Morning Preview: January 31, 2018

Scott GreenDaily Market Report

Early Look
Wednesday, January 31, 18
  
After dropping the last two-trading sessions, U.S. stocks are on track to open higher following a fairly uneventful State of the Union address from President Trump last night. The Dow Industrial Average has posted a decline of about 2% to start the week amid rising borrowing costs and profit taking ahead of the FOMC rate decision (later today), economic data (jobs report Friday) and mixed corporate earnings. President Trump toned down his remarks on U.S. trade relations and instead focused on the domestic agenda, which could be seen as a positive for markets today. Bottom line, stocks have been setting all-time highs on a daily basis to start the year, so a small 2%$ pullback over the last few days could be nothing more than just that. Another busy day of earnings upcoming both today and Thursday, including tech heavy weights AAPL, AMZN, GOOGL and MSFT.
 
U.S. stocks suffered their worst 2-day slide in over 8-months as bond yields extended gains (rising borrowing costs), while health-care shares slumped (hitting Dow components PFE and UNH) after Amazon.com, Berkshire Hathaway and JPMorgan agreed to collaborate on ways to offer health-care services to their employees. Lower oil prices dragged down energy shares while tech stocks slumped as well. Financials failed to rally despite the bounce in yields, while defensive utilities partially recovered after yesterday’s slide. The S&P 500 index declined -1.1% to 2,822, extending a two-day, 1.8% slide.
 
In Asian markets, The Nikkei Index fell -193 points to settle at 23,098, the Shanghai Index slipped -7 points to end at 3,480 and the Hang Seng Index jumped 279 points to end higher at 32,887. In Europe, the German DAX is up around 30 points at 13,230, while the FTSE 100 is flat around 7,585. The British pound erased early gains and turned lower after Reuters reported that the European Union has rejected the City of London’s proposal for financial institutions to retain passporting rights after Brexit.
 
Market Closing Prices Yesterday
·      The S&P 500 Index slumped -31.10 points, or 1.09%, to 2,822.43
·      The Dow Jones Industrial Average fell -362.59 points, or 1.37%, to 26,076.89
·      The Nasdaq Composite slipped -64.02 points, or 0.86%, to 7,402.48
·      The Russell 2000 Index declined -15.29 points, or 0.96% to 1,582.82
 
Events Calendar for Today
·      7:00 AM EST       MBA Mortgage Applications Data
·      8:15 AM EST       ADP Employment Change for January…est. 185K
·      8:30 AM EST       Employment Cost Index for Q4…est. 0.6%
·      9:45 AM EST       Chicago PMI for January…est. 64.0
·      10:00 AM EST     Pending Home Sales MoM for December…est. 0.5%
·      10:30 AM EST     Weekly DOE Inventory Data
·      2:00 PM EST        FOMC Rate Decision announced
 
Earnings Calendar
·      Earnings Before the Open: ADP, ANTM, AVY, BA, CHKP, DHI, ENR, IR, IVZ, JCI, LLY, NDAQ, NYCB, PBI, SC, SIRI, SPG, TMO, TUP, TXT, WRK, XRX
·      Earnings After the Close: AFL, AVB, CDNS, CLB, CTXS, DRE, EBAY, FB, KRC, LNC, MDLZ, MAA, MET, MKSI, MSFT, MUR, MUSA, NOW, PYPL, QCOM, QRVO, SYMC, T, TSCO, UNM, VRTX, X
   
World News
·      China’s official nonmanufacturing purchasing managers index edged up to 55.3 in January from 55.0 in December. The sub index measuring business activities for the service sector increased to 54.4 from 53.4. The new-orders sub index for the entire nonmanufacturing sector edged down to 51.9 in January from 52.0 in the previous month.
·      The official China manufacturing PMI, also released on Wednesday, fell to 51.3 in January from 51.6 in December.
·      Citing people familiar with the proceedings, Reuters said officials from the EU recently told U.K. finance executives that they won’t agree to a post-Brexit free trade deal on financial services
·      German Jobless claims dropped by 25,000 from December, the Federal Employment Agency or BA said Wednesday, referring to data adjusted for seasonal swings. Economists polled by The Wall Street Journal had forecast a decline of 16,000
 
Sector News Breakdown
Consumer
·      Shutterfly (SFLY) shares rise 17%; Q4 EPS $3.11/$593.8M vs. est. $2.88/$556.3M; said consumer net revenues totaled $521.8M, flat YoY; Shutterfly Business Solutions net revenues totaled $71.9M, an 81% YoY increase; to acquire privately-held Lifetouch for $825M in cash; sees FY18 EPS $1.94-$2.38, and revenues of $1.22B-$1.26B vs. est. $1.50/$1.21B
·      D.R. Horton (DHI) Q1 EPS 49c/$3.33B vs. est. 49c/$3.26B; Q4 net sales orders increased 17% in value to $3.2B and 16% in homes to 10,753. Homes closed increased 14% in value to $3.2B and 15% in homes to 10,788
·      Modine Manufacturing (MOD) Q3 EPS 35c/$512.7M vs. est. 29c/$466.27M; raises FY18 adjusted EPS view to $1.44-$1.52 from $1.30-$1.45 (est. $1.46); sees FY18 year-over-year sales up 36%-40%; adjusted EBITDA of $187M-$192M
·      Robert Half (RHI) Q4 adjusted EPS 65c/$1.35B vs. est. 63c/$1.32B; 4q earnings incl. one-time, non-cash charge of 27c/share
·      Wingstop (WING) declares $3.17 per share special dividend
 
Energy
·      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 barrels
·      Stone Energy (SGY) authorized 2018 capex budget of up to $212M; sees production rates from 17.5 MBoe per day to 18.0 MBoe per day for the first quarter of 2018; sees cash flows from operating activities, cash on hand, and availability under revolving credit facility adequate to meet the current 2018 operating and capital expenditure needs
·      SRC Energy (SRCI) sees 2018 production 48,000 BOE/D-52,000 BOE/D; sees 2018 total drilling and completion capital expenditures between $480m- $540m, and seeing drilling about 117 gross wells; prelim 4q avg. daily production 45,658 BOE/D
·      Advanced Energy (AEIS) reports Q4 EPS $1.31/$179.2M vs. est. $1.22/$177.23M; sees Q1 EPS $1.27-$1.37 on revs $183M-$193M vs. est. $1.24/$181.53M
 
Financials
·      BofI Holding (BOFI) Q2 EPS ex-items 61c, consensus 53c; Q2 net income was $31.7M, a decrease of 2.0% from $32.3M for the quarter ended December 31, 2016. Net income decreased as a result of the 2017 Tax Cut and Jobs Act, which caused BofI to incur an $8M one-time charge
·      Chubb (CB) Q4 operating EPS $2.28 vs. est. $2.29; book value per share increased 1.5% and tangible book value per share increased 1.2% from September 30, 2017 and now stand at $110.32 and $65.87, respectively; Q4 P&C combined ratio 90.7%; 4Q net premiums written $7.05B
·      Cathay General (CATY) Q4 EPS 32c vs. est. 63c; 4Q return on average assets 0.66% and 4Q return on average equity 5.18%, both below estimates; Q4 net interest margin 3.65%
·      Credit Acceptance (CACC) Q4 adjusted EPS $5.16/$258.8M vs. est. $5.27/$286.98M; 4Q consumer loan unit volume +10.8% and 4Q consumer loan dollar volume +26.2%
·      Equity Residential (EQR) Q4 FFO 83c/$630.7M vs. est. 81c/$625.5M; sees Q1 FFO 74c-78c vs. consensus est. 79c; sees year FFO $3.17-$3.27 vs. est. $3.26
·      FNF Group (FNF) Q4 adjusted EPS 60c/$1.97B vs. est. 60c/$1.93B; reports $93 million credit adjustment on tax act
·      National Instruments (NATI) Q4 EPS 43c/$350M vs. est. 34c/$347.39M; sees Q1 EPS 19c-33c on revs $305M-$335M vs. est. 19c/$320.98M
·      W. R. Berkley (WRB) Q4 EPS $1.21 vs. est. 73c; reports Q4 gross written premiums $1.78B vs. $1.78B last year (Q4 EPS included realized pre-tax gains of $57M); expects premium volume to increase modestly starting in 2018
 
Healthcare
·      Eli Lilly (LLY) Q4 EPS $1.14/$6.16B vs. est. $1.07/$5.94B; pharmaceutical revenue in Q4 grew 9%; raises FY18 EPS view to $4.81-$4.91 from $4.60-$4.70 (est. $4.68) and backs FY18 revenue guidance of $23B-$23.5B (est. $23.2B)
·      Stryker (SYK) Q4 EPS $1.96/$3.47B vs. est. $1.95/$3.4B; delivered excellent organic sales growth of over 8% in Q4; sees Q1 adjusted EPS $1.57-$1.62 vs. est. $1.60
·      Align Technology (ALGN) Q4 EPS 13c/$421.3M vs. est. 96c/$396.17M. Q4 earnings include a $86.6M tax expense, or $1.06 per diluted share negative impact due to the new U.S. Tax Cut and Jobs Act; sees Q1 EPS 94c-98c on revs $400M-$410M vs. est. 88c/$395.47M
·      Illumina (ILMN) Q4 adjusted EPS $1.44/$778M vs. est. $1.22/$750.24M; backs FY18 adjusted EPS view $4.50-$4.60 (est. $4.58) and sees FY18 revenue growth 13%-14%
·      AveXis (AVXS) announced that, following review of safety data and early signals of efficacy from the first three patients dosed in its pivotal trial of AVXS-101 for spinal muscular atrophy type 1, the company, with agreement from the U.S. Food and Drug Administration, will initiate screening for the remaining patients in the trial as per the protocol
·      Vical Incorporated (VICL) announced a restructuring to conserve capital and to focus its efforts on VL-2397, its antifungal drug product candidate which is entering a pivotal Phase 2 clinical trial in Q1 of 2018, and on completing its Phase 2 HSV-2 clinical trial
·      Cerus (CERS) files to sell $50M in common stock
·      Syros Pharmaceuticals (SYRS) files to sell $40M in common stock
 
Industrials & Materials
·      Ingersoll-Rand (IR) Q4 adjusted EPS $1.02/$3.62B vs. est.  $1.03/$3.52B; reports bookings growth of 10% and organic bookings growth of 8%
·      Textron (TXT) Q4 adjusted EPS 74c/$4B vs. est. 77c/$4.12B; sees FY18 EPS $2.95-$3.15 on revs approximately $14.6B vs. est. $3.01/$14.79B
·      C.H. Robinson (CHRW) Q4 EPS $1.08/$3.96B vs. est. 84c/$3.73B
·      Knight-Swift (KNX) Q4 EPS 52c/$1.36B vs. est. 39c/$1.37B; average revenue per tractor increased 12.2%. Miles per truck decreased 1.6%. Q4 consolidated operating ratio 84.5% vs 85.9% last year
·      Wabash National (WNC) Q4 EPS 36c/$543.4M vs. est. 34c/$518M; sees FY EPS $1.86-$2.02, vs. estimate $1.96
·      ArcelorMittal MT (MT) Q4 sales rose by about 25% to $17.71 billion due to higher steel and iron-ore shipments and higher average steel selling prices; posted quarterly net profit of $1.04 billion, more than doubling its result from a year ago, propped up by sales performance
 
Technology, Media & Telecom
·      Advanced Micro (AMD) Q4 EPS 8c/$1.48B vs. est. 5c/$1.41B; said impact of new rev. recognition accounting standard to be immaterial for 2018 annual revs; sees tax rate of about 10% of pre-tax income for 2018; AMD 4Q gross margin 34.8% vs est. 35.1%; sees Q1 revs $1.55B vs. est. $1.25B
·      Samsung Electronics Co. delivered its third consecutive quarter of record results, owing to robust demand for its memory chips, though operating profit at its smartphone unit fell; said Q4 net profit rose 42% to 12.26 trillion South Korean won ($11.4 billion) from 7.09 trillion won a year earlier.
·      Electronic Arts (EA) shares rose 8%; Q3 EPS $2.21/$1.97B vs. est. $2.20/$2.00B; 3Q digital net revs $780M vs. $685M YoY; 3Q packaged goods and other revs $380M vs. $464M YoY; sees FY18 adj. revenue $5.15B vs. est. $5.13B and EPS $4.25 vs. est. $4.22; guides Q4 above views
·      Juniper (JNPR) shares fell -9%; Q4 EPS 53c/$1.24B vs. est. 52c/$1.23B; boosts dividend by 80%, announces new $2B share buyback; sees Q1 EPS 22c-28c below consensus 42c and sees Q1 revenues of $1.05B, plus or minus $30M vs. consensus $1.15B.
·      Fujifilm Holdings Corp. said that it would take a majority stake in Xerox Corp. (XRX). The new entity, to be called Fuji Xerox, will be 50.1% owned by Fujifilm and will keep Xerox’s listing on the New York Stock Exchange; a $2.5B cash dividend would be paid to current Xerox shareholders under the deal. https://goo.gl/6go3st
·      Amdocs (DOX) Q1 EPS $1.06/$977.7M vs. est. 97c/$979.32M; to acquire Vubiquity for approximately $224M in cash; sees 2Q adjusted EPS 91c-97c on revs $960M-$1.0B vs. est. $1.00/$987.2M
·      CA Technologies (CA) Q3 adjusted EPS 75c/$1.09B vs. est. 60c/$1.07B; raises FY18 non-GAAP EPS view to $2.54-$2.60 from $2.42-$2.48 (est. $2.45) and backs FY18 revenue view $4.22B-$4.25B (est. $4.22B)
·      Plantronics (PLT) Q3 EPS $1.02/$226.5M vs. est. 79c/$220.17M
·      Red Hat (RHT) announced that it has signed a definitive agreement to acquire CoreOS, Inc., an innovator and leader in Kubernetes and container-native solutions, for $250M
·      Super Micro Computer (SMCI) sees Q2 sales $840M-$850M up from prior $725M-$780M and est. $747.4M; sees Q2 EPS 49c-53c vs. est. 44c; says unable to provide date for filing Form 10-K at this time; audit committee has completed previously disclosed investigation
 

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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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