Monday, November 13, 17
Equity Market Recap
· U.S. stocks ended mildly higher, rebounding from overnight weakness as investors keep their eye on tax plans. The Senate Finance Committee is due to start working on the tax reform bill during the week, while Republicans had initially hoped to hold a final vote on the bill by Thanksgiving next week. News was sparse after weeks of earnings related volatility, but Dow component GE registered a sharp decline after cutting its dividend after weeks of speculation and lowered its yearly profit outlook as the CEO tries to turn things around. With today’s gains, all three indexes remain within 1% of their own all-time highs. There were no major economic data points today or Fed speakers to shake-up markets, while bonds and the dollar were little changed. There are a handful of earnings related names to watch this week, including Dow component HD tomorrow morning, but the focus remains firmly on the tax plans.
· WTI crude was little changed, rising 2c to settle at $56.76 per barrel after touching an earlier high of $57.15 (lows $56.30). The move comes after a weekly gain last Friday and ahead of inventory data tomorrow. Gold futures for December advanced $4.70, or 0.4% to settle at $1,278.90 an ounce. The move comes after gold price declined -0.7% on Friday to $1,274.20 an ounce in its biggest one-day decline in about two-weeks. Overall though, gold has held steady despite rising rate hike expectations from the Fed in December given the bullish outlook on the economy over the last few weeks, with several data points handily topping economist expectations. December copper gained 5.3cs, or 1.7%, to $3.13 a pound after it logged a weekly decline of 1.3%.
· It was a quiet session for bonds given the lack of economic data, Fed speakers and lack of stock market volatility as tax negotiations between the House and Senate Republicans remained a key focus again this week for the market; the yield on the benchmark 10-year held steady above 2.39% most of the session, less than 1 bps below Friday’s close
· The U.S. dollar was little changed against the euro and yen the entire session, while the Russian ruble hit its weakest level in three months vs the buck as Russia’s 3Q GDP print missed estimates; the Pound slid -0.6% against the U.S. dollar to around 1.3114 amid political turmoil in the UK with Prime Minister May; bitcoin prices plunged as low as $5,605 Saturday, down from record highs of $7,882 just last Wednesday as the cancellation of a technology upgrade prompted some users to switch out of the cryptocurrency, but as rallied back to around $6,450, down slightly on the day
Sector News Breakdown
· Retailers; MAT shares surged on reports HAS made a takeover offer for its rival https://goo.gl/6rFgX7; names to watch tomorrow in earnings include home improvement retailer HD, auto parts retailer AAP, sporting goods chain DKS and clothing retailer TJX; in restaurants, CMG shares tumbled early as the company said there’s no connection between the company and an illness suffered by “Supergirl” actor Jeremy Jordan, who blamed the burrito chain for making him severely sick this weekend (shares pared losses throughout the session); CHEF was upgraded at BMO Capital to outperform; in Staples, TSN posted a quarterly beat on both the top and bottom line; in research, Susquehanna said food stocks may have bottomed, saying the best way to play them was SJM which they upgraded to positive from neutral
· Shale crude-oil production from seven major U.S. oil plays is expected to see a monthly climb of 80,000 barrels a day in December to 6.174 million barrels a day, according to a report from the EIA. The report has forecast increases in shale-oil output every month so far this year. Oil output from the Permian Basin is expected to see the largest climb among the big shale plays, with an increase of 58,000 barrels a day.
· Refiners; Raymond James announced target changes for DK, MPC, PSX, VLO and upgraded DK to strong buy as they update 2018 estimates for forecast of a wider Brent-WTI spread and higher crack spreads
· Utility stocks outperform as investors rotate back into defensive asset classes, higher dividend paying stocks as bond yields hold steady; the UTY index trades back near record levels; AES was upgraded to buy at Bank America (52-week highs for EXC, FE, PEG)
· Oil services & equipment view cut to neutral from attractive, maintaining cautious outlook on offshore drilling; says service stocks likely to respond to future oil prices vs spot, and have been “relatively stable”; potential downside risk to 2019 Street estimates given “backwardated nature” of the forward curve; SLB removed from conviction list but remains buy; FTI cut to neutral
· Financials; Deutsche Bank said they still favor exchanges & trading volume outlook post 3Q earnings Amid themes across coverage from 3Q, and see potential for higher market volatility & trading volumes as the highest conviction catalyst (they upgraded AMTD to buy in conjunction with call); firm also said CME remains their top pick with best leverage to volatility/volumes across asset classes; WETF said it is buying parts of ETF Securities, products it said had about $17.6B in assets under management/the cash-and-stock deal, valuing ETF Securities at $611M
· REITs; Real estate company Brookfield Property Partners (BPY) offered to buy the 66% stake in mall owner GGP it does not own for $14.8 billion in cash and stock, valued at $23 per share https://goo.gl/DWkq93
· An overall quiet day for healthcare; NKTR said combination of BMY’s Opdivo and Nektar’s NKTR-214 show positive effect in advanced lung cancer in Phase 1/2 study at the SITC Annual Meeting in National Harbor, MD; FPRX/BMY and study investigator presented results from the first cohort to mature from their Phase 1 trial of cabira+nivo in solid tumors at SITC this weekend; GILD was downgraded to hold at Argus; medical service stocks got a late day lift (CVS, CAH, MCK, ESRX, WBA) after CNBC reported AMZN won’t use licenses to sell prescription drugs
Industrials & Materials
· Industrial movers; GE new CEO John Flannery said today he plans to narrow GE’s focus around power, aviation and health-care equipment while exiting businesses such as lighting and locomotives that have defined the company for decades/also trimming the size of the board, revising the compensation program and chopping the quarterly dividend in half (also lowered year outlook); KBR shares fell with Bloomberg attributing the weakness to a bleak assessment of the U.K. military budget from Ultra Electronics Holdings.
· Transports; the Dow Jones Transport index drops under the 9,500 level (well off the all-time high of 10,080 exactly a month ago on 10/13); today Goldman Sachs initiated rails with a cautious view and the Airfreight/Logistics sector with an Attractive coverage view; sell rated on CSX and UNP and neutral on NSC; Global trade is expected to accelerate, leading to 50% earnings upside for FDX and UPS over a few years; acceleration overlooked by investors; buy rated on UPS, FDX and XPO; Neutral: CHRW and XPO; GWW shares fell after a few analysts noted the company’s 2018-19 forecast seemed too ambitious and expressed concern about tough competition in the industrial distributor space
Technology, Media & Telecom
· Telecom & Media; The U.S. Justice Department is encouraging AT&T Inc. (T) to address antitrust officials’ concerns about the $85.4 billion acquisition of TWX before the Nov. 23 Thanksgiving holiday or face a lawsuit to block the deal, Bloomberg reported; MSGN shares slid late after reports CEO David O’Connor was stepping down, effective immediately, after 2 1/2-years in the role without an explanation – MSG said Executive Chairman James Dolan has assumed the additional role of interim CEO
· Semiconductors; QCOM rejects (as expected) AVGO’s unsolicited proposal concluding it dramatically undervalues the company and comes with significant regulatory uncertainty; NVDA upgraded to outperform at BMO after shares jumped last week post earnings
· Other tech movers; AAPL issued $7 billion of debt on Monday, in its latest fundraising to finance a $300 billion shareholder rewards program; in Chinese ADR’s, both JD and WUBA advanced following better than expected quarterly earnings; strength in Internet large caps NFLX, AMZN, PCLN while BABA little changed despite the $25B in sales from its singles day last week