Market Review: Stocks End Mixed Following FOMC Meeting

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Equity Market Recap

  • Stocks end mixed following the FOMC meeting results late afternoon, as the Federal Reserve kept rates unchanged as expected but indicated it still intends to hike them at least two more times this year (same commentary as prior). Given the lack of surprises in the statement, markets held steady, actually getting a little lift, though the Nasdaq Comp declined following a pullback in tech (AAPL earnings disappoint, but pared losses). Economic data was better (ADP private report/ISM services) ahead of the Nonfarm payroll report this Friday, helping support the U.S. dollar, which gained vs. most counterparts, which sent gold prices lower. Oil was all over the place, but rebounded off 6-week lows following mixed inventory data. Outside of the Fed, the real story today was earnings, with financials outperforming (insurance names), energy, staples and autos (rebounding from losses yesterday), while tech, media and telecom lagged. Generic drugmakers underperformed amid PRGO headlines (bout drug price investigation. Tonight is another heavy slate of earnings – led by FB, SQ, AIG, TSLA, PRU, PXD, QRVO and MET.
  • As expected, the Federal Reserve left its fed funds target range between 0.75% and 1%, while saying the 12-month inflation running close to its 2% goal. The Fed said the labor market continued to strengthen as growth slowed, while job gains were solid, household spending rose only modestly. Fed said fundamentals underpinning consumption growth stayed solid and repeats risks to outlook appear roughly balanced. The Fed repeats it maintaining balance-sheet reinvestment strategy.

Economic Data

  • ADP employment data in-line; Private-sector employment slowed down in April as employers added 177K jobs, according to ADP, down from a revised 255K jobs created in March (from prior 263K), but was mostly in-line with views for 175K jobs added
  • ISM Non-Manufacturing index for April rises to 57.5 from 55.2 prior month and above est. 55.8; new orders rose to 63.2 from 58.9 prior, while employment fell to 51.4 vs 51.6; supplier deliveries rose to 53.0 vs 51.5, inventory change rose to 52.5 vs 48.5 and prices paid rose to 57.6 vs 53.5

Commodities

  • Energy futures rebounded off 6-week lows and Brent off its 2017 lows as weekly API data shows sizable decline in U.S. crude inventories (API said crude fell -4.1M barres in week, while gasoline fell -1.9M barrels)…but prices slipped this morning after the DOE reported weekly stockpiles fell a less than expected -930K barrels (vs. est. -3M) and gasoline -728K. In the end, crude managed to close higher, rising 16c to settle at $47.82 per barre.
  • Gold futures fell ahead of the FOMC statement, falling -$8.50 or 0.7% to settle at $1,248.50 an ounce to mark its lowest settlement since April 5. Gold then falls further as the U.S. dollar strengthens against currency rivals following the Federal Reserve’s policy statement.

Currencies

  • The dollar advanced on the better ISM non-manufacturing data, rising above 112.50 against the yen…only to extend gains in the afternoon as the FOMC statement provided very little changes to what the market has been expecting – raising rates at a moderate pace. The dollar trades above 112.60 vs. the yen (6-week highs), while the euro slipped to fresh lows of 1.0894 vs. the dollar. The Aussie dollar fell back through 75 cents again today, with copper tumbling.

Bond Market

  • Treasury markets slipped as yields gained as the Fed reiterates commitment to rate hikes at its policy meeting. The 10-year rose early after better economic data, trading back to 2.3% and extended those gains after the Federal Reserve keeps rates unchanged as expected, but indicated it still intends to hike them at least two more times this year. Also today, the U.S. Treasury says working on internal review of possibility of issuing ultra-long bonds with maturities greater than 30-years.

Other Interesting tidbits

  • Investor Intelligence poll shows newsletter writers classified as bulls rise a second week to 58.5% from 54.7% last week., while bearish sentiment unchanged at 17.9%; bullishness back to the highest level since a 30-year high of 63.1% was set on March 1; those expecting a correction slips to 9-week low 23.6% from 27.4% last week
Sector News Breakdown

Consumer

  • Retailers; BGFV comps came in at 7.9% topping est. of 5.1% as revs of $253M beat as well (but shares reversed lower); HBI mixed as Q1 better, while Q2 guidance trails views; SCVL slides as year outlook falls short of consensus; retail fairly quiet as earnings don’t pick up for another few weeks
  • Consumer Staples; consumer product makers EL and CLX were active on earnings reports; in beverages, TAP Q1 sales missed views; in food, MDLZ (upgraded to buy at Deutsche Bank) Q1 results exceeding expectations, delivering modest organic sales growth; WTW Q1 results were better than expected; in tobacco, RAI Q1 EPS misses views
  • Restaurants; YUM Q1 EPS beat by 6c, topping highest estimate on better revs on strong Taco Bell comps/worldwide comps beat; PBPB downgraded by a few analysts after a weaker than expected earnings forecast; MCD upgraded to buy at Goldman Sachs (follows recently better earnings); BOJA drops after Q1 sales miss on lower comps (-1.7%); DENN Q1 EPS misses by a penny as comps fall (-1.1%) vs. est. 1%; PZZA Q1 profit missed views
  • Auto’s; auto suppliers get good report as DLPH reported results with headline EPS/revenues ahead, with revs ahead of the highest estimate and announced plans for a tax-free spin of the powertrain business – follows weakness in autos yesterday on soft April auto sales (GM, F, FCAU)
  • Casino, Lodging & Leisure; in gaming, BYD 1Q revenue and EBITDA beat estimates, driven by strength at its legacy LV Locals properties and continued strong expense mgmt. (YTD, PNK & PENN shares are up 43% & 34%, respectively, with BYD shares up 11%); MGM Resorts and GVC Holdings will launch online casino and poker games in New Jersey under the PlayMGM brand.
  • Education services mostly higher; STRA rises after Q1 results showed positive enrollment trends as new enrollments increased 8% y/y, continuing enrollments rose 6% y/y; BPI posted surprise profit on higher revs sending shares surging

Energy

  • E&P movers on earnings; APC Q1 results mixed given multiple divestitures and weak 2Q production guidance (downgraded at Macquarie and Wells Fargo); FANG 1Q production beat, but 2017 guidance unchanged; RSPP 1Q in-line and 2017 guidance unchanged; DVN 1Q beat yet provided lowered 2Q17 guidance; NFX beats 1Q estimates and raises FY17 production guidance 4% driven by accelerated activity and oily outperformance in the STACK and Bakken
  • Research; Wells Fargo cut ratings on APC, SRCI, and XOG to Market Perform following an overhang on APC and all DJ Basin players on the heels the preliminary findings regarding the tragic situation in Firestone, CO; OAS upgraded to buy at SunTrust as sees it beginning to hit on all cylinders citing rig activity that should soon double; HP upgraded to buy at Jefferies following recent sharp sell-off and sees very attractive upside for PTEN and PDS;
  • Solar sector; FSLR Q1 EPS/revs beat estimates and boosted 2017 EPS and revenue views (SPWR, CSIQ, JKS move in reaction); WSJ reported the SEC is probing whether RUN and SolarCity have adequately disclosed how many customers canceled contracts after signing up for home solar-energy system

Financials

  • Insurance; ALL Q1 EPS easily topped consensus views saying a favorable winter offset Q1 catastrophe losses; GNW earnings top consensus; bond insurers (AGO, MBI, AMBC) declined late morning as Puerto Rico to seek bankruptcy protection after saying negotiations with bondholders have failed, and will look to use a “Title III” process to restructure $70B in debt; AIG scheduled to report earnings tonight after the close; VOYA Q1 operating EPS topped estimates
  • Consumer finance & lending; FLT shares dropped after Citron Research tweeted that FLT is being sued by Chevron, “delaying transfer and charging fees.” FLT then pared the loss
  • Financials services; VRSK downgraded to neutral at JP Morgan following its 1Q miss that was driven by low 2.5% y/y organic constant currency revenue growth; TNET trades to 2-year highs after Q1 beat; PYPL trades 52-week high; SQ reports earnings after the close; ADP falls to 2015 lows as 3Q new business bookings declined 7% amid tough comps, and it cut its bookings forecast for the year

Healthcare

  • Large Cap Pharma and managed care; BMY was downgraded to underperform at BMO Capital; HUM the latest insurer to report earnings results above consensus as group remains strong (HUM, AET at 52-week highs today); PIRS signs $57.5M deal with AZN to develop drugs for respiratory diseases; WCG easily tops consensus sending shares higher
  • Generic drugmakers slipped after PRGO confirmed its offices were searched by the Department of Justice in an ongoing probe into generic drug-pricing (shares of AKRX, TEVA, IPXL, LCI active); LCI shares already weak after Q3 earnings and revenue missed consensus
  • Biotech movers; GILD Q1 EPS missed by 6c as revenue fell short of consensus on lower revs from Sovaldi, Atripla, and Truvada; ARRY upgraded to overweight at JP Morgan calling decline yesterday a compelling entry point ahead of an expected regulatory filing for the drug-developers melanoma combo and late-stage data in colorectal cancer;
  • Equipment, device movers; MYGN results were above consensus but on-trend and boosted year outlook; LNTH shares traded to new highs after boosting year revs and Ebitda outlook; GHDX shares downgraded at Raymond James seeing few catalysts for near-term estimate revisions amid a transition in 2017; VWR shares jumped midday after WSJ reported New Mountain Capital said to near buying medical equipment maker for near $5B https://goo.gl/iQp3J9; DXCM falls on earnings and analyst downgrade
  • Healthcare Services, suppliers, facilities; AMED climbed to new 52-week highs on earnings beat/upgraded to buy at Mizuho; other movers on earnings DVA (lower), EVHC mixed,

Technology, Media & Telecom

  • Hardware movers; AAPL strong results, though quarterly revs and guidance fall short of estimates; GRMN Q1 EPS beat by 7c on better revs and gross margins of 58.3%; CRAY shares drop on Q1 loss on lower revs and as revs well below consensus ($400M-$450M vs. est. $584M)
  • Optical sector; OCLR Q3 revenues, margins and EPS came in better than estimates but guided Q4 sales to decline 9% q/q at the mid-point to $148M vs. est. $164M due to the demand slow-down in China, combined with Huawei inventory correction (LITE, NPTN, FNSR move in reaction)
  • Internet; FB reports earnings tonight after the close; AKAM shares fall (several downgrades) after reported a solid Q1, but disappointing guidance for Q2 ($597M-$609M vs. est. $623M) as revs from video game downloads has softened significantly; ETSY falls on weaker results and suspended guidance until next quarter as a new management team will be in place by then; GRPN Q1 EPS slightly better, but revenue well below consensus; SHOP exceeded Street expectations for the quarter with better than anticipated GMV growth
  • Semiconductors; group takes a breather early after suppliers of AAPL’s iPhone under pressure on AAPL revenue and guidance miss (SWKS, QRVO, AVGO among those moving); group fell yesterday on AMD sales miss/margins (which hit NVDA); KLIC reported earnings today; IPHI also a decliner after Q2 results trail views
  • Software movers; CTXS rises on reports Bain, Carlyle, Thoma Bravo are among bidders https://goo.gl/Q1kbnt ;HUBS delivered another strong quarter, with upside driven by 41% YoY subscription revenue growth; TWLO shares plunged on results (downgraded at Pacific Crest) on better Q1, but revealed changes in how it’s used by Uber (less), which resulted in lowered 2017 guidance; PAYC strong 1Q results in which revenue, EBITDA, and EPS came in above consensus expectations; CSOD solid 1Q results in which revenue and EPS came in above consensus expectations; other names moving on earnings: PRO, AZPN
  • Internet security; FEYE shares up as exceed modest expectations, raising top-line estimates and reiterating profitability targets; QLYS also reported results, coming in mostly with expectations
  • Telecom & Media movers; FTR as Q1 loss wider than estimates and cuts dividend by 62% (downgraded at Cowen, raised at Citi); NYT reports improved Q1 earnings above expectations as digital advertising increases; Sprint (S) Q4 revs top consensus, but postpaid net changes fell -118K; CHTR downgraded at Wunderlich after earnings; MTCH shares slipped as Q1 EPS missed

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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