Market Review: Stocks close higher, post 4-day win streak

eOptionDaily Market Report

Equity Market Recap
·      Stocks pushed higher late day, bringing major average winning streak to 4-days, led by another round of gains in defensive consumer staples and utilities, alongside gains in financials as bonds slipped and the dollar rose. Technology shares lagged, but still posted gains, while Transports outperformed up over 0.5% on the day. The S&P 500 hit 2,400 again but failed to top its intraday record high of 2,405.77 set last Tuesday. European markets ended mixed despite stellar economic data reports, as fears weighed following a terror attack in the UK that left 22 dead and over 50 injured following an explosion outside a concert venue in Manchester. Economic data disappointed in the U.S., with new home sales, flash-PMI data and Richmond Fed manufacturing all missing consensus views (existing home sales data tomorrow). Markets remain strong and consistent as Bloomberg noted the S&P 500 has held within 6% of its peak for more than a year. Out of Washington, President Trump released details of his budget plan that was met with skepticism by several Democrats today. Oil prices remain at 1-month highs ahead of OPEC decision this Thursday (inventory data tonight and tomorrow)

Economic Data
·      New home sales for April fell -11.4% to 569K from an upwardly revised 642K (from 621K) last month and was below est. for 610K; median new home price fell -3.8% YoY to $309,200, while 12% of new homes sold in April cost more than $500,000, down from 18% last month; months’ supply at 5.7 in April compared to 4.9 in March
·      IHS Markit flash U.S. manufacturing PMI dips to 52.5 in May, below estimate of a 53 reading, and at its lowest level in 8-month, while flash U.S. services PMI rises to 4-month high of 54 (est. 53.3)
·      Richmond Fed’s May Manufacturing Survey reported at 1, below est. for a reading of 15; segment breakdown: shipments fell to -2 after 25 the prior month, new order volume slowed to 0 after 26 the prior month and order backlogs fell to -15 after 4 the prior month
 
Commodities
·      Oil prices close higher, trading back near 1-month highs as market focus clearly remains on this week’s OPEC meeting and the prospects for an extension of OPEC-led output cuts when they meet in Vienna on Thursday. Most market participants have talked about a 9-month cut extension with several OPEC members backing. Also note tonight after the close we get weekly API inventory data and tomorrow morning the DOE weekly stockpile report. In other news today, President Trump’s new budget proposal includes selling half of the nation’s Strategic Petroleum Reserve (SPR) in hopes of reducing the federal deficit by $16.6 billion over the course of the next decade. WTI crude prices ended higher by 34c or over 0.65% to settle at $51.47 per barrel.
·      Gold prices for June declined -$5.50, or 0.5% to settle at $1,255.50 an ounce, pulling back from 3-week highs ($1,261.40) as the dollar regained its footing. Gold prices posted a 2.1% advance last week, amid spiking volatility and political uncertainty in Washington. Losses were limited following the terror attack in the UK that killed over 20 people and injured more than 50
 
Currencies & Bonds
·      The U.S. dollar rallied after dropping recently; the euro down despite stronger economic data; the South African rand is rallying, sending USD/ZAR sharply lower, after Bloomberg reported South Africa’s ruling ANC’s National Executive Committee will discuss the option of the party removing President Jacob Zuma at their May 26-28 meeting; the British Pound drops back below the 1.30 level vs. the USD; the dollar jumped vs. the perceived safe-haven yen, rising to highs around 111.80 (from overnight low 110.86). Note last week’s decline in the greenback wiped out its post-U.S. election climb. Bitcoin added another 3%, rising to highs of $2,269 before only slightly paring gains (coming into the day, Bitcoin was up about 61% higher for the month, climbing from around $1,344 at the start of the month to Monday’s fresh record of $2,175.35
·      Treasury prices reversed earlier gains, as yields advanced midday to best levels since late last week, with the benchmark 10-year topping 2.28% (up over 3 bps). Earlier, bonds gained after a bombing at a concert in the U.K. drew some money into safe-haven assets. The 2-yr note inched off lows of 1.27% back around 1.30%. Bond yields caught a bid midday after a jump in the dollar.
 
   
Sector News Breakdown
Consumer
·      Consumer Staples; BF/B shares jumped late day after CNBC reported STZ made offer to buy the Jack Daniel’s owner…and said Brown family owns a majority of the voting power and has indicated historically that they do not want to sell their company https://goo.gl/lrMlZ6 (shares then reversed course to trade lower); more 52-week highs in sector as PF, BF/B, PM trade higher early; PPC shares remains under pressure following weakness in Brazil meat producer JBS (JBSAY) which plunged over 30% Monday after fresh allegations surfaced Friday that its owners paid millions in bribes to three presidents. (JBS USA owns a 78.5% stake in PPC); 52-week highs PEP, MDLZ, BF/B; HLF shares slipped on reports of China operations chief departure
·      Retailers; DSW latest shoe retailer to disappoint (FL missed last week) as Q1 EPS misses and said year views assume comps low end of range; KIRK Q1 EPS loss wider than expected while CFO resigns for role at healthcare company; Earnings post-market: TCS, TLYS, UVV and TIF tomorrow
·      Restaurants; CBRL Q3 revs and comp sales (-0.4% vs. est. 0.6%) misses but posted 1.7% increase in average check, sets special $3.50 dividend and raises year EPS view; FRSH was downgraded at Wells Fargo in change of coverage at firm, cutting citing a slower than expected turnaround in same-store-sales and the potential for increased franchisee unit closures; WING added to conviction buy list at Goldman Sachs
·      Housing & Building Products; TOL quarterly earnings beat on stronger revenues, JV/other income and lower SG&A (PHM, LEN, moved in reaction) – TOL pared gains as did other homebuilders after a weak new home sales data point; in home improvement retail, LOW to report earnings tomorrow morning (looks to follow up strong after HD beat last week)
·      Casino, Lodging & Leisure; Hyatt (H) 4M share Spot Secondary priced at $57.85; 10M share block of MGM priced at $31.40; 52-week highs for MAR in lodging
·      Auto movers; auto retailers fall after AZO Q3 results fell below estimates citing a very challenging spring sales season (comp sales fell -0.8% vs. est. +2.4%) – AAP reports tomorrow morning; shares of ORLY, MNRO, GPC among decliners; Daimler shares fall after carmaker says German prosecutors search headquarters; Consumer Reports restores 1 point each to Model S and Model X after TSLA deployed automatic emergency braking feature in April
 
Energy
·      All about OPEC meeting coming up: OPEC and non-OPEC joint committee will study merits of extending existing production cuts by 6, 9, 12 months, delegates said earlier Tuesday. Biggest producers Saudi Arabia, Russia favor 9 months. Joint committee (JMMC) to meet Wednesday, comprising OPEC nations Algeria, Kuwait and Venezuela, and non-members Russian and Oman
·      Oil service & Equipment; HP downgraded to Sell from Neutral at Goldman Sachs and cut tgt to $45 from $63 saying the valuation and consensus estimates have downside risk; firm upgradedATW to Neutral from Sell and raised tgt to $8.25; NCSM picked up coverage by several analyst (four outperforms and one neutral rating); KOS 40M share Spot Secondary priced at $7.25
·      Utilities & Alternative power; 52-week highs today for AEE, NEE, LNT, DTE, ES, XEL, D, CMS; solar stocks early gainer, led by SPWR, VSLR, CSIQ and FSLR; WR slipped after Kansas Corp. Commission rejected WR/GXP petition for reconsideration
 
Financials
·      Large Cap banks continue to move in conjunction with bond yields, as banks got a lift late morning as the 10-yr yield erased earlier weakness; shares of JPM, C, MS, WFC among movers; 52-week highs for financials – MA, V, AON
·      Brokers & Asset managers; Dept. of Labor (DOL) Secretary Alexander Acosta’s op-ed saying the department’s fiduciary rule will take effect June 9 with no further delay deals a blow to broker-dealers, asset managers and insurers, analysts say, with Nomura cutting its rating on SF
·      Canadian banks; Barclays upgraded BNS and National Bank raised to overweight from equal weight; Bank of Montreal, Toronto-Dominion Bank, Laurentian Bank raised to equal weight from underweight saying decline in valuations is a “now-compelling entry point
·      Other banking research calls; UBSH upgraded to outperform at KBW after announced the acquisition of XBKS, a deal that they find attractive both financially & strategically in that it enhances UBSH’s push for increased C&I lending; SF downgraded to neutral at Nomura/Instinet; BSRR upgraded to buy at Davidson saying they view it an undiscovered gem with a stable franchise in the California Central Valley
·      Consumer finance and lending; FIS to sell 60% ownership stake in Capco consulting business for cash proceeds $477M or $445M net of taxes and deal-related expenses/to keep 40% equity stake in business; ONDK upgraded at FBR Capital
 
Healthcare
·      Generics and Specialty Pharma; TGTX rises early as its combo regimen deemed safe in late-stage CLL study; PRGO and TARO updates weigh on generics early as PRGO missing earnings forecasts and offering below-consensus guidance as sees year revs falling (AKRX, IPXL, MNTA, ENDP among the names active today)
·      Biotech movers; ALXN volatile after several mgmt changes, as CFO to resign end of August along with CCO resigning and EVP head of R&D retiring along with others; BIVV announces that it has entered into a definitive agreement to acquire privately held True North Therapeutics for an upfront payment of $400M plus assumed cash; PBYI tomorrow advisory committee meeting on Neratinib NDA for extended adjuvant treatment of early-stage HER2-overexpressed/amplified breast cancer previously treated with adjuvant traustuzumab-based therapy
·      Pharma movers; MRK said the FDA granted Keytruda priority review and a Sept. 22 Pdufa date as a treatment for advanced gastric or gastroesophageal junction adenocarcinoma in patients who have already received two or more lines of chemotherapy
·      Equipment and medical devices; XRAY downgraded to sell at Goldman Sachs saying the growth outlook has moderated since the Sirona merger (shares upgraded to buy at Cleveland Research); Agilent (A) rises after its earnings and sales topped Street expectations; CERS cuts 2017 product revenue guidance to $38M-$46M vs. prior view $43M-$48M/forecast on PAS supply shortage; 52-week highs for SYK, COO, BAX, MTD, TMO
 
Industrials & Materials
·      Transports; JBLU boosted the low end of its Q2 RASM guidance to 4%-6% YoY from prior 3%-6% saying the outlook has improved since April earnings call; Transport extend recent gains as index back above the 9,000 level today led by airlines (JBLU guidance)
·      Metals & Mining; in steel space, RS was upgraded to buy at Bank America; NUE reiterates guidance for Q2 results as expects Trump policy teams to emerge
·      Paper & Forest products; GPK defended by some sell-side analysts including BMO and Baird even as limited traction on recent boxboard price hikes is seen as negative for the stock
·      Ag names got a lift midday after the WSJ reported Glencore makes takeover approach to BG (shares of ADM also got a lift on report) https://goo.gl/sLsPMe
 
Technology, Media & Telecom
·      Internet; EBAY with positive mention by one analyst (M Science) saying analysis listings data through the end of April suggests that marketplace revenue is poised for acceleration; AMZN touched record high of $975 before fading
·      Semiconductors; XLNX shares slide as analysts disappointed after updates at company’s analyst event/guidance fell short of 30% operating margin/lack of more bullish commentary on Data Center growth, according analysts/downgraded at Wells Fargo on valuation; AMD also declines after CEO Lisa Su pretty much quashed any further chatter that AMD would license some of its graphics chip designs to INTC at a tech conference hosted by J.P. Morgan
·      Software & Hardware; TTWO reverses overnight losses of as much as -10% to climb on day despite saying its upcoming sequel Red Dead Redemption 2 will now be released for the PS4 and Xbox One in the spring of 2018 (vs. fall of 2017)/posted quarterly beat, but guided lower; MIME 1.1M share Block Trade priced at $26.25; in budget proposal, Trump seeks $967M to tackle cybersecurity issues (PANW, FEYE, CHKP, SYMC)
·      Hardware and Comm equipment; NOK rises after settling long-running intellectual property dispute with AAPL and agreed to a multi-year patent license (financial details weren’t disclosed); SONS to combine with GENBAND to create a global leader in real-time communications software solutions https://goo.gl/KMgK68; LXFT shares decline on earnings;
·      Optical names (FNSR, AAOI, OCLR, LIE, NPTN) pare gains after surging yesterday after Jefferies said China Mobile announced it chose ZTE as a vendor for the build-out of its packet transport network and expect OCLR to be the major optical component company to benefit

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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