Mid Day Outlook: October 2, 2017

Regal HelpdeskDaily Market Report

Mid-Morning Look
Monday, October 2, 17
U.S. equities start the week off higher, adding to record gains reached last Friday for all major indices early, building on tax reform optimism. The Dow Transport sector falls for the first time in nine days, slipping from record highs reached Friday amid a pullback in rail stocks after cautious analyst comments. Consumer Discretionary stocks leading the declines, along with a pullback in financials (after massive outperformance the last few weeks), while technology and small caps outperform. Earnings coming into the spotlight after the Fed and tax reform policy dominated news the last 2-weeks, with earnings season kicking off next week. The story of the day came from Las Vegas, where a gunman identified as 64-year-old Stephen Paddock from Mesquite, Nevada opened fire on a crowd at a country-music concert in Las Vegas on Sunday evening, killing 50 and injuring over 400 in the largest mass shooting in U.S. history. No safe haven buying early despite the domestic terror incident today as gold prices remain under pressure, while bonds are little changed after falling over the last 2-weeks on increased FOMC interest rate hike expectations following Fed commentary and improving US data. U.S. manufacturing activity grew at its fastest pace in more than 13 years in September, with strong ISM data today. The U.S. dollar advance as Spanish referendum worriers hit the Euro
Treasuries, Currencies and Commodities
·      In currency markets, the dollar is higher against most counterparts, this after posting gains of over 1% last week, snapping a string of six weekly losses. 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; euro falls on Spanish woes
·      Commodity prices; precious metals extend losses as the dollar extends recent advance with markets weighing the potential success for the recently announced Republican tax-cut proposals as well as expectations for another rate increase by the Fed (gold prices fell -2.7% last month)
·      Energy futures on the decline after posting strong weekly, monthly and quarterly gains on hopes of additional OPEC output cuts. WTI crude rose about 7.7% for the month and climbed about 10.5% for the quarter…seeing some profit taking today
·      Treasury markets are little changed after falling last month, with yields holding steady above 2.32% early after mostly better economic data
Economic Data
·      September Manufacturing PMI 53.1 vs. Flash Reading 53 and up from 52.8 in August and above the year ago 51.5; said employment rises to 54.3 vs 53.1 in August and highest reading since Dec. 2016 while input prices rise vs prior month to best level since Dec. 2012
·      Construction Spending for August rose 0.5% vs. est. up 0.4% while July was downwardly revised to (-1.2%) from (-0.6%) though June revised to (-0.8%) from (-1.4%); private construction rose 0.4% in Aug while private residential construction rose 0.4%
·      ISM Manufacturing for September rises to 60.8, above est. of 58.1 and vs. 58.8 last month; segment breakdown: new orders rose to 64.6 vs 60.3, employment rose to 60.3 vs 59.9, inventories fell to 52.5 vs 55.5, prices paid rose to 71.5 vs 62.0
Sector Movers Today
·      Railroads; TRN tgt raised by several analysts after the company received a favorable outcome in its litigation appeal as the court reversed the original verdict; Morgan Stanley turns cautious on rail stocks, downgrading CSX and UNP to underweight saying the easy comps of 1H17 are over and believe Rail consensus EPS risk is skewed to the downside (also lowering price targets for all the U.S. Class I rails by ~3%, on average and cut estimates
·      Metals & Mining; FCX can continue to export copper concentrate even if negotiations over the company’s permit to operate the Grasberg mine are not resolved this month, an Indonesian mining ministry official; CLF said it acquired US Steel (X) 15% equity interest in the Tilden Mining Company for $105M; Longbow downgraded NUE and STLD to neutral in steel sector citing incremental weakness in surveys and cutting 4Q17 and 2018 estimates for the entire steel group
·      Regional banks downgraded; following the 11-day winning streak for the KRE (SPDR S&P Regional Bank ETF), Baird downgradedFITB, ZION and RF, while Bank America downgraded CFG and USB to underperform.  Baird said to trim banks into strength after stocks have rallied back to post-election highs, even while loan growth is weaker, the yield curve is flatter, and there’s been little progress with Trump’s fiscal agenda
·      Retailers fall; JWN shares slipped after the NY Post reported the company has struggled to put together the financing for a buyout deal and may not be able to close the deal https://goo.gl/DxNDeM ; ANF upgraded to hold at Argus noting new management has taken the reins and is beginning to turn operations around; FINL downgraded to neutral at Susquehanna; generally, retailers (M, KSS, FL) were under pressure today after Nordstrom buyout deal is said to be faltering
·      AOBC +6%; in the wake of the deadliest mass shooting in U.S. history in Las Vegas
·      CTXS +5%; upgraded to outperform at Wells Fargo and raise tgt to $95 citing several factors
·      GM +4%; positive commentary by both Citigroup and Deutsche Bank today
·      REGN +3%; announced new pacts with HHS to develop antibodies
·      SNCR +16%;  Board’s strategic alternatives process remains underway and it continues to explore a full range of strategic, operational and financial alternatives https://goo.gl/AuAnFs
·      SRPT +6%; upgraded to overweight at Morgan Stanley (tgt to $60)
·      TRN +11%; following a positive court ruling that paves way for stock buyback activity according to analysts; few analysts raise tgts on the announcement
·      VSI +3%; after announcing its first digital platform in China
·      APPN -9%; downgraded to market perform at Cowen based on valuation
·      BHVN -10%; as trigriluzole fails to beat placebo in Phase 2/3 study in spinocerebellar ataxia
·      CYBE -22%; after lowering Q3 revenue estimate to $11.5M-$13M from $13M-$15M prior
·      GNW -6%; said it will take additional steps to win U.S. approval for its $2.7 billion deal with China Oceanwide Holdings Group Co.
·      JWN -6%; NY Post reported the company has struggled to put together the financing for a buyout deal https://goo.gl/DxNDeM
·      MCRB -19%; as SER-287 in combination with vancomycin daily showed similar clinical response rates as placebo
·      MGM -3%; following the Las Vegas shooting that killed 50 individuals
·      PEP -1%; downgraded to hold at Jefferies and cut tgt to Street-low of $108 citing slowing trends
·      ROKU -8%; after surging the first two days of trading last week
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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