Mid Day Outlook: February 9, 2018

Scott GreenDaily Market Report

Mid-Morning Look
Friday, February 9, 18

After one of the worst weeks thus far in several years for U.S. stocks, markets are rebounding early, as investors look to buy beaten up names following a 10% decline from record highs in the S&P 500, Dow Industrials and Dow transports late yesterday. Driven by volatility worries and both rising interest rate and inflation concerns, the Dow is down 6.5% as of Thursday’s close, while the S&P 500 is down 6.6% for the week, as of Thursday’s close. Oil prices not really rallying with broader stocks, on track for its 6th straight daily decline, as WTI crude tries to hold above the $60 per barrel level (rising production fears have pushed prices down this week).  In Asian markets overnight, The Nikkei Index dropped -508 points (2.32%) to settle at 21,382, the Shanghai Index dropped -132 points or over 4% to close at 3,129 and the Hang Seng Index plunged -943 points (3.1%) to close at 29,507 – the move followed the weak US market showing yesterday that witnessed the second 1,000 point decline for the Dow Industrials this week alone! There were lots of earnings reports moving the needle for many individual stocks this morning (NVDA lifts semis, EXPE weighs on travel, FEYE lifts security), but the macro focus and volatility fears remain the key drivers this week. Political fears abated after a budget deal was reached in Washington overnight to avoid a shutdown.
 
The House of Representatives voted early Friday 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
 
Treasuries, Currencies and Commodities
·      In currency markets, the dollar is little changed vs. the yen and euro in the early going after a volatile week, while the British Pound falls sharply, down about -0.7% to lows of 1.3791, well off the highs yesterday of 1.4067 after the hawkish comments about rates from the BOE; Bitcoin trading just off highs, up about 2.7% around $8,400 (off overnight lows of $7,752)
·      Commodity prices extend weakness; gold prices fall modestly in what has been a week of declines for commodities amid a bounce in the dollar; energy futures are lower, with oil on track for its 6th day of declines on rising production concerns (ahead of Baker Hughes rig data at 1:00 today); the energy complex broadly lower with 1% drop in crude, and 2% for gasoline and nat gas
·      Treasury markets steady after huge swings this week amid turbulence in stocks; the 10-yr yields settling in around 2.85% today, close to yesterday levels, but has seen large trading ranges (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
   
Sector Movers Today
·      Internet security space strong after better results FEYE/IMPVFEYE 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
·      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 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
·      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);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)
·      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; WEBshares plunge after Q4 results/guidance and analyst downgrade
 
Stock GAINERS
·      AEE +4%; broad strength in defensive utilities early
·      FEYE +11%; quarterly results exceeded expectations across nearly all operating metrics, albeit against a lowered outlook in 3Q and easier y/y comparisons
·      MCFT +17% and MBUU both rally as boat retailers rise on better earnings
·      NVDA +5%; reported strong beat and raise results driven by higher gaming, data center, and pro-vis GPU demand
·      PIRS +11%; as teams up with SGEN in immuno-oncology
·      WAIR +21%; on earnings beat
 
Stock LAGGARDS
·      CBOE -12%; as both Q4 EPS and revs fell short of consensus and adds to recent weakness on fear of volatility products and impact on markets
·      EXPE -13%; reported a miss-and-lower guide with a meaningful reset on EBITDA growth vs. a consensus expectation that was meaningfully reset last quarter
·      FDX -1%; and UPS pressured after the WSJ reported AMZN is preparing to launch a delivery service for businesses, positioning it to directly compete https://goo.gl/WFcH3d
·      LGF -7%; 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
·      PCG -4%; Q4 EPS missed consensus by 5c and said is not providing 2018 eps, adj. eps view on wildfire uncertainty
·      SRPT -4%; temporarily suspended dosing in a late-stage study of DMD candidate golodirsen due to serious adverse event
·      WWD -10%; as company refutes WSJ yesterday, saying it is not in talks with Boeing about a possible acquisition
·      ZG -2%; shares fall as full-year forecast for Ebitda fell short of estimates

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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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