Tuesday, September 19, 17
Equity Market Recap
· Stocks extend gains ahead of the FOMC policy meeting results tomorrow afternoon, with the Dow Industrials posting its 7-straight days of gains to close at a record high for a 41st time in 2017, while the S&P 500 and the Nasdaq Composite also posted personal bests. The FOMC concludes its 2-day policy meeting tomorrow afternoon and is expected to announce details on how and when it’ll start reducing its $4.5 trillion portfolio of government securities, but also expected to keep interest rates unchanged…but will it signal a potential rate hike at its December meeting? In macro news, President Trump in his first address to the UN said, “Rocket Man is on a suicide mission for himself and for his regime,” (referring to North Korea) U.S. is prepared to take further action on Venezuela, and the Iranian deal is an “embarrassment” to the United States. The comments failed to dent markets as equities keep grinding higher.
· There are also two storm systems for markets to watch, with Jose expected to hit the Northeast over the next day, while Hurricane Maria picks up strength as it hits the Caribbean and heads towards Puerto Rico and the Virgin Islands. In another natural disaster, Mexico City reported a 7.2 magnitude earthquake this afternoon. A handful of earnings reports worth watching tonight from ADBE, BBBY and FDX. Emerging market stocks crossed the 2014 highs and are now near 2011 highs, but emerging currencies have been sliding since the beginning of the month.
· But the main market focus remained on the two-day Federal Open Market Committee meeting that will conclude Wednesday with a statement on monetary policy. Markets also await the blueprint for the tax reform plan which is expected next week. Plenty of talk today regarding healthcare (Graham/Cassidy bill proposal), with stocks in the sector the biggest drag on markets today, as managed care (UNH), hospitals (THC), medical equipment and services (EVHC) lower as Senate Republicans make another push to repeal Obamacare (GOP Senators have until Sept. 30 to push through a bill using fast-track procedures).
· Housing starts slipped (-0.8%), the 2nd straight negative month, to an annual rate of 1.18M from an upwardly revised 1.19M in July and was mostly in-line with consensus of 1.174M; although housing starts fell 7.9% in the South, hurricane Harvey had very little impact, the government said; building permits to build new homes jumped 5.7% to a 1.3M rate, above the 1.22M estimate
· Import prices for August rose 0.6% MoM, topping the 0.4% estimate and after falling (-0.1%) in July; import prices ex-fuels rose 0.3% after falling 0.1% in July
· The U.S. current-account deficit jumped 8.5% in the second quarter to (-$123.1B). The increase stemmed mostly from lower secondary income. The federal government collected fewer fines and penalties from foreign sources. The deficit in the first quarter, meanwhile, was revised down to $113.5 billion from $116.8 billion.
· Oil prices end lower, erasing earlier gains; WTI crude settled at $49.48, down 43c ahead of API inventory data tonight and the EIA report tomorrow morning. Energy futures gained as much as 1% earlier today after Iraq said it had cut output by about 260,000 barrels per day (bpd), exceeding cuts agreed under the OPEC-led pact.
· Gold prices dipped -0.20 to settle at $1,310.60, modest losses after settling at their lowest level in just over three weeks as stocks stayed close to record territory. Gold prices have slipped the last 2-weeks (after touching 1-year highs less than 3-weeks ago), as geopolitical fears have temporarily eased and ahead of the FOMC meeting, where the Fed is expected to start reducing its $4.5 trillion portfolio of government securities (but keep rates unchanged). With Monday’s decline, gold has fallen in five of six sessions.
Currencies & Bonds
· The dollar slipped late day, with the dollar index (DXY) down about -0.3% to around 91.75 (off earlier highs 92.04), ahead of tomorrow’s FOMC meeting results. The dollar slipped vs. the UK Pound, the euro and Japanese yen. The Mexican peso slipped after the 7.2 magnitude earthquake in Mexico City. Bitcoin held up well despite Ray Dalio, the founder of the world’s largest hedge fund Bridgewater Associates saying today in a CNBC interview that cryptocurrencies like bitcoin meet his firm’s criteria for a market bubble. “Bitcoin is a highly speculative market. Bitcoin is a bubble,” he said (prices below $4,000)
· Bonds slipped slightly, as yields tick higher ahead of the FOMC meeting tomorrow. The benchmark 10-year Treasury yield rose above 2.23%, now more than 20 bps off lows last week, while the shorter term 2-yr is around 1.4%
Sector News Breakdown
· Retailers; several analyst changes today; NKE downgraded to neutral at Susquehanna ahead of earnings next week on mounting concerns over weakness in the business; GPS upgraded to neutral at Credit Suisse as brick-and-mortar real estate analysis indicates it is better positioned than thought; KORS upgraded to outperform at OpCo with $55 tgt saying turnaround in retail is just starting; Wells Fargo cut ests for 4 of our athletic-focused retailers (UAA, NKE, LULU, FINL), while also downgrading shares of UAA to Underperform
· Other retail movers; KSS to offer free returns for Amazon in 82 stores in Los Angeles and Chicago; BBY shares dropped early after issuing long-term financial targets at its investor day; gun stocks and sporting goods stores advanced late day (AOBC, RGR) after Reuters reported Trump Administration preparing to ease rules for overseas sales of US guns, including assault rifles
· Toys; Toys ‘R’ Us Inc. filed for bankruptcy protection late Monday, among the largest ever by a specialty retailer and casts doubt over the future of its about 1,600 stores and 64,000 employees. It comes just as Toys ‘R’ Us is gearing up for the holiday shopping season (shares of toy retailers MAT and HAS were among those moving on news)
· Auto movers; TSLA initiated with an underperform rating and $280 PT at Jefferies, implying 27% downside to Monday’s close as expects TSLA to post losses until 2020, with an estimate for 2019 loss per share of $3.26, while consensus expects Tesla to turn profitable in 2019; in auto retail, AZO posted 4Q comp sales and net sales above analysts’ estimates (GPC, MNRO, AAPactive)
· Consumer Staples & Restaurants; BOBE to be acquired by POST for $77 per share/$1.5B deal https://goo.gl/rWhQvX; Kellogg (K) downgraded to neutral at Piper
· Homebuilders and home furnishing; Mizuho lowered its FY17/FY18 EPS estimates for homebuilder coverage, as they shift a portion of previously assumed late 2017 closings into early 2018 following hurricanes Harvey/Irma. The firm is also lowering 2017/18 gross margin, SG&A margin and orders expectations and downgraded LEN as has greatest exposure; in furnishing,BBBY reports earnings after the close (watch PIR, RH, WSM); monthly appliance data out as AHAM said shipments fell (-0.3%) to 5.6M units in August (WHR moved on data)
· Casino, Lodging & Leisure; in gaming, MLCO was upgraded to buy at Nomura noting note that improving results in Macau could lift the stock by >25% in the next 12 months (had been neutral/negative for two years); cruise lines (RCL, CCL, NCLH) as Hurricane Marie hits Caribbean and on track for Puerto Rico and Virgin Islands
· Quiet in way of news for the energy sector on individual basis; oil prices jumped early, but slipped midday to end lower ahead of inventory data
· E&P news; REXX said on target to meet 3Q production guidance and meet its full-year 2017 exit rate production growth rate guidance; JAG cuts 3Q output view to 19,150-19,350 Boe/d from prior view 20,000-20,800 Boe/d; Updates 2017 est. production range to 17,500 to 18,000 Boe/d
· MLPs; ETP says it received approval from the FERC to resume drilling operations along its $4.2B Rover gas pipeline project/says operations on nine horizontal directional drilling locations approved by FERC are expected to begin within the week; VLO and PAA they will drop a deal for Valero to acquire two California distribution terminals after interference from the state’s attorney general
· Insurance; sector in focus again with Hurricane Maria picking up as hits the Caribbean and on track for Puerto Rico; PGRreported $245M of catastrophe losses in Aug., with >90% from Hurricane Harvey (much lower than expected according to KBW); Hurricane Irma may generate between $42.5 billion and $65 billion of total insured and uninsured losses for residential and commercial properties, risk modeler CoreLogic said
· Banks; ONB upgraded to Outperform at Raymond James after hosting investor meetings with Bob Jones, CEO, and John Moran, Director of Corporate Development & Strategy; NYCB reiterate underperform at Piper as believe street estimates too high
· Payment & services; TSS downgraded to hold at Stifel citing an impressive run and significant YTD outperformance; EFX said to have experienced a hack attack prior to date disclosed; MA trades to all-time highs after positive comments at Morgan Stanley and BMO, raising targets
· REITs; CLI removed from Stifel select list and added BDN; mall REITs GGP, MAC, TCO, SKT weakened on Toys R us bankruptcy
· Brokers & Exchanges; Jefferies Q3 Fixed Income Revenue $142.7M, well below $195.3M YoY, while Q3 equities revenue $175.8M vs. $148.3M YoY; CME estimates and tgt raised at KBW Financial as a result of the continued strong revenue-weighted open interest trends;
· Large Cap Pharma; SUPN shares slide as its late-stage study supporting IA candidate SPN-810 to continue as planned, lower dose eliminated (downgraded at Stifel); FOLD migalastat (Galafold) for Fast Track review for the treatment of patient with Fabry disease with amenable mutations and expects to file an NDA in Q4; MRTX init outperform and $18 tgt at Oppenheimer and tgt upped to $16 at Citigroup; 41 states expanded investigations targeting opioid manufacturers with subpoenas served to AGN, ENDP, TEVA, among others
· Managed care; shares of CNC and MOH were lower early after reports the Graham-Cassidy bill proposal is gaining traction as the latest entry in the efforts to repeal Obamacare; shares of HOMs (UNH, AET, CI) and hospitals (THC, CYH, HCA) also down on same sentiment
· Biotech movers; the sector holds near record highs as the NASDAQ Biotechnology Index (NBI) and NYSE Arca Biotechnology (BTK) are up 26.1% and 36.7%, respectively, YTD; ALDX 3.45M share Spot Secondary priced at $7.25; PTLA slips after Adam Feuerstein article citing risk to Bevyxxa sales from new usage guidelines
· Healthcare services/suppliers; WBA gets regulatory clearance for an amended and restated asset purchase agreement to purchase 1,932 RAD stores, three distribution centers and related inventory for $4.375B (down from prior plan to spend about $5.18B and 2,186 stores); MCK was upgraded to outperform with $178 target at Baird
· Medical equipment and devices; CTLT it would buy privately held Cook Pharmica LLC for $950 million in cashhttps://goo.gl/zBBscn ; QDEL rises, adds to yesterday gains after rising 14% yesterday/Piper upgraded following sweetening of their already attractive ALR asset acquisition; NUVA shares fell on a negative initiation call; lab companies DGX, LH fall again diagnostic labs are awaiting draft Medicare payment rates from the CMS, which are expected to be cut – Bloomberg
Industrials & Materials
· Transports; FDX (reports earnings tonight) will increase shipping rates by an average of 4.9% for U.S. domestic, U.S. export and U.S. import services; in airlines, AAL said will absolutely, positively match discount fares in hubs; airlines in general were weaker on Hurricane disruptions
· Industrials and Machinery; DE shares strong today, as was the ag space in general, with shares rising as much as 2.5% to highs right at 50 day MA resistance of 122.96 (earlier topped its 100 day MA of 121.97); AYI falls to 52-week low after Baird downgraded to neutral as checks show fiscal 4Q lighting industry volumes and pricing slowed QoQ
· Chemicals; BAYRY said that it submitted an application on Monday to extend the European Commission review deadline for its planned acquisition of MON and that it now expects the deal to close in early 2018. https://goo.gl/WkN8hQ ; a group of U.S. activist investors threatened to vote against the proposed merger between Swiss chemicals company Clariant AG and U.S.-based HUN unless alternatives are explored, jeopardizing a deal https://goo.gl/jM3S7K ; BASFY said it would buy Solvay SA’s polyamides business for 1.6B euros ($1.92B https://goo.gl/tej2gQ
Technology, Media & Telecom
· Internet; GOOGL will announce today that its free Cloud Natural Languages API will have features to help newsrooms and other businesses sort information, Axios said; AMZN introduces Amazon Fire HD 10 tablet, priced about $150
· Semiconductors; group remains on fire as the SOX index trades to fresh 17-year highs (NVDA, AMD, CRUS lead); MU tgt raised to $50 from $40 at Susquehanna as remain comfortable with their above consensus EPS estimate of $1.87, though don’t rule out EPS closer to $2.00 driven by margin upside; hard disk drives STX and WDC were weak with BlueFin analyst saying the demand environment for them has been degrading, with September to date not being as robust
· Software movers; SNCR shares plunged after its largest shareholder, Siris Capital Group, disclosed that it was no longer interested in pursuing an all-cash buyout (Siris still owns about 6 million Synchronoss shares, or 13% of the shares outstanding); the venture wing of CRM is launching a $50 million fund to invest in start-ups employing artificial intelligence;ADBE reports earnings tonight after the close; NTDOY upgraded at Credit Suisse on Switch sales outlook; KEYW rebounds from yesterday losses as Business Development Executive leaves; VERI prices surge
· Hardware and component movers; AAPL tgt raised to $194 from $182 by Morgan Stanley citing higher estimates for FY18 average selling prices (ASPs) after Apple’s introduction of new devices last week; NTAP upgraded to buy from neutral at UBS and raise price target from $42 to $45 along with out-year estimates; UBNT raised its forecast for 1Q sales to $240M-$250M from earlier view of $230M-$250M in 8-K filing; OLED and COHR extend gains (yesterday, Goldman upped OLED tgt to $161 as expects Universal Display to add somewhere in the broad range of 16% to 66% to its out-year EPS)
· Telecom; CNBC’s David Faber said Sprint (S) and TMUS are in active merger talks (shares of tower stocks AMT, CCI, SBACedged lower on the reports) https://goo.gl/WFkTDo
· Media movers; Cowen said large cap media companies face declining affiliate and advertising growth, which is leading to downward margin pressure, and lowered price targets for several names/said TV networks appear on track for a 128 basis point decline in Ebitda margin on average in 2017, vs a 56 bps per year 2013-2016 (cuts price targets: AMCX to $53 from $64,DISCA to $19 from $25, VIAB to $31 from $41, CBS to $69 from $70, DIS to $94 from $95, FOXA to $29 from $32)
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.