Equity Market Recap
- Stocks ended the day lower, giving back most of yesterday’s gains, but the stories of the day were bonds and the UK. Bond prices jumped, with yields falling to 5-month lows, as the 10-yr dropped over 8 bps to around 2.165%. The dollar also fell sharply, mostly against the British Pound (rose to 6-month highs) amid developments in the UK. Stocks dropped, as the Healthcare sector was among biggest decliners after JNJ mixed quarterly results (sales missed) and CAH’s lower guidance weighed on services. Financials declined given GS disappointing earnings results/trading revs and a lower yield env’t as bond yields touched lowest levels of year (weighs on lending margin fears). Defensive sectors outperformed today, as Consumer Staples advanced (food, beverage names), along with gains in Utilities and REITs. The tech heavy NASDAQ held up relatively well despite NFLX sliding on lower subscriber results last night. Despite markets focusing on fundamentals today/going forward, the macro picture remains cloudy, with tensions between the U.S./North Korea, French elections, FOMC rate increase pace, and Trump policy (Mnuchin said yesterday tax reform policy likely pushed out due to failed Healthcare bill). Also of note lately, weaker economic data as housing starts data missed today, which followed weaker-than-expected Empire Manufacturing, consumer prices and retail sales reported the past few days. But despite markets sliding over the last few weeks on macro fears/geopolitical uncertainty, the S&P 500 index still only remains down a little over 2% from record highs.
- Housing Starts for March fell a greater (-6.8%) to 1,215k annualized, below est. of 1,250k (and down from 1,303k in the prior month when it rose 5%); single family starts fell to 821k; multifamily starts fell to 394k in March. Building permits rose to 1,260k vs 1,216k in Feb. and came in above est. 1,250k (permits rose 3.6% in March after falling 6.0% the prior month)
- Industrial Production for March rose 0.5%, in-line with estimates after rising 0.1% in February. Capacity utilization rose to 76.1% from 75.7% in Feb (which was revised down from 75.9%)
- Gold prices reversed earlier losses to settle higher by $2.20 at $1,294.10 (had touched an intraday low of $1.280.60 an ounce), getting a lift late day as the dollar plunged further and investors rotated into defensive asset classes. Gold ends back near 5-month highs despite some earlier profit taking, helped by the cautious macro env’t, and weaker economic data
- Energy prices ended lower, falling 24c or around 0.4% to settle at $52.41 per barrel (high $52.85 and low $52.10) failing to gain despite a decline in the dollar. The move lower comes ahead of weekly API inventory data after the close and EIA weekly data tomorrow morning. Oil prices have had a good run higher the last week or so, but fell for a second straight day.
- The U.S. dollar was broadly lower on weaker economic data (over the last 3-days, housing data today), but falling the most against the British pound which rose to highs of 1.2905 (over 2.4% move and trades to highest since October vs. the dollar) after U.K. Prime Minister Theresa May said she wants to hold a general election in June (snap election). May said that a June election was the only way to resolve the political impasse the U.K. government faces in conducting Brexit talks. The dollar index (DXY) dropped to a 3-week low of 99.48 midday as losses accelerated against the Pound and euro (which rose to highs of 1.0733).
- Bonds were strong all day, as yield fell to new 2017 lows, lowest levels since November as stocks ended the day lower and investors flee back into safety of bonds and gold. The yield on the 30-yr slips to 2.85%, its lowest levels since December, while the benchmark 10-yr drops to 2.18% (its lowest levels of 2017 and since Nov 17th) as stocks move to the lows; 2-yr yield hit 1.16%. Weaker economic data over the last few days also helping provide interest in bonds out of stocks.
Other Interesting tidbits
- The International Monetary Fund (IMF) said it sees global economy accelerating in broad-based expansion this year, cites shifts to protectionism as a threat. The U.S. 2017 growth est. unchanged at 2.3%; 2018 est. stays 2.5%…China growth est. boosted to 6.6% for this year vs 6.5% in Jan. est…Japan’s 2017 growth forecast raised to 1.2% vs 0.8% est. in January…U.K. 2017 growth est. jumps to 2% vs 1.5% in Jan. est…Euro-area growth projection for 2017 edges higher to 1.7% vs 1.6% forecast in January…IMF raises Russia GDP growth forecast for 2017 to 1.4%, leaves Brazil’s unchanged at 0.2%
Sector News Breakdown
- Retailers; KATE Q1 EPS missed by 2c on slightly revenue miss and direct-to-consumer comp. sales down (-2%) vs. est. up 4.5%; CAB said it agreed to be bought by fellow outdoor goods retailer Bass Pro Shops for a lower price than agreed ($61.50 from $65.50), and that it would sell its bank unit as it seeks regulatory clearance for the transactions https://goo.gl/s9GbwS ; AEO cut to neutral at B Riley as cautious on the broad lack of newness in fashion apparel for Spring; HIBB 1Q comp sales estimate cut to down 2% from down 1% at Susquehanna on belief that difficult February trends haven’t improved
- Consumer Staples; GNC leads vitamin related sector higher (VSI) after Q1 EPS, comp sales and rev. topped estimates, began GNC storefront on Amazon in early 1Q, transactions rose 9.3%; POST agrees to buy Weetabix in $1.76 billion deal https://goo.gl/DI6dJA ; BUFF raised to top pick at Citigroup and add to US focus list as see the recent sell-off in Blue shares as a terrific opportunity to own the best U.S. Food growth story; defensive consumer staples/foods were higher early all-time highs for DPS, PEP 52-week high for PM, and food names jump GIS, K, CPB
- Restaurants; MCD received its second analyst upgrade in as many days (Bernstein today) ; CMG shares traded to 52-week highs today at $471 per share (tgt raised to $495-515 from $450-470 at Wells Fargo today)
- Auto’s; HOG posted mixed Q1 results (EPS beat by 3c, revs miss), while said Q1 motorcycle shipments fell (-14.7%) and retail motorcycle sales fell (-5.7%) YoY; Jefferies upgraded VLKAY to buy rating in European auto note as expect VW-brand improvements to show in 1Q, while cut Daimler to underperform from hold as Q1 results raise worries about weak cash conversion; CTB downgraded to neutral at Northcoast as believe the risk/reward ratio has become more balanced
- Energy sector quiet again as earnings not until next week, and after for group; in MLPs; Guggenheim initiated stocks in the midstream universe, covering both crude and gas/NGL/LNG-focused names…five Buy-rated stocks are WES/WGP (Best Idea); EPD, LNG, and OKE…seven Neutral-rated stocks are PAA, BPL, OKS, CQP, TRGP and ENLK/ENLC
- Oil services; Goldman Sachs with earnings preview as they say HAL, NBR, SLB offer attractive risk/reward heading into 1Q earnings given they’ve pre-announced; for small caps, recommends EMES, PES given firm expects upward revisions to 2017 consensus ests.; BHI seen at greatest risk of an earnings miss, as 1Q and 2017 Ebitda est are ~30% and 24% below consensus and sees downside risk to 1Q consensus ests. for WFT, NOV
- Utilities; sector continues to benefit from low rate environment/defensive stance for markets; shares of CNP, DTE, PNW among those in S&P 500 with 52-week highs today
- Solar sector; Solar PV Manufacturers downgraded to Negative from Mixed at OTR Global following checks that indicate global crystalline PV prices fell in Q1 and inventories increased. Further 2017 Chinese installations are expected at 27-28GW, below 34.21 GW in 2016 9cut rating on CSIQ); Morgan Stanley also on solar as expect a tighter regulatory environment in several key markets to pressure market growth: lower demand + higher supply = pricing pressure ahead (prefers JKS in China and RUN in the U.S.)
- Large Cap banks/Brokers; Dow component GS shares slide after reported 1Q FICC sales & trading revs of $1.69B, below Bloomberg est. $2.03B/investment baking and equity sales trading topped views, though overall EPS missed estimates saying the operating environment was mixed, with client activity “challenged” in certain market-making businesses; BAC operating EPS beat by 4c as both NII and fee income beat, and provision expense and NIM better at 2.41%; SCHW Q1 EPS beat by 2c on slightly better revs of $2.08B as new retail brokerage accounts for the quarter totaled approximately 235,000, up 44% YoY; earnings tomorrow MS, USB, AMTD, BLK, HBAN
- Regional banks; RF Q1 EPS beat by 1c on in-line revs $1.39B and NIM 3.25% but higher NCO’s of $100M; CMA Q1 EPS 6c better, while provisions for losses $16M (better), and NCO’s $33M also better than estimates; SNV Q1 EPS beat by 4c driven mostly by a higher NIM
- Credit cards/lending; SNV agreed to buy the banking assets of CAB for $1.2B, allowing the outdoor retailer’s $4.2B sale to rival Bass Pro Shops to proceed; COF will buy CAB’s credit-card portfolio; SQ tgt raised to $16 at Morgan Stanley
- Insurance; AFL was upgraded at Raymond James on valuation ahead of perceived upgrade cycle in 2H 2017; PGR Q1 EPS missed by 2c as Q1 net premiums earned $6.03B; BRO posted small Q12 EPS beat of a penny with better organic growth expectations
- REITs; PLD 1Q FFO/share beat estimates and boosted 2017 guidance, citing healthy operating fundamentals, higher deployment from investments and increased net promote income; CORE was upgraded to strong buy at Raymond James
- Large Cap Pharma; JNJ Q1 EPS beat by 6c, but Q1 revs trailed estimates and showed a slowdown in pharmaceutical sales (raised year EPS/sales guidance); EGLT active as FDA accepts Egalet’s PAS for OXAYDO 10/15 mg; ARNA 60M share Spot Secondary priced at $1.15; AUPH granted Merck Animal Health global rights to develop and sell patented nanomicellar voclosporin ophthalmic solution to treat dry eye syndrome in dogs; broad weakness in specialty pharma again with shares of VRX falling below $9 per share and ENDP sliding a 5th day
- Managed care; UNH reported 1Q earnings and guidance that topped estimates due to its federally-funded Medicare and Medicaid businesses and reduced exposure to Obamacare exchanges (AET, CI, WCG, HUM also active)
- Biotech movers; GLPG 3.75M share Spot Secondary priced at $90.00; XOMA rises as its PTH1R antibody shows encouraging action in preclinical testing; PBYI shares slipped midday following news that FDA cancer drug chief allotted five hours, or half a day, to review its breast cancer drug neratinib at an advisory committee meeting scheduled for May 24 (the abbreviated turn seen as a negative for approval)
- Services, medical devices & Equipment; CAH said it would buy medical device maker MDT’s medical supplies businesses for $6.1 in cash (acquiring Medtronic’s patient care, deep vein thrombosis and nutritional insufficiency units) https://goo.gl/E956b2; CAH also said it expects FY17 EPS at the bottom end of prior forecast range $5.35-$5.50 vs. est. $5.42 (distributors MCK and ABC weak after the CAH guidance); UHS shares slipped after headlines Senator Grassley urges probe over company conduct, sending letter to HHS inspector general
Industrials & Materials
- Distributors; GWW shares fall as Q1 EPS missed by 11c on lower sales ($2.54B vs. $2.57B est.) and cut its year EPS and sales forecast (to $10.00-$11.30 from prior $11.30-$12.40… and sales growth seen up 1%-4% from prior 2%-6%); FAST upgraded to buy at Argus citing signs of improvement in energy sector and recent solid purchasing managers’
- Airlines; UAL Q1 numbers were mostly in-line with the prior investor update which came out on 4/10 as EPS beat by 3c at 41c while PRASM was flat, on 2.6% capacity growth for the quarter; SAVE shares advanced after saying booking trends for 2Q look strong, expects positive 2Q Trasm YoY, even without accounting for Easter holiday
- Paper & Packaging; Jefferies said corrugated box shipments in March came in better than expected at up 5.3% YoY as March containerboard data reflect “stronger than expected domestic, a sharp draw down in inventories, and high operating rates (shares of WRK, KS, IP, PKG moved higher on the day)
- Metals & Mining; iron ore prices slide again, weigh on industrial metals (CLF, VAL, BHP, X); the price of iron ore falls 5% to a near six-month low, slammed by a decline in Chinese steel prices and concern about a supply glut. Benchmark Australian ore for immediate delivery into China was down $3.10 to $61.50/metric ton, and has slumped by a third since hitting $94.50 two months ago, as steel production in China has continued to rise (group has since rebounded from earlier losses to trade higher). FCX Indonesia received preliminary approval to resume copper concentrate exports; now finalizing export permit; PKX said Q1 profit doubled, but warns of surging coking coal prices
Technology, Media & Telecom
- Internet; NFLX reported both domestic and international sub adds slightly below consensus (1Q international sub adds 3.53M vs. Bloomberg est. 3.9M and 1Q domestic net adds 1.42M vs. est. 1.59M)/but Q1 contribution profit, however, slightly exceeded Street estimates in both markets; YHOO traded at 52-week high ahead of earnings tonight; FB launched a new augmented-reality platform at its annual developer conference, F8, in San Francisco on Tuesday.
- Software movers, in security space, CUDA falls as FQ4 results topped views but FY18 guidance was light relative to consensus and analysts noted a decline in the renewal rate and weakness in the U.S. in 4Q.; CHKP was upgraded to equal-weight at Morgan Stanley and raise tgt to $107 from $87 as recent reseller survey bolsters our confidence in the durability of Check Point’s product revenue growth in FY17, reducing risks to consensus expectations
- Hardware movers; in the 3D sector, SSYS was upgraded to overweight at Piper as believe demand trends are improving and anticipate Stratasys is outperforming in the space; IBM to report earnings after the close tonight; CTSH/INFY active after Donald Trump seeks shift in H1B visa allotments, Indian firms to get hit; GIMO to be added to the S&P SmallCap 600 index
- Media & Telecom VZ agrees to $1.05B fiber-optic cable deal with GLW to grow its FiOS platform; OMC shares active after quarterly top/bottom line beat consensus; DISH downgraded to neutral at Macquarie, PT $61 (follows recent decline after winning spectrum last Thursday); IAC was upgraded to Buy at Jefferies, PT $92 and initiated buy and $21 tgt on MTCH
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.