Thursday, February 15, 18
Equity Market Recap
· What goes down…must go up? Pretty sure that’s NOT how the saying goes, but don’t tell the stock market, as after posting its worst weekly return in two-years last Friday, and falling over 10% for the S&P 500 and Dow Industrials (correction territory) on inflation, high volatility, and rising rate fears, markets have recouped between 60%-70% of that loss in 5-days – even with rising inflation readings and higher bond yields this week! The story remains the same as investors and traders continue to take any and all opportunities to buy beaten up stocks, with this time was no different, just that the decline was much faster and volatile than prior declines.
· With today’s gains, the Nasdaq Composite Index posted its biggest five-day advance since 2011 while the S&P 500 and Dow Industrials climbed for a fifth consecutive day, with major averages shrugging off the second consecutive “higher” inflation reading in as many days. The dollar slumped again (falling a 4thday), while 10-yr yields fell from earlier 4-year highs (above 2.94%) after an onslaught of mixed economic data reports (PPI, Manufacturing, Industrial Production). Gains today were led by unusual suspects, with Consumer Staples and Utilities top dogs (along with Technology with a 1.5% gain for the Nasdaq). Speaking of, Lunar New Year celebrations for the Year of the Dog begin, affecting China, Hong Kong, Taiwan, Singapore, Malaysia and Indonesia. Chinese mainland markets closed Feb. 15-21.
· The Dow Jones Industrial Average reclaimed the 25K level for the 1st time in 2-weeks and is on track for its longest win streak in about 9 weeks, this after falling as much as 10% from record highs just 5 days ago. The S&P 500 index firmly above the 2,700 level and the Nasdaq Composite Index topped the 7,250 level (up over 600 points from Friday low). Strong earnings results from Dow component CSCO overnight helped lift tech stocks. Coming into today, the NASDAQ was up 4.3% thus far this week, the Dow is up 3.5% thus far this week while the S&P is up 3.4%. With today’s strong market returns, they just got bigger!
· Producer Price Index (PPI) shot up 0.4% in January, in-line with estimates, the latest sign that inflation is perking up; core PPI also rose 0.4%, hotter than the expected 0.2% rise, suggesting price pressures are more widespread. The 12-month rate of wholesale inflation rose a tick to 2.7% in January, and the yearly rate of core inflation edged up to a record 2.5%
· The Philadelphia Fed manufacturing index rose to a reading of 25.8 in February from 22.2 in January and above the 21.8 estimate; the new-orders gauge jumped to 24.5 from 10.1, but the shipments gauge declined to 15.5 from 30.3; prices paid index increased 12 points to 45, its highest reading since May 2011.
· The Empire State Manufacturing Index slumped to a reading of 13.1 in February from 17.7 in January and below the 18.0 estimate by economists; this marked the 4th straight drop after the index hit 28.1 in October; the new-orders index rose 1.6 points to 13.5, and the shipments index slipped 1.9 points to 12.5; prices paid index jumped 12 points to 48.6
· Initial U.S. jobless claims increased by 7K to 230K in the latest week, slightly above the 228K estimate, while the prior week was revised to 223K from 221K; the 4-week moving average rose by 3,500 to 228,500, and continuing claims climbed by 15,000 to 1.94M (vs. 2.4M a year ago)
· Industrial Production for January fell (-0.1%) vs. an expected rise of 0.2% and after rising 0.4% in December; IP was revised down to up 0.4% from up 0.9% in December. Capacity utilization fell to 77.5% from 77.7% in December and was revised down from 77.9%
· Mortgage rates have climbed to the highest level in close to four years, averaged 4.38% in the week ending Feb. 15, up from 4.32%, mortgage buyer Freddie Mac said. A year ago, the benchmark mortgage averaged 4.15%
· Gold prices slipped -$2.70, or 0.2%, at $1,355.30 an ounce, pulling back from their highest finish in nearly three weeks Wednesday amid a deluge of economic data and a volatile dollar bouncing from highs to lows over the last 24-hours. Safe-haven or defensive gold pulled back as investors added to stocks, rising for a 5th straight day as investors made riskier bets.
· Oil prices end mixed, with the WTI crude rising 74c or 1.2% to settle at $61.34 per barrel, off earlier lows of $59.72 as investors also move back into the beaten up energy complex that saw a near 10% decline in oil prices last week. However, Brent prices posted small declines. Oil prices began its rebound yesterday following inventory data.
Currencies & Bonds
· More weakness for the U.S. dollar, extending its recent slide (down 4th straight day), with the Dollar Index (DXY) down about -0.5% around the 88.65 level and set for a roughly 2% weekly dip. The weaker dollar falling despite rising rate hike expectations and increasing inflation as per economic data. The dollar falls to 15-month lows against the Japanese yen (lows of 106.07), while the euro and Pound advanced as well. Bitcoin prices up over 8%, topping the $10,000 level for the first time since February 1st (and well off lows of $5,922 back on February 6th).
· Bond prices ended higher, reversing earlier declines as yields pulled back from 4-year highs on the 10-yr, though the shorter-term 2-yr yield held steady around 2.18%. The 10-yr yield dips under 2.89% midday from earlier highs 2.94% despite another “hot” inflation report, with core PPI prices topping views (follows stronger CPI reading yesterday in total and core prices).
Sector News Breakdown
· Retailers; consumer discretionary stocks mixed ahead of some key earnings next week, as the group already showed resiliency yesterday after the softer monthly retail sales report fell short of consensus; SHLD said Q4 comp sales fell (-15.6%) and sales were $4.4B; BBW results slightly above the previous negative pre-release with 2018 guidance in line with consensus
· Consumer Staples & Restaurants; THS falls to 52-week lows after issuing disappointing full-year revenue guidance as sees sales of $5.9B-$6.1B vs. $6.24B consensus; KHC and SJM earnings expected tonight after the close; IFF shares drop on mixed Q4 results (EPS miss/sales beat); protein stocks mixed despitePPC Q4 sales and EPS topping views; USFD shares jumped on better earnings and guidance; Dow component KO reports earnings tomorrow morning
· Casino, Lodging & Leisure; busy week for lodging results, with HLT and WYN reporting yesterday and both MAR and Hyatt (H) moving on results today;MAR results were similar to HLT’s, with stronger than expected 4Q RevPAR and EBITDA, and 2018 EBITDA slightly ahead of comparable consensus; WYN to sell European vacation rental business for $1.3B to Platinum Equity; in leisure, POOL shares outperformed on higher Q4 sales of $510.2M
· Services and energy; HAL said its Q1 negatively impacted by frack sand delays (frac sand companies SLCA, EMES, SND, HCLP, FMSA); MRO fell despite quarterly loss narrows on rising crude prices, cost cuts/ well performance continues to improve across the portfolio – Wells Fargo said declined as Marathon Oil commented on pilot well tests- which weighed on Stack E&P plays (NFX, CLR); OIS posted a narrower than expected Q4 loss on higher revs, but the comments from HAL really weighed on service stocks today
· E&P sector; XEC guided 2018 -3% below consensus, but still calls for 14% growth with 21-26% oil growth and raise cap-ex to $1.6B-$1.7B vs. Bloomberg est. $1.5B; NBL to divest Gulf of Mexico assets for $710M, announces share $750M buyback program; EQT rises as CEO the company will accelerate its plan to address its share price discount on a call with investors today/says its share price doesn’t reflect its strength and to announce the sum of parts of its plan by end of February
· MLPs/pipelines; MMLP 4Q Ebitda of $49.3M beat consensus estimates by 8%, led by strong results in the Sulfur Services segment according to one analyst, sending shares higher; WMB and WPZ also active on earnings;
· Solar movers; SEDG shares jumped after delivering a strong Q4 beat and an impressive Q1 guide of $200M-$210M, well above the $158M estimate; SPWRshares fell as outlook disappointed, and the company said it’s already seeing negative impacts from the Section 201 solar tariffs.
· Large Cap banks; group has been among top gainers this week on rising rate hopes; BPOP said its banking unit, Banco Popular de Puerto Rico, would buy certain assets and debt related to WFC’s auto finance business in Puerto Rico for about $1.7B https://goo.gl/DwGXbU; CNBC reported that AMZN and BAChave partnered for Amazon Lending, an invitation-only program launched in 2011 that makes loans of $1,000 to $750,000 with terms of up to a year to merchants; BEN pays special dividend of $3.00 due to tax cut
· Credit card monthly data: 1) COF January net charge-offs 5.33% vs. 5.37% last month and January 30-plus day delinquencies 4.11% vs. 4.01% last month; 2)JPM January net charge offs 2.40% vs. 2.43% last month and January 30-plus day delinquency rate 1.21% vs. 1.20% last month; 3) SYF January charge-off rate 4.98% vs. 4.94% last month and January 30-plus day delinquency rate 3.11% vs. 302% last month; 4) ADS January net charge offs 6.8% vs. 5.9% last month and delinquency rate 5.5% vs. 5.1% last month; 5) DFS January charge-off rate 3.1% vs. 3.1% last month and delinquency rate 2.4% vs. 2.3% last month; 6)BAC reports January default rate 2.58% vs. 2.60% last month and delinquency rate 1.70% vs. 1.66% last month
· Payments, services and lending; GPN posts Q4 results and guidance, as North America organic growth, with non-GAAP growth of +14.4% to $688M below Nomura $697M est.; CBZ Q4 earnings and revenues topped views sending shares higher
· REITs; Data center REIT peers fell after EQIX gave forecasts for 2018 revenue and adjusted Ebitda that missed analyst estimates (DLR, CONE, COR)
· Large Cap Pharma; TEVA shares rise after Warren Buffet’s Berkshire revealed a new stake in TEVA in 13F filing; BMY upgraded to overweight at Morgan Stanley and tgt to $78 as believe that Bristol’s IO combo efficacy potential and toxicity should be encouraging using precision medicine biomarker TMB;OMER rises as its OMS721 shows treatment effect in mid-stage HCT-TMA study; ABBV new stock buyback plan of $10B and dividend raised to 96c from 71c
· Biotech movers; AMAG and partner ATRS shares rise after the FDA approved its Makena subcutaneous auto-injector drug device combination
· Healthcare services and equipment; ZTS Q4 results ahead of expectations and solid guidance; JP Morgan downgraded PDCO to underweight as faces more near-term headwinds and uncertainties and assumed HSIC with a neutral rating; Agilent (A) Q1 results handily topped consensus and raised guidance; CUTRQ4 revs beat and guides year revs and EPS above views
Industrials & Materials
· Multi industry & Machinery; ALSN shares dropped on earnings after Q4 margins missed estimates on lower Ebitda; CAI shares drop as quarterly sales miss consensus; Barclays initiated coverage of sector: overweight rated on ALLE, DHR, DOV, EMR, FTV, HDS, HON, IR, LII, SWK and UTX and underweight rated on:CFX, PNR (several others equal-weight); TGH shares dropped following earnings
· Transports; transports underperform the broader markets, falling to lows of 10,366 (but off earlier highs 10,536); weakness in marine, trucking and freight, with airlines mostly higher early; ALK downgraded at UBS after outperformance in January
· Materials & Mining; CX was downgraded to sell at UBS; CMP downgraded to underperform at Credit Suisse as see increased margin challenges from higher freight costs; in steel sector, RS shares rallied on Q4 EPS and sales beat
· Chemicals; SHLM +10%; to be acquired by LYB for $42 per share in a deal valued at $1.24B, doubling the size of its plastics business https://goo.gl/J7JmF7;CF posted mixed Q4 results as EPS beat while Ebitda came in just below views, mainly driven by higher than expected feedstock costs in the U.K. and higher than expected non-gas costs in ammonia; CC Q4 EPS and sales topped consensus on higher Ebitda and reaffirmed guidance; FMC upgraded to buy at Seaport Global following a solid quarter and good outlooks for both segments
· Gold miners; several earnings results out of the gold mining sector overnight: 1) GG Q4 EPS beat by 17c on gold production of 646K oz.’s; 2) ABX Q4 adj. EPS in line with expectations, while cash flow and free cash flow were a bit lower than expected on higher capital spending; 3) KGC underperforms after Q4 results missed, with one analyst chalking it up to a timing issue; 4) AEM also moved lower on mixed Q4 results
Technology, Media & Telecom
· Networking and services; Dow component CSCO posted upbeat and clean results and guidance as Q2 sales came in slightly ahead of estimates/also beating on margins and EPS; CSCO suppliers such as EMKR, CLS, OCLR, CAVM, FNSR, IPHI also moved in reaction; shares of comp networking stocks mixed after CSCO beat (JNPR, ANET, FFIV, EXTR, NTGR); ARRS posted Q4 beat but Q1 guidance below views (50c-55c vs. est. 56c)
· Internet; online travel two solid days of gains, getting a boost from SABR results the day prior, while TRIP results helped the group again today (though results/guide mixed) reported strong Q4’17 results with revenue and EBITDA above consensus; SHOP results better but had high expectations and share run-up ahead of 4Q results; YNDX posts Q4 profit that topped views; BIDU was upgraded to overweight at Morgan Stanley after earnings
· Semiconductors; AMAT reported/guided F1Q/F2Q above Street, and for the first time provided a view of 2019/increased buyback to $8.8B and doubled dividend; the results from AMAT better, but group has had a huge bounce since they bottomed on Friday; several analysts have come out defending the beaten up stocks; KLAC and ENTG both upgraded to buy at Citigroup
· Software & Hardware movers; AAPL up for a 5th day, bouncing over $20 during that stretch from $150.24 low last Friday; CRM upgraded to buy at Jefferies and increases the price target from $97 to $132 saying they see many engines of growth for the company over the long-term as it continues to expand in multiple segments; NTAP shares fell despite Q3 beats on top/bottom line, as midpoint of guidance for Q4 missed and weaker margins
· Telecom & Media; a day after good results in the advertising space from IPG, OMC shares fall as the company reported lower-than-expected organic growth, and roughly in-line profitability expectations for 4Q17; in rural telecoms, shares of CTL rise on earnings, helping lift FTR and WIN; SYNT rises on earnings