Market Review: Stocks Close Mixed After House Pulls Healthcare Bill

eOptionDaily Market Report

Equity Market Recap
  • Stocks sold off late day as it appears there will be no Healthcare Bill (for now), as various news reports (Washington Post, AP, NBC news) said that the Healthcare Bill vote was cancelled lacking support. However, commentary throughout the day had indicated that a deal would not be reached. As it became more apparent of the failure, stocks slid throughout the afternoon, though closed mixed (bouncing in the last 30 minutes of trading), possibly on hopes Trump will now go after tax reform? With today’s declines, the Dow Industrials ended lower for the 7th straight session, and down around 600 points from its record closing highs at the beginning of the month. With today’s market pullback (and negative week overall), the VIX (volatility index) also traded near its highs of 2017 at 14.16…before slipping -1% on day (in last 30 minutes) to 12.94.
  • There were very few beneficiaries today on the apparent failure of the Healthcare bill in the House, though hospitals stocks all outperformed. Shares of THC, CYH, UHS, and HCA were higher as Mizuho said this morning they have the most to gain if the Healthcare Bill fails. However, the broader market took a hit as now pressure comes regarding passage of other bills (tax reform, etc.) which investors have been hopeful for. The market concern is with the Health-care deal failing to pass, it could lead to a final flush in reflation trades (Trump trades since election have lifted financials, industrials and materials on infrastructure spending and tax reform hopes).
  • KBW noted today that one big takeaway is that if the bill fails, the prospects for tax reform will decrease, which could also drag down the chances for making legislative changes to Dodd-Frank. Also, failure to pass the health care bill would increase chances of a government shutdown in April and a messy fight over raising the debt ceiling in the Fall.
  • Few stats of note: 1) According to Grant’s Interest Rate Observer today, one-third of the companies in the Russell 2000 Index lost money before interest and taxes at the end of last year – Bloomberg; 2) U.S. equity funds see net outflows of $8.9B this week, the largest in 38 weeks, Bank America strategists noted; said Europe equity funds see outflows of $0.8B; emerging markets equity funds see inflows of $2.8B, Japanese stocks see inflows of $2.5B


  • WTI crude oil prices managed to close higher on Friday, rising 27c to settle at $47.97 per barrel (high $48.12 and low $47.54), despite another bearish data point today. Baker Hughes said 21 oil rigs were added in the latest week, the 10th straight week oil drillers added rigs, as production continues to increase – adding to supply issues. For the week, , WTI crude lost 1.7%, falling for its 3rd straight weekly loss
  • Gold futures posted modest gains on Friday, rising $1.30 to settle at $1,248.50 an ounce, but managed to end the week with a roughly 1.5% advance. Gold has got a double shot in the arm this week, helped by a plunging dollar since the FOMC meeting last week (more gradual pace of rate h8kes), while also benefitting from uncertainty related to the GOP Healthcare Bill, as investors pulled money out of stocks for the week and rotated into defensive assets

Currencies & Bonds

  • Despite the sharp decline in stocks late day, the dollar didn’t really move that much, as the greenback ended with weekly losses vs. most counterpart currencies. The dollar slipped slightly vs. the yen to around 110.85, and overall fell for a third straight week. The dollar index hovered near 7-week lows, while the euro advanced after better economic data. PMIs topped consensus views as the Eurozone’s economy grew at the fastest pace in six years during the first three months of 2017. The dollar made a late day push flipping prior moves
  • Bonds gained and yields slipped further late day as it appeared Congressional Republicans, whom had delayed a vote on the health-care bill scheduled for Thursday night, failed to get the necessary votes needed to pass the bill, creating uncertainty for major averages. The yield on the benchmark 10-yr slipped more than a point to lows around 2.40% from above 2.42% earlier

Economic data

  • U.S. durable goods increased more than forecast in February, up 1.7% vs. est. up 1.4%; Durable goods new orders revised up to 2.3% for Jan. from 2% as previously reported; New orders ex-trans. rose 0.4% in Feb. after 0.2% rise; New orders ex-defense rose 2.1% in Feb. after 2.1% rise
Sector News Breakdown


  • Retailers; Video game retailer GME falls after Q4 sales miss and guidance for year below forecasts ($3.10-$3.40 vs. est. $3.70)/downgraded at Bank America; OXM Q4 EPS missed by 30c on light revs and guided Q1 results below estimates; FINL another drag on footwear sector (NKE hit group Wednesday after weak futures orders), as Q4 EPS missed by 20c, and comp sales fell more than expected (-4.5%), though sales beat; sporting goods stores with another weak earnings report, as SPWH quarterly sales miss (downgraded at Piper); SCVL guides year EPS and revs above views after in-line Q4 sales
  • In retail research: UAA was upgraded to buy at Jefferies saying the bottom has formed and raise tgt to $27 from $19; SKX upgraded to outperform at Cowen with $35 tgt; PVH was upgraded to buy at Citigroup saying the company is one of the only apparel/footwear manufacturers with notable earnings growth, while the firm downgraded Macy’s (M) to neutral citing uncertainty about the company’s turnaround
  • Housing & Building Products; in homebuilding, KBH reported Q1 EPS and revenue that topped consensus while net orders rose 14% and backlog up 25%
  • Casino, Lodging & Leisure; in leisure, SEAS shares jumped after it  announced  that the Zhonghong Group will acquire a 21% interest in it from certain selling shareholders at $23 per share, a roughly 33% premium; in boats, KeyBanc boosted tgts on MBUU and MCFT to reflect our greater conviction in their earnings upside potential; in gaming, IGT was cut at Argus
  • Auto’s; ALV was upgraded to sector perform at RBC saying has a better appreciation for ALV’s passive safety ramp and the potential for stronger passive safety margins; Susquehanna defended KMX shares saying Q4 likely seen easing concerns (auto industry has been hit the last few days on Ford lower earnings guidance & auto lender ALLY warning on lower used car prices); TSLA CEO Elon musk tweeted Model 3 is just a smaller, more affordable version of Model S w less range & power & fewer features. Model S has more advanced technology; Deutsche Bank said GM appears to still be within the zone of earnings guidance


  • Another bearish data point for oil as weekly Baker Hughes (BHI) rig count data showed another 20 total rigs came online to bring total to 809 (prior week rose 21 to 789), while oil rigs added 21 to bring total to 652 (prior week was up 14 to 631) and marks 10th straight week drillers added oil rigs, while gas rigs slipped -2 to 155 (prior week was up 6 to 157); miscellaneous rigs up to 2
  • Oil services; HAL provided a Q1 operational update saying sees Q2 N.A. sales higher vs. Q1/some int’l pricing pressure greater than expected/sees Q1 EPS in low single digits/sees margins accelerating towards end of 2017; Frac sand stocks (SLCA, HCLP, EMES, FMSA) active after HAL said sand is biggest source of cost inflation/sand accounts for $50m in inflationary 1Q costs/reactivating twice as much frack gear as expected
  • More on services; Barclay’s said SLCA now pricing in “reasonable” ~$20-$25/ton “normalized contribution margins,” well below ~$40/ton 2014 peak level; Jefferies said expects an extension of the OPEC agreement and for prices to climb by $60 by 4Q and valuation suggests more upside than down (top picks HAL, RES, HCLP and SLCA)
  • Refiners downgraded at Credit Suisse; the firm downgraded shares of DK, ALJ, TSO and WNR to neutral and CLMT cut to underperform having updated their mid-cycle margins, lowered the RIN burden and adjusted stock specific capture rates…says this leads to ~1% lower mid-cycle EBITDA but not the collapse in EBITDA that bears argue for (also cut tgts HFC, VLO, PSX)
  • Utilities; Goldman Sachs with a few changes as they upgraded FE to buy following underperformance as believe the Regulated Utility business segments are undervalued, while they downgraded ETR to neutral; utilities making 52-week highs – NEE, EIX, PCG, PNW as defensive sectors outperform


  • Large Cap banks reversed lower after it appeared the GOP would not get the necessary votes it need to pass the Healthcare Bill, putting other Trump admin legislation plans in jeopardy (tax reform/regulation which are good for financials); the weakness in stocks lifted bonds interest, sending yields lower (also hurting banks); regionals and large cap banks/brokers slipped
  • Mortgage Finance/Real Estate services; William Blair upgraded JLL to Outperform citing belief that secular drivers like outsourcing and corporate services will produce faster earnings growth than the cyclical service offerings in years ahead; downgraded MMI and HF to market perform; CHMI 4.5M share Secondary priced at $16.50; KBW also noted weak CRE volumes (CBG, JLL, WD) as YTD transaction volumes were down 37% YoY in February with single asset volumes down 25%. This follows declines of 41% in January and 26% in December


  • Large Cap Pharma; all eyes on the Healthcare Bill vote today which failed to materialize an official outcome during the trading session (hot debate continues) but House Republicans said midday that they are not confident that have enough votes to pass the bill; ABT sold 44M shares of MYL at $40.00; SPHS rises as Topsalysin data to be highlighted at EAU
  • Biotech movers; XENE plunges after its acne drug misses efficacy endpoints in phase II trial; HTGM announced that its HTG EdgeSeq technology has been successfully adapted for use with the QIAGEN GeneReader NGS System based on the results of initial technical feasibility tests; BLCM 5M share Secondary priced at $12.00
  • Services, Facilities and Suppliers; MDRX was upgraded to buy at Deutsche Bank; hospital names THC, CYH, UHS, HCA were among early gainers in healthcare ahead of bill vote – Mizuho said they have the most to gain if the Healthcare Bill fails
  • Medical equipment and devices; QTNT says the FDA licenses eight new Reagent products for sale in U.S.; ALR rises midday rises as judge’s dissent in favor of trying to salvage a separate Williams Co./Energy Transfer Equity merger may have implications for Abbott’s purchase of Alere

Industrials & Materials

  • Industrial & Machinery; industrial companies and building product names declined midday after headlines that the GOP leaders are not confident they have votes to pass Health Bill (took “wind out of the sails”) for Trump reflation trades – industrial/infrastructure names among top gaining sectors since the election (CAT, DE, MLM, etc.); USCR shares fall after CFO Tusa resigns ; metals and mining stocks (X, FCX, CLF, NUE) also dropped with industrials
  • Transports; transports were mixed, with car rental names lower again (rough week for CAR/HTZ), while airlines bounce off recent lows; truckers KNX and SWFT were both cut at Barclay’s to underweight and equal-weight respectively
  • Aerospace & Defense; TDG remains in spotlight as Morgan Stanley cuts tgt to $240 saying uncertainty around timing and degree of additional headlines are likely exacerbated by recent DoD investigation request that could be material

Technology, Media & Telecom

  • Internet; ZG defended at JMP Securities noting shares sold off ~5% on concerns that its Lender Co-Marketing program is potentially violating RESPA laws, but they believe those risks are overstated and would take advantage of the dislocation in the shares; TWTR is exploring a subscription-based premium service for professionals; SNAP snaps 4-day win streak; CNBC noted that AMZN will collect sales taxes nationwide starting April 1st; GOOGL slides again as PEP, WMT, DISH, GM join list of companies suspending ads on Google
  • Semiconductors; MU helps push the semi index higher after (several analysts boosted tgt, with $60 Street high at Rosenblatt) after strong Q2 results and an above consensus Q3 outlook; shares of WDC and STX higher after MU said revenue in its Storage Business unit were up 21% quarter-over-quarter, adding that revenue in the unit was driven by client and cloud SSD shipments. In Europe, Infineon boosted its forecast, lifting up peers such as United Internet and Dialog; Pacific Crest said recommends owning CY stock ahead of its March 28 Analyst Day
  • Software movers; AYX 9M share IPO priced at $14.00; UPLD Q4 results beat at the top and bottom lines; ADBE upgraded to outperform and tgt to $150 at Credit Suisse citing expectation that momentum in ADBE’s creative cloud business will continue over the next few years
  • Optical equipment stocks outperformed after an industry trade show which analysts said showed positive trends in the sector (AAOI, OCLR, LITE, FNSR, ACIA advance)
  • Telecom and Media; VRTU was upgraded to outperform and $38 tgt at Cowen saying large clients have stabilized and margin expansion plans are well within VRTU’s control; TIME is moving closer to a sale that could value the magazine publisher at more than $20 a share, Bloomberg reported late day/said MDP and a group including Pamplona Capital Management  still in the running

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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