Mid Day Outlook: December 12, 2017

Scott GreenDaily Market Report

Mid-Morning Look
Tuesday, December 12, 17
U.S. equities resume upward momentum, propelled higher by Dow components Boeing (stock buyback news) and Verizon (analyst upgrade), in a week chock full of potential market catalysts. There are reports out that House and Senate leaders could reach agreement on tax bill as soon as today, helping lift market sentiment, while markets rise ahead of central bank policy meetings the next two days. Currently the S&P 500 index and Dow Industrials are on track for another record closing high, while the NASDAQ outperforms amid profit taking/pullback in technology names (which have outperformed overall this year). European equities pushed to a five-week high, while Asia was mixed overnight (Nikkei retreated from a 26-year high). Inflation data came in “hotter” than expected today, with PPI rising above consensus estimates (further backing the case for the Fed to raise rates). 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.
Treasuries, Currencies and Commodities
·      In currency markets, the dollar index (DXY) rising to highs, back above the 94 level and up about 0.25% after a strong inflation reading this morning (PPI) further boosts the case for the FOMC to raise rates further; the euro falls to lows around 1.1735
·      Precious metals under pressure again, sinking further to lowest levels since July, falling to $1,242 an ounce on expected rate hike by the FOMC and amid recent rally in the dollar
·      Energy futures pulling back after strong gains yesterday following news 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; Brent drops to $64.50 from earlier highs $65.82
·      Treasury market’s slide as yields rise; the 10-year Treasury yield climbs back above 2.41% after robust PPI and ahead of tomorrow’s FOMC meeting where a rate hike of 25 bps is widely expected; the 2-yr yield jumps to 1.84% while 30-yr remains depressed at 2.80%
Economic Data
·      The producer price index (PPI) in November surged 0.4% for the third straight month, slightly above the 0.3% estimate while the PPI core reading (ex: food, energy and trade) also rose 0.4%, coming in above the 0.2% estimate. The increase in the PPI pushed the 12-month rate of wholesale inflation to 3.1%, the highest level since January 2012. The yearly rate of core inflation climbed to 2.4%, the highest mark at least since mid-2014.
·      The index of small-business optimism from the National Federation of Independent Business (NFIB) rose 3.7 points to 107.5 in November, the second-highest reading in it 44-year history and easily topped the 104.4 consensus
Sector Movers Today
·      Aerospace & Defense; JP Morgan said fundamentals for the sector remains solid into 2018 and valuations are still reasonable vs elevated multiples across the market, but expects to see more moderate returns vs 2017 as the group outperformed this year. JP Morgan said its top aerospace picks are BA and BBD/B, while expects ARNC to “become more interesting” with new leadership; as for defense, the firm upgraded NOC to overweight from neutral, cuts RTN to neutral from overweight and downgrades GD and TDG to underweight from neutral; in other news, BA raised its dividend by 20% and set a new $18B stock buyback plan; HXL issues 2018 EPS guidance of $2.80-$2.94 on sales $2.1B-$2.2B, below the $2.97/$2.18B estimate
·      Software sector; JP Morgan made several rating changes: the firm said they cut a host of software stocks as “exceptional performance” in 2017 is unlikely to repeat next year and adds that several stocks significantly outperformed S&P 500 and stand within 15% of JPMorgan’s price targets: ADBE, CUDA, CHKP, FTNT, GDDY, MIME, MODN, NEWR, PTC, QLYS, QTWO, RNG, NOW, SSNC and WEB downgraded to neutral from overweight; CSGP, IMPV, TYPE and SNPS downgraded to underweight; said top picks: LOGM, FIVN, PANW, andTIVO
·      Hospitals and services; Citigroup upgraded shares of hospital operators HCA, THC and UHS to buy as the firm takes a more constructive view of the hospital space, as they expect a better volume backdrop in 2018 with stabilization and some level of “bounce” off a reset baseline this year post the rollover of reform (also notes low sentiment/expectations, discounted valuation, and favorable “external” considerations such as no AMZN risk, tax reform – for attractive upside)
·      Asset Managers; monthly assets under management (AUM) data out: AB prelim Nov AUM increased 1.3% to $549B from $542B at the end of October; APAM prelim Nov AUM totaled $115.6B; BEN Nov prelim AUM of 753.2B compared to $750.7B at October 31, 2017; CNS Nov prelim AUM of $62.6B was an increase of $986M from October 31, 2017 due to market appreciation of $1.3B and net inflows of $7M; IVZ prelim Nov AUM of $937.6B was an increase of 1.0% MoM driven by favorable market returns, foreign exchange, and PowerShares QQQs inflows; LM prelim Nov AUM was about $763B with inflows in fixed income of $1.4B partially offset by equity outflows -$1.0B; TROW prelim AUM was $991B
·      Specialty lending and finance; Credit Suisse the latest to remain positive on sector saying they view tax reform, in its current state, as highly beneficial to U.S. consumer finance companies as most companies are full U.S. tax payers and any increases in consumer confidence from more cash flow could lead to more consumer borrowing, driving faster revenue growth and improved credit quality (said favorites to benefit from tax reform are SYF, DFS, OMF, CIT, SC, SLM, AL)
·      BA +3%; raised its dividend by 20% and set a new $18B stock buyback plan
·      COTY +3%; upgraded to buy at Citigroup and upped tgt to $21 citing mgmt credibility
·      FCX +3%; upgraded to equal-weight at Morgan Stanley and tgt up to $14 on higher copper prices
·      GLYC +21%; surge on news of positive results from early stage trial for leukemia treatment
·      MAC +3%; as mall REITs rise amid deal in the sector after Unibail agreed to buy Westfield for $16B https://goo.gl/axbWXn
·      PTI +163%; following positive phase II results across its three cystic fibrosis (CF) pipeline programs
·      RIOT +21%; moving in sympathy with Bitcoin; on track for 4th straight day of gains
·      THC +7%; as Citigroup upgraded to buy with other hospital operators
·      VZ +1%; upgraded to buy with a $61 tgt at Nomura/Instinet
·      AMD -2%; as semiconductors resume weakness on profit taking (many names lower)
·      CASY -9%; downgraded at Raymond James as Q2 comp sales missed their recently lowered expectations, while in-store margins also missed their model
·      EIX -7%; after its unit said California wildfires investigation to include role of its facilities
·      GBT -9%; extends yesterday’s declines following data at ASH conference
·      IRM -6%; to buy U.S. operations of IO Data Centers LLC for $1.32B, including land and buildings in Arizona, New Jersey and Ohio, and announces debt offeringhttps://goo.gl/mKvcbZ
·      MAT -3%; was downgraded to Neutral and estimates cut at Monness Crespi
·      TYPE -3%; downgraded in broad sector call on software at JP Morgan on valuation
·      Acer Therapeutics (ACER) 917K share Spot Secondary priced at $12.00
·      GMS Inc. (GMS) 5M share Spot Secondary priced at $38.25
·      Hyatt (H) 2.7M share Block Trade priced at $71.00
·      NCI Building (NCS) 7.15M share Spot Secondary priced at $19.55
·      Oasis Petroleum (OAS) 32M share Spot Secondary priced at $9.55
·      Unitil (UTL) 600K share Spot Secondary priced at $48.30


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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