Mid Day Outlook: December 20, 2017

Scott GreenDaily Market Report

Mid-Morning Look
Wednesday, December 20, 17
  
Equities mixed after trading at record highs on the open, led by a decline in technology shares. The move could be a “sell-on-the-news” mentality after the Senate passed the tax reform bill by a narrow 51-49 margin and as markets await the House to pass their tax bill a second time, after its passage Tuesday hit a procedural snag (expected to do so this afternoon). The recent surge in bond yields (and decline on bonds) could also be a factor in stock weakness (the 30-yr yield up nearly 20 bps the last 3-days alone while the 10-yr has risen to 2.49%, a near 15 bps move). Economic data strong again as Existing Home Sales for November soars to its highest levels since 2006 and easily topped consensus estimates. Transport index trades to fresh all-time highs, outperforming the broader market on the back of better top/bottom line earnings results from FDX overnight. Interest rate sensitive sectors (REITs, Utilities, and Telecom) have been pressured of late by rising bond yields, making dividend paying names less appealing – groups mixed today. All in all, volumes light ahead of tax passage confirmation later.
 
The CBOE Volatility Index (VIX) hits low of 8.9, its lowest level since Nov 24th. Stocks continue to surge, globally, as World stocks, as measured by the MSCI AC World Index, have risen every month this year so far. In fact, they haven’t had a down month since October 2016. If they were to close out December in the green, that would represent the first year ever without a single monthly decline https://goo.gl/txicip
 
Treasuries, Currencies and Commodities
·      In currency markets, the dollar slips to lows, with the dollar index (DXY) down below 93.30, down -0.15%, falling against the euro, but inching higher against the yen; the Pound jumps above the 1.34 level again and Bitcoin prices all over the place again
·      Precious metals inch higher after snapping its 4-day win streak yesterday for gold; the softer dollar has buoyed metals so far this week; Zinc heads for highest close in more than 2 weeks as Goldman predicts more gains in 1H of 2018; Copper climbs for a sixth day and aluminum rallies as Chinese production slumps to a 21-month low
·      Energy futures active after weekly inventory data showed: The API said crude stockpiles fell -5.2M barrels, with gasoline inventories up 2M and Distillates with a draw of -2.9M barrels; the Department of Energy (DOE) said weekly crude stockpiles fell -6.945M barrels (Cushing build 754K barrels), with gasoline rising a smaller than expected +1,237M barrels vs. est. +2,300k and Distillates +769k vs. est. +250k
·      Treasury markets slump for a third straight session, as the yield on the benchmark 10-year trades to highest levels since March, above 2.49%; the 30-yr yield up at 2.86%; a combination of rising rate environment after the FOMC boosted rates last week for a 3rd time this year (and still see 3 more hikes next year), improving economic data, and tax reform all weighing on bonds
 
Economic Data
·      Existing-home sales for November rose 5.6% to 5.81M, handily topping the 5.53M estimate, and above the prior month reading of 5.5M (revised up from 5.48M); there was 3.4 month’s supply in Nov. vs. 3.9 in Oct. and inventory fell 7.2% to 1.67M homes; 1st-time buyers 29% of total sales; all cash 22%; investors 14%; median home price rose 5.8% from last year to $248,000
   
Sector Movers Today
·      Aluminum sector; AA upgraded to Outperform at Credit Suisse and up target to $61 from $42 saying the aluminum market is set to tighten into 2018, as structural policies in China address captive coal plants and illegal smelters remain intact; Deutsche Bank downgraded CENX to hold as higher carbon costs weigh on earnings and consensus estimates are likely overestimating next year’s Ebitda; says CENX’s higher alumina, coal tar pitch and calcined coke costs will reduce 2018 Ebitda by 15% and 2019 by 20%; reiterates buy on CSTM due to growth opportunities
·      Steel sector; Longbow Research upgraded shares of AKS, NUE, STLD and to buy from neutral as channel checks show that sentiment has “clearly improved” since Sept. and the equities have potential to trade higher over the next 12 months; firm is bullish on the sector as equities can rise on improved domestic industry fundamentals, including accelerated demand growth and limited supply; raises 2018 estimates due to stronger price expectations
·      Tankers & Shipping; UBS cut 4Q17 EPS estimates to reflect weaker than expected tanker rates. Firm said while tanker rates did increase sequentially due to seasonal strength, the uplift was not as strong as we expected and think consensus estimates will likely be cut in the coming weeks as analysts mark forecasts to market actual (GNRT, STNG buy;DHT, EURN, TNP neutral; TNK sell)
·      Office furniture; SCS shares came under pressure after a disappointing Q4 EPS and revenue forecast, falling short of views amid a 3Q orders decline of ~6% in the Americas, with backlog down ~7% YoY (recall SCS recently lowered outlook) – shares of other office furniture makers, distributors and retailers active: HNI, MLHR, LEG, LZB, KNL, ACCO, ESND
·      Hospitals; Morgan Stanley downgraded HCA & THC to underweight (though raised tgt to include tax reform benefits; HCA PT to $84 from $79; THC PT to $15 from $14), while upgraded QHC to equal-weight as sees managed care sector as more attractive for 2018. Says the marriages of CVS/AET and UNH/DVA’s Medical Group shows the drive in the sector to focus less on hospital visits and more on lower-cost places
 
Stock GAINERS
·      BB +7%; Q3 results topped consensus as analysts note IP and service access fee revenue were above expectation
·      FDX +2%; trades to a new record high after top/bottom line results beat estimates
·      MU +2%; as Q1 results and forecast handily beat estimates on strong demand
·      NETE +200%; on launch of a blockchain-focused business unit
·      NXTD +61%; was the latest to enter the cryptocurrency arena through its Fit Pay Inc. subsidiary
·      SCS +3%; reverses earlier losses; Q4 EPS/revenue view falls short of ests amid a 3Q orders decline of ~6% in the Americas
·      SIEB +19%; as OSTK’s Blockchain unit TZero takes a 1% stake of assets of Siebert Financial parent Kennedy Cabot, including about 90% stake in SIEB
·      TELL +5%; WSJ reports Saudi Arabian Oil Co., or Aramco, had initial conversations about either taking a stake in TELL or agreeing to buy some of its fuel in the futurehttps://goo.gl/AUHSHw
 
Stock LAGGARDS
·      CBI -3%; extends yesterday decline after merger with MDR
·      PM -3%; as Reuters reported the company has experienced irregularities involving clinical trials with e-cigarette product iQOS https://goo.gl/Ajtojh
·      RHT -5%; shares slip despite billings, total subscription, services revenue, operating margin, EPS, and CFFO/FCF all topped guidance and/or consensus estimates
·      SFIX -13%; dropped after reporting quarterly results for the first time as a public company/Barclays said Q1 revs at the high end of the flash range, and EBITDA beat slightly
·      TXMD -1%; after the company said the FDA will re-review its therapy in 6-months (vs. 2-months)
 

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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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