Equity Market Recap
- Stocks failed to hold early gains as major averages finished mostly lower (though the NASDAQ outperformed), given a sharp pullback in oil prices following bearish inventory data (which weighed heavily on energy stocks). Financials also failed to hold early gains despite a better-than-expected report out of MS today (ahead of banks BBT, BK, KEY reporting tomorrow). The Dow Industrial average underperformed the S&P and NASDAQ for a second day as IBM dragged the index lower following weaker revenue figures (JNJ and GS hurt yesterday). Technology stocks generally outperformed on better-than-expected earnings/guidance out of semi-equipment maker LRCX. Autos and transports were a bright spot today, as auto retailers bounced on better earnings from GPC and LAD, while transports prepare for CSX earnings after the close. Oil slumped to a two-week low after U.S. data showed a smaller-than-expected drop in overall crude stocks and a surprising build in gasoline inventories. There are more earnings out of Dow components tonight (AXP) and tomorrow morning (TRV, VZ)
- There were no major economic data points to weigh on the dollar, helping the greenback bounce from three-week lows, while defensive gold and bonds slipped from recent multi-month highs. One other factor coming into play with markets (outside of upcoming earnings, geopolitical tensions, FOMC) remains the outside chance of a government shutdown as they will have days to clear a government funding bill before the April 28 deadline. All in all there remains plenty for sellers to focus on, including major averages still lingering not far from recent record highs over the last month.
- The Federal Reserve Beige Book showed that: “Employment expanded across the nation and increases ranged from modest to moderate during this period. Labor markets remained tight, and employers in most Districts had more difficulty filling low-skilled positions, although labor demand was stronger for higher skilled workers. Modest wage increases broadened, and reports noted bigger increases for workers with skills that are in short supply. A larger number of firms mentioned higher turnover rates and more difficulty retaining workers.
- Energy futures fell; oil prices turned lower, along with the whole energy complex, after gasoline inventories unexpectedly rise for the first time in nine weeks as crude output rose according to a weekly report from the Department of Energy. WTI crude declined -$1.97, or around 3.8% to settle at $50.44 per barrel (high $52.65 and low $50.09) for its 1st close below $51 since April 3rd. API overnight reported a fall of 840K barrels in U.S. crude supplies for the week while the DOE said weekly stockpiles fell -1.0M vs. est. -1.4M (though gasoline posted a build). Overnight, OPEC Sec General said OPEC to decide on extending output cuts on May 25th/is optimistic that policy measures already carried out have paved way for recovery.
- Gold prices ended lower, falling -$10.70, or 0.8% to settle at $1,283.40 an ounce, slipping from 5-month highs as the dollar rebounded from 3-week lows yesterday. With today’s decline, gold snapped a 6-session winning streak. Gold prices have been strong the last few weeks on geopolitical concerns as well as a plunging dollar.
- The U.S. dollar rebounded after dropping sharply on Tuesday, as the dollar index rises off 3-week lows (still below 100 level – touching a high of 99.893). The greenback has fallen amid weaker economic data points of late as well as a rebound in safe haven currencies such as the yen. The British Pound dropped back under 1.28 vs. the dollar after touching 6-month highs yesterday of 1.2905 after approval of U.K. snap election. The dollar pared gains against the euro and yen.
- Bonds slipped after strong gains the day prior as the yield on the 10-yr rebounded from 5 ½ month lows of around 2.16% mid-yesterday, inching back to around the 2.20% level. Investors have once again rotated into the safety or bonds amid a recent pullback in stocks, weaker economic data and ongoing geopolitical market fears. The yield on the 2-yr ended around 1.17%
Sector News Breakdown
- Retailers; rebound in retail across the board – AEO, M, URBN, ANF, TGT all up early; mattress retailer TPX upgraded to strong buy at Raymond James with $53 tgt; BKS 4.2M share Block Trade priced at $8.75; UAA mentioned cautiously at Deutsche Bank saying Q1 may miss estimates
- Consumer Staples; beverages jumped yesterday, another boost for KO today after Credit Suisse upgraded shares to outperform; convenience stores lower early (CASY, CST) after MUSA lowered guidance for the year (MUSA lowered FY17 net income guidance to $90M-$160M from $140M-$190M and lowers FY17 adjusted EBITDA guidance to $340M-$450M from $400M-$450M)
- Restaurants; CMG was upgraded to positive by OTR Global saying checks with suppliers indicated orders rose YoY in Q1 (new 52-week highs); group recently lifted after the PNRA PE bid takeout of $315 on 4/11 – BWLD above its 200 day MA resistance today of 154.50; MCD all-time highs
- Housing & Building Products; roofing stocks OC and BECN mentioned positively at Longbow as firm raised estimates on both ahead of earnings as believe 1Q17 manufacturers volumes increased 36-38% y/y, which is a big positive against our prior 8% forecast; ENR was downgraded to equal-weight at Morgan Stanley
- Auto’s; European auto space higher overnight after European car sales in March rose to their highest level on record for the month (FCAU); auto retailers LAD and GPC both active after quarterly results in beaten up sector over the last month – both companies reported 1Q EPS above consensus estimates, lifting the sector (ABG, KMX, AN, AZO)
- Inventory data: the American Petroleum Institute (API) reported a fall of 840,000 barrels in U.S. crude supplies for the week ended April 14, and also showed a climb of 1.4 million barrels in gasoline supplies, while inventories of distillates declined by 1.8 million barrels. The DOE weekly said weekly stockpiles fell -1.0M vs. est. -1.4M; top decliners in S&P all energy (outside of IBM) – with MRO, NFX, RIG, DVM, PXD, NOV, HES, MUR, CHK all down 3% late day with oil
- Top movers; Euro oil companies BP and RDSA both downgraded at Citigroup saying the sweet-spot of financial firepower for oil majors, and consequently bigger returns for shareholders, still requires a significant price recovery. Frac sand stocks underperformed (FMSA, HCLP, SLCA)
- E&P sector; SWN upgraded to outperform at Cowen as they believe its cash flow sensitivity to changes in natural gas prices makes it an attractive position in an improving macro environment; GPOR said daily net production in 1Q averaged 849.6 Mmcfe per day, up 8% q/q and 23% YoY; Evercore/ISI downgraded AR and CPE, while upgraded RRC to outperform
- U.S. land companies; Nomura initiates names with leverage to pressure pumping saying there‘s also other “stealthier” product lines to consider, including well servicing and logistics. Pressure pumping market on verge of a surge in pricing as it becomes apparent full-cost newbuild equipment is needed to fill a supply gap; sees that forming in 2H17 and BAS, CJ are best positioned…buy rated: BAS, CJ, PUMP, TUSK and neutral rated: FRAC, KEG
- Large Cap banks; MS alleviates some fears in sector after GS earnings miss yesterday dragged down banks/brokers; MS revs topped views, helped by beat in FICC sales & trading revs (where GS fell short yesterday), as well as equity sales/trading and IB; HBAN Q1 EPS missed by 1 penny with higher provision for credit losses ($68M) though NIM higher at 3.3%; USB Q1 EPS beat by 2c on slightly better NIM of 3.03% and revs top views; other movers on earnings FULT, EGBN, SBNY
- Brokers; online broker AMTD Q2 EPS missed by 1c though revs of $904M topped views/2Q average client trades per day 517,000;; IBKR was downgraded at KBW after company Q1 revenue missed estimates
- Asset managers/advisors; BLK 1Q EPS beat was due to better-than-est. tax rate (23.8% vs est. 30.6%), which helped boost EPS by 50c according to Jefferies which said without that, EPS was closer to $4.75 vs. consensus est. $4.89
- Finance and lending; Heading into 1QCY17 earnings, OpCo affirms Outperform on MA and V and maintain our $120/95 price targets, respectively; NAVI said it reached an agreement to purchase JPMorgan Chase’s (JPM) approximately $6.9B education loan portfolio; AXP to report earnings tonight after the close; FSAM is exploring a sale amid a deterioration in its loan portfolio and management turnover, WSJ reported https://goo.gl/yd7dci
- Insurance; ALL downgraded to neutral at Macquarie as the shares are up 21% in the past year after taking aggressive rate action & underwriting its book; firm likes outperform-rated TRV and WRB but cuts 1Q EPS est. for AIG, WRB, CB, AHL, RNR, and XL given elevated catastrophe losses;
- Pharma movers; group underperformed yesterday after JNJ quarterly sales missed views; TXMD defended at Oppenheimer saying 40% price decline since April 7, when the company received a letter from the FDA stating there were deficiencies in the NDA for TX-004HR is an overreaction; CYTR reaches agreement with FDA on regulatory pathway for aldoxorubicin
- Biotech movers; RARE shares rise on news that its burosumab drug to treat x-linked hypophosphatemia, a genetic kidney disorder, met its primary endpoint in a phase 3 study; AGIO 5.1M share Secondary priced at $49.50; NVLS and privately held Alpine Immune Sciences, Inc. agree to combine; BOLD 5.2M share Secondary priced at $14.50
- Medical devices and equipment; ISRG shares rise as saw +18% procedure growth that was well-above expectations (+11.1%), along with GM upside and a higher 2017 outlook; EW received FDA clearance for its HemoSphere advanced hemodynamic monitoring platform; ABT sales and profit top consensus, helped by St Jude deal/backs year views; MTD upgraded at Cleveland Research; Life science tools and services companies outperform, with an index of the sector climbing to the highest in a month ahead of earnings announcements next week from ILMN, TMO, WAT)
- Facilities, services and suppliers; ADPT shares slip after Wexford Capital exits its 8.5% stake (filings showed they had just added stake a little more than a week ago); RAD (and FRED) shares fell on report that US agency may sue over Walgreens deal
Industrials & Materials
- Industrial & Machinery; TXT mixed Q1 results as EPS beat/revs miss and lowers year view following ACAT deal; FLS upgraded to outperform at Cowen saying positive earnings revisions not dependent on incremental macro pickup; COL upgraded to outperform at Baird
- Distributors; Credit Suisse raises FAST, MSM to outperform from neutral, cuts GWW to underperform from neutral saying Fastenal and MSC Industrial have very different business models than Grainger and do not face the same self-inflicted pricing headwinds
- Transports; Transport index up around 1% most of the day, but still below the 100 day moving average of 9,200 which it fell from on April 10th (airlines have led group lower); KEX outperformed in index after Credit Suisse upgraded to outperform; CSX reports tonight
- Metals & Mining; AKS was upgraded to neutral at Citigroup noting the US steel sector has corrected 25% lower from peak and valuations; overall rebound in industrial metal prices on the day with broader markets after falling the last week on plunging iron ore prices; gold miners decline amid a pullback in gold prices from 5-month highs (NEM, ABX, AEM, GG)
- Paper & Packaging; group advanced yesterday on strong monthly data; today WRK was upgraded to buy at Goldman Sachs saying they think price increase initiatives are underappreciated and view WRK’s higher exposure to the attractive boxboard market as a positive source of differentiation over containerboard peers IP and PKG; WRK was also upgraded to outperform at RBC Capital, which also upgraded IP’s rating; WY, PCH shares fell after the U.S. delays decision on Canadian Softwood Lumber duties to June 23 (from April 25) – the softwood lumber dispute was revived in November after U.S. producers called for punitive tariffs on Canadian imports
Technology, Media & Telecom
- Internet; NFLX was one of few names in Internet space lower, adds to yesterday losses on lower sub adds for qtr; YHOO reported earnings/sees deal closing with VZ in June; Chinese Internet names were lower initially, led by NTES weakness (no particular news); WIX was mentioned cautiously by short-seller SprucePoint Capital; EBAY reports tonight
- Semiconductors; group rises as semi-equipment maker LRCX Q3 EPS beat by 23c on higher revs and margins and guided next quarter above views (lifts other equipment names, KLAC, MKSI, TER, AMAT); ASML also a mover on earnings in sector; QCOM reports tonight
- Software movers; internet security firm PFPT upgraded to buy at Davidson on attractive entry point (group was mixed to lower yesterday on weaker CUDA guidance)
- Hardware movers; Dow component IBM shares slide after mixed Q1 as EPS slightly beat, but revs fall short of consensus again along with weak gross margins (44.5% vs. 46.9% est.); HPQ upgraded to overweight at Barclay’s and lifts tgt to $22 on the prospects of likely return of earnings momentum later this year along w/improving PC trends
- Comm-equipment; ADTN shares rise on quarterly beat on both top/bottom line (shares slipped after conference call this morning); optical sector underperformed with declines in FNSR after MKM said recent round of checks into the company come back “surprisingly negative with multiple pockets of weakness”; CAMP another gainer in space on better earnings
- Media & Telecom; TV broadcasting stocks active ahead of the FCC’s April 20 Open Meeting, when the commission will consider reinstating the UHF (ultra-high frequency) discount used to calculate compliance with the national TV audience reach cap (GTN, SBGI, NXST, TGNA); SIRI was downgraded to underweight at Morgan Stanley; DIS new 52-week highs earlier, touching $115; FOXA fires Bill O’Reilly following sexual harassment probe
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.