Market Review: Dead Day, Not Much to Say

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Equity Market Recap

·      Major averages managed a late day rally, helping the S&P 500 Index and Dow Industrials snap their three-day losing streak ahead of tomorrow’s monthly jobs report. Major averages got a late push as energy stocks recovered off their lows, rallying despite oil sliding 7% over the last two days on oversupply concerns. U.S. stocks were initially little changed as investors assessed the higher bond yields and comments from the European Central Bank earlier today. But as yields climbed to the highest levels of year (10-yr topped 2.6% – above last year closing highs), market selling pressure accelerated. Bond proxies such as utilities and real estate declined amid a jump in the yield on 10-year Treasuries. In Europe, stocks were mixed after Mario Draghi said downside risks to the euro-area economy were less pronounce. The FTSE 100 posted its 6th straight losing day, as oil shares tank, though a rally in bank stocks helped other European markets end higher as Draghi plays down deflationary risks. Interest rate sensitive sectors such as utilities, REITs, MLPs and Telecom found themselves under pressure late afternoon after yields jumped across the board on the bond sell-off (making dividend paying/defensive sectors less attractive). Outside of ECB, the story again was oil, as WTI crude dropped another 2% to end under $50 a barrel, lowest levels since November a day after its worst one-day showing in more than a year as data from the EIA showed inventories rose by 8.2M barrels for its ninth straight weekly increase. However, oil stocks managed to rebound late day, narrowing the market losses. Today also marked day 102 that the S&P 500 failed to close down more than 1% in a session.

Economic Data

·      Import prices for Feb rose 0.2% MoM after rising 0.6% in January, but was slightly above the est. of up 0.1% MoM; import prices ex-fuels rose 0.3% after falling 0.1% in Jan; auto prices unchanged after falling 0.5% in Jan; export prices rose 0.3% after rising 0.2% in January

·      Weekly Jobless Claims rose 20K to 243K, slightly above the 238K estimate (prior week claims unrevised from 223K; the Four-week claims average rises 2,250 to 236,500; continuing claims fell 6k to 2.058m in the week ending Feb. 25

·      U.S. Challenger Job-Cut Announcements fell 40% YoY in February as announced 36,957 job cuts in Feb.; 82,891 year to date

·      Household wealth in the U.S. increased to $92.805 trillion last quarter, according to the Federal Reserve; 4Q nonfinancial corporate liquid assets fell by $4.2 billion to $2.081 trillion

Commodities

·      Oil prices dropped sharply for a second day, falling -$1.00, or 2% to settle at $49.28 per barrel, dropping to its lowest level since November. The move extended yesterday’s 5.4% decline after government data showed a ninth weekly rise in domestic crude supplies, as well as total production at a more than one-year high, raising concerns that OPEC-led output cuts won’t be enough to rebalance the market. Gold prices remain weak, falling -$6.20, or 0.5 %, at $1,203.20 an ounce, its 8th consecutive trading session ending lower.

Currencies

·      The dollar index (DXY) ended lower, after the greenback traded mixed vs. other currencies. The euro popped above the 1.06 level (1.0615 high) against the dollar after signals from ECB President Mario Draghi that interest rates are unlikely to be cut further, but pared gains to around 1.059 after touching $1.0542 late Wednesday. The British Pound fell to 7-week lows against the dollar (Brexit fears) before partially rebounding. The Russian ruble and Canadian loonie have come under pressure against the dollar as oil prices have slumped. Bitcoin stopped the bleeding after its second-steepest two-day drop this year caused by China’s three biggest bitcoin exchanges suspending withdrawals (shares bounced over 2% earlier).

Bond Market

·      Bonds opened lower as losses accelerated into the close, with the yield on the benchmark 10-yr topping 2.60% (note the 2016 closing high was 2.5967%), leading to a pullback in stocks. Investors continue to prepare for a rate hike by the FOMC when they meet next week after a bout of stronger economic data this week (ADP private payroll report yesterday big beat – ahead of nonfarm payroll report tomorrow). The U.S. Treasury sold $12B in 30-year notes at a yield of 3.17% vs. 3.169% prior to auction, with a bid-to-cover at 2.34 vs. 2.25 prior auction and indirect bidders awarded 61.1% of the auction.

Sector News Breakdown
Consumer

·      Retailers; sector got a lift off beaten down levels yesterday, despite a handful of missed earnings results; today, several retailers downgraded at Mizuho as cuts DSW, EXPR, FINL and TLRD to Neutral from Buy and GES to Underperform citing increasingly worrisome traffic and KPI metrics surfacing for the spring season that may persist throughout FY17; SHLDhigher after quarterly results and announcing a restructuring program while looking for ways to maximize the value of its Kenmore and DieHard brands; SIG volatile after earnings and comments on conference call related to sexual harassment charges/guidance; TLRD plunges as guides FY17 EPS $1.45-$1.75, below consensus $2.10; JILL 11.7M share IPO priced at $13.00

·      Consumer Staples; handful of earnings reports in the staples sector today, with shares of ELF, UNFI, BETR among those moving higher after results; SFS fell to lowest in a year on earnings miss
·      Housing & Building Products; it has been a good week for homebuilders, with LEN trading to new 52-week high today; SWK shares initially jumped after it closes Craftsman deal with Sears
·      Casino, Lodging & Leisure; in gaming, shares of IGT active after yearly Ebitda missed estimates; casino names were mixed; lodging names were mostly lower (HLT, WYN, STAY, H)

Energy

·      Oil & gas stocks slammed for a second day as crude oil breaks below recent trading range of $50-$55 per barrel as oversupply fears weigh on sector; shares of XOM and OXY both touched 52-week lows today; broad weakness in oil service, integrated, E&P and equipment names with TDW, SLCA, RIG, RDC, CRR, SPN, NBR, PTEN, ESV, HAL all lower initially – but recovered late day

·      E&P sector; Citigroup said based on bottom-line estimates and forward revisions, improved capital efficiency, NAV and resulting price target increases post Q4’16 earnings, they give top marks to CNQ and MRO among the large-cap E&Ps and SRCI among the SMID-caps within our E&P coverage group; also upgraded CPE & XOG on valuation; RRC, EQT 52-week lows

·      Top news stories; RDSA is selling nearly all of its Canadian oil-sands developments in deals worth $7.25B, pulling out of the region after its biggest rival, XOM, signaled that production was unprofitable in the region at today’s prices https://goo.gl/mwc1ho ; MRO agreed to sell its Canadian subsidiary, which includes a 20% non-operated interest in the Athabasca oil sands project, to Shell and Canadian Natural Resources for $2.5B & $1.1B Permian Basin acquisition; in refiners, CVRR was downgraded to Neutral from Overweight at JPMorgan citing valuation

·      Frac-sand sector; FMSA 4Q revenue missed the lowest Street estimate (shares of SLCA, EMES, HCLP also active on report); RBC analyst noted investors likely view the operational miss and weaker than expected volumes negatively; sees stock underperforming

Financials

·      Top movers; Euro-zone banks got a lift on Draghi comments; US banks were mostly higher, but well off highs despite the late day jump in bond yields; AIG said CEO Peter D. Hancock has informed board of his intention to resign

·      Brokers, Exchanges, Asset managers; AMTD February Client Daily Trades rose 5% YoY and up 2% MoM, while had $837.8B in total client assets as of Feb. 28, up 24% YoY and 3% MoM; BEN said Feb AUM management was $738.2B, compared to $728.8B at end of Jan and $714B YoY

Healthcare

·      Large Cap Pharma/Managed care; top story remains the mounting opposition to Paul Ryan’s repeal/replace of Obamacare. Ryan continues to face pressure from both sides of his party, w/fiscal conservatives upset by the tax credits while more moderate Republicans don’t want the Medicaid expansion to be rescinded

·      Biotech movers; APRI rises as completes sale of ex-U.S. rights to Vitaros to Ferring/upfront payment $11.5M; CRBP says it has enough cash to fund ops into 4Q’18; other movers on earning included VVUS, CRIS, EPZMIMMU volatile after Bloomberg reported its licensing deal over cancer drug with SGEN temporarily halted; BCRX announces $45M public offering

·      Services & suppliers; ESRX shares under pressure again after Cleveland Research said has lost GM and is likely to lose employers that are part of the Health Transformation Alliance (HTA), where the company is estimated to have a 30% share

Industrials & Materials

·      Transports; airlines active again after AAL lowered its Q1 Trasm view to up 1.5%-3.5%, down from prior view of up 2.5%-4.5%, saying the lower forecast due primarily to YTD systemwide mainline completion factor of 98.9% vs 97.7% YoY (said traffic for Feb fell 3.3% YoY); guidance follows weak results from DAL earlier in the week; UAL backs view of Q1 passenger unit revenue down 1% to up 1%; in trucking SWFT with positive comments at Cowen saying the Q1 view of low end 13c-18c (est. 15c) in-line with views

·      Materials & Metals; NUE announced a +30$/t minimum price increase last night, effective with all new flat rolled orders, following sharp +$40-65/t gains in March scrap settlement; potash stocks jumping – POT, MOS, AGU after Interfax reported Belarus is ready to cooperate with Uralkali provided that country’s interests are met, citing President Alexander Lukashenko
·      Chemicals; Dutch paints and chemicals maker Akzo Nobel NV rejected an unsolicited EUR20.9B ($22.1 billion) offer from U.S. peer PPG https://goo.gl/wFEjME ; Bayer and MON launch $2.5B in asset sales to get merger approval, Reuters reported

·      Aerospace & Defense; NAV active as the U.S. Army Contracting Command recently awarded the company two foreign military contracts valued at more than $475M; OA upgraded to outperform at Cowen and had tgt raised to $120 at Stifel after earnings; BA announces eight new orders for 737’s since last update; TDG shares weaker after another negative comment from Citron Research saying days of exploiting and deceiving the Federal Government are numbered.

Technology, Media & Telecom

·      Internet; SNAP shares bounce a second day after IPO last week; RATE issues better year revenue guidance, but still posted Q4 EPS and sales miss; TRVG shares slipped midday after saying identified material weakness in internal controls and is working on remediating

·      Semiconductors; SMTC beat and raise quarterly results; AMD tgt was raised to Street-high $17 at Canaccord following a series of investor meetings with AMD’s CEO saying is increasingly confident in adoption of AMD’s upcoming products; HIMX was upgraded to buy at Mizuho, turning positive on 2017-18E outlook

·      Hardware and components; 3D maker SSYS shares fall after guides 2017 EPS and revenue below consensus despite beating top/bottom line for Q4; ERIC upgraded to buy from sell at Goldman Sachs tied to the scope of the company’s restructuring; hard-disk drive makers STX and WDC were under pressure most of the day
·      Software movers; video game makers EA and ATVI both touched 52-week highs today

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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