Monday, October 23, 17
Equity Market Recap
· U.S. stocks dropped late day, erasing earlier gains for the S&P 500 and Dow Industrials and snapping the 7-day winning streak for each index ahead of a busy week of earnings as major averages finished near the worst levels of the session. Other potential market catalysts this week/next include impending tax legislation and the decision on the next Fed chair. Note that 13 of the 30 Dow components touched a fresh 52-week high (BA, CAT, CSCO, DWDP, JNJ, JPM, INTC, MMM, MSFT, PFE, TRV, UNH, WMT) at one point today as stocks remain at near record highs. There were a few M&A announcements today (CSCO buys BSFT, HIG buys AET’s benefit unit, DEL tie-up with PCH in timber space and EXAC taken private) outside of the earnings noise (though only gets louder the next few days amid the busiest week of earnings this quarter). Big time earnings tomorrow morning, with results expected from: BIIB, CAT, CNC, GLW, GM, JBLU, LLY, LMST, MCD, MMM, and UTX for a few of the big ones.
· The dollar advanced, while bonds, gold and oil prices were little changed while the euro fell amid the ongoing political turmoil in Catalan. The Nikkei 225 equity index closed higher for the fifteenth straight day on Monday, marking its longest winning streak on record as the yen fell on election victory for Japan’s ruling party. Today saw a few highlight earnings reports, with STX, VFC driving higher after results, while HAS, ARNC, STT slide on mixed results – but the week is going to get a whole lot busier. Note Friday marked the 24th time in 2017 that all three main benchmarks simultaneously closed at records, with major averages mixed today.
· Commodity prices end little changed; Gold prices bounced off earlier lows to settle up slightly at $1,280.90 an ounce, as dollar strength continued to weigh on upside momentum in the precious metal. Prices dropped as much as 0.5% to $1,273.60, lowest intraday since Oct. 6 before bouncing late afternoon. Note prices fell -1.8% last week on dollar strength/renewed interest rate hike expectations (fifth weekly drop in six). Overall it was a quiet session for commodity prices amid no economic data and a “quiet period” for Fed speakers. Note gold has struggled since falling below the $1,300. WTI crude settles at $51.90, up 6c (high $52.30 and low $51.68).
Currencies & Bonds
· The U.S. dollar was higher, as the dollar index (DXY) touched highs of 94.01 before ending just below those levels; the euro slips on Spain and greenback rises vs. Japanese yen after election in Japan (Abe’s win raises the prospect for continued accommodative monetary policy) – though the dollar fell vs. the yen late day erasing the move overnight; Bitcoin falls over 4% after Saudi Prince Alwaleed in a CNBC interview today compared to Enron saying “I just don’t believe in this bitcoin thing. I think it’s just going to implode one day,” Alwaleed told CNBC in an interview Monday morning. “I think this is Enron in the making.” The dollar extends recent gains on hopes of tax reform and rising rate expectations.
· Bonds were modestly higher early as yields slipped amid ongoing Spanish tensions, and the Japan election, with the 10-yr yield down over 1 bps to under 2.37%…but climbed later in the session to end flattish on the day around 2.38%, while the 2-yr was above 1.56%. No real major economic data and no Fed speakers all week as they remain in “blackout period” ahead of upcoming policy meeting. UK prime minister Theresa May reiterated that the country is within “touching distance” of moving on to the next stage of Brexit talks with the EU
Sector News Breakdown
· Retailers; VFC reported a beat and raise quarterly results and lifted year forecasts saying rev strength driven by broad-based strength across VF’s international and direct-to-consumer platforms; FL downgraded to neutral at Buckingham Research and cut tgt to $29 from $47 citing no near-term catalysts; COH positive mention in Barron’s saying shares could rise more than 25% amid chance to grow newly acquired Kate Spade brand; HAS leads toy retailers lower after Q4 revs guided 4%-7%, below est 11% (MAT falls); retail was mostly higher
· Consumer Staples & Restaurants; in consumer products, KMB Q3 EPS beat by 6c, though sales of $4.64B just missed estimates and guided year EPS to low end of range; Restaurants; Dow component MCD to report earnings tomorrow morning
· Casino, Lodging & Leisure; cruise estimates lowered again at Wedbush after hurricane impact; CZR mentioned positively in Barron’s saying shares may surge 50% in the next 18 months after its main operating unit emerged from bankruptcy; MGM Cotai is slated for opening on Jan. 29, 2018
· One of the more quiet sectors as earnings doesn’t kick in for E&P and MLP names; some top movers; HAL active after earnings as Q3 shows strong North America activity (2nd service company to report in as many days – SLB Friday); Noble Group agreed to sell its Americas-focused oil liquids business to Vitol for about $580M, as part of its strategy to shrink its businesses to cut debt.https://goo.gl/kLqVfD ; HLX lowers FY17 revenue about $570M-$590M vs. prior $590M view and said strategic review concluded; SN sees 4Q production to be near the lower end of 80,000 to 84,000 Boe/d range citing completion delays in Sept. and Oct. as a result of storm activity; RRC was downgraded to neutral at JP Morgan; MLPs weak with the Alerian MLP Index (AMZ) down over 1% midday, lowest levels since late August around the 270 level, with shares of ARLP, SMLP, AM, NBLX, MPLXamong the biggest decliners
· Large Cap banks mixed while regional bank names underperformed after some mixed results and analyst changes; STT shares slump as operating results topped estimates but KBW noted there was a large miss in servicing fees and noninterest bearing deposits decreased 6.1% Q/Q; WHF downgraded to neutral at Baird, with $15 tgt; IBKC downgraded to neutral at Baird; STI was downgraded at Raymond James following earnings last week; CBU, BOH move on earnings; in insurance, HIG to buy AET’s U.S. life and disability unit for $1.45B https://goo.gl/sjzGXL
· Pharma and managed care movers; DBVT shares sink after the company’s experimental peanut allergy patch failed in a major trial/said it’s continuing discussions with regulators and will seek approval as planned (news a positive for rival AIMT, as shares jumped and analysts boosted target prices); EVOK announces positive topline results from comparative exposure pharmacokinetic study for Gimoti, for symptoms of diabetic gastroparesis; MOH upgraded to outperform at Wolfe as see favorable risk/reward while acknowledging lack of n/t visibility
· Biotech movers; AGEN said the FDA granted approval for its shingles vaccine Shingrix (Shingrix contains an immune adjuvant from Agenus); ENTA will start a Phase 2 study of its lead FXR agonist, EDP-305, for non-alcoholic steatohepatitis (NASH) and primary biliary cholangitis (PBC) after Phase 1 results showed it was well tolerated; NITE initiated coverage by at least four analysts with buy/outperform ratings (tgt high $30 at BMO); BIIB reports tomorrow morning
· Medical devices and equipment; EXAC acquired by private equity investment firm TPG Capital in a deal valued at $625M, with holders receiving $42 per share in cash https://goo.gl/nZpNJm; ILMN upgraded to buy at Deutsche Bank and raise tgt to $250 which reflects a view that they see bias to the upside for numbers over the next 6-12 months; QDEL received 510(k) clearance from the FDA to market its Sofia Lyme FIA; ALGN tgt raised to $225 at Stifel
· Healthcare services; DVA upgraded to outperform by Wolfe Research saying AKF concerns overdone; PETS soars after the pet pharmacy reported Q3 profit and sales that rose well above expectations.
Industrials & Materials
· Metals & Mining; CLF downgraded to neutral at JP Morgan and cut tgt to $7 to reflect lower realized pricing estimates for U.S. iron ore; gold miners NEM and GFI along with others could rise 25%-50% even if gold doesn’t gain because they have underperformed the metal’s price, Barron’s said; EGO fell after cutting its 2017 production forecasts for its flagship Turkey mine, Kisladag, for the 2nd time this year to 170k-180k oz
· Chemicals; DWDP with a positive mention in Barron’s saying shares could return between 15%- 30% over the next year as the company moves toward splitting into three separate entities, which will boost cash flow, according to JP Morgan analyst
· Multi industry/Machinery; CAT said Sept. rolling 3-mo. retail machine sales rise 13% vs Aug. 11% rise, July up 12% while North America machine sales up 2% after rising 1% in August; ITW Q3 EPS easy 20c beat on better revs and stronger guidance; LII EPS and revs also top consensus and raised year rev outlook with FX boost but margins disappoint; ARNC boosts full year outlook; GEdowngraded by a few analysts after earnings miss last week (upgraded by one analyst)
· Paper & Forest sector; Potlatch (PCH) to buy smaller rival Deltic Timber (DEL), boosting its lumber capacity; in deal valued around $1.16B
Technology, Media & Telecom
· Internet; EBAY active as StubHub to become designated NFL ticket resale market place replacing Ticketmaster (owned by LYV);NFLX to sell $1.6B in senior notes; MELI downgraded at KeyBanc as the Company enters a multiyear profitability transition that could be a step function down; ETSY shares were active after AMZN announced a handmade gift shop
· Semiconductors; NVDA tgt upped to $230 at Jefferies on higher estimates ahead of earnings as believe a successful update of the Volta datacenter GPU solution will translate to upside over the next 18-24 months
· Software movers; BSFT acquired by CSCO for about $1.9B, with holders receiving $55 per share https://goo.gl/Vn5s3N; MULEupgraded to buy with $29 tgt at Canaccord saying it is strategically positioned for long-term growth; NOW upgraded to overweight at Piper following extensive checks that suggest NOW is not only executing n/t, but laying the foundation for a multi-year growth story that is still in its early stages ($140 tgt)
· Hardware, equipment and Comm devices; STX Q1 EPS topped consensus by 10c on better revs of $2.63B (led shares of WDChigher early on results)
· Media & Telecom; TMUS raises the lower end of its expectations for full-year subscription additions after Q3 revs in-line at $10.02B and better Ebitda
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.