Equity Market Recap
· Stocks rebounded late afternoon as the U.S. dollar and equities pushed higher, while Treasury prices fell as traders digested former FBI director James Comey’s opening remarks ahead of Thursday’s anticipated testimony. Stocks moved back into positive territory after Comey said in his statement that he understood Trump to be asking specifically about the Flynn probe and not the broader investigation into Russian meddling in the U.S. election (nothing new). The Comey testimony is just one of three potential market moving catalysts tomorrow as investors will also get details from the European Central Bank (ECB), which will make its announcement on monetary policy, and the U.K. will hold a general election. Overall the broader U.S. stock market continues to act like Teflon, with no negative news sticking, and major averages holding just off record levels reached last Friday. Energy was the other big story today, as WTI crude prices fell more than 5% following bearish weekly inventory data, sending several S&P energy components to 52-week lows (APC, HP, NFX, RIG, DVN, MUR, SLB, NBL, MRO, APA, HES and XEC). In England, the FTSE 100 slides to 2-week low as pound, tanking oil prices weigh ahead of election tomorrow.
· Former FBI Director James Comey said in his prepared Senate testimony that he did not tell President Donald Trump he would drop an investigation into former National Security Adviser Mike Flynn. “I did not say I would ‘let this go,'” Comey said in remarks released by the Senate Intelligence Committee, where he is due to testify Thursday. Comey, who was fired by Trump on May 9, also said he didn’t move, speak or change his expression when Trump asked for loyalty.
· Oil prices plunged, with WTI crude falling more than 5% to trade below $47 per barrel, under pressure throughout following bearish data on American crude inventories. The EIA reported a surprise weekly build of 3.3M barrels vs. an expected drawdown of over -3.2M, while gasoline and distillate supplies also unexpectedly rose last week (the gasoline build is first since April). Last night, the API reported a decline of -4.6M barrels in U.S. crude supplies for the week ended June 2, but showed a climb of 4.1M barrels in gasoline supplies, and build of 1.8M barrels of distillates.
· Gold prices slipped on Wednesday, snapping its three-day string of advances, falling -$4.30, or 0.3% to settle at $1,293.20 an ounce. The dollar was mixed, and metals appear to have just taken a breather after jumping to 7-week closing highs yesterday ahead of political uncertainty.
Currencies & Bonds
· The U.S. dollar was mixed ahead of tomorrow’ political/macro news. The euro dropped to as low as $1.1204 after Bloomberg reported that the ECB will cut its inflation forecast through 2019 (down from overnight high of 1.1281) – but closed only down slightly around 1.1265. The dollar got a lift late day jumping to around 109.80 late day against the yen (up over 0.3%). The British Pound ended higher ahead of tomorrow’s UK election. Treasury markets pared recent gains after surging the past few weeks – the 10-yr yield rose about 3 bps to 2.175%, while the 2-yr topped 1.30%. Bonds have been strong heading into tomorrow.
Sector News Breakdown
· Retailers; group slammed yesterday after Macy’s CFO comments about declining margins; more mixed news today; DLTH shares fall as Q1 mixed (EPS miss/revs beat); OXM Q1 sales missed views, though EPS beat while guides Q2 top and bottom line below estimates
· Consumer Staples; beverages active on earnings/research; BF/B Q4 EPS missed by 3c on lower sales ($694M vs. $738M est.); KO & PEP both downgraded to Market Perform from Outperform following a double-digit increase in share prices, while upgraded DPS and COT to outperform; in food, UNFI mixed Q3 results as EPS beat/revs miss and lowers its year revenue outlook; TAPshares came under pressure late day, dragging down beverage stocks speaking at investor day
· Auto sector; CVNA posted Q1 results slightly ahead of expectations, and provided Q2 and full-year guidance that were above Street consensus
· Restaurants; PLAY mixed Q1 as sales top consensus, but comp sales only rise 2.2% (vs. est. 2.7%), but raised year revenue, Ebitda and net income outlook
· Broad based selling pressure in energy complex following the surprise weekly build of 3.3M barrels by the EIA vs. an expected drawdown of over -3.2M, while gasoline and distillate supplies also unexpectedly rose last week; frac sand stocks plunged (FMSA, HCLP), along with oil drillers (DO, ESV, RIG), E&P names (APC, MUR, SM, PXD), services (WFT, HAL, SLB) – energy was the biggest drag on the stock market today
· MLPs also lower with broader energy complex – Alerian MLP Index (AMZ) down at lows, off -1.44% at 296 level – new 2017 lows, with NGL, TOO, EEP, CEQP and AM among biggest index losers thus far
· Utilities; German Utilities E.ON (EONGY) and RWE (RWEOY) rise after Germany’s highest court effectively rolled back a tax on nuclear energy, saying the fees the government has collected from utility companies are unconstitutional and “void.” The government has collected ~€4.6B ($5.2B) from the two utilities since the 2011 imposition of the tax.
· Banks saw pockets of strength, with gains in large cap, regional, insurance and brokers as yields bounce off yearly lows ahead of big news day tomorrow. Interest rate sensitive REITs advanced for a second day after commentary at NAREIT’s REITWeek conference in New York and as lending rates remain low
· Brokers & Advisors; FBR Capital increased DOL fiduciary rule uncertainty, and has become more cautious on this issue than he previously has been. Expect weakness in these names and downgraded AEL to market perform as well as potential weakness in LNC, PRU, LPLA, PRI, AMP, ATH, and VOYA; GBDC 1.75M share Spot Secondary priced at $19.30
· Top stories; Banco Santander SA agreed to buy Banco Popular Espanol SA for a nominal 1 euro ($1.13), after European regulators determined that the troubled lender was likely to fail and ordered it to be sold. All of Popular’s junior bonds will be wiped out as part of the deal
· Managed care; Morgan Stanley initiates sector, expect M&A to accelerate, with focus on vertical integration vs. scale and is overweight rated on UNH, HUM, AET, CI, and CNC – favor managed care companies with diverse revenue streams and exposure to value based services, but see structural challenges for hospitals; UNH boosted its dividend
· Biotech movers; KITE rallied after a competitive study by NVS failed to treat 40% of the enrolled population without an explanation; NVAX says trial showed its vaccine reduced recent infections by about 52%; SGYP said its sNDA accepted by the FDA, PDUFA Jan 24, 2018; ABBV’s Upadacitinib meets main goal in arthritis study; JAZZ rises after its Phase 3 narcolepsy study of 150mg and 300mg doses of JZP-110 met co-primary endpoints
· Hospitals; HCA, LPNT and THC upgraded to outperform at Leerink and up tgts for HCA to $100 from $90, LPNT to $74 from $73 and maintains a $27 for HCA – saying ANTM’s announced exit yesterday from the key swing state of Ohio’s healthcare exchange could bring further attention to the need for stabilization funding through legislation; QHC initiated underweight at Morgan Stanley with $3 target
· Equipment and devices; DVA (among others) were active after Kynikos’ Jim Chanos said he’s shorting dialysis companies; ALOG falls on mixed Q3, but lowered its year outlook for revs/EPS/op margins; DXCM active after FDA approved its G5 mobile app as first continuous glucose monitoring platform available for Android devices; EXAS 7M share Spot Secondary priced at $35.00;DHR downgraded at Janney to neutral
Industrials & Materials
· Industrials & Machinery; NAV Q2 sales slightly top views at $2.1B, but Ebitda for quarter misses at $65M (ALSN shares dipped in sympathy); PX was upgraded to buy and $150 tgt at Bank America; KEYS 2Q results and 3Q revenue view midpoint topped analyst expectations; analysts highlighted the growth in orders; ALB
· Airlines advance on weaker oil and monthly metrics for some: LUV May traffic up 3.4%, capacity up 4.0%; still sees 2Q Rasm up 1%-2%; said May load factor 85.4% vs 85.8% YoY; UAL May load factor fell 0.9% points YoY/traffic up 2.6%; capacity up 3.7%/reaffirms forecast for 2Q consolidated passenger unit revenue up 1-3%; HA raises 2Q forecast for operating revenue per ASM growth to up 7.5%-10.5% from up 5.5%-8.5% prior; DAL says unit revenue tracking at upper end of original view up 1%-3%; group bounced after drop in oil; car rentals fall again (CAR)
· Metals & Mining; U.S. Steel (X) higher after JP Morgan says believes shares at current levels reflect a far too negative view; however, group came under pressure following the late morning rout of oil prices after the inventory data – broad pull in metals names/gold miners included
Technology, Media & Telecom
· Internet; late day sell-off Tuesday in F.A.N.G. names (FB, AMZN, NFLX, GOOGL) weighed on internet/tech stocks late day; Pandora (P) adds to yesterday losses, after falling -7.7% Tuesday; Wayfair (W) moved after Reuters says IKEA exploring selling through third parties
· Semiconductors; SIGM shares weak after reported soft results and weaker guidance due to continued TV headwinds; AMBA posted Q1 EPS/revenue beat, but guided Q2 revs $69M-$72M, below estimate $72.52M); early 52-week highs for MCHP, MU, KLAC, XLNX in semi space; AMD adds to recent gains (up over 15% this week) after reports about AMD benefiting from cryptocurrency mining
· Software movers; ATVI PT raised to $67 from $57, EA PT raised to Street-high $126 from $114 at Morgan Stanley saying reasons to own include accelerating digital game downloads and rising digital in-game purchases; UPLD 1.86M share Spot Secondary priced at $21.50; SEAC posted smaller than expected Q1 EPS loss of (5c) on in-line revs; RPD filed to sell 2.8M shares for holders
· Hardware & Services movers; IBM slipped after CNBC reported FB is planning to move its WhatsApp off IBM’s public cloud; WIT downgraded at Jefferies
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.