Mid-Day Outlook: May 16th, 2017

eOptionDaily Market Report

Equities opened higher (since retreated) despite a weaker reading on monthly housing starts and building permits, while the dollar falls to 6-month lows after reports that President Donald Trump shared classified information with top Russian officials at a meeting last week (which the White House denied). The S&P 500 index is coming off its first close above the 2,400 level and the Nasdaq Comp also coming off record high close yesterday (both highs again early before fading). Meanwhile, the Dow Industrials have not had record high since March 1st and the Russell 2000 has traded in a range of 6.8% – the narrowest for the period going back to at least 1990 (Bloomberg). Oil and gold prices open higher, trading in positive territory for a 5th straight day for each (helped by dollar fade), while bonds remain in tight range. It’s the same names and sectors leading markets higher, namely tech as semiconductors back at 17-year highs and Internet giants at record levels (AMZN, GOOGL), while same laggards remain (retail and related mall REITs). Energy fails to gain with oil as sector faded yesterday despite oil rising a 4th day, while Dow component HD rises on earnings beat. The top story remains Trump, as White House National Security Adviser H.R. McMaster rejected the conclusions of a Washington Post article which claimed the president had revealed sensitive classified information to Russia’s top diplomat during an Oval Office meeting last week, calling it false.
 
Treasuries, Currencies and Commodities
·      In currency markets, dollar falls a 5th day; the euro rises to a 6-month high against the US dollar, touching highs of 1.1089 as the dollar slides broadly. The dollar also slides vs. the Japanese yen to around 113.50 (down -0.25%)
·      Precious metals rise for a 5th day as the dollar slides to 6-month lows after reports that President Donald Trump shared classified information with top Russian officials at a meeting last week; gold prices trade higher around $1,235 an ounce
·      Energy futures rise a 5th day; after reaching a capitulatory bottom in overnight trading on Cinco de Mayo, oil prices are up sharply…up about 13% in only seven days…comes after oil tumbled 18% prior, which had everything to do with an expected six-month extension of the OPEC agreement to cut production
·      Treasury markets holding steady despite U.S. stocks setting new record again for the S&P and Nasdaq Comp, with yields holding in a tight range the last few days; the 10-yr remains around the 2.34% level, while the 2-yr been stuck on 1.3% the last few days and 30-yr at 3%
 
Economic Data
·      Housing Starts for April fell an unexpected (-2.6%) to 1,172K annualized, below est. 1,260K, while prior month downwardly revised to 1,203K (-6.6%) from 1,215K; single family starts rose to 835K, while multifamily starts fell to 337K in April. Building permits fell to 1,229K from 1,260K in March and was also below est. 1,270k (Permits fell 2.5% in April after rising 3.4% the prior month)
·      Industrial Production for April rose 1%, well above est. up 0.4% (while being revised down to 0.4% from 0.5% in March), while capacity utilization rose to 76.7% from 76.1% in March, which was unrevised from initial release. Note industrial production advance of 1.0% in April was largest gain since Feb. 2014
·      Delinquency rate for mortgage loans on 1-to-4 unit residential properties fell to 4.71% in the first quarter from 4.80% the prior quarter; foreclosure rate fell to 1.39% in the first quarter after 1.53% in the fourth quarter; this was the lowest foreclosure inventory rate since Q1’07
   
Sector Movers Today
·      Retailers; weak earnings/guidance results continues for space as sporting goods chain DKS shares drop after Q1 comp sales miss (+2.4% vs. est. 3.6%) and reduces low end of year comp sales forecast (Q1 EPS/revs in-line); shares of CAB, HIBB, SPWH among those moving in reaction; TJX Q1 was mixed as EPS beat, but revs missed while guided Q2 EPS 81c-83c below est. 92c (Q1 comps of up 1% missed est. 1.5%); SPLS Q1 sales missed, while guidance short of views as well; 52-week lows for M, AZO, BBBY, SIG, RL;
·      Housing & Building Products; group gets solid earnings out of home improvement retailer (and Dow component) HD after 1Q EPS/sales and comp sales topped estimates/Q1 comp sales +5.5%, vs. est. +3.9% (shares of LOW, which reports next week, and other home improvement retailers such as LL, BECN, HDS, SHLD were active as well as suppliers SMG, MAS, AMWD, USG& others
·      Refiners; Goldman Sachs upgraded DK to buy from neutral and raise tgt to $30 on Permian growth, balance sheet, while downgraded VLO to neutral from buy on valuation, ahead of OPEC meeting and reiterated its sell on HFC
·      Chemicals; APD 4M share Block Trade priced at $142.90; RPM was upgraded to buy at Seaport Global and tgt upped to $60 from $55, as investor meetings highlighted more confident growth outlook, attractive risk-reward; Longbow said on FUL that slow volume growth and price lags limit upside opportunity
·      Semiconductors; AMAT tgt raised to $51 at UBS ahead of earnings on May 18th; 52-week highs for several semiconductors today: LRCX, AMAT, QRVO, MCHP, AVGO, XLNX, NVDA; AMD(ahead of investor day) rallied after Fudzilla, without saying where it got the info, said it confirmed speculation that INTC is licensing AMD’s graphics chips
 
Stock GAINERS
·      AKBA +17%; and Vifor Pharma entered an exclusive license pact with Fresenius for vadadustat
·      ETSY +18%; said it is reviewing its strategic and operational plans
·      HD +1%; 1Q EPS/sales and comp sales topped estimates/Q1 comp sales +5.5%, vs. est. +3.9%
·      SINA +16%; Q1 EPS 50c/$275.5M vs. est. 17c/$266.6M; Q1 gross margin 69%
·      VIPS +1%; upgraded at JP Morgan to overweight after Q1 EPS/rev beat
·      WB +16%; Q1 EPS 26c/$199.2M easily tops views 21c/$187.7M
 
Stock LAGGARDS
·      DKS -11%; Q1 comp sales miss (+2.4% vs. est. 3.6%) and reduces low end of year comp sales
·      FRTA -10%; downgraded at RBC Capital and Citigroup after disappointing Q1 results
·      MELI -1%; downgraded to neutral at JP Morgan following a 131% rally YoY
·      PFE -1%; downgraded to sell at Citigroup citing pricing pressure of oncology drug franchise
·      PTX -18%; Q1 net loss falls more YoY on lower revs/still analyzing alternatives
·      SSYS -4%; Q1 EPS in-line at 5c on better revs, but margins of 51.2% misses est. 53.9%
·      TJX -4%; Q1 EPS beat, but revs missed while guided Q2 EPS 81c-83c below est. 92c
·      VRTU -14%; after Q4 EPS/revs missed estimates and Q1 EPS guide (24c-30c vs. 36c) missed
·      YNDX -1%; facing sanctions from Ukraine along with other Russian Internet firms
 
Syndicate
·      Air Products (APD) 4M share Block Trade priced at $142.90
·      Evolent Health (EVH) 7M share Spot Secondary priced at $24.65
·      Kornit Digital (KRNT) 4.25M share Spot Secondary priced at $20.60
·      OM Asset Management (OMAM) 17.3M share Spot Secondary priced at $14.55
·      Performance Food Group (PFGC) 14.1M share Block Trade priced at $27.50

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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