Market Review: January 25, 2018

Scott GreenDaily Market Report

Closing Recap
Thursday, January 25, 18
  
Equity Market Recap
·      It was an interesting day on Wall Street, with major averages ending mixed (and well off their best levels) as a rebound in the dollar following comments from President Trump took the “wind out of the sails” of stocks and commodity prices. The NASDAQ posted its first 2-day losing streak of 2018, while the Dow Industrials dropped from record highs. Note it was roughly a year ago that the Dow Industrial Average traded above 20,000…and traded intraday record highs of 26,458 earlier before paring gains! Strong earnings results out of Dow components MMM and CAT helped lead markets higher, while the dollar fell to fresh 3-year lows, oil jumped to 3-year highs and gold around 1-year highs. But things changed late afternoon following comments from President Trump in Davos.
·      The dollar rebounded off lows after President Donald Trump said US Treasury Secretary Mnuchin’s dollar comments were taken out of context and he expects the greenback to get “stronger and stronger” over time. Treasury Secretary Steven Mnuchin said at the World Economic Forum in Davos, Switzerland that the U.S. dollar “is not a concern of mine,” noting that “in the longer term, we fundamentally believe in the strength of the dollar.” The comments by Trump attempted to back track Mnuchin’s comments the day prior that he preferred a weaker dollar. The pullback in U.S. stocks markets following the rebound in the greenback showed the current strong correlation between the two.
·      Oil prices and gold fell sharply as well following the rally in the US currency, pulling back from multi-year highs. Improved earnings from corporations so far has lifted stocks this week, but currency markets directed stocks today. Separately, ECB President Mario Draghi said the economy was expanding at a robust pace. The ECB left its monetary policy unchanged earlier and reiterated that interest rates will remain low for a prolonged period of time, which initially boosted the dollar before slipping late day. Transports lower for a second day, dragged down by rails after UNP EPS miss and as airlines plunge again following another round of earnings.

Economic Data
·      Weekly Jobless Claims rose 17K to 233K, mostly in-line with the 235K forecast; the 4-week moving average fell by 3,500 to 240,000; the prior week claims revised down to 216K from 220K; continuing claims fell 28K to 1.937M in the week ending Jan. 13
·      New Home Sales for December fell (-9.3%) to 625K, below the 675K estimate; the previous three months’ new home sales data revised down by 65K; median new home price rose 2.6% y/y to $335,400 and average selling price at $398,900; said 25% of new homes sold in Dec. cost more than $500,000, up from 16% last month
·      Rates for home loans soared to the highest level since March as a long-expected bond rout rolled on. The 30-year fixed-rate mortgage averaged 4.15% during the week ending Jan. 25, Freddie Mac said Thursday, up from 4.04% in the prior week. The 15-year fixed-rate mortgage averaged 3.62%, up thirteen basis points
 
Commodities
·      There was a big reversal lower for crude late day, as WTI crude slips 10c, settling at $65.51 (well off earlier 3-year highs of $66.66), turning sharply lower off after Brent briefly tops $71 (traded $71.28, highest since 12/14). The U.S. dollar index rebounded from lowest levels since December 2014 after President Trump amended comments from Treasury Secretary Steven Mnuchin who said yesterday he welcomes a weaker greenback. Trump said he welcomes a stronger dollar late day today in Davos, boosting the greenback off lows and sending dollar denominated commodities lower. Crude had been buoyed recently after OPEC-led oil supply curbs and a record 10th straight weekly drop in U.S. crude inventories supported the market. February natural-gas futures pulled back from gains that have seen the contract soar nearly 10% this week.
·      Gold prices advanced $6.60, or 0.5% to settle at $1,362.90 an ounce, logging its highest settlement since August 2016 as another decline in the dollar continues to fuel demand for dollar denominated commodity prices.
 
Currencies
·      Another day of dollar weakness (then President Trump steps in), falling broadly once again vs. rival currencies as Treasury Secretary Mnuchin failed to back down from his comments yesterday on the dollar. Yesterday in Davos, Mnuchin said a weaker greenback is good for trade and wasn’t concerned about the currency’s recent decline. The comment pushed the buck to fresh 3-year lows under 90…until today as the dollar index (DXY) traded lows of 88.43 (down from 52-week highs of 102.26 last March), levels not seen since December 2014. However, President Trump said today in Davos that Mnuchin comments were taken out of context and that he ultimately wants to see a strong dollar…sending the dollar bouncing!
·      Prior to Trump’s comments, the euro had touched a 3-year high vs. the dollar (touched highs of 1.2537 – in part by Draghi comments at ECB meeting today) and fell to lows of 108.50 against the yen. The British Pound traded as high as $1.4345, best since Brexit as well, and emerging markets were all higher. However, after Trumps comments (highlighted above), the dollar, which has been under significant pressure over the last 12-months, found solid footing and erased most of those declines. The dollar spiked vs. yen back above 109 (off lows 108.50), while the Pound fell below $1.42 and the euro dropped over 100 bps from highs $1.2537) to below 1.24!
 
Bond Market
·      Bonds got an afternoon lift, sending yields lower after results of a 7-year bond auction showed interest for paper; The U.S. Treasury sold $28B in 7-year notes at a yield of 2.565% (vs. 2.577% prior), with bid-to-cover (demand) at 2.73 vs. 2.55 prior and indirect bidders awarded 78.1% of auction (strong auction results); the yield on the 10-yr fell to around 2.625% after the auction after trading up around 2.66% earlier; the 2-yr yield rises to 2.08%; global bond yields also rising as the German 10-yr yield hits highest levels since 2015.
   
Sector News Breakdown
Consumer
·      Consumer Staples; KR rises after reports the grocer is in talks to partner with online retailer BABA, like AMZN operates stores that don’t have queues or cashiers, NY Post https://goo.gl/oKac1TMKC Q4 EPS and sales topped consensus with higher 2018 guidance; WTW shares volatile after Oprah squashes presidential run rumor in InStyle interview; tobacco stocks (PM, MO) dropped late morning after an FDA panel rejects claims by the company that IQOS products reduce health risks (said Philip Morris didn’t show iQos device cuts tobacco risks as FDA’s advisory committee votes 8-0, with one abstention) – FDA panel did vote 8-1 that its iQos cuts toxic chemicals
·      Housing & Building Products; NWL shares slumped after announced a plan to explore strategic initiatives to speed along its transformation and lowered its core sales growth view to 0.8% in 2017, below the guidance for a 1.5%-to-2% growth on lower earnings; LEN mortgage division slapped by Justice Department as probes FHA loans; WHR rises early on earnings and momentum on US tariffs on foreign appliance makers; ETH 52-week lows after earnings results
·      Casino, Lodging & Leisure; in gaming, LVS posts strong Macau performance in the 4Q, as Stifel said earnings print was not entirely favorable, but believe the positives far outweighed the negatives (recall group recently jumped on better WYNN results); ISCA shares jumped over 10% midday after earnings results
·      Autos; Ford (F) reported 4Q17 earnings in line with the lower results pre-announced at last week’s Detroit Auto Show while also reiterating the 2018 guidance/North America margins deteriorated despite favorable volume/mix, due to pressure from commodities and structural costs; FCAU Q4 revs and Ebit missed estimates but maintained its full-year views; HZN cuts FY17 adjusted EPS view 88c-96c, below consensus $1.08
·      Retailers; Toy sales in the U.S. grew 1% in 2017 to $20.7 billion, according to the latest data by NPD Group; several ratings changes at Telsey Group in the retail space as they upgraded DG, DKS, LOW, MIK to outperform and downgraded BBY and TSCO to market perform; CRI upgraded to outperform at Wells Fargo
 
Energy
·      Oil prices gained before losing ground late day amid commodity related pullback after dollar bounced on Trump comments, while natural gas prices have jumped over the last few weeks (bullish inventory data for both oil and nat gas this week) have helped keep floor under energy stocks; in stock news. Pressure pumpers weak for a second day after RES earnings disappointed (PUMP, FRAC); RRC shares slumped, as Bank America noted its 2018 capital plan is slightly below consensus & below operating cash flow at strip/excess cash to focus on debt reduction; HP shares rallied after earnings results and sees rise of 3%-4% in rigs in Q2
 
Financials
·      Large Cap banks were mixed, with GS trading a fresh all-time high a week after dropping on earnings; TCBI 4Q17 core EPS of $1.19 that topped consensus $1.16 estimates driven by much stronger revenue growth; other bank earnings today included: ABTX, AMRB, BANC, CFR, CNOB, COLB, EWBC, FRME, GWB, HFWA, LKFN, MBFI, ORI, STBA, STBZ, WTBA
·      Asset managers/financial services; AMP shares dropped despite earnings and revenue beat; LM posted 3Q results with equities outflows that were the quarter’s “main negative,” according to Evercore ISI, but Q3 EPS and operating revenue topped consensus; BLK downgraded at Citi
·      Consumer services, finance; DFS a record high after earnings after its outlook signaled confidence in credit trends and its Q4 results showed lower provisions; ADSshares fell as it boosted its core EPS outlook for 2018, but lowered its revenue outlooks due to the accounting reclassification for AIR MILES under the new revenue recognition standard
 
Healthcare
·      Biotech movers; been a volatile and busy week for biotech with the IBB trading to 52-week highs early in the week on M&A deals and now earnings in focus; BIIB Q4 EPS missed but revs handily beat and forecasts robust 2018, quarterly revenue beats on Spinraza sales and also buys experimental brain drug from Karyopharm in deal up to $217M; MDCO announced that the target of 1,500 patients randomized in the ORION-11 trial to confirm the effectiveness and safety of inclisiran has been exceeded in 11 weeks – beating the goal of 28 weeks; ONCE announced a licensing and supply agreement with NVS for Spark’s voretigene neparvovec (“Luxturna”) for markets outside the US. Luxturna; CELG quarter profit beats on strong Revlimid sales
·      Medical equipment, devices and suppliers; VAR reported a F1Q beat and raise as revs were up 13% vs. +1% last year driven by an improvement in the underlying market; ABT was upgraded to outperform at William Blair after earnings; DPLO was upgraded to neutral at Credit Suisse and raising target price to $28 from $15 on improving revenue and profit growth prospects on the back of recent acquisitions and associated new PBM-focused initiatives that should set the stage for faster, more profitable growth LT,
·      Deal pricings/Secondary offerings: FPRX 5.128M share Secondary priced at $19.50; ATNX 4.3M share Secondary priced at $15.25; BOLD 5.75M share Secondary priced at $35.00; CFMS 13.333M share Spot Secondary priced at $1.50; EYEN 2.73M share IPO priced at $10.00; IOVA 13.044M share Spot Secondary priced at $11.50; MNLO7M share IPO priced at $17.00; OCUL 6.5M share Spot Secondary priced at $5.00
 
Industrials & Materials
·      Industrial & Machinery; CAT projected growth in its construction and mining-equipment businesses, forecasting increased sales to China and expansion in North America after quarterly results topped views; BGG shares fell as Q2 results topped views, but EPS guidance of $1.45-$1.62 missed estimates of $1.77 (and was below lowest estimate); Dow component MMM lifts its earnings outlook and dividend after Q4 results; KTEC acquired by Duravant for $26.75 in cash, in a transaction valued at approximately $175 million. https://goo.gl/8kd9h4
·      Transports; Transport index at lows down over -1.5% led by airlines (again) and rails; the Dow Transport index now down over 3% from record highs on Jan 16th; UNPleads rails lower Q4 EPS just missed estimates (one of last majors to report earnings), while airlines hit again following another round of earnings results today (JBLU, ALK, LUV, AAL) after group hit on margin fears yesterday following UAL commentary about capacity (as raised fear it may unleash an industry-wide price war); NSC was upgraded at RBC post earnings
·      Metals & Mining; sector was mixed today with copper producer FCX active after earnings results; it was reported that RIO in talks to sell Grasberg stake to Indonesian government, Freeport CEO said; CLF heavy volume after Q4 results topped estimates and said it sees stronger results in 2018; steel producers active in conjunction with other earnings
·      Chemicals; FUL was upgraded to buy at Deutsche Bank and Seaport Global saying its 4Q disappointment creates opportunity in share price, and higher confidence on company achieving its 2020 Ebitda target of $600M; VSM was downgraded to hold at Loop Capital on the expectation that earnings growth will trail peers in 2018 and possibly, 2019; PX rises as Q4 EPS, revs and Ebitda all topped consensus views
·      Aerospace & Defense; a busy morning of earnings; NOC results beat; sees lower tax rate boost 2018 profit; LLL Q4 EPS beat forecasts and sales guidance in-line; RTNquarterly revenue rises 8% on improved demand as tops consensus – group stronger today
 
Technology, Media & Telecom
·      Semi’s; after underperformance yesterday (Philly semi index fell -2.3% on TXN results/comments, and lowered analyst forecasts for AAPL suppliers on demand for the iPhone X – and snapped an 8-day win streak for the SOX index), sector up 1% early this morning after better results from LRCX and XLNX last night, but paring gains; Stifel said they believe LCRX commentary regarding wafer fab equipment (WFE) spending forecasts in 2018 will provide another catalyst for the semi group (AMAT, ACLS, NANO, RTEC); XLNX reported an inline DecQ and guided to an inline MarQ on good margins; INTC, MXIM, KLAC, MSCC report earnings tonight
·      Software/Storage; JP Morgan said in the wake of an epic 2017 in which the software (IGV) index rose 42% (vs S&P 500 +19%), they are downgrading 3 stocks to Underweight (BL, NTNX, and TLND) as reflect view of relative risk/reward for 2018; SAP and CHKP both downgraded to neutral at Cleveland Research; AZPN advanced on earnings
·      Comm equipment and services; EMS sector weak again as CLS Q4 EPS 27c/$1.55B was below est. 31c/$1.56B; sees Q1 revs $1.43B-$1.53B vs. est. $1.46B (recall SANMrecently lowered guidance in the EMS space); AVT Q2 beat and guidance above views; CAMP upgraded at JP Morgan; FFIV shares active after earnings/guidance results; DLB jumps on earnings
·      Internet movers; SNAP shares dropped after TWTR said it is working on a new Snapchat-style feature that makes it easier to post videos on the social-media company’s app; AMZN tgt raised to Street high $1,800 at DA Davidson; NFLX another day of record highs after better earnings/subscriber data this week
·      Media and Telecom; ad agencies IPG, OMC and WPP all downgraded to underperform at Bank America; CTL was upgraded to outperform at RBC Capital as see potential upside to initial synergy targets and believe new management can restructure operations to drive EBITDA growth
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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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