Market Review: SPY Closes Within A Hair of 240 to End a Choppy Week

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Equity Market Recap

  • U.S. stocks ended the day higher, bouncing off earlier losses (ending at the highs – some records), as markets cheered a stronger-than-expected employment report, but enthusiasm was tempered against uncertainty of the outcome of the French presidential election on Sunday. It was more of a stealth move higher late day, with the S&P 500 and NASDAQ both closing at all-time highs. The majority of the S&P 11 sectors ended higher, led by a rebound in telecom, energy, and materials after plunging yesterday, while financials and health-care stocks underperformed. All three major benchmarks closed the week with gains. The same could not be said for commodity prices, as gold slipped and oil rebounded from losses yesterday Friday, but ended the week lower by 3.3% and 6.3% respectively. Today was also the end of a very long earnings week, which saw positive earnings reports outpace the negative. Outside of the jobs, Europe was a top story ahead of the French election as Europe’s STOXX 600 index traded higher, touching new 21-month highs, while Germany finished at record closing highs. There were six Federal Reserve member speakers on the calendar today, talking rates, economy and inflation (nothing that moved the needle in regards to the market), while there were six Dow components touching 52-week highs today – AAPL, MCD, MMM, UTX, V, and WMT.

Economic Data

·      Nonfarm Payrolls for April rose 211K, above estimates for 190K, while the unemployment rate drops to 4.4% from 4.5% prior (and est. 4.6%); the participation rate fell to 62.9% vs prior 63%; prior month payroll claims revised down to 79K from 98K; average hourly earnings were reported in-line with estimates at up 0.3% MoM (prior 0.1%); Non-farm private payrolls rose 194K, mostly in-line with the 190K estimate while manufacturing payrolls rose 6K

Commodities

·      Energy prices gain, as WTI crude climbed 70c, or 1.54% to settle at $46.22 per barrel, just a day after plunging nearly 5% to the lowest levels since November on fears of a China slowdown in demand fears. Another week of oil rigs being added online (16 straight weeks) according to Baker Hughes, had little effect on prices. The move lower in oil comes ahead of OPEC meeting at the end of the month (25th) when they agreement to cut production reached 6-months ago expires. Markets were rattled overnight as crude stumbled further, with its weekly decline close to 10% at one point, but comments from Saudi Arabia’s OPEC governor helped put a floor under oil prices. For the week, crude oil slipped around 6.3%

·      Gold futures ended the week lower, slipping -$1.70 to settle at $1,226.90 an ounce, erasing earlier gains following the stronger jobs report. For the week, gold prices declined about (-3.3%). in what was a week to forget for commodity prices (despite a sliding dollar). The stronger jobs report increased odds of rate hikes this year by the FOMC. The decline this week was the largest since early November.

 Currencies & Bonds

·      The U.S. dollar was lower most of the day, but not volatile despite a slew of Fed speakers out today and a stronger jobs report. The euro touched a high of 1.0999, just shy of the 1.10 level which it hasn’t seen since November. The euro catching strength ahead of the French election where polls show euro friendly Macron is leading over euro-break-up Le Pen (Sunday night). The dollar edged higher against the Japanese yen, while falling vs. the British Pound (which touched high of 1.2976). Oil focused energy currencies (CAD, AUD) rebounded vs. the dollar.

·      Bonds were little changed, as the yield on the benchmark 10-yr was around 2.35%, the same as late day yesterday, after touching highs of around 2.378% initially after the jobs data. The yield on the 10-year note moved up 4.5 bps to 2.354% yesterday, the highest level since April 10. The yield for the 2-year ticked 1.4 bps higher to 1.31%.

Sector News Breakdown

Consumer

  • Retailers; ELY shares gained after reported impressive upside to 1Q estimates and raised full-year guidance significantly (GOLF up in reaction); PLNT 16.1M share Spot Secondary priced at $20.50; SIG resolves EEOC case on pay and promotions; next week starts retailer earnings with JCP, JWN, KSS, M, NWL all expected out
  • Consumer Staples; HLF 1Q adj. EPS and sales that topped estimates/raised guidance; MNST shares strong after Q1 EPS and sales top consensus on slightly better than expected margins on organic sales growth of 9.5%; AVP rises early after pressure from activist investor to oust CEO; in food, BGS, NGVC reported earnings; REV shares plummet after earnings slide; THS downgraded to market perform at Wells Fargo after sell-off, while upgraded at Stephens on that pullback
  • Restaurants; YUMC downgraded to neutral at Goldman Sachs on limited upside;SHAK upgraded at Buckingham after earnings/guidance; TACO, LOCO, RUTH, CHUY and WING also movers on earnings
  • Housing & Building Products; ILG shares rally to 52-week highs after earnings beat in lodging space; MAR to report on Monday; RRR Q1 revenues top highest estimates; CHH was downgraded at Morgan Stanley citing tougher comps and valuation
  • Auto’s; MNRO falls as preannounced negatively, with comps of -8% and EPS missed; TSLA nice recover after falling 5% yesterday post earnings

Energy

  • Oil stocks rebounded after plunging yesterday on rising inventory/supply fears and slowing China demand concerns; Baker Hughes (BHI) rig count data showed the weekly rig count rose 7 rigs to 877, with oil rigs up 6 to 703 (16th straight week oil rigs were added), gas rigs up 2 to 173, and miscellaneous rigs down 1 to 1; other movers on earnings overnight: AREX, ECR, MRO, GEOS
  • Oil drillers with a strong rebound today, led by NE positive 1Q results, lifting beaten up names from yesterday after 5% drop in crude and concerns in drilling space after RIG earnings

Financials

  • Large Cap banks underperformed for the most part today, despite a good outlook by several Fed members on the economy and better jobs data; USB was downgraded at Wells Fargo; overall been a good week as bond yields have perked up and rate hike expectations have risen; insurance names have outperformed on better earnings
  • Insurance; mortgage insurers weaker after mixed results from ESNT (EPS beat/revs miss) and NMIH (missed on both top/bottom line); bond insurers active this week on Puerto Rico bankruptcy news but move on AGO earnings overnight
  • Finance & Lending; LC shares slip after Q2 revs miss, originations dropped and total operating expenses rose; FNMA and MGI also movers on earnings
  • REITs; real estate names get a lift after JLL Q1 results top views; LSI was downgraded at Cantor after earnings; overall REITs (IYR) among better performing sectors

Healthcare

  • Large Cap Pharma/Managed care; new 52-week highs for managed care names – led by CI after better results this morning – AET, HUM, WCG also year highs; BIIB extends losses, trading at lows as biotech clearly underperforms…BIIB down over 2% and now over 8% since earnings miss…lowest levels since early Feb…meanwhile, med tech and equipment names have done well this earnings season (TMO, ISRG, MTD, A, ILMN at 52-week highs)
  • Biotech movers; REGN upgraded to buy and $484 tgt at Canaccord as believe that investor sentiment on the Dupixent launch is very strong; CELG downgraded to hold at Argus; PBYI falls as top executive resigns (cites health) ahead of FDA panel for breast cancer therapy; IMMU one of few bright spots in sector rising on news it raised $125M in gross proceeds in a private placement of convertible preferred stock, and now expects to have sufficient operating funds through Q3
  • Equipment and devices; EXAS tgt upped to $45 at Cowen citing a doctor survey that indicates Exact’s Cologuard test may one day exceed over $4B in annual revenue

Industrials & Materials

  • Industrials; SRCL reported a beat on rev and EPS last night and raised the full-year guide for both for the first time in 10 quarters; E&C company FLR declines after lowering outlook for year by wide margin as quarterly EPS missed/revs beat
  • Transports; truckers active after YRCW falls on results/posts wider than expected Q1 EPS loss and Ebitda; airlines underperform in an overall stronger transport index led by gains in rails KSU, CSX, and weak gains in trucking

Technology, Media & Telecom

  • Internet; ZNGA upgraded to buy at Bank America after Q1 EPS and revs top highest estimates; GDDY 24M share Secondary priced at $38.50; online travel names fell midday (PCLN, EXPE, TRVG) after Bloomberg reported the U.S. hotel industry plans to step up a lobbying and public relations attack calling them monopolistic
  • Optical sector remains active, as AAOI shares rally (up 130% YTD) on stronger Q1 results and Q1 guidance above views; lifts group that rallied sharply yesterday behind LITE after it made substantial progress on 3D sensing for mobile devices applications/said that revenue from 100G QSFP28 transceivers “picked up materially” – group hit early in week on soft OCLR results; NPTN also reported today – as group very strong
  • Semiconductors; OLED jumps to 52-week highs as sales topped consensus for quarter and raises year view; not much else in group after week of earnings results (QRVO, AMD, CRUS)
  • Software movers; IMPV solid 1Q17 results, as made significant progress since the quarterly misses in FY16; BCOV lowers its revenue forecast, a result of a lower pricing environment for CDN delivery services; CARB posted upside to Q1 revenue and EPS and bumped up the lower end of guidance; CALD posted 31%  SAAS revenue growth in Q1, up from 29% in Q4; DGII reported top/bottom line miss, guided Jun below, and lowered FY17 guidance; WK Q1 revs rose 16.5% y/y to $51.9M topping views; video gamers up on ATVI results (EA reports next week); ZENshares dropped on Q1 loss, while HDP shares rally on results
  • Hardware movers; Dow component IBM falls after Warren Buffet said sold 1/3 of position over Q1 and Q2; INFN falls as Q1 results were in line, but the 2Q guidance was weak due to a further half quarter delay in the General Availability of CloudXpress2; VIAV upgraded at Jefferies; AAPL new record highs today
  • Telco; WIFI revenue beat on strength in military base WiFi subscriptions and 15% sequential growth in wholesale WiFi; SWIR jumps on earnings; USM, TDS, reported this morning
  • Media; CBS reported a strong Q1, with results topping across all segments, with particularly strong performance at Entertainment from better than expected content sales and distribution revenue; NCMI shares drop over 20% after earnings miss/downgraded by analysts; DIS looks for strong “Guardians of the Galaxy” opening weekend

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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