Equity Market Recap
· Equities end mixed, as the tech heavy NASDAQ rallied behind strength in semiconductor makers (NVDA, MCHP earnings), while the Dow Industrials underperformed on mixed earnings (DIS) and a report out from Boeing (BA) halting flights of 737 Max Jet on fault in GE-Safran engine. While there were several market moving individual news items, the main story remained Donald Trump’s abrupt firing of FBI Director James Comey, as it raises questions about whether the president’s pro-growth/tax-cutting agenda will stall as the focus shifts to why Comey was dismissed amid probes into possible Russian ties to Trump’s campaign. Boston Fed President Eric Rosengren said at a speech today that three rate increases over rest of year is still “reasonable” if forecasts hold, and policy makers should consider shrinking central bank’s $4.5t portfolio after one more hike. Despite all this news, and lots of earnings, markets still remain in a tight trading band, as the S&P 500 high-to-low was only 7-points, never topping the 2,400 level. Attention in corporate earnings turns to retail the next few days (KSS, M, JWN, JCP) while recent IPO SNAP posts its first quarterly results since becoming a public company tonight after the close.
· Sector movers: Semiconductors led the tech heavy NASDAQ, as the SOX trades back to 17-year highs (up around 2%), led by gains in NVDA and MCHP after stronger earnings results. Disney shares weigh on the Dow Industrials and media sector in general (VIAB, CBS as well) after mixed earnings results. Commodities caught a small bid (have underperformed) after Chinese factory-gate inflation slowed in April, as the slowing economic momentum may signal the PBOC to back off from further tightening. Also midday, steel names bounced after Reuters reported Eurofer head said China serious about steel capacity cut. Transports underperformed broader averages.
· Import Prices for April rose 0.5% MoM, above estimates for a 0.1% gains and after rising 0.1% in March – thanks in part to higher fuel costs, while export prices rose more modestly.; import prices ex-fuels rose 0.3% after rising 0.2% in March; Export prices rose 0.2% after rising 0.1% in March; Prices for imports were 4.1% higher than a year ago in April. Yearly gains have recently edged back above 4% for the first time since 2012
· Oil prices tallied strong gains amid bullish weekly inventory data, as the EIA report showed U.S. crude stockpiles posted largest draw since December and gasoline supplies also declined last week. The API said weekly crude inventories fell -5.79M barrels in the latest week, while gasoline stockpiles rose +3.17M barrels and distillates fell -1.17M. The DOE crude draw -5.247M barrels, gasoline: -150K and distillate -1.587M – WTI crude rose $1.45, or 3.2% to end at $47.33 per barrel
· Gold prices gained $2.80, or 0.2% to finish at $1,218.90 an ounce (off earlier highs of $1,225.80 an ounce), bouncing off a nearly two-month low they suffered a day earlier, as uncertainty sparked by President Donald Trump’s decision to fire FBI Director James Comey prompted investors to favor haven plays.
Currencies & Bonds
· The dollar index (DXY) rebounded from earlier lows, managing to inch closer to the 100 level, as the greenback posted a rally in the afternoon; the dollar jumped to highs of 114.37 against the Japanese yen late day (off lows 113.63) as safe haven assets pared gains late day. The euro fell for a third day against the dollar, touching lows of 1.0853 after surging above 110 overnight Sunday after the French election outcome…but has since slipped.
· Bonds were little changed in a second day of narrow trading, as stocks were mixed on FBI head firing news last night/macro concerns; the yield on the 10-yr dropped about 3 bps to 2.37% late morning, before yields found their way back above 2.4%, while the shorter-term and 2-yr pulls back to 1.33% before moving back above 1.35%.
Other Interesting tidbits
· The U.S. Postal Service reported a Q2 net loss that narrowed to $562M from $2.04B a year ago, as expenses for mandatory retiree benefit programs declined by $1.2 billion and as workers compensation expenses fell $1.1 billion. On a “controllable” basis, which adjusts for items outside of management control, net income for the quarter to March 31 was $12 million, down from $576 million a year ago, primarily because of the expiration in April 2016 of the temporary price increase for certain stamps. Operating revenue fell 2.7% to $17.26 billion, as an 8.4% decline in first-class mail, a 7.6% drop for marketing mail, a 4.8% slip for international and a 9.1% fall for periodicals offset an 11.5% increase for shipping and packages and a 4.8% rise in other revenue.
· Newsletter writers classified as bulls by Investors Intelligence rise a third week to 58.7% from 58.5% last week. Bears slip to 7-week low 17.3% from 17.9%. Those expecting a correction rebounds to 24.0% from 9-week low of 23.6% last week
Sector News Breakdown
· Retailers; watch maker FOSL falls as Q1 misses on double-digit sales decline and guidance was cut (cuts year EPS view to 80c-$1.50 from prior $1.00-$1.70); ANF rises on reports it is working w/an investment bank to field takeover interest from other retailers, Reuters https://goo.gl/UCdeO7; UAA said in May 9 10-Q that for 3 months ended March 31, “no customer accounted for more than 10%” of company’s net revs; ICON shares soar after earnings beat, sale of Peanuts and Strawberry Shortcake brands; COH upgraded to buy at Goldman after KATE purchase; WWWrises after Q1 EPS and revs beat estimates, while trimming year EPS/maintain revs; CROX rises on EPS and revs beat, though guidance misses views
· Consumer Staples; vitamin retailer VSI drops as Q1 EPS missed by 20c on weaker comp sales (-6.3%) and lower guidance; COTY Q3 EPS and revs top consensus, but JPM cautious saying company still faces headwinds in competitive landscape; SODA Q1 results topped expectations on better margins, but guided year revs below estimates; BUFF Q1 EPS/revs top consensus while guidance brackets estimates; BETR Q1 results in-line as slightly lowers year view
· Restaurants; NDLS Q1 results slightly below expectations on disappointing comps; WEN Q1 EPS, revs and comp sales (up 1.6%) topped consensus; CHEF earnings top views
· Housing & Building Products; floor maker LL upgraded to outperform at Wedbush saying new CEO Dennis Knowles and his team have stabilized LL, and the company is set to grow again; homebuilder MDC downgraded to neutral at Citi on valuation
· Casino, Lodging & Leisure; cruise lines weak after mixed NCLH results as Q1 beat, but given strong Q2 guide, leaves concerns about 2H outlook; in gaming, PNK revs beat
· WTI posts biggest advance in more than 5 months. EIA report shows U.S. crude stockpiles declined by most since December last week. Gasoline supplies also slid.
· Energy stocks outperform on the day, recovering after recent losses, as oil prices rebound on bullish weekly inventory data; oil drillers (ESV, NE), services (HAL), E&P names (EOG, APA) rise early; EOG was upgraded to outperform at Raymond James on the back of strong Whirling Wind well results/more aggressive activity pace in 2017; OXY was upgraded to neutral at JP Morgan; CJ was upgraded to overweight at Piper citing better relative valuation versus peers.
· MLPs outperformed with broader energy gains as the Alerian MLP Index rose more than 1.5%; EPE upgraded to neutral at Citigroup on valuation and improved risk/reward; ETP was upgraded to outperform at Bernstein
· Alternative Power, Utilities, Solar sector; several earnings report in solar today: SPWR mixed results on better earnings but lower guidance hit shares initially; SEDG delivered a Q1 beat and strong Q2 guide (2Q revenue $120M-$130M vs. est. $121.2M); VSLR revenue tripled on lower costs; ENPH delivered a Q1 miss and provided weak Q2 guidance as wet weather in CA drove a decline in Q1 shipment volumes; utilities came under pressure late day; late day, CPN shares jumped on a WSJ report that the company is exploring a sale https://goo.gl/DXO7fg
· Large Cap banks/regional banks were higher, holding up well with choppy markets early; the rebound in yields from earlier lows helped lift the big banks and brokers, in what was a generally quiet news day for banks; Piper said following meetings they trimmed estimates and PT and lowering our rating to Neutral on HTH/raising estimates and PTs on GNBC and TCBI, our two most positive meetings; in finance, GDOT shares rise on Q1 beat and raise for year (though saw Q2 lower); insurance names outperformed broader financials
· Asset managers; AB April Prelim AUM $504B vs. $498B MoM citing market appreciation and slightly positive firm wide net flows for the 1.2% increase in assets under management MoM; LMreports preliminary AUM approximately $731B as of April 30 vs. $728,4B MoM – included long-term outflows of $1.5B, consisting of net outflows in fixed income of $1B and equities of $0.6B, partially offset by alternatives inflows of $0.1B; APAM April AUM $106.6B vs. $103.8B MoM; says separate accounts totaled $52.9B of AUM; IVZ April $841.4B at the end of April; rose 0.8% MoM on favorable market returns, foreign exchange, and inflows into PowerShares QQQs
· Large Cap Pharma; AGN was downgraded at Goldman Sachs saying margins have peaked and there’s a dearth of new, short-term catalysts; MYL Q1 EPS beat by a penny, but sales were short of consensus while remains confident on year outlook; JAZZ Q1 sales beat but was a bit light on EPS ($2.31 vs. consensus at $2.34)/guidance was brought down on the upper end for Xyrem;INSY downgraded t neutral at Piper citing lack of clarity on pipeline plan l-t; ITEK said the FDA agreed that trabodenoson didn’t meet its primary efficacy endpoint in a Phase 3 study; ACADdeclines on earnings; DEPO falls as top line down 14%; loss widens; guidance lowered
· Biotech movers; TSRO posted a wider 1Q17 net loss on higher OpEx & lower revenue; ARRY soars after reporting that its binimetinib/encorafenib treatment improved survival of patients with BRAF-mutant melanoma; NKTR reaffirmed expectations for NKTR-181 and NKTR-358 partnerships by year end; weakness in XNCR, OPK, FMI, IONS on results
· Healthcare devices, services and suppliers; INCR shares jump after it said it would buy privately held inVentiv Health Inc. in a deal valued at about $4.6 billion. https://goo.gl/TTEpgk ; CRLshares drop after guidance weighs on sentiment for Q2 (after Q1 beat); NXTM announced that its next generation hemodialysis system has received FDA clearance
Industrials & Materials
· Transports; group underperformed broader averages, with weakness led by car rentals again (CAR falls a second day after HTZ miss), freight (UPS), and rails (KSU, UNP), while airlines were mixed; JBLU April traffic increases 8.2%, capacity up 6.6%
· Metals & Mining; US Steel (X) downgraded at Cowen and cut tgt to $21 from $60 (on Feb 27 had raised to OP and upped tgt) citing lack of earnings visibility; gold miners bounce today (GDX) given the sell-off in stocks and rotation into defensive assets – steel stocks in general rebounded midday after Reuters reported Eurofer head said China serious about steel capacity cut.
· Tankers & Shippers; GNK upgraded to buy at Seaport Global with $16 tgt citing recent weakness and said Drybulk fundamentals are improving
· Aerospace & Defense; GD downgraded to Market-Perform at Bernstein and target unchanged at $21 noting the stock is up 20% relative to the S&P in the last 12 months, while other large defense stocks have roughly been in line; BA temporarily suspends 737 max flights on engine issues (news broke late day and hit suppliers as well SPR, GE, TGI, COL, TXT, etc.)
· Ag space; Corn prices traded near their highest levels in about a week after the U.S.D.A forecast smaller global corn production for the current crop year. The USDA forecast U.S. corn production at 357.3 million metric tons for the 2017/2018 crop year, down from 384.8 million the previous year. Chinese corn production is also forecast to drop to 215.0 million metric tons from 219.6 million the prior year. World corn production is seen at 1.03 billion metric tons
Technology, Media & Telecom
· Semiconductors jump as SOX index at 17-year highs; NVDA shares jumped over 10% after Q1 results topped consensus on better revs/ its data center business nearly tripled YoY for the 3rd consecutive quarter; TSM (NVDA’s foundry partner) lowered its 2017 global foundry forecast to 5% from 7% on high supply chain inventory (kept the rest of its 2017 guide intact); other semi makers which reported included LSCC, COHR, DIOD, ESIO, MXWL and EXAR; 52-week highs for AMAT, AVGO, MCHP, LRCX in semi space; MCHP jumps on earnings and guidance
· Software movers; video game maker EA rises after better than expected Q4 earnings and initial EPS guidance for FY18 which proved better than feared/robust digital growth around Battlefield and FIFA; NEWR Q4 beat/raise after a positive pre-announcement on 4/4 driven by enterprise deals; ALRM 1Q driven by both better SaaS and hardware sales; OTR Global cutsPANW to mixed saying win rates weaker/deteriorating for more partners, per checks; RPD top line met last month’s positive preannouncement last month, but profitability exceeded estimates; NUAN rises on earnings results
· Optical names lower after ACIA forecast 2Q revenue that fell short of the lowest analyst estimate (Q2 EPS 22c-35c on revs $85.0M-$95.0M below est. 74c/$130.8M); shares of LITE, OCLR, FNSR, INFN were under pressure
· Internet movers; YELP shares plunged as Q1 missed & lowered its ’17 outlook, due to rising churn issues among its Advertising customers (downgraded by several analysts); TRUE reported a better Q1 and 2Q/CY guidance was ahead of expectations; SNAP reports earnings tonight
· Online travel names mixed as PCLN shares fall overnight after Q1 revs missed and guided next quarter EPS below views (sees 2Q EPS $13.30-$14.00 vs. est. $14.99) though Q1 EPS beat, driven by robust growth in room nights and lower-than-expected opex; TRIP reported a top and bottom line miss, but shares bounced as revenue per hotel shopper finally returned to growth at 2% and the 2017 profit outlook was maintained;
· Media movers; DIS mixed quarterly results as revenue miss versus Street was mostly due to Consumer Products (9.5% below Street). Cable Networks missed the Street forecast by just 0.8% while Broadcast, Studio, and Parks beat. EBIT Beat At Every Segment Except Cable Nets; TIME falls on surprise dividend cut and discontinuation of providing annual rev guidance; FUELplunges as Q1 revenue missed expectations and analyst downgrade; VIAB cut at Deutsche Bank to sell
· Telecom; WSTC to be acquired by APO for $23.50 per share in cash, in a deal valued at about $2 billion https://goo.gl/9vRnjJ ; TMUS and Sprint (S) were active after the FT reported that Softbank CEO Masayoshi Son said he plans to seek talks to merge TMUS with Sprint; ZAYO downgraded by two analysts after earnings, while on notes weak dark fiber bookings trends suggest that demand is not present
· Hardware and component names; NTNX was upgraded to equal-weight at Morgan Stanley saying with shares underperforming S&P 500 by 46% YTD, risks are priced in; PCTI downgraded to hold at Wunderlich saying shares approached full value relative to our prior target of $8.50; DOX rallied on earnings results; in services; HCKT shares plunge on analyst downgrades after earnings
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.