Market Review: Stocks Close Off Highs After Trump Comments

eOptionDaily Market Report

Equity Market Recap

  • Stocks were cautiously higher most of the trading session before sliding in the final 90 minutes of trading (very similar trading action to yesterday’s pullback) ahead of President Trump’s meeting with China President Xi later today as well as monthly nonfarm payroll jobs data tomorrow. Trading volumes remain quiet, while news is thin ahead of earnings next week. Markets concerns regarding Trump policies, Fed pace of interest rates, debt ceiling fears all rattling cages of markets over the last few weeks, creating a slight pullback to stocks (which are still not far from record highs). Note the NASDAQ touched new highs yesterday before the precipitous drop late day. Comments late yesterday from House Speaker Paul Ryan saying that tax reform could take longer than health care overhaul…and the Fed said in its Minutes from its March meeting that several participants now anticipate meaningful fiscal stimulus would likely not begin until 2018….both raised concerns over the “Trump reflation” trade. Another factor that may weigh on markets include Congress working to fund the government for the second half of FY2017, and if they fail comes the possibility of a partial government shutdown (lawmakers have until April 28th to reach an agreement). Markets remain in “wait-and-see” mode.

Commodities

  • Commodity prices; Precious metals rise as gold gains for the fourth time in the past five sessions, amid concerns ahead of a meeting between President Donald Trump and his Chinese counterpart which could impact future currency and trade interactions between the two nations. Gold settles up $4.80, or 0.4%, at $1,253.30 an ounce. Lumber futures surged by $10 exchange limit to 4-year highs. Oil prices extend recent gains, as WTI crude rose 55c or over 1% to settle at $51.70 per barrel, while natural gas inventory data was slightly bullish on smaller 2 bcf build in week (vs. est. 6 bcf, lifting prices

Currencies

  • The U.S. dollar advanced throughout ahead of tomorrow’s jobs report (DXY up 0.15%) after the strong ADP private payroll report on Wednesday. The dollar was broadly higher on the as it continues to recover from weeks of selling pressure. The dollar has dropped over 5% against the yen this year, despite the modest gain today, as the Fed’s latest comments about its plan to shrink the balance sheet may add to the greenback’s downside risk. The euro dropped to a three-week low against the dollar overnight after ECB President Mario Draghi ruled out any imminent rate hikes and said it’s too early to “declare success on inflation. The euro touched low of 1.0629.

Bond Market

  • Bonds prices opened higher (yields lower) ahead of the first face-to-face meeting between President Donald Trump and his Chinese counterpart Xi Jinping, which could set the tone for relations. Bonds later rolled, as the 10-year touched highs above 2.37% as stocks bounced, but rolled back down to around 2.34% (about 1 bps below yesterday closing levels). Treasury yields for 2-year notes rose above 1.24% after touching a two-week low of 1.218%. Note Trump has accused China of manipulating the yuan lower to give it an unfair edge to Chinese exporters, so commentary from the meeting could have impact on markets.

Economic Data

  • Weekly jobless claims dropped -25,000 to 234K, well below estimates for 250,000, while the prior week was slightly revised to 259K from 258K; the four-week jobless claims average drops 4,500 to 250,000; continuing claims fell 24k to 2.028m in the week ending March 25
Sector News Breakdown

Consumer

  • Retailers; strength in discretionary early (among top laggards the last few weeks); despite mixed monthly retail same-store sales out today: COST reported March same-store-sales up 6%; LB said March comp sales fell (-10%) vs. est. (-9.1%), led by weakness in Victoria Secrets comps of down (13%), though said sees April comps down low single-digits; FRED rises on Q4 results/said committed to buying up to 1,200 RAD stores; BKE march comps fell (-10.1%), mostly in-line
  • Autos; more negative commentary for sector, as GM said that used car prices are expected to fall 7% in 2017 (shares of AN, ABG, SAH, PAG among names active today); however, KMX reported 4Q EPS and revenue topped estimates, with used vehicle unit sales up 13.4% and comparable store used unit sales rising 8.7%, which helped the group; TSLA said that the Model 3 will have ‘far fewer options than Model S’
  • Consumer Staples; STZ rises in beverages after Q4 EPS and sales top consensus and guidance $7.70-$8.00 tops $7.51 estimate; UN announced plans to divest its spreads division, combine two of its main business units and boost shareholder returns with a higher dividend and share-buyback program; LW slides early despite Q3 EPS/sales beat and reaffirmed guidance
  • Shares of convenience stores MUSA and CASY higher after the SUN deal, as Japanese retail-store operator Seven & i Holdings Co. said it would acquire more than 1,000 U.S. convenience stores and gas stations from SUN for $3.3 billion https://goo.gl/3Cv1aZ
  • Restaurants; YUMC rises after earnings beat, while China’s comp (+1%) came in above consensus, driven by beats at both Pizza Hut (+2% vs +0% cons) and KFC (+1% vs -2.4% cons); restaurant group already had bid to it this week after PNRA agreed to be acquired in $7.5B deal yesterday
  • Housing & Building Products; Longbow positive on MAS and FBHS, upgrading both to buy from neutral citing strong cabinets checks, and think the underlying R&R fundamentals translates to both companies’ plumbing segments as well; Baird said channel checks suggest that Q1 non-residential roofing volume increased low-single-digits yoy, slightly above views while pricing was flattish (+ for CSL); home furnishing company BBBY beat on reasonable comp and low tax rate but guidance fell short of views; HOFT surges after earnings results
  • Leisure movers; WGO293M share Spot Secondary priced at $26.80; in amusement Parks, Goldman Sachs initiated FUN with a buy and $81 tgt as multiple growth drivers are not reflected in consensus, initiated SEAS with a sell and $16 tgt as believe cost cuts are already consensus, and it will take longer for outlined initiatives to drive a top-line inflection, and neutral on SIX

Energy

  • Natural gas leveraged stocks CHK, SWN, RRC to highs after the natural gas inventory data showed was slightly bullish on smaller 2 bcf build in week (vs. est. 6 bcf) – group later pared gains
  • Refiners; SUN shares jumped after Japanese retail-store operator Seven & i Holdings Co. said it would acquire more than 1,000 U.S. convenience stores and gas stations from the company for $3.3 billion https://goo.gl/3Cv1aZ
  • Drillers, services, equipment; RIG said The Transocean Spitsbergen was awarded two contracts for multiple well programs with Statoil, with backlog across the contracts (90 days and one year, respectively) is $83MM, implying a rate of ~$182K/day; REI issues Q1 update, reports production up 18% to 266K BOE
  • Alternative energy, solar, utilities; CAFD shares fell as a few analysts downgraded after FSLR said it was exploring alternatives of its interests in CAFD and “removal” of two 2018 utility projects, which over-shadowed a positive quarter

Financials

  • Large Cap banks were early gainers, getting a lift after volatility earlier in the week given big swings in bond market yields/tax reform hopes; large cap banks rise; Raymond James upgraded shares of banks PACW and TCBI while downgraded PB and SBNY; AMTD a lift with broader financials and also upgraded to buy at Buckingham; FHB was upgraded to buy at UBS saying downside risk now looks limited
  • Insurance; Bank America upgraded shares of LNC to buy on recent underperformance and appear inexpensive on a free cash flow yield basis and said it is s the most stable generator of cash; also upgraded AFL to buy for similar reasoning; bond insurers AGO and MBI advanced on reports Puerto Rico power utility Prepa bondholders reach new deal to restructure $8.9B in debt
  • REITs; retail related REITs (MAC, GGP, SPG, etc.) get another blow after Payless shoes goes bankrupt last night and will be closing several stores; CLNS9M share Block Trade priced at $12.65

Healthcare

  • Large Cap Pharma; JAZZ shares rise (upgraded at Janney/cut at Mizuho) after announced an agreement with Hikma to settle patent litigation on Xyrem (removing an overhang), the company’s largest product at ~75% of revenue and adopted a holder rights agreement to guard against attempts to acquire control of company for an “inadequate” price; SGYP downgraded at Citigroup saying a buyout of the company looked unlikely and the launch of its irritable bowel syndrome drug, Trulance was likely to disappoint; VRX said Bausch + Lomb has received 510(k) clearance from the FDA for its Stellaris Elite Vision Enhancement System; AKTX shares surged as initiated at Outperform and $37 fair value estimate at William Blair
  • Medical devices, equipment and services; CAH was upgraded to outperform at Evercore/ISI given view improving / stabilizing end markets, Cardinal’s superior positioning in procurement via Red Oak and the continued build out of its Medical business. Separately, there were reports that MDT was close to selling its medical supplies unit to CAH for about $6 billion https://goo.gl/UgC4Ul; ABMD was upgraded to overweight at Piper; TDOC cut at Cantor
  • Biotech movers; MACK authorized and declared a special cash dividend of $140M; RARE was downgraded to hold and $66 tgt at Jefferies (from prior buy and $109 tgt) as cautious on commercialization opportunity and reimbursement hurdles for burosumab; TRVN lead product candidate matches IV morphine with less side effects in late-stage pain management studies; MDCO lost Angiomax drug appeal versus MYL

Industrials & Materials

  • Aerospace & Defense; Morgan Stanley said there are structural and cyclical risks for air lessors as they downgraded AER to underweight and AL to equal-weight – says lessor shares are trading ~5% off multi-year highs while structural and cyclical risks remain more present than ever. They take a cautious view on upside potential from here, leading to downgrades
  • AG & Machinery; BG was downgraded to neutral at JP Morgan ahead of 1Q results due to cautious sentiment saying Brazil’s sugar prices ~25% below Oct. 2016 peak and ethanol prices weakened through the quarter; MSM shares slide after earnings
  • Transports; SNDR947M share IPO priced at $19.00; Seaport Global initiated Trucks sector with Buy ratings on PCAR, RUSHA, SPAR and WBC, and Neutral ratings on ALSN, CMI, NAV and WNC.
  • Metals & Mining; steel stocks led gains early, with good jumps in shares of AKS; SCHN shares slipped after earnings results; metals in general were broadly higher outside of gold miners which failed to rally with overall gold prices

Technology, Media & Telecom

  • Internet; Baird positive on EBAY saying March data shows reacceleration in GMV growth vs. February levels; Spotify said to consider direct listing which would allow them to register its shares on a public exchange and let them trade freely, WSJ reports; Pacific Crest said NFLX 1Q results are likely to be solid, though 2Q international expectations have modest risk; STMP shares dropped after tweet from short seller Cohodes which made negative comments/also noted recent management selling; TWTR slid as co-founder Williams said to sell some of his shares; AMZN went below $900 after touching life high of 923.72 yesterday (high today was 909.28)
  • Semiconductors; AMD initiated sell and $11 tgt at Goldman Sachs as find current valuation multiples difficult to justify as the market seems to have already priced in a sharp improvement in AMD’s competitive and financial position; MRVL assumed at buy rating at MKM saying is executing well on its turnaround plan and its shares are attractively valued
  • Software movers; EVBG264M share Secondary priced at $19.85; ULTI was added to Credit Suisse focus list with $260 tgt; SYNC 5.7M share Secondary priced at $3.50; FTNT with cautious comments at OTR Global saying not yet gaining market traction
  • Hardware & Equipment; GPRO selling $150M in 5-year convertible senior notes; CLS was downgraded to sell at Citigroup on valuation; NTAP was upgraded at JMP Securities as believe the recent momentum in the business will continue driven by an improved competitive position; NTNX initiated buy at Bank America
  • Media movers; Yesterday afternoon, MGM Holdings Inc. announced that it is acquiring the near 81% combined stake in Epix from VIAB and LGF for $1.03B;
  • Telecom; Sprint (S) announced it is offering unlimited data, talk and text for $50 a month for the first line, $40 a month per line for two lines and $30 a month per line for four lines (previously, a four-line unlimited plan cost $45); in Canadian Telecom, Citigroup upgraded BCE to buy and initiated SJR with a sell; TMUS was downgraded to hold at Deutsche Bank; in cable, CMCSA unveils new wireless service with an unlimited data plan called Xfinity mobile

 

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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