Monday, November 6, 17
Equity Market Recap
· U.S. stocks again trade to all-time best levels, propelled by better than expected earnings results this quarter, hopes that tax reform will provide benefits to corporations and individuals (we are supposed to see the Senate version this week), and stronger economic data over the last few weeks (raising expectations for the Fed to boost interest rates when the convene in December). But today’s rally was propelled by commodity prices, lifting energy stocks specifically as oil prices jumped to 2-year highs amid Saudi Arabia’s crackdown on corruption. Precious metals climbed with gold, copper rose more than 1% and the dollar fell. Meanwhile, emerging market currencies rose in tandem with the jump in oil prices. U.S. markets were also boosted by M&A, with several deals speculated/reported (see details of QCOM/AVGO, MRVL/CAVM, and FOXA/DIS all below), though one deal in the Telco space between TMUS/S is now officially over (though that helped boost shares of tower stocks). The dollar was weaker while the 10-year Treasury holds onto a modest gain on a day that saw no economic data.
· Macro news: in Saudi Arabia, the government announced the arrest of several senior officials, including prominent billionaire investor Prince Alwaleed bin Talal, as part of an anti-corruption and power-consolidation move by Crown Prince Mohammed bin Salman, but has no impact on US markets. Federal Reserve Bank of New York President William Dudley will retire next year, around six months earlier than scheduled, the Fed’s regional New York bank confirmed.
· Oil prices surge, with WTI crude rising $1.71 or 3.1% to $57.35 per barrel (2-year highs) amid political disruptions in Saudi Arabia that saw officials and members of the royal family arrested. Oil has also rallied on hopes that OPEC production-cap deal will be extended, perhaps through 2018. Bullish inventory data and the latest rig count data (bullish as they dropped rigs) has also boosted prices. Brent also ended at a more than two-year high, rising 2.6% to finish at $62.27 a barrel. On Saturday, Saudi Arabia’s oil minister, Khalid al-Falih said there is still a “significant amount of work to do” to bring down global oil supply, after he met with Russian, Uzbek and Kazakh oil ministers, according to CNBC. Crude oil is now 120% off its 2016 low.
· Gold futures jumped, rising $12.60 or 1% to settle at $1,281.50 an ounce its best one day gain in 6-weeks amid a flurry of strength in commodity prices. A spike in crude oil offered some signs of a potential increase in inflation, bullish for precious metals’ prices. Precious metals, along with broader commodity prices also got a boost as the dollar slide late day
Currencies & Bonds
· The U.S. dollar index (DXY) slid late afternoon, falling vs. most counterparts after trading slightly higher earlier. The greenback fell to 113.76 against the yen, down on the day and retreating from an 8-month high that it had reached against the Japanese yen earlier in the session (114.73); the British pound climbed to $1.3167 late day (off lows 1.3059), reclaiming some losses after last week’s selloff on the back of the Bank of England’s dovish rate hike. The dollar also slid late day against the Canadian dollar to lows -0.3% on the day at 1.2726 and reversed gains vs. the euro. Bonds posted small gains as yields slipped despite more stock market gains. The 10-year yields slipped back under 2.32% after touching more than 1-year highs above 2.47% just 3-weeks ago.
Sector News Breakdown
· Consumer: Retailers; KORS delivered a strong Q2 report that beat estimates across the board and also raised Q3 and 2018 profit views; shares of handbag/accessory companies such as COH, VRA, FOSL were active on the report; FOSL reports tomorrow; PRTY shares fell as Telsey lowered its Halloween comp forecast causing a reduction for 4Q to -0.7% from 1% and lowered his PT to $16 from $20; home improvement tracker at Morgan Stanley points to 8.2% YoY growth in October retail sales and subsequently ~7% October comps for HD-US and ~5% comps for LOW; Consumer Staples; in food, SYY posted earnings beat but on higher taxes and revenue beats in all major segments though margins disappoint
· Lodging & Leisure; hotels/lodging active after Wells Fargo upgraded Hyatt (H) and HST to outperform on potential asset dispositions and tax reform, while Host Hotel’s rating was raised because its new management will likely drive value creation, and downgraded HLT on valuation; Hyatt was downgraded by B. Riley/FBR to neutral from buy given the stock’s 22% rise this year; CHH Q3 revs top views on mixed guidance for Q4
· With crude oil surging midday, topping the $57 per barrel mark for WTI for the first time since July 2015, the S&P Energy index notched a new almost seven-month high. Gains were led by natural gas stocks, as those price touched a 6-week high on a blast of cool air (shares of SWN, RRC, CHK, GPOR, COG were among movers); earnings after the close include: PDCE, CPE, REN, MTDR, FANG, RSPP, CDEV, CRC, PARR, PAA; BHGE reports $3B stock buyback authorization; WFT was downgraded to neutral at Citigroup saying the turnaround is going to take time and the ending remains uncertain.
· Pharma/Generics/Specialty; MYL shares reversed off earlier lows as EPS, revenue miss were unsurprising/lifted the bottom end of its 2017 revenue and adj. EPS forecast; HZNP 4c EPS beat on higher revs as provided a pipeline update, citing that they remain on track to submit a supplemental New Drug Application (sNDA) in Q1 of 2018; TXMD rises after the FDA will not require another pre-approval study before it will accept its resubmitted NDA seeking approval for TX-004HR; VRX reports tomorrow morning; VBLT extended an exclusive license to NanoCarrier Co. Ltd. to develop, commercialize and supply VB-111 (ofranergene obadenovec) in Japan (to receive $15M upfront, up to $100M in milestones and tiered high-teens royalties on net sales)
· Healthcare services and providers; ANTM announced new CEO Gail Boudreaux; CAH EPS beat by about 9c but only reaffirmed year guidance and named current CFO as next CEO; HSIC shares fell as beat on the topline but reported a miss on bottom line because of cost of goods/guidance of 7-10% EPS growth weaker than expected and below the street (the results and guidance weighed on names such as PDCO); XRAY upgraded to outperform at Barrington with $73 tgt; CVS Q3 EPS and revs mostly in-line as well as guidance; TVTY shares drop after UnitedHealth’s Optum launched Optum Fitness Advantage in 11 states
Industrials & Materials
· Industrial & Machinery; after touching fresh multi-year lows last week, GE shares have found some footing, cautiously positive in Barron’s as well; PCAR was downgraded at ISI/Evercore; paper & packaging names weakened early (WRK, PKG); metals were all strong, led by steel stocks (AKS, X) along with other metals (FCX, CLF); RBC and WBT declined on earnings
Technology, Media & Telecom
· Semiconductors; sector chock full of news including two potential M&A deals; 1) QCOM confirmed it received an unsolicited buyout bid from AVGO valued at $70 per share in cash and stock valued at about $130B (includes $25B in net debt) https://goo.gl/Gvvy4y (note AVGO currently in process acquiring BRCD, while QCOM has outstanding offer to buy NXPI); 2) in another report late Friday, MRVL is in advanced talks to combine with CAVM, citing people familiar with the matter, a deal that would create a $14B chip player https://goo.gl/gaJDMc
· In non M&A news in the semi sector; AMD jumped initially after the WSJ reported it was teaming up with rival INTC to thwart a common competitor, NVDA, planning to announce a laptop-computer chip that combines an Intel processor and AMD graphics unit https://goo.gl/LSuSyZ ; CREE was upgraded to buy at Deutsche Bank saying the company’s Wolfspeed business opportunity remains underappreciated; ON reported better much better Sept quarter results with December quarter revenue guidance also above estimates at the midpoint; Barron’s said INTC shares could return 25% or more over the next year as the stock is still cheap
· Internet; TWTR upgraded to neutral at Citigroup (2nd analyst upgrade in last few days) noting recent stability in user metrics, advertising product improvements and recent success in signing video partner deals (raise tgt to $20) – shares were weak on Saudi arrests, noting Price Alwaleed a big holder of TWTR ; in online travel, TRIP and PCLN both report earnings tonight
· Media; FOXA has been holding talks to sell most of the company to DIS, leaving behind a media company tightly focused on news and sports, according to people familiar with the situation. The talks have taken place over the last few weeks and there is no certainty they will lead to a deal. The two sides are not currently talking at this very moment, but given the on again, off again nature of the talks they could be revisited. https://goo.gl/zSM4ha ; LILA downgraded to underweight at Barclay’s and cut tgt to $20 as expects the hurricanes to impact the company for a long time; CHTR shares volatile after CNBC’s David Faber said SoftBank willing to re-engage in Charter talks; other movers following earnings included LAMR, GTN and NXST in broadcasting
· Telecom movers; Sprint (S) and TMUS shares slide after they formally ended merger talks over the weekend after months of negotiations, dashing investors’ hopes for a wireless megamerger; DISH was upgraded to buy at Pivotal post the S/TMUS deal fail combined with the underperformance and speculates there is a reasonable chance that TMUS could make a play for DISH or DISH spectrum; Wells Fargo said tower stocks should benefit (AMT, CCI, SBAC were active today) from Sprint and T-Mobile U.S. calling off their merger plans, and VZ is likely to be hurt by a more competitive wireless environment
· Hardware & optical movers; NTNX was upgraded to outperform at Raymond James and $32 tgt saying is poised for continued sales growth momentum and an improving competitive position; Barron’s said shares of some smaller technology companies could offer opportunities after slumping earlier this year – says stocks including FNSR, LITE, VIAV, OCLR, AAOI, IPHI, NPTN are cheap and could bounce back once fundamentals rebound, according to Barron’s; NPTN shares reported tonight while AAOI reports tomorrow in optical