Market Review: September 26, 2016

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Closing Recap
Tuesday, September 26, 17
Equity Market Recap
·      U.S. stocks were mixed amid a late day decline in the Dow, while led by a gain in small caps as the Russell 2000 traded to a new all-time high. Today was highlighted by strength in the dollar, while gold and oil prices took a “time-out” and beaten up technology stocks recovered from one of its worst losses in weeks. The dollar did pare gains from its best levels of the day while Treasuries extended losses after Janet Yellen warned the Fed should be wary of tightening policy too gradually while offering little clarity on a December rate hike. Yellen went on to say in Q&A the Fed path is subject to a great deal of uncertainty. Economic data came in slightly below consensus views in housing and confidence reports, while manufacturing slightly better. There were a few individual stocks moving after earnings results (ASNA, DRI, RHT, SNX, CCL, INFO), while markets await earnings results from Dow component NKE tonight after the close. In the end, the S&P 500 index closed near the 2,500 level. Out of Washington, Senate Republicans abandoned a latch-ditch effort to replace Obamacare after failing to round up enough votes for the so-called Graham-Cassidy bill. Senate leader Mitch McConnell said conservatives were giving up for now and would turn their focus to tax reform. More details of the tax reform blueprint expected this week (though some details regarding tax rates, have been released the last week).

Economic Data
·      New Home Sales for August fell (-3.4%) to 560K below est. of 585K; the previous three months’ new home sales data revised down by 19K; Median new home price rose 0.4% y/y to $300,200; average selling price at $368,100
·      Consumer Confidence for September fell to 119.8 from 120.4 last month but mostly in-line with the 120.0 estimate; the present situation confidence fell to 146.1 vs. 148.4 last month while the expectations index rose to 102.2 vs. 101.7 last month
·      Richmond Fed’s Manufacturing Survey for Sept up at 19 reading, topping estimate of 13 and above prior month of 14; shipments rose to 22 after 8 the prior month, new order volume increased to 20 after 17 prior and order backlogs fell to 8 after 11 the prior month
·      S&P CoreLogic Case-Shiller 20-City Index was up 5.81% YoY vs. est. 5.70%; S&P CoreLogic Case-Shiller National Home Price index rose 5.94% YoY in July after rising 5.82% in prior month; S&P/Case-Shiller 20-city NSA index at 201.99 after 200.53 in June
 
Commodities
·      Oil prices snap 4-day win streak; WTI crude slipped after Monday’s advance to a 5-month high, while Brent pares gains after hitting its best levels in 2-years. It appeared to be profit taking ahead of API inventory data tonight and the EIA tomorrow. WTI crude fell 34c, or 0.7% to settle at $51.88 per barrel.
·      Gold prices gave up much of yesterday’s gains, falling -$9.80, or 0.8% to settle at $1,301.70 an ounce as the dollar extends recent gains. On Monday, gold climbed 1.1%, recouping roughly half of last week’s loss and achieving its highest finish since Sept. 15. Gold prices were volatile following a speech by FOMC Chair Janet Yellen this afternoon. The retreat follows back-to-back session gains on the heels of tensions between the U.S. and North Korea. December silver ended at $16.883 an ounce, its lowest since mid-August, falling 26.4c, or 1.5%, for the session
 
Currencies
·      The U.S. dollar on the rise again, with the dollar index (DXY) topping the 93 level for the first time since late August (before paring gains) as economic data remains steady. The euro traded to a 1-month low against the greenback following the German election results yesterday but pared losses after Janet Yellen’s speech. The dollar moved back above the 112 level against the yen (off 9/8 lows 107.32). Currencies were active after Yellen said the Fed should be “wary of moving too gradually,” even in a world where inflation is below 2%. While she acknowledged that the inflation undershoot may be more persistent than first thought, she also argues that there are risks of overheating without modest tightening over the next few years.
 
Bond Market
·      Bonds dropped initially following comments from Fed Chairperson Yellen in a speech today in what can be best described as mixed commentary (some for the bulls and some for the bears), but pared losses with yields ending the day near yesterday’s levels. The yield on the 10-year holding in range of 2.20%-2.3% the last 2-weeks while the shorter-term 2-yr yield holding at 9-year highs around 1.44% after mixed economic data today. The U.S. Treasury sold $26B in 2-year notes at a yield of 1.462% (vs. 1.46% prior to auction), with a bid-to-cover of 2.88 vs. 2.86 prior auction and indirect bidders awarded 44.2% of auction (was the highest 2-yr auction stop since 1.600% in October 2008 and compares with 1.345% in August).
 
Sector News Breakdown
Consumer
·      Retailers; all eyes on Dow component and footwear retailing giant NKE as they report earnings tonight (follows weak outlooks from FL and FINL last few weeks) – last night said will discontinue reporting futures orders; KORS positive mention at Wells Fargo saying story finally showing some signs of bottoming, and the setup in the stock seems to have improved; ASNA shares jump on earnings and sales beat; LB upgraded to overweight at Atlantic Securities; KSS CEO Kevin Mansell to retire, Michelle Gass to succeed; biggest story of the day in retail and NCAA as ADDYY shares fell after U.S. charges 10 people in crackdown on college basketball kickbacks
·      Consumer Staples; SAM was upgraded to neutral at Credit Suisse and up tgt to $150 from $140 saying they now see a more balanced spread between potential upside and downside scenarios while market sentiment remains overly negative; in tobacco, Cowen upgraded MO ($71 tgt) and BTI to outperform on valuation and product price increases; NSRGY confirms mid-single digit growth target for 202 at its investor day
·      Restaurants; DRI reports mostly in-line Q1 sales/EPS, but comp sales of 1.7% missed the 2.2% estimate, led by weaker Olive garden comps of 1.9% with 2-year trends + traffic decelerating sequentially; Wedbush downgraded three restaurants (CAKE, HABT, SHAK) to neutral saying given continued top line pressure, they believe fast casual and casual dining margin expectations are at risk and downgrade three names
·      Casino, Lodging & Leisure; in casinos/gaming, Bernstein noted channel checks indicate that Macau’s GGR (gross gaming revenue) MTD (September 1-24) was ~MOP 17bn, an ADR (average daily rate) of -MOP 708mm. The MTD ADR number 3% lower compared with August ADR of MOP 731 mm but 17% over similar period; in cruise lines, CCL reported a top and bottom line beat for Q3 results, but guided Q4 EPS 44c-50c vs. est. 63c); IGT was resumed by at Deutsche Bank
·      Auto movers; TSLA snaps 5-day losing streak; Dyson is working on a premium electric car that will go on sale in 2020, the first in a line of battery vehicles
 
Energy
·      Oil prices ease ahead of inventory data after four days of oil gains. Oil prices soared on Tuesday, with Brent crude approaching $60 a barrel, its highest in more than two years before fading. Prices have jumped amid stronger-than-anticipated demand and cuts in supply as OPEC producers have reduced bloated inventories
·      Oil & Gas equipment, E&P; QEP shares fall as operational obstacles in both the Permian and Bakken reduced FY17 oil production by ~7% and 2018 guided growth to 15% (15%-20% previously off a higher base); PUMP announced the acceleration of its fleet deployment schedule, with its 15th fleet (45k HP) put into service yesterday, and its 16th fleet (also 45k HP) now expected to be deployed mid-4Q; EQT was upgraded to buy at Seaport Global
·      Utilities; SCG shares dropped after the company reported the Speaker of the South Carolina House of Representatives, Chair and Vice-Chair of the South Carolina House Utility Ratepayer Protection Committee requested South Carolina Law Enforcement Division (SLED) to conduct criminal investigation.
 
Financials
·      Large Cap banks; not much news yet for sector which awaits the tax reform full proposal as well as upcoming earnings the 2ndweek of October; group got a lift midday after Fed Chair Janet Yellen said the Fed should be “wary of moving too gradually,” it’s imprudent to stay on hold until inflation at goal; JPM and PNC both cut to hold from buy at Deutsche Bank and recommends reducing exposure to traditional banks while noting preference for banks with a turnaround angle, such as GS and WFC
·      Insurance; Hurricane Maria devastated the Caribbean. Modeling firm AIR estimates $40-85B industry losses, ~85% of which is in Puerto Rico alone. The estimate exceeds those from Hurricanes Harvey and Irma, and could rival Katrina (~$80B); AFL was downgraded to sell at Citigroup saying company is at an inflection point as Aflac Japan is too large to show meaningful growth and Aflac U.S. is “too small to move the growth needle (ahead of investor day Thursday)
·      Brokers and Asset Managers; GHL said it will borrow $300M and use the loan to buy back about 30% of its shares as it aims to reduce taxes and increase earnings per share/will also substantially reduce or eliminate future dividends and pay off existing bank debt; ENV agreed to buy rival FolioDynamix from ACTA for $195M to add trading capabilities and boost assets
·      Finance and services; EFX CEO, Richard Smith Retires; Board of Directors Appoints Current Board Member Mark Feidler Chairman; Paulino do Rego Barros, Jr. Appointed Interim CEO; Company to Initiate CEO Search; INFO shares active after earnings results; CATM falls a second session after William Blair downgraded it to market perform after the company said its revenue may be hurt by Australian banks removing charges on ATM withdrawals
·      REITs; industrial REITs REXR and DRE were cut to neutral at JP Morgan due to full valuations, while retail REITs MAC, GGP andKIM were upgraded to overweight from neutral on a relatively more positive outlook (cut TCO) – said investors have an opportunity to switch out of industrial REITs and into retail REITs, especially malls, where short interest has jumped; healthcare REIT SBRA shares fell as priced 16M share secondary at $21 and changed guidance
 
Healthcare
·      Large Cap Pharma; modest weakness in large cap names early, while managed care stocks outperformed; PRQR announced successful completion of their safety and tolerability placebo controlled Phase 1b clinical trial evaluating QR-010 in homozygous F508del CFTR mutated cystic fibrosis (CF) patients; AST received regulatory clearance to begin its first-in-man trial of VAC2;TXMD 12.4M share Spot Secondary priced at $5.65; WSJ reported late day that the GOP is said not to hold the Graham/Cassidy healthcare vote, which was later confirmed by an aide; HZNP fell after U.S. Patent Trial and Appeal Board ruled that claims 1-15 of the Ravicti -’559 patent are invalid
·      Biotech movers; PTCT shares fell after FDA documents show Translarna will answer questions over efficacy on its experimental therapy as a therapy in a select group of patients with a rare disease known as Duchenne muscular dystrophy (DMD); AXONshares plunge after saying patients treated with its experimental Alzheimer’s drug (intepirdine) failed to show significant improvement in a late-stage study (shares of AZN, LLY, BIIB, MRK, and RHHBY are also developing drugs for the disease); GNCAfalls after the company announces 40% workforce reduction and bails on genital herpes vaccine, shifts to cancer vaccines (downgraded by Stifel)
·      Medical equipment and devices; CTLT files for $250M in common stock sale; life science tools assumed coverage at Goldman Sachs with broader neutral rating, but buy rated on TMO (and added to conviction list), MTD (with $690 tgt), while sell rated onBRKR (neutral on A, DHR, ILMN, PKI and WAT); RGEN falls after GE Healthcare announced it will launch a new Protein A resin in 1H18 without RGEN.
 
Industrials & Materials
·      Transports; FDX tgt raised to $245 at Argus; HA downgraded to neutral at Buckingham citing falling Asian travel demand; Macquarie said the recent selloff in airline stocks provides an opportunity to add exposure to the highest-quality names, including LUV, ALK, DAL and HA
·      Metals & Mining; AA named top pick at Morgan Stanley and raises tgt to $54 from $47 on higher aluminum and alumina prices; gold miners slipped early as gold pared yesterday gains
·      Chemicals; WLK was upgraded to buy at Nomura and up tgt to street high of $98, with a potential upside to $118/share as sees strong earnings in Vinyls segment for the company; reasons for more bullish call include Nomura’s raised ests. for caustic soda price and shallower trough in Polyethylene (PE); also raised LYB’s PT to $99 from $90 reflecting an improved PE margin est; 52-week highs today for LYB, PX, EMN
 
Technology, Media & Telecom
·      Semiconductors; MU to report earnings tonight after the close; ON remains a great way to play ADAS/connected car/EV space given their portfolio of products including cameras, SiC, LED lighting according to Craig Hallum; AMAT analyst day presentation on Wednesday
·      Software movers; RHT Q2 results topped expectations across the board while raising guidance above consensus forecast for both Q3 and FY18 and subscription revenue of $638M was also 3% above consensus forecast; ACTA rises as entered into separate agreements to sell its three majority-owned businesses for an aggregate of $549M in cash
·      Hardware/disk drives; AAPL looked to bounce after 4-day losing streak/the Nikkei Asian review reported earlier there uncertainties for iPhone X production over 3-D sensor issues; WDC is planning to seek an injunction to block the $18B sale of Toshiba’s (TOSBF, TOSYY) semiconductor unit to a consortium led by Bain Capital, arguing Toshiba, its joint venture partner, cannot make a deal without its consent, Reuters reports https://goo.gl/oKjbMK ; SNX shares rise on Q3 EPS/revs beat and issued Q4 guidance above consensus
·      Internet movers; SFLY announced an integration with the Apple Photos app for macOS High Sierra; GDDY defended at B Riley saying pullback offers a great entry point for GDDY, a compelling investment opportunity with a steady cadence of business with upside potential from ARPU, customer growth and acquisitions; PCLN said at conference that valuations in travel industry are quite high (EXPE, TRIP, TRVG moved in reaction); Bloomberg reported GOOGL said to split off shopping service to meet EU demand
·      Media & Telecom; CBS falls amid NCAA Basketball kickback crackdown where Federal charges were filed against 10 coaches, financial advisers and sportswear company reps accusing them of bribery and corruption in the recruitment of college basketball players (CBS, along with Time Warner’s Turner unit broadcast the NCAA basketball tournament); DISH tgt cut to $37 by MoffettNathanson saying spectrum sale appears dead; DISCA upgraded at UBS.
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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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