Tuesday, January 2, 18
U.S. stocks open the year strong, with broad based gains for S&P sectors as investors put money to work to start 2018 after strong returns in 2017. There were a few geopolitical headlines over the weekend with attention turning to Iran after nine people were reported dead after overnight clashes between protesters and security forces. In North Korea, leader Kim Jong Un said Monday that Pyongyang had completed its nuclear weapons program, which could reach any point in the continental U.S. Kim, however, also suggested he is willing to engage in talks with South Korea. So far, no impact on U.S. markets which are being led higher by tech, with the Nasdaq Comp at highs, trading up over 1.1% or 80 points (after the index outperformed in 2017 with 29% gain), while the S&P and Dow Industrials also rally, but to a smaller extent. Bonds and the dollar slump early with oil prices flat and gold looking to make it an 8th consecutive session of gains. After a late day swoon last Friday, major U.S. averages are seeing strong buying to start the day and year.
Treasuries, Currencies and Commodities
· In currency markets, the U.S. dollar starts 2018 the same way it ended 2017, in a downward pattern, falling for a 5th straight session and moving to the lowest levels since September (dollar index traded lows of 91.75 before paring losses); the euro touched highs of 1.2081 (just shy of 2017 high at 1.2092), while the dollar slipped vs. the yen as well. The British Pound rises to its best levels against the greenback since September as well, trading highs of 1.3568. Note the dollar index lost 9.9% in 2017, suffering its worst year since 2003.
· Precious metals rising as gold futures extend its winning streak for an eighth session in a row—trading to $1,315 an ounce amid further weakening in the dollar, and as prices breaking out. Gold’s close Friday at $1,309.30 marked the futures market’s highest settlement level since late September.
· Energy futures little changed after earlier gains; Brent crude hit its highest level in more than two years amid concerns about possible supply disruptions following unrest in Iran
· Treasury market’s slide as U.S. stocks rise; the yield on the benchmark 10-yr rises more than 4 bps, moving above the 2.45% level; the yield on the 2-yr up around 1.915%; overall, yields rising after sliding the last 5-days in 2017
· Dec. Manufacturing PMI rises to 55.1 vs Flash Reading 55 (and prior 53.9 reading and year ago 54.3) – marks the highest reading since March 2015; said employment rises to 55.8 vs 54.7 in November (highest reading since Sept. 2014)
Sector Movers Today
· Media & Internet; Macquarie with a sector call as they upgraded NFLX to outperform and $220 tgt (from neutral and $200) saying the company is “miles ahead of peers,” with subscription OTT TV as Disney’s service is still two years away; Firm also upgrades DIS to outperform from neutral, citing long-term potential from direct-to-consumer (DTC) OTT, international distribution; upgrades DISCA to outperform from neutral: under-appreciated upside from Scripps merger, “burgeoning DTC opportunities” in Europe; downgrades CBS, AMCX to neutral from outperform, and VIAB to underperform from neutral amid worries about their advertising base
· Advertising; Macquarie said it is moving to a more negative stance on ad agencies, downgrading all ad agencies under coverage: OMC and IPG to Underperform, and WPPGY and PUB to Neutral, based on lower underlying demand for their services leading to a slower top-line outlook and flattening margins; also downgrading NLSN to Neutral with this backdrop and lack of n-t catalysts
· Paper & Packaging sector; Bank America upgraded IP to buy from neutral, PCH to neutral from underperform, BRC to buy vs underperform and GEF to buy vs neutral – recommends investors adding to equities that offer “more offense” for the sector for 2018, and highlights BERY as his “single best idea to start 2018;” also downgraded BMS and SLGN to underperform from neutral
· MedTech sector; several analyst calls to start the year; 1) Bank America upgraded MDT and BAX to Buy and downgraded IART to neutral saying MedTech faces headwinds, but MedTech innovation remains a step ahead & valuations reasonable; 2) JP Morgan has 2018 industry outlook note with top large-cap picks: BAX/ZBH; top small-cap picks: XENT/IRTC; upgrading ABT, BAX, XENT, and SYK to overweight and downgrading EW, JNJ, and PEN to neutral and cutCFMS and ELGX to underweight; 3) Morgan Stanley upgraded shares of both GMED (citing recent launch into robotics and upcoming entry into trauma position) and HAE to overweight (saying visibility on transformation at Haemonetics has improved)
· Casino sector; was under pressure early after Macau gaming revenue rose 14.6% in December to 22.7 billion patacas, missing the median estimate of 20% increase in a Bloomberg survey (WYNN, LVS, MLCO shares dropped early); Nomura noted December was MOP22.7bn, or +14.6% y-y. The lift was about 600bps below the latest cons. est. of +21%, which could put pressure on the group in the near term
· AAP +6%; Wedbush said continue to see the best risk/reward for AAP, which is not only the biggest beneficiary of favorable weather, but also is starting to gain traction with its turnaround
· ABT +3%; upgraded by two analysts and added to best ideas at Guggenheim as well
· AKAO +3%; as FDA has accepted for review its marketing application seeking approval for aminoglycoside antibiotic plazomicin for the treatment of complicated urinary tract infections
· BAX +3%; upgraded by two analysts (JPM and BoFa) in several industry MedTech notes
· ERJ +5%; after news that Boeing acquisition proposal is said to include defense unit
· MCD +1%; price target raised to $200 at BTIG (as firm downgraded JACK as well)
· NFLX +4%; upgraded to outperform and $220 tgt (at Macquarie saying the company is “miles ahead of peers,” with subscription OTT TV as Disney’s service is still two years away
· TER +5%; upgraded to outperform and tgt to $52 at Evercore ISI saying research shows higher earnings potential into 2018 with the SOC Test market expected to grow to at least $2.9B
· ALL -1%; downgraded to underperform at KBW Inc. saying the company’s margin expansion story just about played out
· IART -2%; downgraded at both Raymond James and Bank America
· MRUS -14%; downgraded at RBC Capital as sees fewer potential upside drivers in 2018
· OMC -1%; as Macquarie said it is moving to a more negative stance on ad agencies/cuts ratings
· PCG -2%; downgraded at both Guggenheim and Goldman Sachs as utilities weak
· WYNN -1%; Macau gaming revenue rose 14.6% in December to 22.7 billion patacas, missing the median estimate of 20%
· WFT -16%; scrapped a planned U.S. pressure pumping JV, instead will sell its equipment to SLB (Bank America said views the transaction negative for WFT, as it would miss out on upside to the U.S. market and combined JV)
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.