Market Review: Indexes Continue to Chop, But in Wider Ranges

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Equity Market Recap

·      Stocks ended lower on another day of light volumes in this holiday shortened week, but still finished well off its worst levels. It was a bit of a roller coaster ride for stocks, opening flat, only to fall to key technical support levels… but once again managed a bounce despite two key levels breaking down earlier today in the bond (10-yr yield back below 2.30%) and currency market (dollar falls below 110 vs. yen – 5-month low). Note the S&P 500 hasn’t closed below its 50-day average since the election (current 50-day MA 2,349), a 105-session run, which is the longest since early 2011. Oil prices reversed earlier lows to close higher for a 6th straight session, while gold extended recent gains to close at 5-month highs. It was another quiet day of economic data (only a few lower-level tier data points), while Fed speakers were relatively quiet and not much new on the geopolitical front. Concerns about Syria (backlash with Russia) as well as increased tensions with North Korea have given stock markets ammunition to pull back from near record levels of late. Fear is picking up slightly as the CBOE Volatility index “fear index” (VIX) traded above 15, to touch its highest levels since mid-November (highs today 15.88). The market has also been shaken by the French presidential elections ahead of first-round voting on April 23, with increasing probability that far-right anti-euro candidate Marine Le Pen could face leftist candidate Jean-Luc Mélenchon in the second round on May 7. It is feared that both candidates could lead to the destabilization of the European Union and the euro. Earnings in the banking sector take place Thursday morning (C, JPM, PNC, WFC) before earnings get going next week.


·      Gold prices surged, rising $20.40, or 1.6% to settle at $1,274.20 an ounce (back to 5-month highs) and moved back above its 200-day moving average of $1,260.65, as geopolitical fears (North Korea tensions and Syria bombing after chemical gas attack) as well as European elections (France) increased interest in safe havens. Gold is also benefitting from the pullback in the dollar, which makes precious metals more appealing.

·      Oil futures reversed earlier losses, managing to settle higher by 32c or 0.6% at $53.40 per barrel, near its best levels and extended its winning streak to six straight days. Prices got a midday boost after a WSJ report said Saudi Arabia has told OPEC officials that it wants to extend the cartel’s agreement to cut crude-oil production for another six months when the group meets in May. The news sent prices higher, erasing earlier losses (lows $52.70) ahead of inventory data tonight (API) and tomorrow morning (EIA). WTI crude settled above $53 Monday, its best settlement since March 7after reports Libya’s Sharara oil field was shut down Sunday.

·      U.S. soybean prices hit a one-year low after WASDE officials projected larger-than-expected Brazilian harvests. The USDA estimated a Brazilian soybean crop this year of 111 million metric tons, up from the record estimate of 108 million metric tons in March and above analysts’ expectations of 110 million. Soybeans, much like broader markets, pared losses.

Currencies & Bonds

·      The U.S. dollar plunged against the safe haven yen, dropping more than 1% midday to lows of 109.62, its lowest levels since mid-November. The euro fell for an 11th straight day against the Japanese currency, the longest streak in the history of the euro, Reuters reported. The dollar weakness was a factor of geopolitical risk and declining U.S. Treasury yields, as well as follow through weakness from Friday following the weaker jobs report.

·      U.S. bonds gained as yields fell for a second straight day as global anxiety increased and stocks slipped. Bonds did pare gains following a tepid 10-year auction midday, but still ended strong. The yield on the benchmark 10-year fell below 2.30%, taking out YTD low close on 2/24 around 2.31%, down below levels of 2.36% late yesterday. 

Economic Data:

·      The National Federation of Independent Business (NFIB) said its monthly sentiment gauge fell 0.6 point to 104.7, a slightly larger decline than the 0.5-point dip forecast by economists

·      U.S. job openings rose to 5.743M in February from 5.625M prior month; Feb. pace of hiring 3.6% vs. 3.7% prior month

Sector News Breakdown


  • Consumer Staples; 52-week highs for tobacco name RAI while food co GIS at 52-week low; SVU shares jumped on new it acquired grocery distributor Unified Grocers for $114M/will also assume and pay off $261M in United Grocer debt
  • Restaurants; ARCO was upgraded to buy with $10 target at Bank America (from underperform) saying shares may be poised for a sharper-than-projected inflection point in Brazil as the economy stabilizes; QSR was downgraded to mixed at OTR Global following checks; MCD was upgraded to buy at Cleveland Research


  • Energy prices bounced off lows, trading into positive territory after a WSJ report said Saudi Arabia has told OPEC officials that it wants to extend the cartel’s agreement to cut crude-oil production for another six months when the group meets in May
  • Other movers included NADL which advanced after signing 10-yr contracts with COP; HES added to the US 1 best ideas list at Bank America – replaced DVN – citing combination of catalysts
  • Refiners; Wells Fargo lowered its 2017 EPS estimates for MPC, PBF, PSX, TSO and VLO and raising our estimates for DK, HFC and WNR…said MPC remains Top Pick in the sector as the evolution continues…remain bullish on TSO given a favorable outlook for its core West Coast markets …noted PBF must contend with a major turnaround at its Torrance unit, but it appears Q1 2017’s outcome is improved versus
  • Research rating moves by analysts; PDS was upgraded to buy at Jefferies noting shares are down ~20% from their recent peak in late Jan and we think current valuation does not reflect oppty; RSPP was upgraded to buy at Goldman Sachs as see the addition of Delaware Basin properties further extending the firm’s acreage quality advantage versus peers; PUMP initiated by seven analyst with equivalent of buy ratings for each


  • Large Cap banks dropped amid another decline in bond yields; AFSI falls after WSJ reported secret recordings play role in SEC probe of insurer AmTrust; BANC was upgraded to outperform at Wells Fargo and raised tgt range to $24-$26 from $19-$20, sending shares to 7-month highs; in payments, ADS initiated at underperform and $185 tgt at Oppenheimer, sending shares lower
  • Mortgage REITs; Wells Fargo downgraded AGNC, CYS and TWO To Market Perform from Outperform as noted performance across mREIT sub-sectors was strong in the most recent month, as Agency REITs (+4.4%), Residential REITs (+4.6%) and Commercial REITs (+2.8%) outperformed the S&P 500, which decreased by 0.5%
  • Asset managers: BEN reported preliminary month-end assets under management by the company’s subsidiaries of $740B at March 31, compared to $738.2B at February 28, and $742.6B at March 31, 2016; CNS prelim AUM $58.5B as of March 31, (down $629M from February 28)
  • Trust Banks; Jefferies upgraded NTRS to buy saying two of three main revenue drivers are positive (rates/levels), with activity still quiet…says the Dec/Mar Fed hikes and strong current/lagged equity comps puts them 4c above for 1Q and 7% above for ’18; Jefferies cut its rating on STT to hold with less bull case help and more activity fees


  • Specialty pharma; AXON 6.742M share Spot Secondary priced at $18.54; TNXP rises as FDA meeting confirms that a single-study NDA approval of TNX-102 SL for treatment for treatment of PTSD could be possible, based on statistically persuasive topline data from its ongoing HONOR study;CBIO said it achieved a key milestone under its collaboration with ISU Abxis to advance the Factor IX program towards its first human clinical trial;ENDP said received a subpoena in March from NJ AG seeking documents and information regarding sale of opioid products; AUPH rises following initiation at Cantor with overweight and $14 tgt; MYL shares slid after FDA warning letter about manufacturing facility
  • Biotech movers; coming into today, bank America noted that after the NASDAQ Biotechnology Index (NBI) underperformed the S&P Index (SPX) by 32% in 2016, it has returned 10% YTD and 11% since the election compared to 5% and 10% for the SPX, respectively; OMED downgraded at BMO Capital after Phase II trial did not meet primary endpoint; PTCT CFO to leave company to join RBC Capital
  • Medical equipment and devices; AVGR downgraded to hold at Canaccord and cut tgt to $1 from $4.30 following the negative Q1 pre-announcement and significant planned reductions in the workforce; ILMN tgt was raised to $187 from $170 at Bank America saying his checks this quarter support his upgrade cycle thesis
  • Services, suppliers and retail; Leerink cautious after reviewing the RAD/FRED remedy in more detail, saying they believe the odds of the WBA/RAD deal going through are 50/50. While FRED would be the 3rd largest retail store chain in the country post-deal, it would be a very distant third with ~1,648 stores compared to WBA’s ~11,673 stores.

Industrials & Materials

  • Transports; in logistics space, HUBG shares drop following its 1Q pre-announcement last night as the company acknowledged that the intermodal pricing environment is increasingly competitive (shares downgraded at KeyBanc); truckers group surged Monday after SWFT/KNX merger
  • Airlines; group out with monthly metrics; UAL fell early on continued fallout of video of passenger being dragged off overcrowded flight (also monthly metrics out); AAL said Q1 prelim TRASM up ~2%-4% YoY vs. forecast 1.5%-3.5%, citing higher yields; SKYW said March Available Seat Miles fell (-5.1%) YoY; ALGT revises down guidance: unit revenue guidance revised down, unit cost guidance tightened to higher end of range;AZUL 85.44M share IPO priced at $20.06
  • Metals & Mining; Cowen more constructive on both the near and long-term fundamentals of copper saying the supply side of the equation remains challenged and recent data points out of China indicate a healthy level of sustainable demand (OP rated on FCX and MP on SCCO); gold miners (GOLD, AEM, ABX) outperform to upside with rally in gold
  • Packaging & Container; Loew’s agreed to acquire Consolidated Container Company from Bain Capital Private Equity for ~$1.2B; shares of PCH and LPX both downgraded at Vertical Research

Technology, Media & Telecom

  • Internet; SALE to be acquired for $11.60 per share in cash by Harland Clarke Holdings; in research, WIX was downgraded to neutral at Cantor as find limited room for upside in the stock, which is up 70+% YTD; YELP was upgraded to overweight at Pacific Crest saying competition concerns are overdone, citing checks with 30 local ad customers; Yelp’s franchise is plenty healthy, insulated from Google; SNAP shares slid after FB said Instagram’s “Direct” to allow users to send disappearing photos and videos
  • Media & Telecom movers; tower stocks SBAC, AMT and CCI upgraded to buy from neutral based on improving tower sentiment; DIS was added to the conviction buy list at Goldman Sachs; Altice USA filed paperwork to go public Tuesday, in an offering that would raise more than $1 billion;RNG was upgraded to overweight at Morgan Stanley saying investments in the enterprise market should drive rev growth of 25%+ for the next few years
  • Semiconductors; AAPL chip maker Dialog Semi (DLG.GY) shares plunge after one analyst warned that Apple Inc. probably will cut back on the use of the company’s power-management chips; ON was downgraded to underperform on valuation noting shares are up 35% since closing FCS, outperforming the broader group by ~10 pts; other AAPL suppliers (AVGO, QRVO, CRUS, SWKS) after above analyst report suggested evidenceAAPL is developing own power mgmt chips
  • Hard disk drive makers; STX upped to buy at Longbow on the opportunity for earnings upside as the benefit from NAND shortages appears to be spilling-over to HDDs; WDC was upgraded to overweight at JP Morgan saying will benefit from a NAND shortage and a stabilizing PC market (raised tgt to $116 from $80) – says NAND shortage should also boost HDD demand and pricing
  • Comm equipment; Cowen said they see optical component suppliers AAOI, ACIA, NPTN, and OCLR and data center switch and optical Data Center Interconnect (DCI) systems suppliers ANET, CSCO, CIEN, and JNPR as particularly well-positioned to benefit from the positive CY17 capex outlook for Web 2.0 companies.
  • Other movers; SEAC shares dropped after Q1 EPS loss guidance wider than estimates; AAPL quietly lower for a 5th straight session, down over 1% earlier today


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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