Market Review: February 9, 2018

Scott GreenDaily Market Report

Closing Recap
Friday, February 9, 18
Equity Market Recap
·      Wow! It was another whipsaw session on Wall Street, as major averages opened firmly higher, looking to put behind some of the worst daily point declines in its history (this week) behind it…but the volatility was just as intense as the earlier part of the week, with huge swings from gains to losses (and back to gains late day) in matter of minutes. The markets did end Friday on a positive note, surging into the close (before a last-minute pull), but still posted large weekly declines that saw two multiple 1,000-point declines for the Dow. 
·      Markets gave up early gains, with the Dow falling from highs of 24,382 to lows of 23,360 (900-point range), the S&P 500 highs above 2,625 to lows 2,532 (briefly breaking below its 200-day moving average (the first time it has done so since Brexit), and the Nasdaq Comp highs above 6,900 to lows of 6,630 (280-point swing from highs to lows).
·      There were several factors cited for the onslaught of stock selling this week, including: volatility instruments raising all sorts of fear (triple leveraged ETFs/ETNs – the XIV the story of the week), margin calls likely a factor on the aggressive sell-off, while companies can’t participate in buyback programs during earnings (black-out period). We may have seen a little late day lift on hopes with the bulk of earnings behind us (next week is busy – but not like the last 2-weeks), we may start seeing corporate buyback programs resume. The fears of higher inflation and rising rates along with increased borrowing costs as the 10-yr yield hit a 4-year high this week also likely played a large factor. We get Consumer Prices (CPI) next Wednesday, with markets closely watching the inflation reading, as well as the Trump FY19 budget and infrastructure plan Monday.

·      The House of Representatives voted for a two-year budget deal that raises both defense and domestic spending by hundreds of billions of dollars, approving a package that would also reopen the federal government after it shut down just past midnight. The House followed the Senate in approving the sweeping bill, which would also suspend the debt limit through March 1, 2019. President Donald Trump needs to sign it to reopen the government. The Senate voted 71 to 28 to approve the measure and send it to the House, where it passed 240 to 186
·      Oil prices decline, capping off a dreadful week culminated by a 6th straight day of declines. WTI crude oil slipped -$1.95, or 3.2% to settle at $59.20 per barrel, closing at its lowest settlement since December 22nd and ending the week down nearly 10% for the week. WTI crude fell below the $60 per barrel mark for the first time since late December, touching a low of $58.07 before paring losses and dropped more than 10% from its YTD highs reached on Jan. 25th. Crude prices have tumbled as record U.S. output adds to supply worries following the EIA report Wednesday showing weekly crude production topped 10m b/d for first time on record. Oil prices extended losses in the afternoon after Baker Hughes reported that the number of active U.S. rigs drilling for oil jumped by 26 to 791 this week. That marked a third straight week of increases and the largest weekly rise in more than a year.
·      Gold futures declined on Friday, falling -$3.30, or 0.3%, to settle at $1,315.70 an ounce, ending the week lower by about -1.6%, its biggest drop since the first week of December. Commodity prices in general have slipped this week amid a recent bounce in the dollar on rising rate and inflation expectations. Gold finished Thursday in the green, halting a four-session skid as investors bought assets perceived as havens amid an equity rout that saw the Dow fall -1,000 points for the second time this week
Currencies & Bonds
·      The dollar ends higher, mainly due to its outperformance against the British Pound as it ended little changed vs. the euro and yen in what has been a volatile week for currencies. For the week, the dollar index posted a gain of roughly 1.4% on rising rate and inflation fears. The British Pound reversed the prior day gains, falling around -0.8% to 1.38, well off the highs yesterday of 1.4067 after the hawkish comments about rates from the BOE. With all this volatility, Bitcoin has quietly rebounded off its recent pullback, rising more than 6% to around $8,700 (off overnight lows of $7,752 and its Tuesday bottom of $5,922, the lowest since November)
·      Bonds were higher and yields slipped after huge swings this week amid turbulence in stocks; the 10-yr yield jumped late day to 2.8%% as stocks rallied after falling around 1.5 bps to 2.83% prior to the spike; we have seen large trading ranges this week (10-year lows this week around 2.65% and highs 2.88%) – weaker bond auctions have also played a hand in the market volatility this week. The 2-yr yield has fallen over 6 bps to 2.06%, while the 30-yr was flat around the 3.135% level. Stronger-than-expected wage growth data for January last week stoked inflation expectations, lifting bond yields.
Sector News Breakdown
·      Retailers; URBN comps accelerated meaningfully at Free People while Anthropologie comps also accelerated vs 3Q; WWW 2018 guidance (excluding tax benefits) was largely in line with previous estimates (bounce on tax reform) – but Pivotal downgraded shares saying 4Q sales are coming in towards the lower end of its range, calling into question the strength of its holiday performance; COLM posts unexpected Q4 loss, but revs better, boosts dividend and guides year above views; GME said it has terminated the employment of its COO and EVP of strategic business and brand development with immediate effect (no cause given); SKX advanced in bad tape on good earnings results
·      Casino, Lodging & Leisure; in boating, MCFT posted a strong 2Q, improved business outlook and benefits of tax reform; MBUU shares also reacted positively to better earnings; lodging space in focus next week with earnings for the group
·      Oil prices fell for a 6th straight session as WTI crude broke below the $60 per barrel level for the first time since December; 52-week low for Dow component XOM after touching 52-week high on 1/29…that’s less than 2 weeks from high to low!; big weekly rig adds as Baker Hughes weekly rig count showed the total rig count rose 29 to 975, with oil rigs jumping 26 to 791 and gas rigs up 3 to 184; DO downgraded at Raymond James given the firm’s negative view on the offshore drilling sector and DO’s fleet being valued at ~$350M vs ~$245M for peers
·      Utilities; the defensive sector one of the few points of strength in the market; PCG Q4 EPS missed consensus by 5c and said is not providing 2018 eps, adj. eps view on wildfire uncertainty; utilities in general outperformed early
·      E&P and services; SLCA announced 4%-14% price increases for the majority of its non-contracted industrial and specialty products (ISP) business; BRS mixed Q3 as posted smaller EPS loss but lower revenue
·      MLPs weak again; the Alerian MLP Index declines another -2%, falling on lower oil and rising rate fears – index trades to the lowest levels since mid-December (52-week low 249.71 on 11/29) -weakness in NGL after guided year Ebitda to $440M-$450M vs. est. $485.2M; NS adds to yesterday 19% decline after announcing plans to absorb related entities and slash its payout by 45%; big declines for DM, RMP, SMLP, DCP
·      Large Cap banks opened higher, but reversed lower midday with broader markets; CMA, TCF and BBT upgraded to outperform at BMO Capital, advantage of the recent pull-back and remains generally positive on banks as we believe that earnings will keep the majority of the benefit from tax reform and de-regulation should still be a positive catalyst; FHN was upgraded at Barclays; in exchanges, CBOE shares fell as both Q4 EPS and revs fell short of consensus and adds to recent weakness on fear of volatility products and impact on markets
·      Insurance; HIG reported Q4 core income beat of about 5c; AIG posted 18c EPS miss driven by weaker-than-expected results in both the P&C and life insurance businesses (but no material reserve additions in North America helped lift shares); AIZ also posted earnings results
·      REITs; CBL shares fall as reported a 1c miss in the quarter, but fundamentals deteriorated more than anticipated and the initial 2018 FFO guidance is 12.5% below consensus; TCOreported a 4Q beat and management issued initial 2018 FFO guidance that is in line with consensus at the midpoint; OFC initial 2018 guidance missed the already tempered Street estimate by 2c; ESS outperforms, upgraded to neutral at Mizuho; 52-week lows today in S&P for: SLG, KIM, REG, VTR, HCP, HCN, O, UDR
·      Consumer Finance and Lending; FISV upgraded to buy at SunTrust as contend that organic rev growth has bottomed, l-t operating leverage remains, return of capital is potentially accelerating and optionality exists around next-gen solutions; ELLI Q4 beat, Q1 light but guides year above views sending shares higher; ELVT falls on earnings miss
·      Large Cap Pharma; TEVA downgraded at Piper, but upgraded at RBC after sell-off in shares yesterday following earnings/guidance; VRX unit Salix and its partner Norgine B.V. received notice from FDA of extended PDUFA action date for review of PLENVU NDA by three months to May 13; CBIO falls despite positive top line data on Phase II study, but Chardan raises tgt to $75; 52-week lows today for CELG, LLY, HOLX, REGN, INCY
·      Biotech movers; SRPT has temporarily suspended dosing in a late-stage study of DMD candidate golodirsen/the study, ESSENCE, is evaluating exon 45-skipping SRP-4045 (golodirsen) and exon 53-skipping SRP-4053; PIRS rises as teams up with SGEN in immuno-oncology; group, along with services and generic pharma remain pressured as President Donald Trump’s FY19 budget wants to reduce individuals’ out-of-pocket expenses, but is mostly targeting insurers and pharmacy benefit managers (ESRX, CVS, CAH have underperformed biotech)
·      Medical devices & Equipment; COO was downgraded to neutral at Cleveland research;BRKR Q4 EPS top views as margin on track even with subdued growth; ALGN patent affirmed by panel; MTD was upgraded to buy at Citigroup after earnings; HOLX falls to 52-week lows after earnings while downgraded to hold at Stifel saying though valuation remains compelling, it is not enough as SculpSure’s incremental market share continues to move lower given challenges
Industrials & Materials
·      Transports; FDX and UPS shares slumped after the WSJ reported AMZN is preparing to launch a delivery service for businesses, positioning it to directly compete with the package delivery giants ; Transports overall were much weaker as the Dow Transport index underperformed broader markets, trading down more than 2% after falling more than 10% yesterday from its all-time record highs – broad based selling in rails, airlines and truckers weighed initially, but much like the broader market, rebounded in the afternoon
·      Aerospace & Defense; WWD shares dropped after refuting a WSJ article, saying it is “not in discussions with BA over a possible acquisition”; UTX shares dropped late as Reuters reported Airbus says issue identified with recently delivered A320neo Pratt & Whitney GTF engines
Technology, Media & Telecom
·      Internet; online travel stocks pressured by EXPE which reported a miss-and-lower guide with a meaningful reset on EBITDA growth vs. a consensus expectation that was meaningfully reset last quarter (shares of PCLN, TRIP dipped in reaction); ZG shares fall as full-year forecast for Ebitda fell short of estimates primarily due to increased advertising and R&D investments; WEB shares plunge after Q4 results/guidance and analyst downgrade; GOOGL bounce off lows, traded briefly below the 1,000 level for the first time since October; FB traded to 200 day moving average support today (hasn’t fallen to its 200 day moving average since January of last year)
·      Semiconductors; QCOM said its Board of Directors unanimously rejected the revised non-binding, unsolicited proposal by AVGO of $82.00 per share ($60.00 cash/$22.00 stock); NVDA reported strong beat and raise results driven by higher gaming, data center, and pro-vis GPU demand (Data Center revenue was up 21% q/q and 105% y/y with the Tesla V100 and AI and Gaming was up 11% q/q and 29% y/y with strength in new game titles, Nintendo Switch, and eSports); MPWR rises on Q4 sales beat, trading to best level in 4-years
·      Software & Component movers; in video games, ATVI 4Q results exceeded consensus forecasts, while its 2018 earnings outlook missed estimates (higher investment spending in advertising, mobile and eSports are expected to put pressure on margins this year);NUAN Q1 results in-line with the positive pre-announcement from a couple of weeks ago while nudged organic rev view up and op margin down; MOBL rises after Q4 results top estimates; HDP drops on results; JNPR said the DOJ closes probe into possible FCPA violations without taking action
·      Internet security space strong after better results FEYE/IMPV; FEYE shares rally as quarterly results exceeded expectations across nearly all operating metrics, albeit against a lowered outlook in 3Q and easier y/y comparisons; IMPV reported top-line results in line with expectations, modest billings upside, and modestly better-than-expected profitability
·      Media & Telecom movers; LGF downgraded to hold at SunTrust as company dropped its 3-year OIBDA CAGR outlook to ~7-8% from ~13%, implying a ~13-14% lowering of F20 OIBDA; DXC shares rise early on earnings beat and positive profit outlook ($7.50-$8.00 vs. $7.59 est.); NWSA Q2 revenue topped consensus views

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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