Mid Day Outlook: January 26, 2018

Scott GreenDaily Market Report

Mid-Morning Look
Friday, January 26, 18
  
Equities rising on Friday, as major averages on track for another positive weekly return, fueled by earnings beats (Dow component INTC surges on results) which have been buoyed by positive tax implications due to recent legislation. The S&P 500 on track for its 4th straight weekly gain, with nearly all sectors moving higher (though tech outperforms). Economic data was mixed today, with GDP headline figures coming in below estimates/last quarter results, though strong personal consumption portion of the report was seen as a positive. President Trump’s also spoke to today in Davos, walking back some comments from Treasury Secretary Mnuchin on previous weak dollar references, which he said were taken out of context. Europe is trading higher, Asia was mixed though big outperformance in Hong Kong, while emerging markets extend gains as the Ibovespa trades to new record highs. For the week (coming into today), the Dow is looking at a gain of 1.2%, while the S&P 500 and Nasdaq Composite are looking at a rise of around 1% each. Intraday record highs for the Dow Industrials and S&P 500 Index while the Nasdaq is about 20 points from its best intraday levels.
 
Treasuries, Currencies and Commodities
·      In currency markets, after a brief bounce late yesterday on Trump dollar comments, the greenback resumes early slide; the dollar slumped back below the 109 level against the Japanese yen after Bank of Japan Governor Haruhiko Kuroda reaffirms commitment to lose monetary policy He said a 15-year period of deflationary mindset is not easy to eradicate from consumers but central bank is committed to achieving 2% inflation target (spoke in Davos). He also said Japanese growth is moderate, but well-balanced; the euro also edged higher
·      Cryptocurrency prices declined on Friday (Bitcoin fell 5%) after one of Japan’s leading Bitcoin exchanges announced that it was halting client withdrawals. Tokyo-based Coincheck said t it is halting withdrawals of all coins except Bitcoin and has stopped accepting deposits into NEM coins. The exchange did not specify a reason behind the sudden move. https://goo.gl/iBwk9F
·      Precious metals slide, as gold prices drop following comments by President Trump saying he wanted to see a stronger dollar and expressed optimism that the battered U.S. currency would strengthen); gold prices drop slightly below 1% after prices finished $6.60 higher at $1,362.90, the highest settlement since Sept 2016
·      Energy futures are modestly higher, rebounding after the late day swoon that saw WTI crude fall from fresh 3-year highs of $66.66 after the bounce in the dollar; 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 (WTI crude around $65.75 per barrel) – Baker Hughes rig data later
·      Treasury markets slip early, with the 10-year yield above 2.65% after a pullback late yesterday in yields; bonds slip despite a weaker reading in GDP than expected this morning
 
Economic Data
·      U.S. Gross Domestic Product (GDP) grew by 2.6% in Q4, slightly below the 3% estimate (and 3.2% the prior period) amid weakness from trade and inventories, offsetting strength in consumer spending and business investment; personal consumption was strong rising 3.8% (vs. the 3.7% estimate and 2.2% prior); The annual rate of inflation, measured by the PCE index, rose to 2.8%, the highest pace since 2011; though core inflation data in-line with views as core PCE rose 1.9%
·      Durable Goods Orders for December rise 2.9%, above the 0.8% estimate; Durable goods new orders revised up to 1.7% for Nov. from 1.3%; new orders ex-trans. rose 0.6% in Dec. after 0.3% rise and new orders ex-defense rose 2.2% in Dec. after 1.5% rise
·      The December advanced trade deficit of goods widened to (-$71.6B) from (-$70B) in prior month, and greater than the (-$68.9B) estimate; imports rose 2.5% in Dec. to $209.218B from $204.021B in Nov, while exports rose 2.7% in Dec. to $137.639B from $134.027B in November
   
Sector Movers Today
·      Transports; sector has been a notable decliner the last few days, led lower by airlines Wednesday on capacity comments from UAL (raising price war fears/lower margins), and several earnings/capacity data recently (AAL, JBLU, ALK, LUV); note shares of ALK (coming into the day) down 8 of the last 9 days; FDX said it is committing more than $3.2B in wage increases, bonuses, pension funding; in truckers, CHRW upgraded to buy at Cleveland Research
·      Casino, Lodging & Leisure; in leisure, SunTrust said the weakening USD is unlikely to catch many by surprise; however, we expect this to provide a benefit in 2018 for many of our companies with meaningful international revenue streams/raise tgts for BC (to $68 from $62), PII (to $125 from $115), GOLF (to $24 from $20), HLF (to $76 from $67) and TUP (to $68 from $65); in RV sector, Northcoast downgraded WGO and THO to neutral saying dealer inventory is at “an unsustainable level,” which will likely lead to 2018 wholesale shipments falling “short of expectations” or resulting in “disappointing margins.”
·      Semiconductors; after two days of selling pressure on Apple iPhone X demand fears (as analyst ratchet down estimates for suppliers), group rebounds today; Dow component INTC leads the way as 4Q17 revenue and EPS well ahead of consensus and guided 1Q18 roughly in-line with consensus expectations, while showed growth in non-PC areas such as cloud data center, memory and IoT (low expectations into quarter); MXIM reported solid results and guided above expectations due to strength from the consumer and industrial end markets
·      Internet; all-time highs for AMZN as Morgan Stanley the latest to raise tgt, taking it up $1,400 but says bull case price tgt could be $2,100; ZG was upgraded to overweight at KeyBanc saying stock’s underperformance since their July initiation (down 6% vs. S&P up 15%) reflects more appropriately tempered optimism; TWTRshares outperformed early on
 
Stock GAINERS
·      ABBV +7%; after quarterly results and boosted  its 2018 forecast to $7.33-$7.43 from $6.37-$6.57 to include 8c on “stronger operating performance” and gains from corporate tax reform
·      AJG +6%; trades at 52-week highs after Q4 revenues and earnings beat
·      EGHT +12%; trades at 52-week high as earnings and revs/guidance top consensus
·      GILD +3%; upgraded to buy at Jefferies and upped tgt to $95 from $87
·      INTC +8%; 4Q17 revenue and EPS well ahead of consensus and guided 1Q18 roughly in-line with consensus expectations/growth in non-PC areas such as cloud data center, memory and IoT
·      MCHP +3%; solid results and guided above expectations due to strength from the consumer and industrial end markets
·      NWL +5%; as shares rebound following yesterday’s -20% decline on lower outlook
·      VMW +7%; WSJ reported that Dell Inc. could be exploring a deal to buy VMW/Dell may also be considering an IPO  https://goo.gl/Pkg9Aj
 
Stock LAGGARDS
·      AHL -10%; said it sees recording underwriting loss of $245M in 4Q
·      APD -3%; underlying 1Q Ebitda missed estimates, EPS was in-line and guidance bump was mostly due to tax benefit
·      CL -4%; Q4 EPS and sales fell short of consensus views as organic revs rose 2% below 2.9% est
·      CRR -10%; adds to yesterday -11% decline following earnings results
·      EQIX -1%; disclosed that Steve Smith has resigned as CEO after “exercising poor judgment with respect to an employee matter/Former CEO Peter Van Camp appointed interim CEO
·      ISRG -5%; quarterly results beat, but analyst point to 2018 guidance may have underwhelmed investors given their high expectations
·      SBUX -4%; Americas segment missing comp-restaurant sales ests for the 5th straight quarter
·      THO -6%; downgraded to neutral (along with WGO) at Northcoast
·      TMST -4%; as posts wider than expected quarterly loss
 
Syndicate
·      PlayAGS (PAGS) 10.25M share IPO priced at $16.00
·      Strongbridge Biopharma (SBBP) 5M share Secondary priced at $6.75
·      Solid Biosciences (SLDB) 7.8M share IPO priced at $16.00
·      ResTORbio (TORC) 5.67M share IPO priced at $15.00
·      Rapid7 (RPD) 5.18M share Secondary priced at $22.00

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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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