Equity Market Recap
· U.S. stocks traded in positive territory most of the session before ending mixed, as energy stocks slipped, though technology (NASDAQ) and Small Caps (Russell 2000) outperformed. Financials played catch-up, while defensive/safe haven assets (gold, bonds) declined, paring recent gains as the testimony by former FBI head James Comey to the Senate panel and details from the ECB meeting occurred without any major surprises (a few in testimony – but not market moving). Next up, the UK snap elections (polls close 5:00 PM EST) which may move European and currency markets. Bloomberg noted the importance of financials in Small caps today, saying that despite most stocks being down in the S&P 500, financials account for 28% of the Russell 2000, which helped explain the massive outperformance for the index today. Overall, the “Super Thursday” that many had hoped for to spark some form of volatility for stock averages failed to produce, as the dollar was mixed, bonds fell, and commodity priced ended generally lower.
· Former FBI director James Comey testified he was disturbed by President Donald Trump’s bid to get him to drop a probe into former national security adviser Michael Flynn, but he would not say whether he thought the president sought to obstruct justice. Comey also accused President Donald Trump of firing him to try to undermine the bureau’s investigation into possible collusion between his 2016 presidential campaign team and Russia. Comey said Trump’s shifting explanations for dismissing him were “lies, plain and simple.” He said he wrote detailed memos of their conversations because he feared the president — who ultimately fired him on May 9 — would paint a false picture of their encounters.
· The European Central Bank (ECB) left rates unchanged at 0% (as expected) and maintained its QE asset purchase program at EU60B a month through at least December (as expected), saying that rates to stay at present levels past QE horizon, sees QE running until end of December or beyond if needed. The ECB also cuts inflation expectations (also expected) for 2018 and 2019 mainly due to energy prices. The ECB also removed a reference to the possibility of it lowering interest rates in its regular monetary policy statement
· Next up, UK voters go to the polls: Polls will close at 10 PM local time (5:00 PM EST), in a general election called out of cycle by U.K. Prime Minister Theresa May in a bid to gain more seats for her Conservative Party and strengthen her hand in Brexit negotiations. With 650 seats at stake, a majority is at least 326 seats. The Conservatives currently have 330 seats and, with support, a working parliamentary majority of 17.
· Precious metals led the commodity space decline, falling -$13.70, or 1.1% to settle at $1,279.50 an ounce, its lowest closing level in a week, and downgrade 7-week highs reached Tuesday. It appeared to be profit taking given the run in safe haven assets this week into the ECB, UK election and Comey testimony.
· Energy futures dropped, with WTI crude slipping 8c to settle at $45.64 per barrel (high $46.18 and low $45.20) failing to rally after posting its biggest decline in 3-months yesterday, after Wednesday’s unexpected increase in U.S. crude inventories sent prices down over 5% under $46 per barrel. U.S. total crude and products supplies rose by most since 2008 last week, according to EIA data.
· The dollar was mixed; today’s ECB meeting and testimony from former FBI head failed to provide the volatility investors had hoped in stock and currency markets. The euro slipped from six-month highs (1.1269 earlier) against the U.S. dollar after ECB President Mario Draghi said a substantial degree of monetary accommodation was still needed in the EuroZone. Draghi said the ECB was ready to increase its asset-buying program if needed, though he added that the risks to the economic outlook were “broadly balanced” and the ECB slightly raised its growth projections. The dollar bounced against the Japanese yen (which slipped vs. most currencies) but pared gains late day as stocks reversed lower.
· Treasury prices dropped and yields inched higher following results from the ECB meeting and James Comey testimony which went off without any bombshell surprises. Yields inched higher as the 10-yr rose about 3 bps to around 2.20% as attention now turns to next week’s FOMC meeting, which is expected to generate a near-certain rate hike. Overall, the defensive assets declined today after rallying into the day’s events (gold, yen and bonds dropped)
· Initial jobless claims dropped by 10,000 to 245,000, slightly above estimates for 240,000; the four-week jobless claims average rises 2,250 to 242,000, while prior week claims revised up to 255k from 248k; continuing claims fell 2k to 1.917m in the week ending May 27
· June IBD/TIPP economic optimism index at 51.3, unchanged from May; economic outlook rose to 51.2 vs 49.6 last month; personal finance rose to 57.2 vs 57.1 last month
· Household wealth in the U.S. increased to $94.835 trillion last quarter, according to the Federal Reserve; 1Q nonfinancial corporate liquid assets grew by $36.1 billion to $2.205 trillion; Total credit rose 2.5% to $66.5021 trillion outstanding; Homeowners real estate holdings minus the change in mortgage debt rose $517.3 billion
Sector News Breakdown
· Retailers; JWN shares jumped after the company said it would explore going private transaction https://goo.gl/3R6w1W (shares of M, JCP, KSS, ANF also moved on headlines); URBN shares dropped after saying that 2Q comp retail segment net sales to date are high single-digit negative vs. est. of (-2.5%); DSW upgraded at Cleveland Research; TLRD reported bottom-line upside to 1Q, but missed Street expectations on the revenue side
· Non-apparel retail; COST slipped early after filing showed VP Murphy sold 5,000 shares on June 7th; VSTO was upgraded to buy at DA Davidson saying after several downward earnings revisions due to retail and category headwinds, they believe fundamentals are bottoming
· Consumer Staples; SJM Q4 top and bottom line results topped consensus while mid-point of year guidance came in above consensus; POST announced a $250M stock buyback; beverage sector still reeling from yesterday comments by TAP at investor conference where they saw underlying EBITDA margin up 30-60 bps per year on average over the next 3-4 years; DTEA Q1 sales beat but comp sales were down (-5.7%) and trends remain weak in Q2, while also said its CFO resigned
· Auto sector; Morgan Stanley with sector call as firm turned cautious on the auto sector after a disappointing start to the year and slashes U.S. sales forecasts, estimates and price targets across the group. Morgan cut LEA to underweight saying electrical margins may especially disappoint investors; cut tgts for several names with more than 10% cuts for LEA, F, GPI and ADNT;TSLA traded to another new all-time high as momentum pushes higher
· Lodging & Leisure; HLT 15M share Spot Secondary priced at $65.95; MTN Q3 revenue missed estimates while quarterly Ebitda was mostly in-line with views; in casino’s PENN shares outperformed, pushing to new all-time highs
· After oil prices plunged over 5% to below $46 per barrel yesterday, and several names in the energy complex traded to 52-week lows, oil names got a little lift today as investors looked to scoop up some names in the beaten sector. Brent fell below $48 per barrel and WTI near $45.50 after Wednesday’s unexpected increase in U.S. crude inventories pushed Brent prices to the lowest since November.
· Large Cap banks/regionals; group nice bounce after days of weakness, with regional banks leading S&P gainers (RF, CMA, BBT, CFG); large cap banks also outperformed with GS and JPMamong top gainers in the Dow Industrials (as group rebounds from days of selling pressure); however overall, financial news been very slow over the last few days
· Specialty pharma & generics; VRX said it would sell its iNova Pharmaceuticals business for $930 million as company steps up efforts to slash its huge debt pile https://goo.gl/adczYs (shares of the sector better today with ENDP, TEVA, PRGO, MNK higher early); SCLN to be acquired for $11.18 per share cash, by a consortium led by GL Capital. https://goo.gl/gNJEhu
· Biotech movers; NLNK shares plunged after Genentech said it planned to return the rights to NewLink’s IDO inhibitor GDC-0919 (navoximod), an immuno-oncology product candidate; CHRSshares active ahead of Friday’s FDA action date for CHS-1701, its biosimilar to AMGN’s Neulasta; INO said the FDA removed the clinical hold on VGX-3100 Phase III trial
· CAR-T sector; BLUE came into the day riding a 5-day win streak following positive results at ASCO conference over the weekend; KITE was upgraded to buy at BTIG ($100 tgt) citing Axi-Cel manufacturing edge after JUNO/NVS data failed to deliver any recognizable differentiation; JUNO downgraded to sell at BTIG saying treatment for CD19 and hematologic malignancies is on track to hit the market later than competing products
Industrials & Materials
· Metals & Mining; busy day of news/research; KeyBanc said the U.S. steel industry’s next hope for some supply side relief will be via Section 232 decision as Dept of Commerce (DOC) lowered its countervailing duties (CVD) levied on select Turkish rebar exporters; Jefferies downgraded several mining names on fading economic momentum in China (BHP, S32, FSUGY, VDNRF) but said they continue to like FCX given structural supply constraints for copper and because they believe the share price incorrectly discounts a low probability of a favorable outcome to the Indonesian negotiations; CMC was downgraded to neutral at Bank America as recent trade case results likely fail to stem continued steep rebar imports; BHP was upgraded to buy at UBS
· Industrials; DOV upgraded to outperform at BMO Capital as saw improvements in orders across the segments which extended into April/indicated a forthcoming change to less reliance on Energy; ABM mixed Q2 results; CBI shares gained, paring weekly losses
· Containers & Packaging; group gets negative earnings results as GEF declines after Q2 results below consensus on EBITDA and EPS with a disappointing 1H17 cash flow result, leading to a slightly reduced FY17 FCF guidance on higher CAPEX
Technology, Media & Telecom
· Internet; BABA shares jumped after the company, at its investor day presentation said expects revenue growth of 45-49% in the FY18 (vs. 56% revenue growth posted for the 2017), but Jefferies said about 10%-14% above views (FY20 gross merchandise volume target was maintained at 1T); share of YHOO rallied in sympathy, as well as China ADRs (BIDU, ZTO, BZUN, VIPS, JD); Pandora (P) extended its pre-closing period in KKR investment/also report SIRI is seeking to invest in the internet music provider https://goo.gl/G2elnZ (P shares had touched 14-month lows yesterday); SNAP fell ahead of the first lockup expiration on the shares on July 30.
· Semiconductors; no let up at all for semiconductors – new highs for the index as SOX up at fresh 17-year highs of 1,138 today (up 24% YTD); 52-week highs for ON, MVDA, MXIM, LRCX, MKSI, SWKS, TXN, CRUS, MCHP, XLNX, AMAT, MU today; NVDA tgt raised to Street high $180-share at Citigroup saying bull case scenario of $300-share implies upside of more than 100% and assumes $24B sales and $8.50 EPS power “on 50% share in $30B data center and $5B auto opportunities; Reuters reported Toshiba Corp aims to name a winner for its prized semiconductor business next week – narrowed to one bid from AVGO/Silver Lake and another from WDC/Japanese gov’t investors. https://goo.gl/XTcPkd
· Media & Telecom weaker to start; declines in cable, with CHTR and CMCSA underperforming early, but weakness also in DISCA, LILAK, LVNTA; TMUS said at Barclay’s conference that it sees a “significant decline” in pre-paid subscribers
· Optical movers; group active again after Rosenblatt comment that FNSR is losing business to LITE and seeing big price pressures from Huawei, their biggest customer
· Software & Hardware; OKTA rises after posted smaller-than-expected Q1 loss on higher revenue (its first quarter as a public company); ORCL upgraded to positive at OTR Global following partner checks that generally reported solid year-end business activity; NTNX shares dropped after filings by management of selling shares; CMTL posted mixed results/guidance; SYMC weakness following financial analyst day today
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.