Mid-Day Outlook: October 10, 2017

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Mid-Morning Look
Tuesday, October 10, 17
U.S. stocks climb early as the energy sector rallied and as the International Monetary Fund raised its outlook for global growth, helping drive equities to all-time highs (markets have sine pared gains). The Dow Industrials remain about 200 points away from the next milestone, but if it manages to clear it within the next 14 trading sessions, it would notch its third fastest climb to 1,000-point milestone since mid-July (and would mark the 4th straight 1,000 point climb over the past 12 months). The Nasdaq Composite trades above 6,600 for the first time (high of 6,608), as semiconductors (SOX) trades to fresh 17-year highs and biotech’s neared 52-week highs (but has since pared gains). Transports outperform, led by gains in airlines and truckers (while rails lag). Note the Dow Industrials Average has registered 46 record closes so far this year (not including today’s intraday high), led by WMT gains today on stock buyback. Financials are heading into earnings season on a strong note as Bloomberg notes indexes of lenders and financial stocks in general are up more than 10% in a little over a month – no fear about light trading volumes over the last quarter – as tax reform/ deregulation/rising rates trump fears (JPM, C, WFC, BAC among those to report the tail end of the week). The “reflation” trade continues to drive markets as the Dow has climbed 24.5%, the S&P 500 index 19.3%, the Nasdaq Composite up about 27%, and Russell 2000 25% since the November election. The dollar falls, helping boost commodity prices, while gold and bonds trade higher.
No concerns regarding the macro picture with political turmoil in Spain (Catalan crisis) or the UK (UK Prime Minister May) or the Turkey standoff, while North Korea fears have abated (for now). California Wildfires another story with 15 active fires, 11 dead, +100 missing and over 119,000 acres burned according to reports earlier. The International Monetary Fund (IMF) raised its 2017 and 2018 GDP growth forecast for the U.S., China, Euro area and Japan in its October World Economic Outlook. Global GDP to expand 3.6% in 2017 and 3.7% in 2018, up from July estimates for 3.5% this year and 3.6% next. U.S. to grow 2.2% this year, up from July est. of 2.1% U.S. to grow 2.3% in 2018, up from July est. of 2.1%
Treasuries, Currencies and Commodities
·      In currency markets, the dollar falls, with the dollar index (DXY) down over -0.4%; with the euro holding above the 1.18 level, while the dollar slips to around 112 against the yen
·      Commodity prices; gold prices rose rise back above $1,295 an ounce, on pace to record its third gain in a row, as the U.S. dollar continued to signs of weakness early in the week (currently longest string of gains in about 5-weeks for gold). Oil prices also jumping with around 2% gains early for WTI crude around $50.50 level
·      Treasury markets reopen after being closed for Columbus Day holiday on Monday, resumes higher with yields dropping; 10-ye falls around 3 bps to 2.32%, while the shorter term 2-yr yield under 1.5%. No major economic data today to move markets, but seeing bounce as stocks pare gains from fresh intraday highs
Sector Movers Today
·      Internet Security; CUDA reports earnings tonight after the close; Morgan Stanley with a few changes saying they continue to see vulnerability management as an attractive and increasingly strategic market, with QLYS as best positioned given its cloud-based mode (but downgraded QLYS after a 65% move in the stock YTD). Morgan also downgraded SYMC based on valuation (follows 35% YTD advance), while upgraded PANW to overweight as views it as one of the best positioned vendors to execute on an integrated security platform story
·      Chemicals sector; EMN downgraded to neutral from Buy at Nomura as stock nears their $91 target and said top picks in chemicals in the medium to long run are OLN, DWDP and HUN/in terms of chemical markets, they prefer exposure to chlor-alkali, titanium dioxide (TiO2) and MDI/also have buys on ALB, VNTR, WLK and PAH offer more upside but also more risk/seeFMC as a lower risk play on ag/lithium growth; AXTA was downgraded to sell at Citigroup
·      Transports; airlines higher on better monthly metrics as AAL sees Q3 TRASM up 0.5%-1.5%, from prior view unchanged-to up 1%; UAL said Sept. traffic fell (-1.6%) and now sees 3Q Prasm down (-3.5%-4.0%) – had seen Prasm down (-3%-5%); DAL reports earnings tomorrow morning. In rails, UNP was downgraded to hold at Aegis based on valuation but lower estimates for rails following storm impact; KSU was upgraded to buy at Bank America on valuation
·      Drug distributors; Cowen upgraded ABC and MCK to outperform as favors the two drug distribution companies over peer CAHas the business model for the sector transitions toward pricing specialty drugs separately from branded drugs (group has been pressured of late fearing entrance by AMZN into the space)
·      Industrials & Machinery; HON issues prelim Q3 EPS and sales above consensus ($1.75/$10.1B) and raised the low-end of its FY17 EPS guidance by 5c while announcing to spin Homes and DI Global Distribution Business and Transportation Systems into two publicly traded companies by end of 2018; ICHR entered into an agreement to produced liquid delivery systems for a “key customer”; in research, CAT tgt raised to street high $158 at Goldman Sachs, while JP Morgan upgraded ITW to neutral saying organic growth is likely to be better than forecast in Q3, while the firm downgraded AGCO to underweight on limited visibility
·      ANAB +70%; as lead candidate ANB020 shows treatment effect in mid-stage dermatitis study
·      CHRW +3%; double upgraded to buy from underperform at Bank America
·      ICHR +6%; entered into an agreement to produced liquid delivery systems for a “key customer”
·      KALV +67%; signs deal with MRK for DME candidate KVD001 ($37M upfront and up to $715M in potential milestones)
·      NVDA +2%; as introduced a new AI computer for fully autonomous vehicles and a new VR tool for those who design them
·      UAL +5%; now sees 3Q Prasm down (-3.5%-4.0%) – had seen Prasm down (-3%-5%)
·      WMT +3%; reaffirms forecast for year while said it would buy back up to $20B in shares
·      APA -4%; reduced its Q3 and Q4 production guidance by 2.2% and 4.1%, respectively
·      DLPH -2%; downgraded to neutral at UBS saying upside priced in
·      ESRX -2%; agreed to buy privately-held medical benefit management company eviCore healthcare for $3.6 billionhttps://goo.gl/B9WmsS
·      LLY -3%; as its Phase III JUNIPER on Verzenio (for lung cancer) didn’t meet its primary endpoint; was also downgraded to neutral at Credit Suisse
·      SYMC -2% downgraded at Morgan Stanley following rally in shares
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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