Market Review: Morning Selling Sees Afternoon Bounce

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Equity Market Recap

·      Markets end the day lower, but finish well off its worst levels as stocks get another “buy on the dip” move after early weakness. Stocks slid after the Nasdaq Comp touched a fresh all-time high (intraday high of 5,928 and low of 5,867), while the Dow Industrials recovered late day, turning positive briefly after falling more than -145 points at its lowest point. Stock declines came in autos (GM, F, LEA0 BWA) after disappointing monthly March auto sales data and financials (Bloomberg noted 98% of the stocks in the small, mid and large-cap regional bank indexes were falling as of late day) on lower yields, which weighed on markets early. Stocks also dropped as investors moved back into safe haven assets (gold, yen and bonds) early, but the momentum was short lived. Oil prices ended the day lower, while the dollar was mixed. Healthcare, Gold miners and Casino stocks few pockets of strength on the day. In an interesting data point (according to Seaport Global), the Dow Industrial’s had its slowest quarter since 1965 in the terms of volatility – moving up or down <32 bps on any given day; the smallest-range quarter ever.

·      There still remains a “wait-and-see” mentality for U.S. stocks ahead of jobs data Friday, expected policy moves out of Washington, and FOMC commentary regarding pace of rate hikes. In macro news, an explosion has taken place in a St Petersburg metro station that has caused casualties, according to Russian media reports which lifted gold early. Mixed economic data (better ISM, slightly weaker construction spending) had little impact on markets. The Russell 2000 halted a seven-day advance, falling over 1%, while the VIX index gave up earlier gains.

Economic Data

·      Construction Spending for February rose 0.8%, slightly below est. for a 1.0% rise while January was revised to (-0.4%) from (-1.0%); Private construction rose 0.8% in Feb and Private residential construction rose 1.8% while Feb. private residential construction outlays of $484.7 billion most since July 2007

·      ISM Manufacturing for March falls to 57.2 (from 57.7 prior), but came in slightly above est. of 57.2; new orders fell to 64.5 from 65.1 in the prior month while employment rose to 58.9 vs 54.2; inventories fell to 49.0 vs 51.5 and customer inventories fell to 47.0 vs 47.5

·      U.S. Markit March Manufacturing PMI 53.3, mostly in line with flash reading 53.4 and below 54.2 reading in February (year ago was 51.5); marks the lowest reading since Feb. 2015 and the third consecutive month of contraction


·      Gold prices ended higher by $2.80, or 0.2% to settle at $1,254 an ounce as investors rotate into defensive/safe haven assets. Gold also erased earlier losses amid news of explosions on a St. Petersburg’s Russia subway which killed at least 10 people.

·      Energy futures slipped, falling 36c to settle at $50.24 per barrel after Libyan oil output resumed over the weekend. Recall oil prices logged their strongest weekly gains of the year last week after local militia in Libya cut oil output by around one-third, but officials said production had restarted on Monday. It was a quiet day in the energy complex with a high of $50.83 and a low of $50.12.

Currencies & Bonds

·      The U.S. dollar opened and remained higher, taking a brief hit mid-morning after mixed economic data, but held steady after solid weekly returns last week, and ahead of payroll data Friday. The euro ended higher but was off its best levels of 1.0681), while the dollar slipped to around 111 yen (well off lows last week just above 110)

·      Bonds gained and yields slipped; the 2-yr yield slips to more than 1-week low of below 1.24%, while the 3-yr hit 1-month low of below 1.46%; the benchmark 10-yr yield touched lows below 2.34% before paring losses as investors look to safe haven trades early (after trading above 2.6% just a few weeks back after the FOMC raised rates.

Sector News Breakdown


  • Monthly auto sales for March were released today and were weaker: 1) GM March auto sales rose 1.6% vs. est. 7.0%; 2) Ford (F) U.S. light-vehicle sales down (-7.2%) vs. est. down (-5.9%), saying fleet sales down 16.9%, reflecting a strong year-ago comparison; 3) FCAU U.S. March sales fell (-5%) vs. est. up 0.4% as Chrysler Brand fell (-33%); 4) HMC U.S. March sales down (-0.7%) vs. est. up 4.9% (said Acura division sales -21.2%); 5) NSANY March U.S. auto sales rose 3% vs. est. 2.8%; 6) TM March U.S. auto sales fell (-2.1%) vs. est. (-1.2%)
  • Other auto news; TSLA shares rallied early after saying over the weekend it shipped 25,000 cars in Q1 (vs. Bloomberg est. 24,200)/deliveries/production for Q1 were both records; auto suppliers and retails plunged following weaker GM and Ford March sales data. Suppliers MGA, LEA, AXL, DLPH and auto customers include ABG, PAG, SAH, GPI, LAD, AN dropped; KMX mentioned cautiously in Barron’s saying shares are vulnerable to a potential 20% fall as risky loans at the company grow; ORLY & AZO both downgraded to Neutral from Buy at Cleveland Research
  • Restaurant stocks jumped after Bloomberg reported PNRA is exploring strategic options including a possible sale after receiving takeover interest. Bloomberg noted PNRA has a market value of about $6 billion, and is working with advisers to study the options; (shares of CAKE, BWLD, TXRH, BLMN, DRI, others were active following the report)
  • Retailers; group gives up recent gains; UAA active after positive mention in Barron’s saying shares could rise 30% or more in a year, saying the brand “has never been more closely attached to high-profile sports, though shares were downgraded to underperform at FBR Capital today; SSI upgraded at Johnson & Rice; gun monthly data showed (AOBC, RGR) the NICS firearms data shows 2.43M in March, up from 2.234M in Feb (but down from 2.523M YoY) lifting shares higher
  • Housing & Building Products; WSM was added to focus list at JP Morgan; LOW positive mention in Barron’s saying shares could gain 20% or more according to Barron’s saying building-supplies retailers are virtually Amazon (AMZN)-proof; homebuilder MTH was upgraded at JMP Securities
  • Casino, Lodging & Leisure; gaming stocks (WYNN, MPEL, LVS) among names active on positive Macau gaming data as Macau government data showed March gross gaming revenue (GGR) rose 18.1% compared to last year, beating the median estimate of 15% growth


  • Oil services; Tudor Pickering upgraded shares of SPN, PKD, PTEN and TUSK to buys saying Q1 pullback in oil service stocks presents opportunity to increase portfolio exposure as up-cycle setting up to be a “powerful one”, particularly for N.A. land-based oilfield activity; WLL said it sees 1Q Production 10.2-10.6 Mmboe; OAS upgraded to outperform at BMO Capital
  • Coal miners rallied (TECK, WLB, ARCH, SXC) as Australian mines are slow to resume production after Cyclone Debbie, which may have major impact on short-term supply of coal according to Bloomberg


  • Large Cap banks; banks in general got smacked today given the rebound in bonds and subsequent decline in bonds yields, which weighed on weaker lending margin fears; banks such as JPM, BAC, ZION, C, SNV, SCHW, ETFC were among decliners
  • Brokers & Exchanges; IBKR was downgraded to Underperform at Wells Fargo based on near-term challenges as they see the company having with the wind-down of its Market Making operation and commissions growth; KCG also cut at Wells Fargo based solely on near term operational challenges and the valuation of the stock is not a call on whether (or not) we expect the buyout offer from VIRT to be consummated; IBKR with monthly metrics as month highlighted 649 thousand Daily Average Revenue Trades (DARTs), 1% lower YoY and 4% lower MoM
  • REITs; note the RMZ increased 0.6% last week, as the yield on the 10-year decreased 2 bps to end the week at 2.39%; Evercore/ISI upgraded EXR to in-line from underperform as believe negative factors are understood and priced in, while downgraded WPC and FPO on valuation; mall REITs get a bounce after weeks of selling pressure (MAC, SPG, GGP) as lower rates help group


  • Large Cap Pharma/Managed care; HMO sector (AET, CI, UNH) outperforms on no specific news; BMY said CheckMate -143, a randomized Phase 3 clinical trial evaluating the efficacy and safety of Opdivo in patients with first recurrence of glioblastoma multiforme (GBM), did not meet its primary endpoint of improved overall survival over bevacizumab monotherapy; FWP shares fall further early on after analyst downgrades following last week’s patent loss against BIIB; INCY announced epacadostat and nivolumab combo moving into Phase 3 studies in first-line non-small cell lung cancer as well as first-line head and neck cancer in 2017
  • Biotech movers; KITE presented full six-month results from its ongoing ZUMA-1 study in patients with relapsed or refractory non-Hodgkin lymphoma (NHL) at the AACR over the weekend; EBIO provided pre-clinical data on VB4-845, suggesting the treatments are capable of inducing host anti-tumor immune responses; PBYI’s Neratinib shows response rate in breast cancer; CYCC rises after pre-clinical data show the therapeutic potential of CYC065, its second-generation, cyclin-dependent kinase (CDK) 2/9 inhibitor, as a targeted anti-cancer agent; UTHR falls as launch of Remodulin implantable infusion pump delayed until next year; other biotech movers moving on day following trial updates: INFI, ONCS, BCRX
  • Medical equipment and devices; ELOS said private equity firm Apax Partners agreed to acquire outstanding shares for $11 per share, in deal valued at nearly $400M total (shares of CUTR, LMNS, ZLTQ among those active in sympathy); NVCR shares jump as its late-stage clinical trial in newly diagnosed glioblastoma showed positive results. Novocure found that the two-year survival rate for patients improved from 30% to 43% after its drug Optune was added to standard temozolomide chemotherapy, and the five-year survival rate increased from 5% to 13%; RWLK downgraded to underweight at Barclay’s

Industrials & Materials

  • Industrial & Machinery; GVA upgraded to buy at Goldman Sachs as believe the business is in the early stages of margin recovery, and see potential upside from an expanded California infrastructure package; DRYS announced a private offering of up to $226.4 million worth of its shares, and a deal to buy six vessels
  • Transports; FDX mentioned positively in Barron’s saying the growth trajectory is “tracking just fine” and the stock could gain almost 20%; UPS to boost Saturday ops, to allow Sat. ground pickups to be delivered to customers on Monday; RRTS shares shot up midday after holder Elliott Associates reported a 5.9% stake (up from 2.39% prior filing)
  • Chemicals; FMC adds to Friday gains of 13% after acquiring DuPont assets, lithium unit spinoff plans (two analysts upgraded shares of FMC today on news;HUN was upgraded to buy at Citigroup on improving free cash flow generation, TiO2 rally, higher valuation potential after Venator spin-off

Technology, Media & Telecom

  • Internet; AMZN trades to another all-time high today; overall pretty quiet for the sector, though GOOGL bounces early after recent weakness of ad concerns
  • Semiconductors; European semi maker Imagination Tech (IMG.LN) plunged after being informed by AAPL (largest customer) that Imagination’s IP will not be used in AAPL’s new products; On Sunday, April 2, the SIA announced February monthly sales of $29.8B, a MoM increase of 1.9%; Goldman Sachs reiterate attractive view on semi-equipment sector (LRCX, KLAC, ENTG top picks);
  • Software & Hardware; HPE lowered its adjusted profit outlook for Q2 and full year, after completing the spinoff of its enterprise services (ES) business and merging it with CSC to create DXC Technology; ANET was downgraded to hold at Stifel on valuation; ACN was downgraded at Goldman Sachs; quiet in space for the most part
  • Media & Telecom; Federal regulators voted to ease a broadband build-out requirement imposed when CHTR won permission to buy Time Warner Cable Inc. last year, according to an agency official, Bloomberg reported; CMCSA announced it will update investors on its mobile plans Thursday morning; Recode reported that AAPL seeks to Sell HBO, Showtime, Starz in TV Bundle; AMC was upgraded to outperform at FBR & Co. while cut CNK; WWE slipped late day after saying quarterly operating income to fall short

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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