Market Review: February 20, 2018

Scott GreenDaily Market Report

Closing Recap
Tuesday, February 20, 18
Equity Market Recap
·      U.S. stocks extended losses late afternoon, with nearly all 11-S&P sectors trading lower (even technology which had outperformed the majority of the day). The Dow and S&P declines were led by retail and consumer staples after Dow component WMT missed Q1 EPS, forecast year adjusted EPS below estimates and didn’t provide 1Q comp sales view. With today’s declines, the Dow and S&P both snapped their 6-day winning streaks, while the Nasdaq Composite erased its early gains despite strength in the semi chip sector amid M&A news (QCOM raised its bid for NXPI). Bond yields were not to blame for today’s decline, as yields actually pared gains late day, after $179B in bond issuance auctioned today ($258B this week); the dollar posted strong gains, which hurt gold prices. Outside of earnings, the macro picture was generally quiet as traders returned from the 3-day holiday weekend with no major economic data or Fed commentary.
·      Gold prices tumbled on Tuesday, sliding -$25.10, or 1.9%, to settle at $1,331.20 an ounce as the dollar rebounds off 3-year lows (gold prices advanced roughly 3% last week). Today’s decline marked its biggest one day pullback since a -$33.90 drop, or 2.9%, on Dec. 15. 2016 according to reports. The combination of a bounce in the dollar, along with many Asian investors, big buyers in the commodity, continue to observe Lunar New Year, weighing on buying momentum.
·      WTI crude oil rises, closing higher by 22c to $61.90 per barrel after posting a weekly gain of over 4% last week. “We have seen a remarkable year in 2017 – the market of crude has been restored and went to healthy numbers,” United Arab Emirates Energy Minister Suhail Al Mazrouei said at the International Petroleum Week conference in London
·      The U.S. dollar index (DXY) posted solid gains on Tuesday, rising 0.7% and bouncing off 3-year lows last Friday. The greenback marked its fifth weekly loss out of seven weeks this year on Friday, driving the euro up to its highest level since December 2014 before dipping today. The euro slides about -0.5% to 1.2345, while the buck rises back above 107.25 against the yen vs. 106.59 late Friday. Bitcoin prices up around 5% at $11,700 (hit 3-week high $11,730).
Bond Market
·      Bonds slipped as yields climbed, but held in a tight range today; the 10-year yield rose about 3 bps to 2.905%, while the 2-yr rose to 2.22% and the 30-yr  was up at 3.165%. Today marked the start of a busy week of bond issuance, which included the U.S. treasury selling $179B of securities today alone, with yields at its auctions of three-month and six-month debt rising to levels unseen since 2008. The government auctioned $51B of 3-month bills at a yield of 1.6%, $45B of 6-month debt yielded 1.82%, $55B sale of 4-week notes at a yield of 1.38% (and the amount of bids that sale attracted relative to the offering size dropped to the lowest level since 2008), and lastly a $28B offering of two-year notes yielded 2.25%.
Sector News Breakdown
·      Retailers; Dow component WMT slumps, dragging the broader index lower after it missed Q1 EPS, forecast year adjusted EPS below estimates and didn’t provide 1Q comp sales view; GPS announced Gap brand president Jeff Kirwan is leaving, hurting shares; TGT also weak as AMZN earlier announced that Amazon Rewards Visa Card members will now get 5% back on all purchases (equal to TGT’s REDCard reward); GES co-founder Paul Marciano to relinquish daily duties during investigation as company investigates allegations of improper conduct by Marciano; KIRK guides Q3 EPS 32c-34c, below consensus of 59c
·      Consumer Staples; sector will be active this week as Consumer Analyst Group of New York (CAGNY) conference takes place; few companies issuing comments already today from meeting (GIS); consumer staples in general such as grocers (KR, SFM) and consumer products (PG, EL) pressured after WMT results and guidance
·      Restaurants; FOGO to be acquired by Rhone Capital for $15.75 per share/$560M deal shares jump after earnings results top views; CBRLshares fall after Q2 results and Q3 EPS guidance of $1.85-$1.95 below the $2.23 estimate had shares lower; CMG was upgraded at Stifel; DPZ shares slide as Q4 EPS beat, but revs of $891.5M missed the $905M est and comp sales of 3.8% also light; WING downgraded to neutral at Baird
·      Housing & Building Products; in home improvement retail, Dow component HD Q4 EPS beat by 6c on slightly better sales of $23.88B and comps 0f 7.5% topping the 6.5% estimate (LOW reports earnings next week); HD suppliers such as MAS, AMWD, SWK also active on report; in homebuilders, Barron’s called HOV shares too cheap to ignore; WLH posted Q4 rev beat and announced definitive agreement to acquire RSI Communities for about $460M; WHR shares dropped as U.S. shipments of major home appliances fell 12% y/y to 4.9m units in January
·      Casino, Lodging & Leisure; in theme parks, SIX reported Q4 revs and Ebitda above views, but shares slipped early; in lodging, MAR and Hyatt (H) upgraded at Evercore/ISI; Jefferies initiates on the equipment and technology supplier segment of the gaming industry, with buy ratings for IGT, EVRI and focus pick SGMSMGM shares rebound off lows despite weak Las Vegas results
·      Auto movers; GM has offered to convert debt of around $2.2 billion owed by its ailing South Korean operation into equity in exchange for financial support and tax benefits from Seoul. ; GPC shares fell as Q4 results topped consensus but year guidance $5.60-$5.75 missed the $5.86 estimate; CTB shares fall as Q4 EPS missed lowest estimates
·      Busy week upcoming for oil company earnings, while oil prices look to add to last week’s 4% gains; Utilities were weaker; DUK shares fall after quarterly revs miss and announced stock offering; NI Q4 EPS beat but mid-point of year guidance short of consensus; group overall has remained weak on treasury bond yield climb today and rising rate outlook; NBL shares rise with its 3-year outlook viewed positively, despite reporting lower-than-expected 4Q17 production; SPN posted 4Q17 Ebitda of $71.5M, beating analyst estimates of $65.3M
·      Large Cap banks underperformed broader markets  despite a bouncing dollar, bond yields and rate hike expectations; HSBC shares dropped after weaker quarterly results; ICE upgraded to overweight at JP Morgan as see ICE as a relative value in the exchange sector with a FCF yield of ~6%, with upside in both trading and data
·      Large Cap Pharma; Healthcare among the top sector decliners today; SHPG cut to neutral at JP Morgan citing a lack of 2018 or 2019 catalysts beyond a potential NeuroScience spin; VYGR in pact with ABBV – to receive $69M upfront payment and may get up to $155M in additional payments for preclinical and Phase 1 options
·      Biotech movers; AIMT advanced on positive late-stage trial results for peanut allergy drug, meeting primary endpoint; a federal judge in Delaware has overturned a jury’s verdict requiring GILD to pay $2.54B because its hepatitis C drugs Sovaldi and Harvoni infringed a patent held by MRK, according to Reuters said share slump an overreaction to Alzheimer’s trial
·      Healthcare services and suppliers; MDXG shares dropped after the company postpones the release of financial FY17 and Q4 results/says does not expect outcome of review to have material impact on 2018 revenue guidance; in healthcare retail, Albertson’s said it would buy the drug stores that RAD is not selling to WBA reported earnings
·      Medical devices and equipment; MDT reported earnings, with shares slipping after the CEO said on the earnings call that the “final software and hardware integration and testing is taking longer than they initially expected” for its first-in-man surgical robot, which bodes well for Intuitive Surgical, analysts say; Piper upgraded shares ofINGN to Overweight and maintained overweight on TCMD as they have disruptive business models in going direct to consumer
Industrials & Materials
·      Industrial & Machinery; GE mentioned cautiously in Barron’s saying the stock could drop another 10%; notes GE lost $6B in 2017 after a series of charges and impairments, cut its dividend by 50%, and its accounting is under investigation by the SEC; FELE shares fall after Q4 EPS and sales both miss consensus views by wide margin
·      Transports; Transports bounced off the lows after early underperformance, but still weak on the session as rails (CSX, UNP) led the declines early
·      Metals & Mining; steel stocks were mixed after strength late last week on tariff/quota proposals from U.S. for foreign producers; Aluminum’s drop is one of the largest today among industrial metals amid the dollar’s gain, and that may be a function of how much global aluminum is going to get trapped outside the U.S. if import tariffs become a reality (AA, CENX)
·      Chemicals; Fertilizer maker’s MOS Q4 EPS beat by 6c on higher sales and better volumes/tops Q4 profit estimates for the sixth time in the past 8 quarters
Technology, Media & Telecom
·      Internet; SNAP downgraded to sell from neutral at Citigroup with $14 tgt saying while the recent redesign of its flagship app could produce positive long-term benefits, the significant jump in negative app reviews since the redesign was pushed out a few weeks, which could result in a decline in users and user engagement; Wayfair (W) record highs ahead of earnings pre-market Feb. 22; expectations are high but W has strong growth ahead of it said Wedbush; AMZN benefits from the weakness in WMT guidance, sending shares higher
·      Semiconductors; NXPI rises after QCOM raised its bid for the chip maker to about $44B in an effort to win shareholder support for the acquisition/QCOM tries to fend off a $121B takeover approach from AVGO; The Nikkei reported overnight that Samsung Electronics will significantly lower the facility utilization rate at its OLED panel plant in response to customer Apple’s (AAPL) decision to cut production of the iPhone X amid weak demand (semi’s outperforming on the day); ADI upgraded at Bernstein
·      Hardware & Comm Equipment; UBNT shares dropped after disclosing in a filing that the SEC had issued it subpoena relating to a range of topics, including metrics relating to the Ubiquiti Community, accounting practices, financial information, auditors, among others; CYBR upgraded to buy at UBS; HPE was upgraded to buy at Loop Capital
·      Media & Telecom; the better than expected opening weekend box office results from DIS’ “Black Panther” helps movie theater stocks today, as the film generated $235M in box office revenue over the four-day holiday weekend (RGC, AMC, CNK); IMAX announces record $35M global debut of Marvel Studios’ “Black Panther”; GCI guided 2018 Ebitda $330M-$340M, below the est. $357.8M and year revs $2.93B-$3.03B vs. est. $3.02B; Sprint (S) launched a $1B debt offering

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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