Market Review: September 21, 2017

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Closing Recap
Thursday, September 21, 17
Equity Market Recap
·      Stocks slipped on Thursday, with the Dow Industrials snapping its 9-day winning streak, and both it and the S&P 500 Index pulled back from record highs. The tech heavy Nasdaq Composite underperformed for a second day, declining amid weakness in Apple and its chip suppliers on fears of slow iPhone 8 presale orders. Markets had rallied into yesterday’s FOMC meeting, with results coming out mostly as Wall Street had expected (Fed will start paring its $4.5 trillion portfolio next month), but were a bit more hawkish regarding the pace of interest rate hikes, saying they see one more this year and three next year. That commentary has led to a decline in gold prices (lowest levels in a month), as well as a further slippage in bonds. Consumer Staples were among the hardest hit sectors, with shares of MDLZ, NWL KR, KHC, and TAP all at 52-week lows, adding to weakness yesterday after a GIS quarterly miss. Markets are taking notice of the disruptions in manufacturing given the recent natural disasters that have devastated cities. Outside of the FOMC follow through, other factors worth watching the next few days include: tax reform blueprint set for release next week, and the Graham/Cassidy repeal and replace (of ACA Obamacare bill) which is getting attention and is within a couple of votes of passage. Markets are also dealing with devastation the last few weeks from Hurricanes Harvey, Irma and Maria and the magnitude 7.2 earthquake that rocked Mexico City the other day.
 
Commodities
·      WTI crude oil posting small losses on the day, falling -14c to $50.55 per barrel (hi $50.81 and low $50.07); Prices fall slightly from 4-month highs reached yesterday as markets await results from the OPEC ministerial meeting in Vienna on Friday. Inventory data came in mixed yesterday, with bullish distillate data offsetting mildly bearish crude data; natural gas prices very weak after bearish inventory data, falling -0.145c to $2.95 mln btu
·      Gold prices dropped sharply, falling -$21.60, or 1.6% to settle at $1,294.80 an ounce, its lowest settlement since Aug. 24 and posted its biggest one day decline since July. The move comes in reaction to the Fed saying yesterday it sees one more rate hike this year, and three next year, while  announcing a normalization of its balance sheet to the tune of $10B a month
 
Currencies
·      After rising yesterday vs. most other currencies, the U.S. dollar slipped on Thursday, losing steam after the dollar index (DXY) surged from a low below 91.60 to highs of 92.60 yesterday. The dollar rose yesterday on the FOMC dot plots, rate hike outlook, and its plan to unwind its massive bond-buying program. The British Pound outperformed, rising 0.6% to highs 1.3587.
 
Bond Market
·      After falling yesterday, bonds ended the day little changed, with yields ending near yesterday’s closing levels. The 10-yr ended around 2.27% after slipping initially to 2.24%, while the 2-yr yield held just under 1.44%, its highest levels since 2008 on hawkish rate comments from FOMC. The Fed on Wednesday indicated that it still plans to deliver another rate increase in 2017, followed by three rate hikes most likely in 2018. The U.S. central bank kept its benchmark interest rate unchanged between 1% -1.25%, but said it would begin its historic unwind of a more than $4 trillion balance sheet in October, as expected. So far this month, the 2-year Treasury yield has climbed more than 11 bps, the benchmark 10-year note yield has tacked on more than 15 bps, while the yield on the 30-year bond has advanced nearly 10 bps, thus far in September.
 
Economic Data
·      Weekly Jobless Claims fell 23K to 259K, well below the 301.5K estimate; the drop reflecting a smaller-than-expected increase in new jobless claims in Florida following hurricane Irma; the 4-week moving average rose by 6,000 to 268,750; continuing claims rose 44k to 1.980m in the week ending Sept. 9
·      Philly Fed Survey for September rose to 23.8 from 18.9 prior month and was above expectations for a reading of 17.1; the current indicators for general activity, new orders, and shipments all increased this month
·      2Q Household net worth rose to a record $1.698T; Household wealth in the U.S. increased to $96.196 trillion last quarter, according to the Federal Reserve; 2Q nonfinancial corporate liquid assets grew by $70.4B to $2.256 trillion
 
Sector News Breakdown
Consumer
·      Retailers; HBI downgraded at Nomura Instinet citing challenging holiday outlook; Swiss watch exports came in at +4%, similar to the July trend; JAKK downgraded to underperform at DA Davidson after the company cut its 2017 outlook due to disruption from the Toys R Us bankruptcy (tgt cut to $2.25); Halloween shopping for costumes, candy, decorations, and more is forecast to reach $9.1 billion this year, up 8.3% from last year’s record $8.4 billion, the NRF said; FINL to report earnings tomorrow morning in footwear
·      Consumer Staples; packaged food space failed to rebound after KHC, CPB, K fell to 52-week lows yesterday after GIS quarterly miss on top/bottom line; DPS cuts FY17 EPS view to $4.53-$4.63 from $4.56-$4.66 for the anticipated effects of a default by a supplier of resin to our operations in Mexico (Wells Fargo said resin supplier woes for DPS could be a warning sign for problems at other companies such as CLX, PEP, KMB, CHD, PG); in grocers, privately held Albertsons Cos Inc. said it would buy meal-kit delivery service Plated, as it looks to attract more customers to its stores amid increased competition (shares of APRN were active on report); SAFM to replace CAB in the S&P 400 MidCap index; overall sector down sharply, with big declines on the year amid online competition fears
 
Energy
·      Oil prices held above $50 a barrel as a decline in U.S. fuel inventories countered a bigger-than-forecast increase in crude stockpiles. Oil prices rose to a four-month high, boosted by optimism that production cuts have brought down global inventories as demand remains steady; in stock news, APC reported a $2.5B share repurchase program that was viewed very positively; oil drillers RIG, NE, ESV, DO all down over 5% on the day
·      Utilities; the group was pressured yesterday as the Fed forecast one more rate hike in 2017 and three in 2018, sending bond yields higher and weighed on interest rate sensitive/dividend paying sectors such as utilities, which fell to 5-week lows; today, Morgan Stanley upgraded ETR to equal-weight, and upgraded PEG to overweight after underperformance as sees compelling risk/reward; SCG said it has been served with a subpoena issued by the United States Attorney’s Office for the District of South Carolina seeking documents relating to the Company’s new nuclear project at V.C. Summer Nuclear Station
·      Solar sector; Roth Capital notes all eyes are on the ITC given its upcoming 201 injury vote this Friday. Module vendor stocks appeared to be down today in anticipation of a yes vote. That said, our checks on both sides of the case suggest a yes vote is highly likely, and we believe this is mostly priced in. We see the 11/13 remedy recommendation as the more important catalyst (FSLR, JASO, SPWR, and CSIQ among those active). JPM issues tactical trades for CSIQ, FSLR and SPWR ahead of ITC Section 201 decision tomorrow – they says they believe a determination of “injury” would probably get a favorable reception by the U.S. Administration, leading to tariffs on imports. Most upstream solar companies that we spoke with at the recent SPI Conference expect an “injury” ruling
·      MLPs lower, as the Alerian MLP Index (AMZ) falls -0.9%to around 278.50 but off the lows…recent 52-week lows last month (8/21) of 265.29…still remains below its 50 day resistance of 285.40…top decliners in index ARLP, WES, ENLK
 
Financials
·      Banks were mostly higher after yesterday’s FOMC announcement; the FOMC forecasts continue to signal another 2017 rate increase, with 3 more in 2018, and as Fed says hurricanes are unlikely to alter economy’s course medium term; big cap banks, regionals, and brokers climbed
·      Insurance; ALL reported estimated catastrophe losses, net of reinsurance recoveries, for the month of August 2017 of $593M, pre-tax. or $385M after-tax
·      Asset managers and Brokers; RJF August Financial AUM $93.9B vs. $74.4B YoY; Aug. client assets under administration $681.0B vs. $556.2B YoY; Aug. securities commissions, fees $353.5M vs. $306.6M YoY; LPLA Aug activity report showed total brokerage and advisory assets served at the end of August were approximately $551B, a 0.3% increase compared to the end of July.
·      Services and Finance; PRAA downgraded at Raymond James due to the material impact of rising interest expense and declining revenue recognition rates and fee income; EFX CEO to testify before Senate Banking Panel on October 4th; FDS was upgraded to buy at Northcoast saying recent acquisitions are diversifying its revenue base, offsetting challenges in its workstation biz
 
Healthcare
·      Healthcare Bill leading story for the sector: The Graham/Cassidy repeal and replace bill is getting attention and is within a couple of votes of passage…shares of hospitals, managed care and services have been under pressure. The WSJ reported yesterday a spokesman for Senate Majority Leader Mitch McConnell said he intends to consider the Graham-Cassidy healthcare bill on the Senate floor next week
·      Large Cap Pharma; AKTX said it plans to advance Coversin towards Phase III studies in Q1; AMPH gets FDA approval for Sodium Bicarbonate injection; IPXL shares jumped midday after the WSJ reported it is in talks to combine with rival Amneal Pharmaceuticals LLC as the companies seek to build strength in a challenging market for generic-drug makershttps://goo.gl/LFnkuC
·      Biotech movers; ICPT shares plunged over 25% after the FDA warns of serious liver injury with Intercept’s Ocaliva; BIIBdowngraded to market perform at Raymond James as neurology survey feedback depicts continued headwinds for the MS franchise; INO said its DNA-based monoclonal antibody program (dMAb) has been boosted by two peer-reviewed scientific papers that show its impact on prostate tumors; BCRX receives FDA expanded approval for flu medicine RAPIVAB; JUNOannounced a $225M share offering; XLRN 5.405M share Secondary priced at $37.00
·      Medical equipment, suppliers and services; CTLT upgraded at Morgan Stanley saying the Cook Pharmica transaction solidifies Catalent’s position in the biologics marketplace; EXAS tgt raised to street high $50 at Leerink as sees revenue expectations for its colon cancer test, Cologuard underappreciated; MDXG shares fall after disclosing it had received a subpoena from the SEC and separately said it is suing Capitol Forum after a Sept. 7 report that sent shares tumbling
 
Industrials & Materials
·      Industrial & Machinery; TEX downgraded to hold at Deutsche Bank on valuation; Baird notes the August ABI improved from July and was above 50 for the seven consecutive month., while the commercial/industrial index also hit a recovery high, suggesting solid design activities (says MHK is top idea with non-resi exposure/other OP rated include DOOR, JCI, CSL, and LII); cement stocks (EXP, CX, SUM, MLM) active after CRH Plc to buy Ash Grove for $3.5B https://goo.gl/3xZp14CAT rolling 3-months August machine sales up 11% vs up 12% in July/N.A. sales up 1% vs. 4% MoM
·      Metals & Mining; aluminum prices slip early after touching 5-year highs yesterday on China disruptions; gold miners remain weak on softer gold prices given aggressive interest rate outlook from FOMC yesterday (ABX, AEM, GOLD, NEM); U.S. Steel underperforms peers as steel makers fall (X, AKS, STLD, NUE, RS) with broader market. Chinese mills reportedly cut hot rolled coil (HRC) prices on weakening Chinese domestic market, according to Steel Business Briefing
·      Transports continuing to play catch-up, as the index rises to highs around 9,700 (off August lows around 9,000 and just off record highs of 9763 on 7/14); airlines rebound (AAL, UAL), along with big gains in MATX and truckers JBHT and R; MATX rose after confirmed in a regulatory filing that the Hawaii Department of Transportation told the company that as part harbor upgrades, Pasha Hawaii will have exclusive use of the Kapalama Container Terminal upon its completion and Matson’s lease will be amended to include the portion of Pier 51 currently occupied by Pasha
·      Chemicals; Japanese chemical manufacturer Kuraray Co Ltd will buy U.S. firm CCC for $1.107B, paying $21.50 per share, a premium of about 63%  https://goo.gl/8z6irb
·      Aerospace & Defense; 52-week highs early for LLL, RTN, LMT in defense space before slipping
 
Technology, Media & Telecom
·      Internet; GOOGL said it would pay $1.1 billion for the division at Taiwan’s HTC Corp that develops the U.S. firm’s Pixel smartphones https://goo.gl/cMi7vH ; BIDU announced a 10 billion yuan ($1.52B) autonomous driving fund as part of a wider plan to speed up its technical development; JD falls after an M Science report said the firm established estimates below consensus, citing transaction volume deceleration; NFLX shares outperformed midday
·      Semiconductors; AMD shares jumped late last night after CNBC was the first to report TSLA is using AMD intellectual property as it progresses toward developing its own Artificial Intelligence chip for autonomous driving in its cars (which will likely reduce its reliance on NVDA products. Bloomberg reported overnight though that Globalfoundries, the contract chip manufacturer for AMD, said it’s not working on a chip for self-driving vehicles for Tesla; Apple suppliers sold off again as order shipment dates for the iPhone 8/8+ remain relatively short for a new launch
·      Software & Hardware; AAPL extends yesterday losses after analyst report yesterday suggested that iPhone 8 preorders are substantially lower than iPhone 7 and six levels; VERI rises after its artificial intelligence solution with Quantum won a “NewBay Best of Show Award” at IBC2017
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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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