Thursday, October 12, 17
Equity Market Recap
· New intraday highs for the Dow Industrials, S&P 500 Index, Nasdaq Composite and Dow Transports (Russell 2000 not far from records), though only the Transports managed to close at a new record, as investors sold banking stocks following mixed results from JPM and Citi today, and ahead of more bank earnings tomorrow (BAC, WFC, PNC). Companies are started to disclose more details on the impact from the hurricanes last month on business, with several profit and revenue warnings overnight (ETH, JILL, JNPR, NSTG, T, FBM). Transports trade to a new all-time high, playing catchup with the other averages (record highs 10,049). Telecom and Media stocks were among the biggest sector decliners, led by AT&T reporting a loss video subscribers in Q3 citing the hurricanes, while VIAB and DIS dropped on an analyst downgrade. Tech shares were mixed as semiconductors snapped their 11-day win streak for the Philly Sox index. President Donald Trump signed an executive order to overhaul healthcare regulation for small businesses after repeatedly failing to repeal Barack Obama’s Affordable Care Act. Economic data was strong, with jobless claims falling below estimates, while producer prices (inflation data) came in “hotter” than expected (ahead of the CPI tomorrow). The dollar slipped late day, especially against Sterling, while oil prices dropped and gold edged higher. In Fed news, the normalization of monetary policy in the U.S. and other advanced economies should be manageable for emerging markets, Federal Reserve Governor Jerome Powell said on Thursday, although he cautioned on high levels of corporate debt. Bitcoin to a fresh record, climbing above $5,300.
· Producer Price index (PPI) for September rises 0.4%, in line with estimates and above prior month of up 0.2%, while core prices (ex food and energy) rises 0.4% as well, but coming in above the 0.2% estimate; final demand ex food, energy rose 2.2% y/y vs. est. up 2% (comes ahead of the Consumer Price Index tomorrow morning)
· Weekly Jobless Claims fell 15K to 243K vs. est. 250K; the 4-week moving average m dropped by 9,500 to 257,500 in the week ended Oct. 7; Prior week claims revised down to 258K from 260K; the number of people already collecting unemployment benefits, or continuing claims, fell by 32,000 to 1.89 million (lowest since 1973)
· Crude prices declined, falling 70c, or 1.36% to settle at $50.60 per barrel following mixed inventory data. Overnight the API showed an increase in U.S. crude stockpiles last week, while the DOE reported a larger than expected drawdown. Also Thursday, the International Energy Agency said global oil supply rose in September, while demand growth slowed. Gasoline stockpiles were up 2.5M barrels for the week, while distillate stockpiles fell 1.5M barrels.
· Gold prices gained $7.60, or 0.6% to settle at $1,296.50 an ounce, its best close since Sept. 26th, helped by a late day pullback in the U.S. dollar. Gold bounced yesterday after minutes from the U.S. Federal Reserve’s September meeting Wednesday showed that some policy makers questioned the need for another interest-rate hike this year…though there are still broad expectations for a rate hike in December.
· The U.S. dollar reversed earlier gains, led mainly by a midday advance in Sterling. The dollar advanced earlier following the release of weekly jobless claims and producer-price index data. However, the dollar index (DXY) fell as Sterling jumped more than 100 bps off the lows (1.3122 low) to highs of 1.3291 after a report in Germany’s Handelsblatt newspaper that the European Union could offer Britain a two-year transitional Brexit deal. The pound had earlier tumbled after the EU’s chief Brexit negotiator Michel Barnier said talks around Britain’s divorce payment had become deadlocked. The dollar slipped vs. the yen but gained against the euro (though fears of a Catalonia secession from Spain eased). The dollar also booked some gains against the Mexican peso and Canadian loonie.
· Bonds gained as yields slipped, with the 10-yr down a little less than 2 bps at 2.32% (touched highs of 2.346% late Wednesday). Bonds gained despite a rise in inflation data (PPI) and better jobless claims, with CPI data coming up tomorrow morning. The U.S. Treasury sold $12B in 30-year reopening at a yield of 2.87% (vs. 2.874% w/i) with the bid-to-cover at 2.53 (highest since Sept 2015) vs. 2.21 prior auction and indirect bidders awarded 62.8% of the auction. The auction followed two fairly well received auctions yesterday. There still remains many potential catalyst for bonds over the next few weeks: Spain, UK, Fed, North Korea, tax reform and healthcare in US
Sector News Breakdown
· Retailers; JILL plunges as cuts Q3 adjusted EPS view to 8c-10c from 18c-20c and cuts Q3 comp sales view to (5%)-(3%) from up in the high single digits; LULU was mentioned cautiously by boutique firm M Science; ULTA downgraded to neutral by Cleveland Research as expects industry slowdown in cosmetics and increasing competitive promotions to pressure near-term results
· Furniture stocks; sector two negative pieces of news as ETH guides Q1 EPS 27c-28c on sales $181.3M below estimates 45c/$198.4M; WSM was downgraded to underperform at Credit Suisse (HOFT, LZB, PIR, BBBY, RH, LEG were active); Bloomberg reported that SpendTrend data show Sept. sales of soft home-furnishings fell 4.4%, adding that hardlines sector was “hard hit” last month as hurricanes ravaged Texas, Florida
· Auto movers; GM plans to close the Detroit-Hamtramck assembly plant for 6 weeks starting in mid-November through end of year, WSJ reports, as move will temporarily lay off around 1,500 workers; SAH guides Q3 EPS 39c-42c, below consensus of 52c citing the effect of hurricanes; auto suppliers DLPH and BWA downgraded to hold from buy at Deutsche Bank; CARG 9.4M share IPO priced at $16.00; KNDI files $300M mixed securities shelf; MNRO cut to hold at Jefferies saying 2018 earnings growth is likely to slow
· Consumer Staples/Restaurants; DPZ shares pressured early despite having reported 3Q EPS/revs/comp sales that topped analysts’ expectations (though domestic comp expectation miss); KR upgraded to equal-weight at Stephens on possible convenience store sale; early gains in the food sector with SJM, CAG, K among S&P top leaders; SBH shares hit 6-year lows
· Housing & Building Products; FBM sees Q3 net sales $530M-$540M vs. est. $561.09M citing the unprecedented occurrence of two back-to-back major hurricanes
· Lodging and Casino’s; shares declined (WYNN, MLCO, LVS, MGM) after Las Vegas 4Q RevPAR estimates cut to down 2% and 1Q reduced to negative 1% citing survey results that suggest “U.S. consumers may be more affected by the tragic Oct. 1 mass shooting in Las Vegas than we had previously expected; they lowers cumulative effect on Vegas RevPAR to negative 7% in 4Q17/1Q18 vs prior estimate of negative 5% (cut MGM tgt to $34 while boosted WYNN to $158); HST upgraded to buy at Deutsche Bank in lodging space
· Inventory data: The American Petroleum Institute (API) reported U.S. crude supplies rose by 3.1M barrels for the week ended Oct. 6, while gasoline stockpiles declined by -1.6M barrels, but inventories of distillates rose by 2M barrels. The DoE reported weekly inventory data (a day later due to Columbus Day holiday) with a slightly larger build of -2.74M barrels (vs. est. -2.4M), with gasoline buildup 2.49M vs. est. 200K and distillates draw of -1.48M barrels vs. est. -1.9M)
· The IEA said; in its closely watched monthly report, the IEA said global oil supply had risen by 90,000 barrels a day last month from August, to 97.5 million barrels a day. That level was 620,000 barrels a day higher than during the same period a year prior
· In news; PXD said that it’s 3Q MBOEPD production up 6% QoQ to 275,711 and reaffirmed it’s full-year 2017 forecast for production growth
· In Research, oil driller changes at Citigroup as they upgraded RIG to buy from neutral while DO downgraded to sell from neutral as initiates a pair trade
· MLPs; ETE and ETP active as Baird notes (confirming their expectations), the Court ruled today that Dakota Access Pipeline (DAPL) may continue to operate while the Army Corps’ environmental review remains ongoing.
· Large Cap banks; JPM reported a Q3 EPS beat, though revs of $3.16B just missed as FICC sales & trading revenue missed the average analyst estimate ($1.36B vs. Bloomberg est. $1.41B), while investment banking revenue $1.71B beat $1.65B est.; analysts notes beat driven mostly by JPM’s retail banking, stronger results in Cards, and better loan growth; Citigroup (C) Q3 EPS and revs top consensus helped by lower spending; CBSH in-line quarter with positives including better cost control and lower credit costs, though offset by lower than expected revenues; earnings tomorrow from BAC, FHN, PNC, WFC
· Insurance; XL preliminary estimate of net losses of approximately $1.33B relating to Hurricanes Harvey, Irma and Maria; CINFsees Pretax Catastrophe losses $102M-$114M
· Consumer/Mortgage finance and lending; NMIH will be added to the S&P SmallCap 600 Index after the close on Friday, 10/13;HAWK reported 3Q results that missed on revenues but beat on EPS, even when factoring in a one-time tax benefit; TREEdowngraded to sell at BWS Financial; EFX shares fell after Reuters reported the company had taken one of its webpages offline as its security team looks into reports of another possible cyber attack
· President Donald Trump signed an executive order to overhaul healthcare regulation for small businesses after repeatedly failing to repeal Barack Obama’s Affordable Care Act (shares of hospitals, managed care and services moved in reaction)
· Large Cap Pharma; ACRX shares plunge as the FDA rejects its marketing application for pain med DSUVIA; LLY said the FDA granted Priority Review designation for its New Drug Application (NDA) for breast cancer med Verzenio (abemaciclib); FLXN 4.8M share Secondary priced at $25.50; ONCE said its Luxturna wins unanimous FDA advisory committee recommendation by unanimous decision of 16-0
· Biotech movers; INFI shares jump as Wells Fargo upgraded to outperform ($5 tgt) after its submission of an IPI-549 late-breaking abstract was accepted for oral presentation at the Society of Immunotherapy of Cancer (SITC) conference; FPRXpositive mention at Nomura regarding its Cabiralizumab Phase 1a/1b data abstract; ARDX jumps as said second phase III study of tenapanor meets statistical significance for primary endpoint and all secondary endpoints
· Medical equipment and devices; NSTG shares plunge as reports Q3 preliminary revenue $25.9M-$26.9M vs. est. $27.68M; LH resumed outperform at Wells Fargo; HAIR 3.575 share IPO priced at $7.00; KIDS 4M share IPO priced at $13.00
· Managed Care; Leerink said analysis of the 2019 STAR Bonus released by CMS on Oct. 11 points to a clear win for WCG (OP), nice improvement in 4 STAR for ANTM (OP) and a downgrade for CNC (MP) in its HNT 4 STAR plan as well as the newly acquired NY-based Fidelis Care MA plan. UNH (OP) and HUM’s (OP) 4+ STAR membership is expected to remain stable. AET (MP), MOH(OP) & CI (OP) see a modest but manageable reduction in the % of their 4+ STAR membership
Industrials & Materials
· Heavy duty truckers; Longbow downgraded CMI, ALSN and MTOR to neutral from buy following a recent truck dealer survey that suggests initial 2018 sales growth is below current industry forecasts, partly due to driver shortage concerns; said contacts expect 2018 Class 8 sales increase of 10% versus FTR Associate’s build forecast of up 21%; separately, NAV was upgraded to positive at OTR Global following checks that indicate 2017 global heavy-duty truck market outlook has improved for the third consecutive quarter
· Transports; DJ index to new record highs led by rails and truckers; car rental stocks active after MKM Partners positive on HTZand CAR saying earnings momentum is at an inflection point driven by sustained improvement in underlying core fundamentals (raises HTZ PT to $36 from $22 and CAR PT to $49 from $39); CP was upgraded to overweight at JP Morgan and was added to focus list as growth idea; HA shares fell after LUV said on Oct. 11 that it plans to start selling tickets in 2018 for service to Hawaii;JBHT reports tomorrow morning
· Agriculture and machinery; monthly WASDE report out showed Florida Orange Crop seen lowest since 1947 due to hurricane impacts, as per USDA (2017-18 marketing year is 54M boxes, according to USDA; survey avg 58.2M; corn and soybeans rose after monthly data as well (shares of DE, AGCO as well as ferts AGU were active after report)
· Metals & Mining; in gold miners, ABX and HL both provided production updates; steel stocks outperformed with broader materials (X, AKS)
Technology, Media & Telecom
· Internet; MELI weakened after reports AMZN is recruiting for several positions in Brazil, signaling the online retailer could expand its presence in Latin America’s largest market beyond selling books online; XOXO downgraded at Roth as believe go forward expectations for modest growth are priced into shares at current levels; AMZN to hire 120K workers for holidays;GOOGL trading back to 52-week highs today
· Semiconductors; sector continue to push higher, with the Philly SOX index trading to another fresh 17-yr high (came into the day with 11-day win streak) – but shares slip late day; LSCC guided Q3 revs to $91M-$93M range vs. est. $94.1M ahead of analyst and investor meeting today and Q4 revs below as well; SIGM announced another round of major restructuring; Deutsche Bank raised tgts on equipment names AMAT (17-year high today), KLAC and TER; MU 29.3M share Secondary priced at $41.00
· Comm equipment/networking; JNPR cuts Q3 adjusted EPS view to 54c-56c from 55c-61c (est. 58c) and cuts Q3 revenue view to $1.25B-$1.26B from $1.29B-$1.35B (est. $1.33B) saying guidance change primarily due to lower than expected revenue in cloud vertical (shares of CSCO, FFIV, NTGR were among those active)
· Software movers; VEEV raised its CY2020 gross margin view to 74%-75% from 72%-73% previously; GLUU upgraded at Benchmark as believe turnaround is taking shape; ZEN positive mention at Piper ahead of earnings had shares higher early (raised tgt to $35)
· Media movers; VIAB warned CHTR customers that they may lose access to channels such as MTV, Comedy Central and Nickelodeon as the October 15 expiration for a distribution deal between the two parties approaches; Guggenheim downgraded media names AMCX, DIS and VIAB saying they face rising competitive pressures and cable network subscriber losses (also cuts targets)
· Telecom movers; AT&T Inc. (T) shares drop as warned that Q3 of lower revenue and profit after several “devastating hurricanes, as well as earthquakes in Mexico, significantly impacted certain regions of our service area during the third quarter (DISH, ATUS, CMCSA also fell); DXC said it will spin its U.S. Public Sector business and combine it with two privately held entities owned by Veritas Capital – Vencore Holding Corporation and KeyPoint Government Solutions; towers were active (AMT, CCI) after Justice Department staff are likely to try and block a potential TMUS/S mega deal – Business Insider reported late yesterdayhttps://goo.gl/dWXfhs
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.