Mid Day Outlook: December 14, 2017

Scott GreenDaily Market Report

Mid-Morning Look
Thursday, December 14, 17
  
Equities open the day higher, putting major indexes near record levels and the Dow on track for its sixth straight daily advance, but markets have slipped over the last 30 minutes, paring gains. The technology sector outperformed early, offsetting weakness in defensive industries like telecom and utilities, while industrials such as CAT take a breather after outperformance the day prior. Positive data also supported the market, as did additional clarity on global central-bank policy, while investors also await the tax-cut bill news to emerge out of Washington. Economic data once again pointing to strength in the economy as sales at U.S. retailers climbed 0.8% in November, the start of the holiday shopping season, doubling forecasts wile jobless claims fell 11,000 in the latest week, and U.S. import prices rose 0.7% in November (in-line with views). A deal in the media space highlights corporate news as Dow component DIS agreed to buy key assets from FOXA valued at over $52B. In energy, the IEA said the amount of crude oil on the global market rose by 170,000 barrels a day in November to 97.8 million barrels a day. The agency cited a surge in U.S. shale production and increased drilling and completion activity. Central banks busy again after the FOMC raised its interest rate by 25 bps to 1.25%-1.50% range yesterday (and upped growth outlook), the SNB kept its deposit rate at minus 0.75% and said it was still willing to intervene in currency markets if the Swiss franc gets too strong. The ECB made no changes to its monetary policy on Thursday, keeping rates at record lows but ECB President Draghi noted the Eurozone’s economic growth outlook is significantly improving, but that it’s too soon to take the punch bowl away. The Bank of England said its key interest rate will remain at 0.5% after raising it last month for the first time in a decade. Stocks steadily holding around near all-time highs
 
Treasuries, Currencies and Commodities
·      Commodity prices; are slightly higher given the extended pullback in the dollar, with both gold (bouncing off near 6-month lows) and oil prices getting a lift
·      Treasury markets slip as yields climb after stronger-than-expected retail sales figure; The 10-year Treasury yield rose to 2.36%, from 2.353% yesterday while the 2-year note yield ticked higher to 1.815%, from 1.786%
 
Economic Data
·      Retail Sales for November surged, rising 0.8% and well above the 0.3% estimate, while retail sales less autos rose 1% in Nov, topping the 0.6% estimate amid a good start to the holiday season; Sales in October, meanwhile, were also revised up to 0.5% from 0.2%; Internet retailers posted a whopping 2.5% increase in sales
·      Weekly jobless claims fell by 11,000 to 225,000 in the latest week, below the 236K estimate; the 4-week moving average, a more stable monthly view, slipped by 6,750 to 234,750; continuing claims dropped by 27,000 to 1.89 million
·      Import prices for November rose 0.7% MoM, in-line with consensus views and after rising 0.1% in Oct; excluding fuel, import prices were up 0.1% (also in-line); the increase in import prices over the past 12 months rose to 3.1% from 2.3%. If fuel is omitted, the increase in import prices over the past year was a scant 1.4%.
·      Markit flash U.S. manufacturing PMI rose to 55 from 53.9 in November, while the flash U.S. services activity index fell to 52.4 from 54.5.
   
Sector Movers Today
·      Retailers; Deutsche Bank upgraded LULU to buy from hold and tgt to Street high $89 and upgraded FINL to hold from sell and raised tgt to $11 from $5; also raises targets onDKS, HIBB, FL, NKE, UAA, and BGFV; said athletic sector is “on more solid ground” following a period of disruption which included consumer product-preference switch to more of a lifestyle focus from purely performance; TIF upgraded to buy at Citi and tgt to $115 saying shares look attractive as currency tailwinds and tax reform should benefit the company’s earnings; GPS downgraded to perform at Oppenheimer noting shares up 50% since June; NKE was upgraded to buy at Argus with $75 tgt (shares at 52-week highs)
·      Consumer Finance and Lending; VNTV was upgraded to buy at Jefferies and tgt raised to $94, while Wells upped tgt to $84, both citing the positive impact of the Worldpay acquisition and potential U.S. tax reform; EEFT init buy and $110 tgt at Goldman Sachs and pick up WU with a sell rating as believe the money transfer industry is at a crossroads: the improving economic environment should drive better remittance volumes, but material changes in the competitive landscape could drive significant pricing disruption; OMF7.5M share secondary priced at $25.50
·      Large Cap Pharma; TEVA shares jumped after its new CEO announces restructuring plan that involves eliminating 25% of global workforce; VRX was downgraded to underweight at JP Morgan as sees better opportunities in the sector following the recent rally; FLXN is acquiring the rights to a novel gene therapy for osteoarthritis designed to stimulate the production of an anti-inflammatory protein, interleukin-1 receptor antagonist; GWPH upgraded to buy from neutral and raise tgt to $174 from $124
·      Media movers; DIS said it would buy selected assets of FOXA for $52.4 billion in stock after weeks on speculation, which includes its film and television studio and its international and cable TV businesses and will also assume $13.7B in debt https://goo.gl/g8w27d ; CRTO shares declined on lowered revenue outlook following Apple’s iOS update (said Apple’s new iOS 11.2 software “disables the solution that some companies in the advertising ecosystem, including Criteo, currently use to reach Safari users”); WSJ reported that the Justice Department has signaled it is willing to grant approval to SBGI’s planned takeover of TRCO but it wants the companies to sell off 12 to 13 television stations
·      Utilities; JP Morgan with sector call noting the sector has largely kept pace with broader market strength in both 2016 and 2017, and at 20.0x fwd P/E, relative upside for regulated utilities is now limited, in their opinion; said they expect 2018 to be a reset year as the sector faces the prospect of rising long-term interest rates, subtle tax reform risk and many names are dealing with increased company-specific risk; top picks PEG and WR, and upgraded to overweight
 
Stock GAINERS
·      AVXS +2%; announced it received FDA clearance to begin its first clinical study in Type 2 spinal muscular atrophy (SMA) which rivals BIIB and IONS
·      DAL +2%; sees 4Q capacity up 2.5-3%, from prior view about 2% and higher Prasm of up around 4%, from prior view up 2-4%
·      ESRX +2%; help lift PBMs and distributors after guided 2018 EPS $7.67-$7.87 above estimates of $7.65, with better Ebitda guidance as well (MCK, CAH also active)
·      FOXA +2%; DIS said it would buy selected assets of FOXA for $52.4 billion in stock after weeks on speculation and will also assume $13.7B in debt https://goo.gl/g8w27d
·      TEVA +12%; after new CEO announces restructuring plan that involves eliminating 25% of global workforce, cutting 14,000 jobs
·      TIF +4%; upgraded to buy at Citi and tgt to $115 saying shares look attractive
 
Stock LAGGARDS
·      ABM -14%; results disappoint with an operational miss and lower-than-expected FY18 guidance
·      CRTO -27%; on lowered revenue outlook following Apple’s iOS update
·      CYH -5%; and comp THC both cut to underweight at JP Morgan saying tax reform negative
·      NUE -1%; said it sees Q4 EPS to be in range of 50c-55c, below the 77c estimate
·      PIR -30%; reported 3Q EPS below consensus, with negative comps and substantial gross margin erosion, while Q4 guidance also below consensus on negative comps
·      SAFM -9%; Q4 EPS missed by 30c saying weaker on Hurricane impact and chicken output
·      TNTR -12%; after Q3 results and significantly lower Q4 guidance
·      VRX -6%; downgraded to underweight at JP Morgan
 
Syndicate
·      Argenx (ARGX) 4.44M share Secondary priced at $52.00
·      Dicerna (DRNA) 5.714M share Spot Secondary priced at $7.00
·      Green Plains Partners (GPP) 2M share Block Trade priced at $16.65
·      Jacobs Engineering (JEC) 5.69M share Block Trade priced at $67.10
·      OneMain Holdings (OMF) 7.5M share Spot Secondary priced at $25.50
·      Proteostasis (PTI) 8M share Secondary priced at $5.00
 

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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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