Market Review: Markets Open Down, Somehow Stay That Way

eOptionDaily Market Report

Equity Market Recap
  • U.S. stocks were fractionally lower until the final 30 minutes of trading, when selling accelerated and markets finished just off the lows of the day. The late day move was the first sign of volatility in a market that has certainly been lacking ahead of several potential market moving catalysts later this week and next. Stocks slid for their first back-to-back decline in more than a month, as health-care shares declined after the Trump administration released details on its replacement to Obamacare and the president tweeted about lowering medicine costs for Americans. Stocks are now down less than 1% from record highs reached last Wednesday ahead of the ECB meeting this Thursday, jobs data Friday and the two-day FOMC meeting next week, which is expected to produce a rate hike. Also overnight, the OECD warned “there is no real foundation yet to support what we have seen in the equity markets in particular,” said Catherine Mann, the OECD’s chief economist. All in all, it was a quiet session for major averages, with limited earnings and a few M&A related stories (details below). Note the last time the S&P 500 index posted a lower close of 1% or more was October 11th (when the market was at 2,139).


  • Oil prices slipped late day to close slightly lower at $53.14 (off earlier highs of $53.80) as it remains in the middle of the $50-$55 per barrel range over the last few weeks ahead of inventory data tonight (API) and tomorrow (EIA). There were a few comments from OPEC earlier and the dollar held its early gains, but oil just a slow decline most of the day.
  • Gold futures dropped -$9.40, or 0.8% to settle at $1,216.10 an ounce, its lowest settlement since Feb. 1st, falling for a sixth-straight session. Gold prices have been under pressure of late amid rising interest-rate expectations when the Fed meets next week. Even recent geopolitical fears such as the missile launch in North Korea has failed to pare gold losses.


Currencies & Bonds
  • Very low volatility in the bond and currency markets today, as investors await a week of potential catalysts. The European Central Bank (ECB) is set to meet on Thursday, while the monthly important U.S. jobs report is due Friday morning, both potential movers, while the FOMC meeting next week (14/15) will likely stir markets up a bit. The dollar closed mostly higher vs. the euro and pounds and up slightly vs. the yen. Treasury markets were down slightly, with the yield on the 10-year up around 2.51%. The U.S. Treasury sold $24B in 3-year notes at a yield of 1.62%, slightly above the 1.624% prior to auction, with a bid-to-cover of 2.74 vs. 2.78 prior and indirect bidders awarded 49.4% of total auction


Economic Data
  • The trade deficit for January widened to (-$48.5B) from (-$44.3B) in prior month; the trade deficit rose 9.6% in January; imports rose 2.3% in Jan. to $240.59B from $235.27B in December while exports rose 0.6% in Jan. to $192.09B from $191.01B in December
  • March IBD/TIPP economic optimism index at 55.3 after Feb.’s 56.4. The Economic outlook fell to 53.6 vs 55.6 last month
  • Consumer credit in January rose 2.8% at an annual rate to $3.774t, according to the Federal Reserve.  The $8.8b rise in credit was the smallest increase since July 2012 when it rose $7.64b


Sector News Breakdown
  • Retailers; sporting goods sector still seeing weakness, as DKS Q4 results top views (EPS/sales/comps) but guides Q1/year EPS below estimates (follows recent weak results from HIBB and other sporting stores); URBN to report earnings tonight in apparel; ASNA downgraded to sell at Citigroup after quarterly results last night; MIK a mover on earnings; SHOO added to Citigroup SMID focus list (replaces BERY); 52-week lows for TGT, SIG, MAT, UAA
  • Consumer Staples; in beverages, BF/B mixed Q3 as EPS just misses and sales slightly better, but cut the top end of its year EPS view by 5c and expects underlying net sales growth of 3% to 4%, down from 4% to 5% previously
  • Autos; in auto retail, SAH guides Q1 Ebitda $52.5M-$57.7M, below estimates of above $65M; Ford (F) price target cut to $11 at Morgan Stanley; RACE said to build a few hundred Superfast this year/Ferrari Ebitda may reach over EU1b this year; Par Investment takes 6.8% passive stake in HTZ, becoming second-largest holder of Hertz shares
  • Housing & Building Products; in home furnishing, PIR guided Q4 EPS to 32c-34c, vs. est. 31c, driven by improved effectiveness of promotional and discounting initiatives along with supply chain efficiencies, sending shares higher; homebuilder LGIH rises on earnings; Barclay’s positive on housing sector, saying Strong start to spring; raising builder orders and price targets (DHI)
  • Casino, Lodging & Leisure; HLT announces launch of $1.5B senior notes offering; STAY 25M share Spot Secondary priced at $16.85; Hyatt (H) was upgraded at Morgan Stanley noting shares are down 2% since the US election, while peers are up 19%, on avg (remain underweight on SHO and DRH calling overvalued)


  • Top news; in oil services, WFT shares rise as former HAL CFO McCollum to become new CEO (analysts positive on move – one upgrade); Saudi Arabian Oil Co. will pay RDSA $2.2B to finalize the breakup of their two-decade Motiva Enterprises refining partnership in the U.S., giving them sole control over the largest refinery in the U.S., a 600K-barrels a day facility in Port Arthur, TX; CVX affirms its production, margins and cash flow growth plans ahead of annual analyst day; NE upgraded to buy on valuation at Seaport Global as target of $8 remains unchanged
  • E&P sector; APC holds company guidance update tomorrow; FANG tgt raised to $159 at JP Morgan reflecting a higher PDP reserve base/valuation per the updated reserve report, higher EURs in the Midland Basin, and a higher working interest at ReWard
  • Solar/YieldCo/Alt Energy; Brookfield Asset Management (BAM) said it would buy one of the two “yieldcos” of bankrupt U.S. solar company SunEdison; to acquire GLBL for about $787M. paying $5.10 per share and assume $455M in debt; buy 51% of TERP for $1.7B


  • Large Cap banks – UBS may refuse to settle with the DOJ over crisis-era mortgage issues, according to a story in the FT; in a stock-deal, STL agreed to buy AF in a stock deal valued at about $2.2 billion valued at $21.92 per share (STL will exchange 0.875 of its shares for each Astoria share outstanding) ; FRC 2M share secondary priced at $95.00; HSBC Holdings PLC sold a portfolio of U.S consumer mortgage loans to DLJ Mortgage Capital, Inc., a subsidiary of Credit Suisse Group AG for $1.50 billion; AXP holds investor day tomorrow
  • Online brokers; more competition as prices come down; TradeStation announced new per-trade pricing for stocks, ETFs and options for all new customers and all existing customers who notify TradeStation they would like to switch to the new pricing (flat rate of just $5 per trade for equities and $5 per trade plus $0.50 per contract for options – replaces a tiered commission structure that went as high as $8.99 per trade) – follows recent moves by Fidelity, SCHW; ETFC said Feb. Daily Avg Revenue Trades (DARTs) up 9% MoM
  • REIT movers; HASI 3M share Spot Secondary priced at $19.35; mall REITs continue to slide further (SPG, CBL, MAC, GGP); group has been under pressure as retail store closures hurting sector – group got hit last week when JCP announced 130-140 store closures (also higher rate environment not good for REIT sector in general)


  • Large Cap Pharma/biotech; not much in way of individual news, but pricing a focus for sector today after President Donald Trump said “I am working on a new system where there will be competition in the Drug Industry. Pricing for the American people will come way down!” specialty pharma hit hard on Trump tweet (ENDP, VRX, MNK) as well as biotech and large cap pharma (MRK, JNJ, LLY, PFE); PRGO 52-week lows today
  • Hospital and managed-care stocks shrugged off the House’s final draft of the Obamacare replacement plan released March 6, reflecting the lack of Republican consensus on the overhaul, Evercore/ISI noted today


Industrials & Materials
  • Containerboard names move lower; GEF, GPK among those falling after old corrugated container (OCC) prices rose in March by about $40 from the prior month to $185 per ton, Baird noted, citing Pulp & Paper Week. With OCC “an important cost input” for GPK, GEF, SON, expect packagers to “remain volatile near term”
  • Transports; were under pressure most of the day, down over -0.9% late day on broader market weakness; group hit hard yesterday after DAL lower Prasm outlook and travel ban comments by Trump; nearly all components in the Dow Transports were lower on the day
  • Metals & Mining; weakness across the board for a second day in the industrial metals sector (X, FCX, AA, STLD, CLF); group declined yesterday 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% (lower outlook for top consumer of commodities)


Technology, Media, & Telecom
  • Internet; Pandora (P) falls after Liberty CEO Maffei said is very unlikely to buy Pandora at current prices (speaking at the Deutsche bank TMT conference yesterday); MEET to acquire social and mobile technology company If(we) for $60M in cash and better Q4 results; SNAP falls again – after surging first two days of IPO, has fallen last 2-days (analyst cautious)
  • Semiconductors; semi index jumped to highs late morning with the broader rally in the Nasdaq Comp, with gains widespread in industry (TXN, NVDA)
  • Hardware & Storage movers; one big M&A deal as HPE said it would acquire NMBL for $12.50 per share, in deal valued at $1.0B (shares of comps PSTG and NTNX also moved in sympathy)
  • Software movers; CSOD was downgraded to neutral from buy at Bank America, and tgt cut to $46 from $48, citing slowing growth; PEGA upgraded to buy at Benchmark and up tgt to $52 based on increasing conviction in management’s commitment to margin expansion; CA announced its intention to purchase Veracode for $614M; PAY shares active after Krebs on Security reported that PAY is investigating a breach of internal computer networks.
  • Telecom movers; DISH will be added to the S&P 500 effective March 13; FTR was downgraded to neutral and tgt cut to $2.50 from $7.50 at Bank America saying revs have compressed at a surprising rate, which is increasing the risk of an eventual dividend cut
  • Optical stocks (OCLR, NPTN, ACIA) all active after customer ZTE Corp. was said to agree to pay about $1b to settle a U.S. sanctions case (on March 3rd, Craig-Hallum had said OCLR should be bought as news emerges that ZTE may settle with the U.S. Department of Commerce and permanently remove restrictions)

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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