Mid Day Outlook: January 17, 2018

Scott GreenDaily Market Report

Mid-Morning Look
Wednesday, January 17, 18
After slipping yesterday, U.S. stocks are rebounding today, with another 100 point gain for the Dow Industrials and another rally in tech, though financials slump after mixed quarterly results from BAC, GS, and USB. Stocks are looking to recover after the S&P 500 suffered its worst reversal in two years Tuesday, while volatility picks up (VIX rises to best levels since November). The dollar bounces after trading to 52-week lows earlier today, while commodity prices are little changed and Bitcoin tumbles for a second straight session (down over 50% from record highs). In central bank news, the Bank of Canada raised rates by 25 bps (as expected) to 1.25% but dovish comments and caution about Nafta has the loonie lower. Tech being led by semiconductor stocks after ASML results topped views, lifting peers and chip names. Auto names mixed after Ford offered a cautious profit outlook. Earnings pick up tonight and tomorrow with results in materials, banks and other financials.
Treasuries, Currencies and Commodities
·      In currency markets, the Canadian Loonie tumbles after the Bank of Canada hikes rates by 25bps (as expected) and warns of NAFTA uncertainty; the dollar posting gains early against the euro and yen after sliding late yesterday; the dollar index bounces off 52-week lows (touched 90.11 earlier today – back up around 90.65)
·      Bitcoin dropped below the $10,000 level as the cryptocurrency and its rivals drop further after Tuesday’s big selloff. Bitcoin’s dropped over 15% to below $9,500, and at its lowest level since late November. This week’s selling has been blamed in large part on worries about increased regulatory scrutiny in South Korea and other countries.
·      Commodity prices; gold prices pullback from 4-month highs as the U.S. dollar steadies/rebounds against other rival currencies; oil prices little changed after WTI crude snapped its 5-day win streak yesterday, slipping from 3-year highs ahead of inventory data tonight (API pushed out a day due to holiday) and tomorrow
·      Treasury markets slightly higher despite mostly better economic data this morning; the yield on the 10-yr slips slightly to 2.54% while 2-yr at 2.03% and the 30-yr 2.81%
Economic Data
·      Industrial production rose 0.9% in December, above the 0.5% estimate and was the fourth straight monthly increase; the prior month was downwardly revised to (-0.1%) from 0.2% however; for the calendar year, production rose 3.6%, up from a 0.8% gain in 2016 and the fastest pace since 2010.
·      Capacity utilization rose to 77.9% in December, the highest rate since February 2015 and was above the 77.4% estimate (prior month revised to 77.2% from 77.1%)
·      U.S. Home Builders’ Confidence index in January falls to 72 from 74 last month, but in-line with estimates; present single family sales falls to 79 vs 80 last month; future single family sales falls to 78 vs 79 last month; prospective buyers traffic falls to 54 vs 58 last month
Sector Movers Today
·      Financials giving up recent gains with BAC, GS and USB trading lower after mixed results this morning; GS Q4 revenue from fixed-income trading tumbled 50%, with revenue falling to the lowest level since the financial crisis and the last three months also brought Goldman Sachs’s first quarterly loss in more than six years (overall beat on EPS and revs); BAC another messy quarter for big banks, though EPS tops views though said client activity was strong across all of our businesses in 2017;OZRK and Citigroup (C) both downgraded at KBW after earnings yesterday; SCHW Q4 revs met estimates and EPS beat but expenses missed; USB also a mover on earnings
·      Casino, Lodging & Leisure; in cruise lines, NCLH was upgraded to buy at SunTrust with $68 tgt saying 2018 pricing and demand look solid; in lodging, Morgan Stanley upbeat on U.S. lodging stocks in the near term but is worried about the economic outlook at the end of 2018 (firm upgraded LQ to overweight and downgraded HLT – maintains MAR at overweight, DRH and SHO at underweight); in leisure, PII was upgraded to neutral at Longbow
·      Packaging sector; JP Morgan downgraded SLGN to Underweight while firm says looking into 2018, they expect EPS growth for the packagers to accelerate and be roughly double the growth rate of the market, with acquisitions and synergies from deals being the largest driver of this growth; said BLL, BERY and CCK remain our top picks as they should see strong EPS and FCF growth rates; in other news, BLL was upgraded to buy at Citigroup as views the recent selloff as overdone and sees an attractive entry point at current share levels
·      Dry bulk sippers; JP Morgan downgraded DSX, NMM to neutral saying with the recovery in dry bulk maturing and the consensus view shifting, they are becoming more selective in stock picking, downgrading a portion of our names. However, they continue to see material upside in our remaining OW stocks (SBLK, GOGL, andSALT). At this point, they anticipate a cycle peak around 12-18 months out, and assuming investors are forward looking 6-9 months, see a dry bulk investment having an exit potentially in the back half of 2018
·      MLPS; Barclays said they inclined to favor MLPs closer to the wellhead, driven by crude economics versus gas; also favors MLPs that “participate in the integrated value chain in attractive basins”; doesn’t see the “more stable names” that outperformed last year continuing under 2018 backdrop; upgrades TRGP, OKE to overweight from equal weight; upgrades BWP, CEQP to equal weight from underweight; downgrades PAA/PAGP, WMB/WPZ, AMGP, WES/WGP, PSXP, VLP to equal weight and downgrades DKL to underweight from equal weight
·      ASML +5%; rises after topping profit forecasts
·      BLUE +7%; up in sympathy with JUNO/CELG news
·      EHTH +9%; shares rise on better preliminary Q4 results and purchase of GoMedigap
·      IBM +2%; upgraded to overweight at Barclays and raise tgt to $192 as company could be entering a period of top-line stability and maybe even modest growth over the next 12-18 months
·      JUNO +50%; CELG is in talks to buy biotechnology company JUNO just days after announcing another major deal to bolster its portfolio of blood-cancer drugshttps://goo.gl/aSWZ2c
·      LRCX +4%; as semi-equipment stocks higher after better ASML results
·      PSTG +8%; upgraded to overweight and $22 tgt at Barclays
·      ZAGG +8%, rebounding after yesterday’s 17% decline
·      ADNT -9%; downgraded to neutral at Baird as company published slides which detail intensifying operational challenges in its Seating components unit that are likely to weigh on margin/cash flow
·      ATEN -18%; sees preliminary Q4 adjusted EPS 5c-6c on revs $55.5M-$56.0M vs. est. 3c/$65.1M;
·      DISH -4%; after Morgan Stanley downgraded to equal-weight citing fewer likely buyers of Dish assets and a less favorable regulatory environment for M&A
·      ETH -8%; reported 2Q preliminary results that trailed estimates/downgraded at Telsey on news
·      EXAS -10%; shares dropped after release of abstract on possible Cologuard competitor
·      EXEL -7%; said its cabozantinib cancer drug achieved its primary endpoint in a late-stage study and will be submitted to the FDA before the end of the quarter/overall survival data was on par with standard of care (Bayer’s regorafenib)
·      Ford (F) -3%; said it expects lower operating EPS profit in 2018
·      GE -4%; turns negative for the year
·      HALO -10%; after updated data of PEGPH20 in combo with modified Folfirinox chemotherapy (mFFOX) showed a sizable difference in median overall survival that will concern investors
·      HIVE -29%; cuts Q4 revenue view to roughly $37M from $40M-$42M vs. est. $40.89M; expects non-GAAP gross margin to be between 67.5%-68.5%
·      MNK -1%; is weighing a breakup of its generics business after getting bids that were less than expected for an outright sale, according to Bloomberg
·      RIOT -10%; amid another sharp decline in Bitcoin prices and related “blockchain” names
·      XRAY -4%; after three executives were forced out last year – WSJ reported; names new CEO


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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