Market Review:Surprising Everybody and Nobody, Markets Close Flat Again

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Equity Market Recap

·      U.S. stocks end little changed on light volume, reversing midday losses after increased concerns between the U.S. and North Korea and as updated polls regarding French elections briefly took markets lower after opening higher. After enjoying early gains, stocks turned negative ahead of a speech by Federal Reserve Chair Janet Yellen later today. The absence of a tangible catalyst made the sharp move lower (S&P futures fell about 12 points to lows around 12:30 PM EST) standout, as markets cited “North Korea tensions” (some vague headlines/tweets about Chinese troops being deployed to North Korea border) as well as recent polls in the French election that showed far-left candidates (Melenchon/Le Pen) still in a tight 4-way race with less than two weeks before the first round of voting. Transports outperformed amid consolidation in the trucking sector, while financials were among the day’s biggest laggards. Several M&A headlines grabbed market attention today after logistic/trucking giants KNX and SWFT merged, while a deal in the Telco space moved that sector after AT&T’s more than 150% premium paid for STRP in spectrum deal. Between the two deals, and lack of economic data and Fed speakers, markets were quiet.

Commodities

·      Oil prices ended strong, rising a 5th straight session and holding steady throughout the day, as WTI crude finished near its highs, rising 84c, or 1.61% to settle at $53.08 per barrel. Crude built on recent gains following the U.S. airstrike in Syria late last week (added a risk premium to prices), while reports today showed that Libya’s NOC declared force majeure on loadings at Zawiya terminal and Russian Energy Minister Novak said Russia is discussing output cut extension with nation’s producers, helping lift prices. Energy markets have largely ignored the continued bearish rig data (oil rigs added for a 10th straight week last Friday), rising off recent lowest levels since November (touched $47 per barrel level a few weeks back).

·      Gold prices slipped on Monday, falling (-$3.40) or 0.3% to settle at $1,253.90 an ounce paring earlier losses (briefly traded higher at $1,258.90 an ounce) as investors rotate back into riskier assets (stocks and energy). Gold prices declined from recent 5-month highs mid-last week, turning higher midday after stocks sold off quickly (but quickly rebounded) on headlines about troops in Korea – but gold ended lower after rising the prior two-sessions. Prices rose Friday, after the U.S. launched airstrikes against a Syrian air base in retaliation of suspected chemical-weapons attacks on civilians.

Currencies & Bonds

·      The U.S. dollar turned lower late- morning, holding in negative territory the remainder of the session (DXY index down under 101). The euro bounced back near the 1.06 level after touching its weakest level vs. the dollar in a month earlier (1.057), while the dollar slide below 111 against the Japanese yen. Rising tensions between the U.S. and Syria, as well as North Korea had earlier triggered a rally in the greenback. In other currencies, the South African rand falls to 3-month low

·      U.S. Treasuries were little changed Monday as investors focused on political risks in Europe and new Treasury debt supply. The yield on the 10-yr ended just above 2.36%, down from 2.375% late Friday, but off earlier lows of under 2.35% after stocks slipped lower late morning.

Sector News Breakdown

Consumer

  • Retailers; the group has tried to bounce after weeks of selling pressure following a “soft” earnings season; few analyst calls today as ULTA upgraded to buy at Loop Capital and tgt raised to street high $350; SKX was upped at Susquehanna to neutral saying shares fairly valued; ANFactive after deal to sell merchandise on Asia’s Zalora online website; GOOS initiated by coverage by many analysts after recent IPO (at least 8-buy ratings, and 3-neutrals – street high tgt C$28)
  • Auto’s; TSLA was upgraded to overweight from neutral at Piper and raised price target to $368 from $223 (TSLA market cap topped that of GM early in the day after topping Ford last week)
  • Consumer Staples; Morgan Stanley upgraded shares of PF to overweight as believe PF provides a combination of consistent topline growth that appears less prone to recent weakness across the broader US Food industry, while downgraded SJM to underweight saying it appears most susceptible to heightened retailer competitive activity given its high WMT sales exposure; WSJ reported MDLZ said to start search for CEO; TWNK filed to sell 20.1M shares for holders; WFM shares jumped late day after Dow Jones reported Jana Partners taking activist role
  • Lodging sector; Goldman Sachs initiated hotel REITs with neutral DRH, LHO, PEB and sell on SHO) while also continue to expect US RevPAR to accelerate as 2017 progresses due to a combination of improving corporate demand and consistent leisure growth. However, with occupancy already at peak levels and supply poised to ramp in 2018, particularly in urban markets, any sequential improvement could prove fleeting, leaving a more balanced risk-reward; they swap MAR (downgraded)/HLT (added to conviction buy), and upgrade HST to Neutral

Energy

  • Energy stocks performed fairly well relative to broader market (broader stock lost earlier gains). Helping lead oil prices higher initially, reports Libya’s NOC declares force majeure at Zawiya due to circumstances blocking oil production at Sharara field
  • Refiners; SUN extended last week’s gains as analysts continue to remain bullish after selling some of its gas stations/convenient stores last week; Tudor Pickering downgraded PBF and VLO as sees generally weak reported 1Q earnings ahead for most refiners as seasonal factors and refinery downtime likely to weigh on results
  • MLPs; group another outperformer in weaker overall market, a week after the energy price sensitive component of the space exhibited modest strength last week in the face of weakness in the overall energy complex.
  • Utilities; NFG shares fell, downgraded at Jefferies after the NYSDEC rejected NFG’s planned N. Access Pipeline at Saturday, denying it necessary permits by citing adverse impacts to water quality & related wildlife

Financials

  • Large Cap banks; according to a 133-pg report from independent directors, WFC will claw back $28 million more from ex-CEO Stumpf after managers failed to heed warnings of spreading sales abuses for more than a decade, treating thousands of fired employees as rogues, and then downplayed the mounting terminations as the board began raising questions (WFC was also upgraded to neutral at Piper today) – earnings for banks C, CBSH, JPM, PNC, WFC Thursday
  • Earnings preview: banks are supposed to have a pretty good 1Q earnings season. RBC expects financials to be the “standout” sector, with EPS projected to rise 18%. Regional bank earnings “remain tepid on uninspiring loan volumes,” RBC says. S&P 500 banks are expected to post 11.7% EPS growth in 1Q, according to Bloomberg data. That compares with 9.5% for the whole S&P 500 and 8.4% for the S&P 500 ex-financials.
  • Insurance movers; KBW upgraded PGR to outperform citing valuation, actual and expected EPS growth typically boosts the stock; and 3) signs pointing to underwriting margin expansion YoY; the form downgraded HMN to underperform citing valuation
  • REITs; note the RMZ increased 0.9% last week, outperforming the Russell 2000 and the S&P 500; JLL was mentioned positively in Barron’s saying shares could climb 40% this year, noting the property broker has grown through acquisitions in the past year and 60% of its revenue comes from less-cyclical businesses; UNIT agrees to acquire privately-held data transport services provider Southern Light for ~$700M in cash and stock;EDR was downgraded at Canaccord

Healthcare

  • Large Cap Pharma; AKRX shares extend Friday’s rally after Bloomberg first reported German health-care company FMS is in talks to acquire the generic drug maker that is currently valued at about $3.7B https://goo.gl/waO85R – shares of peers LCI rise; TXMD shares dropped after the FDA found deficiencies in its new drug application for TX-004HR drug candidate; ENDP shares rises as guides Q1 revs $1.015B-$1/035B vs. est. $1.025B; AZN downgraded to hold at Jefferies; AXON announces appointment of Dr. David Hung as CEO and expansion of board of directors
  • Medical devices, equipment and services; GKOS cautious mention in Barron’s saying the glaucoma device-maker faces a potential decline amid increased competition from NVS and AGN and shares could fall 30%
  • Biotech movers; OMED shares dropped after Bayer said it will not exercise option to license two cancer drugs/also said its phase 2 demcizumab pancreatic cancer trial missed its primary endpoint; GERN rises as data support continued development of Imetelstat

Industrials & Materials

  • Trucking sector active after an announced deal; SWFT said it would merge with trucking and logistics company KNX in an all-stock deal, with a combined enterprise value of $6 billion, that will create the industry’s largest full-truckload operator https://goo.gl/JsTNpc ; (shares of other logistic companies moved in reaction JBHT, LSTR, WERN, MRTN, HTLD, USAK, CVTI)
  • Airline movers; ALK said monthly March traffic rose 5.5% YoY and Capacity was up 5.7%/said load factor 85.4% vs 85.6% YoY; HA raised 1Q forecast for operating revenue per ASM growth to up 6.5%-8% from up 4%-7%; cites better-than-expected load factors
  • Metals & Mining; BHP said the cost of a proposal from hedge fund manager Elliott Advisors to unlock shareholder value would outweigh any benefits; Bank America commented on steel sector saying demand was strong for U.S. steel, and rising prices were boosting distributor profits
  • Equipment rental movers; RCII shares jumped after company announced strategic plan to strengthen its core U.S. business, grow its AcceptanceNow operation and expand its distribution channels with retail and online offerings; KeyBanc said after Q1 checks produced stronger evidence that market conditions have improved, they upgraded HRI citing a more robust backdrop, though downgraded RBA saying auction volumes are likely to continue to be pressured due to lower disposition activity

Technology, Media & Telecom

  • Media & Telecom; big deal in the telecom sector after AT&T (T) agreed to buy STRP for $95.63 per share in stocks, in deal valued at $1.25Bhttps://goo.gl/FOFWjV ; (shares of SATS, DISH, GSAT all active after the deal); in media, AMCX downgraded at Piper citing the velocity of viewership declines at its flagship Walking Dead franchise; CNK removed from Goldman Conviction buy list
  • Internet; AMZN upgraded to buy at Needham, while a few analysts further take targets above $1,000; GRUB up on day after positive analyst comments (JMP said believe consumer demand for online food ordering is ramping – reit OP and $47 tgt); after touching lowest levels since June of 2016 ($14.20), TWTR shares moved higher
  • Semiconductors; semiconductor-testing equipment XCRA plans to be acquired by a Chinese private equity fund for approximately $580M/Unic Capital Management Co. plans to pay $10.25 per share in cash https://goo.gl/YaT4y1; CY upgraded to buy from hold citing improving fundamentals and recent diminished expectations; raise tgt to $17 from $14; MRVL positive mention in Barron’s this weekend; NVDA, AMD and MU underperform in semis – note DJ reported Foxconn could bid up to $27B for Toshiba’s chip business with the next highest bidder said to be about $18 billionhttps://goo.gl/seGJQ7
  • Worldwide IT spending is projected to total $3.5 trillion in 2017, a 1.4% increase from 2016, according to Gartner (IT). This growth rate is down from the previous quarter’s forecast of 2.7%, due in part to the rising U.S. dollar

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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