Mid Day Outlook: January 31, 2018

Scott GreenDaily Market Report

Mid-Morning Look
Wednesday, January 31, 18
  
U.S. equities rebounding from their worst 2-day declines in over 8-months, but have slowly been paring gains throughout the morning ahead of the FOMC meeting results later this afternoon (no changes expected). The State of the Union was uneventful, helping lift stocks early along with a few positive earnings reports and mixed economic data (ahead of the jobs report Friday). Dow component Boeing (BA) posted a strong earnings beat and guidance and is nearly single handily responsible for the Dow Industrial gains (represents 132 points of the 146 in the Dow as of writing this). The dollar slides early, giving a lift to commodity prices, while bond weakness continues, pushing the 10-year yield above the 2.73% level. Another heavy dose of earnings tonight, highlighted by Facebook.
 
Treasuries, Currencies and Commodities
·      In currency markets, the dollar moves to lows, with the dollar index back below the 89 level (for the DXY), falling vs. the euro and Pound, but rising against the yen; dollar moves ahead of FOMC decision later today, and falls despite better ADP private payrolls earlier
·      Precious metals get a lift after the pullback in the dollar, with gold rising about $8 an ounce
·      Energy futures slip for a 3rd day after bearish inventory data: EIA said crude oil inventories 6.78M build vs. consensus of 309K build, gasoline inventories 1.98M draw vs. consensus of 1.88M build and distillates 1.94M draw vs. consensus of 231K draw. Last night, the American Petroleum Institute (API) reported that U.S. crude supplies rose by 3.23M barrels for the week ended Jan. 26; gasoline stockpiles also rose 2.69M barrels, while inventories of distillates dropped by -4.1M
·      Treasury markets slipping ahead of the FOMC meeting where strong recent economic data likely to show positive commentary on economy from Fed (no rate hikes expected today); the yield on the 10-yr tops 2.73%, 2-yr 2.145% (up 2 bps)
 
Economic Data
·      Private-sector employment data was strong, as ADP reported a gain of 234K jobs in January, handily topping the 185K estimate by economists, while the prior month was revised to 242K from 250K; report showed that small private-sector businesses added 58,000 jobs in January, medium-sized businesses added 91,000 and large businesses added 85,000.
·      Chicago PMI report shows manufacturing reading fell to 65.7 from 67.8 in prior month, but was above the 64 estimate; prices paid rose at a faster pace, signaling expansion, while new orders rose at a slower pace, signaling expansion and employment rose at a faster pace
·      The cost of employing the average American worker (pay and benefits) posted the biggest 12-month gain in almost three years, reflecting the strongest labor market in decades. The employment cost index rose 0.6% in the fourth quarter, in-line with estimates. Wages – some 70% of employment costs – rose 0.5% in the final three months of 2017.
·      Pending home sales for December rose 0.5% MoM, in-line with estimates; unadjusted pending homes fell 1.8% y/y after rising 0.6% y/y in November
   
Sector Movers Today
·      Transports; Transport index spike on airlines upgrade at Bernstein and KNX results lifting truckers; truckers led by KNX as shares jump after the company reported 4Q EPS above market estimates and said it expects contract rates to rise high single-digits to low double-digits throughout the year (analysts very positive post earnings); CHRWunderlying earnings beat on better than expected net rev. growth and net operating margins (LSTR, JBHT move in reaction)
·      Airlines; AAL and UAL upgraded to outperform at Bernstein saying the fare environment is expected to be strong enough to offset higher-than-expected capacity growth out of UAL, and that he sees the recent reaction to the news as overdone. Maintains outperform on DAL and LUV, continues to like these as multi-year compounding stories
·      Large Cap Pharma; lots of talk last night in State of the Union from Trump about high drug prices which weighed on sentiment today; LLY Q4 results topped consensus for Q4, but big cap Pharma weak on the drug pricing situation (PFE, BMY, JNJ); JNP said it has initiated the process of evaluating strategic alternatives aimed at boosting shareholder value
·      Managed care; sector rebounds after yesterday drop following news Amazon, Berkshire Hathaway and JPMorgan said they’ll collaborate on ways to offer health-care services to their employees; rebounds today with BMO saying ANTM reported a strong 2018 outlook today, fueled by a “big tax benefit” – firm said 2018 guidance is stronger than expected, with the recent tax overhaul providing ~15% boost to profits (CI, AET, UNH, HUM move on news); AET downgraded to neutral at Citigroup today
·      Paper & Packaging; SunTrust said relative to 2017, they generally believe Packaging and Polymers related companies will benefit from incremental global GDP expansion, raw material tail winds (in 2H18), and in some cases higher cash flow from the recent US tax reform. Favorite ideas remain KRA and BERY while they upgraded RAVN and downgraded VRTV and SEE to hold; PKG shares dropped after Q1 EPS guidance of $1.52 fell below $1.75 estimate; SLGN up on earnings
·      Consumer finance and lending; CASH Q1 revs/EPS ahead of consensus as net interest income was better due to a higher investment balance and non-interest income beat; CACC shares fall as Q4 results well below consensus with one analyst noting major provision expense tied to longer-duration loans; SC shares fall after posting Q4 results
·      Medical equipment and devices; ILMN reported EPS above the Street and 2018 guidance remains unchanged from their pre-announcement; TMO shares record highs after earnings and guiding year EPS and revenue above consensus; ALGN falls as investors study a 2018 outlook that reflects another year of heavy commercial investment, according to one analyst; SYK reported Q4 earnings and outlook that were better, but not enough to lift shares
 
Stock GAINERS
·      AMD +4%; after earnings top estimates, company raises outlook
·      BA +5%; rallied after 4Q results beat and 2018 outlook topped expectations
·      CASC +68%; acquired by SGEN in $614M deal, getting $10 per share in cash https://goo.gl/67yujd
·      CMCM +8%; announced release of its secure mobile cryptocurrency wallet, called SafeWallet
·      EA +10%; after higher guidance for 2018 lifting video game names (ATVI, TTWO)
·      KNX +10%; reported 4Q EPS above market estimates and said it expects contract rates to rise high single-digits to low double-digits
·      JNP +6%; said it has initiated the process of evaluating strategic alternatives aimed at boosting shareholder value
·      XRX +5%; as Fujifilm Holdings Corp. said that it would take a majority stake in the company (50.1%) and a $2.5B cash dividend would be paid to current holdershttps://goo.gl/6go3st
·     
 
Stock LAGGARDS
·      ALGN -6%; Jefferies said margin guidance for heavy commercial investment may disappoint
·      ATEN -9%; after postponing its earnings report due to a review of accounting and internal control matters
·      BLCM -37%; announced that the BPX-501 trials in the US have been placed on clinical hold by the FDA because of three cases of encephalopathy which were possibly caused by the cell therapy
·      CACC -7%; results well below consensus with one analyst noting major provision expense tied to longer-duration loans
·      FLWS -5%; as Q2 Ebitda of $94.5M missed estimate $101M, while revs also trailed
·      JNPR -10%; sees Q1 EPS 22c-28c below consensus 42c and sees Q1 revenues of $1.05B, plus or minus $30M vs. consensus $1.15B (did announce $2B buyback and dividend boost)
·      LLY -5%; broad weakness in Pharma space/reported earnings that beat
·      KODK -15%; said verifying the “accredited” status of potential investors in its initial coin offering may take several weeks
·      SMCI -6%; said its CFO resigned effective immediately, along with co-founder and SVP of International Sales; firm said additional time is needed to analyze the potential impact of the investigation on historical financial statements
 
Syndicate
·      Cerus (CERS) 11.82M share Spot Secondary priced at $4.23
·      MySize (MYSZ) 3M share Spot Secondary priced at $2.00
·      Syros Pharmaceuticals (SYRS) 4.19M share Spot Secondary priced at $9.55
·      Ultra-Clean (UCTT) 4.8M share Secondary priced at $21.00

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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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