Market Review: September 14, 2017

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Closing Recap
Thursday, September 14, 17
Equity Market Recap
U.S. stocks ended mixed with Dow Industrials closing higher, as major averages were buoyed by energy stocks for a second day, while consumer discretionary and technology shares lagged. All three major indices came into the day at all-time highs, with the Nasdaq Comp failing to build on its totals, while the Dow posted strong gains behind UTX, BA and healthcare giants PFE and JNJ. WTI crude traded above $50 per barrel for the first time since mid-August, before settling just below $49.89). The dollar retreated after three days of gains, falling most against the Pound, while markets weighed renewed threats from North Korea, who according to the Nikkei earlier is said to show signs of missile launch preparation citing an unidentified Japanese government official. Chinese retail sales, industrial production and fixed-asset investment all slowed last month which weighed on commodity prices. Next major catalyst the FOMC meeting next week, though no rate hike changes are expected, though December rate odds rose slightly on the higher CPI report (note tomorrow a fairly busy day of data with manufacturing, industrial production and retail sales). Markets still waiting on tax reform with Republicans saying earlier this week they will have more details the week of September 25th. Bonds were little changed on the day, while the tech sector turns to Oracle with earnings after the close.

Economic Data
·      CPI rises; U.S. consumer prices (CPI) for August rose the most in 7-months, more than expected as Hurricane Harvey shut down refineries along the Gulf coast and sent gasoline prices sharply higher. The headline consumer price index rose 0.4%, above the estimate of 0.3%, while core CPI (ex: food and energy) rose an in-line 0.2%
·      Weekly Jobless Claims fell 14K to 284K, below the 300K estimate while the prior week claims were unrevised at 298K; the 4-week moving average rose by 13,000 to 263,250, now at the highest level in a year; continuing claims fell 7K to 1.944M in the latest week; Labor Department says claims for 4 states were estimated last week due to Hurricane impact
·      Oil prices end higher, but settle off best levels; WTI crude settles up 59c at $49.89, off earlier highs of $50.50. It was the first time it topped $50 per barrel since August 10th after both the IEA and OPEC boosted forecasts for demand. Also follows bullish gasoline inventory data yesterday and as EIA said product inventories drain fast as second storm hits. Speculation around OPEC extending its production cuts helped propel WTI – with today’s close, oil ended at 6-week highs.
·      Gold prices inched higher, rising $1.30 to settle at $1,329.30 an ounce, its first win in four sessions after an inflation report showed consumer prices moved higher and as the dollar slipped against some counterparts (gold topped out at 1-year highs last week).
Currencies & Bonds
·      The U.S. dollar was little changed against the yen, but fell vs. the euro and sharply vs. the Pound. British Pound advanced, surging over 1.4% to trade just shy of the 1.34 level against the greenback after Thursday’s Bank of England meeting, commentary suggested they appear likely to raise policy rate by 25bp in November and again by May 2018 according to one strategist. Bank of England Governor Mark Carney was quoted as saying the probability of a rate increase has “definitely increased.”
·      Crypto-currency space busy as Bitcoin plunges more than 16% to trade below $3,300 before paring losses and off about 30% from all-time highs of $4,921 on 9/1, hit by headlines from JPM CEO Dimon this week at a conference and after headline this morning that Bitcoin exchange BTC China says will stop all trading from Sept 30th (Reuters headline)
·      Bonds relatively steady today after falling the last 3-sessions…10-year yield up slightly at 2.20%, but off 10-month lows last week when it threatened to breach the 2% level to the downside (traded to 2.02% last week); the 2-yr yield up around 1.37%, while longer term 30-yr under 2.80%
Sector News Breakdown
·      Retailers; fairly quiet news day for group with TIF shares falling as 4.4M share Block Trade priced at $94.40; IDC said that wearables shipment forecasts to grow 16.6% in 2017 (AAPL, FIT, GRMN); sector awaiting NKE earnings results in less than 2-weeks
·      Consumer Staples; UNFI 4Q results were generally positive, as 4Q EBITDA was in-line, the FY18 outlook for sales was consistent with Consensus, while the EPS outlook was slightly better; PFGC 5M share Spot Secondary priced at $28.40; USFD 40M share Spot Secondary priced at $27.50; KO pulls back from 52-week highs yesterday
·      Housing & Building Products; in homebuilders, LEN said it expects delays to deliveries after hurricanes Irma and Harvey; in research, JP Morgan downgraded TOL to neutral, as the stock now trades at a premium to its peers, while upgraded smaller-capsBZH and CCS to Overweight, as both stocks offer attractive relative valuations (reit top pick on PHM); WLH 3.32M share Spot Secondary priced at $24.15
·      Auto movers; ALV rises after announcing a plan to split the company and new targets; in car rental, HTZ was downgraded to underweight at Morgan Stanley on valuation following a tripling of the shares over 3 months; the Financial Times reportedVLKAY and its joint venture partners in China will recall 4.86M vehicles in the country because of faulty airbags, China’s quality watchdog has said; TSLA is tentatively set to roll out its semi-truck in October, Elon Musk tweeted
·      E&P sector; energy stocks surged yesterday on rising oil prices, gets another boost today as WTI topped $50 per barrel; in research, JP Morgan downgraded APA and IMO to underweight on valuation and downgraded HES to neutral on persistent spending gaps and premium valuation mitigate improving operating profile (said APC, CNQ, CVX, COP, NBL still screen favorably on company’s framework focused on a combination of sustaining FCF, balance sheet); JONE active after shareholder (Q Global Capital) calls for strategic alternatives
·      Refiners were weaker as WTI crude approaches $51 per barrel, crimping refining margins (VLO, ANDV, PBF, CVRR all lower)
·      Utilities; SO was upgraded to buy at Guggenheim and raise tgt to $56 from $49 as they become increasingly comfortable with the path forward for nuclear construction in GA following recent meetings with management as well as various Commissioners at the GA PSC; Virginia Supreme Court affirms decision to freeze Dominion (D) rates
·      Regional banks CFG, HBAN and KEY upgraded to outperform at Bernstein as still believe there is more likely to be upside to our ’18-’20 estimates than downside and valuations more attractive; SBNY tgt cut at Raymond James (stays OP) after the bank provided lower asset growth guidance and reduced NIM expectations; RJF was upgraded to outperform at Wells Fargo;
·      Consumer Finance and services; EFX extended weakness early as now FTC investigating its recent data breach of 143M American – shares traded as low as $89.59 before rallying $10 off the lows late morning (paring losses to around -30% since data breach news); FNMA and FMCC extend gains in a move began late yesterday afternoon after six Senate Democrats called on the FHFA and Treasury to let the two GSEs begin to build capital.
·      Asset managers; MN preliminary assets under management (AUM) as of August 31, 2017 of $27B compared with $27.3B at July 31, 2017 and $27.1B at June 30, 2017; WDR preliminary assets under management of $80.3B for the month ended August 31, 2017, compared to $81.2B MoM; BRK/A rated new Overweight at JPMorgan, PT $315,000
·      Large Cap Pharma; strength in large cap Pharma names (PFE, MRK, LLY, JNJ); LLY and INCY said Baricitinib Phase II study meets primary endpoint; OPK downgraded to neutral at JP Morgan saying stalled Rayaldee launch and pipeline challenge growth thesis; AGTC tgt cut by several analysts based on the slow clinical progression of the company’s trials; SMMT 1.459M share Spot Secondary priced at $12.00; Aspen Pharma agreed to buy more rights to AZN’s anesthetic drugs, paying $555M; SAGE extended its three-day slump to 29% after its failed Phase 3 study in super-refractory status epilepticus (SRSE) earlier this week
·      Biotech movers; HALO shares jump as raises FY17 revenue view to $245M-$260M from $115M-$130M after out-licenses ENHANZE to Roche and BMY for up to $455M; VNDA said Tradipitant was shown to improve the intensity of the worst itch patients experienced, as well as atopic dermatitis disease severity, but missed primary endpoint; ARRY filed to sell $175M in shares; EPZM 9.18M share Spot Secondary priced at $15.25; RARE upgraded at Wedbush to outperform; ICPT falls again after the company two-days ago sent a warning letter to health care providers regarding post-marketing reports of liver issues and death in certain PBC patients
·      Healthcare facilities; THC has hired advisers to explore strategic alternatives, including a potential sale of the U.S. hospital operator, according to reports ; AAC to acquire one of the leading providers of addiction treatment in New England for $85M
·      Healthcare services and suppliers; GKOS cuts 3Q and 2017 sales guidance views on its current assessment of certain transitory impacts to iStent procedure volumes (lowers FY17 revenue view to $155M-$160M from $162M-$167M); ABC and MCK were both downgraded to equal-weight at Morgan Stanley saying with continued increase in generic price inflation and a record pace of generic drug approvals, they see distributors’ EBIT growth at risk over the medium-term; Piper said AET announced on its news page yesterday that it is increasing its telemedicine services through TDOC, as it will now include dermatology, behavioral health and caregiver services; dental services (HSIC, PDCO) weak for a second day – recall yesterday Stifel said in a note that online vendors such as Amazon are gaining traction in the dental consumable market
Industrials & Materials
·      Industrial & Machinery; EMR reports trailing three-month to August orders up 10% and underlying orders were up 9%, excluding favorable currency translation; Dow component BA target price raised to Street high $300 at Deutsche Bank (yesterday company announced planned 787 production pickup); USCR shares fall another 2% today – stock traded 52-week high on 9/5 at $83.85 …down at $70 today; UTX outperforms in the Dow Industrials after comments at the Morgan Stanley conference (said sees all 4-business units flat to up in ’18 earnings)
·      Transports; the index continues to lag broader markets, not reaching a record high since mid-July; Ryder (R) was upgraded to overweight at KeyBanc with $100 tgt and raise estimates saying checks suggest NT rental activity at the high end of seasonal variations; GWR August traffic was up 10.1% YoY, with 277,472 carloads, an increase of 25,404 from August 2016
·      Metals & Mining; NUE was upgraded to buy at Citigroup with $65 tgt given the disconnect between NUE’s lackluster share price and the underlying fundamentals of the sector
Technology, Media & Telecom
·      Semiconductors; LSCC shares active after President Donald Trump blocked Canyon Bridge Capital, a private-equity firm backed by a Chinese state-owned asset manager, from buying the company, citing national security concerns; 52-week highs for LRCXand MCHP today; AMD and NVDA holding up well despite leverage to crypto-currency market (Bitcoin weakness)
·      Software movers; ORCL to report earnings after the close; VMW upgraded to overweight at Barclays and raise tgt to $130 saying risk to market share from public cloud providers no longer seems valid and company appears undervalued; SYMC remains active (owns LifeLock) after company said LifeLock has seen six times its normal web traffic, and signups per hour are up 10x; internet security names remain active on EFX breach (FEYE, SYMC, CHKP, PANW, CUDA); midday, Bloomberg reported thatCSOD, which has a market cap of $2B, has hired financial advisers to work on a strategic review of the maker of cloud-computing software
·      Media movers; the U.K. government said it would refer FOXA’s $15.5B proposal to consolidate ownership of Sky PLC to the country’s competition authority; several comments out of Goldman Sachs TMT conference: VZ CEO said intends on cutting $10B in costs in the next for years using a zero-based budgeting approach; Sprint (S) said on Q3 sub gains “this is a good quarter” and that iPhone X could stimulate a new phone buying cycle; CBS said its “All Access” subscriber count is ahead of projections; TMUSsaid sees no subscriber gains in Q3 and that NFLX offer will help add and keep subscribers.
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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