Monday, December 11, 17
Equity Market Recap
· U.S. stock averages finished higher on a light volume, slow event driven session, as markets remain in “wait-and-see” mode ahead of a week filled with central bank rate decisions, highlighted by the FOMC rate decision on Wednesday. The S&P 500 and Dow Industrials managed to close at fresh record closing higher, while Small Caps underperformed. Technology and energy stocks led the advance while banks slipped after strong gains the past 2-weeks. There was also no news out of Washington as investors and markets still hopeful that both the Senate and the House will come to a compromise on tax reform. Stocks also edge higher ahead of quadruple expiration of options and futures contracts on Friday. U.S. equities move cautiously higher, bouncing off slightly lower levels earlier following reports of an explosion in midtown Manhattan. The terror attack occurred at Port Authority in New Work, but likely resulted in no fatalities. Oil prices advanced, while bonds, gold and the dollar end little changed.
· Central bank calendar this week: Wed Dec 13 – FOMC decision (2:00 PM EST) and press conference (2:30 PM EST). On Thursday Dec 14, the Swiss National Bank (SNB) rate decision at 3:30 PM EST, Bank of England (BOE) 7:00 AM EST and the European Central Bank (ECB) rate decision at 7:45 AM EST and the Draghi press conference at 8:30 AM EST
· U.S. markets shook off news earlier that an ISIS-inspired suicide bomber set off a homemade explosive device at the Port Authority Bus Terminal subway station in New York Monday morning, seriously wounding himself and injuring three others. The 27-year-old Brooklyn man had wires attached to him and was armed with a five-inch metal pipe bomb and battery pack strapped to his midsection. The man partially detonated the device prematurely inside the passageway to the A, C, and E trains at 8th Avenue and W. 42ndStreet at around 7:40 AM EST
· Oil prices were higher, though Brent outperformed WTI crude; WTI crude settled at $57.99, up 63c or over 1% (highest close in more than a week) while Brent outperformed up nearly 2% (highest since 2015) after reports that a major North Sea pipeline has been shut down. A crack in the Forties pipeline, which carries about 40% of North Sea crude across land for processing at a refinery in Scotland, was discovered last week, first reported by BBC News.
· Gold prices slipped, giving up earlier gains and setting another five-month low; gold declined -$1.50 to settle at $1,246.90 an ounce, near the lows and off earlier highs of $1,253.40 an ounce; gold earlier perked up after reports of an explosion at New York City’s Port Authority bus terminal, but as the matter appeared to be contained, the safe-haven bid faded. Market attention turns to the Federal Reserve meeting mid-week, where an interest-rate hike has already been widely priced in to financial markets.
· The U.S. dollar ended mixed, while the dollar index (DXY) slipped after posting its best weekly return since late October last week, as markets await commentary from the FOMC, along with other central banks later this week. The dollar briefly slipped to session lows against havens following an explosion near Times Square in New York, but later pared losses. The greenback traded back to flat against the Japanese yen, while slipped against the euro.
· Bonds erased earlier gains, with the yield on the 10-year rising slightly to around 2.38%, while the 2-yr topped 1.81%, adding on to last week’s gains (both 10/2 yr yield rose 2 bps last week); the 30-yr yield traded to 2.78%; bonds got a lift early on the Port Authority attack news earlier, but later slipped amid lack of economic data and has investors positioned themselves ahead of the FOMC meeting results Wednesday where a rate hike is all but a given at this point. In the afternoon, the U.S. govt sold 10-year notes at a yield of 2.384% on lower demand than last auction (bid-to-cover at 2.37 vs. 2.48 prior)
Sector News Breakdown
· Retailers; BURL tgt raised to $132 at Cowen citing impending tax reform revisions, improving comp. sales and inventory positions, and easiest 1Q y/y comparison in 9 years; SKXwas mentioned as one of Cowen’s best ideas, raising tgt to $42; NKE was upgraded to positive by OTR Global from mixed; dollar stores were under pressure (DG, DLTR)
· Consumer Staples; KMB was downgraded to sell at Citigroup and lowered 2018-2019 estimates to reflect stiff competition it faces in multiple categories in multiple markets; in tobacco, Morgan Stanley downgraded Imperial Tobacco (IMBBY) saying after survey, expect Heat-not-Burn’s (HNB) disruptive growth in Japan to continue and raising 2020 forecasts for Asia and globally/say see PM/BAT as disproportionately benefitting at the expense of Imperial; USFD mentioned positively in Barron’s listing it as one of their ten favorite stocks for 2018
· Oil prices rise, led by a big spike in Brent crude after North Sea Pipeline closure. The Forties Pipeline System, one of the most important oil conduits in the world, is to be fully halted after a crack was discovered, the link’s operator Ineos said (Brent jumped to best levels since 2015). Natural gas-oriented and oil field services were among the top leaders in energy boosted by cold winter weather that’s expected to last — helping it recover some of last week’s losses. Among natural gas stocks among leaders in the S&P 500 (CHK, RRC, NFX)
· Solar sector; CSIQ receives “going private” proposal for $18.47 per share cash from its CEO https://goo.gl/VK5yHP ; FSLR was upgraded to outperform at Baird and raise tgt to $82 from $69 as sees FSLR well positioned for growth; Baird also upgraded SPWR to outperform and raise tgt to $10 from $7 saying sentiment should improve as it ramps P series production and strengthens balance sheet
· Other movers; WLL said it expects to record an impairment charge of $800M-$900M in the current quarter for the partial write-down of its assets at the Redtail field in Colorado’s DJ Basin; ARCH announced a deal to buy back 500,000 shares from its second-largest shareholder, Monarch Alternative Capital LP
· Large Cap and regional banks; 52-week highs today for financials AMP, IVZ, RF, STI, LNC, KEY, NDAQ, UNM in the S&P 500 index – ahead of the central bank meetings this week
· Credit cards: Barclays upgraded DFS to Overweight and raised price target to $93 from $73 saying consumer lenders should benefit from both lower corporate tax rates and lower personal taxes; firm also raised price target for SYF to $53 and made it their new Top Pick; Wedbush also raised tgts on COF, DFS and SYF to factor in high probability corporate tax rates drop to 20% in 2019 (maybe 2018) from 35%; AXP said to eliminate need for signatures at point of sale
· Payments & Services; Goldman Sachs upgraded ADP to buy saying the Street probably underestimates margin expansion the company can produce, while client retention is likely to improve; the firm also DXC is top value pick as it’s a self-help story, with earnings growth driven by cost reduction and said top laggard picks FLT and WEX as expects fleet card companies to see cyclical upturn as end markets inflect positive, execution issues get fixed
· REITs; GGP rejected a $14.8B offer from the company’s biggest shareholder BPY, Reuters reported saying Brookfield Property made a $23 per share cash and stock offer last month for the 66% of GGP it does not already own https://goo.gl/cciJNu ; in research, Evercore/ISI downgraded four REITs, cutting BPY and LXP to in-line and cut MAC and WPY to underperform while upgraded ESS and UDR saying key themes for 2018 include the impact of Fed tightening on the yield curve, job growth and tax reform
· Several movers following data being presented at the 59th American Society of Hematology (ASH) Annual Meeting and Exposition:
· BLUE shares jump and price targets raised by several analysts (street high $309 at Goldman Sachs) after data out of the ASH conference showed its data targeting CAR-T therapy bb2121 was superior vs. rivals in the first round of data (with partner CELG)
· BMRN shares rose after presented data of their hemophilia A gene therapies/Phase 1/2 study showed most patients with a maximum follow up of 19 months sustained normal or near-normal Factor VIII levels in severe hemophilia A
· BPMC shares higher as reported early-stage data for BLU-285 for advanced systemic mastocytosis, and said it plans to talk to regulators to discuss a registration path forward in the first half of 2018
· CBIO rises after presenting interim Phase 1/2 data on its subcutaneously administered, prophylactic Factor IX variant CB 2679d/ISU304
· GBT shared slip as its voxelotor shows positive action in mid-stage study in adolescents with sickle cell disease, but two deaths in compassionate use study pressures shares
· ONCE shares fell after presented data of their hemophilia A gene therapies/data from Phase 1/2 study showed 4 patients with factor VIII levels stabilized at 10% of normal through 40 weeks, 16% after 30 weeks, 9% at 19 weeks and 13% at 14 weeks
· SGEN shares fell after data from its Adcetris regimen showed a marginal benefit at multiple endpoints
· SYRS shares dropped after Phase 2 data on SY-1425 in acute myeloid leukemia and myelodysplastic syndrome aren’t enough to warrant further development as a single agent
· Healthcare services; Non-profits Ascension and Providence St. Joseph Health are talking about combining the WSJ reported/said a deal would dethrone the nation’s largest pure hospital operator, HCA https://goo.gl/ariUZJ ; DPLO was upgraded to outperform at Leerink saying that DIR fee exposure is reduced given CMS’ new proposed rule
· Medical devices & equipment; DVA was upgraded to buy at Citigroup saying the sale of DMG for $4.9B has resulted in an unusual situation where almost 40% of DVA’s current market cap is cash, that through buybacks we expect to drive a c. +21% earnings CAGR over the next 3 years; SNN was downgraded to equal-weight at Morgan Stanley
· Other movers on news; LJPC shares initially extended losses early from Friday after being downgraded to underweight at JP Morgan and cut tgt to $20 – but rebounded midday;ALNY said the U.S. FDA has granted a request to amend the orphan drug designation for patisiran to the treatment of transthyretin-mediated amyloidosis (ATTR amyloidosis).
Industrials & Materials
· AG & Machinery; MMM to sell almost all of its communication markets business to GLW for $900M; PCAR was downgraded to neutral from overweight by JPMorgan saying the N.A. Class 8 truck market is likely to peak in 2018 and stock likely to continue seeing multiple compression; TSLA rises on the back of new orders for its electric semi-truck
· Metals & Mining; U.S. Steel (X) was upgraded to hold by perennial bear at Axiom with tgt of $37 vs $14 for the first time ever due to shifting steel market fundamentals and shifting sentiment; STLD positive mention at Longbow saying sees Q4 guidance meeting or beating estimates; FCX tgt was raised to $16 at B Riley/FBR; industrial metals overall strong, while gold miners slip again
· Environment/Waste; Stifel comments on the sector saying in FY17 the solid waste index again beat the market, driven by WCN and CWST with RSG and WM inline or just below the overall market and ADSW up YoY but below the market with an overhang from the unknown intentions of 25% private equity owner – now upgraded ADSW and WM saying solid waste should outperform the market in FCF growth in FY18 and tax reform is all gravy, in their view
Technology, Media & Telecom
· Internet; GRUB tgt raised to $80 at KeyBanc as believes that Grubhub is effectively withstanding competitive pressure from Uber, Amazon.com; TTD upgraded to buy at SunTrust post the 3Q earnings shake-out and pullback in the stock, while tweaking our estimates and maintaining our $58 PT; OSTK outperformed as Bitcoin futures go live; SNAP trades to best levels since late October, trading up around $16 per share
· Semiconductors; group was among weaker sectors last week on broader tech sell-off, while Citigroup today following a trip last week to Asia meeting with companies across the technology supply chain, said they are “getting more nervous” on the semiconductor sector. Firm notes while demand from the PC end market remains strong, the NAND market remains weak and data points on Apple’s (AAPL) iPhone were mixed
· Media & Telecom; CTL among top gainers in the S&P 500 after being selected as the network provider to Pennsylvania, a deal that will have it supplying a full suite of products and services to the Commonwealth; CNBC reported that FOXA and DIS are working “aggressively” toward a deal, in a follow up to recent reports DIS looking at FOXA assets; ROKUshares rally further, now up over 145% since its earnings report on 11/8