Equity Market Recap
- New all-time records for the Nasdaq Composite (first close above 6,000) and the small cap Russell 2000 Index (intraday), while the Dow Industrials and S&P 500 trade not far from their record highs. Just a day after surging on macro and geopolitical events (French election results and hopes for Trump tax reform details this week), markets kicked it up a notch, surging throughout the day after strong earnings results from several Dow components. Given the strong earnings results and an expected announcement from President Trump on tax reform tomorrow, there was zero fear in the market, even ahead of a possible government shutdown this weekend if a budget deal is not reached. Economic data also today favorable, led by stronger New Home Sales data, though confidence figures dipped from the prior month. Defensive sectors/assets such as gold (fell 0.8%), bonds (late day roll, with 10-yr at 2.34%), the yen (down over 1% vs. dollar), and utilities underperformed as investors rotated into financials, tech, industrials and healthcare.
- Several Dow components out with earnings today: 1) CAT biggest winner on big EPS/sales beat, 2) DD Q1 results easily topped consensus (EPS beat by 25c); 3) MCD Q1 EPS and sales topped consensus views after higher margins, as comp sales rise 4% above 1.3% view; 4) KO mixed results as EPS missed by a penny, but sales beat and lowers top end of year comp EPS; 5) MMM Q1 EPS beat by 9c on better sales and boosted its year EPS outlook by 2c5 on top/bottom line. Homebuilding drop after President Trump slapped tariffs on Canadian softwood lumber and PHM Q1 orders and gross margin trailed analyst estimates. Material prices were mixed as steel stocks dropped midday (AKS), while FCX, AA outperformed on earnings. Industrials and financials get a lift on tax-reform hopes/better earnings. Another busy evening and morning ahead for earnings.
- March New Home Sales rose 5.8% to 621K, well above estimate of 584K (previous three months’ new home sales data revised up 43K0; the median new home price rose 1.2% y/y to $315,100 as 19% of new homes sold in March cost more than $500,000, up from 15% last month
- Consumer Confidence for April fell to 120.3 from 124.9 last month and below estimate of 122.5; the present situation confidence fell to 140.6 vs. 143.9 last month, while the expectations index fell to 106.7 vs. 112.3 last month.
- Richmond Fed’s Manufacturing Survey for April reported at reading of 20, above estimate of 16, but below last month at22; shipments rose to 25 after 17 the prior month, while new order volume were unchanged at 26 after 26 the prior month and order backlogs fell to 4 from 14
- S&P CoreLogic Case-Shiller National Home Price index rose 5.76% y/y in Feb. after rising 5.64% in prior month. S&P/Case-Shiller 20-city NSA index at 193.49 after 192.68 in January. The 20-city SA index rose 0.69% m/m in Feb. after rising 0.86% the prior month. National home price index rose 0.42% m/m in Feb. after rising 0.58% the prior month
- Commodity prices were mostly lower; Gold futures marked the lowest finish in more than 2 weeks, falling -$10.30, or 0.8% to settle at $1,267.20 an ounce, as market selling continued in the defensive winners (gold, bonds, and the yen) as investors rotate back into stocks. Energy futures reversed earlier losses ahead of inventory data tonight, rising 33c to settle at $49.56 per barrel and snapping its 6-day losing streak. Russian energy minister said nation will wait until May 25 OPEC meeting before deciding whether to extend output cuts
- The dollar was mixed, rising against the yen and Canadian dollar, but extended its slide against a handful of European rivals. Currency markets have been volatile over the last week given the news U.K. Prime Minister Theresa May said she wants to hold a general election in June (snap election) and after French election results yesterday, putting the euro on solid footing. The dollar rises to 111.15 (up 1.25%) against the yen, though the euro moves to the highs of day at 1.095 vs. the dollar (0.6%) – back to 5-month highs and off overnight lows of 1.0851. The U.S. dollar traded to a 14-month high against the Canadian Loonie to 1.3621 as the U.S. intensified a trade dispute with Canada, slapping tariffs of up to 24% on imported softwood lumber, and oil remain weak.
- Bonds fall as yields extend recent gains, up for about a week now as the yield on the 10-year rises to 2.32% (off 6-month lows of 2.16% last week). Mixed data today also influencing bonds; overall, bond yields still remain under pressure compared to broader stock market gains on geopolitical fears. Bonds had a good run and given rotation into stocks, profit taking not a surprise.
Sector News Breakdown
- Consumer Staples; KO posted mixed results as EPS missed by a penny, but sales beat and lowers top end of year comp EPS to 1%-3% from 1%-4%; CAG downgraded to sell at UBS as believe a decelerating rate of margin improvement and limited room for positive Street EPS revisions will cause premium vs. peers to contract; APFH to be acquired by TSN for $40.25 per share/4.2B deal https://goo.gl/TJBkNQ; Dole Food files IPO for initial amount of $100M; supermarket SVU rises after Q4 EPS and sales top consensus on higher margins, smaller comp sales loss
- Restaurants; Dow component MCD Q1 EPS and sales topped consensus views after higher margins, as comp sales rise 4% above 1.3% view; SBUX downgraded by OTR Global; DFRG Q1 results mixed; EAT Q3 EPS beat by 9c but revs of $810M miss by $7M on weaker comp sales (-2.3%); CMG to report earnings after the close
- Housing & Building Products; homebuilders lower after PHM 1Q order growth (6,126 vs. Bloomberg est. 6,191) and gross margin that trailed analyst estimates (KBH, MTH, TOL active); WHR results were worse than expected, largely due to difficulties with the integration of Indesit and lowered its year outlook; housing names also active after news the U.S. plans to impose a 20% tariff on softwood lumber imports from Canada; building products co MAS up on earnings
- Retailers; BBY was upgraded to buy at Bank America and raise tgt to $47 based on stronger than expected product cycles in TVs, phones, and time smart home technology; recreational vehicle stocks moved on PII earnings (though stock gave up gains)
- Oil services; BHI makes the third service company to report in as many days (SLB Friday and HAL yesterday), with results topping views, in E&P sector; RRC Q1 EPS and revs topped consensus though production was light, but reiterated year views
- MLPs; NGL shares plunge after deferred its distribution increase by another 3-quarters and lowered its FY18 EBITDA views; WPZ cut its quarterly distribution to 60c from 85c; SUN was upgraded at Citigroup
- Frac sand sector gets a boost after SLCA earnings results and as Citigroup said management’s ultimate comments around Sandbox market share and pricing, need to grow Northern White sand volumes into Texas next year should be perceived favorably (EMES, HCLP, FMSA)
- Large Cap banks outperform for a second day on tax reform hopes/expectations, and rising bond yields, with big gains in JPM, C, GS, etc.; regional banks active on earnings from FITB slight beat on lower provision & expenses offset by lower fees; ZION miss on higher expenses, softer loan growth; BKU beat but posted weaker loan growth; HTLF downgraded at Davidson on limited upside; NWBI with EPS miss; asset manager TROW falls as headline beat but flows weaker despite target date inflows
- Insurance; few earnings in sector today as AMP Q1 EPS topped consensus; WRB Q1 revs missed consensus views, while reinsurer RE topped consensus views
- Large Cap Pharma; LLY Q1 results slightly better as EPS beats by 2c and backs year outlook, while new products boost Q1 revs (but year rev guide weighs); AKRX to be bought by Fresenius for $34 a share/$4.3B deal https://goo.gl/IgR6Zx; CATB rises as study shows functional improvements; PRTK entered into a collaborative agreement with Zai Lab to develop, manufacture and commercialize omadacycline in China; CTIC expanded its existing license and development collaboration agreement with Servier for Pixuvri (pixantrone).
- Services and suppliers; ESRX shares plunge after saying it has been told by ANTM that it will move its business at the end of the current contract on 12/31 (according to ESRX, ANTM’s contract represented 33% of ESRX’s EBITDA in Q1); RAD higher on earnings, while CVS benefits from both RAD strength and ESRX weakness
- Equipment and devices; LH cut its forecast, citing a decline in expected revenue growth (shares of CROs/equipment names were active on report – BDX, HOLX, DGX, PRAH, PRXL); WAT Q1 EPS beat by 12c on higher revs of $498M
- Biotech; BIIB Q1 EPS beat by 23c and revenue topped views (though Tecfidera revs missed) as Spinraza revs top highest estimate; OMED announced a restructuring in which it will reduce its workforce by 50%, cutting operating expenses by $60M over two years
- Managed care; HUM guides Q1 and year above consensus estimates; CNC Q1 top and bottom line results top consensus and boosts year EPS outlook
Industrials & Materials
- Multi industry/diversified industrial movers; MMM Q1 EPS beat by 9c on better sales and boosted its year EPS outlook by 2c5 on top/bottom line; GE downgraded to hold at Bank America saying estimates are too high
- Machinery & Cranes; Dow component CAT among top gainers after earnings handily topped consensus views (EPS $1.28 vs. 62c est.); TEX was upgraded to overweight at JP Morgan noting ITW reported an upside Q1’17 earnings report and raised its 2017 outlook and notes similarities; CR upgraded to outperform at William Blair after Q1 EPS beat by 5c and raised guidance; PCAR said lower used truck values in the U.S. and Canada hurt its financial services
- Forest & Paper sector; Canadian lumber stocks rallied initially after President Donald Trump’s 20% tariff on softwood lumber entering the U.S. from Canada was lower than some analysts’ expectations and in-line with others according to Bloomberg (WEF.CN, WFT.CN, CFP.CN among gainers in Canada), while WY, RYN, LPX, and PCH slipped initially)
- Aerospace & Defense; LMT shares slipped after profit missed (only 3rd time in decade according to Bloomberg) and lowers its year outlook; BA, NOC, GD report tomorrow
- Transports; trucking names under pressure early after Ryder (R) cuts year EPS view, saying weaker-than-expected demand in commercial rental is expected to continue through the rest of the year (MATX, CHRW, HUBG, JBHT, SWFT shares active); SWFT also reported earnings in trucking space yesterday, while CNI posted numbers in rail; JBLU forecast 2Q RASM will be up 3%-6%, which is ahead of one analyst estimate of up 1%-4% (lifts AAL, UAL, DAL)
- Metals & Mining; FCX Q1 revs miss and cuts 2017 copper and gold forecast due to regulatory restrictions on PT Freeport Indonesia’s concentrate exports since mid-Jan. 2017; AKS Q1 EPS beat by 5c on higher sales in steel sector (but shares fell after said during its earnings call that it sees 2Q shipments flat vs 1Q with average selling price marginally higher QoQ); AA Q1 EPS topped views by 10c and sees global aluminum demand for year up 4.5%-5% (above prior view 4%); Gold miners fall as ABX Q1 misses and cut production outlook, while NEM post Q1 EPS beat of 4c, but revs missed and reaffirmed year forecast/boosts cap-ex; ATI rises on earnings
- Chemicals; Dow component DD highlights sector after Q1 results easily topped consensus (EPS beat by 25c), as RBC said strong polymers demand/auto results in 1Q from Performance Materials unit could be have positive read-through for companies with ethylene/polyethylene chain and auto exposure (such as DOW, WLK, EMN, FMC)
Technology, Media & Telecom
- Telecom & Media; STRP said it receives all-stock bid of $104.64 a share, above AT&T’s (T) bid of $95.63 a share https://goo.gl/VvMVTR (was later revealed according to reports that VZ made the bid); TMUS increased 2017 postpaid net add guidance to 2.8-3.5M from 2.4-3.4M and maintained its outlook for adjusted EBITDA after strong 1Q postpaid phone adds of 798K; NLSN trades to 52-week lows after earnings
- Internet; AMZN downgraded at Raymond James following a 44% LTM and 21% YTD return, we believe shares are fairly valued and near our previous price target; NFLX clinches licensing deal to introduce original content in China; EXPE 52-week highs (earnings Thursday)
- Semiconductors; HIMX shared fall after Northland said the company appears to be experiencing difficulties in both its core DDIC business as well as the new 3D sensing opportunity; RMBS shares slide on Q2 guidance mid-point missing estimates (Q1 beat)
- Hardware and Comm equipment; GLW rises on earnings beat; XRX Q1 revenue missed views; SANM falls as Q2 sales miss views, though EPS beat by 6c; UIS rises on earningsSoftware movers; CDNS shares fall on mixed to in-line quarterly results and guidance, but was downgraded at Davidson on stock appreciation
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.