Mid Day Outlook: December 13, 2017

Scott GreenDaily Market Report

Mid-Morning Look
Wednesday, December 13, 17
  
U.S. equities higher to start, as the S&P 500 and Dow Industrials are rising for a 5th consecutive session after setting new record highs the last three days. Gains in technology shares are helping pace the early rise amid a rebound in semiconductors, while markets await the Federal Reserve’s interest rate announcement later today, which is expected to produce the 3rd 25 bps rate hike of the year. The U.S. dollar and Treasury yields came under pressure on Wednesday after the consumer prices (CPI) report showed that a key measure of inflation cooled last month (core prices rose less than anticipated MoM and YoY). Trading remains somewhat subdued ahead of the Fed meeting.
 
Wall Street is anticipating that the Fed’s policy-setting Federal Open Market Committee will raise short-term interest rates by 25 bps to a range of 1.25%-1.5%, the fifth such increase since the Janet Yellen’s central bank began raising rates from near zero at the end of 2015. An updated policy statement, and Fed members’ projections for future interest rates, known as the dot plot, will be released at 2:00 PM EST. Yellen is scheduled to field questions from reporters a half-hour later in her final news conference before she retires and is replaced by Fed. Gov. Jerome Powell.
 
In potential tax news: Democrat Doug Jones won Alabama’s Senate election Tuesday night, defeating Republican Roy Moore. The Democrat’s victory will shrink the Republican Senate majority, leaving the balance at 51-49. That has raised concerns that it will be harder for the Republicans to push through major overhauls, such as tax reform
 
Treasuries, Currencies and Commodities
·      In currency markets, the dollar slips after jumping the last two-weeks on tax reform bill passage hopes and expectation for a Fed rate hike today – dollar slips today on profit taking and after softer inflation reading earlier today (CPI)
·      Precious metals rise slightly ahead of the FOMC rate decision, as investors eased up after three straight days of selling and a drop to the lowest price for the yellow metal in nearly six months; gold futures up a few dollars around $1,245 an ounce after closing at 6-month lows
·      Energy futures; bigger headline crude inventory drawdowns from the API and DOE this week; the EIA said weekly crude oil stockpiles fell -5.117M barrels vs. an est, -2.894M barrel draw, while gasoline a big build of 5.66M vs. est. 2.3M and distillates a surprise draw of -1.37M vs. build est. 1.2M. Overnight, the API said U.S. crude supplies dropped -7.4M barrels for the week ended Dec. 8, a rise of 2.3M barrels in gasoline stockpiles, while inventories of distillates rose 1.5M barrels
·      Treasury market’s rise early on the “softer” CPI inflation report, but have since pared gains; the yield on the 10-year back below 2.40% after topping 2.41% yesterday; 2-yr unchanged at 1.827%
 
Economic Data
·      Consumer prices (CPI) for November advanced 0.4%, in-line with estimates, but the core reading (ex: food & energy) rose 0.1%, below the 0.2% expected increase, while YoY increase came in at 1.7%, below the 1.8% forecast; Three-quarters of the total CPI gain reflected higher gas prices; the yearly rate of inflation as measured by the CPI rose to 2.2% from 2%
   
Sector Movers Today
·      Optical movers; FNSR soars as AAPL awards the company $390M to ramp up chip production, while shares of rival LITE declined on the news as both companies make vertical-cavity surface-emitting lasers, or VCSELs, which help enable 3D-sensing capabilities and facial recognition (other movers on the news, AAOI, ACIA, IIVI)
·      Life Science tools/equipment movers; JP Morgan with several changes in sector, as top picks include DHR and TMO , while also positive on shares of A, ILMN, HOLX, XRAY; firm upgraded XRAY to overweight and tgt to $75 (from $65) based on turnaround potential w/new mgmt. and the favorable end market conditions; firm also downgraded GHDX andARAY to underweight
·      Casino, Lodging & Leisure; in lodging, JP Morgan upgraded STAY to overweight citing recent underperformance, a low valuation, and depressed expectations, while downgradedCHH to underweight from neutral saying the recent outperformance is overdone; HT was downgraded to underweight at Barclay’s
·      Utilities; Morgan Stanley affirmed preference for diversified utilities, its neutral view on electric utilities and “guarded” stance on gas utilities; favors stocks with strong balance sheets, offering cash flow and earnings resilience after potential tax reform; Upgrades ES, AEP to overweight and downgrades AEE to underweight; says companies seen weakest on credit metrics post-tax reform could need incremental equity to maintain ratings; sees most risk for ETR, DUK, FE, PPL, SO; sees new nuclear project being significant overhangs for SCG and SO heading into 2018
·      REITs; IRM 14.5M share Secondary priced at $37.00; EQIX added to the US1 list at Bank America based on strong secular demand trends, exposure to expanding international markets and an attractive valuation; TCO upgraded to market perform at BMO Capital as think the flurry of M&A activity, activist involvement, and speculation in the mall sector is likely to keep shares elevated; Apartment REITs at BTIG, upgraded ESS to buy on improving visibility on top-line growth in the second half of 2018 – as for sector, says faces an improving supply picture in the second half
 
Stock GAINERS
·      CAT +2%; November rolling 3-month retail machine sales rise 26% vs Oct. 19% rise, Sept. up 13%
·      DPW +29%; announces launch of new cryptocurrency mining division
·      FNSR +25%; as AAPL awards the company $390M to ramp up chip production
·      HON +1%; boosted its Q4 organic sales growth guidance to 7%-8%, but year outlook below views
·      JD +2%; resumed buy w/$48 tgt at Stifel calling it one of two big winners in China e-commerce
·      MELI +6%; tgt raised to $330 at Piper based on an analysis of its comparative market cap as a percentage of total addressable market
·      STML +4%; said a trial of a treatment for acute myeloid leukemia met its main goal
·      WDC +3%; and Toshiba reached an agreement to resolve their legal dispute/WDC also provided positive updates to its Dec-qtr and FY18 outlook
 
Stock LAGGARDS
·      ARAY -4%; downgraded to underweight at JP Morgan
·      CIVI -10%; as Q4 revenues fell short of consensus
·      FOXA -3%; gives up recent gains – reports all week DIS close to buying some assets
·      HMNY -34%; shares plunge as prices 8.26M share secondary more than $3 below prior close
·      IPG -2%; downgraded to hold from buy at Jefferies and firm cut tgts on ad stocks
·      LITE -9%; in response to AAPL investing $390M in rival FNSR
·      PAY -4%; Q4 EPS with modest revenue beat/EPS beat, but guidance missed expectations
·      RL -3%; downgraded to underperform and $80 tgt at Bank America
 
Syndicate
·      American Axle (AXL) 10.7M share Block Trade priced at $17.00
·      bluebird bio (BLUE) 3.243M share Secondary priced at $185.00
·      Blueprint Medicines (BPMC) 3.704M share Secondary priced at $81.00
·      Fate Therapeutics (FATE) 9.525M share Spot Secondary priced at $4.20
·      Helios and Matheson (HMNY) 8.262M share Spot Secondary priced at $6.50
·      Iron Mountain (IRM) 14.5M share Secondary priced at $37.00
·      Nordic American Tankers (NAT) 36.37M share Spot Secondary priced at $2.75
·      TD Ameritrade (AMTD) 27.7M share Spot Secondary priced at $51.50
 

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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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