Market Review: Nasdaq Closes At All-Time High; Bank Shares Rebound

eOptionDaily Market Report

Equity Market Recap

  • Stocks continue to surge, getting a lift after a deal among Congressional leaders to fund the government through Sept. 30 was reached over the weekend, thwarting any chances of a near-term government shutdown, while markets remain strong into the FOMC meeting Wednesday. Tech stocks continue to outperform with the Nasdaq Comp trading to a new all-time highs (after AMZN/GOOGL earnings last Thursday lift group – FB/AAPL record highs ahead of earnings this week), trading up as high as 6,100. Banks caught a little selling pressure midday after U.S. president Donald Trump said he is actively weighing breaking up large Wall Street banks, but they quickly recovered. Defensive assets/stock sectors such as bonds, gold, and utilities all found themselves under pressure as broader stock market averages pushed higher, and the “fear” index (VIX) traded into the single digits on the day (low of 9.90)! Note it only took six trading days for the NASDAQ to go from 6,000 to 6,100 – traded above 6K for first time ever on 4/24. Volumes were lighter today given the holiday in Europe that had many markets closed for trading. The irony was that stocks bounced and bonds slipped despite mostly weaker economic data today. As readings on consumer spending, personal income and inflation data all missed. Commodity prices were mostly lower, on 1% declines in both gold and oil as the dollar rebounded. Earnings overload the rest of the week, with Dow components MRK and PFE tomorrow morning.

Economic Data

  • Construction Spending for March fell (-0.2%) vs. est up 0.4% as February was revised up to 1.8% (from 0.8%) up to $1.22 trillion annual pace, highest on record; Private residential construction rose 1.2% to highest level since June 2007, while private nonresidential construction fell 1.3% and  Public construction fell 0.9% in March
  • ISM Manufacturing for April falls to 54.8 from 57.2 last month and below est. at 56.5; component breakdown shows: new orders fell to 57.5 from 64.5, while employment fell to 52 vs 58.9; inventories rose to 51.0 vs 49.0 though customer inventories fell to 45.5 vs 47.0; prices paid fell to 68.5 vs 70.5 and backlog of orders fell to 57.0 vs 57.5
  • Personal Income for March rose 0.2%, below est. for up 0.3%, while personal consumption was unchanged vs. est. up 0.2%; real personal spending rose 0.3% (est. up 0.4%); core inflation fell (-0.1%), in-line with forecasts and rose 1.6% YoY; PCE prices fell (-0.2%), also in-line w views and rose 1.8% YoY; the savings rate at 5.9% in March vs 5.7% the prior month
  • April Markit Manufacturing PMI 52.8, in-line with prior Flash Reading, but the index falls to 52.8 from 53.3 in March (but up from 50.8 a year-ago); still the lowest reading since Sept. 2016 as output falls to 53.5 from 54.3 in March; new orders fall vs prior month

Commodities

  • Gold futures declined, falling -$12.80, or 1% to settle at $1,255.50 an ounce, its lowest settlement in three weeks and snapping the brief 2-day session gain after mixed economic data and a rebound midday for the U.S. dollar. Profit taking of defensive sectors as stocks jumped was probably the biggest reason for the pullback in gold which has fallen from near $1,300 levels just 2-weeks ago to today’s lows. Gold finished with a 1.6% weekly decline Friday, as geopolitical risks, particularly in Europe, appear to have cooled somewhat. Bitcoin surpassed the $1,400 price for the first time ever today, and topping gold.
  • Oil prices/sector one of few non-defensive sectors lagging broader market rally, as WTI crude dropped -49c, or 1% to settle at $48.84 per barrel (high $49.32 and low $48.59). With today’s declines on inventory surplus fears, oil ended near 5-week lows. Also weighing on oil prices, Libya said its oil output is highest since December 2014.

Bond Market

  • Bonds erased early (small) gains, as yields jumped amid a rally in tech stocks, lifting the yield on the benchmark 10-year to highs around 2.33% from a weeklong low as economic reports showed that consumer spending in the U.S. economy was slowing down and as inflation appeared muted. The yield on the benchmark 10-year touched 2.28% earlier, down slightly after mixed economic data, (weaker ISM and personal income/spending data) and ahead of the FOMC meeting this week, but as stocks steadied, bonds slipped lifting yields
Sector News Breakdown

Consumer

  • Retailers; KATE shares slipped early after the Telegraph reported COH seeking luxury brands to buy after failed Burberry bid last year, looks like favorite for Jimmy Choo https://goo.gl/BCq890 ; firearms names slipped after monthly NICS firearms data showed 2.045M background checks …down from 2.43M MoM and down from 2.145M YoY (AOBC, RGR); auto retailers ORLY, AZO trade down at 52-week lows – follow through weakness post earnings (estimates and target cut by Morgan Stanley today in group)
  • Consumer Staples; EPC defended at Barron’s saying shaves have sold off after PG price cut to its Gillette products, but the dip looks like an opportunity” for investors; TIS suspended dividend after quarterly sales fall; NWL shares dropped after Wells Fargo downgraded citing negative risk/reward into Q1 earnings (was positive mention at RBC today); earnings tomorrow for MO
  • Restaurants; DNKN upgraded to Outperform at RBC Capital largely based on our outlook for improving franchisee profitability and improved long-term unit and EPS growth; BOBE to pay special dividend of $7.50 a share; CMG mentioned cautiously in Barron’s saying shares remains unattractive
  • Casino, Lodging & Leisure; cruise lines were active (RCL, CCL, NCLH) after a newspaper publication said Chinese conglomerate HNA has been on a travel business acquisition spree in recent months, and rumors continue to circulate involving a major cruise company https://goo.gl/PQmqJ7; lodging and hotel names were higher – HLT reports in the AM

Energy

  • Energy sector continues to lag on softer oil prices, despite broader market strength; 52-week lows today for RRC, OXY, NBL in the S&P 500 index;  oil drillers drop the most on weaker DO guidance (more below) in drilling sector
  • Utilities, solar, alternative energy; utilities underperform as the UTY falls over -0.7%, dropping below 650 level (highs of day 655.38) – FE leads declines after two analyst downgrades (though upped at Barclays on valuation), along with weakness in EE, PCG, EXC, AEE; in solar, FSLR was upgraded to neutral at Credit Suisse with $31 tgt; Coal names moved after ARLP boosted its 2017 revenue forecast and Ebitda outlook
  • Oil drillers; DO Q1 results topped views, but said sees Q2 sales unchanged to slightly up vs. Q1, which weighed on shares; SDRL to sell three jackups for $225M; Barclay’s cut targets for all 8 offshore drillers 31% on average saying based off model, the DCF of every rig in each company’s fleet, calculating cash flow for each year of its estimated useful life, with most 4th generation and even 5th generation rigs facing an early demise (says RIG and ESV with material downside risk)
  • MLP sector; Credit Suisse said they do not foresee SXL outperforming the broader MLP space and thus downgrade to neutral, while saying ETE is the best way to play the group’s capital structure and reiterate Outperform on ETE; group was overall mixed with SUN, VLP leading decliners
  • Oil equipment and services; DRQ was downgraded at Barclay’s on concern the company’s earnings power in the 2019-2020 cycle will be considerably less than in the last cycle ’10-‘14

Financials

  • Lending & Finance; OCN shares jumped after NRZ said it would pay OCN $425M to purchase MSRs (on which NRZ currently owns excess servicing), which would strengthen OCN and give NRZ more control of MSRs in case of a problem at OCN, according to KBW; ASPS up in sympathy with OCN news; credit card names slammed last week after COF, DFS and SYF NCO’s weak/earnings miss last week (COF was upgraded to buy at Deutsche bank while they downgraded DFS); LC was upgraded to positive at Susquehanna and raised tgt to $9 from $6 saying analysis suggests sufficient Q1 momentum to create an upward bias in ’17 and ’18
  • Regional bank rating changes at Wedbush today as they upgraded STI to outperform calling it a high quality company that deserves to trade at a premium valuation and also upgraded CFG to outperform; firm downgraded RF to neutral saying parts of the revenue story are coming in weaker than expected, namely loan and fee income growth; FNBC shares plunged after Louisiana Office of Financial Institutions on Friday closed the lender and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver
  • Insurance; GNW slides; markets hopes for the company’s deal to be acquired by China Oceanwide for $5.43 per share in cash to be successfully completed were given reason to be concerned on Friday after the market close when GNW reported that the companies had withdrawn and refiled their joint notice to the Committee on Foreign Investment in the United States (CFIUS). GNW said the purpose of the refiling was to allow for additional time for review and discussion with CFIUS regarding the potential merger
  • Banks/advisors; group turned lower midday after President Trump said he’s “actively considering breaking up big-banks” (GS, JPM, WFC, C, all pulled in off highs following headlines) but rebounded; Justice Department last month issued subpoenas to several banks, including UBS, RBS and BNP.LN, relating to an investigation into possible manipulation of the treasury market, Bloomberg reported; AMG underperformed in the S&P after earnings; FII shares fall after KBW downgraded to underperform saying upside is limited amid fund outflows
  • REITs; Mizuho said with most of 1Q17 earnings reported (CPT is this week), they reiterated their constructive view on the multifamily sector overall but feel two changes are required at the stock level to refine the call (upgraded ESS to buy but cut AIV to neutral); EDR core FFO beat by 3c and reiterated year mid-point of view; HTA said it plans to acquire DRE’s medical office building assets and medical development platform for $2.75B; DRE cuts forecast on HTA deal/plans special dividend after deal with HTA; mall REITs outperformed (GGP, MAC, SPG) after GGP CEO said it is exploring strategic options, including potential asset sales

Healthcare

  • Large Cap Pharma; earnings tomorrow from MRK and PFE; VRX said it is still advancing towards expectation of repaying $5B debt via divestiture proceeds and free cash flow within 18 months of Aug. 2016; ITCI plunges after FDA info request/seeks more toxicity information on schizo drug Lumateperone; AEZS said Phase 3 trial of cancer treatment Zoptrex did not meet primary endpoint sending shares lower
  • Biotech movers; NTRP shares plunge after the company released mid-stage clinical trial results for an Alzheimer’s disease drug that were criticized by investors; CRVS cut to underperform at Credit Suisse based on the underwhelming efficacy data that was presented at AACR earlier this month; overall biotech group strong with market (IBB)
  • Healthcare services and facilities; ESRX mentioned cautiously in Barron’s saying the warning of a likely contract loss with ANTM suggests that pharmacy benefit managers can expect a less-lucrative role in America’s drug spending; ABC signed a new five-year agreement to supply pharmaceuticals to ESRX; CAH widened bottom end of revenue growth outlook after earnings
  • Medical equipment and devices; life science tool names (TMO, ILMN, A, NSTG) active after Congress reached an agreement on a new spending bill that includes a $2B increase to funding for the National Institutes of Health’s budget; WAT upgraded to buy at Janney and raise tgt to $200 as see the Life Science Industry transitioning to faster growth in 2017 and we believe that Waters will be a key beneficiary

Industrials & Materials

  • Industrial & Machinery; JP Morgan upgraded machinery stocks CNHI and AGCO to neutral after both companies exceeded expectations for the quarter last week but maintained conservative guidance for 2017 – they remain Underweight DE as it is more highly leveraged to US ag; cement stocks rise (EXP, MLM, VMC) after Texas cement shipments rise 17% in March
  • Aerospace & Defense; Barclay’s with sector call today, downgrading sector to neutral from positive saying while defense stocks have been strong post-election absolute performers, they note the investor debate around the relative attractiveness of the group is more two-sided – the firm reduces rating on LLL, HRS and BAH (maintain OW rating on GD, NOC, and OA); WAIR shares fall after announced 2Q miss & abrupt CEO change
  • Tankers and Marine industry; Credit Suisse said in the early days of a recovery (where we think we are) they prefer asset traders over pure leasing companies…upgrade CMRE to Neutral and raise tgt to $8 and downgrade SSW to underperform and cut tgt to $6

Technology, Media & Telecom

  • Tech leads – 52-week highs for tech names at one point today: LRCX, FB, JNPR, YHOO, NFLX, AAPL, ATVI, ADSK, HPQ, SYMC, PCLN, ADBE, and EAAAPL, FB, EA, ATVI report this week
  • Internet; TWTR active on two pieces of news as: 1) CEO Jack Dorsey buys 574K shares of company stock for an average price of $16.62 per share on April 28, while the WSJ reported Twitter is partnering with Bloomberg to create a 24/7 streaming news service expected to begin operating in the fall; FB reports on Wednesday after AMZN, GOOGL positive reports last week
  • Semiconductors; Sales of chips soared 18% in March to bring worldwide semiconductor revenue to $30.9 billion, according to the Semiconductor Industry Association (SIA). Sales, which jumped from $26.2 billion in the year-earlier period and gained 1.6% over the $30.4 billion recorded in February, were driven by demand for memory chips; QCOM reported that AAPL is continuing to withhold payments from its contract manufacturers per the ongoing dispute with QCOM over royalties, despite already withholding the $1B it claims is owed to QCOM
  • Software; ADSK upgraded to overweight at Morgan Stanley and raise tgt to $115 from $69 saying the path to yielding more FCF off a sticky customer base has become clearer, as the subscription model transition progresses; JIVE to be acquired by ESW Capital Affiliate for $462M, with holders getting $5.25 per share https://goo.gl/Wy21ja ; video gamers EA and ATVI report this week; BSFT shares dropped as FY revs outlook trailed estimates
  • Hardware/component movers; WDC downgraded to hold at Jefferies following strength in shares/valuation/ time imagining the NAND market dynamics getting better from here
  • Media & Telecom; TRCO rises after reports FOXA is in talks with BX about submitting an offer to buy the television station operator https://goo.gl/OIvTxh ; DISH falls from 52-week highs after losing -143K TV customers in Q1 (vs. -23K a year ago) as revenue/earnings drop

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

Register