Mid Day Outlook: February 5, 2018

Scott GreenDaily Market Report

Mid-Morning Look
Monday, February 5, 18
  
U.S. equities open the day on the lows, extending last Friday’s 2% decline for most major averages, but the downdraft in stocks have since been erased amid gains in large cap tech stocks such as AAPL, AMZN and semiconductor stocks. Since the open, the Dow Industrials have bounced 300 points, the S&P 500 over 20 points and the Nasdaq Composite over 100 points off the lows. Bond yields continue to climb (10-year touched 2.88% briefly) while volatility has spiked, with the CBOE Volatility Index (VIX) touching highs of 19.27 (highest levels since Nov ’16) while Bitcoin and other cryptocurrencies continue to fall apart (Bitcoin drops more than 15% to below $7300). Bank stocks benefit from the rising rate hike expectations and higher bond yields, though WFC shares drop as much as 9% after the Federal Reserve banned the bank from growing until it convinces authorities its addressing shortcomings. Inflation fears have been stoked after wage-hike numbers in the jobs data last Friday, partially raising market fears along with mixed earnings results from large cap giants over the last week (GOOGL, CVX, and XOM). Will markets rally after posting the first 2-day decline of 2018 on Friday, or is the beginning of a larger market correction that hasn’t seen a 5% decline in the S&P from highs in over 400 trading days?
 
Treasuries, Currencies and Commodities
·      In currency markets, the dollar extending last Friday’s gains, rallying firmly against the euro, pound and Japanese yen on another strong set of economic data (rallied on jobs data last week and better services data today); the euro holding near lows vs. dollar after better services data – down at 1.24 (overnight highs 1.2475);
·      Bitcoin prices crushed again, falling more than 15%, nearing $7,000 on the downside (recall record highs of $19,511 on 12/18) – momentum leading lower, along with recent bank banning purchases of digital currencies via its credit cards (Lloyds today adding to BAC and JPM last week).
·      Commodity prices; oil prices slide early while gold prices are little changed despite a bounce in the U.S. dollar; last week WTI crude posted a decline of roughly 1%, extending those losses early
·      Treasury markets little changed to down slightly, giving up an earlier advance that put it above 2.88%. Bonds have been enduring a broad decline in the past week, as inflation concerns and strong economic data helped to drive yields higher (10-yr around 2.85%, 2-yr 2.13% and 30-yr around 3.12%)
 
Economic Data
·      ISM Non-Manufacturing index (services) rises to 59.9, above the 56.7 estimate and above the 56 prior month; new orders rose to 62.7 from 54.5 last month, employment rose to 61.6 from 56.3, inventory change fell to 49.0 from 53.5 and prices paid rose to 61.9 from 59.9
·      IHS Markit U.S. services PMI slips to 53.3 in January from 53.7
   
Sector Movers Today
·      Retailers; DKS was downgraded to underweight and cut price target for the shares to $25 as firm questions business model/separately, said its chief EVP Merchant resigns to become CEO of CBKFLWS and FTD shares volatile after AMZN/Whole Foods said to cut flower prices; VFC upgraded to overweight at Piper as believe the improving macro backdrop, strong momentum of Vans and improving outdoor lifestyle dynamics support a beat & raise; KORS estimates raised at Piper as believe comps in NA are a little “less bad”–down 7% vs. the -9% prior; FL added to the Best Ideas List at Wedbush as checks indicate 4Q is likely tracking to the high-end of guidance
·      Consumer Staples; SYY Q2 net income as sales increased, and said it remained confident of meeting its full-year financial targets; CHD Q4 EPS and sales topped views while its year forecast fell short of consensus views ($2.24-$2.28 vs. est. $2.30); BG shares rose on Bloomberg report that ADM is in advanced talks to acquire the commodity trader, saying they could reach an agreement as early as this week https://goo.gl/kv1qAt
·      Machinery; monthly Class 8 and medium duty truck orders for January came in significantly above expectations and were the second and third highest on record, respectively amid strong and accelerating carrier CapEx environment, which has also been reflected in trailer orders (shares of CMI, PCAR, NAV, ALSN leveraged to the data) – more: In January, Class 8 truck orders were 48,700 units, up 119% YoY (highest since March 2006) while Class 5-7 were 31,700 units (highest since July 2006), up 39% YoY; CMImaintained sell at Deutsche Bank; MNTX announced that CFO Michael Schneider had resigned from the company/no reason was cited
·      IT Services; Morgan Stanley said recent CIO survey suggests that cloud adoption has crossed the 20% threshold, implying a secular shift that should drive IT Services growth and also sees a late cycle cyclical shift into high quality and defensive stocks, which should allow multiples to remain resilient (firm upgraded industry view from Cautious to attractive and also upgraded ACN)
·      Hardware and Comm equipment; AAPL breaks below the 200-day moving average, extending losses after earnings last week; NOK was upgraded to buy at Bank America on an attractive valuation and view of the high potential for improvement throughout 2018, while firm downgrade ERIC to underperform after reported mostly disappointing 4Q results; XRX was upgraded to buy at UBS after transaction with Fuji Xerox
 
Stock GAINERS
·      BG +4%; on Bloomberg report that ADM is in advanced talks to acquire the commodity trader, saying they could reach an agreement as early as this weekhttps://goo.gl/kv1qAt
·      BMY ; reported earnings and said a late-stage study of its Opdivo combined with Yervoy and chemotherapy showed a significant effect on progression-free survival compared to chemotherapy alone
·      CHD +4%; Q4 EPS and sales topped views while its year forecast fell short of consensus views
·      CIT +3%; said in an 8-K late Friday indicating that it received approval from the Fed to amend its capital plan in the 2017 CCAR cycle
·      NCLH +1%; upgraded to overweight at JP Morgan
 
Stock LAGGARDS
·      ARNC -7%; as 2018 outlook disappoints, offsetting better Q4 results
·      CORT -20%; stock plunges after Teva files NDA for generic KORLYM
·      DKS -4%; downgraded to underweight at $25 tgt at Barclay’s
·      FLWS -3%; and FTD shares volatile after AMZN/Whole Foods said to cut flower prices
·      OSTK -2%; amid broad sell-off in Bitcoin, down another 14% earlier today and weighing on the entire blockchain sector/names leveraged to Bitcoin
·      QCOM -2%; despite AVGO raising its bid to ~$120B or $82 per share ($60 in cash & $22 in AVGO shares), up from ~$70 https://goo.gl/NegBAV
·      WFC -7%; downgraded by several analysts today after the Federal Reserve hit them with sanctions, saying it can’t grow any further until its submits a plan that proves it has beefed-up its risk management and board oversight following a 2016 “fake accounts” scandal

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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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