Market Review: Stocks Close Lower As Trump Keeps Wall St Nervous

eOptionDaily Market Report

Equity Market Recap

  • Stocks ended lower on Wednesday, with the Nasdaq Composite underperforming amid weakness in the semiconductor sector (AVGO, QCOM), while the S&P 500 was dragged lower by industrial and materials. There was market volatility late day after a WSJ article quoted President Trump as saying the dollar is getting too strong and he wants the Fed to keep rates low. Up until then, currency markets had been mixed with bonds higher…however following the comments, the dollar extended losses vs. rival currencies, while bonds extended gains as yields fell to lowest levels since early November (2.25% on 10-year). Stocks also slid slightly further. U.S. stocks remained weak after a news conference between Secretary of State Rex Tillerson and Russian Foreign Minister Sergey Lavrov, which added to the market’s geopolitical uncertainty.
  • Markets await bank earnings tomorrow morning (heavy weights JPM, WFC and Citi report), while investors continue to assess the recent geopolitical developments and its potential impact on market sentiment. Press secretary Sean Spicer said this morning that tax reform by end of year is goal (which further pushes out timeline for markets). President Donald Trump also said Wednesday he has to pass a health-care bill before the administration can tackle tax reform. Shares of industrial metals, especially steel, dropped sharply after iron ore suffered its worst one-day loss in almost a year. The spot price for the benchmark 62% fines iron ore plunged almost 9% to $68.04 a ton. Meanwhile, Industrial stocks weighed heavily on the market today amid disappointing results from industrial distributor FAST as well as rising geopolitical uncertainty, concerns about delays in U.S. tax reform, infrastructure spending, economy.

Commodities

  • Precious metals extend recent gains early, rising to best levels since November 7th and up for a second straight session amid geopolitical uncertainty, particularly surrounding U.S. tensions with North Korea, and as meetings took place in Russia between Tillerson and Lavrov. Gold got an early lift on demand after reports showed that India Gold imports said to jump 582% to 120.8 metric tons from a year earlier (seven-fold increase) on festival/wedding demand that began this month and the Hindu gold-buying day of Akshaya Tritiya. June gold ended higher by $3.90, or 0.3% to settle at $1,278.10 an ounce.
  • Energy futures slide as WTI crude snapped its 6-day winning streak; WTI crude fell 29c or 0.54% to settle at $53.11 (off earlier highs of $53.76 per barrel), despite bullish weekly inventory data. Crude oil inventories with -2.17M draw vs. consensus of 1.5M draw, while gasoline inventories with -2.97M draw vs. consensus of 1.0M draw. Crude touched five month highs yesterday after increased expectations that major oil producers will extend their output cuts. It was probably a bout of profit taking, especially as the dollar pared recent declines.

Currencies

  • S. dollar falls; it was a fairly unenthusiastic day for the dollar until the final hour of trading. The dollar was mixed up until 3:00 PM EST, when President Trump said in a WSJ interview that the dollar was getting too strong. The dollar did a quick about face vs. major averages, falling to the lows against most currencies. The euro jumped to 5-day highs above 1.065, while the greenback slid to lows of 109.13 against the yen, lowest since early November. Canadian dollar strengthens as Bank of Canada leaves interest rates unchanged.

Bond Market

  • Bonds gained early as yields extend recent declines, with the 10-year trading below 2.26%. The yield on the benchmark 10-year closed at its lowest levels of 2017 yesterday, just below 2.30% as investors continue to rotate into defensive assets, but extended gains. Note the highs of the year for the 10-yr was around 2.61% just a few weeks back after FOMC raised rates. Geopolitical jitters over Syria, Russia and North Kore have led to renewed interest in bonds, sliding to 5-month low yield levels. Yields for 30-year notes barely slipped while shorter term 2-yr dropped over 3 bps to below 1.21%.

Economic Data

  • Import Prices for March fell (-0.2%) MoM, in-line with consensus estimates, after rising 0.4% in February; import prices ex-fuels rose 0.2% after rising 0.4% MoM; import prices ex-petroleum rose 0.2% after rising 0.3% MoM; Export prices rose2% after rising 0.3% in February, while exports YoY rose 3.6%, highest since Dec. 2011
  • The Budget deficit for March stood at (-$176.2B) vs. deficit of (-$108B) last year; said receipts fell 4.9% y/y to $216.6B in March; outlays rose 16.9% y/y to $392.8B in March, highest level on record; year-to-date deficit at $526.9B vs. $459.4B last year
Sector News Breakdown

Consumer

  • Retailers; LULU was upgraded to buy at Stifel with $60 tgt saying upside case, based on achievement of 2020 objectives, shows potential for shares to more than double in 2 years; WMT said it plans next week to offer discounts on some online orders when customers opt for in-store pickup instead of home delivery
  • Consumer Staples; PEP was upgraded to positive at Susquehanna citing the possibility for KHC to team up with AB InBev to bid for Pepsi after Unilever rejected KHC’s bid; PG slightly raised its dividend; WFM active after Bloomberg noted AMZN pondered a potential offer for company, but didn’t pursue (prior to Jana activist role)
  • Auto’s; HOG upgraded to market perform at Raymond James saying that the near-term trading setup is improving; AN CEO Mike Jackson called TSLA’s market value “inexplicable,” a day after its market cap topped that of auto maker GM; AZO trades at 52-week lows as auto space remain weak since softer March sales data
  • Housing & Building Products; TSCO lowered Q1 guidance as sees EPS 45c-46c on sales $1.56B, below estimates of 53c/$1.57B; 1Q comp sales included decrease in comp transaction count of 1.4% and decrease in average ticket of 0.9% (HD and LOW little movement on report)
  • Casino, Lodging & Leisure; in leisure, MYCC shared fell early after quarterly results and said it would not pursue strategic alternatives; in lodging, WYN traded to 52-week high after JP Morgan added to its focus list

Energy

  • MLPs; NS agreed to buy midstream operator Navigator Energy Services LLC for $1.48 billion. Navigator owns and operates crude-oil transportation, pipeline gathering, and storage assets located in West Texas’ Permian Basin https://goo.gl/pjuuN1 ; NS5M share Spot Secondary priced at $46.35
  • Utilities; DTE and PNW both traded to 52-week highs as utility sector outperforms following lower bond yields (makes dividend paying/defensive stocks more attractive); as a whole, the utility index (UTY) ended near the highs as bonds yields slid

Financials

  • Large Cap banks; JPM, PNC, FHN, C and WFC report pre-mkt on Thursday, kicking off an earnings season focused on slowing loan growth, higher NIMs, and credit trends
  • Lending and Finance; AFSI defended at SunTrust saying the charges against the company were made by a whistleblower w/a short selling group in 2014, with a probe yielding no results at that time/believes the rehashed allegations as detailed in the WSJ report are “unfounded.” OpCo said they remain optimistic on merchant acquirer group, including FDC, GPN, & VNTV into earnings
  • Asset managers; AB was upgraded to buy and outperform at Bank America and KBW respectively citing attractive valuation/yield and improved organic growth outlook; monthly metrics out for: 1) APAM said assets under management, or AUM, as of March 31, totaled $103.8B; 2) LM prelim March AUM was about $728.4B vs, $722.9B MoM; 3) IVZ prelim month-end assets under management, or AUM, of $834.8B a decrease of 0.2% month over month; 4) VRTS prelim AUM $48B as of March 31 (vs. $45.4B prior quarter)

Healthcare

  • Pharma movers; NBIX shares jumped (tgt raised by some analysts) after received FDA approval for Ingrezza to treat tardive dyskinesia, a neurological disorder (Ingrezza “is the first and only FDA-approved product indicated for the treatment of adults with TD); in generics, MYL shares fall again after falling 2% yesterday after getting FDA warning on drug quality at factory in India; PLX shares dropped after CF trial final results worse than interim data; JNJ, MRK outperform
  • Devices, Healthcare services and suppliers; NOVN shares surged after positive results of a Phase 2 trial of its skin and nails treatment (Novan is developing an antifungal gel, SB208); GMED was upgraded to outperform at Leerink as see the company on the cusp of a significant rev growth re-acceleration; HCSG shares jumped after earnings beat; ADPT rises as Wexford reports 8.5% stake

Industrials & Materials

  • Industrial & Machinery; in rentals, RCII was upgraded to strong buy at Raymond James as now views risk/reward as favorable; distributor FAST shares slipped after reported in-line quarterly EPS though gross margins were slightly lower
  • Airline movers; UAL rebounds as company CEO apologizes, erasing all losses the last few days despite the public-relations backlash after a passenger was dragged off the plane over the weekend; DAL first airline to report as introduced better-than-expected June Q guidance for both PRASM and operating margins; JBLU guides Q1 RASM down (-4.8%) vs. prior view down (-4%-5%)/said March Prelim RASM fell (-6.5%) MoM & March traffic increased 2.9%/capacity rose 4.2%
  • Metals & Mining; the price of iron ore tumbled 8.5% in China overnight, its worst decline in more than a year (shares of CLF, VALE, BHP, RIO all down sharply early); reports showed that India Gold imports said to jump 582% to 120.8 metric tons from a year earlier (seven-fold increase) on festival/wedding demand
  • Chemicals; SYT shares rise as ChemChina’s $43B planned takeover of the company has received approval from China’s Ministry of Commerce (MOFCOM) https://goo.gl/3e6nmq ; SHW and VAL agreed to sell assets related to Valspar’s North American Industrial Wood Coatings business to AXTA for $420M cash in order to help secure regulatory approval for VAL/SHW deal
  • Aerospace & Defense; aircraft suppliers such as TDG, ATI, SPR, TGI were active, as well as BA after DAL said talking with aircraft makers about orders, says could see some reductions in the coming years; OA secures $67M foreign military contract for Sidewinder Missile Rocket Motors; BAESY said chosen for position on new 8-year $3B IDIQ contract

Technology, Media & Telecom

  • Internet; VRSN upgraded to neutral at Citigroup citing better than expected 1Q registrations following a 4Q 2015 and 1Q 2016 “spike” in Chinese.com registrations; for YNDX, Deutsche Bank said they see upside to 1Q17 O&O Advertising revenue and the overall trajectory of ad revenue through the 1H17 in spite of difficult comps; GRUB upgraded to outperform at Oppenheimer; NETS25M share IPO priced at $18.00
  • Semiconductors; down for a 3rd day – down over 1.5% as SOX index falls further below 50 day MA of 985.45 (recent 16-yr highs of 1017 on 3/21); AVGO shares dropped as it offered about 2.5 trillion yen ($23B) for Toshiba Corp’s chip unit, the highest among 10 or so bidders who participated in the 1st round of offers https://goo.gl/alzbl5 ; QCOM shares slip after losing royalty dispute with BBRY; Toshiba Corp. expressed doubt for the first time over whether it can continue as a going concern after huge losses at its U.S. nuclear subsidiary, which filed for bankruptcy last month. https://goo.gl/41FcOU ; SYNA lower after Pacific Crest said co at risk of being next Apple victim (after cut out Dialog Semi yesterday)
  • Media & Telecom, Bloomberg reported MDP’s weeks-long pursuit of an acquisition of TIME has advanced into late-stage discussions  https://goo.gl/b6alV3 (though Reuters reported in the morning that MDP falls short of price expectations)
  • Hardware/Software movers; Gartner said worldwide Q1 PC shipments fell 2.4% YoY to 62.2M units (first time since 2007 that PC market had less than 63M units in quarter, while HPQ Q1 shipments were 12.1M, up from 11.4M YoY and mkt share rises to 19.5% from 17.9%) – HPQ also upgraded to buy at Citigroup; TIVO enters licensing deal with Roku, giving the streaming platform access to patent portfolio; WDAY announced contract with Target for human resources software
  • Comm equipment; BBRY shares rise after being awarded $814.9M in a binding interim arbitration decision against QCOM/a final award, including interest and legal fees will be issued after a May 30 hearing (pertains to certain royalties applied to payments made by BlackBerry); SNX was upgraded to buy at Stifel on valuation

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.

Live Trading

Open an Account

Paper Trading

Register