Market Review: Stocks Fail To Hold Gains After White House Releases Tax Plan

eOptionDaily Market Report

Equity Market Recap

  • Stocks ended little changed, slipping into the close, as the Russell 2000 index managed to post an all-time closing high, though the Nasdaq Composite slipped after touching fresh intraday highs earlier. There were many moving parts that had stocks higher, from another round of strong earnings, the Trump tax plan details announced, continued strength out of Europe following the favorable French election results Monday, increasing optimism about the U.S. economy (better economic data) and general upward momentum. There were over 80 companies making 52-week highs in the S&P 500 index today, as the benchmark closed just shy of its all-time best. Stocks made a brief move lower late morning after reports that the Trump administration is considering an executive order on withdrawing the U.S. from NAFTA, according to two White House officials (which weighed on shares of transports and auto parts makers) …but that weakness was short-lived. In Europe, stocks extended their winning streak into a sixth day. Consumer Staples were a drag on markets after mixed results from PG, HSY, PEP and DPS. Healthcare was the best performing sector today, led by gains in life science tool/equipment and device names after earnings (TMO, EW, ILMN, and BAX) and managed care, while energy continues to lag.
  • Trump Tax plan: Treasury Secretary Steven Mnuchin announced the plan reduces its current 7-tax brackets to 3 of 10%, 25%, and 35%, announced tax relief for families with child, dependent care expenses. The plan eliminated targeted tax breaks that mainly benefit wealthiest taxpayers. It protects “home ownership,” and charitable gift tax deductions; it also repeals the Alternative Minimum Tax (AMT) and repeals estate tax. It repeals 3.8% Obamacare tax that “hits small businesses and investment income” – also a one-time tax on “trillions of dollars held overseas”
  • Bloomberg reported if Trump does get a 15% U.S. corporate tax rate passed, the after-tax 2018 EPS of S&P 500 Index companies could increase by $18.62, or 13.3%, while a 20% rate laid out in Congress’ plan would offer a 6.7% boost. Sectors with the highest median tax rate –consumers, utilities, consumer staples and industrials—weren’t reacting, another sign the market doesn’t have much confidence that it will pass


  • Gold futures edged lower, falling -$3.00 to settle at $1,264.20 an ounce, its third straight daily decline as the dollar rallied on the Trump administration tax plan and as stocks climbed. Oil prices held their gains on the day, albeit small one, as crude squeaked out a 6c gain to settle at $49.62 per barrel, still not bouncing with broader markets. U.S. crude supplies post biggest weekly fall of the year, down 3 weeks in a row, but gasoline inventories are surging. The API reported weekly rise of 897K crude barrels and climb of about 4.4M barrels in gasoline, while the DOE posted larger crude draw of -3.6M barrels (vs. est. -1.75M)

Currencies & Bonds

  • The dollar gained index (DXY) rebounds as officials of President Donald Trump’s administration released some details of a highly anticipated tax-reform proposal. The bounce in the dollar came after a mixed showing yesterday (when topped yen/Loonie, but fell vs. euro/pound). The Mexican peso weakened after the Nafta withdrawal story by Politico. The dollar traded highs of 111.78 vs. the yen before paring sliding back to 111, while the euro ended just above 1.09.
  • Bonds gained (slightly) and yields erased gains after U.S. Treasury Secretary Steven Mnuchin and economic adviser Gary Cohn outlined the White House’s “massive” tax plan on Wednesday. They said that the corporate tax rate for top payers would fall from 35% to 15%, eliminated the alternative minimum tax and the estate tax and get rid of numerous deductions. Bonds edged higher, as the yield on the 10-year slipped only a 1 bps point to 2.31% (earlier touched highs just under 2.34%, while stocks held.
Sector News Breakdown


  • Retailers; COST raises quarterly dividend and announces special dividend of $7 per share; DECK unlikely to see strategic interest given state of the Ugg brand, may see a PE buyer said Susquehanna which said takeout may be worth $62 per share; HIBB cuts year forecast citing  markdown pressure to liquidate aged inventory; CONN upgraded at KeyBanc; GCO was upgraded to positive at Susquehanna
  • Auto’s; TSLA active as Consumer Reports lowered safety ratings on its Model S and Model X because the electric car marker has not enabled them with an automatic emergency braking safety feature it said would come as standard; more good earnings in auto retail sector as PAG Q1 revs topped views on slight EPS beat, while SAH reported only in-line results; FCAU strong earnings gainer (Ford reports tomorrow morning); SUP Q1 EPS missed  lowest Street estimate; auto parts names pulled in on reports the Trump administration is considering an executive order on withdrawing the U.S. from NAFTA, according to two White House officials
  • Consumer Staples; PG mixed Q3 as EPS beat/sales miss and reaffirms year view; HSY mixed as EPS beat by 6c as revs miss while mid-point of year EPS view misses est.; in beverages; DPS shares slump after Q1 EPS beat by 5c but sales missed ($1.51B vs. $1.55B), while PEP Q1 core EPS beat by 1c, but reaffirms below consensus year EPS view and organic revs of at least 3%
  • Restaurants; CMG Q1 EPS beat by over 30c on better revs and comp sales; QSR comparable sales growth slipped 0.1% at Tim Hortons and Burger King and fell 0.2% at Popeye’s; BLMN Q1 top and bottom line results beat estimates as comp sales dell less than expected
  • Housing & Building Products; homebuilders MHO and TPH active on earnings (group fell yesterday on PHM results); IRBT rises on earnings beat and higher guidance
  • Casino, Lodging & Leisure; casino stocks rise after WYNN results, helped by strong results coming from Macau (said co is “enjoying a resurgence of activity at the top end in China”) as revs and margins coming in stronger with Wynn Macau (LVS reports tonight); shares of LVS, MPEL, MGM all active on report; CHDN sets up to $250M buyback program; in amusement parks, SIX trades 52-week highs on earnings rising 3.8% (lifts shares of SEAS as well); in lodging, WYN trades to new highs on Q1 EPS and revs beat, though year guidance short of consensus


  • Energy stock related news remains quiet – earnings for group (E&P kick into gear next week); mixed inventory data was the main driver of stocks today, which continue to lag other sectors; the American Petroleum Institute (API) reported a rise of 897,000 barrels in U.S. crude supplies for the week ended April 21, while Doe posted a larger draw of -3.6M barrels (while gasoline posts bigger build for both reports)
  • Top movers; PBF outperforms in refiners after being added to S&P MidCap 400 index; BHI was downgraded at BMO Capital saying they expect EBITDA growth to disappoint due to unfavorable mix and see near-term execution risk
  • Utilities and Alternative power; late yesterday, Bloomberg reported that FSLR and SPWR hired banks to advise on the prospective sale of their stakes in the yield-co CAFD; AWK downgraded at Baird on valuation; DYN was upgraded to hold at Deutsche Bank after sell-off in shares


  • Large Cap banks posted small gains, but remain strong following two-day rally; BOFI falls as EPS in-line, misses on net interest income; HRB shares fell after release of the Trump tax plan proposal; in research; KBW upgraded BKU to outperform (downgraded at JP Morgan), and downgraded FBK to market perform on valuation as shares have nearly doubled since $19 IPO
  • Credit cards/payment services; sector weak after DFS and COF results; COF with big miss as total revs soft driven by a higher provision (-26c), lower non-interest revenues (-19c), higher expenses, while DFS EPS misses by 6c driven by higher provisions, partially offset by higher total revenues, lower non-interest expenses; TSS rises early as Q1 earnings beat on higher outlook; VNTV falls after 2Q revenue guidance trailed estimates/Q1 merchant services revenue growth disappoint
  • Consumer finance; OCN shares active after the company asks Federal Court to decide CFPB Is unconstitutional (shares of RESI, ASPS, NSM, NRZ all related to OCN); CIT was upgraded to buy at Bank America
  • REITs lag other sectors; BXP reported 1Q FFO that missed estimates and lowered its annual same-property NOI outlook by 50bps; retail REITs are also falling after DDR withdrew its 2017 FFO guidance and cut its same-store NOI forecast.


  • Large Cap Pharma; Bloomberg reported that TEVA is considering divesting its specialty cancer assets in order to trim debt (oncology unit generated $1.14B in sales last year, down 5%); MNOV active as ibudilast shows treatment effect in ALS patients; GSK a mover on earnings
  • Medical devices and equipment; SYK reported sizeable beats on the top and bottom lines; EW posted a big 1Q beat and raise with sales of $821.7M (+18.1%), after backing out $61.8M in German stocking, beating the Street and raising guidance; IART reported better than expected Q1 results and maintained FY 2017 guidance; ILMN reported 135 NovaSeq instruments ordered in 1Q17 – well above Leerink 100 instrument estimate; 52-week highs for healthcare related names BAX after earnings), TMO, BSX, PKI, MTD, DGX, HOLX, WAT
  • Biotech movers; group got lift yesterday on BIIB results/sector remains strong; AKBA in expanded collaboration with Otsuka to include Europe and other regions, receiving $73M upfront, $135M in development funding, milestones up to $657M, royalties up to 30%; AMGN reports tonight
  • Managed care/services; ANTM reported earnings beat while revenue missed and boosted year outlook, while saying it hopes to resolve its dispute with ESRX but reiterated it still expects $3b in annual savings from its PBM contract
  • Services; NEO cuts FY17 revenue view to $255M-$265M from prior $260M-$275MACHC results were slightly below expectations, but reaffirmed EPS, revenue and EBITDA guidance; UHS inline over a very difficult y/y comparison; hospitals slipped midday (HCA, THC, CYH) after the AP reported Conservative House Freedom Caucus announces support for revised health care proposal; moderates still uncertain
  • Other movers on earnings: BABY, MDCO, MGLN, MDSO, NUVA, UTHR

Industrials & Materials

  • Aerospace & Defense movers; Dow component BA mixed Q1 as EPS beat by 10c, while revs just below consensus and raises year forecast by 10c top/bottom line (but in-line with ests.); GD Q1 earnings top consensus, while revs missed and backlog $60.4B; NOC Q1 sales topped consensus and lifts full-year earnings outlook, aerospace helps boost sales (group slipped yesterday after LMT results missed)
  • Transports; index flat early on as CHRW weighs on group after earnings/pricing (R hurt sector yesterday)…NSC top gainer in transports on earnings (lifting other rails) as EPS beat by 12c on better revs of $2.58B; Airlines mixed, as ALGT shares fall after issued Q2 unit cost guidance of +13-15% y/y, far above Citi +9% estimate; trucker CHRW slides on earnings/saw weaker pricing; KSU and other rail shares dropped on the reports White House readies order on withdrawing from NAFTA
  • Metals & Mining; steel sector a drag (group slid yesterday after shipment guidance form AKS); as U.S. Steel (X) plummets on big earnings miss driven by operating challenges in its flat-rolled business (shares down over 15%) – EPS much larger loss and guidance well below views (NUE, STLD, RS, among those moving)
  • Industrials and Diversified movers; news in sector dominated by earnings as companies IR, KMT, TKR, and UTX advanced following earnings; more to come tomorrow including results from AOS, BC, CNHI, CSL, FTV, GNRC, JCI, MWA, and PH.

Technology, Media & Telecom

  • All-time highs today for FB, MSFT, GOOGL, ADBE, PYPL, CMCSA, EA as tech continues to surge into earnings season/market optimism
  • Internet; TWTR Q1 EPS beat by 10c on higher revs as active users 328M vs. est. 322M and usage rises, though Q2 Ebitda outlook $95M-$115M misses $137M estimate; GRUB reports tomorrow morning, but biggies tomorrow night with AMZN, GOOGL, EXPE all expected
  • Semiconductors; CREE downgraded to neutral at JPM after Q3 results and Q4 guidance below expectations; TXN reported 1Q17 results above guidance but guided 2Q17 sales slightly below seasonal due we believe to a slowdown from the auto end market; INTC and SWKS report earnings tomorrow night
  • Hardware movers; hard disk drive maker STX shares drop as Q3 sales missed consensus and guided next quarter $2.5B-$2.6B below estimate $2.68B (WDC moved in sympathy); TEL gains on earnings; JNPR shares active on earnings beat
  • Optical stocks with China exposure are falling amid a New York Times report that the U.S. is widening its existing investigation into Chinese telecom equipment maker Huawei Technologies (shares of OCLR, LITE, FNSR, NPTN, and ACIA lower). The U.S. Treasury’s Office of Foreign Assets Control issued the subpoena in December, according to the NYT
  • Media & Telecom; AT&T (T) results mixed as wireless subscriber losses were worse than expected in the first quarter due to competition from rivals offering unlimited data plans; CCI 4.75M share Spot Secondary priced at $94.00; CETV rises as Q1 revs handily topped consensus views with bullish outlook; DIS’ ESPN to cut 10% of on-air commentators, content creators in network; FCC Chairman Ajit Pai proposed rolling back the Obama-era net neutrality rule that forbids broadband providers from interfering with web traffic

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.

Live Trading

Open an Account

Paper Trading