Mid Day Outlook: January 19, 2018

Scott GreenDaily Market Report

Mid-Morning Look
Friday, January 19, 18
  
Equities are higher, on track for its 3rd-consecutive weekly gains. A confluence of factors could be dragging markets lower, including: 1) weakness in Dow components AXP and IBM after earnings (both beat top/bottom line, but AXP suspends dividend on tax charge and guides year lower while IBM margins miss views), 2) fears of a potential gov’t shutdown (more below), and weaker confidence data as University of Michigan sentiment falling to lowest levels since July and missing estimates. But markets remain resilient, with major averages recouping early losses and rebounding after yesterday’s late day decline from record highs. Energy stocks are lower after the IEA said in its monthly report this morning that U.S. oil output is set for “explosive” growth in 2018, raising its forecast for production by 240,000 barrels a day to 1.35 million barrels. Coming into today, the Dow was poised to gain 0.8%, while the S&P 500 is set to rise 0.4% and the Nasdaq Composite 0.5%
 
The US House of Representatives on Thursday passed a stop-gap bill to fund federal agencies beyond Friday night but the measure to avoid a looming government shutdown still faces opposition in the Senate which adjourned without a final vote late on Thursday and will reconvene this morning. The current interim funding bill that was passed in December expires at 12:01 AM EST on Saturday.
 
Treasuries, Currencies and Commodities
·      In currency markets, the dollar index flat for a second session, rebounding after touching 3-year lows overnight, weighed down by negative consumer-sentiment data and fears of a gov’t shutdown later tonight if the Senate can’t come to an agreement
·      Precious metals looking to rebound after posting its worst daily decline in six weeks yesterday and snapping its 5-day win streak (falling from 4-month highs); gold prices advance about 0.5%
·      Energy futures slumped early after the International Energy Agency (IEA) raised its outlook for U.S. crude supply this year by 260,000 barrels a day, to a record 10.4 million barrels a day, largely a result of the recent rally in crude prices. The IEA said surging U.S. crude oil production this year is expected to surpass output in Saudi Arabia and rival that of Russia
·      Treasury markets extend declines as the 10-year yield tops 2.64% after topping 13-month highs yesterday and settling above 2.6%; the threat of a potential government shutdown as the Senate prepares to take up a short-term spending bill, weighs on market sentiment
 
Economic Data
·      The Preliminary Jan. Michigan Sentiment fell to 94.4 (lowest since July) from 95.9 last month, and was below the 97 estimate by economists; the current economic conditions index fell to 109.2 vs. 113.8 last month, while expectations index rose to 84.8 vs. 84.3 last month.
   
Sector Movers Today
·      Tobacco sector; Jefferies said they are bullish on tobacco for FY18 and upgrade shares of MO & PM to buy and Japan Tobacco to hold saying the 12-month underlying sector TSR of c15% expected vs wider large-cap staples of c10% and a less demanding valuation, its discount to staples at recent highs; Piper also said they remain bullish on the outlook for US tobacco companies and non-combustible innovation
·      Restaurants; CMG upgraded to market perform at Raymond James as no longer see material downside risk to 2018 estimates, and are in fact raising our 2018 estimate; Goldman Sachs upgraded JACK to buy on potential secular rotation, saying domestic fast-food shares have underperformed casual diners relative to run-rate benefits of tax reform (cut BLMN to neutral)
·      Semiconductors; sector dips from record high; Mizuho said chip pricing trends remain strong, which could bode well for AMD, NVDA, MU and WDC in the first half of the year. Sold-state drive (SSD) pricing looks “robust,” Rakesh wrote, and “should be a tailwind for Micron and WDC.” Citi said there could be downside to guidance for companies with high handset exposure such as SWKS and QRVO as Apple and Chinese handset manufacturers are pushing out orders; TXN tgt and estimates upped at Oppenheimer ahead of Tuesday’s earnings call as they see a beat/raise set-up; IPHI downgraded by Bank America and Morgan Stanley after lower guidance yesterday
·      Insurance; Lincoln Financial Group will pay Liberty Mutual about $3.3 billion, which consists of a $1.446b total net investment for the Group Benefits business.https://goo.gl/QGQfxH; Citi comments on insurance group as expect tax reform focus will shift from EPS/BVPS impacts to the retention of any benefits, which should favor U.S. Life (firm removes VOYA from focus list and add PRU, while raising tgt on BHF to $55 and maintain sell on MET)
·      More bank earnings this morning amid a busy week of results that were mixed and messy given the impact (some positive/some negative) of the tax plan; in regionals today, STI posted a 4c EPS beat for Q4 as revs rose 5% to $2.27B (in-line); PBCT, RF, and FHN also post EPS beats; CFG sees NIM improvement of 5 bps for Q1 after boosts dividend and reports earnings; SCHW downgraded to neutral at Citigroup
·      Transports; rails active after earnings results from KSU and CP; CP Q4 adjusted EPS C$3.22/C$1.71B vs. est. C$3.20/$1.7B; KSU Q4 EPS beat by 2c on slightly better revs; GWR said Dec. carloads fell -5.7% and traffic of 255,199 carloads
 
Stock GAINERS
·      ACOR +11%; Bloomberg reported the drugmaker has reportedly received takeover interest from biotech firm BIIB https://goo.gl/g6Xs3h
·      AMZN +1%; on reports to raise its U.S. Prime memberships by nearly 20% to $12.99 per month
·      APRN +6%; as Armistice Capital reported initial 8.8% passive stake last night
·      ATRA +4%; price target raised to Street high $70 from $47 at Canaccord based on higher conviction that Phase 3 studies for ATA-129 will be positive and lead to FDA approval
·      LOW +3%; nominates three directors amid pressure from D.E. Shaw
·      NKE +3%; upgraded to outperform and $74 tgt at Wedbush given confidence for an inflection in margin and a return to growth in North America in FY19
·      SQ +4%; tgt raised to Street high $64 at Nomura/Instinet as believe that an inflection in GPV growth will help Square keep transaction yield stable
 
Stock LAGGARDS
·      AXP -2%; guides year earnings below guidance and also said it plans to suspend its share repurchase program for the first half of 2018 due to charge of $2.6B due to tax reform (AXP had beaten Q4 EPS and rev estimates)
·      GE -4%; extends losses after surprise charge announced earlier in the week, down 5th day
·      HES -2%; shares of energy stocks slump on IEA forecast for US production
·      HOLX –2%; cut to hold at Deutsche Bank citing secular growth challenges on a number of fronts
·      IBM -3%; snapped its 22-consecutive quarterly revenue decline, with top and bottom line beats, but shares slipped as gross margins missed estimates (49.5% vs. 50.8% est.)
·      QRVO -3%; Citi said there could be downside to guidance for companies with high handset exposure such as SWKS and QRVO
·      TEAM -6%; better quarterly results, but shares slip form record highs
 
Syndicate
·      ADT Inc. (ADT) 105M share IPO priced at $14.00
·      Agios Pharmaceuticals (AGIO) 7.09M share Secondary priced at $67.00
·      Americold Realty Trust (COLD) 45.3M share IPO priced at $16.00
·      Golden Entertainment (GDEN) 6.5M share Secondary priced at $28.00
·      HTG Molecular (HTGM) 12M share Secondary priced at $2.90
·      Nine Energy Services (NINE) 7M share IPO priced at $23.00
·      Obalon Therapeutics (OBLN) 5.455M share Secondary priced at $5.50
·      UroGen Pharma (URGN) 1.463M share Secondary priced at $41.00

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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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