Friday, September 29, 17
Equity Market Recap
· It was a quiet day on Wall Street, but major U.S. averages moved in record fashion, as the Nasdaq Composite, S&P 500, Russell 2000 and Dow Transports all jumped to fresh all-time highs to close out the week, month and third quarter. European stocks closed on their best levels led by gains in real estate, consumer discretionary and financials. Bank in the U.S. also strong (the KRE – SPDR S&P regional bank ETF – was up for an 11th straight session) along with technology stocks and consumer discretionary helping propel the S&P 500. The Dow Industrial Average, which is coming off a recent 9-day win streak earlier, lagged behind other averages. Commodity prices end the day little changed, but WTI crude posted a 10% gain for the quarter and 7% for the month, while gold slipped this month. The dollar snapped a 6-week losing streak, while bond yields inched higher on the day and week (several stories below). Inflation data was weak as PCE core missed estimates. One of the big stories today came from the WSJ, which reported that Trump and Treasury Secretary Mnuchin met with ex-Fed governor Kevin Warsh yesterday to discuss potential nomination and noted that Yellen, John Taylor and John Allison were also in contention.
· On the day: The NASDAQ Composite traded to fresh intraday high of 6,497.97… The S&P 500 Index traded to a new intraday high of 2,517.97… The Russell 2000 Index traded to intraday record high of 1,493.55… and Dow Transports intraday record high 9,934.81. The Dow Industrials only major index lagging on the day. Overall, S&P 500 closing out September with another all-time high, coming amid another tiny trading range. On track for its eighth straight quarterly gain.
· Personal Income for August rose 0.2% (in-line with estimates) while personal consumption rose 0.1% (also in-line); real personal spending fell (-0.1%), in-line with estimates. However, inflation data points come in weaker as PCE core inflation rose 0.1%, below the est. rise of 0.2%, while PCE YoY rose 1.3%, below the 1.4% estimate; compensation at 0.1% in Aug. vs 0.5% prior month
· Chicago PMI jumps to 65.2 in September from 58.9 in August and topping estimates for a 58.7 reading; prices paid, new orders and employment rose at a faster pace, signaling expansion
· University of Michigan confidence sentiment index for September fell to 95.1 from 95.3 in the preliminary reading (and same as estimate), and down from 96.8 last month; the expectations index fell to 84.4 vs. 87.7 last month and the current economic conditions index rose to 111.7 vs. 110.9 last month
· WTI crude oil ends with slim 11c gain on Friday to settle at $51.67 per barrel, bouncing off earlier lows, but posted strong weekly, monthly and quarterly gains on hopes of additional OPEC output cuts, bullish inventory data and buoyed by concerns over crude supplies from the Kurdish region of Iraq. For the month. WTI crude rose about 7.7% and climbed about 10.5% for the quarter. Brent touched its best levels in 2-years earlier in the week.
· Gold prices declined -$3.90 to settle at $1,284.80 an ounce, falling the last few days on a strong dollar as markets weighed the potential success for the recently announced Republican tax-cut proposals as well as expectations for another rate increase by the Federal Reserve in December (and three more hikes next year). For the month, gold prices slipped about -2.7%, but gained about 3.6% for the quarter. Gold prices also fell as new out of North Korea has been quiet over the last week, as investors rotated out of defensive assets and into riskier ones.
· The U.S. dollar rotated between gains and losses on the day, but for the week, the dollar index (DXY) posted gains of over 1% (highs 93.66 on 9/28) snapping a string of six weekly losses. For the month, the dollar index posted a gain of roughly 0.5%, with the greenback moving to best levels since the middle of August vs. the euro mid-week (1.1717 low), while topping the 113 level against the Japanese yen yesterday (first time since July) before paring gains. The British pound was buying $1.3393, down from $1.3441 on Thursday. The dollar rally has largely been supported by hints from the Fed that interest rates will go up in December, and rise a few more times in 2018. European Central Bank President Mario Draghi earlier in September indicated it will unveil plans to start scaling back its aggressive easing program in October. Support for the tax reform proposal released yesterday by Republicans and stronger economic data also lifted the buck.
· Bonds slipped on the week, but were little changed on the day despite a handful of mixed data (softer PCE inflation reading but stronger manufacturing report out of Chicago region). The yield on the benchmark 10-year held above the 2.3% level today, down slightly from the 11-month highs of 2.34% yesterday after the tax reform plan proposal. The 2-year yield touched 9-year highs this week, up around 1.47%, on the Fed’s commitment to normalize monetary policy (comments last week at meeting/Yellen comments this week). Bonds slipped late morning after reports President Donald Trump and Treasury Secretary Steven Mnuchin met Thursday with former Fed Governor Kevin Warsh to discuss potentially nominating him as the next chairman of the Federal Reserve.
Sector News Breakdown
· Retailers; FINL shares active after the NY Post reported late yesterday that Sports Direct is said to be in talks to buy the company https://goo.gl/3PhraJ ; CONN upgraded to outperform at Oppenheimer citing an improved outlook for the company’s credit business and for earnings and has a $40 tgt on shares; in consumer Staples, TSN raised FY17 EPS view to $5.20-$5.30 from $4.95-$5.05 on strong beef segment performance
· Housing & Building Products; homebuilder KBH the first homebuilder to report after the Hurricanes, upgraded at Mizuho after Q3 EPS topped consensus /surprise in Q3 was margin strength, with both gross margins and SG&A beating consensus
· Casino, Lodging & Leisure; WYNN price target raised to Street high of $174 at Deutsche Bank citing stronger Macau market gross gaming revs (GGR), driven by VIP, and increased Macau market share for WYNN; Nevada reports August statewide gaming win up 14.9% to $989.51M
· It has been a terrific month of gains for energy stocks, as oil prices jump throughout the month, with shares of APC, HP, CXO, HES, MRO in the S&P 500 posting gains of around 20%; today the Baker Hughes (BHGE) weekly rig count showed the U.S. rig count rose 5 rigs to 940, with oil rigs up 6 to 750, and gas rigs down 1 to 189 (drillers have added rigs for the first time since the middle of August); in E&P sector, PE is lowering its 3Q17 and 4Q17 production guidance to take into account Harvey-related midstream impacts, deferred non-op completions, reduced cycle times from inefficient frac crews, and planned divestitures. In utilities, SCG downgraded to sell at William Capital a day after cutting tgt to $40; refiners on a string of gains – VLO up a 3rd straight day and up 10 of the last 11 days to new highs, while PBF and MPC also moving higher
· Large Cap/Regional banks (RF, PNC, KEY) among gainers early, erasing initial losses after the WSJ reported President Trump, Treasury Sec. Mnuchin were said to have met with ex-Fed governor Kevin Warsh to discuss potential nomination as next Federal Reserve chairman (KBW said on 9.20 that nominating Kevin Warsh, who’s got both private sector and Fed experience, as Fed chairman might be “the best news of all possible candidates” for financial stocks, as his views on financial regulation are likely in line with the Trump administration’s agenda); MA and Visa (V) both initiated overweight at Cantor; IVZ agreed to buy the ETF business of Guggenheim Investments for $1.2B in a cash-and-debt deal and is expected to close in Q2 https://goo.gl/PhbhS6
· Large Cap Pharma; MRK said it would discontinue the development of the investigational combination regimens MK-3682B and MK-3682C for the treatment of chronic hepatitis C, after a review of available Phase 2 efficacy data; ABBV tgt and Humira estimates raised by some analysts after patent settlement news yesterday with AMGN lifted shares
· Specialty Pharma; ZYNE pares yesterday gains after posted impressive results for its CBD gel ZYN002 in Fragile X syndrome (FXS), with 46% improvement in the primary endpoint and positive secondary endpoints; ZGNX shares surge after saying a late-stage trial of a treatment (ZX008) for a rare type of epilepsy called Dravet syndrome met its primary endpoint of reducing the frequency of convulsive seizures in children and young adults (GWPH shares fell after Zogenix’s Phase 3 study of ZX-008 in Dravet Syndrome, a rare form of epilepsy, met its primary goal); generics/specialty names outperform ENDP, VRX, TEVA, MYL
· Biotech movers; PTCT rises as analysts generally positive after FDA Panel voted that its experimental therapy (Translarna) is inconclusive and more work is needed (which many analysts did not see as a surprise, such as JPM), while some investors had feared the panel would vote that the drug didn’t work at all; PRTA announced decision not to advance PRX003 into mid-stage clinical development, due to lack of meaningful clinical benefit in psoriatic patients treated in the Phase I MAD study; SRPT shares slipped on safety issues reported in the FDA Adverse Events Reporting System (FAERS) for the company’s controversial Exondys 51 therapy (stock was defended by several analysts following the news)
Industrials & Materials
· Aerospace & Defense; RTN upgraded to buy with $210 tgt at Deutsche Bank; CNBC’s David Faber said HON is said not expected to spin-off its Aerospace segment; strength remains in the defense sector, not far from record highs for GD, RTN, LMT, NOC given ongoing tension with North Korea
· Transports; the index posted all-time closing highs yesterday, as most segments performing very well (truckers, rails and freight); in rails TRN upgraded to buy at Citigroup as sees the potential for 2018 earnings to be up mid-teens YoY; in truckers,JBHT, HTLD and USAK upgraded to buy at Stifel as predicts TL contract rates can move up an expected 5%-10% over the next three quarters as the surface transport market heats up
· Wood & Paper sector; shares of OSB and LPX downgraded to underperform at BMO Capital, but raised targets on both, saying 2017 is proving a banner year for the companies as high operating rates (~91%) and two major hurricanes have driven OSB prices to peak level…but said 2.7Bsf of OSB supply additions over the next 6-9 months seem destined to pressure OSB prices.
· Metals; iron ore prices are down 21% in September, ensuring the biggest monthly decline since May 2016 and the first back-to-back quarterly loss since 2015; gold miners drop again in a difficult week given the rise in the dollar and subsequent decline in gold prices; FCX falls as rejects a proposal from Indonesia’s govt on mechanism of share divestment citing Bloomberg
Technology, Media & Telecom
· Semiconductors; NVDA tgt raised to $210 at Citigroup from $185 on higher data center inference sales supported by recent announcements with Alibaba Cloud, Baidu, and Tencent in China; 52-week highs in tech for semi/equipment AMAT, LRCX, TXN;SGH outperforms after earnings
· Software movers; VERI shares very active (again), rising after Roth Capital said a $1B valuation for the company is “not only reasonable but could be conservative” and raises PT to Street-high $62
· Hardware and Comm equipment; CAMP reported Q2 revenue in line and adjusted EBITDA and EPS above expectations due to slightly lower-than-expected operating expenses; APH upgraded to buy at Bank America and tgt raised to a Street high of $100 from $79 for its ability to maintain a growth profile to justify its “rich” valuation; ROKU rises on second day since coming public as 15.6M share IPO pried $14 yesterday
· Media & Telecom; movie theatres fall as MKM Partners said after three up weekends in a row, the box office appears on track for a double digit decline for the upcoming weekend (AMX, CNK, RGC among movers); media names were mixed with CBSrebounding, paring weekly losses.
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.