Equity Market Recap
· Stocks struggled for direction on Monday in the U.S., in a true “ho-hum” trading session, as markets braced for a big winter storm expected to pound the Northeast tomorrow (which will likely “lighten” trading desks) and the two-day FOMC meeting which concludes on Wednesday. The meeting is expected to end with a 25 bps hike, with a bullish outlook on the economy given the recent positive jobs data. Today seemed like a big “waiting game” with narrow trading ranges and light volumes. Today in a nutshell was: energy lower as oil slips a 6th straight day; gold snaps 9 day losing streak; the U.S. dollar was mixed on day (up vs. euro/down vs, pound); just about all airlines cancelling flights on Northeast ahead of storm tonight. Overall, volumes were light ahead of storm and 2-day FOMC meeting (results Wednesday). In corporate news, one big deal in the tech space/auto as Dow component Intel (INTC) agreed to buy MBLY for around $15B.
· Oil prices slip, ending the day with a modest 9c loss, closing at $48.40 per barrel (touched lows of $47.90), posting its 6thstraight losing session and finishing near 3-month lows. Crude recently broke out of its $50-$55 per barrel trading range to the downside, falling sharply late last week on bearish inventory data. In a monthly report, the EIA forecast a rise of 109,000 barrels a day in April shale oil production, from a month earlier, feeding concerns that rising U.S. crude output will offset OPEC-led efforts.
· Gold prices managed to close slightly higher, rising $1.70 to $1,203.10 an ounce, snapping its nine-session losing streak amid uncertainty in Europe ahead of the Dutch election. Gold prices have fallen over the last 2-weeks as investors await a policy decision from U.S. Federal Reserve Wednesday that’s likely to result in an increase in interest rates
Currencies & Bonds
· The euro slipped to lows against the dollar late day, erasing overnight gains ahead of a Dutch election which is seen as a possible risk, while the British pound strengthened as the U.K. government looked poised to trigger Brexit. The euro touched the $1.07 level earlier in Asia and into Europe’s morning, its highest level in over a month but touched lows of around 1.0653 late afternoon. The yen was little changed on the day, while the British Pound advanced around 0.5% on the day vs. the dollar.Bonds slide as yields inch higher throughout the day; after rising over 9 bps last week, the yield on the 10-yr inched higher another 2 points to above 2.6% as investors maintained expectations the Fed will deliver a rate increase at its meeting this Wednesday.
· Scotland’s First Minister Nicola Sturgeon confirmed plans for a second Scottish independence referendum in the wake of the U.K.’s plan to leave the European Union. Sturgeon said she will ask the Scottish parliament next week to vote in favor of her plans for a new independence ballot. The new referendum could take place between the autumn of 2018 and spring 2019
· Barring an epic collapse, the Dow Jones Industrial Average will hit a small milestone next week: it will pass the 1920s bull market for the third-longest streak in history without being 20% below its all-time high. The mid-80s and mid-00s bull markets also had streaks of similar length that ended in spectacular fashion. – Bloomberg
Sector News Breakdown
· Retailers; department store names fell (remain weak), with JCP, M lower; URBN removed from the S&P 500 index; GME downgraded to market perform at Telsey amid weaker than expected holiday sales; dollar stores were lower early after Bank America lowered DG estimates and PO to $78 on our belief that comp pressures in 3Q16 including food deflation, pricing investments by mass and grocery retailers and a promotional environmental (ahead of earnings this week); NLS advanced on analyst upgrade
· Casino, Lodging & Leisure; casino stocks outperformed, led by gains in WYNN after Morgan Stanley said shares could double saying bull case scenario assumes WYNN can achieve 17.2% Macau market share, Macau market grows 14% in 2017; in cruise lines, NCLH mentioned positively in Barron’s; in lodging, Fitch said sees ’18 U.S. hotels RevPAR unchanged vs. prior view of modestly negative
· Banking & Insurance news; IBKC, PFBC, RF, ZION (outperform) are among banks that may benefit from higher interest rates, while NYCB (underperform) is poorly positioned given fixed-rate assets, FBR Capital said; AIG was downgraded to sell at Deutsche Bank as believe the resignation of Peter Hancock is a negative catalyst; XL was downgraded at Sandler amid concerns about competition, profit margins, ambitious earnings expectations and valuation
· Brokers and advisors; RJF to be added to the S&P 500 index; in online brokers, AMTD was downgraded to neutral at UBS while reinstates/initiates SCHWand ETFC with buys; TD downgraded by three analysts citing recent reports of questionable sales practices
· REITs; ARE was added to the S&P 500 index; last week, the REIT index dropped sharply on rising rate expectations (RMZ decreased 4.5% last week), which lifted the yield on the 10-year 9 bps to end the week at 2.57%; mall REITs remain pressured (SPG, GGP, MAC, TCO) after WSJ reported Wall Street speculators are zeroing in on the next U.S. credit crisis: the mall. It’s no secret many mall complexes have been struggling for years as Americans do more of their shopping online. But now, they’re catching the eye of hedge-fund types who think some may soon buckle under their debts
· Biotech movers; HTBX met the efficacy endpoint for its phase 1b trial evaluating HS-110 in combination with BMY’s anti-PD-1 checkpoint inhibitor, Opdivo, for treatment of non-small cell lung cancer (NSCLC); AMGN said a Phase III study of Repatha in patients who were undergoing a plasma removal procedure to reduce low-density lipoprotein cholesterol called apheresis, met its primary endpoint, showing a significantly reduced need for the procedure; CEMP said it hired Morgan Stanley to help explore options; INCY tgt raised to Street high $174 at Credit Suisse (also note holder Baker Brothers filed to sell 34M shares)
Industrials & Materials
· Aerospace & Defense; BA was downgraded at Morgan Stanley citing concerns over valuation after the recent run up in price, while the firm upgraded COL to overweight
· Multi industry; Goldman Sachs said since the November elections, cyclicals have outperformed defensives by 600bp bps as investors have been willing to buy stocks with troughed out growth, anticipating that the cycle would turn. Of late, this has turned into reality as a plethora of data has improved buoying OEM, customer, and investor sentiment. However, multiples reflect the good news as the Multi’s are trading at the 98th percentile vs. history over the last 10 years on P/E NTM. That said, concerns are also mounting and think EPS quality will matter more in C1Q. Against this backdrop, they reinstate PH at Buy and downgrade JCI to Neutral
· Transports; airlines mixed after falling last week on softer monthly updates out of LUV and AAL; autos got a lift today on INTC/MBLY deal, helping lift supplier related names early (such as DLPH); rail stocks moved mostly higher (CSX) in one of the few better performing sectors; there were also several cancelled flights along east coast ahead of winter storm
· Metals & Mining; JP Morgan upgraded Emerging Markets, and the Mining sector in Europe, to Overweight based on improving FCF yields, valuation support and weak relative one- and three-month performance; The Samarco iron mine in Brazil, jointly owned by VALE and BHP faces another obstacle to restarting operations later this year after a court accepted a request by prosecutors to protect a forested area that encompasses a pit that had been planned to use for storing waste; industrial metals (AA, X, CLF, FCX) outperformed
Technology, Media & Telecom
· Semiconductors; deal of the day was INTC acquiring MBLY for about $15B, paying $63.54 per share in a move to dominate technology for self-driving carshttps://goo.gl/q9gt2e; AMD to be added to the S&P 500 index; MRVL was upgraded to buy and $21 tgt at Needham; AMBA jumped following the MBLY deal with INTC; semi index nearly topped the 1,000 level (SOX), 17-yr high
· Software & Hardware and equipment; optical maker FNSR upgraded to strong buy at Raymond James after sell-off last week on weaker earnings/guidance results; IT was upgraded to top pick at RBC Capital; ANET positive mention in Barron’s despite recent run up in shares; ORCL reports earnings on Wednesday in software sector
· Internet mover; SNAP shares weaken after Barron’s cautious saying the recent IPO may suffer a similar fate as GPRO, which has fallen more than 90% since its October 2014 high, as neither company wants to be too reliant on “one fancy gadget” that fueled their growth
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.