Mid Day Outlook: January 5, 2018

Scott GreenDaily Market Report

Mid-Morning Look
Friday, January 5, 18
U.S. equities climb for a 4th straight day in 2018, on track for one of the biggest weekly S&P gains in over a year, and rising despite a “softer” than expected jobs report. Up until today, stocks had been rallying on strong economic data points this week including manufacturing and private payrolls, but stocks are now rising on weak data points as well after the monthly Nonfarm payroll report showed only 146K jobs were added in December, below the 190K estimate while unemployment held at 4.1% and wages rose 0.3% (in-line with economist expectations). The December ISM Non-Manufacturing report (services) also fell short of estimates (55.9 vs. 57.6 est.), but again, stocks ignore and look to set records for a 4th session. After volatility initially, bonds have settled around yesterday’s close, while the dollar has bounced. All three major indices closed at record highs on Thursday, with the Dow shooting above 25,000 points for the first time, and the Nasdaq Comp topping 7,100 today as investors continue to put money to work to start the year on positive sentiment buoyed by the recently passed tax package in the U.S., rising commodity prices, strong economic data and robust corporate earnings.
Treasuries, Currencies and Commodities
·      In currency markets, the dollar volatile this morning, trading higher initially (bouncing off 3-month lows), only to fall sharply (and quickly) after the jobs data miss, but has since recovered to trade modestly higher on the day; Bitcoin prices jumping today up over 7%
·      Commodity prices; gold prices looking to extend gains to an 11th consecutive session, moving all over the place this morning after the weaker jobs and services data points; gold trading around $1,320 an ounce. Oil prices pulling back from 3-year highs after strong gains this week
·      Treasury markets gained initially and yields fell after December monthly jobs report that fell short of expectations (reported at 148K, below the 190K est.); the 10-year Treasury yield fell to 2.439% from 2.465% prior to the release and the 2-yr slumped 2 bps to 1.932% from 1.972% (yields have since bounced off lows to trade higher
Economic Data
·      Jobs data misses views; the U.S. added 148K jobs in December, the slowest pace in three months and below the 190K estimate (though prior month upwardly revised to 252K from 228K); the unemployment rate remained steady at 4.1% for the third straight month while worker pay increased 2.5% YoY up from 2.4% in the prior month (rose 0.3% for Dec, in-line with views)
·      The U.S. trade deficit widened 3.2% to (-$50.5B) in November, the highest trade gap since January 2012 and above the (-$49.9B) estimate; imports rose 2.5% to $250.7B while exports rose 2.3% to $200.2B; the year-to-date, the deficit is up 11.6% from the same period in 2016
·      Factory orders for October rose 1.3% vs. an estimate 1.1% rise; orders were revised up to 0.4% from a previous reading of (-0.1%); new orders ex-transportation for Nov. rise 0.8% and new orders ex-defense for Nov. rise 1.2% after rising 0.6% in Oct.
·      ISM Non-Manufacturing (service sector) fell to 55.9 from 57.4 prior and was below the 57.6 est.; the composite index was the lowest level since August; component breakdown: Business activity fell to 57.3 vs 61.4 prior month while New orders fell to 54.3 vs 58.7 (its third decline in a row and largest decline since July) while employment rose to 56.3 vs 55.3
Sector Movers Today
·      Semiconductors; story of the week remains INTC after admitted that its chips have a vulnerability that will require software patches, but denied a media report that said other companies’ chips were not affected; Goldman Sachs upgraded XLNX to buy and adds to conviction list while reiterate buy on NVDA and remains cautious TXNand AMD; Goldman maintains constructive view on semiconductor capital equipment sector; SIMO announced prelim Q4 rev at upper end of $130-136M guidance vs. est. $133.3M and gross margins near mid-point of 45.5-47.5%
·      Transports; sector all-time highs yesterday, led by FDX and UPS (both at record highs); FDX upgraded to buy today at UBS as well as rail UNP (which was also upgraded at Wolfe), and trucker WERN upgraded to buy; Rail cars weak early as GBX Q1 EPS missed by 10c and revs also fall short ($559.5M vs. $591M est.) – TRN, ARII, RAILactive; as mentioned above, the rail sector upgraded to overweight at Wolfe saying fundamentals are clearly positive right now with strong intermodal and merchandise demand trends (upgraded UNP)
·      Housing/Building; several analyst calls today on building products, with three separate upgrades of USG today (JPM, Barclays, Baird); 1) JP Morgan upgraded USG to overweight as anticipate higher capacity utilization for the wallboard industry will drive improved pricing and downgraded MAS to neutral while saying MHK consensus is too high and top picks SWK, FBHS; 2) Barclay’s boosted price targets to account for the intrinsic value benefits from tax reform, driving higher multiples than our prior forecasts (firm said MHK remains top pick while upgrading USG and CBPX to overweight – within builders they upgrade TPH to overweight); 3) Wells Fargo follows Tuesday upgrade of LEN with upgrade of TMHC to outperform despite its fast start out of the gate the past three trading days (top Picks remain DHI and OC); 4) Baird upgraded USG to outperform as believe the company’s underlying EPS power is underappreciated by investors
·      Restaurants; SONC reported Q1 results that were mixed, as comps fell slightly short of expectations but EPS exceeded estimates, aided by a favorable tax rate; JACKwas upgraded to buy at Goldman Sachs saying the company is a strong beneficiary of tax reform; WING was downgraded to neutral at Wedbush saying checks point to Q4 trends below consensus; Piper said on the group, they recommend CMG and PBPB as “recovery stocks”; and also highlight a small basket of “strategically interesting or value” stocks including BJRI, CAKE, HABT and PBPB
·      Retailers; Barclay’s upgraded TGT (raise tgt to $70 from $45) and LOW (tgt to $120 from $85) to overweight saying the Trump tax reform positions the retail industry exceptionally well in 2018; Buckingham Research upgraded FL to buy saying key product assortments are improving and we expect an inflection in comp by 2Q18, while the firm cut CROX & FOSL to underperform; BKS shares fell as its holiday period comp-store sales down (-6.4%) YoY while total sales also fell (-6.4%) and online sales fell (-4.5%); UAA shares rallied after Buckingham upgraded to neutral
·      DWCH +23%; hired a financial adviser after receiving expressions of interest from potential acquirers, sources familiar with the matter said on Thursday – Reuters https://goo.gl/RbTGXp
·      FC +14%; after earnings results
·      MNTA +14%; reported positive top-line data showing safety, tolerability and proof of mechanism for M281 in a phase 1 single ascending dose and multiple ascending dose study
·      SONC +5%; mixed Q1 results as comps fell slightly short of expectations but EPS exceeded estimates, aided by a favorable tax rate
·      UAA +6%; upgraded to neutral at Buckingham Research
·      USG +6%; upgraded by three analysts today in broad sector calls positive on building products (JPM, Barclays, Baird all upgraded rating)
·      VRTX +2%; upgraded to buy at Bank America and named one of large cap biotech picks
·      XLNX +3%; upgraded and added to conviction buy list at Goldman Sachs
·      BKS -13%; said its holiday period comp-store sales down (-6.4%) YoY while total sales also fell (-6.4%) and online sales fell (-4.5%)
·      CALM -5%; posted lower Q2 EPS and revenue results
·      CORE -17%; cuts FY17 adj. EPS view to 94c-$1.01 from $1.20-$1.24 and below consensus $1.19 and backs FY17 revenue guidance of $15.7B
·      DB -3%; sees small FY17 after tax loss on IFRS basis/saw low levels of Q4 client activity in key areas
·      FRAN -19%; cut its EPS view to 18c-23c from 35c-40c (below est. 36c) and lowers Q4 revenue guidance to $137M-$139M from $145M-$150M
·      GBX -4%; as Q1 EPS missed by 10c and revs also fall short ($559.5M vs. $591M est.)
·      KALA -28%; announces topline results for two Phase 3 Trials of KPI-121 (misses primary symptom endpoint in STRIDE 2)
·      ROKU -8%; receives 2nd analyst downgrade in as many days on valuation (Citigroup cut today, after Morgan Stanley yesterday)
·      STZ -2%; mixed Q3 results as EPS beat, but revs fall short of consensus and said that for FY18, it now expected wine & spirit results to be at lower end of previous ranges
·      Crispr Therapeutics (CRSP) 5M share Secondary priced at $22.75
·      Novan (NOVN) 10M share Spot Secondary priced at $3.80
·      Oneok (OKE) 19M share Spot Secondary priced at $54.50
·      Sempra Energy (SRE) 23.4M share Secondary priced at $107.00


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.

Live Trading

Open an Account

Paper Trading