Mid Day Outlook: January 25, 2018

Scott GreenDaily Market Report

Mid-Morning Look
Thursday, January 25, 18
  
U.S. equities rebound after their first decline in four days as companies rallied on positive earnings reports. However, market action very similar to yesterday thus far – opening strong and near highs but fading the first 30 minutes, with several early leaders (CAT, BIIB, LRCX) failing to hold big gains (stocks have since rebounded off lows). Transports leading markets lower for a second day, dragged down by rails after UNP EPS miss and as airlines plunge again following another round of earnings. The ECB left its monetary policy unchanged earlier and reiterated that interest rates will remain low for a prolonged period of time, which boosted the euro and sunk the dollar further. Oil prices fresh 3-year highs on continued upward momentum. Markets also continue to watch commentary out of the World Economic Forum in Davos, Switzerland, where President Donald Trump arrived today (comments from Mnuchin, Ross yesterday impacted markets yesterday). Earnings, central banks, a weaker dollar, rising rates and surging commodity prices remain top stories.
 
Treasuries, Currencies and Commodities
·      In currency markets, the dollar fresh new lows; the euro rises above $1.25 for the first time since December 2014 – new highs up at 1.2537 – bounce came during the European Central Bank’s news conference where 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; dollar broadly lower vs. most currencies
·      Commodity prices; new day, same story as oil prices extend gains, trading to fresh 3-year highs as WTI crude tops the $66 per barrel level and Brent tops $71 after bullish inventory data yesterday (10th straight week of inventory drawdown for crude); gold prices little changed
·      Treasury markets; despite volatile stocks, bonds are little changed, with the yield on the 10-yr at 2.658%, around yesterday closing levels – but yields have continued to hold above 2.6% for about 2-weeks now; the 2-yr yield rises to 2.09%; global bond yields also rising as the German 10-yr yield hits highest levels since 2015, rising to 0.64%
 
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.
   
Sector Movers Today
·      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
·      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; NSC was upgraded at RBC post earnings
·      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
 
Stock GAINERS
·      BIIB +1%; Q4 EPS missed but revs beat and forecasts robust 2018, quarterly revenue beats on Spinraza sales and also buys experimental brain drug from Karyopharm in deal up to $217M
·      DLB +9%; after earnings and guidance
·      KR +1%; after reports the grocer is in talks to partner with online retailer BABA, NY Post https://goo.gl/oKac1T
·      MKC +3%; Q4 EPS and sales topped consensus with higher 2018 guidance
·      MMM +2%; Dow component rises after earnings results
·      VAR +7%; reported a F1Q beat and raise as revs were up 13% vs. +1% last year driven by an improvement in the underlying market
·      WHR +2%; on earnings and momentum on US tariffs on foreign appliance makers
 
Stock LAGGARDS
·      ALK -8%; after earnings/guidance and weakness in general airlines
·      BGG -10%; as Q2 results topped views, but EPS guidance of $1.45-$1.62 missed estimates of $1.77 (and was below lowest estimate)
·      CLS -4%; Q4 EPS 27c/$1.55B was below est. 31c/$1.56B; sees Q1 revs $1.43B-$1.53B vs. est. $1.46B (recall SANM recently lowered guidance in the EMS space)
·      HZN -12%; cuts FY17 adjusted EPS view 88c-96c, below consensus $1.08
·      LEN -2%; mortgage division slapped by Justice Department as probes FHA loans
·      NWL -6%; 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
·      RRC -9%; analysts said Louisiana asset continues to disappoint, and management’s credibility is becoming an issue
·      UNP -5%; leads rails lower Q4 EPS just missed estimates
 
Syndicate
·      Athenex (ATNX) 4.3M share Secondary priced at $15.25
·      Audentes Therapeutics (BOLD) 5.75M share Secondary priced at $35.00
·      ConforMIS (CFMS) 13.333M share Spot Secondary priced at $1.50
·      eMagin (EMAN) 8.528M share Secondary priced at $1.35
·      Eyenovia (EYEN) 2.73M share IPO priced at $10.00
·      Five Prime (FPRX) 5.128M share Secondary priced at $19.50
·      Gates Industrial (GTES) 38.5M share IPO priced at $19.00
·      Iovance Biotherapeutics (IOVA) 13.044M share Spot Secondary priced at $11.50
·      Menlo Therapeutics (MNLO) 7M share IPO priced at $17.00
·      Ocular Therapeutix (OCUL) 6.5M share Spot Secondary priced at $5.00
·      Williams (WMB) 8.6M share Block Trade priced at $32.75

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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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