Equity Market Recap
· U.S. stocks slid on Tuesday, snapping the three-day win streak for the S&P 500 index, led by a decline in energy stocks as oil prices hit 3-month lows and a sharp decline in transports and small cap stocks. Stocks have pulled back from record highs just two-weeks ago, but the most pronounced declines have come in Small Caps, as the Russell 2000 Index is down about 4% since March 1st and at its lows this morning it had erased its gain for the year. The Dow Transportation Average is down almost 5% since March 1st, led by the recent pullback in airlines given the cancellations due to the winter storm in the Northeast. Energy companies in the S&P 500 dropped sharply, with several names touching lowest levels since mid-November as oil declined when Saudi Arabia told OPEC it reversed about a third of recent production cuts. The weakness also carried over into industrial related stocks that are reliant on the energy sector.
· Overall on the day oil prices dropped a 7th straight day, the dollar gained vs. counterparts, with most notable moves against the euro and Pound (on upcoming election and Brexit fears). Bonds were up slightly as yields pared gains and markets focus turns to the FOMC, where a rate hike is expected tomorrow afternoon as well as the updated rate projections for 2017 and beyond. Inflation data (PPI) came in above expectations. The snowstorm in the Northeast wreaked havoc for companies and airlines which have cancelled thousands of flights over the last few days.
· Oil prices fall again, down at 3-month lows, sliding after a monthly report from OPEC showed production out of Saudi Arabia cresting back above 10 million barrels of oil per day. The news, coupled with recent bearish data points for U.S. stockpiles, has weighed on oil the last few days with renewed oversupply fears (oil falls a 7th straight session). WTI crude dropped 1.4% or 68c to settle at $47.72 per barrel (ahead of API inventory data tonight and EIA tomorrow). According to OPEC, total production for the cartel is still falling, down to 31,958 million barrels in February from 32,097 million barrels per day in January. The stronger dollar also hurt commodity prices.
· Gold prices edge lower; after snapping its 9-day losing streak yesterday, gold prices slipped late session to end the day lower, falling 50c…but managed to stay above the $1,200 an ounce level ahead of tomorrow FOMC interest rate decision (rates expected to rise 25 bps)
· The U.S. dollar was mostly higher, rising against European counters on Brexit/elections, and was higher vs. the Canadian dollar amid a drop in oil. The U.K. pound slid to 10-week lows after U.K. lawmakers set the wheels in motion for Brexit talks to begin. The dollar also got a boost ahead of the expected rate hike increase from the FOMC when it concludes its 2-day meeting tomorrow. The British pound dropped to $1.211 (before paring losses), from $1.2218 late Monday, lowest since mid-January, while the euro slips to lows of day vs dollar at 1.0605. The dollar to highs of 1.3495 against the Canadian dollar as oil slides further.
· Bonds bounce slightly, with yields just off multi-year highs, ahead of the outcome of a Federal Reserve meeting that’s expected to deliver the third rate rise since December 2015; the yield on the 10-yr trades just under the 2.60% level, while the 2-yr is at 1.37%. The 10-year yield pulled back from near 2-year highs.
· Producer prices for February rose 0.3%, above estimates for a 0.1% increase, while core prices (ex: food and energy) rose 0.3% MoM, slightly above the 0.2% est.; final demand ex food, energy rose 1.5% YoY vs. est. up 1.5%; PPI increases 2.2% in past year, highest since early 2012
Sector News Breakdown
· Retailers; Macy’s (M) shares active after Dow Jones report that Hudson’s Bay turns focus to Neiman Marcus, away from Macy’shttps://goo.gl/dnWFNz ; shares of DSW and BONT advanced initially after earnings results in the retail space, while TLYS shares plunge on a wider than expected Q1 EPS loss; DKS was upgraded to outperform by one analyst (Wolfe); WMT was added to US 1 list at Bank America; NKE tgt raised to $67 in positive note at Credit Suisse
· Consumer Staples; LMNR Q1 results easily exceeded street expectations, with a significant increase in FY2017 guidance (results were driven by high lemon volumes); IPAR a mover on earnings; SPB trades to all-time high after outperform and $160 tgt at RBC Capital; in protein sector, SAFM/TSN slipped after reports of 3 findings of avian flu in poultry in north Alabama
· Restaurants; RT rises as its Board said it will consider all strategic alternatives including, but not limited to a potential sale or merger of the Company; NDLS announces $31.5M private placement of Class A common stock to Mill Road Capital II, issuing 8.9M shares to Mill Road at $3.55 per; BOJA was initiated at Outperform and $23 tgt at Cowen
· Auto news; TSLA shares jumped after a report is readying a small SUV sharing the same platform as the Model 3 and the Model X with its instantly recognizable “falcon wing” doors, according to a British car magazine. https://goo.gl/vJt7mM ; CTB was upgraded at JP Morgan to overweight; auto parts supplier DLPH traded to 52-week high today
· Energy complex extends recent declines as oil prices have fallen to new 2017 lows; Dow component XOM shares now down 10% for 2017 as oil spills; OXY was upgraded to outperform and tgt raised to $79 at Credit Suisse saying upside to $86 per share would reflect a 15% bump in Permian well productivity and lower wells costs on OXY’s technology gains; XOG falls to all-time low after much larger than expected quarterly EPS loss; overall breakdown in energy stocks early with decliners CRC, SM, ATW, MRO, WFT, NE, ESV, WPX, OAS, SLCA, HCLP
· Finance & Lending; MGI to be acquired by EEFT for $15.20 per share in cash plus the assumption of ~$940M of debt outstanding; represents ~15% premium over Ant Financial’s offer (shares of PAY and WU also moved in reaction) https://goo.gl/bXarNC; finance initiations at Wedbush with outperforms on BKFS and neutral ratings on ELLI and RMAX; WAC falls as reports subpoena in 10-K from HUD Inspector General for documents and information relating to origination and underwriting of certain specified loans; GDOT was upgraded to buy at SunTrust with $40 tgt; PYPL slipped late day as GOOGL enables payments via Gmail without installing payment app
· Brokers and exchanges; ETFC Feb. Gross New Brokerage Accounts 45.7k vs. 42k MoM, net new brokerage assets $1.8b vs $0.8b MoM and net new brokerage accounts 25.97k vs 10.2k MoM; FXCM Feb. retail customer trading volume $201B, down 33% YoY; avg customer trading vol./day $10.1B, down 16% MoM; KCG Feb market making avg vol traded $28B vs. $28.1B MoM; SCHW February net new assets $6.6B/new brokerage accounts totaled 113,000 in February, up 35% YoY
· Other movers in financial industry; PN shares fall after reports Q4 EPS loss (5c) vs. expected 13c gain on lower revs
· The Congressional Budget Office’s report on the American Health Care Act estimates that 14 million people would be without health insurance in 2018 versus under the plan, while 24 million people would be uninsured in 2026 than under the current plan
· Large Cap Pharma; Specialty pharma sector active as top holder Pershing Square liquidates its entire stake in VRX, selling 27.23M shares at $11.10 per share; ABT was downgraded at BMO Capital as believe it is likely time for the stock to take a pause; AUPH 22.3M share Spot Secondary priced at $6.75; PCRX active on positive late-stage trial for opioid-reducing pain medication; AMPH falls as downgraded at Raymond James/reported earnings overnight; OPK was initiated with a buy at Guggenheim and $25 target
· Biotech movers; TSRO (falls) and CLVS both active after AZN’s Lynparza shows progression-free survival in Phase III trial (AZN Olaparib showed better efficacy and better safety vs TSRO Niraparib); EDIT shares climbed after $90 million AGN research and development deal;PETX shares fall as reported a wider-than-expected 4Q loss and revenue that fell below estimates; ALXN said it is laying off 7% of its workforce; CHRS, BLCM, ENZ move on earnings
· Services, suppliers; AIRM to be acquired by American Securities for $43 per share in cash, in a deal valued at about $2.5B including debthttps://goo.gl/o5o49W; ADPT shares drop after disclosing it has retained Houlihan Lokey Capital on March 1 to explore strategic alternatives, entered amendment to credit agreement.
· Medical equipment/devices; LNTH 3M share Spot Secondary priced at $12.50; DGX rises to 52-week high after Goldman Sachs added to conviction buy list
Industrials & Materials
· Industrial & Machinery; industrial related stocks weak, with one analyst noting weakness in MTW, saying up to 35% of its crane demand came from energy markets at peak; also shares of EMR, DOV, CFX, FLS affected by the weaker oil; EMR Feb trailing 3-month orders were up 2%; Feb. underlying orders rose 1%, ex: favorable currency translation
· Transports; airlines grabbing headlines as thousands of flights cancelled the last two days due to winter storm hitting the Northeast (DAL, AAL, UAL, LUV, JBLU); Wells Fargo initiated some names in the transport space as CSX, CP and FDX initiated Outperform; GWR Feb traffic was 252,228 carloads, an increase of 27,572 carloads, or 12.3% YoY
· Metals & Mining; Steel producers RS and ZEUS both upgraded to outperform at Macquarie and upped WOR to neutral as expects steel service centers to see higher shipping volumes, greater processing efficiencies and wider profit margins as steel pricing should be supported by supply tightness; metals in general were lower, gold miners fall (AEM, ABX)
Technology, Media & Telecom
· Semiconductors; sector has been on cruise control higher over the last year amid lots of sector consolidation and improving fundamentals; deal in space yesterday with INTC buying MBLY, sparked volatility for likes of AMD, NVDA, AMBA; ADI reinstated outperform and $100 tgt at Credit Suisse; ON announced offering of $500M of convertible senior notes; little profit taking today in the semi sector
· Software movers; SNPS to replace HAR in the S&P 500 index; CTXS shares pare some of yesterday’s late day gains – Bloomberg had reported the company is working with advisers to seek potential suitors for the $12.4B cloud-services company https://goo.gl/kqd5ao (shares slip as analyst weigh in saying lower sales may reduce price if comes to fruition); COUP shares decline after quarterly results/guidance
· Hardware & Equipment; GLW and the Consumer Hardware Sector downgraded at Goldman Sachs; cut GLW to neutral citing limited upside after recent outperformance, while full consumer hardware and mobility sector to neutral from attractive; HLIT was downgraded to hold at Drexel Hamilton after recent stock price rally
· Media & Telecom; DIS shares upgraded to buy at Guggenheim, help lift prices to new 52-week highs; in telco, FTR shares fall to 52-week lows
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.