Market Review: September 11, 2017

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Equity Market Recap
·         U.S. stocks jump on Monday, ending at or near record highs for the S&P 500 Index and Nasdaq Composite (Dow Industrials also not far) as market fears subside with Hurricane Irma hitting Florida with less force than expected (now downgraded to Tropical storm – though still did serious damage in Florida, knocking out power for millions and moving Northeast) and after North Korea failed to conduct another nuclear missile test over the weekend. The two factors played a large role in today’s market rally, as defensive and safe-haven assets declined (bonds, gold, the yen rolled), while stocks that saw selling pressure ahead of the Hurricane rebounded (insurers, cruise line, airlines, lodging). There were also pockets of strength as banks rallied amid the bond pullback and subsequent yield increase, movie theatre stocks rallied on a good sales weekend, Internet security stocks advanced further on fall-out from the Equifax data breach last week, utilities traded to new all-time highs and several stocks in the biotech/pharma space rallied on data out the ESMO conference this weekend. The Nasdaq Comp traded up over 1%, trading above its all-time closing highs (all-time intraday high was 6,460 on 7/27), while the S&P 500 remains a few points from its best record level. Technology sector awaits the debut of Apple’s new iPhone announcement on Tuesday. Overall, the Dow industrials rallied 250 points to reclaim the 22,000 level, as worries over Hurricane Irma, North Korea abate.
·      Commodity prices; nice reversal off the lows for WTI crude, settling higher by 59c, or 1.2% to $48.07 per barre, off earlier lows of $47.00 though no major headlines today for the energy complex as markets await for Gulf Coast refineries to come fully back to normal rates after Harvey hit in late August, further depressing crude demand.
·      Gold prices dropped sharply, falling -$15.50, or 1.2% to settle at $1,335.70 an ounce, its lowest level in more than a week (and falling from recent 1-year highs). Gold dropped as the dollar rebounded and investors shift back into riskier assets and out of defensive/perceived safe-havens as tensions between the U.S. and North Korea and concerns surrounding Hurricane Irma eased. Note gold ended last week with a gain of 1.6% on Friday on dollar weakness.
·      The U.S. dollar rebounds from its worst week in about 2-months (and off 2 ½ year lows of 91.01 for the dollar index early last week), trading to highs of 91.90 as stocks push higher and estimates of economic damage from Hurricane Irma appear far less than anticipated (limiting potential impact to US economy over the next quarter). There were no major economic data points today to move currencies or bonds; Bitcoin prices have fallen over 8% from Friday highs as China cracks down on cryptocurrencies. The mover of the day was the dollar vs. the safe-have yen, rising more than 1.4% to around 109.35 (off Friday lows of 107.32), while the euro and British Pound dropped against the greenback as well.
Bond Market
·      Bonds gained and yields rolled lower as investors jump back into riskier assets (stocks) and out of defensive/safe-haven assets. The yield on the benchmark 10-yr rose over 8 bps to above 2.13% from 2.05% last week – after Treasury yield posted its largest weekly decline in more than 4 months last Friday. Bonds took another leg lower in the afternoon as the U.S. govt sold $24B in 3-year notes at a yield of 1.433%, well above when/issued yield at 1.427% prior to auction, though still weak demand at 2.70 bid-to-cover vs. prior auction 3.13 and indirect bidders only awarded 46.2% of auction (primary dealers awarded 43.4%, highest since December). Bonds gained last week following weakening inflation expectations, President Donald Trump’s waning pro-growth agenda, and rising geopolitical risks from North Korea—but given the overall economic damage from Hurricane Irma is less than forecasts, bonds slipped on lower slowing economic fears.
Sector News Breakdown
·      Consumer/Retailers; JWN underperformed after the company plans to open new shop in West Hollywood next month, but will only offer services and but won’t sell clothing; NKE mentioned cautiously in Barron’s saying shares could fall another 10% as Adidas (ADDYY) picks up the pace; guns AOBC and RGR fail to rebound from last week sell-off post AOBC earnings results/NICS data; Dollar stores BIG, DLTR and DG remain strong buy at Raymond James as like the set-up for investing in the value retail sector during the next 12-months; PPC acquires prepared food supplier Moy Park for~$1.0B; KR downgraded at Deutsche Bank after earnings
·      Auto movers; TSLA said it is expanding its supercharger network into city centers, starting with downtown Chicago and Boston;TSLA sent a free update to some owners in Florida to help them extend their driving range ahead of Hurricane Irma; GT raised to top pick in auto at Morgan Stanley after underperformance
·      Housing & Building Products; Building products stocks USG, BECN, OC (which was downgraded at Nomura), which were expected to benefit from rebuilding efforts after Hurricane Irma, fell on Monday after the hurricane weakened in strength; though damage still great and hurricanes Harvey and Irma could provide lift to demand and pricing for building products companies
·      Casino, Lodging & Leisure; cruise lines rebound (RCL, CCL, NCLH) as Nomura notes after speaking with industry officials that silver lining from Irma is that the impact shouldn’t be as bad as feared because the storm’s eye tracked up FL’s west coast sparing the Port of Miami and Ft. Lauderdale; MBUU was upgraded to outperform at BMO Capital; in gaming, MGM was downgraded to hold at Deutsche Bank (stock underperforms other gamers today)
·      There wasn’t much in way of news for the energy complex in stock related news outside of a few updates post-Hurricane Harvey. Saudi Arabia’s oil minister discussed potentially extending the oil supply agreement beyond the Mar ’18 expiration deadline according to Reuters earlier. Energy stocks as a whole managed to rise with the broader market as oil rebounded off lows Utilities advanced with 52-week highs for several utilities today – DTE, EE, ED, CNP, DUK, ES, PCG, XEL; lot of focus today on FPL which said it has restored power to 1M in Florida (said there were outages of around 4.4M); MLPs advanced as well with the Alerian MLP index moving higher.
·      Banks; group rebounds with gain in bond yields after falling last week; Citigroup (C) said it sees Q3 market revs down 15% YoY with volatility still subdued and investment banking revs unlikely to match 2Q; RF cut its 2017 non-interest income outlook, indicating it sees adjusted non-II relatively stable y/y vs prior 1%-3% growth
·      Insurers; Financials led higher by rebounds in shares of insurers and reinsurers after Irma, though very destructive over Florida, is estimated to have damage in the range of $15B-$50B, below last week’s estimates of over $100B; shares of UVE, HCI, FNHCwith high leverage to the state, along with reinsurers RE, RNR, XL, and P&C casualty TRV, CB, PGR, ALL, rebound
·      Consumer finance/Services; MA upgraded to buy at Guggenheim after investor day; WU mentioned cautiously at Susquehanna calling it an actionable short despite 52-week low; EFX extends losses after data breach affected 143M Americans information last week; SCOR falls after CFO leaves, restatement delay, amid Starboard pressure
·      Large Cap Pharma; several movers following data out of ESMO conference; AZN said a study of its key lung cancer treatment showed stronger-than-expected results in patients whom had not progressed following chemotherapy; TEVA jumps as names 30-year veteran Kare Schultz as new CEO (prior CEO of Lundbeck A/S and NVO); ABBV announced positive top-line results from the Phase 3 SELECT-BEYOND clinical trial evaluating Upadacitinib in patients with moderate to severe rheumatoid arthritis;MRNS said data shows Ganaxolone reduces seizures; RXDX said RXDX-105 shows treatment effect in certain lung cancer patients in early-stage study (reversed lower)
·      Biotech movers; ACHN falls after Janssen terminates Hep C collaboration; ARRY active as its binimetinib/encorafenib combo extends progression-free survival in certain advanced melanoma patients; INCY upgraded to outperform at Raymond James and $159 tgt primarily driven by increased confidence in the probability of success of the ongoing Phase III ECHO-301 study; NLNKshares fall on profit taking after rising 74% Thursday/another 30% Friday on melanoma update; REGN shares underperformed among top decliners in the S&P 500
·      Medical services, devices & equipment; MDT recalls disposable device used with the company’s insulin pumps, after discovering that the part can trigger an excessive dose of the drug and put patients at risk of hypoglycemia; BABY agreed to purchase certain of its neurosurgery assets from IART for $47.5M in cash; HIIQ shares were down over 20% with Cantor noting weakness presumably in response to a negative article posted on
Industrials & Materials
·      Transports, Industrial & Machinery; GE again underperformed in the Dow Industrial Average, this time as Deutsche Bank lowered its tgt to a street low $21 (after cautious comments last week from JPM weighed on shares); 52-week highs for NSC, LSTR, JBHT in the Transport index; airlines bounce as some airports in Florida areas re-open
·      Metals & Mining; ATI upgraded to buy at Bank America from underperform; gold miners dropped as gold prices fell on a stronger dollar; Rebar and Chinese iron ore prices have taken a leg down in the last few days according to Bloomberg
·      Chemicals; Seaport Global discusses potential impacts of Hurricane Irma (GCP, PPG, RPM, SHW), while upgrades PARR to a Buy on recent crack-spread strength; Lithium makers ALB, SQM, FMC jump after reports China to end sales of gasoline and diesel powered cars
Technology, Media & Telecom
·      Hardware; shares of AAPL rebounds after last week’s selloff ahead of the technology giant’s product event tomorrow, in which the much-anticipated new 10th-anniversary iPhone will be unveiled (some features expected: a 3-D face unlock feature, plus inductive charging, plus new Software, and a faster processor) – expected to be called “iPhone X”
·      Semiconductors; AMD and NVDA active as China cracks down on cryptocurrencies; AAPL chip suppliers (AVGO, CRUS, SWKS) active ahead of AAPL product release tomorrow; in hard disk drive makers, STX downgraded to hold at Jefferies saying checks suggest that STX may still be struggling with the ramp of 10TB helium drives; IDTI positive mention by Craig Hallum saying thinks investors are missing IDTI’s new small cell opportunity driven by unlimited data plans
·      Internet movers; SNAP was downgraded to hold at Deutsche Bank and tgt cut to $10 as see the risk/reward as more balanced and take a more conservative view of DAU growth reflecting seasonality; GRUB downgraded to neutral at Credit Suisse saying the shares at current levels reflect an optimistic scenario for accretion from recent acquisitions
·      Media movers; MTCH and IAC targets raised at Piper after analysis of Tinder’s July/August momentum indicates the app had accelerating grossing momentum prior to the launch of Tinder Gold; VIVHY upgraded to strong buy at Raymond James; cable company estimates lowered at Jefferies (CMCSA, T, DISH) saying they  face headwinds in pay-TV subscriber growth from hurricanes Harvey and Irma
·      Movie theatres active after New Line Cinema and Warner Bros. (TWX) horror movie “It” smashed September box office records with $117.2M from 4,103 theaters in its North American box-office debut over the weekend (shares of beaten up movie theatres AMC, CNK, IMAX, RGC were active)
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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