Market Review: Same Story, Different Day Up Until Final Hour

eOptionDaily Market Report

Equity Market Recap

  • Up until the final hour of trading, where markets came under pressure for the first time in the day, it had been “same story, different day”, with major averages failing to move meaningfully after reaching fresh record highs earlier for the Nasdaq Cop and S&P 500. However, a drop in oil and geopolitical fears following a threat by North Korea against the U.S. had weakened markets in the final hour. Major averages (S&P specifically) remain in tight trading ranges despite macro events such as: recent jobs data, French election results, an FOMC meeting and earnings season. Overall, today was another quiet and uneventful session as the S&P 500 index held around the unchanged level most of the session. The S&P has now moved less than 20 points in either direction for ten consecutive days, the longest streak since 1964, while the volatility index (VIX) bounced off 24-year lows of 9.56. Defensive assets have been sliding the last few days (gold and bonds), while yields inch higher, but oil fails to rally with the broader market, sliding back near Nov lows. European sentiment improves as markets extend their outperformance vs. the U.S. Given the late day swoon, the Dow Industrials failed to post its first 3-day win streak since end of February. Markets still remain strong as (coming into today) the iShares MSCI Emerging Markets ETF is up nearly 15%, while the SPY has a gain of 7.2%. The Nasdaq Composite has climbed 13.4% year to date and the Dow is returning 6.4% so far this year.

Commodities

  • Precious metals slide as stocks remain near record levels and the dollar rebounds after recent weakness, making commodities priced in the currency, like gold, less attractive to buyers using weaker monetary units; gold dropped -$11.00 or 0.9% to settle at $1,216.90 an ounce
  • Oil prices continue to slide, with June WTI oil falling -55c or 1.2%, to settle at $45.88 per barrel, ahead of weekly API inventory data tonight and DOE tomorrow morning (which has been mostly bearish over the last few weeks). Prices fell today on global glut concerns with Libya pumping the most oil in more than 2 years (yesterday was reported Libya’s NOC chairman says goal is to reach 800k b/d by year-end); ongoing supply fears ahead of OPEC meeting at end of month, has driven oil prices lower. Brent oil closed below $49 per barrel. Also, the EIA forecast U.S. crude production at an average 9.31 million barrels a day in 2017, up 1% from the previous forecast, and sees 2018 output at 9.96 million barrels a day, up 0.6% from the previous forecast.

Currencies & Bonds

  • The U.S. dollar was broadly higher today; trades above the 114 level (touched highs of 114.33) vs. the yen for the first time since March 15th (up nearly 1%), while the euro dips below 1.09 for the first time in 2-weeks (lows around 1.0865). The stronger dollar a product of positive FOMC member comments the last few days on economy/as rate expectations jump for the June meeting. The dollar index (DXY) fell late day following the comments by North Korea
  • Treasury market’s slide as yields continue to edge higher; the yield on the 2-yr rises for a 5th straight day, up above 1.35% (six-week highs), while the benchmark 10-yr yield tops 2.41% this morning; bonds yields rising amid abating geopolitical concerns as pro-European centrist Emmanuel Macron beat Le Pen in the runoff of the French presidential election on Sunday. Also continued strength in stocks creating rotation out of more defensive assets. Overall on the day, bonds were in a tight range.

Economic Data

  • Wholesale Inventories for March rose 0.2% in March, above est. (-0.1%) as inventories increased to $594.B from $593.5B in prior month. Wholesale sales unchanged in March after rising 0.7% the prior month; wholesale sales excluding automobiles fell 0.1% in March
  • U.S. IBD/TIPP May Economic Optimism Index fell to 51.3 after April’s 51.7; Economic outlook fell to 49.6 vs 51.1 last month; Personal finance fell to 57.1 vs 61.3 last month; Federal policies rose to 47.1 vs 42.6 last month
  • U.S. job openings rose to 5.743M in March from 5.682M prior month; March job opening rate (job openings as a % of total employment plus openings) 3.8% vs 3.8% prior month; March pace of hiring 3.6% vs 3.6% prior month
Sector News Breakdown

Consumer

  • Retailers; office retailer ODP trades to 52-week high after Q1 EPS beat by 4c, though sales short of views, on better margins; online retailer JD trades 52-week high after Bernstein upgraded and analysts raise tgts citing the co.’s first ever GAAP operating profit in 1Q; FOSL earnings tonight
  • Consumer Staples; DF Q1 EPS missed by 4c though sales slightly beat/reaffirmed year views as shares advanced; TA and CST shares both weak after quarterly results missed estimates; IFF downgraded by one analyst after mixed Q1 (EPS beat/sales miss); POST Q1 EPS missed views; some earnings tonight after the close from BETR, BUFF, TWNK
  • Restaurants; FRGI Q1 EPS and revenue both missed view; FOGO holder Thomas H Lee files to sell 4.5M shares while company Q1 EPS met estimates; EAT benefits from filings showing management purchases of shares; CMG, NDLS, SHAK, DPZ shares strong
  • Casino, Lodging & Leisure; Hotels and lodging names higher as MAR boosts 2017 RevPAR and adjusted Ebitda guidance and reporting 1Q adjusted EPS that beat the highest estimate (shares of H, CHH, STAY, HLT, LQ all active on the report/guidance); in leisure, CWH filed to sell shares; SEAS FY Ebitda outlook trailed estimates after Q1 rev miss $186M vs. est. $205M
  • Building products/retail; DOOR mixed Q1 results as EPS beat by 5c, but both sales and Ebitda results fall short of consensus views; BLDR Q1 results topped consensus, but shares slip (had been near 52-week highs into earnings)/gross margin declined 50 bps versus the prior year, as inflating lumber prices helped results but constrained gross margin; homebuilders outperformed, led by gains in LGIH, WLH and MDC, all of which reported this morning

Energy

  • Energy names remain under pressure following weaker earnings results and declining oil prices; in E&P sector; EOG results in-line but production above top end of guidance; SN Q1 adjusted EPS loss greater than estimates; AR shares fell on results, while GPOR, OAS, CRZO rounded out earnings reports; in equipment names, CLB extends losses after David Einhorn said yesterday at Ira Sohn conference that he sees ~45% downside; refiners TSO Q1 EPS handily topped consensus, while DK posted an EPS miss; in MLPs, PAGP falls after Q1 misses forecasts and year Ebitda outlook below, while overall Alerian MLP Index (AMZ) dropped over 1%

Financials

  • Large Cap banks; not much news in banking sector, with no recent commentary out of the White House on tax reform, though rising bond yields supportive of the sector; earnings behind group as macro and trading now the main driver of prices; DCOM was upgraded to outperform at Piper citing improving fundamentals; GNTY 2M share IPO priced at $27.00; in the insurance space, AFSI shares dropped after Q1 operating EPS missed the lowest estimates
  • Asset managers & advisors; BEN prelim month-end AUM of $741.0B, up from $740.0B as of March 31 and $747.1B as of April 30 2016; CNS prelim AUM $59.2Bn as of April 30, 2017, an increase of $696M MoM; PZN reports preliminary April AUM $32.3B
  • Brokers & Exchanges; CBOE Q1 EPS beat by 9c, though profit tumbled on higher costs; AMTD announces April trade metrics, saying April average client trades per day up 7% to 502,000 and $858 billion in total client assets as of April 30, 2017, up 19% YoY; GAIN 2.6M share Spot Secondary priced at $9.38
  • Lending & Finance; ESNT double upgrade to buy at Bank America as they are more confident in its organic growth outlook and the housing credit backdrop; WRLD Q4 revs topped consensus with $144.6M beating $131M view (high short interest in name too)
  • REITs; SRC announced management changes in wake of 25% drop last Thursday (vs triple net peers flat) after a weak 1Q report, slashed guidance; BKD advanced on earnings

Healthcare

  • Large Cap Pharma; specialty pharma gets a bounce today (fell yesterday on HZNP guidance) as VRX Q1 revs missed views but raised its year Ebitda forecast and cut debt/CFO said can meet all of its debt obligations and ENDP Q1 EPS topped views as Opana revs beat as well; REPH said top-line results from a Phase 3 study of IV meloxicam 30mg keep the co. on track to file an NDA during early 3Q17; AGN Q1 EPS beat and raised forecast; PAHC reported Q3 rev beat and EPS 9% above consensus, driven mainly by a lower tax rate;
  • Biotech movers; group underperformed yesterday amid weakness in ALXN, HZNP guidance and TXMD CRL letter; SCYX slides after being downgraded at Needham after FDA requested more info for IV formulation; PTLA Betrixaban remains on track for its 6/24 PDUFA with a productive late cycle review
  • Suppliers & Services; PINC mixed quarter with adjusted EBITDA upside despite weaker top line vs. guidance; TDOC Q1 metrics exceeded expectations on better results/visits at the top end of guidance range at 385M while membership grew to 20M
  • Medical devices & Equipment; NVRO shares fall as reported a wider Q1 EPS loss of (50c) and missed on revenue; 52-week highs for PKI, COO, TMO, BSX in the healthcare sector; LNTH to replace TDW in the S&P SmallCap 600 effective prior to the open on Tuesday, May 16; PLSE shares dropped after negative commentary by Kerrisdale Capital
  • Managed care; 52-week highs again for AET, CI, HUM

Industrials & Materials

  • Industrials & Machinery; CBI cut its 2017 EPS view following a 91% y/y drop in 1Q engineering & construction segment’s adjusted income from operations; PNR board unanimously approves plan to separate into 2 independent, publicly-traded cos. via tax-free spin-off of Electrical; MTW rises more than 15% after reporting 1Q results, including 17% YoY order growth, and affirming outlook; RBC slides despite beat and raise quarter (at 52-week highs prior to report)
  • Transports; in airlines, AAL boosted Q2 Trasm to up 3.5%-5.5% from prior 3%-5% and raises pre-tax margin view after providing April traffic data; ALK April traffic rose 7.8% YoY while combined load factor for April 86.6% vs 84.1% YoY; car rental names weak again as HTZ reported an extremely weak 1Q, missing consensus estimates by a wide margin hurt by weak pricing; SAVE falls as cancellations at Fort Lauderdale airport leads to fights between employees and customers
  • Metals & Mining; gold miners broadly lower after dollar rises, hits gold prices; industrial metals also weaker on no specific news in group – just weakness in commodities (stronger dollar and China slowing demand woes)
  • Aerospace & Defense; SPR was upgraded to buy at UBS saying the stock reflects 35% decline in 737/777 cash, but they now see a favorable risk-reward; aircraft parts maker TDG missed sales estimates for Q2, but guided year EPS, Ebitda and sales above views; 52-week highs for BA, GD and RTN today
  • Containers/Packaging sector; SEE weighs on group after the company cut 2017 EPS to $1.70, from prior view $2.70 and sees 2017 Free Cash Flow ~$390m, saw ~$600m) – was downgraded at Bank America on guidance

Technology, Media & Telecom

  • Internet; Wayfair (W) posts narrower Q1 EPS loss on better revs $961M; Pandora (P) is shaking up its board and stepping up efforts to find a possible buyer, noting it received a $150 million infusion from private equity firm KKR & Co. (falls as also guided Q2/year revs below views); YELP, TRIP, PCLN report earnings tonight after the close; 52-week highs for AMZN, GOOGL; MEET declines over 10% despite in-line results/better guidance
  • Semiconductors; ADI positive comment at Morgan Stanley as sees a tactical buying opportunity, with over 20% upside to our PT and compelling risk/reward; NVDA to report earnings tonight after the close; MXL added to Small cap index
  • Software movers; OTEX issues revenue shortfall largely stemmed from the Open Text side of the business, particularly on licenses; video game maker EA reports earnings tonight; JCOM slides as Q1 EPS/revs/Ebitda missed views, but reiterated year outlook; ADSK 52-week high after Wedbush upgraded to outperform and $120 tgt citing checks
  • Hardware, component makers; another all-time high for AAPL; CSCO downgraded at BMO Capital saying the company is facing share losses in switching and a struggling router market; FN shares rally despite mixed quarterly results/guidance; QTNA rises on strong earnings/outlook
  • Media movers; DIS to report earnings tonight; AMC Q1 revs topped consensus; DISCA Q1 EPS missed views as subscriber losses accelerate; NXST Q1 revs rise to a record; TGNA among top decliners in the S&P 500 after mixed Q1 results
  • Telecom; ALLT after Q1 EPS loss of (11c) missed estimates on lower revs; CBB Q1 revs missed consensus; CUB declined on earnings miss

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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