Equity Market Recap
· It was a relatively quiet session for U.S. stocks, opening near their best levels of the day before fading from near all-time highs on a bout of profit taking. Healthcare led the early declines, but pared losses. Global markets still remain strong after the Federal Reserve lifted benchmark interest rates on Wednesday, but remained vigilant that the pace of hikes would remain gradual. Economic data came in better-than-expected this morning, showing continued improvement. European stocks log highest close since 2015 as investors relieved from Dutch election outcome. Stock markets got first glimpse of policy last night (re healthcare/defense) but still await clarification and details regarding tax reforms and infrastructure spending. Bonds slipped, gold surged, the dollar was mixed and oil ended down slightly.
· The Bank of England kept rates unchanged at 0.25% by vote of 8-1 and Gilt purchase plan at 435B pounds. In the Netherlands, preliminary Dutch election results backed up the earlier exit polls, showing that Prime Minister Mark Rutte had likely held off the challenge of a far-right rival Geert Wilders, lowering the threat of a common currency breakup. Optimism over the Trump administration’s infrastructure spending and tax plans is “clearly fueling the markets,” IMF Managing Director Christine Lagarde said today. “On the other hand, the threat that could result from a significant change in trade policy is, for the moment as we see it, discounted and that could be one of the downside risks”: Lagarde.
· Weekly Jobless Claims fell 2K to 241K vs. est. 240K; Two weeks ago, new claims had fallen to the lowest level since early 1973. And they’ve come under the key 300,000 threshold for 106 straight weeks; four-week average of initial claims rose by 750 to 237,250; continuing claims fell 30K to 2.030M in the week ending March 4
· Housing Starts for Feb rose 3% to 1,288K annualized rate, above estimates for 1,264K (comes after starts fell -1.9% in prior month); single family starts rose to 872K and multifamily starts fell to 416K in Feb; building permits fell a greater -6.2% to 1,213K vs. 1,293K in Jan (est. 1,268K)
· Philly Fed index falls to 32.8 in March from 43.3 in February but above estimates for reading of 30.0; prices paid rose to 40.7 from 29.9 prior, while new orders inched higher to 38.6 from 38.0; the employment index rose to 17.5 from 11.1 while inventories rose to 11.8 vs -4.7 prior
· Commodity prices: Precious metals gained, with gold and silver the top performers in the commodity complex on dollar weakness and comments from the Fed yesterday to raise rates at a gradual pace (taking time/not rushing). The commentary boosted gold prices to two-week highs, rising $26.40, or 2.2% to settle at $1,227.10 an ounce. Oil prices ended lower by a mere 11c to settle at $48.75 per barrel (high $49.62 and low $48.45). Not much in energy complex outside of a few comments by Saudi minister
Currencies & Bonds
· After plunging yesterday vs. most rival currencies, the U.S. dollar was lower most of Thursday, before managing to pare losses late day. The euro hit a 5-week high earlier today (high of 1.067) before fading to lose ground against the greenback. The euro was supported after exit polls suggested a pro-European Union winner in the Dutch election. The euro then spiked late day to around 1.075 vs. the dollar after ECB’s Nowotny said a rate increase may be on the way. The yen was little changed on the day after the dollar pared earlier losses (touched low of 112.91 vs. yen). The British Pound gained vs. the dollar, rising above 1.235. With today’s move, the dollar index posted its fifth daily decline of the past six sessions, despite rising rates. Treasury markets with a small pullback, as yields inch higher after 10-year Treasury yields fell the most in two months yesterday following the Fed moves; the 10-yr yield up around 2.53% and the 2-yr 1.32% (stayed there most of the day).
Sector News Breakdown
· Retailers; dollar store DG Q4 EPS beat by 8c on higher sales and comps, while boosts dividend; GOOS 20M share IPO priced at C$17.00; CATO falls on Q4 earnings and said sees Q1 earnings significantly below last year; GES shares fall on Q4 miss, and lower Q1 and year EPS guidance; BKS announced a $50M share buyback plan; ICON disclosed material weakness in 10K filing; Macy’s (M) weak early after Reuters reported Starboard Value said to sell its stake
· Autos; TSLA announced $1.15B stock and convert offering ($250M stock and $750 convert notes with a 15% underwriter option, and Elon will purchase $25M of TSLA stock as part of the transaction); autos were mixed on the day
· Consumer Staples & Restaurants; in protein, TSN was downgraded at Argus citing the SEC probe of Tyson and other poultry producers, potential decelerating earnings in coming quarters, and a recent bird flu outbreak in two states; FRSH rises on better earnings results; BGS falls as CFO resigned/Credit Suisse lowered estimates
· Housing & Building Products; in home furnishing, WSM with mixed Q4 as EPS beat by 4c but revs missed estimates on weaker comp sales of (-0.9%)/guidance also missed consensus; homebuilders a nice rebound from yesterday after Single-family housing starts hit highest level since October 2007 (LEN, PHM, MTH, DHI active); 52-week highs for HD today
· Energy stocks were mostly lower, but some pared losses late day as oil prices ended little changed. Natural gas prices slid after weekly stockpiles fell less than expected (shares of RRC, SWN leveraged to natural gas) in other top news stories; DO received a favorable court ruling on Ocean Valor contract with PBR; Guggenheim upgraded AR and OAS to buy; not much else in way of news in the energy complex, though Saudi Arabia said it will review oil strategy in Q2 and that cuts may be extended if stocks still above average (citing Al-Falih)
· Large Cap banks; after a sharp reversal lower yesterday for banks, as bonds jumped and yields fell amid expectations the Fed will not raise rates at an accelerated rate, the group found footing today as investors stepped into some names; BAC was downgraded to sell at Compass Point
· Exchanges/Brokers/Asset managers; VIRT made an offer to buy KCG, with a bid with a price of over $18 per share, or at least $1.2B based on a recent share count https://goo.gl/mgSqld ; BEN was upgraded to buy at Bank America with $50 tgt
· Finance and Lending; CMO cuts quarterly dividend to 21c from 23c; LC was upgraded to buy at Guggenheim saying bank funding has returned to levels similar to those before it reported internal control failures in May, underscoring the “durability” of such funding and lowering the risk of liquidity-induced operating disruption
· Biotech movers; BIIB was downgraded at Leerink and Morgan Stanley citing slow start to Spinraza sales; INO downgraded at Piper saying a lack of focus and advancement for any one program poses execution risk to the broader platform (also posted wider quarterly loss); PTCT shares among biggest decliners in biotech index after earnings results and announcing a deal to buy Marathon Pharma’s Emflaza, which has been facing scrutiny over its $89,000 price tag
· Medical equipment and devices dropped; TROV downgraded at both Piper and Maxim after quarterly results; DGX was upgraded to buy at Bank America; MASI downgraded at Piper; life science tools fall early after Donald Trump’s budget proposal included deep cuts in spending on medical research and a reorganization at NIH institutes and centers (NSTG, FLDM, ILMN, TMO)
· Other movers on day; large cap pharma was broadly lower, with LLY, PFE, MRK, JNJ dropping; managed care also saw weakness; EGRX reported material weakness in 10-K; INSY delayed the filing of its 10K citing independent review
Industrials & Materials
· Industrial & Machinery; MMM to acquire Scott Safety from JCI for $2B; CAT was upgraded to neutral at Tigress Financial. In shipping space, broad strength on no particular news with TOPP, GLBS, DRYS, SBLK higher; the highlight of industrial sector remains Trump’s initial budget plan, which failed to lay out any details on infrastructure spending
· Transports; in rails, KSU declines after Mexico finds lack of competition in rail services network/KSU said disagrees with the Mexican Economic Competition Commission’s reasoning and preliminary conclusions; airlines were mixed after group slammed this week on winter storm (causing thousands of cancellations) and lower guidance from company updates (SAVE, UAL)
· Metals & Mining; steel producer NUE sees Q1 EPS $1.10-$1.15 with charges vs. est. 75c; Seaport global rating changes in steel space as upgraded CRS to buy with a $45 tgt as believe the recent pullback presents an attractive buying opportunity, and upgraded ATI to buy
Technology, Media & Telecom
· Semiconductors; sector slips from 17-year highs of 1,006 for SOX index; LRCX upgraded to overweight at Pacific Crest/KeyBanc saying expects a sharp spike in NAND supply by the end of 2017, but by the end of 2018, they expect shortages to resume and to be the norm; NVDA announced that it’s working with PCAR, a leading global truck manufacturer, on developing solutions for autonomous vehicles; AXTI cuts Q1 revenue view to $18M-$18.5M from $19.5M-$20.5M after fire at plant stopped production; SYNA upgraded at Northland to outperform given current valuation, strength in the TDDI and biometrics business, and the likelihood that Synaptics keeps the LCD versions of the upcoming iPhone’s in late CY17
· Software movers; ORCL shares jump after delivered strong results across the board, including Cloud ARR acceleration, upside to both GM’s and operating margins, and solid EPS growth (also upgraded at JP Morgan and JMP Securities); Internet security sector pocket of strength for market, CUDA outperforms but FEYE, FTNT, PFPT, CHKP all up over 1%
· Hardware movers; IBM tgt raised to $212 from $187 at Morgan Stanley saying IBM’s cloud strategy remains underappreciated, even under conservative DCF base case assumptions; NCR was upgraded to outperform at Oppenheimer on recent underperformance; GPRO rises as says jobs cuts (cut 270 jobs) may lead to profitability/sees Q1 revs high end of view (upgraded at Citigroup); JBL advances after earnings/guidance
· VR sector; the global market for augmented and virtual reality headsets is expected to spike nearly 10-fold, to 99.4 million units shipped through 2021 from 10.1 million in 2016, with the fastest growth in augmented reality headsets, according to market research firm International Data Corporation (IDC). That represents a compound annual growth rate (CAGR) of 58%. Revenue for VR headsets is expected to grow to $18.6 billion in 2021 from $2.1 billion in 2016
· Optical sector; Goldman Sachs upgraded INFN to conviction buy list, replacing CIEN which they downgraded to neutral citing upcoming new products which should drive revenue growth and margin expansion; also expects revenues to bottom in 1Q and to return to positive y/y growth in 2H; firm also upgraded LITE to neutral citing more upside optionality from the 3D-sensing oppty
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.