Market Review: September 15, 2017

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Closing Recap
Friday, September 15, 17
 Equity Market Recap
·      Dow Industrials record high…Nasdaq Composite record high…S&P 500 Index record high!
·      The Dow Industrials set another fresh intraday record, its 37th record high this year (had closed at record highs for three straight sessions coming into today), while the Tech heavy Nasdaq Composite rebounds from earlier losses to close strong. Tech was led by a rally in semi’s, with the index (SOX) trading to fresh 17-year high on heels of NVDA strength (rises over 5% on analyst call). The dollar fell, led by gains in GBP to post-Brexit highs following hawkish commentary the last few days out of UK officials. Economic data was mostly negative, as retail sales, industrial production and consumer sentiment all missed forecasts – ahead of the FOMC meeting next week. Financials jumped this week amid a bump in bond yields and news that a tax plan is to be released the week of Sept. 25 to include rates/details. To this point, nothing has been able to dent this markets rally (in typically the worst month for stocks…historically speaking). Major averages managed to climb despite the potential for further rate hikes (ending more than a decade of super low rates), geopolitical fears (North Korea another ballistic missile launch overnight), declining retail sales (retail sector has underperformed), and high valuations. Energy stocks end outperformance streak as WTI crude failed to top $50 per barrel.
·      Two macro stories that failed to dent investor sentiment: An explosion Friday on a London Underground train during the morning rush hour has left at least 23 people injured and has been declared a terrorist incident by British authorities. Police say improvised explosive device did not fully explode in the London subway; at least 22 people injured. Overnight, Japan issued a temporary shelter-in-place alert following a North Korean ballistic missile firing (the second in the last three weeks), according to Japanese and South Korean news reports.

Economic Data
·      Retail sales for August fell (-0.2%) vs. an est. increase of 0.1%, while retail sales less autos rose 0.2% in August, well below the 0.5% forecast; the drop in retail sales marked the second time in three months, reflecting fewer car purchases and a reluctance by Americans to spend; Sales for July and June were also much weaker than originally reported; Sales at Internet retailers were also surprisingly weak, falling 1.1% in August. That’s the biggest decline since spring of 2014.
·      The Empire State manufacturing survey slipped to 24.4 in September from 25.2 in August, the New York Fed said, retreated only slightly in September from a three-year high, but was above the consensus forecast for a reading of 18.0
·      Industrial Production for August fell (-0.9%), well below the up 0.1% estimate and after rising 0.4% in July (upwardly revised from 0.2%). Capacity utilization fell to 76.1% from 76.9% in July, revised up from 76.7%; Factory production fell 0.3% in Aug. after no change in July
·      The Preliminary Sept. Michigan Sentiment data fell to 95.3 from 96.8 prior, and was mostly in-line with est. of 95; the current economic conditions index rose to 113.9 vs. 110.9 last month, while the expectations index fell to 83.4 vs. 87.7 last month
·      Business Inventories for July rose 0.2% MoM, in-line with estimates, while Business sales rose 0.2% in July after rising 0.2% the prior month; the three-month annualized change in inventories $76.9b in July
·      WTI crude ends the day flat at $49.89 per barrel, and Brent up 15c at $55.62, closing out the week with solid gains and ending at 6-week highs around the $50 per barrel mark. For the week, WTI crude jumped over 5% after both the IEA and OPEC boosted forecasts for demand, bullish gasoline inventory data, speculation around OPEC extending its production cuts, a bullish rig data report today as rigs declined, and a post-hurricane recovery in U.S. refining activity that’s likely to help draw down crude stockpiles.
·      Gold prices surprisingly dropped on the day, falling -$4.10, or 0.3% to settle at $1,325.20 an ounce despite another missile launch by North Korea over Japan and as the dollar declined on the day. Gold prices were down for a 4th day in the last five, after touching 1-year highs last week. Gold prices had been on a roll up until this week and given the news today, move lower probably continued profit taking. Not much in way of expectations for a rate hike by the FOMC next week, keeping rates low. For the week, gold prices slipped around 1.9% after rallying the last 3-weeks.
·      The dollar ends the day lower, but up on the week; after rising the first three days of the week, the dollar index (DXY) lost ground Thursday and Friday, particularly against the British Pound. The FTSE 100 dropped to 4-month low as the pound soared to its highest since Brexit vote, as Sterling rose another 1% above 1.36 briefly before paring gains (and up over 2.8% last 2-days). The move came after higher CPI inflation data in the UK and comments from Carney about rates yesterday during the BOE policy meeting (Bank of England Governor Mark Carney was quoted as saying the probability of a rate increase has “definitely increased.”) However, the dollar gained around 2.8% on the week vs. the yen as investors rotated out of safe-haven names, while the euro slipped on the week. In Crypto currency space, what a volatile day for Bitcoin, falling more than 11% early as it breached the $3,000 level before rallying to trade up more than 11% on the day (high $3,842)… ending higher in a crazy week that saw JPM CEO Dimon call bitcoin a fraud and after Bitcoin exchange BTC China said will stop all trading from Sept 30th.
Bond Market
·      Treasury markets were stagnant the last two days after falling earlier in the week; prices stayed steady today after a raft of economic data (weaker retail sales and industrial production, with better NY manufacturing and inline sentiment data). FOMC meeting next week could potentially move the needle for a bond market that has sold off this week, sending the yield on the benchmark 10-yr to 2.20% from lows of 2.03% last Thursday.
Sector News Breakdown
·      Restaurants; Bernstein notes within their coverage, EAT has the greatest relative exposure to Texas, DRI to Florida/ Industry data suggest Harvey may have dragged on TX comps by ~14 ppt in the final week, with continued impact in subsequent weeks;WEN upgraded to buy at Longbow Research as checks with US franchisees indicate Q3 domestic franchised comps above prior views; FRGI said doesn’t see any significant damage to Pollo Tropical co-owned restaurants
·      Home furnishing stocks rallied (PIR, RH, LZB, WSM, ETH) – while August retail sales, reported by the Commerce Department earlier, unexpectedly fell, there were some bright spots, including furniture and furnishings, which rose 0.4% m/m vs July’s m/m decline of 0.5%. August furniture/furnishings sales rose 5.4% on y/y basis; PIR, BBBY earnings coming up next 2-weeks
·      Casino, Lodging & Leisure; CCL was downgraded to neutral and tgt cut at Credit Suisse in cruise lines; PII mentioned positively by at least four analysts today after investor meeting in Alabama which included “marked improvement” in management commentary and seen a strong reaction to its newest Ranger and RZR products; in lodging, Morgan Stanley said seeing lower RevPAR growth and if ’17 trends hold up, underperformance will be material; good rebound for beaten up move theater names this week with AMC up 25%, RGC up 9%, CNK up 9% and IMAX up 13%
·      Tobacco stocks were active midday (MO, BTI, PM) after the US FDA issues revised final guidance on tobacco manufacturer registration and tobacco product listing requirements to also include e-cigarettes, agency says in emailed statement.
·      It has been a good week for energy stocks, as the biggest laggard in the S&P plays catch-up with oil prices rising and investors rotating into “unloved” names; strength was broad across the board for E&P, drillers, equipment, MLPs, services and sand frac on week
·      Baker Hughes (BHGE) weekly rig showed the total U.S. rig count was down -8 to 936, with oil rigs down -7 to 749, gas rigs down -1 to 186, and miscellaneous rigs unchanged at 1
·      Refiner sector; Morgan Stanley said sector could have 5%-10% downside risk near-term as USGC complex recovers and cracks normalize (says PBF, DK, HFC could see up to ~10% downside risk); Raymond James said raising estimates across the board for our refining coverage, with higher cracks translating into higher earnings, even for those with outages
·      Solar, Utilities, Alt Power; FSLR upgraded to buy at Deutsche Bank and tgt raised to $65 saying checks indicate that robust U.S. demand is driving module prices higher; utilities reversed earlier gains, falling mid-morning
·      Large Cap banks slip on day, but post solid following a rebound in bond yields and tax reform hopes as officials note details of plan coming out the week of September 25thGNW active after received regulatory approval from Virginia for its sale to China Oceanwide; after plunging last week ahead of Hurricane Irma, reinsurers bounce this week (RNR, RE, XL) – Air Worldwide said industry insure losses for U.S. $25B-$35B from Hurricane Irma ad combined losses with Caribbean $32B-$50B
·      Consumer Finance and Services; it’s been a bad two-weeks for credit bureau EFX after data breach leaked more than 143M Americans personal data (SSN, drivers license, CC) and now Sen. Elizabeth Warren to introduce legislation Friday targeting them and giving consumers more control over the data credit companies collect, according to statement. The bill, co-sponsored by Sen. Brian Schatz, would require Equifax and its competitors to freeze consumers’ credit reports free of charge, and restrict their ability to profit from data during the freeze
·      Monthly Master Trust credit card data: 1) COF August net charge-offs 4.75% vs. 4.79% last month and said delinquencies were 3.97% vs. 3.81% last month; 2) SYF reports August net charge-off rate 4.86% vs. 4.73% last month and said the delinquency rate was 2.94% vs. 2.90% last month; 3) JPM August net credit losses 2.41% vs. 2.36% last month and said delinquencies were 1.16% vs. 1.15% last month; 4) ADS August net charge offs 6.4% vs. 6.0% last month and delinquency rate 5.3% vs. 5.17% last month; 5)AXP August net charge-offs in-line with prior month at 1.8%
·      Brokers: SCHW Net new assets brought to the company by new and existing clients in August 2017 totaled $18.0 billion as total client assets were a record $3.12 trillion as of month-end August, up 15% YoY; ETFC Aug. DARTs were 206,572, a 44% increase from the year-ago period and added 40,831 gross new brokerage accounts in August
·      REITs; Jefferies downgrading REG, ROIC and RPT to hold – the grocery environment has become more challenging and will likely only get worse. We think that grocery headline risk will hinder the stock performance of the shopping center REITs in the near-to-medium term
·      Large Cap Pharma; after outperforming yesterday, large cap Pharma little changed as major averages make new highs early (JNJ, PFE, LLY); MRTX shares surge as Leerink note they reported an encouraging update from its ongoing early stage clinical trials of anticancer agent Sitravatinib which will be presented at the IASLC 2017 Chicago Multidisciplinary Symposium Biotech
·      Biotech movers; ICPT initiated outperform and $244 tgt at RBC/also rebound after -23% drop last 3-days; ABBV slips midday after gains for seven straight days to new highs on positive news this week; recent FDA orphan drug designations were for: FOLD ATB200/AT2221 for Pompe disease and PRQR QR-313 for dystrophic epidermolysis bullosa
·      In research, RBC Capital with biotech initiation note, calling CELG, ALXN favorites among large-cap biotech companies, as also prefers GILD and VRTX. Other favorite Small-Midcap picks included SAGE despite recent failure in SRSE, SRPT, AGIO; also likeEXEL, SGEN, ICPT
·      Healthcare services; dental related stocks HSIC, PDCO, XRAY have been pressured the last few days concern over the threat of Amazon entering the market – both Piper and Baird defend sector today on sell-off saying threat overdone and see potential for improvement in dental consumables based on our consumer surveys and management comments – Piper upgraded shares of HSIC to overweight and raised tgt to $193; WST upgraded to buy at Jefferies
·      Secondary offerings as companies raise cash: ARRY 20.9M share Secondary priced at $10.75; MRNS 9.33M share Spot Secondary priced at $3.75; Q 9M share Secondary priced at $95.25; TTOO 4.38M share Spot Secondary priced at $4.00
Industrials & Materials
·      Industrial & Machinery; BA trades fresh all-time highs earlier today; BA selected TGI as major supplier for its T-X Air Force training jet
·      Transports; FDX downgraded to neutral from buy at UBS (ahead of earnings next Tuesday) as reward/risk appears roughly balanced in n-t; in airlines, JP Morgan upgraded LUV to overweight in airline space, but downgraded UAL, AAL and SAVE to neutral saying consensus estimates for sector appear increasingly unachievable
·      Metals & Mining; NUE lowered its Q3 EPS view to 75c-80c, below Street at $1.03 (X, AKS, STLD active); Jefferies earlier saidNUE and STLD expected to release their 3Q guidance soon and may come in below sell side estimates, but likely to match already cautious buy-side views; Senators Brown and Portman urge action on steel probe as concerned about unfair trade harming them
Technology, Media & Telecom
·      Semiconductors; NVDA rises to record high as tgt raised to Street high $240 at Evercore/ISI citing near-term outlook driven by Data Center growth, LT outlook driven by  AI and Autonomous driving; QCOM was upgraded to outperform and $62.50 tgt at Northland Research; IDCC rises after raises stock repurchase program by $100M
·      Software & Hardware; software giant ORCL falls on mixed earnings as delivered strong Q1 results as company cloud revenue increased to $1.5 billion (up 51% in quarter), but revenue growth guidance of only 2%-4% fell short of expectations; LPTH shares rallied on earnings results
·      Video game sector; Total video game spending in August 2017, including hardware, software and accessories, fell 2% to $568m, according to NPD reports; August video game, PC game software sales down 3% to $282M while video game accessories, game cards sales grew 10% to $118M (shares of ATVI, EA, GME, TTWO were active)
·      Media & Telecom; CRTO active after Gotham Research said sees 67%-77% downside in shares – earlier shares were up after two analysts (KeyBanc and BMO) believe shares are baking in a worst-case-scenario for AAPL ITP and recommend buying shares after event yesterday, Criteo detailed its Commerce Marketing Platform – Morgan Stanley said could see further pressure as it was confirmed that ad blockers will be the default on mobile & desktop for the new AAPL iOS Safari 11; ATUS downgraded to neutral at Guggenheim saying since initiated in July, believe that competition for video and high-speed data subscribers has intensified more than we originally anticipated; DISH was upgraded to neutral at Citigroup.
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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