Equity Market Recap
- Stocks ended lower, trading in tight ranges on the day after a busy week of corporate earnings. Stocks got a bounce off the lows late in the afternoon after President Donald Trump said a plan to overhaul taxes will be announced next week. The statement to the Associated Press sent the Treasury 10-year yield lower, leaving it unchanged for the day and week. It was a busy week of earnings for large caps as Dow components UNH, V, AXP, JPM, having outperformed, while shares of TRV, GS, GE, IBM, VZ, and JNJ have reacted negatively…though next’s weeks calendar is twice as large. But attention now turns to Europe, where the first round of French presidential vote takes place Sunday. Energy prices outperformed despite oil falling over 2% on the day, and ended the week lower by over 7%, while gold finished the week flat.
- The first round of French presidential election is Sunday April 23rd, and there are four candidates with a good chance of qualifying for the second round. The most important aspect from a market perspective is the candidates’ views on the EU. Macron and Fillon are Pro-EU while Le Pen and Mélenchon might take France out of EuroZone (which has weighed on the euro). Citigroup in a note today said note Le Pen and Mélenchon would likely drive a 5-10% sell-off in French & European equities, while a win for Macron or Fillon could mean 10-20% upside to end-2017
- Crude oil prices ended lower by over 2% in what was a rough week for the commodity; WTI crude slipped -$1.09, or 2.2% to settle at $49.62 per barrel, its first close below $50 per barrel for the first time since April 4th, to close out a weekly decline of about 7.4%, its lowest level since late March. Weakness occurred on Wednesday after bearish inventory data for both gasoline and mixed crude, overshadowing reports of OPEC maybe extending cuts. Oil has bounced the last few weeks as major oil producers reached initial deal to extend output cuts, yet U.S. crude supply growth continues to accelerate.
- Gold prices reversed earlier losses to end higher, rising $5.30, or 0.4% to settle at $1,289.10 an ounce, squeaking out a tiny gain of roughly 60c for the week. Prices got a boost from uncertainty ahead of France’s presidential election, as well as from weakness in the U.S. stock market. Gold prices remain not far from 5 ½ month highs reached earlier in the week amid the ongoing issues with Russia and North Korea as well. Weaker economic data also pushed the dollar lower earlier this week, helping boost gold prices and push out rate hike expectations from the Fed.
Currencies & Bonds
- The euro ended the day only slightly lower, falling to around the 1.07 level vs. the dollar (though off weekly lows of 1.0603 on Monday) ahead of the French election this Sunday. While gaining against the euro, the greenback slipped against the yen, trading back below the 109 level (high this week 109.49 yesterday and low of 108.13 on 4/16). The British pound was below $1.28, down slightly from the $1.2813 late Wednesday after rallying this week as U.K. Prime Minister Theresa May received Parliament’s approval to hold a snap general election in June. However, Friday’s weak retail-sales report was weighing on the currency. The USD/CAD pushes to the highest level in 6-weeks. Bonds ended little changed today, with the yield on the benchmark 10-year down less than 1 bps in what was overall a volatile week that saw lows of 2.16%.
- Existing-Home Sales for March rise 4.4% to 5.71M, above views of 5.6M, while the prior month was slightly revised lower to 5.47M from 5.48M; there were 3.8 month’s supply in March (same as in February), while inventory rose 5.8% to 1.83M homes; said distressed sales 6% of total sales; of which foreclosures 5%; short sales 1%; median home price rose 6.8% YoY to $236,400
Sector News Breakdown
- Retailers; toy retailer MAT slumps after reports disappointing 1Q results as revenue and EPS fell well short of expectations due to a lower level of reorders and a weaker than anticipated gross margin (HAS repots Monday); SHOO with 8c Q1 EPS miss on weaker comp sales growth (-6%) and guidance below views; BEBE said plans to close all stores by end of May; COST was upgraded to overweight at Barclay’s and raised tgt to $185; SKX Q1 top and bottom line results top consensus though comp sales rose 2.9%, below views around 3.7% on mixed guide
- Consumer Staples; packaged food sector (K) mentioned cautiously at Bernstein saying they believe another shoe is about to drop for U.S. packaged food companies, as volume trends appear to be weakening still further; FIZZ downgraded to neutral at Credit Suisse
- Housing & Building Products; DHI defended at a few firms today after sliding yesterday on what Deutsche Bank called solid numbers, nudged up guidance and called the spring selling season a good one; tool maker SWK shares active earnings beat (LOW and HD move on report)
- Oil service sector; SLB results weigh on service sector as after revenue miss, sluggish international outlook – Revenue of $6.89B was up 6% Y/Y, and shy of estimates by $100M, while revs fell 7% sequentially in international markets (HAL reports earnings on Monday morning). The Baker Hughes (BHI) weekly rig count showed total rigs rose 10 to 847, while oil rigs rose for a 14th straight week, up 5 to 688 and 5 gas rigs were added to bring total to 167
- MLPs; PAA and PAGP were downgraded to hold at Jefferies as the guidance mgmt issued in Feb implies a hockey stick EBITDA recovery throughout the year; Wells Fargo upgraded NS and NSH to Outperform following the company’s Permian-focused Navigator acquisition and raising our NS valuation to $53-57/unit from $48-51 and our NSH valuation range to $29-31 from $26-29 to reflect an improved growth rate. The Alerian MLP Index (AMZ) was lower around the 317 level – lowest levels since the end of March
- Frac sand stocks FMSA and SLCA both downgraded to equal-weight at Barclay’s noting the sector has underperformed, so they wouldn’t be surprised if the group gets a bid as tight supply and demand delivers solid 1Q prints, reaffirms demand and pricing views…but says that won’t necessarily alleviate long-term supply concerns
- Large Cap banks slip with earnings helping most banks/financials this week (outside of weakness from GS and a few regionals) as bond yields keep falling, weighing on NIM margin concerns (though NIM’s have been good this quarter thus far); another heavy round of banks (many small-mid tier as well this and next week – overnight ETFC in online brokers reported Q1 beat, while regional bank STI also posted EPS beat
- Cards and services; group stronger (52-week highs MA and V) after Dow component Visa earnings top views, raises its revenue forecast for the year and announced a $5B share buyback
- Finance and Lending; OCN upgraded at Compass Point to buy after falling over 50% yesterday saying regulatory risk is mispriced following yesterday’s blizzard of lawsuits and cease-and-desist orders, and don’t think NRZ will transfer the majority of OCN’s subservicing to another servicer; NRZ defended at KBW saying see an Ocwen bankruptcy as a low near-term risk/even in a bankruptcy scenario we think risk to NRZ is contained
- Managed care; Jefferies said the sector appears attractive on a relative basis, given the current HC policy status quo which has driven coverage and profits. The firm downgraded HUM on valuation, and boosted tgts for ANTM, CI and CNC, largely on relative valuation and capital deployment.
- Pharma and services; XBIT shares fall after its cancer treatment’s marketing application would not be recommended by a European review panel; ADMP 4.3M share Spot Secondary priced at $3.50; DGX was upgraded at Raymond James to outperform; distributor targets ABC, MCK and CAH all lowered at Morgan Stanley after recent guidance in group; CORT shares fell after Janney reiterated sell and $6 tgt as they question long-term viability
- Healthcare services remain weak after pre-releases from HCA and MD this week both highlighting payor mix challenges, – has weighed on EVHC last two days
- Biotech movers; ATRA and MRK agreement announcement to evaluate Keytruda; CASC shares active after BTIG initiated with a buy and $13 tgt; IMMU shares fell after Jefferies said company will not present IMMU-132 update at ASCO; VBLT announces positive DSMC review in phase 3 GLOBE trial investigating VB-111 in rGBM; CDTX initiated new strong buy at Raymond James
Industrials & Materials
- Industrial & Machinery; GE shares reverse earlier gains after quarterly results came in mostly better; HON trades to 52-week highs after beat on Q1 EPS/revs and boost to low- end of year EPS; COL another name at 52-week highs after Q1 sales top consensus; CAI traded to 52-week highs after EPS beat by 14c on higher revs; WBC EPS/sales beat and reaffirms year outlook
- Transports; several truckers report earnings overnight (WERN, CVTI, MRTN) rallying the group; airlines active as HA Q1 EPS topped highest estimates (upgraded at Buckingham); rails active again after KSU Q1 top and bottom line top consensus (follows strong results from CSX yesterday); CSX upgraded by two analysts after results, while CP was downgraded by one analyst on view company’s pivot to growth will take longer than widely thought
- Metals & Mining; after surging Thursday on “Trump trade” rebound and hopes for tax reform/infrastructure spending bill as Sec Treasury Mnuchin positive, group pares gains today, as steel names (X, AKS, NUE) slide; gold miners were mixed
- Chemicals; Barclays cautious on AXTA and LYB ahead of earnings as the firm cut AXTA to neutral due to recent changes in raw material prices, as well as macroeconomic data (also cut EMN estimates)
Technology, Media & Telecom
- Internet; not much today – but big week next week for sector, with results from GOOGL, AMZN, TWTR after NFLX dragged group lower earlier in week on lower subs
- Semiconductors; MXIM shares slide as Q3 results beat, but Q4 guide (ex-accounting benefits) was roughly -1% below Street due primarily to weaker Auto demand, fueling peak-SAAR/cycle concerns; 52-week highs for semi-equipment makers AMAT, LRCX (follows strong EPS/rev beat by LRCX earlier this week)
- Software movers; Internet security space gets a lift after PFPT results and outlook beat expectations (group had been lower this week); MANH falls on mixed Q1 as EPS beat by 4c, but revenue fell short of consensus and cut its forecast for year revs; MSFT gains as much as 1.8% to a record intraday high after positive reports ahead of its earnings next week.
- Hardware movers; SNE shares rise after it raised its operating profit estimate for the year thanks to lower amortization costs for its financial services segment; in optical, AAOI to be added to the S&P SmallCap 600 index
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.