Equity Market Recap
· Stocks ended higher, erasing month-to-date losses for the S&P with one day remaining to the month and quarter, though volumes this week have been abysmal. Stocks have picked up steam the last two days following better economic data reports, which has helped buoy the dollar and push investors back into riskier assets (stocks and oil), while defensive assets have slipped this week (bonds fall and gold down a 3rd straight day). The Nasdaq Composite extended its winning streak to 5-straight sessions (Nasdaq 100 touched an intraday all-time high earlier), while the SmallCap Russell 2000 made it a 6th straight day of winning sessions. Markets got a slightly better reading for Q4 GDP, inching higher to 2.1% (up from prior est. of 1.9%), which was enough to lift sentiment on the day. The bottom line is there remains no fear in the market, and much complacency, with no real selling pressure emerging. There also remains a lot of “wait-and-see” regarding Trump policy, the debt ceiling, FOMC pace of interest rates, & developments overseas including elections. European stocks advanced as the Stoxx 600 jumped to another 15-month high, led by Germany as the DAX rose 0.44%.
· U.S. Q4 GDP was raised to 2.1% from second estimate of 1.9% (vs. est. 2%), after GDP rose 3.5% in prior quarter; Personal consumption rose 3.5% in 4Q after rising 3.0% prior quarter and the GDP price index rose 2.1% in 4Q after rising 1.4% prior quarter. Core PCE q/q rose 1.3% in 4Q after rising 1.7% prior quarter (vs. est. 1.2%)
· Weekly Jobless Claims fell 3K to 258K, above estimate of 247K, while prior week claims unrevised from 261k; the less volatile four-week claims average climbs 7,750 to 254,250; continuing claims rose 65k to 2.052m in the week ending March 18
· Oil prices rise, as U.S. crude settled at $50.35, rising 1.7% on expectations for OPEC deal extension after Bloomberg reported OPEC in talks to include all members in meeting consensus citing Kuwait’s oil minister. Kuwait’s oil minister al-Marzouq said his country was among several nations supporting the extension of a deal between the OPEC and other exporters to limit output, The move back above $50 for WTI was the first since March 10th, coming on the back of renewed interest in riskier assets as oil and stock have risen most of the week.
· Precious metals dropped for a third straight day, slipping -$8.80, or 0.7%, to settle at $1,248 an ounce, the lowest finish for the June contract since March 20th, as strength in the U.S. dollar and some gains in equities drew investor away from defensive asset classes. The dollar rebounded after jobless claims, GDP revision came in higher.
· The dollar was mixed, rising against the euro and yen, but slid against the pound and ruble. The dollar was active after President Trump said to study way to penalize currency manipulators earlier in the day, but the big moves came in the euro which slid to nearly 2-week lows below 1.07 (after touching 4-month high vs. the dollar earlier this week of 1.089). A combination of low inflation data out of Germany this morning (rising 1.5%) and a report overnight by Reuters saying policy makers appear to have been surprised by the reaction to what was viewed as an unexpectedly hawkish tone at their March meeting and are seemingly now trying to rein in expectations a rate hike could come as soon as December, both took its toll on the currency. The Russian ruble climbed to its strongest level against the dollar in 18 months as relatively high domestic interest rates attracted foreign investors to Russian assets. The dollar gained against the yen, rising more than 0.45% to above 111.85 off overnight lows of 110.94, though the British Pound bounced briefly above the 1.25 level before paring gains.
· Treasury markets slipped as yields climb following several comments out of Fed members regarding rates, better economic data points (US and Europe), and big currency fluctuations. Meanwhile, investors also rotated out of bonds and continued its move back into stocks. The yield on the 10-yr was up nearly 4 bps to around 2.42% again (touched lows 2.34% earlier in week) – but now above where yields finished last Friday.
Sector News Breakdown
- Retailers; LULU received several analyst downgraded after the apparel maker reported a solid 4Q, but was followed by a weak 1Q outlook that included negative comps and EPS of 25c-27c, below estimates of 39 on weaker sales (shares plunged); VFC shares slide after announcing futures financial targets (through 2021) and announced a $5B share buyback plan; TIF shares slipped late morning after negative reports in the Daily Mail about overcharging
- Consumer Staples & Restaurants; NOMD Q4 EPS missed views, but said sees Q1 comp sales growth positive; ELF filed to sell 7M shares of stock; in restaurants, CMG 1Q, full-year comp. sales estimates raised by William Blair citing encouraging channel checks
- Housing & Building Products; FRTA shares fall after Q4 revenue, Ebitda and gross margins all fall short of consensus; RH was downgraded at Goldman after rally in shares post earnings
- Casino, Lodging & Leisure; SIX adds $500 mln to stock buyback plans and says will not pursue spinoff of real estate assets; gaming stocks were generally lower, while lodging names were stronger
- Top news; COP shares rise after signed deal w/CVE to sell its 50% non-operated interest in the Foster Creek Christina Lake (FCCL) oil sands partnership, as well as the majority of its western Canada Deep Basin gas assets, for total proceeds of $13.3B. Following the news, CVE sold 187.5M shares in a Spot Secondary priced at $12.00; XOM announces “positive” results at its Snoek well offshore Guyana, confirming a new discovery on the prolific Stabroek block
- In research, UBS upgraded shares of COP, EOG and RRC to buy from neutral as firm said the recent sell-off and potential catalysts has left them incrementally more positive on the E&P sector; BAS was upgraded to buy at Seaport Global as believe has a healthy balance sheet and NAM market visibility that should provide a compelling backdrop for earnings growth
- Utilities, Solar, Alt energy; FSLR estimates lowered further at UBS and reiterate sell; SPKE was downgraded at Guggenheim; utilities fall (UTY) as broader stock mkt moves higher
- Large Cap banks; were leaders today, especially the regional banks, COF, FITB, ZION, RF, KEY were all up over 2%, while large cap names also advanced. Not much else in way of news for the financials in way of news. According to Bloomberg late day, there are 81 stocks in S&P’s small, mid and large-cap regional bank indexes – and all 81 are higher. And the rally is rather large: Small cap +3.1%; midcap +3.2%; large cap +2.1%
- Late yesterday, WSJ reported that SNV is in talks to buy the financial arm of CAB and would then resell the credit card unit to COF and keep deposits https://goo.gl/dHKoEE ; CFG rebounded, erasing yesterday losses of -1.5% after WSJ reported that workers falsified appointment data
- Large Cap Pharma; drug pricing remains a hot issue for Trump Administration as Rep. Elijah Cummings told Axios that President Trump and has called him three times and they’ve been discussing importing drugs as a way to control healthcare costs (Cummings said Trump brought up importation, and $100 drugs in Canada costing $900 in the U.S. is ridiculous)
- Other healthcare news: OMER shares rise after saying additional data from Phase 2 of OMS721 shows IgA nephropathy patients who completed treatment saw their 24-hour urine protein levels decrease by ~50%-80%; AEZS said it intends to file a new drug application with the U.S. FDA later this year for its Macrilen growth hormone deficiency treatment; CRBP fell on mixed market commentary after company said Phase II of CF study met main goal; NLNK advances after SunTrust upgraded to buy with $30 tgt
- Biotech movers; HALO shares slipped after temporarily halting enrollment in a pancreatic cancer study; AMGN said the FDA accepted for priority review the supplemental Biologics License Application (sBLA) for Blincyto to include overall survival data from the phase III TOWER study; BPMC 5M share Secondary priced at $40.00
- Medical services and Equipment; BSX to acquire closely-held Symetis SA, a trans catheter aortic valve implantation (TAVI) device-maker, for $435M upfront cash; MDT announced first enrollments in the STOP Persistent AF clinical trial; INCR added to S&P Midcap 400 index
Industrials & Materials
- Industrials & Machinery; California’s Governor announced the latest transportation infrastructure package driving an incremental $5.2B of spend on the state’s decrepit civil infrastructure system. The proposed increase takes the current $2B in annual spend to $7.2B (+360%) for 10 years to cover the majority of the state’s $56B deficit (shares of GVA, MLM, FLR, TPC among active); GWW was downgraded at BMO Capital; in machinery,LNN shares rise on earnings beat; TTC was upgraded to buy at Cleveland Research; TITN with mixed Q4 results
- Transports; Transport index in general strong, up over 2.4% from Monday lows of 8,800 (today above 9,150) as nearly all components in DJ Trans were higher, led by KSU, AAL, UNP, LUV, UAL; FDX upgraded to positive from neutral with $237 tgt at Susquehanna (estimates and tgt raised on both FDX and UPS at Credit Suisse today as well); trucker JBHT estimates lowered at Longbow saying margin guidance lagged consensus expectations, mainly due to downside at its intermodal segment, possibly reflecting a more competitive market
- Metals & Mining; positive steel call out of Jefferies today, raising the tgt on X to $50 from $45 and maintains a Buy rating amid a positive steel analysis, predicting the company will guide 2017 EBITDA of $1.4B-$1.8B vs. consensus of $1.25B. The firm said the cyclical recovery in O&G, coupled with favorable secular trends, should drive stronger steel-related demand growth (said other beneficiaries of O&G recovery include: TMST, NUE, MT, STLD, VOE, EVR, RS & RYI); WOR shares dropped after quarterly results missed top and bottom line estimates; FCX higher after reports its Indonesian unit is close to reaching a deal that will allow the mining giant to temporarily resume copper concentrate exports from its Grasberg mine in Papua
- Chemical movers; in ag chemicals, Cleveland Research said CF shares have downside to $25 on weaker urea pricing; FUL Q1 EPS and revs topped consensus and reaffirmed year outlook
Technology, Media & Telecom
- Semiconductors; CY was downgraded to underweight with $12 tgt at Morgan Stanley saying shares reflect strong margin expansion, suggesting less upside to estimates; SIGM Q1 revenue forecast trailed estimates ($38M-$41M vs. $47.4M), but was upgraded to buy at LakeStreet; Coming a day after Westinghouse filed for bankruptcy, Toshiba Corp shareholders agreed to split off its prized NAND flash memory unit on Thursday; AVGO outlier to the downside
- Software movers; PRGS active after Q1 earnings top consensus views/names new CFO; GPN was upgraded to overweight at Barclay’s
- Hardware movers; AAPL stock climbs to 7th record in March, and 13th record this year; NTNX was upgraded to outperform at FBN Securities saying post lock-up selling period appears to be good entry point; EXTR announced plans to purchase data center switching, routing and analytics (SRA) assets of Brocade from AVGO; SCWX downgraded by several analyst after earnings results; AAOI shares slide after Vertical Group initiated with a sell and $42 tgt
- Internet Security; Goldman Sachs upgraded CYBR to buy from neutral, PT to $64 from $57, saying the company is one of the best secular growth stories in security today; Morgan Stanley initiated coverage on QLYS with an overweight and $43 tgt and an equal-weight on CYBR with $55 tgt; (FTNT had been upgraded at Baird yesterday)
- Telecom & Media; AT&T (T) confirmed reports from last month, it has been chosen to build and manage FirstNet, the nationwide public safety broadband network. AT&T will spend $40b to build and operate the new FirstNet first responder public safety network over the life of the 25-year contract; SAIC shares drop after mixed Q4 results, as EPS beat, but revs missed
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.