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.
Equity Market Recap
· It was another stealth rally for global markets, as the S&P 500 and Nasdaq Composite both touched new all-time highs, led by gains in technology, energy and financials…though energy stocks failed to hold rally with oil closing higher by 2% (off highs). The U.K.’s FTSE 100, Germany’s DAX 30 also closed at new record highs, boosted by mining and materials. Dow Jones components at 52-week highs today included Visa, AAPL and MCD…while VZ trades 52-week lows (recent lows as well for GE). HD, which reports earnings tomorrow, traded at a 52-week high last week. The NASDAQ touched all-time highs of over 6,153, while the S&P 500 index traded highs of 2,404. Bloomberg noted that over the past 20 weeks, the Russell 2000 has traded in a range of 6.8% – the narrowest for the period going back to at least 1990.
· In sector news, energy stocks led early as WTI crude oil jumped on reports Saudi Arabia and Russia favor extending through March 2018 the oil-output cuts that OPEC and Russia agreed to in January, lifting energy stocks. However as oil prices pared gains, energy stocks followed suit, ending near their worst levels of the day. Tech was higher on more strength in the semi sector (NVDA, AVGO 52-week highs) and in security stocks after reports that more than 200,000 computers in at least 150 countries were hit by global ransomware attacks over the weekend (SYMC, FEYE, PANW among those higher today). Financials got a lift on rising rates, while retail remains under pressure ahead of a busy week of earnings (HD, TJX, DKS, SPLS reports tomorrow morning), as department stores weaken further (JCP, M). Commodity stocks gain after Xi Jinping outlined a $78B Chinese-led globalization initiative in international infrastructure spending for Belt & Road Initiative.
· Oil prices finish higher, closing higher by $1.01, or 2.1% to settle at $48.85 per barrel but off earlier highs of $49.66 per barrel (its highest level this month). Prices jumped around 4% earlier after Saudi Arabian and Russian energy ministers said they favor extending oil cuts through 1Q 2018. OPEC members still have to agree, and are scheduled to meet in Vienna later this month to discuss the accord (May 25th). Brent prices touched highs of $52.62 before paring gains.
· Precious metals climb, with gold rising $2.30, or 0.2% to settle at $1234 an ounce on dollar weakness (off earlier highs of around $1,235 an ounce). With today’s advance, gold is now up four consecutive sessions, settling at their highest level in nearly two weeks on the back of rising tensions over North Korea (which over the weekend tested another ballistic missile over the Sea of Japan on Sunday). Other metals ended mostly higher after China pledged to boost its infrastructure spending. July silver rose 1.2% to $16.603 an ounce.
· The U.S. dollar slipped vs. most currencies, as the dollar index (DXY) dropped about -0.3% to below the 99 level; commodity based currencies such as the Canadian loonie (USD fell to 1.3645) and Russian Ruble advanced as oil prices leapt on the prospects for an OPEC-led deal for continued production cuts. Mexico’s peso extends a 5-day winning streak, the longest since mid-February vs. the US dollar. The dollar was higher vs. yen at 113.80 late day, down vs. others like the euro at 1.0967.
· Treasury markets declined as yields edge higher; the 10-yr yield was up around 1 bps just shy of 2.34%, while the 20-yr yield just under 1.3%. Treasury yields remained higher after a weak reading on a New York state manufacturing gauge. Earlier today, the Empire State Manufacturing Index, a monthly fell to -1 in May from 5.2 in April, its first negative reading since October. Yields pared back from early gains in response to the survey.
· Fed Empire Manufacturing Index for NY fell to (-1.0), below est for gain of 7.5 after general business conditions were 5.2 in the last month; component breakdown showed: prices paid fell to 20.9 from 32.8 and new orders fell to -4.4 vs 7.0; the number of employees fell to 11.9 vs 13.9 and the six-month general business conditions fell to 39.3 vs 39.9
· Housing data better: The monthly confidence gauge from the National Association of Home Builders (NAHB) rose 2 points to 70, the second-highest level since the downturn and above estimates and the prior month reading of 68
Sector News Breakdown
· Retailers; group lower to mixed as JCP falls further on analyst downgrades (after dropping 14% Friday), in what is another busy week for retail after M, DDS, JCP, KSS fell on earnings/comps last week; CSFB cautious on LULU saying they are concerned by the lack of significant product drivers and the structural challenge of exposure to store traffic volatility; COH upgraded to buy at Deutsche Bank
· Retail earnings calendar this week: Tuesday AM: DKS, HD, SPLS, TJX…Tues PM: URBN…. Wednesday AM: AEO, CTRN, TGT and PM: LB, SMRT…Thursday AM: BONT, CATO, HIBB, PERY, PLCE, RL, SSI, WMT…and PM:GPS, NWY, ROST…Friday AM: DXLG, FL; RCII says April core U.S. same-store sales fell (-13%) due to lower rental and fees revenues primarily due to one less business day y/y
· Auto movers; TSLA was downgraded to equal-weight at Morgan Stanley on higher estimate of operating loss in 2017 and 2018; HOG cautious mention at Wedbush as believe the consensus retail estimate for 2Q is somewhat at risk
· Consumer Staples/Restaurants; WFM mentioned cautiously in Barron’s saying shares don’t look especially cheap and competition is increasing; MCD traded another all-time high today;SBUX and BWLD were both upgraded to buy at Deutsche Bank
· Oil stocks were broadly higher early amid a jump in oil prices after energy ministers from Saudi Arabia and Russia said they back a nine-month extension to production cuts led by OPEC; shares of drillers (NE, ESV), services (HAL, SLB, WFT), E&P (EOG, PXD, (WLL, OAS, SN), integrated (XOM, CVX, COP), among those outperforming today…though many slid throughout the session; CXO raises 2017 production growth view to 21%-25% from prior 20%-24%
· Utilities/coal; EXC was upgraded to buy at UBS noting shares have underperformed the XLU by ~10% YTD due to investor’s concerns surrounding the PJM capacity auction (Results on May 23rd) and the ZEC legislation in NY/IL; NGG upgraded to buy at Bank America; WLB shares fall on Q1 results; sales fall 4.5% YoY
· Large Cap banks/brokers/advisors; financials outperform as yields climb; AMTD was upgraded at Wells Fargo to outperform as they see several positive including: upside surprises stemming from the Scottrade acquisition, higher interest rates and easing of controversies around commish cuts; WETF was upgraded to buy at Citigroup citing favorable risk/reward
· Insurance; AIG names Brian Duperreault President and CEO (7th CEO since 2005), stepping down as CEO of Hamilton Insurance Group and succeeds Peter Hancock. (Carl Icahn tweeted: “Very pleased the $AIG board is finally making some of the much-needed changes we’ve been advocating the last 18 months”)
· Master trust credit card data; COF April Credit Net Card Charge-Offs (NCO’s) 5.33% vs. 5.44% MoM/April card delinquencies 3.51% vs. 3.71% MoM; SYF April Credit Card Charge-Offs 5.33% vs. 4.71% MoM/April delinquencies fell to 2.88% from 2.95% MoM; JPM April Credit Card Write-Offs 2.6% vs. 2.47% MoM/credit-card delinquencies 1.17% vs 1.21% MoM; DFS April Net Credit Card Charge-Offs (NCO’s) 3.0% vs. 2.8% MoM, while delinquencies fell to 2.0% from 2.1% MoM; AXP NCO’s 1.8% vs. prior month 1.8% and delinquencies 1.1% vs. 1.2% MoM
· Lending and Finance; ASPS tgt cut to $ from $14 at Compass Point saying the OCN/NRZ MSR transaction will be very bad for ASPS; Pacific Crest notes SQ will be hosting an investor day in San Francisco on May 16 and they view the event as a potential positive catalyst
· REITs; last week, the RMZ decreased 1.3% last week, underperforming the S&P 500 and the Russell 2000 while the yield on the 10-year decreased 3 bps at 2.32%; today, retail REITs DDRand CBL both upgraded to neutral at Boenning, while firm cut PEI; BDN was upgraded to sector weight at KeyBanc following last week’s Analyst Day
· Large Cap Pharma; JNJ upgraded to overweight at JP Morgan noting share underperformance and says deceleration has effectively played out in Q1 with Pharma revenue growth slowing to 2.2% organic and the shares trading off as a result; IDXG moved on earnings; RXDX gets breakthrough therapy designation for Entrectinib; JAZZ named an RBC new top pick
· Biotech overs; ALNY shares jumped after IONS said a patient died from an intracranial hemorrhage during its Phase 3 NEURO-TTR study of inotersen in patients with familial amyloid polyneuropathy (FAP)/IONS shares fell on news on three adverse events; NERV said its schizophrenia drug is expected to start late-stage clinical trials in the second half of this year; BIIB tgt raised to Street high $442 at Piper
· Medical equipment, services and devices; TMO agreed to buy Dutch drug-ingredients maker PTHN for $35 per share, in a $5.2B deal (35% premium to Friday close) https://goo.gl/fkjn95;CERN was upgraded to neutral at Bank America; ACHC downgraded at Leerink; ILMN shares weak after Morgan Stanley reduced estimates further after reviewing margin trends; FMI shares higher after BTIG upgraded shares; EXAS slipped late morning after Citron posted a new cautious report that provides a short-term stock price target of $20 and said that will likely slip to “single digit” in three-to-five years.
Industrials & Materials
· Industrials; GE extends losses after trading to 52-week lows Friday on analyst downgrade; CVA upgraded to outperform at Baird as believe CVA is well positioned for growth as Dublin should drive EBITDA expansion and higher free cash flow in 2018; XYL upgraded to overweight at Barclay’s as views the integration of the Sensus acquisition and a likely uptick in water infrastructure investment as catalysts
· Transports; ALK said April consolidated Prasm rises 5.9% YoY and said continues to see 2Q Casm up ~6%, CASM excluding fuel and special items up ~2.5%; UAL sent out an alert about a breach in cockpit-door security procedures after a flight attendant mistakenly posted information that included access codes on a public website; car rental company CAR CFO resigned Friday
· Metals & Mining; group getting a lift early after China promises to boost infrastructure spending; HAYN was upgraded to buy at Longbow saying there has been a clear up-tick in downstream customer activity, likely to support better mill pricing and product mix
Technology, Media & Telecom
· Internet security sector; shares of software based firms such as SYMC, CHKP, FEYE, PANW, FTNT, CUDA, QLYS, PFPT, CYBR were active after more than 200,000 computers in at least 150 countries were hit by global ransomware attacks over the weekend. Goldman says incident may be a catalyst for increased cyber-security spending in Europe and Asia
· Internet; GOOGL’s Waymo, an automotive business owned by Google’s parent company, s working with Lyft Inc. on a plan to test autonomous cars on the road, escalating a fight with Uber; in booking/online travel, TRVG jumped as Q1 EPS was in-line on better revs/Ebitda; SNAP rebounds after pullback last week on rev/sub miss, Barron’s also said shares no bargain this weekend; TWTR quietly higher by nearly 17% in May and at best levels since last December
· Semiconductors; LRCX tgt raised to Street high $200 at Citigroup; AMD upcoming analyst day; 52-week highs for AVGO, NVDA, AMAT; ADI positive mention in Barron’s saying shares could return 20% in a year; the semi index at fresh 17-year highs, as QRVO gains led SOX index
· Hardware & Components; NTAP was upgraded to positive by OTR Global; in 3D space, SSYS downgraded at William Blair to underperform saying stock is overvalued with the shares up 43% in the last month and 81% year-to-date; VJET was upgraded to outperform at Cowen after recent pullback on earnings miss (raises tgt to $5.50); CSCO upgraded to overweight at Morgan Stanley