Market Review: November 17, 2017

Scott GreenDaily Market Report

Closing Recap
Friday, November 17, 17
Equity Market Recap
·      Stocks closed out the week lower, with the S&P 500 and Dow Industrials sliding after yesterday’s gains, while the Nasdaq Composite managed to eke out a weekly gain, but dipped on the day. With earnings now mostly done for the quarter following a strong two-days of results out of retailers (GPS, WMT, ANF, FL) and technology (CSCO, AMAT, SPLK, NTAP), the fate of the Republicans’ tax cut plan remains the next focus, followed by an OPEC meeting the week after and the FOMC meeting in December (where a rate hike is expected). Investors have been hopeful that a tax bill under debate in Congress will boost corporate earnings and further fuel the stock market’s record-setting run. Congressional Republicans took important steps on Thursday toward the biggest U.S. tax-code overhaul since the 1980s, with the House of Representatives approving a broad package of tax cuts. The debate now shifts to the Senate, which has encountered resistance thus far. Economic data again this week was positive including a stronger read for housing starts in October, while crude oil recovered, bolstering energy stocks. European stocks declined on Friday, suffering a second straight weekly loss as The Stoxx Europe 600 index fell -0.3% to close at 383.80, extending its weekly decline to (-1.3%); while Germany’s DAX 30 index dropped (-0.4%) to 12,993.73 and the U.K.’s FTSE 100 index slipped (-0.1%)
·      Oil jumps on the day, but down on the week; WTI crude oil gained $1.41, or 2.6%, to settle at $56.55 per barrel, helped by a weaker dollar (lifting commodity prices across the board) though ended the week with a modest (-0.3%) decline for the week (first weekly loss in six). Inventory data was mostly bearish this week after months of surprise drawdowns, but the focus now turns to OPEC and their November 30th production meeting
·      Gold prices ended the week in solid fashion, closing higher $18.30 or 1.4% to settle at $1,296.50 an ounce and posting a gain of nearly 1.8% for the week (up a 2nd straight week). It was the highest finish in more than a month helped due to a decline in the dollar.
·      The U.S. dollar was broadly lower, posting its second weekly loss in a row, as the dollar index (DXY) dropped around -0.8% for the week; the dollar breached below 112 against the JPY, down over -0.9% and traded at its lowest level in about a month (200 day support 111.77 and 100 day 111.74). No resolution on the tax reform plan and reports that special counsel Robert Mueller’s team had issued a subpoena to President Donald Trump’s campaign in mid-October, took the steam out of the dollar late week. Even wide expectations for a Fed rate hike after strong economic data failed to support the currency. The euro held around the $1.18-mark most of the day, rising 0.3% for the week. Bonds gained as long-dated Treasury yields dropped; short-dated yields rose as the December FOMC meeting still expects to yield a 25-bps hike; the 10-year Treasury note yield fell to 2.34%, from 2.361%, while the 2-year note yield rose to 1.721%.
Economic Data
·      October housing starts surged, rising 13.7% to a seasonally adjusted annual rate of 1.29M, topping the 1.2M annual rate while the September estimate was revised to 1.135M; Building permits, a less volatile series, rose 5.9% to 1.3 million; Single-family starts rose 5.3%, and starts with five or more units leaped 37.4%
Interesting data points:
·      Buyers of high-yield corporate debt, or junk bonds, suffered a torrid week with many choosing to shed their holdings outright. Junk-bond mutual funds and exchange-traded funds reported $4.43 billion of outflows this week, according to Bank of America Merrill Lynch. That amount represents the third largest weekly drop on record and the largest since Aug. 2014. According to FactSet, the SPDR Bloomberg Barclays High Yield Bond ETF (JNK) shed $934 million alone, topped by its larger counterpart iShares iBoxx $ High Yield Corporate Bond ETF (HYG) which lost $348 million this week, but $1.43 billion over a one month period. –
Sector News Breakdown
·      Retailers; footwear apparel stocks get a boost after FL shares surged over 20%, as earnings handily topped consensus estimates and (lifted shares of NKE, FINL); in apparel, ANFposted better-than-expected sales growth helped by Hollister unit; GPS reported better earnings as comps surprised to the upside at +1% for core Gap and +4% for ON and were positive for the first time in ~4Y for core Gap/margins also expanded; SCVL boosted its net sales forecast after earnings beat; ROST earnings beat; in furnishing, WSM shares fall as guidance disappoints
·      Sporting goods retailers rise; a sector that has been pressured on disappointing forecasts over the last few months gets good news today after SPWH and HIBB shares jumped on earnings and guidance reports (shares of DKS, as well as UAA, and gun makers AOBC, RGR also benefit)
·      Autos; TSLA launched its Semi tractor-trailer and surprised investors with the unveiling of a latest version of the Roadster, and said JBHT has already ordered multiple tractors; in bikes, HOG mentioned cautiously at UBS saying they may post lower shipments in 4Q as tough comps, reduced MY’18 supply and a torrential hurricane season potentially created double-digit declines in the bike-makers U.S. retail sales for Oct.
·      Consumer Staples/Restaurants/leisure; YUM sets new $1.5 billion stock buyback program; BXG 6.5M share IPO priced at $14.00; in food, POST Q4 EPS missed by 4c though sales topped consensus and year Ebitda outlook fell short of views; grocers rally for a second session as group buoyed yesterday on WMT revenues, while NGVC earnings beat helped lift KR, SFM
·      REITs; Mall REITs outperformed earlier (then faded) following a round of solid earnings from apparel retailers (SCVL, ANF, GPS, FL); shares of SPG, MAC, GGP, SKT, among mall REITs
·      Energy; the weekly Baker Hughes (BHGE) rig count showed a gain of 8 total rigs to 915, while oil rigs remained steady at 738, while 8 gas rigs were added to bring total to 177;JASO agreed to be taken private by an investor consortium in an all-cash deal with an equity value of about $362.1M, or $7.55 per ADS share; Cowen initiated coverage of the US LNG sector with outperform ratings on NEXT and TELL and market perform on LNGAPC was upgraded to outperform at BMO Capital as outlook suggests competitive growth
·      Large Cap Pharma; TEVA shares outperformed in the specialty pharma/generics space as Mizuho noted today the company can avoid having its debt ratings slashed to high yield if the company is able to stabilize its business and find a path to 4.5x leverage; SCPH 6.4M share IPO priced at $14.00; biotech remains pressured, falling more than 10% this week from its record highs (IBB 342.49), with group sliding on slowing M&A activity and after lowered outlook from CELG in the space a few weeks ago, and also slowing catalyst pipeline
Industrials & Materials
·      Machinery & Industrials; sector volatile given the news from TSLA that unveiled its new electric-powered Semi truck; shares of CMI, PCAR among those moving on lower; ALSNreiterated underweight at Piper today following an examination of 63 existing and proposed fully electric trucks and buses; GE CEO Flannery bought 60,000 shares this week according to a filing
·      Transports; after posting its best daily percentage gain since mid-August yesterday (1.61%), the Dow Jones Transport index fell over 1%, down for the 10th time in the last 12 days (off record highs 10,080 on 10/13) – group led by weakness in transport and freight given the entrance into the market by Tesla for more cost efficient big rigs and as AMZNlaunched a new trucking app- shares of R, CHRW the biggest drags on the index, followed by LSTR and JBHT
Technology, Media & Telecom
·      Semiconductors; AMAT posted a strong beat and raise amid high demand for semiconductor and display equipment and very confident that growth will continue through 2018;NVDA upside case is $300 per share according to RBC Capital
·      Software movers; SPLK strong quarter, with revenue and billings both coming in well ahead of consensus estimates and with a FY revenue guidance raise/also license revenue growth continues; SAIL 20M share IPO priced at $12.00
·      Media & Telecom; media space a buzz after another report of interest in FOXA assets; overnight it was reported that CMCSA has approached FOXA to express interest in buying a substantial piece of the company’s business. CMCSA is interested in assets like those DIS pursued when it recently held talks with FOX (also said VZ exploring parts of Fox) (shares of VIAB, DISCA, AMC, LGF/A bounced after a recent selloff, while CBS was active as well); broadcasting names also active (TGNA, GTN, SBGI)
·      Other tech movers; AAPL is delaying the release of the HomePod smart speaker to early 2018 from December, TechCrunch; SFIX 8M share IPO priced at $15 per share


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.


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