Market Review: December 27, 2017

Terrie AmengualDaily Market Report

Closing Recap
Wednesday, December 27, 2017

Equity Market Recap

·      U.S. stocks ended the day mixed, falling from earlier highs in a slow, low volume trading day in this holiday shortened week. Gold rises a fifth day to 3-week highs while the dollar index hit a 3 ½ week low on mixed economic data. Oil prices slipped from 2 ½ year highs and bonds jumped, sending yields sharply lower in the only volatile trading. Stocks continue to hold near all-time record closing levels, led by strong earnings, positive tax legislation and improving economic data. U.S Treasury yields have gained upside momentum recently, leading to underperformance by interest rate sensitive stocks, especially REITs and utilities…but that was not the case today, with yields sliding after softer economic data. Year to date, the Dow is on track for a 25% gain, the S&P 500 a 19% gain and the Nasdaq Comp up 29%. The S&P 500 Index was unchanged after a two-day slump as data showed American consumers remain upbeat about the economy.

Commodities

·      Oil prices dipped, falling 33c or 0.55% to settle at $59.64 per barrel, pulling back from 2 ½ year highs yesterday.  U.S. crude futures briefly popped above $60 a barrel Tuesday after a pipeline explosion in Libya—ending the day up 2.6% at the highest settlement since June 2015. The incident is expected to reduce oil production there by up to 100,000 barrels a day. Today appeared to be a day of profit taking that was offset by a weaker dollar lifting commodity prices. Natural gas prices rise 3.59% to settle at $2.738 mln btus

·      Gold prices settle higher by $3.90, or 0.3% to settle at $1,291.40 an ounce, extending its winning streak to five straight session amid overall strength in commodity prices. The recent push higher has been aided by a decline in the U.S. dollar, with the ICE U.S. Dollar Index (DXY) falling about 0.3% to trade back below the 93 level (after highs mid-December of 94.21 after the FOMC raised interest rates. Industrial metals also enjoyed gains, highlighted by high-grade copper for March delivery adding to its more than four-year high, on reports of increased demand from China.

Currencies

·      The U.S. dollar slipped on Wednesday after a weaker consumer confidence reading this morning; the euro topped the 1.19 level against the dollar from $1.1859 late Tuesday), while the euro touched a more than 2-year high against the Japanese yen; overall it was a quiet session where the dollar remained lower throughout, helping prop up commodity prices. The dollar was little changed against the yen, while Bitcoin prices (after surging yesterday) fell over 6% today.

Bond Market

·      Bonds rallied as Treasury yields declined following a round of weaker-than-expected economic data, as consumer confidence dipped in the latest month. The yield for the benchmark 10-year Treasury note dropped over 5 bps to 2.412% (from 2.467% late Tuesday), while the 30-year bond yield fell 6 bps to 2.747% from 2.813%. The 2-year note yield topped 1.91% (close to the highest levels seen since Sep. 2008), before fading slightly. The Treasury Department sold $34 billion of 5-year notes at a yield of 2.245% (the highest yield since April 2010) above the 2.228% WI, with a bid-to-cover at 2.36 (vs. 2.46 prior auction), the lowest since June and indirect bidders awarded 58.4% of auction (smallest since April)

Economic Data

·      Consumer confidence in December fell to 122.1 vs. 128.6 prior month and below the 128.0 estimate; the present situation confidence rose to 156.6 vs. 154.9 last month, while the expectations fell to 99.1 vs. 111.0 last month

·      Pending home sales ticked up 0.2% in November according to the National Association of Realtors; November’s increase missed the consensus forecast of a 0.5% monthly gain; unadjusted pending homes up 0.6% y/y after rising 1.2% y/y in Oct.

Sector News Breakdown

Consumer

  • Retailers; retailers outperformed yesterday on positive MasterCard PulseSpending data, but the group pulled back today following mixed retail data released from The Retail Economist and Johnson Redbook (M, KSS, JCP, TLRD, JWN); DG said it is planning to open a distribution center in Longview, Texas, that will create about 400 jobs; ELY revealed that it invested an added $20M in TopGolf (tgt price was raised at Davidson on news, while Compass Point downgraded to sell); NTRI announced several new diet programs as it heads into the 2018 diet season
  • Leisure/autos, TSLA Model 3 estimates lowered for 4Q, 2018 at KeyBanc, and slightly for 2019 as 4Q checks indicate Model 3 deliveries tracking to ~5,000 (which they say is in-line with mgmt tgts but slightly below their prior 15K est.); strength in lodging stocks, with MAR & HLT at record highs

Energy

  • Energy stocks were mostly lower, giving back some of Tuesday’s gains after WTI oil prices hit a 2 1/2-year high following an explosion at a pipeline that connects crude-oil fields to Es Sider oil terminal. Libya’s state-owned National Oil Corporation said it expects a production loss of 70,000 to 100,000 barrels a day. Today, the head of Libyan state oil firm NOC told Reuters that the repair of the pipeline will take about one week.
  • The Permian Basin has shattered its 1973 record to produce 815 million barrels of oil during 2017, or more than 2.23 million barrels a day, according to IHS Markit. The previous peak of 790 million barrels, or 2.16 million barrels a day, was set 44 years ago – Dow Jones

Financials

  • Large Cap banks; BCS said it expects to book a $1.3B charge to its 2017 accounts following the changes to U.S. tax reform, which will also reduce its Core Equity Tier 1 ratio by 20 basis points/and added that its U.S. deferred tax assets will be GBP1 billion lower due to the new tax; CB said it expects a one-time benefit in excess of $250M in Q4 with passage of U.S. tax overhaul; COF refiled its 2017 CCAR submission whereby it wrote down $1.9B of DTA, nearly all of this had been included in regulatory capital, and reduced its capital return ask to $1B (from $.185B).

Healthcare

  • Biotech/Pharma movers; HTGM said it signed a new master collaboration agreement with Merck KGaA  in Germany; SHPG says it filed its first submission to the FDA for the company’s new plasma manufacturing facility in Covington, Georgia and facility expected to add about 30% capacity to internal network once fully operational/sees commercial production to begin in 2018; HZNP said it has received U.S. FDA approval to expand the indication for its treatment for nephropathic cystinosis; PLX said its PRX-102 for the treatment of Fabry disease has been granted Orphan Drug Designation by the European Commission; KND advanced after 5.8% stake holder Brigade said to vote against merger with HUM
  • Suppliers & Devices; GKOS said it has submitted a pre-market approval (PMA) application to the U.S. FDA for the iStent inject® Trabecular Micro-Bypass Stent; UTHR tgt raised to Street high $232 at Wedbush saying the Street is overlooking growth of Orenitram and the next generation products including RemoSynch implantable (SynchroMed) pump for Remodulin; Piper said in note that HSIC is positioned to fight AMZN in the dental sector

Industrials & Materials

  • Aerospace & Defense; BA and Royal Air Maroc report orders for four 787-9 Dreamliners, valued at $1.1 billion at list prices, according to a statement; Airbus to phase out A380 production if unable to win Emir Airbus to phase out A380 production if unable to win Emirates deal, Reuters reported; defense names overall mixed on the day

Technology, Media & Telecom

  • Technology; rebound for chip stocks (AMD, MU, SWKS, QRVO) early following weakness yesterday on reports Apple has cut its sales forecast for the iPhone X (according to the Economic Daily News – Apple sees 30M iPhone X sales in 1Q compared with previous forecast of 50M, EDN had reported); media names weak, led by drag in VIAB (cautious comments at Loop Capital), along with CBS, DISCA as well
  • Software & Hardware; WATT shares jumped after it received FCC certification for its wireless charging transmitter, WattUp Mid Field/said its charging transmitter can wirelessly charge devices from distances up to 15 ft., wireless charging tech currently used in smartphones and wearables requires placing the device on a charging pad; DPW entered its first co-location pact that will ultimately provide for the installation of 1k units digitally mining a mix of the top 10 cryptocurrencies

 

 


 

   
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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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