Morning Preview: May 1st, 2017

eOptionDaily Market Report

Stock futures are edging higher to start the week, though most Asian and European markets are closed for holiday as markets prepare for another very busy week of corporate earnings and economic data, which is highlighted by an FOMC meeting on Wednesday (though no changes are expected) and a monthly jobs report released on Friday. The story overnight was Congressional leaders having reached an agreement to fund the government through the Sept. 30, congressional aides said late Sunday, as the two parties put aside some of their biggest spending fights in a bid to avert a government shutdown early in Donald Trump’s presidency. Overseas markets were mostly closed outside of Japan’s Nikkei Index which gained 113 points to settle at 19,310, the Shanghai Index and Hang Seng Index were closed. In Europe, major markets were closed.

U.S. stocks finished lower Friday into the weekend marking President Donald Trump’s 100th day in office, along with a lack of details in the president’s tax plan that gave investors pause. However, all three major equity benchmarks closed out April firmly in positive territory. For the week, the Dow Jones Industrial Average posted a gain of 1.9% and rose 1.3% for the month. The S&P 500 index gained 1.5% for the week, its best weekly stretch since the period ended Feb. 17, and added 0.9% in April. The Nasdaq Composite briefly touching an intraday high at 6,074.04 on Friday before sliding, but advanced 2.3% this week, crossing the psychologically significant mark of 6,000 for the first time ever on Tuesday to mark its strongest such gain since Jan. 6 and also gained 2.3% for the month (its six straight monthly gain—the longest stretch of monthly gains since a seven-period ending in May 2013).

Market Closing Prices Yesterday

  • The S&P 500 Index slipped -4.57 points, or 0.19%, to 2,384.20
  • The Dow Jones Industrial Average fell -40.82 points, or 0.19%, to 20,940.51
  • The Nasdaq Composite dipped -1.33 points, or 0.02%, to 6,047.61
  • The Russell 2000 Index declined -16.70 points, or 1.18% to 1,400.43

Events Calendar for Today

  • 8:30 AM ET          Personal Spending for March…est. 0.2%
  • 8:30 PM ET          Personal Income for March…est. 0.3%
  • 8:30 AM ET          PCE Deflator MoM for March…est. (-0.2%)
  • 8:30 AM ET          PCE Core MoM for March…est. (-0.1%)
  • 8:30 AM ET          PCE Core YoY…est. 1.6%
  • 9:45 AM ET          Markit US Manufacturing PMI, Apr-F…est. 52.8
  • 10:00 AM ET       ISM Manufacturing for April…est. 56.5
  • 10:00 AM ET       Construction Spending MoM for March…est. 0.5%

Earnings Calendar:

  • Earnings Before the Open: BSFT, CAH, GGP, L, PLT
  • Earnings After the Close: AEIS, AGU, AMD, ARE, BLKB, CC, CGNX, CYH, DNB, FLS, FMC, HLIT, IDTI, MUSA, NBL, QTS, RTEC, SBAC, VNO

World News

  • Growth in China’s manufacturing sector slowed faster than expected in April, as the National Bureau of Statistics’ official Purchasing Managers’ Index (PMI) fell to a six-month low of 51.2 in April from March’s near five-year high of 51.8 (ninth straight month above the 50-point mark)
  • Japanese manufacturing activity expanded at a stronger pace in April than the previous month as export orders increased, as the Final Markit/Nikkei Japan Manufacturing Purchasing Managers Index (PMI) was 52.7, slightly below a preliminary 52.8 but still above the 52.4 prior.
  • Deep corporate tax cuts proposed by President Donald Trump could result in a 10% increase in stocks, while failure to enact the reforms could trigger a 7% correction, said Michael Sadoff, co-owner of Milwaukee-based Sadoff Investment Management – Barron’s
  • Matteo Renzi, making a political comeback less than five months after resigning as Italy’s prime minister, easily regained the leadership of the ruling Democratic Party (PD) on Sunday with an overwhelming victory in a primary election among party supporters.
Sector News Breakdown

Consumer

  • Coach (COH) seeking luxury brands to buy after failed Burberry bid last year, Telegraph reports, citing unidentified people with knowledge of the matter https://goo.gl/BCq890
  • Chipotle (CMG) remains unattractive according to Barron’s noting the company reported better than expected comparable sales last week, but said pretty much everyone anticipated strong numbers, and the better test of its recovery will come after it laps last year’s plunge
  • Tesla (TSLA) shares are overvalued, according to a third of poll participants in Barron’s. Paul Wick, who runs the $5 billion Columbia Seligman Communications & Information fund, said Tesla’s bid to turn profitable in a short period “defies logic.”
  • Edgewell Personal Care (EPC) shaves have sold off after Procter & Gamble’s (PG) price cut to its Gillette products, but the dip looks like an opportunity” for investors, Barron’s said
  • Dunkin’ Brands (DNKN) upgraded to Outperform from Sector Perform at RBC Capital

Energy

  • NextEra Energy (NEE) shares appear cheap and could return 20% in a year according to Barron’s. Said even if the company fails to convince Texas regulators to approve its proposed acquisition of Oncor, NextEra is “well positioned” and boasts a portfolio of “stable and growing” businesses
  • First Solar (FSLR) upgraded to Neutral at Credit Suisse and raised its price target to $31 from $25 given the potential that Suniva’s Section 201 trade complaint succeeds combined with a 23% short interest in the name
  • Diamond Offshore (DO) Q1 EPS 17c/$374.2M vs. est. 9c/$363.7M; company’s total contracted backlog was $3.2B, which represents 23 rig years of work
  • Marathon Petroleum (MPC) files automatic mixed securities shelf

Financials

  • Healthcare Trust of America (HTA) said it plans to acquire Duke Realty Corp.’s (DRE) medical office building assets and medical development platform for $2.75B
  • Duke Realty (DRE) cuts forecast on HTA deal/plans special dividend; said plans to divest the last of its hospital assets in today’s more than $2.7B deal with HTA will make it a pure domestic industrial REIT; now sees 2017 core FFO/share $1.16-$1.24, saw $1.24-$1.30
  • Discover Financial (DFS) was downgraded to hold at Deutsche Bank, while the firm upgraded Capital One (COF) to buy
  • CNA Financial (CNA) Q1 Operating EPS 87c vs. est. 79c; Q1 net investment income $389M

Healthcare

  • A U.S. appeals court on Friday blocked health insurer Anthem Inc’s (ANTM) bid to merge with Cigna (CI), upholding a lower court’s decision that the $54 billion deal should not be allowed because it would lead to higher prices for healthcare
  • Celgene (CELG) has raised the price of multiple myeloma medicine Revlimid by more than half since 2012, FT reports, citing its own investigation (Revlimid costs almost $600 per pill) while Bristol-Myers Squibb (BMY) has increased the price of leukemia medicine Sprycel more than 60% since 2010, to about $12,000 per 30 tablets
  • Express Scripts (ESRX) mentioned cautiously in Barron’s saying the warning of a likely contract loss with Anthem (ANTM) suggests that pharmacy benefit managers can expect a less-lucrative role in America’s drug spending
  • AmerisourceBergen (ABC) announced that it has signed a new five-year agreement to supply pharmaceuticals to Express Scripts (ESRX).
  • Anthera (ANTH) announces 1-for-8 reverse stock split

Industrials & Materials

  • Caterpillar (CAT) mentioned positively in Barron’s saying shares are reasonably priced given signs of recovery in its end markets, and the stock looks back on track for price gains
  • Headwaters (HW) Q2 EPS 21c/$259M vs. est. 16c/$258.5M; backs FY17 adjusted EBITDA view $235M-$250M
  • Wesco Aircraft (WAIR) Q2 EPS 21c/$364.6M vs. est. 26c/$377.2M
  • CNH Industrial (CNHI) and AGCO (AGCO) upgraded to Neutral from Underweight at JPMorgan
  • Air Products (APD) upgraded to Buy from Hold at Deutsche Bank

Technology, Media & Telecom

  • Twenty-First Century Fox Inc (FOXA) is in talks with Blackstone Group LP (BX) about submitting an offer to buy Tribune Media Co (TRCO), one of the largest U.S. television station operators, sources familiar with the matter said https://goo.gl/OIvTxh
  • Twitter (TWTR) CEO Jack Dorsey buys 574K shares of company stock for an average price of $16.62 per share on April 28
  • Twitter (TWTR) is partnering with Bloomberg to create a 24/7 streaming news service expected to begin operating in the fall, the Wall Street Journal reports
  • Dish (DISH) Q1 EPS 76c/$3.68B vs. est. 67c/$3.78B; Q1 Pay-TV ARPU $86.55, 1Q Pay-TV churn 1.69%, Q1 Pay-TV subs net change -143,000
  • Fiber optics companies including Finisar (FNSR), Acacia Communications (ACIA) and Oclaro (OCLR) are booming and likely to do even better this year, Barron’s reported. Demand from trends like cloud computing remains high, and telecom companies are expected to need even more fiber this year. M&A is possible to improve margins
  • Sectors favored under a business tax cut include MLPs, restaurants, telecoms such as Verizon (VZ) and AT&T (T), utilities, banks such as JPMorgan (JPM), Capital One (COF) and Comerica (CMA), and highly taxed retailers such as Gap (GPS) and Nordstrom (JWN), Barron’s said

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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