Market Review: Dow Ends About 170 Pts Higher After Mnuchin’s Tax Hint

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Equity Market Recap

  • It was a strong performance for U.S. stocks, rallying throughout the trading session, closing near the best levels of the day in a broad sector rally. Financials resumed strength on earnings (AXP beat) and as yields inched further off recent 5-month lows. Tech has been a standout (despite IBM and NFLX falling in recent days on earnings), as the Nasdaq Comp traded higher by more than 1%, moving within 11 points from its record closing highs on 4/5 of 5,936. Transports jumped behind strong CSX earnings; steel stocks (AKS), jumped on better earnings (STLD) and Trump administration probe into steel imports; retail/discretionary outperformed with gains in apparel/footwear (FL). Industrials and Materials higher (ahead of GE/HON earnings tomorrow) as Trump trade back “en vogue” given the positive stances taken by Treasury Sec Mnuchin today on infrastructure and tax reform policy. Large cap however continues to disappoint as Dow components VZ and TRV shares decline after quarterly results missed (follows weak results from IBM, GS, and JNJ). Bonds and gold pullback from multi-month highs as investors rotate back into stocks (for the time being), while the dollar extends its advance vs. most rivals.

Economic Data

  • Weekly Jobless Claims rose 10K to 244K vs. est. 240K; Continuing jobless claims fall to 17-year low of 1.98 million, while the four-week jobless claims average drops 4,250 to 243,000; prior week claims unrevised from 234k
  • Philadelphia Fed manufacturing survey tumbles more than 10 points to 22.0 in April and below est. of 25.5 (was at 33-year prior month); April prices paid fell to 33.7 vs 40.7 prior while new orders fell to 27.4 vs 38.6; the employment index rose to 19.9 vs 17.5 while shipments fell to 23.4 vs 32.9 in a mixed overall report from highs
  • The Leading Index for March rose a greater than expected 0.4% vs. est. up 0.2%
  • The 30-year fixed mortgage rate for week ended today fell to 3.97% from 4.08%, Freddie Mac said; the 15-year rate avg 3.23%, down from 3.34% a week earlier


  • Gold prices ended little changed, closing higher by only 40c to settle at $1,283.80 an ounce (off earlier lows of $1,278), falling from recent 5-month highs. Gold prices were lower initially as investors took profits in defensive sectors that have rallied in recent weeks on geopolitical fears, but those same fears continue to keep a bid in the “safe-haven” investment
  • Energy futures ended slightly lower, erasing earlier gains (high $50.97 and low $50.18), a day after WTI crude fell around 4% on inventory data. Prices were higher initially as OPEC leader Saudi Arabia said a preliminary agreement to continue cuts for another three or six months is within reach and could be approved at OPEC’s next meeting on May 25. But a combination of recent bearish inventory data (yesterday) and a rebounding dollar, weighed on prices.


  • The dollar was mixed to higher; rising against the safe-haven yen, but falling against the euro. The dollar jumped against the yen as its recent rebound continues (trades highs of 109.49). Bloomberg noted Latin America currencies active as the Chilean peso is reacting to higher copper, but BRL and MXN are just rebounding from yesterday’s decline. The euro touched highs of 1.0778 against the dollar early, before paring gains to around 1.0725. French centrist presidential candidate Emmanuel Macron was holding to a lead in what’s set to be a tight race on Sunday, which lifted the euro initially. The dollar got a late day rally following comments from Treasury Secretary Steve Mnuchin talking about tax reform and potential infrastructure spending.

Bond Market

  • Bonds slid for a second day (after surging the prior week), as yield creep higher to around 2.24% for the benchmark 10-year (down from 5 ½ month lows of 2.16% on Tuesday). Economic data was mixed today, but investors taking a little off the table given strong run in bonds. With stocks rallying today, investors rotated back into riskier assets and out of safe haven trades such as bonds. The yield on the 2-yr moved back to around 1.2% (from 1.14% low 2-days ago) and the 30-yr was around 2.9%.
Sector News Breakdown


  • Retailers; FL erased initial losses after the company guided Q1 EPS $1.36-$1.39, below est. $1.48 and said sees 1Q comp sales up low-single digit vs. est. up 2.6% (Susquehanna defended saying slow start in February doesn’t change the positive outlook); mattress maker SCSS shares rise after posted its first beat-and-raise quarter in two years as industry trends off to a good start; GPS was upgraded to neutral at JP Morgan; GCO was upgraded to overweight at Piper
  • Consumer Staples; in tobacco, PM shares fall on mixed Q1 results as EPS miss by 5c on better revenue, while boosts forecast on favorable tax/as prices hikes fail to offset smoking decline; in beverages, TAP was cut at Cowen as believe alcohol could be under pressure for the next decade, based on our data analysis covering 80 years of alcohol and 35 years of cannabis incidence in the U.S. (firm maintain Outperform for KSHB, WEED and TPB, as well as STZ)
  • Restaurants; SBUX was upgraded to buy at Stifel as says accelerating U.S. comp. sales growth should lead to multiple expansion; BWLD was upgraded to mixed by OTR Global while investor Marcato seeks ouster of Buffalo Wild Wings CEO; BJRI was upgraded to neutral at Wedbush given in-line checks and potential for comp growth; MCD tgt raised to Street high $146 at Nomura (stocks recently at all-time highs); RUTH downgraded at Raymond James
  • Housing & Building Products; homebuilder DHI reported Q2 EPS/revenue above consensus while net orders rose 14% vs. est. 12.6%/boosts year rev outlook – but sector failing to rally (KBH, PHM, MTH), while NVR with EPS beat Longbow boosted estimates for AWI moderately on stronger demand (+2% for 1Q vs. 1% before) and see a short term positive catalyst into the quarter; paint maker SHW Q1 EPS and sales topped consensus and updated guidance; SunTrust raises Q1 numbers on BLD & IBP above Street given exceptionally strong quarter for housing completions
  • Auto’s; bounce in auto space today, led by auto parts suppliers as LEA was upgraded at Baird as sees continued strong organic growth above market and free cash flow generation/deployment to support a higher valuation. Auto retailers jumped yesterday, leading the entire complex higher after GPC and LAD earnings topped views (helps beaten up auto sector which has fallen last few weeks on softer March sales data); TSLA issued a voluntary recall for approximately 53,000 Model S and Model X cars for parking brake issues, CNBC reported first


  • Energy stocks were up, but not as much as compared to broader markets; Oil services will be in focus tomorrow  with SLB results; SU said it does not expect a change to overall 2017 production guidance from the current outage at the Syncrude plant in Alberta, as strong production from oil sands and offshore operations should offset the impact; FTI was upgraded at Seaport Global; shares of KMI spent most of the day lower after earnings
  • Utilities; as broader stock markets rallied, the utility index lagged behind; news or another deal in the space getting shot down weighed as well. Last week it was NEE’s $18 billion bid to buy Oncor Electric Delivery Co. falling apart when it refused Texas’s wish to give an independent group of shareholders some control over budget decisions. Last night Kansas rejected GXP’s $8.6 billion plan to take over WR as the state wanted safeguards, such as an independent Westar board, that the companies said would be a deal-breaker. DYN shares rebounded from all-time lows yesterday


  • Several regional banks report today as financials still grabbing earnings headlines; KEY Q1 EPS topped views as revs and NIM were better and expects to achieve $450M in cost savings by early ’18, higher than the original $400M target; UBNK rises after 1Q earnings beat; BBT Q1 EPS beat by a penny on higher NIM (3.46% vs. 3.43% est.); trust bank BK reported in-line EPS of 80c, while NIM came in at 1.13%, while AUM was up 5% at $1.73T; Texas bank TCBI falls as Q1 misses forecasts (cut at Raymond James), while CFG Q1 beat on better net-interest margins; other banks with earnings out: BXS, EWBC, CATY, CNS, PFBC, RLI, SEIC, SFNC, TBK, UMPQ
  • Brokers and asset managers; VIRT agrees to acquire KCG in deal valued at about $1.4B, paying $20 per share; BX rises as Q1 EPS beat handily and total AUM rose 7% to $66.5B; JNS AUM up 7.4% YoY as EPS beat for quarter
  • Insurance; Dow component TRV posted a core EPS miss of $2.16 (est. $2.35) on in-line revs as profit was hurt by high catastrophe losses; ALL said it expects Q1 catastrophe losses to come to about $508M on a net basis, based on a pretax estimate of $781M; RLI dropped on earnings miss
  • Card services, payments, finance movers; AXP reported a slight beat and maintained full-year guidance, as payments volume, revenue and S&M efficiency improved; ADS gained as Q1 core EPS/revs topped consensus, though guidance trailed estimates; SLM rises on better EPS and as trends in overall credit quality improved on better margins; OCN shares plunged as North Carolina ruled the company cannot acquire new mortgage service rights or originate new mortgages that it would service until it can show it is financially stable and that customer escrow funds are being properly collected (shares of ASPS also fell which gets revs from company). The CFPB also sued alleging OCN’s “years of widespread errors, shortcuts, and runarounds cost some borrower’s money and others their homes.”


  • Large Cap Pharma/Managed care; CI shares traded to 52-week high today as group was broadly higher; specialty pharma still underperforms ahead of earnings (VRX, ENDP remain weak); IMNP announced a license agreement with Pint Pharma to commercialize Immune’s cancer treatment Ceplene in Latin America
  • Hospitals generally weak; MD shares drop after Q1 results missed estimates (follows recent declines in group after HCA miss); both names markets heavily weighted to South and Southeast and MD results provide “the second data point of negative mix shift,” according to Wells Fargo (shares of EVHC, THC, LPNT, UHS also lower)
  • Biotech movers; ABBV announced disappointing top-line results from two phase III studies evaluating veliparib in combination with chemotherapy for treatment of patients with squamous non-small cell lung cancer and triple negative breast cancer; TSRO shares fall after rolls out cancer drug Zejula at $9,833 per month for the 200 mg dose (slightly lower than Citi at 10K est. and Baird says pricing is in-line with other PARPs; Leerink cut tgt to $158 from $186) – the ABBV trial news also not helping shares; CTRV as its Hep B drug reduces viral load in study; NLNK tgt raised to street high $32 (from $20) at Cantor
  • Life science sector/tools/devices; DHR shares dropped after reporting mixed results as EPS beat estimates but revs at its life sciences, diagnostics, environmental and dental units all fell quarter over quarter (comps such as A, BRKR, PKI, TMO, WAT were active in reaction); DGX shares jumped after Q12 EPS topped the highest street estimate on better year guidance; 52-week highs in equipment space for DGX, IDXX, MTD

Industrials & Materials

  • Industrial & Machinery; URI posted quarterly EBITDA miss on lower gross margins, driven by lower pricing (though rental volumes rose 7% Y/Y and the outlook for 2017 was positive); DOV reported 1Q adjusted EPS above the highest estimate helped by a rebound in energy market and raises guidance (shares of SPW, FAST, GWW, FLR, PWR active on report); GE reports tomorrow; BMI advanced on earnings beat, while revs missed
  • Transports; rails rally behind CSX results as posted better EPS and revs as pricing growth drove better profitability/announced $1B buyback; CP also active on earnings results
  • Metals & Mining; STLD 1Q results were slightly better than estimates and segment earnings improved substantially QoQ, but guidance lacked clarity, Jefferies analyst noted; NUE mixed Q1 results as EPS miss by 4c, while revenue topped views; overall steel/metals sector rises as iron ore bounces after recent declines (CLF, AKS, X); U.S. steel stocks also jumped on President Trump foreign import probe
  • Aerospace & Defense; HXL shares fall a Q1 EPS and sales both fell well short of consensus and lowers FY17 revenue view $2B-$2.08B vs. est. $2.1B; WWD shares dropped on earnings miss

Technology, Media & Telecom

  • Internet; EBAY turned in a solid Q1 with revenue in line with consensus and a penny beat on EPS, but guidance weighs on shares/active buyer growth acceleration was a highlight of the quarter, but has yet to translate into GMV growth reacceleration; GRPN positive mention at Piper saying would own ahead of earnings saying traffic fears are overblown and 2017 guidance is not at risk; Per WSJ, GOOG is planning to introduce an ad-blocking feature in the mobile and desktop versions of its Chrome web browser
  • Semiconductors; group has been strong last few months (LRCX earnings yesterday boosted group); QCOM Q2 top/bottom line beat, but Q3 mid-point guidance misses consensus
  • Software movers; PTC reported better quarter, beating subscription and bookings guidance significantly (bookings and subscription mix ($95M, 71% vs. guide: $80-90M, 60%); Internet security slides, as PFPT downgraded at Baird citing concerns about sales execution that have accelerated lately (group down this week on softer CUDA guidance)
  • Equipment & Hardware movers; several analysts out positive on AAPL ahead of earnings (Stifel raises tgt to $150, while Morgan Stanley raise iPhone ASPs on improving OLED supply forecast, which, along with a more bullish unit outlook, drives FY18 ests 12% above Street – $161 tgt); BHE shares advanced on earnings and guidance; PLXS Q2 EPS beat while revenue missed
  • Telecom and Media; Dow component VZ posted its first ever quarterly net loss of wireless subscribers, as EPS and revs for Q1 both missed consensus (weaker Ebitda, churn as well); DISCA was upgraded to neutral at Citigroup saying int’l growth could ramp; Pivotal downgraded TWX on price in media preview, remain sell on DIS; the FCC voted 2-1 in favor of broadband rules that help telco names like T, CTL, FTR as gives companies selling data lines more freedom over rates. The 2-1 vote to restore the “UHF Discount,” is a move that will ease restrictions on station ownership — and make more acquisitions possible among broadcast owners.

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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