Mid Day Outlook: January 12, 2018

Scott GreenDaily Market Report

Mid-Morning Look
Friday, January 12, 18
Is there any stopping this bull-run? U.S. stocks on pace to post record closing highs for the 8th time in 9 days to start the year, with market euphoria soaring ahead of earnings season and the positive effects the Trump administration tax plan will have on companies. Banks the first to kick off earnings today, with JPM, PNC, WFC posting mixed results (softer trading), but the outlook from tax reform and rising bond yields (helping lending margins) overshadow the results, sending many names higher. Transports at fresh record highs as well, adding to yesterday’s gains, while interest rate sensitive sectors lag (utilities). Bonds fall and yields rise as core U.S. consumer prices climbed at the quickest pace in nearly a year in December while retail sales cooled data on Friday showed (sending the dollar lower and bond yields higher on rising inflation expectations). After knocking out a round-number milestone at 25,000, marking the fastest such move for the gauge in its 121-year history, the Dow Industrial average is a little more than 200 points away from the next round number of 26,000. The dollar falls broadly against the Pound and Euro given developments overseas (more below), while oil prices pare gains. A sharp decline at Facebook weighed on the technology sector early after saying it will prioritize personal posts from family and friends over business and news media posts – but the NASDAQ has since rebounded.
Treasuries, Currencies and Commodities
·      In currency markets, dollar falls again: the Pound hits strongest level vs. the dollar since 2016 Brexit vote, with intraday high of $1.3693 following a Bloomberg report that Spanish and Dutch finance officials will work toward the EU reaching a so-called soft Brexit deal with the U.K. (GBP up 1%); the Euro surges to 3-year highs against the dollar after reports Chancellor Angela Merkel’s conservative CDU party and Martin Schulz’s center-left SPD agreed to a blueprint for formal coalition negotiations. The Germans voted in a general election on Sept. 24, where Merkel’s party came out with the most votes, but fell short of an outright majority (euro highs 1.2149); crypto currencies rebound following yesterday decline (Bitcoin up 3%)
·      Commodity prices; gold prices back near four-month highs, but upside limited following a stronger-than-expected inflation reading, raising the prospect of higher interest rates from the Fed; Energy futures slightly lower after a strong run to start the year, that has seen both WTI crude and Brent trade at their best levels since late 2014 amid several factors
·      Treasury market’s fall and yields rise (especially on short-end) after stronger-than-expected inflation data (CPI today) look to give the Federal Reserve more room to tighten monetary policy and raise interest rates; the yield on the 2-yr rises as much as 4 bps to highs 2.01% (first move above 2% since Sept 2008), while the 10-yr yield rises to 2.57%
Economic Data
·      Retail sales for December rose 0.4% in December to mark the fourth straight gain, but was slightly below the 0.5% estimates; both the November and October sales total were revised higher; ex: autos and gasoline for December, retail sales also rose 0.4%, above the 0.3% estimate;
·      The consumer price index (CPI) rose 0.1% in December (mostly tied to housing), which was in-line with economist estimates; the core CPI (gas and food are stripped out), rose a much sharper 0.3%, slightly above the 0.2% estimate; the 12-month rate of inflation as measured by the CPI slipped to 2.1% from 2.2%; the core rate edged up 1.8% from 1.7%
·      Business Inventories for November rose 0.4% MoM, in-line with expectations while business sales rose 1.2% in November after rising 0.8% the prior month; Inventory/sales ratio at 1.33 in Nov. vs 1.40 a year ago; the ratio is the lowest since Nov. 2014, when it was at 1.32
·      Jan. IBD/TIPP economic optimism index at 55.1 after Dec.’s 51.9; the economic outlook rose to 55.5 vs 49.8 last month; personal finance rose to 64 vs 59.1 last month and Federal policies fell to 45.7 vs 46.7 last month
Sector Movers Today
·      Financial earnings among top stories today with results from JPM, WFC, BLK and PNC; 1) JPM record highs as Q4 EPS beat and revs mostly in-line while trading revs fell 26% to $3.37B, led by 34% decline in fixed income (Bloomberg est. was for -19% decline); equity-trading rev. was little changed YoY while investment banking revs also missing views; 2) WFC Q4 EPS beat while revs missed and said NIM 2.84% below Bloomberg est. 2.87%; higher profits, aided by new tax law; 3) PNC Q4 EPS beats by 9c and reported NIM on taxable-equivalent basis that missed the average analyst estimate (2.88%, vs. Bloomberg estimate 2.91%); said 4Q provision for credit losses $125M; 4) BLK rises after Q4 revenue top estimates and year’s net inflows rose to record $367B; 59% increase in year diluted EPS to reflect net tax benefit from tax law and raises dividend
·      Aerospace & Defense; Credit Suisse said they continue to be particularly enthusiastic about commercial OE on revenues, cash flows, and margins and have Outperform ratings on each of the three OEMs we cover (and raised tgt on BA to $375) – the firm upgraded AIR to Outperform from Neutral, but cut CACI to Neutral and downgraded ESL and MOG/A to Underperform
·      Auto sector; Wells Fargo upgraded the autos supplier sector to market weight from underweight saying demand for the group is likely to stay resilient and prevent an earnings reset in 2018/the firm also upgraded MGA to outperform from market perform saying consensus 2018/2019 revenue and EPS estimates too low (sees GNTX as biggest beneficiary of tax reform and raised targets for ALV, APTV, ADNT, DLPH, GNTX, andVC)
·      Consumer finance sector; JP Morgan maintained view that the consumer credit cycle has entered extra innings. Thus, while the optics of tax relief make consumer finance stocks appear cheap, we wonder if this implicitly assumes a mid-cycle multiple on peak earnings (the firm downgraded AXP and ALLY to neutral, cut NAVI and OMF to underweight and upgraded SC to overweight);
·      BA +1%; extends record highs and now up about 13% since the start of the year
·      DKS +4%; upgraded to buy at Deutsche Bank as believes industry trends are bottoming and notes that Dick’s inventory levels are coming back into balance
·      KSS +3%; raised by both JP Morgan (to overweight) and RBC Capital (to sector perform)
·      MSI +3%; upgraded to buy at Deutsche Bank
·      SYNA +11%; upgraded to overweight at KeyBanc on greater confidence in turnaround story thanks to strong in-display fingerprint sensor positioning, shrinking dependence on single product
·      TGT +3%; broad strength in retail sector this morning
·      TWTR +4%; tgt raised to $30 at BTIG saying the company in early stages of a multi-year turnaround
·      ARDM -32%; FDA did not recommend approval for Linhaliq as a treatment for non-cystic fibrosis bronchiectasis patients with chronic lung Pseudomonas aeruginosa infections
·      AFL –5%; on reports it has exploited workers, manipulated its accounting, and deceived shareholders and customers, according to nine former employees https://goo.gl/2W8Wao
·      CNCE -23%; as the USPTO Patent Trial and Appeal Board (PTAB) rejected its petition challenging the validity of INCY’s U.S. Patent No. 9,662,335 covering deuterated ruxolitinib analogs
·      CSIQ -2%; said it sees Q4 and year results below views citing delayed closings
·      FB –4%; after the company making major changes, shifting users’ news feeds back toward posts from friends and family and away from businesses and media outlets (less ads may hurt results)
·      GME -9%; reported a big jump in holiday sales (comps rose 11.8%), but said it would take impairment charges of $350M-$400M related to its technology brands business
·      SNAP -3%; downgraded to underperform at Raymond James saying Snap is largely a Chat/Message app and not a camera company as it refers to itself


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