Mid-Day Outlook: May 30th, 2017

eOptionDaily Market Report

Equities jumped on the open, as major averages looked to build on record highs last week (for the S&P 500 and NASDAQ, while Dow still slightly off best levels), but pare gains/slip following a round of mixed economic data. Stocks are now down on the day, with the NASDAQ on track to snap its 7-day win streak, after the S&P 500 slipped on Friday to snap its 6-day win streak. There were a few M&A headlines this morning, but overall news quiet, while President Trump is back from his one-week trip overseas and started up on Twitter again this morning (defending Kushner and talking about unfairness of German/US trade). Note the Nasdaq 100 ended last week at a record and it’s on course for a seventh straight monthly advance, the longest streak since 2009. The index has only gone on to an 8th straight gain two other times — May 1986 and August 1995 – according to MKM Partners today. Outside of Technology (which has been the market leader), the Transports had their best week in five months.
Treasuries, Currencies and Commodities
·      In currency markets, the U.S. dollar slips following weaker than expected consumer confidence data, as the euro, yen and British pound are all trading higher
·      Precious metals also lower with the broader commodity complex, as energy prices a drag early (weighing on energy stocks), while gold prices slip a few dollars back under $1,270 an ounce.Energy futures extend drop following OPEC-led decision last week to extend production cuts through March (which was widely anticipated), while oil rig count rose a 19th week Friday
·      Treasury markets gain, as the yield on the 10-yr sinks to an 11-day low of around 2.22% (was up around 2.25% late Friday) after PCE data this morning
Economic Data
·      Personal income for April rose 0.4% (in-line) but 5-month high, while personal consumption rose 0.4% (also in-line with estimates); core inflation rose 0.2% vs. est. 0.1% and rose 1.5% YoY while PCE prices rose 0.2% (in-line) and rose 1.7% YoY; compensation at 0.6% in April vs 0.0% MoM
·      S&P CoreLogic Case-Shiller 20-City Index up 5.89% YoY vs. est 5.70% while National Home Price index rose 5.75% YoY in March after rising 5.69% in prior month; the S&P/Case-Shiller 20-city NSA index at 195.39 after 193.5 in February
·      May Consumer Confidence fell to 117.9 from 119.4 last month and below est. 119.5; the present situation confidence rose to 140.7 vs. 140.3 last month, while consumer confidence expectations fell to 102.6 vs. 105.4 last month.
Sector Movers Today
·      Consumer Staples; CAG entered into a definitive agreement with SJM to divest the Wesson oil brand, in deal valued at about $285M; OLLI downgraded at MKM on valuation; WTWdowngraded to neutral at Sidoti citing valuation; CALM downgraded to underperform at Cleveland Research; PEP is in talks to acquire All Market Inc., the owner of coconut water brand Vita Coco – Reuters https://goo.gl/2uubZZ
·      Refiners; Morgan Stanley upgraded TSO to overweight and up tgt to $110 but downgraded VLO to EW and cut tgt to $90 from $77 – sees downside risk to U.S. refining margins heading into the summer and expects up to 25% negative EPS revisions in 2Q
·      E&P sector; DNR to buy Linn Energy’s 23% non-operated working interest in Salt Creek Field in Wyoming for $71.5M; Goldman Sachs cuts XEC, HES to neutral from buy on valuation while also cites less attractive relative FCF profile for HES and downgraded WLL to sell as seen likely disappointing investors on volume growth and deleveraging expectations; upgraded NFX to buy
·      REITs; note REITs rose 0.5% on the week, but underperformed the S&P 500 (+1.4%) as the yield on the 10-year increased 2 bps to 2.25%; Mizuho today said despite attractive values (even on our lowered estimates) and sizable YTD gap vs the RMZ, they think negative retail psychology and lack of near-term asset pricing discovery likely keep some investors on the sidelines (lowers estimates and tgts in group as upgraded SPG to buy but cut MAC & GGP to neutral
·      ATW +26%; to be acquired by ESV for $10.72/$6.9B deal https://goo.gl/i6iv83
·      CCN +9%; to be acquired by FDC for $15 a share in cash/$750M https://goo.gl/lVgZcV
·      PTGX +37%; rises after news of pact with JNJ’s Janssen for PTG-200
·      SYMC +2%; upgraded to overweight at Barclays and raised tgt to $38 from $34
·      TIVO +7%; says ITC finds violations by Comcast of two U.S. patents
·      XTLY +16%; to be acquired by PE firm Vista Equity Partners for $15.65 in cash per share, or total value of ~$564M https://goo.gl/FxJfTE
·      AMBA -6%; cut to sector weight at Pacific Crest citing a socket loss at DJI/premium valuation
·      BWLD -4%; downgraded to underperform at Wedbush and cut tgt to $115 from $150
·      ESV -3%; as acquired ATW in $6.9B deal (see details above)
·      HES -3%; downgraded at Goldman Sachs to neutral
·      WLL -10%; downgraded to sell at Goldman Sachs

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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