Equity Market Recap
- U.S. stocks closed lower on Monday, but as has been the case for most of 2017, early market weakness was met with late day buying, as major averages finished near their best levels of the day on light volume. The Dow Jones Industrials posted a modest decline after falling more than -93 points at its worst point today amid a lack of news – no big M&A deals, earnings winding down for quarter, no Fed speakers amid “black-out” period ahead of FOMC meeting next Tuesday/Wednesday, etc.. All that markets had to go with today were geopolitical concerns after North Korea’s four ballistic missiles test into the sea off Japan’s northwest coast and President Donald Trump’s accusation that his predecessor Barack Obama wiretapped him. The news weighed on sentiment early, but did little to pressure stocks in the end. The next focus will be the ECB meeting later this week and the FOMC next week where rates are expected to rise. The dollar was mixed, bonds erased early losses and commodity prices slipped. Also today, President Trump revised the travel ban to address legal issues/exempts Iraqis.
- Factory Goods Orders for January rise 1.2% vs. est. up 1.0%, while Factory orders for Dec. unrevised at 1.3%; New orders ex-transportation for Jan. rise 0.3%, while new orders ex-defense for Jan. rise 1% after rising 2.4% in December. Capital goods non-defense ex aircraft new orders for Jan. fall 0.1% after rising 0.8% in December
- Durables orders for January rise 2% after falling 0.9% in December; Consumer goods shipments for Jan. rise 0.4% after rising 4.5% in Dec; consumer goods new orders for Jan. rise 0.4%. Nondurables shipments for Jan. rise 0.4% after rising 3.4% in December
- Oil prices ended lower by 13c to settle at $53.20 per barrel, pulling back from earlier highs of $53.56 as the dollar rebounded off lows. Oil prices inched higher early after Bloomberg reported Iraq saying OPEC will likely need to extend output cuts (said ready to cut in 2H if OPEC decides to extend policy); says “somewhat” satisfied with oil prices but hopes for improvement. WTI crude remains stuck in a $50-$55 per barrel range for a few weeks now. Note OPEC production data for month of February is scheduled to be released in a Monthly Oil Market report on March 14.
- Gold prices reversed earlier gains, closing slightly lower, falling $1.00 to settle at $1,225.50 an ounce as the dollar recovered from earlier lows. Precious metals got an early lift (touched highs of $1,237.90) on a mixed dollar/geopolitical concerns (North Korea), rebounding after ending last week lower by (-2.5%) as the precious metal posted its first weekly drop in five.
Currencies & Bonds
- The dollar index (DXY) advanced on the day, with the greenback rising against the euro, (single nation currency slid under 1.06 vs. the USD – down from overnight highs 1.064), while the dollar bounced to highs above 114 vs. the yen after early weakness. Euro weakness stems from concerns over the looming presidential election in France. The Japanese currency pared gains that followed North Korean missile test-fire, European political volatility.
- Treasury markets ended little changed on the day, with the yield on the 10-yr dropping to lows around 2.47% and highs of above 2.5%, but ended close to its Friday close just above 2.49%. Increasing expectations for a March interest-rate hike helped offset concerns about North Korea’s latest ballistic missile launch
Sector News Breakdown
- Retailers; broad weakness in retail (M, JCP, KSS, ANF); apparel sales across men, women and children grew 3% in 2016, reaching $218.7 billion, according to a report from the NPD Group. However apparel has struggled to grow more than 3% since 2013 as gains in one segment are offset by declines in others; TGT shares trade to lowest in over 2-years/remains lower since weak outlook on 2/28; URBN to report earnings tomorrow after the close; ULTA tgt raised to $315 at Oppenheimer
- Auto’s; GM which has agreed to sell its European car brands Opel and Vauxhall to Peugeot (PUGOY) parent PSA Group, and is taking a $4B charge https://goo.gl/qkg8zR . PSA Group’s deal to buy GM’s Opel business will be good for competition and customers in Europe, Jim Farley, Ford’s Europe chief said
- Protein sector; shares of TSN, SAFM, PPC under pressure early after the U.S.’s first case (this year) of HPAI (avian flu) was found over the weekend in a commercial breeder flock in Tennessee. KeyBanc said while the incident itself is not likely to be significantly disruptive, it does suggest investors should place greater scrutiny around the health of the supply base
- Restaurants; CMG active after hedge fund manager Bill Ackman’s Pershing Square Capital Management LP filed a prospectus with the SEC to sell 2.88M shares of CMG, equivalent to a 10% stake; Longbow Research said DNKN Q1 sales seen tracking below consensus; DIN was upgraded to outperform
- Housing & Building Products; AFI shares fall as Q4 revs of $271.7M missed estimate of $279M citing declines in both Resilient and Wood segment net sales; Wallboard sector mentioned at RBC Capital as raise tgts as channel checks suggest prices have risen 5%-20% YTD and Producer Price Index for Dec. 2016 also showed largest y/y increase in more than 18-months; CBPX PT raised to $30 from $26, USG $39 from $34, GMS to $38 from $32; all rated outperform; homebuilders held up well as Wedbush said they see several builders as undervalued at current levels (reiterate OP on DHI, KBH, TPH, CCS, CAA, MHO)
- Energy names were mixed, with a few names in E&P space higher (EOG) on positive analyst commentary, and bounce in oil prices. Natural gas stocks were among the top S&P 500 performers early on; Drexel said was aggressive buyers on SWN and RRC, as believe U.S. natural gas prices put in their “shoulder season” lows two weeks ago; RRC also mentioned positively in Barron’s over the weekend saying shares appears undervalued and could rally 68% to $40 in a year if energy prices recover
- Large Cap banks were lower; DB said it needs to issue more shares to raise 8B euros of capital, weighing on shares (was a Friday story that picked up steam); despite stock averages bouncing off lows in the morning, banking stock stayed weak throughout the session
- Insurance/Investment movers; group down in general with financial/bank weakness; MET was downgraded to neutral at Bank America with $59 tgt saying shares are now trading above the level of the disappointing Q4 earnings report and prefers PRU; Standard Life and Aberdeen Asset Management, two of Scotland’s most well-known financial firms, are in talks over an 11 billion-pound ($13.5 billion) tie-up https://goo.gl/Z2pvWs
- REITs; HPP sees full-year FFO per share of $1.90-$2.00, down $0.03 at both ends from previous guidance; AVB raises 1Q total rental revs for established communities up 3.1%-3.2% YoY; EGP cuts 2017 FFO view by 6c and 1Q view by 2c after raising 2017 G&A expense outlook to $14.4M from $12.3M and 1Q outlook to $5.5M from $4.8M
- Managed care; Congressional Republicans will introduce their much-anticipated bill to repeal and replace the Affordable Care Act this week, NBC News reports, citing a senior House aide. Draft legislation would provide expanded tax credits and health savings accounts for individuals, while cutting spending on tax subsidies and Medicaid it reported
- Pharma movers; VRTX to pay CNCE $160M cash and up to $90M in potential milestone payments in agreement to acquire Concert’s CFTR potentiator, CTP-656 ($250M total); separately, CNCE reported early-stage data from an alopecia study March 4 that CTP-543, a deuterated version of Incyte’s Jakafi (ruxolitinib), was found to be well-tolerated; TGTX blood cancer candidate ublituximab successful in late-state study; AKRX downgraded at Deutsche Bank to hold
- Biotech movers; PTCT shares jumped after the FDA granted standard review to its NDA for Translarna as a treatment of nonsense mutation Duchenne muscular dystrophy (nmDMD) with an Oct. 24 Pdufa date; EXEL said the FDA granted orphan drug designation to cabozantinib for the treatment of hepatocellular carcinoma; XENT was upgraded to buy at Deutsche Bank; ADXS active after FDA okays clinical trials for Amgen-partnered cancer drug
- Services & Facilities; UHS was upgraded to overweight at Piper based on belief that the company’s ability to access 8-9% incremental EBITDA from IMD exclusion will be sooner than expected and the move into BH JVs with not-for-profit hospitals could provide further Ebit upside
Industrials & Materials
- AG & Machinery; CR was upgraded to buy at Bank America and raised its price target to $90 from $80 to reflect increased Fluid Handling margins; ROK, ABM and others to benefit from robotics trend according to Barron’s saying companies will likely turn to robotics to keep labor costs down under Trump administration
- Transports; airlines weak early after DAL cut its forecast for 1Q operating margin and Prasm and said it sees 1H 2017 margins under pressure, citing headwinds from higher costs and recovering unit revenues; said sees margins likely contracting in 2017 (AAL, UAL, LUV, JBLU); FDX was upgraded to outperform at BMO Capital
- Metals & Mining; AA was upgraded to buy at Goldman Sachs and 6-month PT raised to $52 from $34 saying the company should generate on avg 12% free cash flow yield through 2018; SPLP offers $29 for the rest of HNH it didn’t already own (had 70% stake prior); outside of AA, most industrial metals were under pressure today (steel, copper, iron ore) after Chinese Premier Li Keqiang said Sunday that the government aims to deliver economic growth of around 6.5% in 2017, compared with last year’s goal of 6.5% to 7%.
- Chemicals; DOW and DD both upgraded to buy from hold at Jefferies saying following the recent market rally, emphasizing self-help and EPS growth prospects less chained to the industrial cycle will likely improve both absolute returns and risk/reward in the chemical sector; ALB shares fall after Citigroup downgraded on valuation though they say they remain fans of the company and the lithium growth story.
Technology, Media, & Telecom
- Internet; SNAP active after IPO last week (priced 200M shares at $17) with at least six analyst picking up coverage with neutral or worse ratings – Barron’s was also cautious over the weekend on shares – shares fell over 10%; EXPE was upgraded to outperform at Macquarie and raised its price target to $144; NFLX upgraded to buy at UBS and raised target to $175 saying momentum in Europe/Latin American should drive Q1 sub upside
- Hardware & Services; HPQ was upgraded to outperform at Wells Fargo saying that the Street is underestimating potential for supplies revenue growth on a reported basis in fiscal 2H; GPRO was downgraded to sell at Goldman Sachs with $6 target, while the firm upgraded GRMN to neutral saying they no longer see downside to consensus estimates
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.