Thursday, October 26, 17
Equity Market Recap
· Stocks end the day mixed, as the S&P and Dow partially bounce following yesterday’s decline, while the Nasdaq Comp slipped late day amid weakness in biotech and ahead of a very important night for tech with earnings out of AMZN, INTC, MSFT, GOOGL. It was another day with lots of moving parts, as several stocks advanced on earnings (TWTR, UNP, BWLD), while others fell (CELG, CHTR, XRX). Economic data came in better-than-expected again, while Congress took further steps towards tax reform, and the ECB remained dovish at its meeting today amid their decision to taper its QE program. The House of Representatives also adopted the Senate’s budget plan which is expected to keep tax cut negotiations on a brisk path. The dollar traded to 3-month highs on the tax headline/weaker euro/and news Yellen likely out of running to remain Fed Chair (left between Powell and Taylor – both seen as “hawks”), while the 10-yr yield rebounds off earlier lows. Oil prices back to April highs, while gold slipped to 3-week lows on the dollar spike. Today marked the busiest day of the quarter with 64 of the 500 S&P companies reporting today, led by transports and financials. Healthcare service names dropped late day after reports AMZN gains wholesale pharmacy licenses in multiple states (shares of CVS, MCK, CAH, ESRX, ABC all came under pressure), while biotech/healthcare was lower most of the day after CELG shares dropped sharply on a lower l-t outlook and BMY weighed on Pharma (MRK reports tomorrow). Back to Europe, the ECB kept rates unchanged at historic lows (as expected) while confirmed its plans to begin reining in its bond-buying program next year, cutting monthly purchases to €30B (also expected). In Spain, according to media reports, Catalan President Carles Puigdemont will dissolve the region’s parliament and call early elections.
· U.S. jobless claims climb 10,000 to 233,000 a week after hitting 44-year low, slightly below the 235K estimate, while the prior week revised to 223K from 222K; the 4-week moving average fell by 9,000 to 239,500, the lowest since late August; continuing claims or the number of people already collecting unemployment benefits, fell by 3,000 to 1.89 million
· Advanced Goods Trade Deficit for Sept was in-line at -$64.1B and widened from -$63.3B in prior month; imports rose 0.9% in Sept. to $193.720b from $191.996b in August while exports rose 0.7% in Sept. to $129.582B from $128.676B in August
· U.S. Sept. Pending Home Sales unchanged from August, below estimate of up 0.5% with the Northeast up 1.2%, Midwest up 1.4%, South fell 2.3% and West up 1.9%
· 30-year fixed mortgage rate for week ended today rose to 3.94% from 3.88%, Freddie Mac said in statement; the 15-year rate avg 3.25%, up from 3.19% a week earlier
· Gold prices sunk on Thursday, falling to its lowest settlement since early August, as December gold declined -$9.40, or 0.7% to finish at $1,269.60 an ounce. A bounce in the dollar (mostly against the euro), led weakness in the precious metal after the ECB said it will curb bond purchases but keep QE in place for some time. Tax reform hopes and expectations of a more hawkish FOMC Chair (Yellen apparently out of the mix now) also drove prices lower. WTI crude settles at $52.64 up 46c or 0.9%, around the highs ($52.69) in subdued trading today (lows $51.91), closing back near April highs.
· The U.S. dollar was strong all day, pushing to 3-month highs for the dollar index (DXY up above 94.50, topping its 100 day MA resistance for the first time since April) as the greenback gets a two-fold boost. The dollar was buoyed on reports that current Fed Chair Yellen appears out of the race to keep her jobs (leaving hawkish Powell/Taylor as remaining candidates), while the euro falls following the ECB monetary policy meeting. The euro fell over -1.35% to lows of 1.165. Bitcoin gained again, rising just shy of the $6,000 level once again.
· Treasury prices end little changed after earlier gains; the yield on the 10-year benchmark traded to lows around 2.42% after the European Central Bank announced it would scale back its monthly asset-purchase program beginning next year, but extend the program. The yield on the 10-year Treasury note was at 2.423%, compared with 2.444% late yesterday…but as news leaked out that Janet Yellen is no longer being considered to remain as Fed Chair, and the house successfully passed the budget resolution this morning (only step 1), bonds slid and yield climbed back above 2.45% (touched an intraday high of 2.474% yesterday, highest since March). Italian and Spanish government bonds rallied after the ECB announcement as yields fell broadly.
Sector News Breakdown
· Retailers; CRI Q3 results mixed on EPS beat by 5c and sales miss; LB downgraded to neutral at Buckingham Research; TSCO better comp sales of 6.6% and EPS but more than offset by a seemingly more subdued outlook for Q4; NKE said increasing investment in yoga gear/women’s wear (weighed on shares of LULU)
· Consumer Staples; NTRI exceeded expectations in its 3Q, topping the high end of its guidance ranges, but issued essentially flat 4Q guidance relative to consensus expectations; GNC earnings missed by a penny on weaker comps sending shares lower; in food, PF earnings in-line on slightly lower sales though a lot of moving parts with 70bps hurricane impact; HSY beat on top-line driven by strength in N. America with organic sales +1.1%, but slightly lowered margin outlook; MO small beat on lower costs while top-line missed in nearly every segment; SNAKbought by privately held Utz for $4.00 per share in $165M deal https://goo.gl/QEUfEP
· Restaurants; BWLD posted much better-than-expected Q3 earnings and boosted guidance for year; DNKN mixed Q3 results as EPS missed by 2con better revs on comps up 0.6%; QSR reported results as well; SBUX upgraded by OTR Global citing improving y/y trends driven by popularity of new and returning menu items at higher price points
· Casino, Lodging & Leisure; in lodging, HLT Q3 results topped views and guided year higher (comes after weakness in group yesterday after WYNresults); in boating, BC Q3 EPS missed lowest estimate and cut its yearly forecast (MBUU, MCFT, HZO, MPX other boat comps); CWH 6.7M share Secondary priced at $40.50; in gaming, LVS a mover on earnings and announced more than $1.1b in new capital projects over the next three years in the market; SIX announced plans to build 3 more parks in China with partner Riverside Investment Group.
· Autos Ford (F) reported a big beat and raise above consensus following results from GM and FCAU earlier in the week; in auto suppliers, LEAupgraded at RBC; BWA issues strong guidance, eyes strategic options while DAN raises year outlook as well; in auto retail, ORLY reported 3Q comps and gross margins that missed expectations, and guided these key metrics below consensus (shares rallied off lows); ALV cuts full year organic revenue forecast (shares of AAP, AZO, SAH, MNRO active); GPI jumped on earnings surprise
· Major oils; COP reported earnings above analysts’ forecasts and signaled its commitment to improving returns for shareholders by curbing its capital spending; tomorrow earnings from Dow components XOM and CVX
· E&P, equipment and services; CRR said 3Q Ebitda was negatively impacted by lower priced, slow moving products that were “proactively” sold;EQT and RICE shares fall amid the companies’ pending merger; OII falls over 20% after saying it sees 2018 earnings “significantly” lower vs 2017; FTI outperforms on improved earnings outlook; WLL missed 3Q volumes and cut guidance on higher operating costs
· MLPs; the Alerian MLP index bounced off fresh 52-week lows earlier (traded under 260) as the group remains pressured on rising rate environment; Evercore ISI said earlier the MLP sector sell-off has continued and conviction to the upside or downside is low/unsure of what will stop near-term selling pressure given lack of buyers and “generally one-sided fund flows”; BPMP opened at $16.85, below where the 42.5M share IPO priced at $18.00
· Banks and financials in general jumped as House Republicans narrowly adopted a budget resolution unlocking a fast-track process toward tax cuts/next step will be releasing a draft tax measure as early as Nov. 1. Also lifting space reports by Politico that Janet Yellen likely out of Fed Chair race (leaving hawks Taylor/Powell remaining) – JPM, BAC, C, WFC, were higher; European banks weaker after BCS and DB earnings results overnight; German exchanges operator Deutsche Boerse warned it would not meet its full-year net income
· Insurance; MMC 3Q EPS beat estimates by a penny, as a lower-than-expected tax rate offset weak margins; ACGL and AXS slip in space early after reporting larger Q3 losses; other names moving on earnings: AFL, UNM
· Asset managers; IVZ performance fees drives beat, margin expansion and inflows bullish following 2Q; TROW operating beat helped by higher non-operating; LM Q3 EPS beat by 10c with the beat mainly from performance fees but operating expenses were well controlled; KKR posted an operating EPS miss; BEN Q4 EPS topped views on higher AUM, but revs of $1.62B missed; AB was upgraded to buy at Citigroup with $31 tgt
· REITs; storage REITs fell after PSA Q3 occupancy disappointed, weighing on shares of EXR, CUBE, LSI and NSA; data center REITS slip despiteDLR Q3 beat and raised outlook but organic results missed; KIM cut 2017 same-property NOI guidance to 1.5%-2.0% from 2.0%-3.0%, and narrowing its annual adjusted FFO forecast to $1.51-$1.52 from $1.50-$1.54 – weighing on shopping center REITs such as FRT, BRX, REG, WRI;
· Brokers/Lending; LAZ Q3 asset management revs rise (advisory falls), as EPS beats and announces buyback of shares; BCGP Q4 rev guidance short of consensus; PJC and RJF also report earnings; TREE Q3 beat and raised guidance for the year
· Earnings due post-mkt: AJG, BY, CINF, COWN, DCOM, DHIL, EHTH, ENVA, ERIE, FHB, FII, GCAP, HIG, ISBC, LPLA, MBTF, MOFG, MRLN, MSBI, OCFC, PFG, RGA, SBCF, SIVB, TBBK, VR
· Large Cap/Specialty Pharma; BMY Q3 EPS missed by 2c on rev beat as sales of Opdivo ($1.27B) topped views while Yervoy revs of $323M missed views/also raised views; ALXN boosted year EOS and rev outlook after mixed Q3 (EPS beat/revs miss); MNOV reports that the SPRINT-MS Phase 2b Trial of MN-166 in progressive multiple sclerosis achieved both primary endpoints; HRTX gets FDA fast track designation for HTX-011; ALKS Q3 miss and guides total revenue down for rest of year/Vivitrol weak; INSY falls as former CEO indicted on opioid fraud charges
· Biotech movers; the IBB falls for a 7th straight day after earnings; CELG drops after missed expectations for Q3 sales and lowered its long-term targets; SRPT Q3 sales of its key asset, Exondys51, delivered a third consecutive beat and raise; AMGN slid despite earnings beat as Q3 sales of its top two drugs (Enbrel and Repatha) disappoint; TSRO and Evotec enter into strategic partnership to discover Novel Immuno-Oncology agents
· Hospitals and services; Health-care insurers and hospitals slip early after a federal judge denied an emergency court order in a bid by Democrats to restore subsidies to insurers (CNC among most exposed to exchanges); hospitals also active after UHS earnings miss and lower forecast (THC, CYH, QHC, HCA fell); CRO companies ICLR and PRAH both rise after earnings/guidance
· Medical devices and equipment; IRMD rises as FDA clears IRADIMED’s MRI-compatible vital signs monitor; IART cuts year organic sales view to about 4% after Q3 EPS/revs miss; BSX Q3 EPS/sales better and raises guidance but 3Q pacemaker systems sales $149M vs. $151M QoQ and defibrillator systems sales $314M vs. $329M QoQ; other device makers moving on earnings: CSII, BCR, ABMD
· Drug Distributors rise after MCK delivered 2Q revenue and EPS that beat analyst estimates (helping shares of ABC and CAH early); one analyst noted the revenue beat from the company’s Distribution Solutions arm – the group sunk in afternoon trade on reports AMZN has gained wholesale pharmacy licenses (CVS, WBA, RAD, ESRX all sank)
Industrials & Materials
· Transports; index jumped back above 9,900 earlier today on overall strength; busy day for group with package delivery giant UPS Q3 EPS in-line on better revs and slightly raised lower end of year EPS (though mid-point missed estimates); in rails, UNP Q3 EPS/revs just topped estimates, though CSX raises concerns for investors after it postponed its investor day meeting to a date in the future to be determined (rails fell yesterday after NSC volume growth outlook disappointed); in airlines, AAL, LUV, SKYW and SAVE the latest to report earnings for the group all topping forecasts after ALK yesterday forecast for higher costs this year (airlines pared gains midday); ECHO, MRTN, ODFL lifting logistics and trucking names after quarterly beats
· Metals & Mining; several gold miners out with earnings overnight (ABX, AEM, CDE, GG); ABX was downgraded at Credit Suisse, while GG and AEM rise on numbers; in fertilizers, MOS active after VALE’s fertilizer business showed surprisingly weak earnings for 3Q; POT also lowered year outlook and both nitrogen and phosphate gross margins due to volatile and challenging markets; in steel, after the close, the DOC issued its preliminary anti-dumping (AD) determinations in the ongoing wire rod trade case for select countries – Italy, Korea, South Africa, Spain, Turkey, Ukraine, and the United Kingdom; CMC Q4 sales beat but adjusted EPS missed by 12c
· Industrial and Machinery; BGG better earnings and guidance; WSJ reports that GE exploring options for Transportation unit as company battles off 2-year lows; GDI posted a beat and raise quarter sending shares higher; ALLE Q3 misses views and guidance mid-point misses
Technology, Media & Telecom
· Internet; big day for the sector with AMZN, GOOGL, BIDU, and EXPE reporting after the close; TWTR beat sales estimates and added more monthly users
· Semiconductors; lots of earnings in chip space, STM raised its year-end outlook and seeing profits triple Q3; XLNX quarter essentially in line (slight rev miss) with guidance slightly higher, despite weakness in communications; UCTT plunges as Q3 EPS missed/though upside guidance;NXPI mover on earnings and downgraded at Bernstein, although expects QCOM to raise offer; TER outperforms in semis on big beat and raise quarter results; MLNX downgraded at JP Morgan on valuation after earnings
· Hardware & components; KN reported strong results but guided Q4 below ests due to the later than expected ramp at AAPL; NOK falls as said its loss widened in the third quarter; FFIV among top gainers in the S&P early after earnings; XRX shares dropped sharply after Q3 equipment sales declined 9.1% YoY though EPS and overall revs slightly beat and raised lower end of year EPS
· Cable & Telecom; CMCSA Q3 video and broadband net adds miss estimates in tough day for cable; CHTR reported Q3 earnings below Wall Street expectations and a loss of 104,000 TV subscribers
· Software movers; lots of earnings; CTXS in-line revenues but EPS came in better due to expense controls/missed cash flows and billings due to the model transition; CA revenues came in lighter than expected while EPS was in-line as shares fell; PTC rises as reported a bounce-back quarter with improved sales execution; NOW Q3 beat and Q4 higher though billings forecast concerns
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.