Mid Day Outlook: January 24, 2018

Scott GreenDaily Market Report

Mid-Morning Look
Wednesday, January 24, 18
U.S. stock averages setting new record highs on a daily basis since the start of the year, with the Dow Industrials Average rising more than 100 points again today (marks the 9th time for a triple-digit gain since the start of the year – only 16 trading days), with a combination of strong earnings and a weaker dollar spurring more buying in stocks. The weaker U.S. dollar is giving the market an added boost, falling to fresh 3-year lows after U.S. Treasury Secretary Steven Mnuchin said in Davos overnight, that a weaker greenback is good for trade and wasn’t concerned about the currency’s recent decline. Oil prices climb as EIA reports a 10th straight decline in U.S. crude supplies sending WTI crude above $65 per barrel for first time since December 2014. Gold prices jump on the weaker dollar, while bonds slip. Transports one of the few sectors failing to participate in rally after UAL earnings/said plans to increase capacity for the next three years (weighing on airlines).
Treasuries, Currencies and Commodities
·      In currency markets, dollar down again – British pound breaks through $1.42-level for first time since Brexit vote – up 1.44% today to 1.4201 and up 2.5% just the last 3-days (Monday low $1.3857); Dollar index (DXY) extends losses after January flash PMIs, housing data, falling to new 3-year lows around 89.30; the euro tops the 1.24 level, up 0.8% and at highest levels since December 2014; dollar falls over 1% vs. yen to 109.20, lowest levels since Sept
·      Commodity prices; Precious metals surge, with a more than 1% spike in gold prices, trading near the $1,360 level after another sharp decline in the dollar (silver up over 2.7%); Energy futures bounce after inventory data from the EIA, showing a 10th straight week of falling inventory; natural gas prices add to yesterday’s 9% gains, up at $3.54 mln btu on the day
·      Treasury market’s fall, giving up yesterday’s gains, as the yield on the 10-year rebounds back above the 2.65% level after Treasury Secretary Steven Mnuchin suggested a weak dollar could boost trade; the 2-yr up 1.7 bps to 2.076% and the 30-yr up about 4 bps at 2.94%
Economic Data
·      Markit Economics release flash composite purchasing managers’ index for U.S. in January as the composite PMI 53.8 from 54.1 in December, while services 53.3 (vs. est. 54.3) and manufacturing 55,5 (vs. est. 55); lowest reading since May 2017; new orders rise vs prior month
·      Existing-home sales for December fell (-3.6%) at 5.57M, slightly below the 5.7M estimate, while November revised to 5.78M from 5.81M (rose 5.1% prior month); said 3.2 month’s supply in Dec. vs. 3.5 in November and inventory fell 11.4% to 1.48M homes; said median home price rose 5.8% from last year to $246,800
·      Inventory data: the API reported U.S. crude supplies rose by 4.8M barrels for the week ended Jan. 19, a climb of 4.1M barrels in gasoline stockpiles, while inventories of distillates fell by -1.3M barrels; the EIA reported a weekly draw of -1,071M barrels (falling for a 10th-straight week – but production rises again), smaller than the -2M barrel estimate while Cushing crude fell -3,150M; EIA said gasoline inventories rose +3,098M vs. est. +2,200M and distillates +639M vs. est. for draw of -1,100M
Sector Movers Today
·      Transports decline; airline stocks plunge after UAL results, saying it plans to increase capacity for the next three years, raising fears of industry-wide pricing wars and potentially drive down margins (UAL downgraded at Evercore/ISI on report) – shares of DAL, AAL, SAVE, JBLU, LUV drop; rails active after earnings results from NSCand CNI
·      Forest, Paper& Packaging; BERY upgraded to outperform by BMO Capital as firm more positive amid its refocus on M&A and the performance of the new CEO/said pending acquisition of Clopay Plastic will help pivot toward health care and hygiene and away from consumer packaging; Bank America said they are becoming more positive on Wood & Timber as they upgrade WY (to buy) & LPX (to neutral) saying Pac. NW timber & lumber supply could be limited in aftermath of ’17 wildfires and Lumber & OSB look more favorable than prior forecast
·      Advertising stocks (IPG, OMC, WPP) weaker for a second day after Goldman and Credit Suisse both downgraded WPP (PUB also cut at Goldman) saying 2018 will remain challenging for WPP’s organic growth given persisting end-market pressures, a slowdown in principal buying in programmatic as well as weakness in market research; recall yesterday, PG said it has saved $750M in agency and production costs, and is “targeting to save another $400M”
·      Opticals; Stifel cuts revenue estimates and price targets for optical companies, citing checks and public commentary from multiple vendors that have indicated a slow-down in optical industry trends within China and the broader market since December guidance; LITE cut to $66 PT from $75, FNSR cut to $24 PT from $26, FN cut to $35 PT from $40 and OCLR to $8.50 PT from $10
·      ABT +4%; Q4 EPS beat on better revs on strong medical device business and 2018 forecast beats
·      ARAY +4%; as reported revenue beat and a slight beat on gross orders
·      CERS +18%; as study met primary endpoints in chronic anemia study
·      CREE +3%; mixed Q2 results and F3Q guidance as revenue beat but gross margin was soft, primarily due to lighting (better on semis and LED
·      GS +1%; trades to new record highs with spike in banks
·      GWW +12%; 4Q results and full-year outlook topped analysts’ expectations
·      NAVI +6%; on earnings and better guidance
·      NFLX +2%; new record highs, trading above yesterday levels after better earnings
·      RCL +4%; after earnings beat
·      BHGE -4%; after quarterly results in oil service space
·      PBYI -25%; after European CHMP (Committee for Medicinal Products for Human Use) communicated a negative “trend” vote on the neratinib MAA for extended adjuvant HER2+ breast cancer following today’s oral hearing, making it unlikely that a positive opinion is coming in Feb
·      SIGM -12%; announced selling Z-Wave biz for $240M to SLAB after initial closing conditions weren’t met
·      TXN -5% reported an inline Dec-qtr, marking the 1st quarter in nearly two years that revenues were not at the high-end/above the guided range
·      UAL –9%; saying it plans to increase capacity for the next three years, raising fears of industry-wide pricing wars and potentially drive down margins
·      Adamas Pharmaceuticals (ADMS) 3M share Secondary priced at $41.50
·      Aerie Pharmaceuticals (AERI) 1.3M share Spot Secondary priced at $59.20
·      PagSeguro Digital (PAGS) 105.4M share IPO priced at $21.50
·      Rocket Pharmaceuticals (RCKT) 5.5M share Spot Secondary priced at $13.25
·      Stemline (STML) 3.7M share Secondary priced at $14.00
·      Synlogic (SYBX) 5.13M share Spot Secondary priced at $9.75
·      Teekay Corp (TK) 10M share secondary priced at $9.75
·      Ultragenyx (RARE) 4.4M share Secondary priced at $57.00
·      Union Bankshares (UBSH) 7.93M share Spot Secondary priced at $38


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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