Thursday, December 7, 17
Equity Market Recap
· U.S. stocks settle higher, but end off their best levels ahead of tomorrow’s monthly jobs report where expectations are for 195K added jobs, unemployment to hold at 4.1% and average hourly earnings rising 0.3% after holding steady last month. The S&P 500 index snapped its 4-day losing streak (was longest since March), while Tech and Transports outperformed. Materials, industrials, consumer discretionary and financial sectors also gained amid a rally in tax-bill-sensitive small-cap stocks. Bonds sold off late day (as yields bounced) while the dollar ended higher for a 4th straight session (again ahead of the jobs data). Gold prices fell to 4 ½ month lows on the dollar bounce/rising rate hikes, while oil prices pared yesterday’s losses. Bitcoin mania continues, pushing to new all-time highs (which varies based on where you get your quote). Several stocks move on earnings (AVGO, TLRD, CONN, DG, LULU) while eyes remain fixed on Washington as we await the Senate and House to finalize an agreed upon bill to send to President Trump, while the potential for a U.S. government shutdown looms as well. Economic data was mixed while wildfires in California continuing to burn, destroying land, businesses and homes. Europe also active amid headlines on Brexit plan (Pound advanced).
· Oil prices partially rebound following yesterday’s near 3% decline on bearish inventory data, as WTI crude rises 73c, or 1.3% to settle at $66.69 per barrel (high $56.78 and low $55.82), though natural gas prices slump over 5% on warm weather forecasts and bearish weekly inventory data (EIA showed a surprise build in stock piles vs. est. small draw). Natural-gas futures mark lowest settlement since late October as natural gas fell 15.9c, or 5.4%, to settle at $2.763 per mln Btu’s
· Gold prices slipped -$13.00, or 1% to settle at $1,253.10 an ounce, its lowest finish since late July as interest in bitcoin has surged, drawing money out of other asset classes and U.S. stocks traded broadly higher. Gold has been driven lower over the last few weeks on rising interest rates expectations ahead of next week’s FOMC meeting, which has rallied the dollar.
· The U.S. dollar advanced, with the dollar index (DXY) up for a 4th straight session ahead of tomorrow’s non-farm payroll report. The dollar topped the 113 level against the yen, while the euro slipped to intraday lows late (to 1.178 from highs 1.1815). The Brazilian real fell to a new multi-month low against the USD after Brazil’s central bank cut its benchmark interest rate by 50 bps (as expected). The British pound advanced late day to highs around 1.3470 (from $1.3394) amid reports that the Brexit talks are advancing. The dollar also getting a boost this week ahead of expected resolution of the tax bill out of Washington between Senate and Congress.
· Bitcoin no signs of slowing a day after rising more than 12% on Wednesday, passing both the $13,000 and $14,000 milestones it has now topped the $15,000 and $16,000 level, up over 18% alone. Bitcoin $11,000-$12,000: 6 days… $12,000-$13,000: 17 hours… $13,000-$14,000: 4 hours… $14,000-$15,000: 10 hours… $15,000-$16,000: 5 hours… $16,000-$17,000: 2 hours – then reports that on CoinBase traded as high as $19,500 before tumbling (Bloomberg showed high $16,777)
· Bonds erased earlier gains, sliding in the afternoon as yields climbed to end higher on the day; the 10-yr yield, after holding around the 2.33% level most of the morning, traded up above 2,36% in the afternoon, though the shorter-term 2-yr yield held at 1.8%. Treasuries initially edged higher ahead of the November employment report tomorrow.
· Weekly jobless claims fell by 2K to 236K in the latest week below the 240K estimate while the prior week was unrevised at 238K; the 4-week moving average slipped by 750 to 241,500; continuing claims, or people already collecting unemployment benefits, declined by 52,000 to 1.91 million.
· U.S. Challenger Gray & Christmas announced 35,038 job cuts in Nov.; 386,347 year to date; over 2,000 jobs cut due to hurricanes Irma and Harvey; 800 due to immigration raids; announced holiday hiring at 608,129 this year, lowest level since 2013
· Household wealth in the U.S. increased to $96.939 trillion last quarter, according to the Federal Reserve; 3Q nonfinancial corporate liquid assets grew by $66.2 billion to $2.364 trillion; Total credit rose 6.1% to $68.0176 trillion outstanding
· U.S. consumer credit jumps $20.5 billion in October, biggest gain in 11 months
Sector News Breakdown
· Retailers; LULU continued to post strong results as Q3 results were solid, largely driven by an acceleration in e-commerce (+25% CC comp), while comp sales rose 7% topping the 5.3% estimate and boosted its year guidance; TLRD rises after 3Q EPS, sales and full year guidance topped estimates, driven by better comps and tight SG&A mgmt; Cleveland Research said Macy’s (M) Q4 sales appear to be improving and KSS Q4 comps trending above consensus; CONN Q3 EPS top estimates by 14c on better sales and comps fell less than expected
· Dollar stores/Discount stores; DG trades to 52-week highs after earnings beat (DLTR also 52-week highs) while comp sales beat estimates by 160 bps and narrowed its year EPS forecast to $4.37-$4.47 from $4.35-$4.50 with net sales growth of ~7% vs prior view +5%-7%; OLLI reported strong 3Q results, with EPS and comps slightly ahead of expectations, and raised 2017 guidance
· Restaurants; SHAK upgraded to equal-weight after noting the strong performance for new stores in key markets and now sees a more balance risk-reward profile due to the sales momentum.
· Casino, Lodging & Leisure; in lodging sector, MKM Research upgraded Hyatt (H) to buy and reiterated buys on MAR/HLT on stronger business travel in 2018 – said GDP growth as well as leading economic indicators for corporate profitability all point to stronger corporate trends in 2018; in leisure, MTN posts smaller Q1 EPS loss on higher Ebitda outlook
· After shares of energy stocks came under pressure Wednesday given a 3% decline in oil prices due to bearish weekly inventory data, the sector got a small lift today with broader markets and a partial rebound in WTI crude; CVX said on Wednesday that it is budgeting $18.3B In capex next year, a 4% decrease from 2017 and the fourth consecutive y/y decline; Citigroup upgraded AMGP in the MLP sector to buy after shares are down 24% since the IPO in May; Credit Suisse; utilities were mostly lower though EIX bounces after falling over 12% this week on concerns about possible blame for the California wildfires that are still ongoing
· Pharma movers; after falling yesterday, MRK shares rise after falling yesterday ahead of Roche data – today RHHBY results on Tecentriq study seen as “good but not better” than MRK according to one analyst; GWPH 2.4M share Secondary priced at $115.00; ODT 6.25M share IPO priced at $24.00; MDGL tgt raised to Street high $140 at Evercore/ISI to reflect his estimates of increased penetration into the NASH market and additional revenue in the dyslipidemia setting; AGN downgraded to hold at Argus
· Biotech movers; SAGE shares soar over 70% as reports positive top-line results from phase 2 placebo-controlled trial of SAGE-217 in major depressive disorder – RBC Capital put Street high $280 tgt on the shares (MRNS rises after SAGE trial as co is also studying ganaxolone in PPD and expects to report data from Phase 2 studies next year); RVNC 5.4M share Secondary priced at $31.00; VKTX 5.13M share Secondary priced at $2.50; ACOR refiles U.S. marketing application for Parkinson’s med Inbrija;ONCE announced positive results from a study of a gene-therapy approach to hemophilia
· Medical Equipment and devices; ENTL to be bought by SYK for $24 per share, in deal valued at about $662M https://goo.gl/FzWF8S ; QTRX 4.25M share IPO priced at $15.00; EW approves new $1B share buyback program and reaffirms FY17 financial view with sales at high end of $3.0B-$3.4B view vs. est. $3.4B and sees FY18 sales $3.5B-$3.9B vs. est. $3.7B; ALOG rises to 5-year highs after earnings and revenue beat and better guidance
· Healthcare services and suppliers; OSIS shares rebound after falling -29% yesterday on negative short report from Muddy Waters, as Roth Capital, Drexel Hamilton and Jefferies among analysts saying pullback a buying opportunity
Industrials & Materials
· Industrial & Machinery; GE has announced plans to slice 12,000 jobs as part of an effort to cut $1B in costs; CMI initiated outperform and $192 tgt as view Cummins as a secular net beneficiary of more stringent global emissions standards; MTZ should be a significant winner should the current tax reform bill become law said Craig Hallum noting 2019 EPS estimate could increase 27-30% should the corporate tax rate be lowered to 20-22%; JCI boosts stock buyback by $1B
· Transports; sector outperformed major averages on heels of airlines strength and car rentals (CAR); in airlines, LUV raised its 4Q Operating RASM forecast to up 1%-2% vs prior estimate up slightly to up 1.5% with Nov. traffic up 3.4% and capacity rose 2.5%
· Metals & Mining; AKS was upgraded to overweight at JP Morgan saying the Vietnam steel circumvention decision “very positive” for the domestic steel industry and related stocks and expects the Department of Commerce’s ruling against China redirecting steel to Vietnam for processing and exportation to the U.S. to circumvent duties to push steel prices higher in the U.S.
· Chemicals; TROX bounces slightly after CEO said is very confident will complete Cristal deal (note TROX shares plunged over 20% yesterday after the FTC challenge to Tronox’s $1.7B purchase of Cristal’s and JP Morgan called for a standalone value of $16 ex-Cristal for Tronox
Technology, Media & Telecom
· Internet; YELP was downgraded to underweight at Piper saying given the “messiness” of removing Eat24, investors missed that Yelp lowered organic Q4 guidance by 2%; AMZN tgt raised to $1,500 from $1,225 at Cowen and called it a Best Idea for 2018; Cowen also said tax reform should drive upside for internet companies
· Online travel stocks weak after analyst downgrades; MKM Partners downgraded both EXPE (tgt to $115 from $170) and PCLN (tgt to $1,850 from $2,225) as sees a multitude of uncertainties surrounding the online travel sector, most of which they think will take several quarters to resolve; CTRP downgraded to neutral at JP Morgan and cut tgt to $45 on worse than expected financial impact from VAS cross-sale de-bundling
· Semiconductors; AVGO quarter was strong with revenues and EPS ($4,848M/$4.59) above consensus ($4,828M$4.52) and consistent with the company’s preannouncement and continues to over-deliver on their operating metrics, beating margins in the quarter/raised dividend (shares slipped late day); LRCX upgraded to buy at Nomura as views the pullback from $220 to ~$185 opportunistically/sees as the biggest beneficiary of the U.S. repatriation tax plan in his coverage universe; IPHIcut to Neutral at Rosenblatt due to mixed data points from China regarding 2018 100G module dollar content and potential data center lumpiness in North American deployments
· Software & Hardware; KeyBanc said on AAPL while it remains early, broad demand indicators for iPhone X suggest a mature market in which sustained upside to high-end iPhone units is unlikely/says suggests gross margin expansion is critical to drive upside to profit expectations. Fortunately, we believe this is likely, and see F1Q results and F2Q guidance as critical catalysts; KEYS beat Q4 guidance on strength in its Commercial Comms and Ixia Solutions, but outlook impacted by the company’s recovery from NorCal wildfires; SNE said its PlayStation 4 (PS4) gaming and entertainment system has cumulatively sold more than 70.6M units worldwide as of Dec. 3, while more than 617.8M copies of PS4 games have been sold, both through retail stores and digital downloads; DPW which makes bitcoin mining technology and is also in the defense business, raises its 2018 revenue guidance 50%; also helped by jump in Bitcoin prices
· Optical sector; CIEN Q4 EPS missed by 4c though revs of $744.3M tops $737M est. on lower margins of 44.2% and to buy back up to $300M in shares; AAOI tgt cut to $60 from $74 and estimates lowered at Cowen, but reiterate outperform, saying while they see incremental near-term risks to AAOI from the 40G transceiver roll-over at AMZN, we continue to see AAOI maintaining strong position with other key DC customers; FNSR reports tonight
· Media & Telecom; CTL said a special Committee’s investigation did not reveal evidence to conclude any member of management engaged in fraud or wrongdoing; AMTsaid it would buy back up to $2B in stock; IMAX and FOXA announced a new multi-picture agreement – beginning this year and extending through 2019
· Software movers; SNCR shares dropped after Deutsche Bank cut tgt to $8 after Synchronoss filed an 8-K stating that the NASDAQ had extended the stay delisting its shares pending a hearing scheduled in late January 2018; SEAC shares jumped on earnings results