Wednesday, November 15, 17
Equity Market Recap
· U.S. stock averages end the day posting daily declines, but as has been the “norm” finishes well off the session lows as investors take every (and) any opportunity to add to positions on the slightest market pullback. Major averages have now opened lower 6-straight days, near its worst levels of the day in almost each occurrence, but have pared losses each time. Still, in the end, the S&P 500 and Dow closed near 3-week lows (each falling four of the last five trading days). The Dow Industrials fell over -167 points at its worst level, while SmallCap Russell rebounded from earlier declines of over 1% which has been dragged lower on tax reform concerns. The S&P 500 Index cut its losses by more than half as data showed robust retail sales in the prior two months.
· Stock markets have been increasingly worried about the prospect of getting U.S. tax policy changed by year-end, sending the dollar lower month to date and injecting some uncertainty into stock trading (the dollar rebounded off earlier lows). A report Tuesday indicated that Republican senators are seriously considering adding a repeal of Obamacare’s individual insurance mandate to a new version of their tax bill, added some apprehension on bill passage. Energy markets and stocks tumble for a third session after an unexpected increase in U.S. crude stockpiles. Today marked the sixth time in the past 16 trading days that the S&P 500 has fallen 0.5% or more intraday, but much like recent action, failed to close over that level (-0.5%) for 51 straight days now, a stretch not seen since 1965. Earnings from technology giant Cisco tonight after the close and Dow component Wal-Mart tomorrow morning (after TGT shares fell on weak guidance).
· Consumer prices (CPI) data for October was reported in-line with expectations as overall prices rose 0.1%, while core prices (minus food and energy) rose an in-line 0.2% MoM. Over the past 12 months, core consumer inflation has risen 1.8%, up from a 1.7% gain in September, That’s the highest rate since April. The drop in energy prices in the CPI pushed the yearly rate of inflation down to 2% from 2.2% in September
· Retail sales rose 0.2% in October (vs. an est. of unchanged) on modest across-the-board gains after an upwardly revised 1.9% surge in the prior month (from the prior estimate of a 1.6% gain), boosted by post-hurricane spending. Excluding autos, sales rose 0.1% after a 1.2% gain in September. Sales excluding autos and gasoline climbed 0.3% after being up 0.6% prior
· The Empire State index fell -10.8 points to 19.4, missing the economist estimate for a 25.4 reading, and moving back from a three-year high but still pointing to a solid manufacturing environment in the New York area. The new-orders index rose to 20.4 and shipments fell to 18.4
· Business Inventories for September were unchanged MoM, in-line with consensus while Business sales rose 1.4% in Sept. after rising 0.8% the prior month
· WTI crude oil prices slipped 37c to settle at $55.33 per barrel (high $55.56 and low $54.88) after touching 2-year highs mid last week, falling on a bearish IEA demand forecast yesterday which was followed up by weekly bearish inventory data out today. Overnight, the API reported a weekly build of 6.5M barrels of crude oil for the week ended Nov. 10 and also showed a rise of 2.4M barrels in gasoline stockpiles. Today was no different as the EIA reports a second-straight weekly rise in U.S. crude supplies, posting a surprise 1.9M barrel build compared to an estimate for a -2.4M barrel draw (Cushing stockpiles did fall -1.5M barrels)
· Gold prices reversed lower, sliding $5.20, or 0.4% to settle at $1,277.70 an ounce, pulling back as stocks bounced off their worst levels and as the key U.S. dollar benchmark traded nearly flat for the session after earlier weakness. A pickup in the October CPI and PPI the last 2-days was seen keeping the Federal Reserve on track for an expected December interest-rate hike and keeping up the pressure on the central bank to follow through with forecast hikes next year.
· The U.S. dollar bounced off earlier lows, as the dollar index (DXY) recovered off lows of 93.40 (lowest levels since 10/26) to end the day near break-even around 93.80 after several days of selling pressure for the greenback. The dollar dropped steadily against the euro (three-week lows) following strong data in the euro region the past 2-days, which has also weighed on European markets. The dollar fell to 112.48 against the Japanese yen, its lowest level since mid-October before paring losses. Bitcoin prices jump after Square (SQ) said it is allowing users of the Square Cash app to buy and sell bitcoin (Bitcoin rises more than 9% topping $7,200)
· Bonds bounce as yields slide, with investors rotating out of riskier assets for the time being and moving into more defensive/safe haven plays; the 10-yr yield down over 7 bps from yesterday’s highs to around 2.33%, while the 2-yr modestly slips from near 8-year highs, holding around the 1.68% level amid mixed inventory data and as markets await tax reform news
Sector News Breakdown
· Retailers; TGT a drag on retail early after Q3 EPS and sales come in slightly above estimates on better comps of 0.9%, but guided next quarter EPS $1.05-$1.25 vs. est. $1.24 and said sees pressure on gross margins continuing into Q4; PLCE posted Q3 top and bottom line beat on comp sales 5.1% topping the 2.8% est and better guidance;BOOT was upgraded to outperform at JP Morgan with a $17 tgt; LB reports earnings tonight and BBY, SSI and WMT tomorrow morning; DKS was upgraded at JP Morgan after mixed results yesterday and cut by Evercore/ISI
· Consumer Staples; food related stocks CAG, CPB, SJM were under pressure early after AMZN and its Whole Foods unit announced addition price cuts into the holidays season on organic, no antibiotic turkeys throughout Thanksgiving; TSN was upgraded to buy at Argus as expect growing demand for beef, chicken, pork and turkey to result in better-than-expected operating income; SBH slipped early as its Q4 EPS and sales both missed consensus views on comp sales down (-1.4%); THS was downgraded to market perform at BMO Capital
· Energy stock remained a drag on the S&P for a 3rd straight day, with E&P, drillers and service stocks all falling as oil prices pulled back on inventory data. Inventory data: last night, the American Petroleum Institute (API) reported U.S. crude supplies climbed by 6.5M barrels for the week ended Nov. 10; data also showed a rise of 2.4M barrels in gasoline stockpiles, while inventories of distillates fell by -2.5M barrels. The Energy Information Administration this morning showed that domestic crude supplies rose by 1.9 million barrels for the week ended Nov. 10 compared to an expected -2.4M barrel draw
· Coal, utilities and solar; as stocks rally off lows, defensive assets slipping – utilities move to lowest levels of day as UTY falls more than 10 points off earlier record highs of 726.43; MKM Partners raised estimates for mining coverage for a higher assumed 4Q benchmark coking coal settlement/said with only a couple weeks to go before the benchmark is finalized, raising our assumption to $188/metric ton FOB from $170/metric ton previously (reiterated buys on ARCH, BTU, and TECK and are providing sensitivities to 2018 pricing as well); in solar, JASO shares slide after the company reported a mixed quarter, with weaker than expected earnings per ADR share and revenues that beat estimates
· E&P Sector; SD agreed to acquire BCEI for $36.00 per share in cash and stock ($19.20 in cash and $16.80 of shares), in total deal valued at $746M https://goo.gl/iaiHuF; SND was downgraded to hold at Jefferies as sees risk of a slower volume ramp in 2018 and substantial capex needed to diversify supply; REXX reported 3Q volumes ahead of the high end of guidance (pre-guided accordingly) and provided an operations report that shows the Company on track with completions and associated field infrastructure.
· Oil services; Jefferies said CJ becomes top pick in the group (replaces PUMP) as it trades a full turn below PUMP and 1/2 turn below the average of the pumpers and believe their coiled tubing and cementing businesses could be higher returning than fracking
· Refiners; group getting analyst attention the last few days with changes from Raymond James and Barclays of late; today, UBS the latest to weigh in as downgraded CVRRto sell and MPC to neutral as believe the market is pricing in too much upside from the currently wide Brent/WTI differential
· Monthly credit card Master Trust data: COF October net charge-offs 4.70% and October 30-plus day performing delinquencies 4.13%; JPM October net card losses 2.35% vs. 2.32% last month and said October 30-plus day delinquency rate 1.24% vs. 1.22% last month; SYF October net charge-off rate 5.23% vs. 4.16% last month and said October 30-plus day delinquencies 3.16% vs. 3.19% last month; ADS October net charge offs 6.3% vs. 4.1% last month and the delinquency rate 5.2% vs. 5.4% last month; Citi (C) October credit loss 2.38% vs. 2.44% last
· Payments and lending; SQ shares active after the company is allowing users of the Square Cash app to buy and sell bitcoin. In a statement, SQ confirmed the pilot, saying its customers are interested in using the app to buy bitcoin and that it believes cryptocurrency can expand participation in the global financial system (Credit Suisse said the impact uncertain, but could give SQ early mover advantage)
· Biotech movers (sector pressured yesterday); ACOR shares plunged after the company said it halted new enrollment for studies of its Parkinson’s disease treatment tozadenant following some patient deaths; TSRO was upgraded to outperform at Leerink given more favorable risk/reward, particularly for longer term shareholders, and recent weakness in the stock; SGMO upgraded to overweight at Piper saying the company is “reinvigorated” after the combination of dosing new patients in its “Champions” study, plans for new headquarters to facilitate talent acquisition and growth (ups tgt to $19); ACHN holder filed to sell 18.4M in shares; SAGE 3.529M share Secondary priced at $85.00
· Pharmaceutical companies including VRX, MYL, MNK, TEVA stumble in early trading after Paulson & Co., John Paulson’s hedge fund, reduced its stakes in the underperforming stocks in Q3; in healthcare services and suppliers; CAH downgraded to hold at Argus saying it will continue to face headwinds from generic price deflation, which will in turn pressure profit margins
Industrials & Materials
· Industrial & Machinery; BA and Airbus secured more than $75 billion in single-aisle plane commitments today at the Dubai Air show; JCI was cut to neutral at Susquehanna citing weaker earnings growth outlook and less apparent upside to multiples; GE shares look to stabilize after setting new multi-year lows amid weak market sentiment following recent management announcements to turn business higher (cut dividend, lowered view, to sell assets)
· Transports; in airlines, ALK was upgraded to strong buy at Raymond James citing compelling risk-reward following the selloff since late Oct. earnings
Technology, Media & Telecom
· Internet; SNAP was downgraded at JMP Securities as believe the pending app redesign could further impact DAU growth, which could have negative effects on advertiser demand needed to build Snap’s ad auction marketplace; CARG shares jumped after its first earnings report since IPO beat on top and bottom line with upside guidance and said U.S. avg annual rev. per subscribing dealer (AARSD) up 16% to $11,526; YY upgraded to buy at Jefferies after earnings
· Semiconductors; MTSI downgraded to underperform at Bank America as outlook is materially worse with uncertain recovery as weak China demand and tougher y/y comparisons in industrial/defense segment not likely to improve until at least March; LRCX said it will buy back up to $2 billion in shares over the next 12-18 months and raised dividend to 50c
· Other tech movers; AAPL falls for a 5th straight session; CSCO to report earnings after the close tonight; SEND 8.2M share IPO priced at $16.00; TRMB announces new $600M share program; SYNC mover on earnings; in optical, AAOI shares active after filing shows insider purchase by director