Wednesday, October 25, 17
Equity Market Recap
· Stocks slipped, but end well off the session lows amid a busy day of macro news, earnings and data, as U.S. stocks pullback from recent record highs. The Dow Industrials fell triple digits a one point after recording another lifetime high yesterday on better earnings (MMM, CAT), but slipped today along with the S&P 500 and Nasdaq Comp as results today were mixed on the earnings front after widely better earnings on Monday and Tuesday. Economic data was strong, with new home sales surging 19%, easily topping consensus views, along with better Durable Goods data. In political news, reports indicate Gary Cohn is out of the running as the next Fed Chair, leaving Powell/Taylor (lead candidates) and Yellen in the race. Tax reform the other catalyst for markets, though nothing has come to fruition yet, with lots of back and forth from both parties on parts of the bill (re: retirement accounts, tax rate, cutting taxes for business, etc.) Earnings results from several S&P 500 companies (CMG, AMD, EW, and JNPR) weighed on markets early, while currencies were active ahead of tomorrow’s ECB policy meeting. Bonds the other big story as the 10-year yield (briefly) touched 2.47%, the highest levels since March before paring gains.
· Sector movers; Biotech’s (IBB) fell for a 6th straight session; Transports were under pressure following rail (NSC, CNI) and airline (ALK) earnings (more tomorrow with UPS, UNP, AAL); MLPs fell to 52-week lows amid rising yields (AMZ index fell); Defense sector mostly lower, as NOC posted better results, but BA and GD fell on mixed results; semiconductors fell (Philly SOX index) more than 2% midday on AMD margin/rev guidance fears (pared losses); autos gave back some of yesterday’s earnings induced gains (GM, FCAU).
· The European Central Bank (ECB) meeting held tomorrow morning with some expectations asset purchases will be reduced from the current EU60B per month. The Bank of Canada today maintained overnight interest rate at 1% and said will be cautious with future rate increases.
· Durable Goods Orders for Sept rise 2.2%, topping the 1% estimate; new orders ex-trans. rose 0.7% in Sept. after 0.7% rise while new orders ex-defense rose 2% in Sept. after 2.6% rise; inventories rose 0.6% in Sept., largest gain since June 2015
· New Home Sales for September rose 18.9% to 667K, far surpassing the 554K estimate; the previous three months’ new home sales data revised up by 8K; the median new home price rose 1.6% y/y to $319,700 vs. year ago $314,700; average selling price at $385,200; 19% of new homes sold in Sept. cost more than $500,000, up from 16% last month
· Gold futures reversed early losses, rising by 70c to settle at $1,279 an ounce as the dollar index slid mid-session (was overall mixed). Gold prices managed to claw back from 3-week lows earlier in the day (low $1,272 an ounce). Financial markets continue to trade somewhat cautiously amid uncertainty surrounding the next leadership for the U.S. Federal Reserve and what a shift there could mean for the course of higher interest rates into 2018.
· Energy futures hold declines following mixed inventory data; WTI crude settled at $52.18 per barrel, down about -29c following the mixed data. Overnight, oil remained firm after last night’s bullish API report with huge product draws gasoline -5.7M barrels and distillate -5M barrels while crude was flat. This morning the DOE said crude stockpiles rose an unexpected 856K barrels vs. est. draw of -3.0M (bearish) with over -5M barrel draws for distillates/gasoline
· The dollar was mixed on the day in what was a volatile day for several currencies; the Canadian loonie falls against the dollar after the BoC held rates steady, but said will be cautious with future rate increases; euro back above 1.18 level vs. dollar, rising over 0.4% ahead of ECB meeting tomorrow; British Pound rises vs. counterparts after stronger UK data, raising rate hike possibilities (trades high 1.3272, up about 0.75)); the dollar falls vs. yen and other comps as markets await Fed Chair decision and tax reform follow-through. The Mexican peso came off a 7-month low to rally sharply after the country’s central bank stepped in to prop up the currency. South Africa’s rand and Turkey’s lira also declined. Bitcoin was down slightly.
· Treasury prices slipped (but pared losses) as the yield on the benchmark 10-year paper briefly topping 2.47% for the first time in seven months amid continued optimism over the global growth outlook/tax reform/rising rates; the 10-yr later dipped back under 2.44% as stocks pared losses and the dollar lost ground; the 2-year yield traded highs around 1.61% but slipped as well
Sector News Breakdown
· Retailers; AMZN said it introduced an in-home delivery at no extra cost today; IRBT big reversal after overnight gains, falling on the day despite higher guidance; HBI gets second analyst downgrade in as many days; NKE active as held its investor day today, helping reverse losses after issuing a 5-year outlook that was well received on Wall Street
· Consumer Staples; KO Q3 top/bottom line beat on weaker margins and unit case volume was 0%; DPS falls as core Q3 EPS and sales missed consensus and cut its yearly forecast; beer stocks fall (BUD) after Heineken Q3 results disappointed citing poor weather in Europe and a challenging beer market in the U.S.; IPAR with better sales outlook for Q3 and year
· Restaurants; CMG drops on lower earnings results, after Q3 earnings that showed softer margins more than offsetting in-line comps (several analysts cut targets, few downgrades)
· Housing & Building Products; MAS was downgraded at Raymond James on valuation after run in shares; homebuilder MHO Q3 EPS misses by 4c on better revs; PHM was upgraded to neutral at Mizuho after earnings beat; LL settles class action on Chinese-made flooring
· Casino, Lodging & Leisure; SIX shares slide on slight rev miss, while Ebitda came in below views; in lodging, WYN Q3 revs of $1.63B misses views and guidance also just short of consensus (LQ, H, STAY were weaker); in cruises, NCLH rated new buy at Argus; PII downgraded at BMO after rally in shares post earnings; TRK EPS missed by 5c on lower revs
· Autos; GM tgt raised to $60 at Citi as believe GM’s resilient Q3 bolsters the case for further multiple expansion – meanwhile, GM was downgraded at Morgan Stanley; auto supplier LEA reports EPS and sales beat and raised guidance for the year; also earnings out of auto retailers LAD and PAG after group outperformed yesterday; AAP tgt cut to $75 at BTIG/remain sell rated
· Oil remained firm overnight after last night’s bullish API stats; huge product draws gasoline -5.7M barrels and distillate -5M barrels while crude was flat – this morning the DOE said crude stockpiles rose an unexpected 856K barrels vs. est. draw of -3.0M with over -5M barrel draws for distillates/gasoline
· MLPs broadly lower; down at the lows midday over -2.8% to 260 level of the Alerian MLP Index (AMZ) – a new 52-week low (lowest since March 2016), led by broad declines (all 39 components lower) by TEP, ETP, EEP, NBLX, WES, PAA, ENLK all down over 3.5% or more as yields rise, making dividend paying sectors less attractive
· In news; RRC Q3 results better given earnings and cash flow beat, along with solid Marcellus well results, though Louisiana production underwhelmed said one analyst; NBR traded to 52-week lows after earnings below consensus views/big loss; HES weakened after saying see hurricane effects seen hurting production for rest of the year
· Large Cap banks/Insurance; despite the jump in bond yields today, banks were mixed (after leading yesterday’s session gains); HBAN cut loan growth view to 3%-4% on a period-end basis, compared with its prior forecast for 4%-6% growth, as EPS matched estimates; card sector active after COF, DFSand Dow component Visa (V) all report earnings; Visa grew its revenues and profits at a more rapid clip than forecast, driven by growth in payment processing and the purchase of Visa Europe; TSS reported Q3 beat and raise guidance; ALLY a mover on earnings
· Brokers/investment companies; BK 4.5M share Block Trade priced at $52.45; PFLT 6M share Spot Secondary priced at $14.15; AMP rises to 52-week high on big earnings beat, though revs miss
· REITs; EQR Q3 FFO beat estimates and raised guidance for FFO and same store growth slightly for 2017; CDR active after REIT Zone reported that activist Snow Park has written a letter to CDR urging the company to explore options, including a sale or liquidation of assets
· Large Cap Pharma/Managed care; ANTM followed strong results from comps CNC and UNH recently as managed care sector with good earnings this quarter; GSK follows fellow European pharma company lower after mixed earnings results (NVS fell yesterday)
· Biotech movers; biotech falling (IBB) for a 6th straight day, down around the 320 level (off -1.5%) at the 100 day MA of 320.16; AMGN reports tonight; BIIB upgraded at BMO Capital; MDCO announced plans to restructure the company, including laying off more than 85% of its workforce/plans to announce a divestiture of its infectious diseases business by the end of the year; MGNX jumps as announce global collaboration and licensing agreement with INCY; PTCT said the FDA issued a complete response letter for its new drug application on ataluren for the treatment of nonsense mutation Dystrophinopathies
· Medical devices and equipment; ILMN delivered a strong beat-and-raise, driven by the largest-ever sequential dollar increase in its sequencing consumables business; EW results did not meet consensus expectations as Q3 showed slowing US TAVR growth and a delay in its transcatheter mitral valve replacement (TMVR) program; other movers on earnings ARAY, BABY, NUVA
· Healthcare services and facilities; ACHC shares plunge as reported disappointing Q3 results and cut guidance for year impacted by higher than forecasted staffing costs, below budget volumes in the UK and modest rev shortfall in the U.S.; ESRX mixed Q3 and slightly better guidance; LH Q3 EPS and revenue topped consensus
Industrials & Materials
· Transports; rails active after NSC the latest rail to report earnings, as both top and bottom line beat estimates, but group was pressured early as volume growth outlook disappointed; CNI downgraded at Raymond James as the co’s efficiency worsened for a third straight quarter as trains slowed and fuel costs rose – note Citi analyst said on CSX today hard to see a lot of upside” and Technicals are coming into play big with rails and Transports as a group; airlines falter on ALK top/bottom line miss; AAL, UPS and UNP all report earnings tomorrow in big day for transports
· Metals & Mining; FCX Q3 EPS beats estimates and the company raises its year operating cash flow view by 13% to $4.3B and maintains year copper, gold sales and cash cost outlook
· Aerospace & Defense; busy day of earnings with Dow component BA Q3 was mixed with EPS beat, but revs short of consensus while mid-point of year EPS view misses views; GD similar results as EPS tops views but revs miss estimates/raises year view by 5c; NOC outperforms as top/bottom line Q3 results handily beat and boosted its year view well above estimates
· Paper & Packaging; IP slipped after mixed results while SLGN 3Q miss was pressured by unfavorable volumes across the major segments (Baird said miss was priced in)
Technology, Media & Telecom
· Internet; GRUB Q3 EPS and revenue topped consensus as 3Q daily average grubs up 14% y/y to 304,500 and guided Q4 results above consensus;AKAM beat on quarterly EPS, revs and Ebitda with improved guidance 4Q18 driven by stabilization in Media; in online travel, TRVG falls as cut 2017 total revenue growth view to 36%-39%, saw about 40% in Sept after Q3 beats; SABR cut at KeyBanc because it lacks prospects for upside, and as the potential for downside to numbers remains; BIDU upgraded to positive at OTR Global; SFLY falls on earnings
· Semiconductors; AMD shares fall on lower guidance after reported 3Q results above/guidance for flat gross margins in 4Q and concerns around cryptocurrency revs weighed on shares; TXN reported another beat-and-raise as both Analog and Embedded are tracking for mid-teens growth y/y amid a strong fundamental backdrop;
· Telecom; AT&T (T) 3Q results were weaker than expected despite pre-releasing some of its results two weeks ago (shares traded to 52-week lows);Sprint (S) topped analysts’ estimates by adding 168,000 subscribers last quarter, rebounding from losses in the first half
· Media movers; movie theater chain RGC beat on recently-lowered estimates during a tough box office period; NLSN mixed earnings results; CMCSAand CHTR report earnings tomorrow morning in cable sector
· Software movers; SNPS raised to top pick at RBC Capital with $100 tgt with three notable secular tailwinds at its back and a lower valuation relative to its closest peer (CDNS); MANH shares fall early as revenue outlook for year below views after Q3 beat
· IT Services; Wells Fargo upgraded CACI, LDOS and SAIC to outperform while reiterating Outperform ratings on BAH and favorite idea CSRA as sees an improving fundamental backdrop for funding levels and pricing amid a rising global threat environment
· Hardware and Comm equipment; JNPR slides reported earnings that missed estimates and made additional cuts to an already negative pre-announcement; CSCO and GOOGL announced a partnership to deliver a hybrid cloud solution that helps customers maximize their investments across cloud and on-premises environments; AXE goes from first to worst, falling from 52-week highs last Friday to down near 52-week lows today a day after earnings
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.