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.
Friday, February 23, 18
Equity Market Recap
· U.S. stocks end the week in style, going out at highs and snapping the nasty trend all week of the afternoon fade! U.S. equities were buoyed as Treasury prices jumped, sending yields well off their weekly highs (10-yr yield down nearly 10 bps from Wednesday high of 2.95%). The move comes ahead of next week testimony from the new Fed Chief Jerome Powell (his first as Fed Chair). The tech heavy Nasdaq Comp outperformed broader markets, snapping its 4-day losing streak (which was the longest since 2016), rising over 100 points. Major stocks are still off about 5% from the February sell off levels, and the Nasdaq less than 3%, but have regained momentum over the past two weeks, with the S&P trading and closing above its 50-day moving averages resistance late day. All 11 S&P sectors finished in the “green” today, but Utilities, Technology, REITS and Energy were among the day’s top gainers while Industrials lagged. The report from the Fed today offered little indication they were overly concerned about the type of out-of-control inflation that might warrant more than three rate increases this year.
· WTI crude oil prices rose 78c, or 1.2% to settle at $63.55 per barrel, rising for a 2nd straight week, helped after bullish inventory data yesterday and holding gains for the week. Prices didn’t move after the weekly rig count data at 1:00 showed the U.S. rig count rose 3 to 978, with oil rigs up 1 to 799, and gas rigs up 2 to 179.
· Gold prices end the day lower by -$2.40, or 0.2% to settle at $1,330.30 an ounce, but managed to post its largest weekly drop of the year, falling about -1.7%, following a rebound in the U.S. dollar after dropping last week. The dollar stabilized on hopes the market will buy in anticipation of the Federal Reserve raising interest rates. Silver prices fell -10c, or 0.6%, to $16.48 an ounce, posting a weekly decline of 0.8%.
· The U.S. dollar posted modest gains, as the dollar index rose about 0.2% trading just under the 90 level, but managed a gain of just under 1% for the week after big losses prior. The U.S. dollar inched lower vs. the yen to 106.65, though the euro weakened below the 1.23 level vs. the greenback (off last week highs above 1.255). Bitcoin prices rebounded after yesterday losses, up over 2% to around $10,200 (overnight low $9,581), little changed on the week. Currency markets will be closely watching new FOMC Chair Jerome Powell in his first testimony next week.
· Bonds edged high on Friday, with yields falling across the board, down from multi-year highs attained earlier in the week, as dovish commentary from various Fed members the last few days eased fears of four potential rate hikes this year. The yield on the 10-year note fell 5 bps to 2.86%, continuing to ease after Fed President James Bullard on Thursday cast doubt that the Fed will raises rates four times this year. On Wednesday, the yield hit a fresh four-year high above 2.95% after minutes showed Fed policy makers believe the U.S. economy is strengthening, interpreted as a sign more rate rises are coming. The 2-yr yield fell -2.5 bps to 2.23% and the 30-year yield fell over 5 bps to 3.15%. There was no major U.S. economic data to move markets.
Sector News Breakdown
· Consumer Discretionary and Staples; BUFF to be acquired by GIS for $40 a share in cash, or roughly $8B; GIS said the deal will immediately add to its net sales growth and operating margin profile https://goo.gl/T7vEiV; gun makers AOBC, RGR as corporate pressure mounts on NRA, and reports Chubb said it would stop underwriting NRA insurance for gun owners; HLF reported mixed earnings and guidance; EL traded fresh 52-week highs today; JWN shares spiked late day after Reuters reported that the Nordstrom family finalizing offer to take company private https://goo.gl/ULGbLJ (which also lifted shares of other retailers)
· Restaurants; WING shares fell after Q4 top and bottom line beat, but below consensus profit guidance sends shares lower; BJRI reported Q4 results with 5c upside and the first positive comp in nearly two years; RRGB Q4 EPS and revs topped consensus though guides year profit $2.40-$2.80 vs. $2.87 estimate; ZOES mixed Q4 results on in-line revs, slightly better comps of up 0.3%, but EPS loss; PBPB EPS in-line on weak comp sales (-2.4%), but better guide
· Casino, Lodging & Leisure; RRR downgraded to hold at Stifel; PLNT shares jump after reporting 4Q results that topped estimates and raised its stock buyback plan; movie theatre names higher after CNK Q4 results rise on record revenues, and group (AMC, RGC) rises ahead of another expected strong showing for DIS’s “Black Panther” again this weekend
· Energy stocks were among the markets top sector gainers as oil prices climbed and both production and earnings numbers this week in the E&P space helped propel stocks. The weekly Baker Hughes U.S. rig count rose 3 to 978, with oil rigs up 1 to 799, and gas rigs up 2 to 179
· Solar sector; FSLR reported Q4 revenue of $339.2M, well below the $435.6M estimate, amid project delays in India, though boosted its 2018 guidance/outlook; solar space was mostly lower following the report, though SEDG shares held up well midday
· Utilities; sector rises more than 2% above 638 level (bouncing off recent 52-week lows of 605.53 on 2/6), but still away from 50 day MA resistance 650…group benefitting from lower yields (good for dividend paying stocks), as well a handful of earnings results; EIX upgraded to buy at Guggenheim after earnings beat; ES, PNW, PEG and ETR shares rise on earnings; OGE upgraded to buy at Bank America as management provided an impressive 4Q earnings update yesterday, raising the utility growth rate to 4%-6% as it re-instates long-term growth investments
· Frac sand names bouncing after weakness earlier in week on SLCA earnings; shares of FMSA, HCLP, SLCA, SND all higher; EMES reports next week
· Large Cap banks quietly advanced despite dislocation with yields for the day; Visa (V) Europe Ltd. won a second round in a long-running legal spat with J Sainsbury Plc over the fees charged on card transactions; FNGN shares jumped on Q4 beat and higher year rev outlook, prompting an analyst upgrade at William Blair; in real estate, RDFN reported a narrower-than-expected quarterly loss but guided for less revenue in Q1; SNR shares jump on earnings results
· Insurance; JRVR shares declined after reporting Q4 operating EPS of 13c that missed the average estimate of 71c; MET said they would stop discounts on home and auto insurance for NRA members; CB to end participation in NRA insurance program
· Large Cap Pharma; early strength in specialty pharma/generics, with MNK rising as receives FDA acceptance of NDA for stannsoporfin; ADMS shares slumped after earnings;LXRX declines as 4Q Xermelo sales of $5.4M missed analyst estimates, prompting Needham to cut to hold; ADMP provides update on progress of exploring commercialization options relating to commercial launch of its SymjepiTM Injection 0.3mg product; BLCM reports an update on clinical hold of U.S. BPX-501 studies; TVTY shares rise as earnings beat by 9c on higher revs of $139.4M
· Facilities, equipment and device movers; EXAS shares dropped after 4Q results and providing full-year guidance, as one analyst downgrades citing management commentary that 1Q Cologuard orders are trending below the firm’s expectations; hospital provider LPNT shares fall after issuing guidance that fell short of consensus (CYH, UHS fell in sympathy)
Industrials & Materials
· Transports; index back above 10,500; in package delivery, FDX was upgraded to outperform at Bernstein and raise tgt to $290 from $257 saying that earnings and revenue growth should be driven by a strengthening economy, rising interest rates and idiosyncratic growth in Express; ECHO was downgraded to underweight at Morgan Stanley as believes brokers like Echo deserve a mid-teens multiple at best; UPS downgraded to hold from buy at Deutsche Bank saying the company’s 4Q capex guidance was worse than even the most bearish expectations
Technology, Media & Telecom
· Internet; AMZN upgraded to outperform at Wolfe Research saying if they get grocery right, it will lead to unprecedented growth and create a halo effect on spending in the rest of Amazon’s product categories; GDDY reported solid 4Q results highlighted by strength across its various segments (Domains, Hosting and Presence, Business Applications) and strong FCF growth; MELI delivered very strong results in the holiday quarter as GMV grew a stellar 132% y/y in the 4Q (following 94% increase last quarter), though margins continued to decline; TTD posted strong results with Q1 and 2018 guidance that exceeded Revenue expectations
· Semiconductors; Philly semi index (SOX) gained early, led by broad strength in MU, INTC, and AMD; OLED shares dropped on guidance, falls below the 200 day moving average support for the first time since January 2017 as posted better quarterly results but a weaker-than-anticipated 2018 revenue forecast *$350M-$380M vs. est. $398M)
· Hardware & Software movers; WK shares plunged after weaker Q1 and year guidance, downgraded at Raymond James though they cite the 22% surge in shares YTD vs. any new developments on the 4Q print; APPN shares declined after earnings/guidance results; HPQ rises as January qtr with strong performance across both PCs and printing divisions; busy week for software earnings next week (PANW, SPLK, ADSK, VMW)
· Optical sector; group got a rebound a week ago after better than expected reports from OCLR and FN, but this week, soft guidance from AAOI yesterday and ACIA last night weigh on the optical sector again; last night, ACIA showed weakness in all three end markets China, telecom, DCI as posted mixed Q4 results (EPS beat and revs missed views)
· Services; HPE shares jumped as it posted strong gain in revenue, a profit forecast that beat consensus estimates and plans for $7 billion in share buybacks and dividend increases/organic growth in Jan-qtr came in at ~9% driven by better end-demand trends
· Media & Telecom; AABA tgt raised to $112 from $76 at MKM Partners ahead of earnings; MDCA shares drop on weak organic growth view of 4% and both an EPS and rev miss for Q4; in telecom, TDS and USM shares both rallied on earnings results