Mid-Day Outlook: October 4, 2017

Regal HelpdeskDaily Market Report

Mid-Morning Look
Wednesday, October 4, 17
Equities are little changed, with major U.S. averages holding near record levels, though several current winning streaks are in jeopardy as investor’s book recent profits. The dollar bounces, bonds slip (yields higher) and Fed December rate hike expectations rise after ISM services report comes in well above consensus views (index hits its highest level since mid-2005). Transports paring early gains, as the Dow Transport slide from earlier record highs of 10,010. Developments from Las Vegas, to Catalonia, as well as Puerto Rico and the Federal Reserve all impacting financial markets Wednesday. The S&P 500 Index was little changed after a six-day rally took it to a record. Trump rattled the market for Puerto Rico’s debt after saying the obligations may need to be wiped clean. Markets also awaiting the Trump administration closing in on nominating a new Fed chair as well as hopes for an infrastructure build bill in coming weeks as well. We have nonfarm job/payrolls data on Friday after an in-line private payroll report tomorrow as well as the start of earnings season next week as financials kick things off. Busy morning of news (several big movers in healthcare) – all detailed below.
Treasuries, Currencies and Commodities
·      In currency markets, the dollar gets a little bounce following the stronger-than-expected ISM services report, likely increasing already high expectations for an FOMC rate hike increase at the December meeting; however, dollar levels off, down vs. euro as markets steady
·      Precious metals reversed lower after initial gains, slipping on better economic data (ISM services) as it raises prospects of the FOMC boosting interest rates; gold prices trade under $1,275 an ounce, down around 8-week lows (prices slightly higher since)
·      Energy futures reversed higher after bullish inventory reports; the Department of Energy reported a weekly drawdown of inventories of over -6M barrels (vs. est. -500K), though Cushing had build of 1.52M, with bigger build in gasoline stockpiles (1.6M vs. 1M build) and larger draw in distillates (-2.6M vs. est. draw -1.5M); Total US crude product exports hit record high 7.02M B/D as exports rose to a record 1.98M B/D last week
·      Treasury markets are little changed after sliding initially on the better economic data; 10-year yield tops 2.34% briefly before moving back near yesterday closing levels around 2.33%
Economic Data
·      Private payroll data from ADP for September was in-line at 135K, while the prior month was downwardly revised slightly to 228K from 237K (data comes ahead of nonfarm payroll Friday)
·      Markit said September Composite PMI 54.8 vs. flash reading 54.6 and falls from 55.3 in August (year ago 52.3); New orders fall to 55.6 vs 56.7 in August
·      ISM Non-Manufacturing for September rises to 59.8, well above estimate of 55.5 and 55.3 the prior month; Business activity rose to 61.3 vs 57.5 prior month, New orders rose to 63.0 vs 57.1,  Employment rose to 56.8 vs 56.2, Prices paid rose to 66.3 vs 57.9 and Backlog of orders rose to 56.0 vs 54 – strong across the board
Sector Movers Today
·      Industrial & Machinery; in heavy duty trucks, PCAR upgraded to overweight at JP Morgan and raise tgt to $83 as accelerating North America Class 8 retail sales likely to continue into 2018; AYI mixed results with EPS beating, but revenues missing consensus
·      Waste services; ADSW, RSG, CWST and WM downgraded to hold from buy at Stifel and trimmed estimates to reflect reduced recycling prices for paper and said hurricane expenses could weigh on Q3 results
·      Transports; Dow Transports trade through the 10,000 level for the first time, helped by another leg up in airlines; UNP was downgraded to neutral at Citigroup while reaffirmed KSU as top pick in rail sector, thought said rail fundamentals remain solid, as volume has performed well against firming comps and we think there is an argument for a re-acceleration in pricing power in 2018; railcars active (ARII, TRN, WAB) following stronger outlook from GBX
·      Insurance; insurance brokers MMC & AJG were downgraded to hold from buy at Deutsche Bank following a significant run in the valuations of the sector; BTIG said this morning to buy Puerto Rico bond insurers (AGO, MBI, AMBC) – group was weak after President Trump suggested wiping out Puerto Rico’s debt
·      Internet; NFLX positive mention at UBS, raising tgt to $225 saying sub growth momentum has continued into 3Q; ETSY share price is meaningfully ahead of the company’s progress and investors should stay on the sidelines until the risk/reward outlook improves, said Piper; SHOP shares volatile after mentioned negatively by Andrew Left of Citron Research; AMZN hit with $294M bill amid renewed EU tax crackdown
·      CATB +15%; after positive trial results of Duchenne muscular dystrophy treatment
·      CTMX +20%; as entered a strategic collaboration in immuno-oncology with AMGN
·      FOLD +6%; announces additional positive data from its Phase 1/2 clinical trial assessing ATB200/AT2221 in patients with Pompe disease
·      I +13%; as company and INTC propose way for mobile industry to use C-band for 5G
·      LW +3%; Q1 EPS and revenue topped consensus estimates
·      MYL +16%; the FDA approved two generic versions for TEVA’s multiple sclerosis drug Copaxone
·      NFLX +3%; UBS raises tgt to $225 saying sub growth momentum has continued into 3Q
·      RGSE +198%; after announcing an exclusive domestic and international license agreement with DWDP for its Powerhouse solar shingles system.
·      TSLA +2%; was initiated buy and Street high $500 tgt at Nomura
·      VNET +5%; upgraded to overweight at Morgan Stanley and raise tgt to $9.50
·      AYI -1%; after mixed results with EPS beating, but revenues missing consensus
·      CLW -10%; as sees $8M-$9M negative impact to 3Q operating results after hurricanes
·      CWST -7%; waste services downgraded at Stifel to hold (WM, RSG)
·      MBI -6%; bond insurers weak after President Trump suggested wiping out Puerto Rico’s debt
·      MNTA -16%; as MYL receives FDA approval of TEVA Copaxone drug/MNTA already markets one generic version and is also seeking approval for another with partner NVS
·      ODP -17%; planned to buy IT company CompuCom Systems Inc. for $1B, while they also lowered its year outlook to $400M-$425M vs. est. $500M https://goo.gl/wr8puu
·      PEP ; Q3 EPS beat, but overall revs and organic sales revs (+1.7%) missed estimates
·      SHOP -6%; was mentioned negatively by Andrew Left of Citron Research
·      TEVA -13%; as MYL receives FDA approval of its Copaxone MS drug
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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