Mid-Day Outlook: April 25th, 2017

eOptionDaily Market Report

Equities in the U.S. surge for a second day, propelled higher yesterday on macro and geopolitical events (French election results and hopes for Trump tax reform details this week), while today’s move is based on continued momentum after strong earnings results from several Dow components. The Nasdaq Composite opened above the 6,000 level for the first time ever, while the Dow Industrials breach 21,000 briefly (all-time highs 21,169 on March 1st). The Russell 2000 index also closing in on all-time highs (of 1,414.82 on March 1st), up nearly 1% on the day. Zero fear in market as VIX index falls further (after clumping 25% yesterday as optimism remains high. Economic data also today favorable, led by stronger New Home Sales data, though confidence figures dipped from the prior month.

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 (namely metals) outperform, led behind earnings (FCX, AA), while industrials and financials get a lift on tax-reform hopes/better earnings. Defensive sectors (gold, utilities, bonds) are underperforming early.

Treasuries, Currencies and Commodities

  • In currency markets, the dollar strengthened against the yen, but extended its slide against a handful of European rivals, ahead of the “big announcement” President Donald Trump’s said he plans for overhauling the U.S. tax code. The dollar rises to 110.75 against the yen, though the euro moves to the highs of day at 1.093 vs. the dollar (0.55%) – back to 5-month highs and off overnight lows of 1.0851 – Pound up around 1.2825
  • Precious metals slide, as gold prices drop below $1,270 an ounce, with markets selling the recent defensive winners (gold, bonds, yen) as investors rotate back into stocks
  • Energy futures slip as WTI crude tries to avoid it 7th consecutive drop, before API weekly U.S. inventory data. Russian energy minister says nation will wait until May 25 OPEC meeting before deciding whether to extend output cuts.
  • Treasury markets slip for a third day, as the yield on the 10-year up over 3 bps to above 2.3% as stocks surge a second day; mixed data today also influencing bonds; overall, bond yields still remain under pressure compared to broader stock market gains on geopolitical fears

Economic Data

  • 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.
Sector Movers Today
  • 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; AA rises as Q1 EPS topped views by 10c and sees global aluminum demand for year up 4.5%-5% (above prior view 4%); Gold miners report 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
  • 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
  • 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)
  • 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)
  • 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)

Stock GAINERS

  • AA +6%; Q1 EPS topped views by 10c and raises global aluminum demand outlook
  • AKRX ; to be bought by Fresenius for $34 a share/$4.3B deal https://goo.gl/IgR6Zx
  • APFH +9%; to be acquired by TSN for $40.25 per share/4.2B deal https://goo.gl/TJBkNQ
  • BIIB +5%; Q1 EPS beat by 23c and revenue topped views as Spinraza revs top highest estimate
  • CAT +6%; after earnings handily topped consensus views (EPS $1.28 vs. 62c estimate)
  • MCD +2%; Q1 EPS and sales topped consensus views after higher margins, as comp sales rise 4%
  • NFLX +3%; clinches licensing deal to introduce original content in China
  • STRP +8%; said it receives all-stock bid of $104.64 a share, above AT&T’s bid of $95.63 a share https://goo.gl/VvMVTR
  • SVU +10%; Q4 EPS and sales top consensus on higher margins, smaller comp sales loss

Stock LAGGARDS

  • ESRX -11%; 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)
  • LH -3%; cut its forecast, citing a decline in expected revenue growth
  • LMT -2%; profit missed (only 3rd time in decade according to Bloomberg) and lowers year outlook
  • NGL -22%; deferred its distribution increase by another 3-quarters and lowered its FY18 EBITDA
  • PHM -4%;  1Q order growth and gross margin that trailed analyst estimates
  • SANM -5%; as Q2 sales miss views, though EPS beat by 6c

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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