Market Review: April 24th, 2017

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Equity Market Recap

  • U.S. stocks ended near their best levels of the day, closing above 1%, led by gains in financials and technology, while energy and defensive sectors underperformed. Stock futures jumped overnight in reaction to results from the first round of the French presidential election, along with hopes for tax reform this week from President Trump (promised news this week). The tech heavy Nasdaq Composite traded to new record highs, coming within 11 points of the 6,000 level ahead of a busy week of corporate earnings (note 29 Nasdaq 100 stocks hit 52-week highs today…most since November 2014). Nearly 190 S&P companies report earnings this week, one of the busiest weeks in years. European markets surged, led by gains in France, after news the second round of the French Presidential election on May 7th will be between the centrist, Independent Emmanuel Macron and the far-right, National Front leader Marine Le Pen, while defeated candidates Fillon and Hamon announced support for Macron making him the favorite to win the second round (which would be good for the EuroZone as Le Pen wanted France to leave the union). M&A activity also gave a lift to stocks (BSX/BCR deal and RLJ/FCH deal). Eight of the thirty Dow components touched 52-week highs today – MCD, MMM, HD, UTX, WMT, UNH, DIS, MSFT ahead of several earnings results this week.
  • The Chicago Board Options Exchange Volatility Index (VIX) was down around 25% (lows of 10.89), trading at its lowest level in more than two weeks after touching its highest level of the year early last week as jitters over the French election and other concerns (high 16.28 last Monday).
  • In another sign of market optimism, there are eight IPO deals are on the calendar for the week ahead after a flurry of launches hit Monday/busiest IPO week since mid-September this week (names expected to come public include CLDR, CVNA, EEX, FND, NCSM, VRNA, XRF and ZYME
  • According to Bloomberg, the S&P 500 is on pace for 1Q EPS growth of 10% vs. expectations of 9.1% at the start of the season, as companies that have reported so far have handily beat analyst estimates. The 93 companies that have released have generally beaten top- and bottom-line targets.

Commodities

  • Gold prices ended lower by -$11.60, or 0.9% to settle at $1,277.50 an ounce (well off session lows of $1,266.00 an ounce) as defensive and safe-haven assets declined after France’s first-round presidential election result soothed fears the country could eventually move to leave the euro and the European Union and stocks rallied. Macron will go up against second-place finisher Marine Le Pen, who has called for France to exit the euro, in a May 7 runoff.
  • Oil futures slipped on Monday, failing to rally with the broader stock markets, as WTI crude fell -39c, or 0.8% to settle at $49.23 a barrel as ongoing worries about rising U.S. output and doubts about the ability of OPEC to achieve an extension of a program of production curbs kept pressure on futures (follows a 14th week of rising rig counts Friday and inventory builds)

Currencies

  • The Euro jumped vs. all counterpart currencies after the first round of the French election tossed out the “worst case” market scenario of Le Pen vs. Melenchon which both had urged France leaving the EuroZone. Macron and Le Pen both took around 23% of the vote and are now set to face each other in a May 7 runoff. The euro pared gains after jumping around 2% (highs of 1.0937 – 5-month highs) before paring gains. The dollar topped the 110 level (before paring gains) vs. the yen as safe haven trades decline. The Mexican peso was up over 1% early among the biggest gainers in Latin America after last week’s losses.

Bond Market

  • Bonds slipped but ended off their worst levels as stocks ended the day with strong gains. The yield on the benchmark 10-year traded above 2.30% early in the session before sliding back to around 2.27% (still up about 3 bps on the day), this just after touching 5-month lows last week of 2.16%; the 2-yr yield rises to 1.23%.

Economic Data

  • Dallas Fed April Business Activity Index, 16.8 vs. 17.5 expected
  • March Chicago Fed national index 0.08 vs est. 0.50 while February revised to 0.27 from 0.34; 48 of the 85 monthly individual indicators made positive contributions, while 37 indicators deteriorated.
Sector News Breakdown

Consumer

  • Retailers; Mother’s Day spending is expected to reach a record high of $23.6 billion, according to the National Retail Federation, with spending on jewelry driving the increase. Last year’s total was $21.4 billion; toy retailers get bounce after HAS top/bottom line results top consensus (group pressured Friday after MAT larger quarterly loss/missed views); tool retailer SWK was upgraded to overweight at JP Morgan
  • Consumer Staples; the defensive sector, which has enjoy strength over the last few weeks, seeing small decline today as markets soar; KMB cuts lower end of sales guidance on stiff competition after Q1 sales missed; SBH slides on KeyBanc downgrade; the Financial Times reported midday that privately held Albertsons is exploring a takeover of WFM https://goo.gl/S67kKZ
  • Restaurants; WING & SONC upgraded to Overweight at Stephens saying both companies should see improving comp. sales; CMG shares slide early after having risen six of last seven sessions coming into today on positive analyst commentary; MCD reports tomorrow morning
  • Auto’s; nice rebound in auto sector today, extending gains from early last week on better earnings in the auto retail sector; busy week of earnings again for group; ORLY positive mention in Barron’s saying shares could have more than 70% upside in three years; DLPH shares jumped on reports had explored power-train unit merger with Continental

Energy

  • Energy stocks underperformed, falling along with the price of oil, failing to rally with the broader market; oil services active after having declined Friday on weaker international markets for SLB, but group better today after HAL beats earnings estimates on strength in North America
  • Utilities, MLPs, alternative energy; coal producer BTU was upgraded to buy at Seaport Global to reflect impact of higher met coal prices for the stock in 2017; utilities were at highs late day despite other defensive sectors lagging today

Financials

  • Financials/banking stocks among the top gainers today after a surge in U.S. equities, along with a pullback in bonds (lifting yields), propels group which tends to benefit from rising rate environment. Also buoying sector, comments from President Trump vowing to announce tax reforms this week – shares of JPM, GS, C, MS, BAC jump; KEY was upgraded to Overweight from Neutral at Piper after reported a solid beat this quarter/optimistic loan growth guidance
  • Insurance; Dow component TRV was upgraded to buy at Argus (after stock sold off last week post earnings) citing its underwriting margin outlook
  • REITs; group among top decliner in S&P (O, KIM, VTR, REG, MAC) on rising rate environment, and rotation into risker asset classes; lodging REITs active after RLJ agreed to buy FCH, making it one of the top lodging REITs an enterprise value of $7 billion. https://goo.gl/95EGds ; Healthcare REITs HCN and HCP downgraded at Evercore/ISI on valuation; William Blair lowers 2017 and 2018 ests on JLL, HFF and MMI but not CBG or CIGI saying few if any catalysts on the horizon that will change multiples; DFT downgraded to hold at Stifel

Healthcare

  • Healthcare sector in general higher today on M&A news, positive data points, as President Trump is expected to release an outline of his tax plan this week (lifting group); SCYX active ahead of the conference call scheduled for tomorrow at 4:05 ET to discuss data related to lead product candidate SCY-078 presented at the European Congress of Clinical Microbiology and Infectious Diseases ((ECCMID)) in Vienna; IMNP slides after unveiling a restructuring and said it has received notice from the Nasdaq that it is not in compliance after delaying 10k filing
  • Biotech movers; SRPT shares active after Barron’s said shares could double as sales of its Exondys 51 drug are expected to ramp up this year and next; XOMA said its X213 drug stopped women from lactating in Phase 2 study; REGN and SNY received positive European opinion for Kevzara; BMRN extends gains after winning EMA backing for Brineura on Friday
  • Healthcare suppliers, services and providers; a big M&A deal in the sector as BDX agreed to acquire BCR in $24B cash and stock deal, where BDX will acquire Bard for $317.00 a share https://goo.gl/hzxizs (shares of SNN, TFX, WMGI, IART active on news); WSJ reported Q is expect to announce an agreement today to provide its clinical-trial and prescription-drug data through the cloud-based technology developed by CRM https://goo.gl/8I3j6K
  • Medical suppliers and devices; Barclays with a sector call today as they think the results of its spine surgeon survey was most positive for NUVA, KTWO and MDT, neutral to positive for ZBH and MZOR; and negative for GMED, SYK and JNJ; the firm raise tgt NUVO/KTWO, downgrades GMED and MZOR

Industrials & Materials

  • Industrial & Machinery; ITW Q1 top/bottom line results topped consensus and guided year ($6.20-$6.40 vs. est. $6.18) above views; TNC Q1 EPS and revenue topped consensus views; CAT rolling 3-month March machine sales world rose 1% (after slipping (1%) in Feb), while North America was down (13%) after falling (10%) in Feb; LII falls as quarterly residential segment margins missed estimates; CR reports tonight in crane sector; MMM tomorrow
  • Metals & Mining; Steel sector upgraded at Macquarie as raised AKS and STLD to outperform and raise X and NUE to neutral saying earnings results from some steel stocks show evidence of improving demand in steel market, which is expected to result in better volumes and pricing; ATI upgraded at Berenberg citing the 21% stock pullback; gold miners AU and GFI downgraded at RBC Capital (gold prices fall as investors sell defensive names); AA reports earnings tonight
  • Containerboard/Paper sector; Jefferies noted on Friday evening, PPW reflected the full $50/ton price increase for containerboard which should provide a 26-31% EPS lift for IP, PKG and WRK (which they says is already based into their above-consensus estimates)
  • Chemicals; PPG boosts bid for Akzo Nobel (AKZOY) by 8% to EU96.75 per share from EUR88.72 https://goo.gl/C7QGPT

Technology, Media & Telecom

  • Internet; SOHU Q1 EPS wider than expected and Q2 revs $390M-$420M misses est. $425.7M; GRPN was downgraded to underweight with $3.50 tgt at Morgan Stanley; busy week of earnings for sector with results expected for AMZN and GOOGL; 52-week highs today for PCLN, EXPE, GOOGL, FB and YHOO; W falls on report AMZN reported to mull furniture shipping change
  • Semiconductors; semi index (SOX) back above 1,000 level today, first time since April 10; group jumped last week on LRCX earnings, MU lagged in index; XLNX was upgraded to outperform at Credit Suisse and raise tgt to $70, while also being added to best ideas list at Evercore/ISI; ADI was upgraded at Stephens to overweight
  • Software movers; UPLD raises guidance for Ebitda margin and acquires RightAnswers; CHKP was upgraded to buy at Cleveland Research saying partner checks are trending inline to ahead of internal target for the quarter
  • Media & Telecom; Dow component DIS downgraded to hold at Loop Capital saying stock is fairly valued; CRTO was downgraded at Raymond Jams on valuation; FOXA said “Avatar” movie sequel to be released December 2020; TMUS reports earnings tonight

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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