Market Review: September 13, 2017

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Closing Recap
Equity Market Recap
·      Stocks end higher, trading in a narrow range throughout the session, but major averages all at new record lifetime highs for the Dow Industrials, Nasdaq Composite and S&P 500. Treasuries fell and the dollar gained as news of a tax-cut outline on lawmaker’s desks by September 25 revived hopes for the “Trump trade.” Inflation data was weak, as the producer price index for August fell short of headline consensus on both top and core, ahead of the highly anticipated CPI report tomorrow morning. Strength today came in the form of energy stock as oil prices jumped over 2% on inventory data and after the IEA said demand will climb this year by the most since 2015. Retail and consumer discretionary was another bright spot, led by shares of Nordstrom. European stocks end its 5-day win streak as U.K. equities suffer – note the Bank of England policy meeting is tomorrow morning. The dollar gained versus most counterparts, extending its recent rally off 2 year lows.
·      Oil prices finish strong, with WTI crude rising $1.07, or 2.2% to settle at $49.30 per barrel (off lows $48.12 and around highs of $49.37) on inventory gasoline data (while crude data was bearish) and after the IEA said demand will grow this year by the most since 2015. Any decision on extending OPEC cuts could take until early 2018, according to Kuwait. Brent tops $55 per barrel as the spread between international oil benchmark Brent and its US counterpart West Texas Intermediate has grown to its widest level in two years. Back the inventory data, EIA data showed U.S. gasoline inventories tumbled by 8.43M barrels last week, the biggest decline in data going back to 1990, while crude inventories rose +5.89M barrels to 468.2M, its biggest build since March while crude production rose by 572k b/d, most since 2012
·      Gold prices dropped -$4.70, or 0.4% to settle at $1,328 an ounce, its third consecutive session decline, and the longest streak of declines in more than a month as the dollar strengthened. Gold pulled back from an intraday high of $1,340 as the greenback rallied throughout the day. The retreat so far this week followed its finish Friday at its highest since Sept. 6, 2016. Copper prices were under pressure, falling to three-week lows.
·      The dollar jumped across the board, with the euro falling -0.7% to lows at 1.188 (after topping at 1.2092 on 9/8) while the greenback rose above the 110.50 against the safe-haven Japanese yen (up over 2.5% the last 4-days). The British Pound pared recent gains, falling back under 1.32 vs. the dollar (rose yesterday on higher CPI data). Bitcoin tumbles as much as 10% before paring losses, trading under $3,800 at one point after negative comments by JPM CEO Dimon yesterday (all-time high $4,921 on 9/1). Several factors over the last week have helped the dollar index (DXY) rebound from 2 ½ year lows a week ago including: North Korea threat fading into background (for now), the debt ceiling default fears pushed out another 3-months until December, high expectations that some form of tax reform will occur, with officials pointing to the week of the 25th, and the Hurricanes (though incredibly destructive) did not have the economic impact that had been forecasted, with a lesser hit to GDP, though the FOMC remains dovish into its meeting next week where no rate hike is expected.
Bond Market
·      Bonds fell for a third day while yields bounced off the lowest levels since the election last November; the 10-year yield bounced above 2.18% after testing lows around 2% last week as easing North Korea tensions, rotation back into stocks, debt ceiling default fears ease with extension all among factors lifting bond yields. Another weak bond auction today as the $12B reopening 30-yr drew a yield of 2.79% vs. 2.787% when issued, with a bid-to-cover of 2.21 (lowest since May), below prior auction of 2.32 and indirect bidders awarded 58.8% of auction (lowest since Nov ’16).
Economic Data
·      Producer Prices (PPI) for August rose 0.2%, above prior month decline of (-0.1%), but below the 0.3% economist estimate; core prices (ex: food and energy) rose 0.1%, slightly below the 0.2% estimate (last month was -0.1%); final demand ex: food/energy rose 2% YoY vs. 2.1% est. The data comes ahead of August reading for Consumer Prices (CPI) tomorrow morning
Sector News Breakdown
·      Retailers; JWN shares lift department stores early after reports overnight the Nordstrom family is leaning toward a partnership with private equity firm Leonard Green to assist its bid to take the department store private (M, KSS, JCPactive); GCO report indicated falling mall traffic and pro sports outcomes are proving more challenging than expected, said Morgan Stanley; FINL was upgraded to positive at Susquehanna on higher M&A likelihood; analysts weighing in on NKE(estimate changes) ahead of earnings in two-weeks; TGT said it plans to hire 100,000 seasonal employees for the holiday season, up from 70,000 last year
·      Consumer Staples; in food, SNAK shares surged after entered into a definitive asset purchase agreement for the sale of its frozen business for $50M; BETR announced the appointments of two consumer packaged goods industry veterans with proven track records of growth; AVP initiated new underperform at Jefferies and $2.20 target; PM raises dividend; USFD upgraded to overweight at Barclays calling it the most attractive of three leading food service distributors
·      Restaurants; MCD mentioned positively at Nomura Instinet as raises estimates and tgt (to $173) on stronger earnings in Japan, an accelerated run rate of store growth in China, the launch of a RTD coffee partnership with Coke, and FX tailwinds (shares fell yesterday after cautious comments bu M Science after checks); CBRL mixed Q4 as EPS beat/sales miss on cops down (-0.8%)/year guidance above views; DRI rises ahead of the launch of this year’s Never Ending Pasta Pass, a diner’s ticket to unlimited pasta tomorrow
·      Housing & Building Products; IRBT shares fall further after another negative comment from SprucePoint saying SharkNinja will offer three different robotic vacuums and products at “value” price point superior to iRobot; Wayfair (W) launched online retailer Perigold for luxury home décor per press release (more competition for WSM and to a lesser extent RH); HD touched a fresh 52-week high today; DHI said seen missing guidance after hurricanes
·      Casino, Lodging & Leisure; bike maker HOG active after UBS said U.S. retail sales at the dealer level fell estimated ~3% in July-August with July down more than 5% and seeing continued declines for U.S. retail even with easier y/y comps; gaming stocks were mostly lower, while cruise lines were mixed
·      Sector was among the top outperformers, led by strong gains in E&P (MUR, PXD, CXO), nat gas leveraged names (CHK, NFX), sand-frac (FMSA, HCLP, SLCA), drillers (NE, RIG, ESV), services (WFT, HAL) and integrated oils (CVX); refiners underperformed (CVRR, VLO) as oil prices rise
·      Weekly Inventory data: this morning, the EIA posted a weekly build of 5.88M barrels of crude, topping estimates of a 4.9M barrel build, while gasoline fell a greater -8.4M barrels vs. -2.2M barrel draw estimate and distillates fell -3.2M barrels vs. est. draw -2.2M. Overnight the API said that U.S. crude supplies climbed by 6.2M barrels, while gasoline stockpiles dropped -7.9M barrels, and distillates edged down by -1.8M barrels
·      Global oil supply fell in August for the first time in four months, a result of Hurricane Harvey. In its closely watched monthly report, the IEA said oil supply had come down by 720,000 barrels a day last month from July, to 97.7 million barrels a day. However, that was still 1.2 million barrels a day more than during the same period a year prior
·      Other movers; MLPs not sharing the same gains broader energy complex is…the Alerian MLP index up about 0.5% at 282.60; Utility stocks fall a second day on rising rates, pullback from record highs just a few days ago as investors rotate back into riskier asset classes
·      Large Cap banks and financials in general were mixed, partially benefiting from the recent rise on bond yields (helping lending margins), but weak trading revenue comments from JPM and BAC yesterday at a conference are a reminder of the tough environment for the sector; banks were generally higher while insurance names slipped after a brief two-day rally post Hurricane Irma; the industry also eagerly awaits tax reform proposal, which is said the be the week of the 25th
·      Asset managers; monthly AUM data out: LM preliminary assets under management (AUM) of approximately $752.4B as of August 31, 2017; IVZ preliminary month-end assets under management (AUM) of $906.7B, an increase of 3.4% MoM; TROWprelim AUM were $934B vs. $927B MoM; AB preliminary assets under management increased 0.6% to $529B during August 2017 from $526B at the end of July; APAM assets under management (AUM) as of August 31, 2017 totaled $111.3B
·      Mortgage Finance & Services; EFX continues to extend losses after data breach affects 143M Americans last week (shares ofTRU have fallen in sympathy); AGNC 24.5M share Spot Secondary priced at $20.85
·      Large Cap Pharma/managed care; CNC to buy New York Insurer Fidelis for $3.75B; in specialty pharma,MNK was downgraded to neutral at Mizuho and cut tgt to $40 from $70 citing competitive headwind concerns and limited visibility into positive catalysts; ABBV, CI, UNH, BIIB trade to fresh 52-week highs
·      Biotech movers; ICPT shares remain under pressure after the company yesterday sent a warning letter to health care providers regarding post-marketing reports of liver issues and death in certain PBC patients; BCRX 15.534M share Secondary priced at $5.15; PTLA 6.35M share Secondary priced at $55.00; LXRX falls as diabetes drug with SNY raised risk of serious complications
·      Medical devices, equipment and services; TCMD 3.3M share secondary priced at $33.00; SIEN was upgraded to outperform at William Blair sending shares higher as expects FDA to approve new U.S. manufacturing facility for breast implants by year end, while firm also upgraded to outperform; dental services (HSIC, PDCO) weak after Stifel said in a note that online vendors such as Amazon are gaining traction in the dental consumable market
Industrials & Materials
·      Industrial & Machinery; TEX downgraded to Mixed from Positive at OTR Global saying checks indicate the company’s crane business is deteriorating; BA shares spiked mid-afternoon after saying it would raise 787 Dreamliner production rate to 14 per month starting in 2019
·      Transports; in airlines, AAL cut its 3Q unit revenue and pre-tax margin views, but only due to the negative impact of Hurricane Irma and not due to the expansion of aggressive industry pricing; in rails, CP CEO said sees 2018 pricing rising about 3%; JBLUslides after saying it continues to expect 3Q RASM growth to range down 1% to up 1%(guidance doesn’t include any impact of Irma)
·      Metals & Mining; copper prices were under pressure, falling to 3-week lows, weighing on shares of FCXEGO rises after Athens News Agency reported that Environment ministry issued two licenses and Canada’s trade minister said will intervene on Eldorado’s behalf in Greece; gold miners also drop as gold prices fall a 3rd day (AEM, ABX, NEM)
·      Chemicals; DWDP upgraded to outperform at Cowen as believes the Specialty Products and Materials Science realignment is a major step in upgrading the eventual SpinCo earnings; in lithium space, SQM was double upgraded to buy at Bank America after rising to record highs on expectations of higher lithium sales to the electric car industry (ALB also leveraged to lithium)
Technology, Media & Telecom
·      Internet; GRUB tgt raised to Street high $65 at Cowen on recent acquisitions that expand its delivery business; ZG falls early as Susquehanna analyzes impact of CFPB issues/says may see significant amount of Ebitda at risk – expects that at a “bare minimum,” CFPB will demand Zillow eliminate its ability to collect more than a 50% co-pay from lenders
·      Semiconductors; MU upgraded to buy at Goldman Sachs and raised tgt to $40 from $33 saying DRAM pricing could rise in Q4 and the cycle could remain tight in 2018, while firm downgraded ON to neutral citing the stock’s relative outperformance and lack of catalysts over the next year; in semi-equipment, Goldman Sachs upgraded AMAT to buy and downgraded KLAC to neutral citing better-than-feared trends for DRAM (higher gross wafer capacity) and NAND; according to various analyst this morning,MU, SWKS, AVGO seen among winners from Apple phones; POWI falls after Rosenblatt sees limited growth potential/says AAPL orders at risk
·      Hardware movers; DLB rises as Dolby Vision is included on new iPhones and Apple TV 4K; in optical, LITE positive mention at Piper as views it as the best way to play the 3D sensing market and anticipate the company’s time-to-market advantage with Apple; a group including private-equity firm Bain Capital and AAPL signed a letter of intent to buy Toshiba Corp.’s chip business for more than $18B (shares of WDC fell in sympathy); FIT rebounds after Stifel analyst noted Fitbit’s Ionic product has some key advantages over the new Apple Watch Series 3, but did say the tech giant’s new offering will still represent “stiff competition.
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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