (DRQ underperforms on analyst downgrade)
  • MLP sector rallies on day despite lagging oil prices and rising bond yields (which makes dividend paying sectors less attractive); the Alerian MLP Index up shy of 1% most of the day (note far from 52-week highs of 339.60 on Jan 26th); top gainers ENLK, PAA, BWP, TCP, ARLP


  • Large Cap banks (C, GS, BAC, JPM) are getting a boost today from rising bond yields, while euro banks (CS, DB) also welcome the ECB’s review of banks’ risk-measuring models which could bring more clarity to their capital raising needs; BBT said it sees Q1 average loans flat to up slightly from Q4; online brokers (AMTD, ETFC, SCHW) which fell yesterday on commission cuts by Fidelity, are rising today on jump in interest rate expectations; the gains in the financial sector are broad based for regionals, insurance, asset managers, etc.


  • Specialty pharma/generics; IPXL shares drop after 4Q revenue missed estimates on lower generic product sales and lower pricing; MYL quarterly results top estimates amid strong worldwide drug sales and profits from Meda purchase; NDRM rises as achieves primary endpoint in Phase 2 Parkinson’s trial; AKRX falls on Q4 rev miss and year EPS below views ($1.53-$1.72 vs. $2.17); PCRX among top gainers in sector on earnings/postsurgical pain study meets endpoints
  • Biotech movers; LXRX drug XERMELO(TM) 250 mg gets FDA approval as first and only oral treatment for Carcinoid Syndrome Diarrhea In cancer patients with Metastatic Neuroendocrine tumors; DVAX rises as FDA to review Dynavax’s responses to HEPLISAV-B CRL, action date August 10; SRPT a mover on earnings; FOLD rises after President Trump mentions rare diseases in speech overnight and FDA process ; MGNX falls on earnings
  • Services & facilities; UHS mixed Q4 results on slight EPS miss/rev beat while year EPS midpoint guidance below views (group fell yesterday on weak THC results); AMED to buy six home health and hospice assets from THC; EVHC plunges on Q4 EPS miss; CYH cut at Piper


Industrials & Materials
  • Industrials & Machinery; BW plunges after lowered its 2017 EPS guidance to 75c-95c from $1.25-$1.45, driven by operational issues in the Renewable segment; HON reaffirms 2017 EPS forecast of $6.85-$7.10 ex-pension MTM and 1Q EPS $1.60-$1.64 ahead of annual investor conference; DCI rises after boosting its yearly outlook
  • Defense sector; group has been a beast on Trump promises to boost military spending, but Citigroup downgrades a few names after being positive for nearly seven years saying shift is driven by a potential disconnect in investor expectations for industry growth & by potential pressure on historic business models (downgrades GD, HII, and NOC), while reiterating Buys on HRS, LLL, LMT, and RTN; GD added 10M shares to buyback
  • Waste services; Barclay’s downgraded RSG and WM on valuation noting the strong post-election rally driven, in part, by potential tax reform and a U.S. industrial recovery has driven municipal solid waste (MSW) stocks to a historic high of 11.0x NTM EV/EBITDA on average
  • Transports rallying in sympathy with broader stock market, as the index trades to new all-time highs today on hopes President Trump promises will further lift the U.S. economy; strength was broad based in transport sector; top gainers CAR, and airlines DAL, AAL, ALK, UAL
  • Metals & Mining; steel stocks (X, AKS, NUE), industrial metals (FCX, AA, CLF) rising ahead of today’s expected preliminary anti-dumping duties from Turkey, Japan, Taiwan and after Trump speech where he mentioned use of “American steel” for pipelines; gold miners (NEM, ABX) fall amid the rising dollar/subsequent drop in gold prices; FCX cancelled diesel oil cargoes for delivery in March and April after it suspended operation at Grasberg mine
  • Tankers & Shippers; SSW cut its quarterly dividend to 12.5c a share from a previous 37.5c


Technology, Media, & Telecom
  • Internet; SNAP IPO expected to price tonight; ETSY delivered a solid 4Q, and revised its CY16-18 outlook to the upside, but shares dropped; watch FB tomorrow ahead of SNAP pricing tonight – as FB traded within a dime of all-time highs today
  • Semiconductors busy space today; MU and MRVL were both upgraded at Goldman Sachs, while the form downgraded AVT; INTC was downgraded to Underperform at Bernstein with lower tgt of $30 as see the beginnings of a multi-year structural case beginning to play out.; CRUS was cut at Oppenheimer on valuation; AMBA active on earnings overnight; AVGO reports tonight
  • Cybersecurity stocks (CYBR, FTNT, FEYE, PFPT) drop post-market after PANW 2Q revenue and 3Q forecasts missed estimates; PANW billings growth slowed to 22% y/y from 33% in 1Q and 45% in 4Q – PANW shares downgraded by more than five analyst today on lower targets
  • Software movers; CRM 33% billings growth easily exceeded the +24% consensus estimate, driven by strong enterprise momentum, and closing out the year with its highest new subscription ACV growth in organic, cc (+27% yoy) since F11…but Q1 billings growth guidance of just 5% at the midpoint, however, was considerably below Street expectations; VEEV Q4 results and Q1 guidance above views, but year guidance below some estimates
  • Media & Telecom movers; TIME rises after report company is seeking acquisition offers; SBGI has approached rival U.S. broadcaster TRCO to discuss a potential combination, Reuters reported, but a deal that would hinge on existing regulations being relaxed.; AMC a mover on earnings
  • Worldwide shipments of smartphones are set to rise 4.2% to 1.53b units in 2017 says IDC in its worldwide quarterly mobile phone tracker; sees Android shipments growing 4.6% y/y; sees iOS shipments growing 4.9% y/y; sees Windows phone shipments down 69.5% y/y

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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