Mid Day Outlook: January 16, 2018

Scott GreenDaily Market Report

Mid-Morning Look
Tuesday, January 16, 18
  
U.S. equities are higher to start the week, extending record highs for major averages, with stocks hitting new milestones as the S&P 500 topping 2,800 and the Dow Industrials topping 26,000 for the first time. Market rally led this morning by components MRK on positive trial data, Boeing on another analyst upgrade and UNH after stronger earnings and guidance. CNBC notes that in the 6,000 Dow points since 20K, Boeing shares account for ~1,200. Crypto currency markets under pressure as Bitcoin dives below $12,000 to six-week low over crackdown fears (fell as much as 20%), dragging down broader crypto prices (Ethereum and Ripple). The dollar pauses after 4-day decline, while commodity prices and bonds are little changed after volatility last week. Note, if the Dow closes above 26,000 on Tuesday, it would have been just seven trading days since it first closed above the previous 1,000-point milestone at 25,000. That would mark the fastest such move between 1,000-point milestones on record.
 
Treasuries, Currencies and Commodities
·     In currency markets, greenback rebounds after extending a four-day decline during yesterday’s U.S. holiday, weakening against every major currency with Bloomberg’s dollar index approached its lowest level in three years… the euro touched fresh 3-year highs yesterday of 1.2283 before sliding today while the Pound falls after trading above 1.38 yesterday (highest since Brexit); Bloomberg note the Chinese yuan has risen to the highest level in two years amid speculation authorities in China may introduce new measures to cool currency gains
·     Crypto-currencies under pressure; Bitcoin slid nearly 20% to a four-week low, as fears of a regulatory crackdown on the market spread after reports suggested it was still possible that South Korea could ban trading in cryptocurrencies. The slide triggered a selloff across the broader cryptocurrency market, with biggest rival Ethereum down 23% at one point, and the next-biggest, Ripple, plunging by as much as a third
·     Commodity prices; after strong gains last week for oil (up 4.7% last week) and gold (rose 1% last week) – each posting its 5th straight weekly gains, little changed to slightly lower early amid a rebound in the dollar after 4-days of declines
·     Treasury markets little changed after volatility last week; the yield on the benchmark 10-yr dips to 2.54% (down from last week highs of 2.59%), while the 2-yr 2.01% and the 30-yr 2.84%
 
Economic Data
·     The Empire State manufacturing survey slipped to 17.7 in January from a revised 19.6 in December, and below the 19.0 estimate, its third straight monthly decline; the new-orders index and shipments gauges fell in January 7 points to 11.9 and the shipments index fell 9 points to 14.4 while unfilled orders and inventory indexes rose.
   
Sector Movers Today
·     Auto movers; sector active (autos and suppliers) after GM said it expects 2017 adjusted EPS at the high end of prior view and forecast 2018 results to be largely in line with 2017, a view that was above analysts’ estimates; Ford (F) said it was looking to help German mail operator Deutsche Post AG on electric vans; LEA guided 2018 adjusted Ebitda and net sales that were above estimates, while VC and MGA 2018 sales view fell below expectations
·     Semiconductors; QCOM sends letter to stockholders urging to reject AVGO’s undervalued takeover proposal by voting “for” re-election of Qualcomm’s board; separately, QCOM upgraded to buy at Nomura; SIMO downgraded at Susquehanna noting shares up ~25% since last August, and trading at an ~13x ’19 EPS (o longer find the risk/reward attractive); TSM upgraded to buy at HSBC Holdings, looking beyond seasonal/cyclical indicators as structural growth story accelerates; in semi-equipment, AMAT and LRCX upgraded to positive at Susquehanna saying demand should remain stable through the end of the decade; ASML upgraded to outperform at Credit Suisse
·     Optical sector; Goldman Sachs downgraded FNSR to sell, saying it faces increasing risks of oversupply and competition in the optical component market; still, sees a more supportive environment for carrier spending on equipment in 2018 than 2017 and CIEN upgraded to buy from neutral — as a key beneficiary and also upgradesADTN to neutral after underperformance
·     Internet; AMZN tgt raised at BMO Capital to $1,600 and to $1,460 at Bank America, named top pick at Oppenheimer; YNDX estimates upped at Deutsche Bank as see upside to 4Q Yandex Taxi ests for 20% q/q ride growth and now assume lower 4Q loss ests; BABA assumed buy and $240 tgt at Jefferies as see multi-year legroom for growth in both Alibaba’s customer management and cloud revenue; VIPS upgraded to outperform at Bernstein; TWTR upgraded to buy from sell at Aegis with $30 tgt as believes 2018 will be an inflection point
·     Monthly Master Trust credit card data: JPM Dec Net Charge-offs (NCO) were 2.43% vs. 2.36% MoM and Dec. delinquencies fell to 1.20% from 1.22% MoM; DFSDecember charge-off rate 3.1% vs. 3.1% last month and 30 days delinquency rate 2.3% vs. 2.3% last month; ADS December net charge offs 5.9% vs. 5.8% last month and delinquency rate 5.1% vs. 5.0% last month; SYF December charge-off rate 4.94% vs. 5.03% last month; delinquencies 3.02% vs. 3.09% last month
·     Large Cap banks; group was mixed last Friday after results from JPM, WFC, PNC, but a very busy week ahead for earnings in the banking sector; Citigroup (C) results, if strip out the tax reform, Q4 EPS beat estimates, as did fixed-income revenue (took $22B Q4 tax hit which includes $19B related to DTA re-measurement and $3B related to deemed repatriation of unremitted earnings; CMA Q4 EPS beat by 5c on lower provision for credit losses of $17M
 
Stock GAINERS
·     AMT +3%; as tower stocks defended at Goldman Sachs saying pullback overdone (SBAC, CCI)
·     ENR +14%; to buy Spectrum Brands’ (SPB) Batteries Unit for $2B in cash
·     GM +2%; expects 2017 adjusted EPS at the high end of prior view of $6-$6.50, estimate $6.30
·     HAWK +23%; agreed to be acquired by private-equity firms Silver Lake and P2 Capital Partners for about $3.5 billion in cash, with holder getting $45.25 per sharehttps://goo.gl/7VXx2P
·     MRK +8%; interim results from a late-stage study of Keytruda in combination with chemotherapy as a first line of treatment in non-small cell lung cancer show overall survival
·     SFS +12%; upgraded to overweight at Barclays citing easy comps/differentiated format and the impact of tax reform
·     UNH +2%; on Q4 results beating estimates and raises year outlook amid tax cut benefit
·     WYNN +3%; Morgan Stanley raises 2018 Macau gaming revenue growth forecast to 16% from 11%, noting that Q4 revenue growth of 20% topped his expectation for growth of 15%
 
Stock LAGGARDS
·     ADS -4%; December NCOs 5.9% vs. 5.8% MoM and delinquency rate 5.1% vs. 5.0% last month
·     CAR -7%; said it expects continued headwinds in 2018, including incremental impact of rising interest rates
·     CF -5%; cautious comments by Hedgeye yesterday saying has 50% downside – Bloomberg
·     EIGR -47%; will stop developing drug for high blood pressure in lungs after latest results
·     FNSR -5%; downgraded to sell at Goldman Sachs (upgraded CIEN and ADTN)
·     GE -3%; after deeply disappointing $6.2 billion insurance portfolio charge
·     ONCE -5%; downgraded to underperform at Wedbush and cut tgt to $35 from $50 saying Luxturna pricing came in below our expectations
·     RIOT -12%; amid broad pullback in Bitcoin/blockchain names on crypto price pullback
·     UA -6%; downgraded to underperform and cut tgt to $8 at Macquarie citing lower FY18 EBIT, sees amendment to credit agreement and likely capital raise

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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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