Equity Market Recap
- Stocks end lower, erasing earlier gains, after initially trading higher in what was a broad market rally. Stocks got a lift right from the start after a much stronger-than-expected monthly private payroll report from ADP (263K jobs vs. est. 185K), overshadowing geopolitical concerns/fears ahead of President Trump meeting with China President Xi tomorrow and reports of another North Korean missile launch. The NASDAQ grabbed headlines early, trading to a fresh all-time high of 5,936 by mid-afternoon, but lost steam in the final 2-hours of trading, falling more than 80 points from those highs. Stocks lost steam after the release of the March FOMC meeting minutes at 2:00 PM, which was around when stocks “topped out”. The Dow Industrials traded down nearly 250 points from its highs before rebounding. Comments from the minutes indicated that several participants now anticipate meaningful fiscal stimulus would likely not begin until 2018 – taking the wind out of the sails of the reflation trade for the moment. Defensive bonds rallied off earlier lows, while broader stocks dropped.
- There were several 52-week highs today for large cap tech prior to the sell-off including AMZN (6th straight day), DIS, MSFT and AAPL. Deal news also lifting some stocks in the restaurant space (PNRA being acquired) and chemicals space (SYT gets EU approval). European stocks clung to recent gains today, with the U.K. outperforming amid strong PMI data. According to Bespoke, the S&P 500 hasn’t been up more than 0.75% intraday and finished down on the day in more than a year (2/10/16) until today
- Jobs data tops views as private-sector employment, according to ADP, surged 263,000 private sector jobs last month, up from a downwardly revised 245,000 in February (from 298K), and well above the 185,000 economist forecasts
- ISM Non-Manufacturing for March falls to 55.2 from 57.6 last month and was below the est. for a 57 reading; Business activity fell to 58.9 vs 63.6 prior month, while new orders fell to 58.9 vs 61.2 and employment fell to 51.6 vs 55.2; Prices paid fell to 53.5 vs 57.7
- Precious metals declined, with gold snapping its three-day win streak, falling -$9.90, or 0.8% to settle at $1,248.50 an ounce as a stock surge and dollar jump weighed on sentiment. Riskier assets advanced on the day after a better jobs report, while lessened EuroZone political risk may also have reduced interest.
- WTI crude hit 1-month highs, trading highs of $51.88 per barrel level, despite mixed inventory data. Crude later pared gains, ending higher by only 24c to settle at $51.15 per barrel. Overnight, the API said U.S. crude oil inventories fell by 1.8M barrels last week, lifting prices, but this morning, the DOE said weekly crude stockpiles rose 1.57M barrels vs. an expected draw of -150K. Crude pared gains initially following the DOE bearish report, but later rebounded. DOE noted Cushing crude stockpiles rose to a record high of 69.1M barrels
- The U.S. dollar was strong to start the day after ADP data showed private-sector employment expanded last month at a much stronger than expected pace. The dollar rallied against most counterparts up until the afternoon following the minutes from the March FOMC meeting. Following the report, the dollar initially touched a high of 111.45 vs. the yen (overnight lows 110.54) before paring gains back below the 111 level, while the euro rebounded
- Treasury prices ended higher on the day, as bonds rallied post the FOMC Minutes late day, as yields ended around 2.33%, down about 2 bps. Treasury prices fell early, allowing yields to tick up from five-week lows (10-yr touched lows of above 2.31% earlier in week), after a strong reading on private-sector payrolls growth. Strong job numbers revived the possibilities of a reflation trade as higher wages from low unemployment can raise inflation expectations.
Sector News Breakdown
- Retailers; little bounce in beaten up retailers today; UA gets a lift after Jefferies said analysis indicates a bottom forming in the social sphere for UA and work shows the social share gains at Adidas in ‘16 have peaked and provides evidence that UA’s sponsorship strategy is lifting brand heat; BMO Capital cautious on WMT saying recent pricing data suggests that the company may have trouble hitting its Q1 comparable sales growth forecast of +1.0% to +1.5%
- Consumer Staples; MKC was upgraded at JP Morgan to neutral citing update at investor day; USFD was added to the Credit Suisse focus list while removed WFM
- Restaurants; PNRA shares rise after reaching a deal to be acquired by privately held JAB for $7.5B, with holders getting $315 a share in cash https://goo.gl/bwmLhg ; EAT said its CFO resigns effective this Friday; YUMC to report earnings after the close tonight
- Housing & Building Products; Private equity firm CI Capital Partners has been trying to sell the country’s PGEM for a few months — but there is little interest from suitors in paying any real premium over the current stock price – NY Post https://goo.gl/1xG4N3; home furnishing company BBBY to report earnings tonight after the close; homebuilders were higher
- Casino, Lodging & Leisure; casino’s active after WYNN was upgraded to buy and $135 tgt at Argus citing positive trends saying occupancy and room rates both rising in the fourth quarter (group already got good monthly Macau metrics early in week)
- Auto’s; auto and parts makers lower for a third session, extending losses after Monday’s weak March auto sales data; KMX shares bounce (ahead of earnings tomorrow morning) after MScience said CarMax’s Q1 is very strong with same-store-sales tracking to +8-10% versus consensus of +5%; TSLA pares recent gains, sliding on the day after 52-week highs this week
- Inventory data: The American Petroleum Institute (API) said U.S. crude oil inventories fell by 1.8 million barrels last week. The Department of Energy (DOE) said weekly crude stockpiles rose 1.57M barrels vs. an expected draw of -150K. Crude pared gains following the DOE bearish report. DOE noted Cushing crude stockpiles rose to a record high of 69.1M barrels
- Refiners; Goldman Sachs added SU to its Americas Conviction List as sees strong growth from new projects including Fort Hills and Hebron, solid FCF, attractive valuation; downgraded IMO to sell from neutral and upgraded PBF to neutral from sell following recent underperformance and reiterates buy on MPC, VLO, CVX, HSE CN; sell on HFC
- Oil services/equipment; NBR, PTEN were both upgraded to buy at Instinet/Nomura as U.S. “Super-Spec” land rig capacity will reach limits sooner than market anticipates. Continues to believe that consistent inventory draws will materialize in 2Q, which should help alleviate near-term concerns (says HP also can benefit as “Super-Spec” mkt share becomes more concentrated)
- Alternative power, MLPs’; Utilities; PLUG shares surge after AMZN was granted warrants to acquire up to 23% of the hydrogen fuel cell maker – AMZN will begin powering its industrial equipment using PLUG’s GenKey technology; In utilities, EXC downgraded to market perform at Wells Fargo, though utilities as a whole outperformed
- MLPs; Alerian MLP Index (AMZ) rises with energy stocks – AMZ trades to highs of above 328, best levels since March 8th – shares of CEQP, ENBL, ETP, SXL, DCP among top gainers in index; HESM 14.78M share IPO priced at $23.00 (deal sized upped to 14.8M from 12.5M)
- Large Cap banks outperform, with gains across the board for large cap, regionals, brokers, etc. after a better jobs report hit bonds and lifted yields; KBW upgraded shares of WFC and C to Outperform from Market Perform, and remain Outperform on BAC and GS. Other movers included MKTX whose shares slipped after transaction fees declined QoQ
- Large Cap Pharma; Cowen upgraded RHHBY to outperform as views the current valuation as reasonable and sees opportunity for upside to earnings estimates, while downgraded NVS to market perform; NEOS initiated outperform and $20 target at Cowen on the basis of stabilizing execution and value-stoking prospects from Tussionex and Adzeny XR-ODT; CRVS rises after falling nearly 50% yesterday on interim data (several analyst out on name today); ENDP said it is planning to refinance its existing credit facilities with new senior secured credit facilities consisting of a revolving credit facility and a term loan facility; VRTX outperformed in S&P 500
- Biotech movers; AMGN was downgraded to hold at Jefferies as believes upside in the stock will likely be muted after payor poll indicated continuing reimbursement challenges for Repatha; SRPT was upgraded to buy at SunTrust with $45 target saying the long-term cardiac and pulmonary function data could provide further support for Exondys 51 market adoption and payer coverage; VICL rises early as signs research collaboration with AnGes MG; INNL agrees to up to $209M acquisition by Gurnet Point https://goo.gl/agc9Fx
- Medical devices, equipment and services; drug retailer WBA reported in-line Q2 EPS, but sales came in below views/authorizes $1B share buyback plan; MDT said it will voluntarily correct a software problem that caused its ventilators to spontaneously restart while in use, without an alarm warning
Industrials & Materials
- Industrial & Machinery; GNRC was downgraded at KeyBanc on disappointing Residential standby checks that suggest demand driving initiatives are increasingly necessary amid stubbornly slow growth; machinery stocks got a lift early as “Trump reflation” trade got “legs” the last 24 hours after he told chief executives of major companies on Tuesday that his administration is working on an infrastructure plan worth $1 trillion or maybe more
- Transports; railcars mover higher after GBX quarterly results topped consensus citing the upward trend in rail traffic and order activity for the beat (shares of RAIL, ARII, TRN also active on report); GBX also guided 2017 revenue to a midpoint of $2.2B vs. estimate $2.13B; CGI shares dropped sharply after Prescience Point initiated coverage with a $0 tgt; airlines bounce on day
- Metals & Mining; RIO said it was handed a $340,1M additional tax bill by authorities in Australia due to a pricing dispute between two of it entities; VALE cuts cap-ex guidance for 2018-2021 timeframes; industrial metals (steels/copper) pared earlier gains, with some turning negative – group was buoyed overnight by strong China markets
- Chemicals; MON Q2 EPS and sales both easily topped consensus views and says outlook for year EPS at high end of $4.50-$4.90 range (est. $4.75); China National Chemical Corp. won EU approval for its roughly $43B takeover of SYT on condition of certain divestitures; SHLM mixed Q2 as EPS beat/revs miss, with mixed guidance (year revs above view/Ebitda below); LNDC Q3 EPS missed by 5c and cut year forecast on heavy rains in California; IPHS guides Q1 EPS below views on lower sales; PPG says ready to address Akzo Nobel objections to offer https://goo.gl/bylT9Q
Technology, Media & Telecom
- Internet; AMZN makes it a 6th straight day of all-time record highs – topping the $920 per share level (after trading above $900 for the first time ever yesterday) – reports said that AMZN with a $50M price tag for 10 games of the NFL’s Thursday Night Football lineup, a 5x increase from the price TWTR paid for a similar deal last year.
- Semiconductors; shares of AAPL suppliers were volatile after a report that the iPhone maker may delay new iPhone launch to October-November instead of September (shares of SWKS, QRVO, CRUS, AVGO among those active); shares of equipment stocks KLAC and LRCX traded to new 52-week highs; optical component stocks (AAOI, OCLR, ACIA) were broadly lower
- Software, Hardware & Comm equipment; AAPL shares slipped initially after report initially in Digitimes saying they may delay new iPhone launch to October-November instead of September as usual (but shares recovered to touch new all-time highs); KVHI receives $3.5M order for TACNAV Tactical Navigation Systems; cloud computing upcoming IPO for OKTA raised price range; TASR announced it is offering free body cameras to every police officer in the U.S.
- Media & Telecom; DIS touched 52-week highs; Sprint Corp. (S) is dropping one of its most aggressive promotions: a long-running offer to charge half the price of certain rival plans to get customers to switch