Equity Market Recap
- Stocks ended mixed as the NASDAQ rises, but Dow Industrials decline for the 8th consecutive session, its longest such streak in 6-years as energy and financial stocks underperform. Broader markets were down sizably in the early going, but the Dow Industrials bounced over 150 points off its lows of 20,412 and the tech heavy Nasdaq Comp climbed over 75 points off its morning lows (the Nasdaq held above its 50 day moving average of 5,758, touching low of 5,769 before surging). Stock fell early on as investors’ confidence in Trump administration’s ability to implement fiscal policy changes was hurt following the health-care bill failure on Friday (raising concerns his plans for tax reform, deregulation and infrastructure spending would fall to similar fates). Early on markets saw a continued unwind of “Trump trades” since the election, as materials, industrials and financials declined. Financials underperformed amid a bevy of factors: 1) the unraveling of the Trump trade, 2) 10-year yield at a March low isn’t helping and 3) collapse of the health care bill means tax reform may be tougher. Bonds gained, the dollar slipped and gold touched 1-month highs as stocks ended mixed, but well off earlier lows.
- Crude oil prices ended lower, as WTI crude slipped about 0.5% to settle at $47.73 per barrel. Bloomberg noted that for the 3rd time in the last 10 sessions, crude oil rebounded sharply off the $47 per barrel level. Comments from OPEC over the weekend may have eased losses. Bloomberg said that oil producers pledged to consider extending their pact limiting supply, as half a dozen nations said more time was needed to drain swollen stockpiles. Five OPEC members and Oman backed an extension, with Kuwait saying it should be for six months.
- Gold futures ended higher, rising $7.20, or 0.6% to settle at $1,255.70 an ounce, its highest settlement since late February, but down from earlier highs of $1,264.20 an ounce. Gold prices have greatly benefitted from the decline in the dollar over the last two-weeks, as well as a rotation into more defensive assets as stocks have slid over that time frame as well.
- The dollar ended lower, as the dollar index (DXY) touched a 4-month low of 98.86 today before recovering to close back above the 99 level, but remains in a downtrend since the FOMC meeting and commentary two weeks ago. The British Pound touched a high of 1.2615 today before paring gains, but was the first move the 1.26 level for the first time since early February. The dollar slipped to lows of 110.111 before rebounding off the lows (touched Nov lows), while the euro held strong throughout the day against the dollar (touched higher above 1.09).
- Bonds surged early, though pared its advance midday as the broader stock market rebounded from earlier losses. The yield on the 10-yr dropped around 7 bps from Friday’s close of around 2.4%, paring its losses to end around the 2.37% level. Despite the bounce, yields tumbled to their lowest levels in a month.
Sector News Breakdown
- Retailers; GIII the latest retailer to disappoint on earnings as Q4 loss/sales missed estimates, and forecasts for 1Q and year-end results that also trailed; MIK downgraded to neutral at Piper saying firm’s Spring women’s survey showed 30%-40% of arts and crafts purchases are completed online; BBY upgraded to overweight at Piper and tgt upped to $55 at Piper saying store closures from hhgregg and potentially SHLD could lift Best Buy’s comp sales by 2%; Macy’s (M) partners with G-III to become exclusive retailer of Donna Karan line, DKNY; index changes show MIK to be added to the S&P MidCap 400 index, replacing WETF
- Auto’s; Wedbush said they remain cautious on KMX into print on April 6th as credit related pressures continue to ramp higher partially offset by better sales trends; CPRT announced a 2-for-1 stock split; Goldman Sachs lowered estimates for auto rental stocks (HTZ/CAR); HOG tgt was raised to $72 at BMO Capital citing good feedback on retail sales thus far in the first quarter; Evercore cut estimates on Ford by 10% and GM by 2% for 2017 EPS
- Consumer Staples; CALM shares fell to 52-week lows after earnings missed expectations/said egg markets are still under pressure; in the protein sector, KeyBanc said much has changed in the industry outlook in recent weeks, with newfound pricing strength, export market turmoil and improved feed costs leading them more favorable stance near-term (prefers SAFM which is upgraded while downgraded PPC)
- Bloomberg reported that oil producers pledged to consider extending their pact limiting supply, as half a dozen nations said more time was needed to drain swollen stockpiles. Five OPEC members and Oman backed an extension, with Kuwait saying it should be for six months; TOT to invest $1.7B to expand Texas petrochemicals business; HES sets its upcoming IPO at 12.5M units priced at $19-$21/unit, for gross proceeds of ~$250M (symbol to be HESM)
- Oil services; WFT shares rise after announcing they are forming the OneStim joint venture with SLB focusing on the unconventional completions market in North America (NAM) – Wells Fargo upgraded to outperform on this rare “win – win situation”; SLB said at conference it sees 1Q negatively impacted by intl segment
- E&P & Equipment news; NFX boosts 1Q production view on well results/sees 1Q domestic net production 137,700 boe/d, or ~3,500 boe/d above high end of forecast; FLS and THR were both upgraded to outperform at BMO Capital as believe the improved O&G outlook and release of pent-up AM demand will enable a snap back for sales and earnings growth
- Utilities; 52-week highs for utilities EIX, AEE, PNW as investors rotate into defensive assets/dividend paying sectors amid lower rates – however, as broader stock averages bounced from early lows, the utility index sank to its lows
- Large Cap banks; group under assault early on lower bond yields (hurting lending), while names that benefitted over the last few months on hopes of Trump plans to lift group (tax reform and deregulation) fading after failure of Healthcare Bill last Friday; MS downgraded at Compass Point as views shares overvalued based on the elongated trajectory towards earning a competitive ROE
- Other news; PVTB upgraded to outperform at KBW as view the current risk-reward setup in PVTB as among the most attractive in the SMID-cap space with nearly 14% upside potential to our revised PT and significant downside protection; TCBI to join the S&P 400 MidCap 400 index
- Health-care stocks led gains in the S&P 500 as hospitals and facilities rally in relief after Republicans dropped plans to repeal and replace Obamacare. Insurers that specialize in Medicaid, including CNC and MOH gained as the threat of a rollback of the program’s expansion has now diminished. Their larger, more diversified peers are weaker
- Hospitals; one of the few beneficiaries thus far from the failure of the Healthcare bill last Friday; HCA and UHS were upgraded to buy at Mizuho today after Health Care Bill was scrapped citing the threat of a roll-back on expanded Medicaid benefits diminishing (HCA tgt to $98 and UHS to $138); other names such as THC, LPNT, CYH also active
- Specialty pharma; FOMX shares plunge after FMX101 demonstrated statistical significance on both co-primary endpoints in one trial, but didn’t meet statistical significance on co-primary endpoint of Investigator’s Global Assessment (IGA) success in a second study; IPXL rises early appoints Paul Bisaro (formerly of AGN) as President & CEO effective today
- Medical devices and equipment; ISRG positive mention at Wedbush saying it is well positioned to exceed the upper end of its 2017 da Vinci procedure guidance of 9%-12% given rapid penetration of the US hernia opportunity; Janney downgraded BRKR, but upgraded PKI and EW to buy; EXAS confirms expanded Cologuard coverage from AET
- Other movers; ABCO was upgraded to outperform at Baird and tgt raised to $53 saying sees higher probability of co. being acquired given recent reports of interest from multiple bidders; MDRX was upgraded to outperform at Wells Fargo; late day, TSRO announced the FDA approved niraparib, a poly ADP-ribose polymerase (PARP) inhibitor, for the maintenance treatment of adult patients with recurrent epithelial ovarian, fallopian tube, or primary peritoneal cancer
Industrials & Materials
- Transports; Transports bigger technical breakdown – broke through 100 day support last week of 9109…traded under 8,800 level today (all-time highs 3/1/17 of 9,639)…before group rallied with the broader market; car rental estimates and tgts lowered at Goldman Sachs (HTZ/CAR) against a backdrop of increasing vehicle depreciation expense, increasing interest rates, a structural impediment to industry pricing, and another transition
- Metals & Mining; metal sector slammed this morning (X, CLF, AKS, FCX) on infrastructure spending worries by Trump administration; gold miners however seeing early gains amid further bounce in gold prices on weaker dollar (AEM, ABX, NEM); iron-ore stockpiles build and concern grows that President Trump won’t be able to push through pro-growth policies
- Chemicals; DOW and DD clinched regulatory approval for their megamerger from the European Union’s competition watchdog on condition they divest several businesses to address antitrust concerns. Tudor Pickering sees LYB benefiting from higher U.S. polypropylene (PP) contract settlements for March and Alembic Global sees butadiene strength underappreciated
- Containers & Packaging; SEE in pact to sell New Diversey Care division to Bain Capital Private Equity for ~$3.2B; SEE also boosts buyback by $1.5B (now total authorization ~$2.2B) and said to use proceeds to repay debt and maintain leverage ratio in 3.5x-4.0x range
- Defense sector; group may come under pressure this week on concerns that failed health care vote could derail Trump’s entire agenda, including defense and tax policy (GD, BA, LMT, NOC)
Technology, Media & Telecom
- Internet; Citigroup initiated coverage on IAC (Buy $89 TP), MTCH (Buy/$22 TP), TRUE (Buy/$18 TP), WIX (Neutral$68 TP), and GRPN (Neutral/$5 TP); YELP tgt cut to $27.50 from $30 at Roth Capital citing competitive features from GOOGL and FB; the UK told FB’s WhatsApp to open encryption to Intelligence Services; SNAP street ratings now 12 buys…11 holds….6 sells after today’s initiations; GOOGL faces demands for ad discounts after YouTube
- Semiconductors; sector was lower with broader market, but pared losses; HIMX upgraded to overweight and $11 tgt at Morgan Stanley citing optimism about the 3D sensing opportunity in non-Apple smartphones; CY holds analyst day tomorrow
- Software movers; ADBE was upgraded to buy and $151 tgt at BTIG after earnings; WAGE downgraded at Wells Fargo as believe that upside to 2017 expectations may be possible with management guiding relatively low for the ADP acquisition; SNCR negative mention by SIRF
- Hardware movers; AAPL tgt raised to $165 from $142 and added to JPM’s focus list on high pent up replacement demand, F2018 units to 260M from 245M, OLED could be limiting factor but AAPL may not make 2 OLED model; ANET was upgraded to neutral at Goldman Sachs and tgt to $125 from $68 (late call), while JNPR tgt raised to $36
- Media & Telecom; SWIR falls after Raymond James downgraded to neutral; VIAB positive mention in Barron’s this weekend saying shares could rise about 40% from its recent $43 in a year; YHOO investors could see a 20% return in the next year because the company’s recent $46 share price is a “comfortable discount” to its probable asset value in a liquidation, Barron’s said.
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.