Market Review: November 30, 2017

Scott GreenDaily Market Report

Closing Recap
Thursday, November 30, 17

 
Equity Market Recap
·      Wow is the best word to describe today’s market action! Like this energizer bunny, this stock market rally just won’t stop as stocks setting all-time highs across the board for the Dow Industrials (topped 24K for the first time), the S&P 500, the Russell 2000 (on tax reform hopes) and Dow Transports (up over 7.5% the last 3-days, topping 10,300 today). Stocks were already higher, with technology recovering from yesterday’s profit taking downdraft, but got a boost late day after Senator John McCain said he would vote for the tax bill today, removing another uncertainty as the chamber races toward a vote. Big U.S. banks rally for third straight session on rising support for tax-cut plan and strong economic data that supported chances of interest rate hikes. Note McCain was one of three Republicans to oppose the GOP health care bill. At this point, writers running out of adjectives to use to explain this latest market surge (euphoria, enthusiasm, jubilation, Santa rally, Trump effect, end of month window dressing, greed, or just plain madness). The stock spike did turn defensive asset classes gold, bonds and some currencies (yen) lower. Rep Leader McConnell said he sees Senate passage of tax bill late Thursday or Friday. Rising oil prices helped lift energy shares after OPEC and non-members agree to extend its production cuts through 2018. Overall, stocks continue to rise globally, posting strong returns for November, though on an interesting note, the CBOE Volatility index (VIX) gained for a 4th day despite stocks soaring. The Dow Industrials posts its eighth-straight monthly win, the longest such streak since July 1995. The S&P 500 also nailed an eight-month winning streak, the longest such run since January 2007. The NASDAQ posted its fifth month of rises in a row

Economic Data
·      Weekly Jobless Claims fell 2K to 238K vs. est. 240K while prior week claims revised up to 240K from 239K; the 4-week moving avg. rose 2,250 to 242.25k in the week ending Nov. 25; continuing claims rose 42k to 1.957m in the week ending Nov. 18
·      Personal Income for October rose 0.4%, topping the 0.3% estimate while Personal consumption rose 0.3%, matching estimates; real personal spending rose 0.1% (est. up 0.2%); PCE core inflation rose 0.2%, matching estimate (and up 1.4% YoY), while PCE prices rose 0.1% (also in-line); compensation rose 0.3% in Oct. vs 0.4% gain the prior month and savings rate at 3.2%
·      Chicago PMI index falls to 63.9 from 66.2 in prior month (still not far off 20-year highs), though topped estimates of 63; prices paid rose at a faster pace, signaling expansion while new orders rose at a slower pace, signaling expansion; employment rose and the direction reversed
·      The Congressional Budget Office, ahead of the Dec. 9 expiration of the debt ceiling, said the ability to borrow using extraordinary measures will be exhausted and the Treasury will most likely run out of cash by late March or early April 2018.
 
Commodities
·      WTI crude oil ends slightly higher, rising 10c to settle at $57.40 (high $57.98 and low $56.82), snapping its 3-day losing streak as reports said that OPEC members and other major oil producers have agreed to extend their production-cut pact to the end of 2018. The new deal means 1.8M barrels a day will continue to be cut from the market in an effort to reduce oversupply and push up prices. Other details included news that Libya and Nigeria will also cap output. Prices for the contract gained nearly 5% for the month, its third-consecutive monthly rise in a row.
·      Gold prices slipped -$9.50 or 0.7% to settle at $1,276.70 an ounce, posting its lowest close in a little over 1-week following another day of “risk-on” with money rotating into stocks and out of defensive asset classes. Economic data did little to sway markets from expectations for an interest-rate hike later this month yet still leaves next year’s course for rates unclear. Markets also remain focused on tax changes which could move currency markets.
 
Currencies
·      The dollar ended mixed; the Dollar Index (DXY) reversed earlier gains despite mostly better economic data, as the ICE index dropped roughly (-1.5%) for the month, its worst performance since a (-2.9%) slide in July. The dollar falls again vs. the Pound as Sterling rises 0.8% to around $1.3525, the first time above 1.35 since September. The dollar reversed losses against the safe-haven yen, rising to highs 112.64 (off lows 111.74) after tax bill appeared on track. Bitcoin ended lower, trading in another volatile range (high $10,787 and low $9,022). The Euro rises vs. dollar back above 1.19 as Eurostat’s flash inflation estimate for November coming in below expectations at 1.5%, with core inflation remaining unchanged at 0.9%. Government data, meanwhile, showed a steady rise in October incomes and spending, helping the greenback.
 
Bond Market
·      Given the massive surge again in U.S. equities, bonds posted declines, with the 10-year yield up about 5 bps to above 2.42% while the 2-year yield ticked higher above 1.78% (after surging the last few weeks on rising Fed rate hike expectations) and 30-yr 2.835%. Yields benefitted from the PCE inflation number, the Fed’s preferred price gauge, as it rose 0.1% in October, while stripping out food and energy prices, the core index rose 0.2%, matching forecasts
   
Sector News Breakdown
Consumer
·      Retailers; COST extends its streak of 7%+ monthly comp. sales to 4 straight periods, reporting Nov. total comps. +10.8% vs est. +7% and U.S. comps. ex-gas +8.4% vs est. +5.7%; SHLD shares surge after the retailer posted a narrower quarterly loss and continued to sell off assets and pay debt; LB Nov comp sales fell (-1%) vs. est. up 0.2% and sees December comps unchanged to low-single digits; GPS downgraded to sell at Citigroup after 43% rise since mid-August; BKS shares fall on widening quarterly losses; PVH Q3 results beat though Q4 EPS was slightly below views; other movers on monthly comp sales: BKE, CATO, while shares of TLYS, EXPR, PERYmove on earnings
·      Consumer Staples & Restaurants; grocers rally after KR posted same-store sales that exceeded estimates for the latest quarter while keeping an upbeat view for the end of the year; JACK missed Q4 estimates across the board led by weakness in Qdoba
·      Housing & Building Products; SunTrust said after a good 2017, they see the same drivers of new residential housing and residential remodeling to remain positive and above GDP into 2018 (says believe names that could engage in meaningful M&A MAS, MHK, BMCH, GMS, FBM and SITE); in home furnishing, HOME posted another very strong quarter as comps rose 8.3% ex: hurricanes and are now forecast to be 4% in 4Q, above estimates; LZB posts Q2 gains in net income, sales
·      Gaming & Leisure; Cruise lines downgraded at Macquarie, as the firm cut NCLH to underperform from neutral, and RCL cut to neutral from outperform saying the Street is too optimistic on yield growth in 2018/19 and expects Street estimates will be hard to match given tough pricing comparisons, new supply from CCL (cut tgt on NCLH to $47 from $58); in gaming, WSJ reported that PENN’s bid to buy PNK advances that could be in the low $30’s level https://goo.gl/3vNPVz (PNK later confirmed it was in talks with PENN)
 
Energy
·      Energy stock outperformed early in a broad-based market rally following OPEC’s decision to extend output cuts, and investors can now look ahead to 2018 for more clarity on supply/demand. OPEC hammered out a deal that included details about output targets for Nigeria and Libya, countries that have so far been exempt from the agreement to reduce supplies. Individual stock news was relatively quiet given the OPEC meeting commentary and as markets react from bearish inventory data the last few days that sent oil lower three-straight days coming into today. It was a big day of gains for MLPs as the Alerian MLP Index rises 3.9% near highs of day above 262 level (AMZ index coming off 52-week low of 249.71 yesterday) as nearly all names in index are higher with GMLP lone decliner on earnings – top gainersNS, EEP, NGL, DCP, ANDX posting big gains
 
Financials
·      The rally in financials continue firms are becoming more bullish on banks following Congress’s tax overhaul. Bernstein noted the better looking economic data of late, especially the job market. Lower tax rates, a lighter regulatory burden and the firm’s hope for a pick-up in investment banking are also reasons to add exposure. Tax-sensitive banks reached new decade-highs as the tax bill progresses – huge gains the last 3-days for large cap banks (C, JPM, MS, GS) and regional banks (PNC, ZION, FITB, CMA all up over 7% during that stretch) – banks did see some profit taking in the final hour of trading
·      Large Cap and regional banks have soared the last few days on tax reform pushing forward and comments by Powell at nomination about “too big to fail;” overnight, CS said it plans to complete its group restructuring in 2018 and gave new targets for coming years; said it will meet its 2018 target of 700 million Swiss francs; CATY cut at BMO Capital mostly owing to valuation
·      Insurers and reinsurers underperform banks after four days of gains; CB said due to the California wildfires, the insurer, for now, expects $320M of pretax and $249M of after tax cat losses in Q4, with $215M of that after tax figure coming from the fires
 
Healthcare
·      Managed care/pharma; WSJ reported CVS is nearing an agreement to buy AET in a cash and stock deal that could value the health insurer at between $200-$205, in a deal expected around $66B (a possible deal was reported about a month ago by WSJ initially) https://goo.gl/ZUY7ie
·      Biotech movers; GILD upgraded to buy and $94 tgt at Maxim citing the company’s latest comments regarding its manufacturing plans for the launch of Yescarta and the opportunity in China; BLUE tgt raised to $200 at Maxim as see the company as a significant player in both gene therapy and CAR-T, and the company has manufacturing; MDCO upgraded to outperform at Oppenheimer based on its successful transformation into a pure-play R&D biotech company focused entirely on inclisiran, an siRNA PCSK9 inhibitor
·      Healthcare services; TDOC 4.284M share Secondary priced at $35.00; contrary to a CNBC report last week, there was no major announcement regarding CERN at the Amazon Web Services (AMZN) conference yesterday, but Cantor noted that Cerner was identified as an AWS client
·      Drug distributors mentioned positively at Jefferies noting we are now one-week removed from perceived announcement by AMZN with no pharmacy entry announced (ABC, MCK, CAH); ESRX CEO said at conference today that it is not currently seeking a deal or sale and that it would be open to a non-exclusive deal with AMZN
·      In hospitals, HCA was upgraded to overweight at JP Morgan and tgt raised to $96, making a relatively short-term call that the currently proposed U.S. corporate tax reform would disproportionately benefit HCA; recall the group was broadly higher yesterday (THC, UHS)
·      Medical equipment and devices; XRAY downgraded to Neutral at HC Wainright citing valuation with the stock above his unchanged $68 price target; BSX was upgraded to Buy at BTIG; BEAT announced a partnership with AAPL to provide cardiac monitoring services in conjunction with the Apple Heart Study
·      Pharma movers; ADMP announced submission of a prior approval supplement for Symjepi Jr. as well as brief comments about commercial partners/files an application with the FDA seeking approval to use emergency allergic reaction med Symjepi (epinephrine) in pediatric patients weighing 33 – 65 pounds (currently approved for patients weighing at least 66 pounds)
 
Industrials & Materials
·      Industrial & Machinery; TITN rises as Q3 EPS beat views and narrowed year EPS loss view; CAT shares slid from highs after saying at a conference it was “neutral to slightly negative” on China growth outlook going into 2018
·      Transports; big gains on Wednesday for the Dow Transports, rising well over 3% and trading to new all-time highs for the index on gains in airlines and rails; FDX tgt raised to $270 at Barclays saying still likely represents the most compelling upside case within transports; ALGT forecast 2018 EPS below consensus estimates ($8.00-$10.00 vs. est. $10.13); GOL falls after Brazil’s Senate rejected a bill that would lower the maximum ICMS tax rate for domestic jet fuel sales
·      Metals & Mining; gold miners active after Citigroup makes changes: firm upgraded GG to buy, and AEM to neutral but downgraded ABX to sell from buy and cut tgt to $13 from $20; says investors should remain selective heading into 2018 within the gold sector as prices are expected to trade roughly flat next year; sees gold averaging around $1,207/oz in 2018
·      Chemicals; AXTA confirmed that its previously announced discussions regarding it being acquired by Nippon Paint have ended. Nippon Paint informed Axalta that its board of directors was unwilling to meet our expectations regarding the value of the company and assume the financial leverage necessary for a deal of this size
 
Technology, Media & Telecom
·      Semiconductors; after falling 4.39% yesterday on profit taking/rotation out of winners, the Philly Semi index (SOX) bounced; Dialog Semi (DLGNF) shares fall after the Nikkei Asian Review reported AAPL to design power chips in-house as early as 2018; OLED initiated buy and $225 tgt at Evercore/ISI saying it is a pure-play in the fast growing OLED market; semi index defended by several analysts on pullback with many highlighting equipment stocks (AMAT)
·      Software movers after earnings; BOX posted Q3 beat and raise, although markets key in on commentary that large deals slipped into Q4/KeyBanc said results were largely in line and featured healthy upside to FCF estimates; SNPS shares rise as guidance for Q1 and full year beat the highest estimates after a solid Q4 beat on both the top and bottom line; WDAY posted a mixed quarter with a top line beat ($555M vs. $541M cons.) but a billings miss ($562M vs. $573M) due to shorter contract duration leading to fewer collections upfront/ upside driven by subscription growth of 37% YoY; DSGX downgraded at Raymond James after earnings;GWRE shares fell despite quarter beat while lower guidance attributed to acquisition (shares also up 56% YTD coming into report)
·      Hardware and Networking; JNPR shares give back much of yesterday’s gains after NOK denied reports that it was considering acquiring Juniper for $16B, saying in a prepared statement that “Nokia is not currently in talks with, nor is it preparing an offer for, Juniper Networks related to an acquisition of that company.” CNBC had initially reported after hours that Nokia was in talks to acquire Juniper https://goo.gl/nfaPfH
·      Internet movers; group rallies after yesterday’s pullback, though tech still lagging broader market rally; AMZN said Alexa for business will bring voice commands to the office; STMP shares fall after CEO sold shares; FB’s Instagram says it has 25M business users vs. 15M in July
·      Media & Telecom; tower stocks were weak; JPM said AMT revenue growth in India faces a risk of customer revenue churn over the next few years due to a “dramatic merger cycle” in the country, as the firm cuts its 2018 India revenue growth estimate to -1.2% from +5.8%; VZ hosted an analyst meeting to discuss its 5G strategy yesterday and said they plan to launch residential 5G fixed wireless in parts of 3-5 markets in 2H18

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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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