Equity Market Recap
- Markets remain resilient, with major averages holding not far from recent record highs despite several negative market moving developments over the last 24 hours. U.S. stocks managed to close little changed despite various news items including: 1) the U.S. Navy launching 59 Tomahawk cruise missiles against targets in Syria on Thursday night and at least one airfield was hit. The attack comes days after the Syrian regime used chemical weapons against an opposition-held town; 2) a weaker-than-expected monthly jobs report, as the U.S. added only 98K jobs, well below the expected 180K estimate, while unemployment dipped to 4.5%; 3) a terror attack in Sweden as a small truck rammed into a department store in Stockholm, killing at least four and injuring several others. Overall, markets took the news rather well (an understatement), with major averages ending only little changed. The dollar surged throughout the day (reversing earlier losses), while gold and oil ended the day higher (and week). The biggest move came in the bond space, as the yield on the 10-yr jumped more than 11 bps off earlier 5-week lows under 2.27% to close near 2.38%. Next week is a holiday shortened week with earnings in banks highlighting the week (on Thursday).
- Jobs data disappoints; the change in non-farm payrolls rose just 98K, well below the forecast for 180K jobs added (Revisions cut 38k jobs from Feb/Jan payrolls), while the unemployment rate dropped to 4.5%, below estimate/prior month reading of 4.7%. Average hourly earnings rose 0.2% MoM, which was in-line with estimates (vs. 0.3% prior). Nonfarm private payrolls rose 89K, below prior month of 221K and est. 170K while Manufacturing payrolls rose 111 after rising 26K
- Wholesale Inventories rose4% in February, in-lie with estimates (inventories increased to $594.2B vs. $591.8B in prior month), while January inventories unrevised at -0.2%. Wholesale sales rose 0.6% in Feb. after rising 0.3% the prior month
- Gold prices managed to end the day higher by $4, settling at $1,257.30 an ounce, booking its fourth straight weekly advance (up 0.2%), but fell from earlier highs of $1,273.30 an ounce (near 5-week highs). Gold initially spiked following the weaker jobs report/U.S. attack on Syria, but as stocks rebounded from earlier/overnight lows, selling occurred in safe-haven related assets.
- Oil prices advanced as WTI crude rose 54c or over 1% to settle at $52.24 per barrel (1-month highs), jumping overnight on the air strike news in Syria, with WTI futures touching an overnight high of $52.94 (up over 2%) before paring gains. A weekly report from Baker Hughes showed another 10 oil rigs came online during the week, the 12th straight weekly advance, but the report failed to dent oil gains. Crude prices gained 3.1% for the week.
- The dollar ended the day strong, rising vs. counterpart currencies as stocks surged midday; the euro touched lows of 1.0581, its lowest level since early March after touching highs of 1.066 overnight; the dollar also jumped against the yen, rising to highs around 111.37 after hitting 5-month lows earlier of 110.13; the Russian Ruble extended losses for its biggest daily slide this year. The reversal to the highs for the dollar seemed nothing more than an improved appetite for riskier assets like stocks and commodities, erasing losses initially following the weaker jobs data.
- Bonds ended lower after early gains, as the yield on the 10-yr (which closed around 2.343% yesterday) traded in a range of 2.269% (5-month lows) in early morning to highs of 2.371% late day as bonds rolled as stocks gained. Bonds initially gained after monthly jobs data came in well below consensus views and after news the U.S. attacked Syria in response to its chemical weapons use a few days ago on civilians in its country. The yield on the 2-yr dropped to 1.225% before rallying back above 1.28% while the 3-yr hit 1.387%, the lowest since December before bouncing back to 1.46%)
Sector News Breakdown
- Retailers; consumer discretionary stocks led yesterday’s gains, despite tepid/moderate same store sales data from a few (LB surged despite miss) as the beaten up group saw some short covering most likely; today, WMT was upgraded to outperform at Telsey Advisory saying it appears to be regaining its dominance in physical retail and exerting new prowess in digital commerce; PSMT posted in-line Q2 EPS of 90c on slightly better sales; WDFC cut its year revenue forecast after Q2 results missed
- Consumer Staples & Restaurants; DPZ mentioned cautious by MScience saying data indicates Q1 domestic retail sales growth is trending about 2.5%-3.5% points below consensus’14.6% YoY growth; RT falls as quarterly revenues fall again and reports Q3 EPS loss of (6c) vs. 3c YoY
- Casino, Lodging & Leisure; casino stocks have been rising over the last few weeks on better Macau data; today, UBS said Macau gross gaming rev. (GGR) estimates for 2017/2018 raised to 11%/9% from 9%/8%, respectively (has buys on WYNN, MPEL and MGM…neutral on LVS); in cruise lines, CCL authorized a $1B stock buyback and raised its dividend
- Baker Hughes (BHI) weekly rig count data showed the US rig count rose another 15 to 839, while oil rigs added 10 to 672 and gas rigs rose 5 to 165 in latest week; overall, was the 12th straight week that oil rigs were added
- Oil drillers/services; RBC Capital said the Trump administration said planning an executive order to reverse U.S. offshore drilling bans is an incremental positive, yet won’t result in any meaningful incremental demand in offshore rigs for several years
- MLPs; WPZ & WMB were upgraded to buy at Citigroup saying investors should own the stock ahead of the expected sale of its Geismar ethane cracker. The sale, along with the January restructuring, places Williams on a path toward investment grade metrics before year-end 2017
- Banking stocks among biggest decliners early following the weaker than expected jobs report, which sent bonds higher and yields lower (weighing on lending margins for banks); shares of large cap banks (BAC, C, WFC, JPM) as well as regional banks (ZION, KEY, PNC) and brokers (SCHW, ETFC) were among decliners on data. However as bond yields rallied…so did banks. Also not helping, White House economic advisor Gary Cohn said the new administration wants to have a new, modern Glass-Steagall
- REITs: Bloomberg noted the Bloomberg REIT Regional Mall Index has dropped as much as 28% since Aug. 1, when it peaked at a record. That’s the steepest loss for the period among the 11 groups in the Bloomberg REIT Index. Shopping-center REITs are suffering almost as much as their mall counterparts as retailers close stores in response to falling sales. (GGP, SPG, MAC, SKT)
- Earnings the focus next week for financials which begins on Thurs morning 4/13 – C, FHN, FRC, , JPM, PNC, and WFC all report. Note that Congress is on break for the next two weeks (week of 4/10 and 4/17) and thus doesn’t have much time to pass a spending bill and avoid a shutdown (the current spending authorization expires on 4/28).
- Large Cap Pharma; AKRX shares jumped midday after Bloomberg reported Fresenius said to consider a bid for the generic drugmaker https://goo.gl/aHfvyw; (shares of other generic/specialty pharma names ENDP, VRX, MNK, HZNP moved in sympathy)
- MRK received FDA Complete Response Letter (CRL) on heart data/MRK was seeking to include data from a study evaluating cardiovascular outcomes with Januvia; HSBC Holdings downgraded six pharma stocks in Europe, cutting GRFS, RHHBY, AZN, NVO, SNY and Merck KGaA saying valuations are not as cheap as they look; ABBV’s Elagolix reduces heavy menstrual bleeding in mid-stage uterine fibroid study; AUPH rises early as single registrational trial plans are affirmed
- Biotech movers; GILD said the U.S. FDA has approved supplemental indications for Harvoni tablets and Sovaldi tablets for the treatment of chronic hepatitis C virus infection in adolescents without cirrhosis or with compensated cirrhosis
- Medical devices, equipment and services; ILMN tgt was raised to $195 at Bank America saying the company’s dominance in the R&D sequencing market was further confirmed by a new survey done in conjunction with GenomeWeb; ANGO35M share Spot Secondary priced at $16.20
Industrials & Materials
- Industrial & Machinery; ACM was downgraded to neutral at Baird, weighing on shares; GVA extends recent gains (upgraded a few days ago at Goldman) on recovery in public construction along with California infrastructure investment which should drive higher margins – FBR Capital positive on shares today along with TPC; DE filed a $27B mixed securities shelf
- Transports; in airlines, LUV maintains Mar Q RASM guidance of down 2-3% and indicates “bookings and unit revenue trends for Q2 2017 remain strong”; Transports slip on day – LUV outperforms after monthly metrics earlier up 2.5%; top decliners MATX, UPS, EXPD
- Metals & Mining; gold miners up early with jump in physical gold as shares of EGO, NEM, AEM, ABX, GOLD among those rising); RYI shares advanced after providing Q1 net income guidance of $12M-$15M; overall steel names with strength, led by gains in AKS, STLD, X, NUE
- Aerospace & Defense; shares of RTN advanced after U.S. missile strikes against a Syrian air base overnight (RTN makes Tomahawk missiles); though defense stocks were better early (BA, LMT, LLL, NOC) – group pared gains
- Shipping/Dry Bulk; The Baltic Dry Index snapped a six-session losing streak, rising due to stronger rates for smaller vessels, even as capesize demand fell (index rose 8 points, or 0.66%t, at 1,223 points). JP Morgan boosted targets and upgraded DSX and GOGL to overweight as believe the recovery in dry bulk shipping is real and can be sustained for some time. With supply growth largely fixed through 2018 (low in 2017 and flat in2018), they see plenty of runway for rates to continue to strengthen. SBLK remains top pick, and raise tgt to $20 from $10
Technology, Media & Telecom
- Semiconductors; sector outperforms broader markets, with the SOX index trading back above the 1,000 level; SIMO said it sees Q1 revs at upper half of $121M-$128M view (est. $124M); semi’s remain strong, with QRVO and SWKS touching 52-week highs
- Software movers; OKTA 11M share IPO priced at $17.00 (high end of range); TWLO was upgraded to overweight at JP Morgan saying the stock, after dropping from nearly $70 last September to $27 today, reflects barely any premium to the peer group of Cloud companies; DATA announced subscription pricing as part of an ongoing transition toward a more ratable model
- Hardware & Equipment movers; OCLR will replace United Bankshares in the S&P SmallCap 600 effective prior to the open on Wednesday, April 12; KODK said it has decided to retain its Prosper inkjet business after a review and discussions with prospective buyers; DLB shares active after Engadget report Microsoft’s upcoming Xbox gaming console “Project Scorpio” is said to support DLB’s Atmos sound technology
- Samsung Electronics Co Ltd forecast its best quarterly profit in more than three years in the January-March period, beating expectations on the back of robust demand for memory chips; said Q1 operating profit was likely 9.9 trillion won ($8.8 billion), vs. est. of 9.4 trillion won
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.