Market Review: February 28, 2018

Scott GreenDaily Market Report

Closing Recap
Wednesday, February 28, 18
Equity Market Recap
·      It was a volatile day for stocks on the final trading day of the month, with the Dow Industrials falling more than 550 points from its highs of 25,576, while the S&P 500 and NASDAQ also ended well off its best levels. With today’s action, major U.S. averages posted their worst monthly performance in nearly two-years after falling sharply earlier in February (10% declines from record highs) as investor expectations rise regarding further Fed rate hikes as inflation expectations have increased (rising wages, higher bond yields). Markets took a turn lower late afternoon, led by a decline in energy stocks as oil prices closed at the lows, posting its biggest monthly decline (4%) since August, while financials also reversed to the downside. The big question remains how many Fed rate hikes are coming this year, with anywhere from 2 to 4 being bantered about, the latter raising fears the Fed is going too far too fast and could dent the positive impact they have made for the economy. Economic data today showed the economy expanded at a slightly slower-than-expected rate in Q4, as GDP rose 2.5% vs. the 2.6% prior outlook (though most components of data were in-line with prior view). Earnings remain busy, with another heavy dose tonight (CRM, LB, and MYL) and tomorrow morning (BBY, KSS).

Economic Data
·      U.S. GDP for Q4 was trimmed to 2.5% from 2.6%, largely because of a slower buildup in inventories of unsold goods, but was in-line with consensus views. Nearly every other data point was virtually unchanged from the prior reading as personal consumption at 3.8% (though slightly better than the 3.6% est.) and Core PCE steady at 1.9%. For the full year, the U.S. expanded 2.3% vs. a 1.6% increase in 2016
·      Chicago PMI slipped in February to a reading of 61.9, a six-month low, from 65.7 in January and below the 64.1 estimate from economists; reported a slower pace of incoming orders and output
·      Pending home sales fell (-4.7%) MoM vs. est. up 0.5%; the Northeast fell 9%, Midwest fell 6.6%, South fell 3.9% and the West fell 1.2%; Dec. fell 0.2%
·      Oil prices dropped, with WTI crude slipping $1.64, or 2.2% to settle at $61.64 per barrel (lows of the day) following weekly inventory data. Crude oil inventory data was in-line from EIA at a build of just over 3M barrels, with gasoline bigger build (bearish) of 2.4M vs. est. 600K, and distillates also mostly in-line at a draw of -960K barrels. Crude exports fell by about 600,000 barrels a day. Total domestic crude production also edged higher after a modest decline in the previous week. Oil prices, which fell -1.4% yesterday for the biggest one-day percentage loss in more than two weeks, trade roughly 4% lower for February and posts first monthly loss since August.
·      Gold prices end little changed on the day, falling 70c to settle at $1,317.90 an ounce (tight trading range today), but prices fell about 1.8% for the month (snapping a 3-month winning streak) as the dollar advanced on rising rate hike expectations
·      The U.S. dollar ended the day and month higher, with the dollar index topping the 90.50 level, up over 0.25% on the day and over 1.6% for the month on rising rate hike and inflation expectations. The British pound fell below 1.38, its lowest level since 2/9, while the dollar rises vs. the CAD above 1.28 for first time since late December; dollar falls to Fresh February lows vs. the euro around 1.2188 (before paring losses and was well off monthly highs of 1.2555 on 2/15). The dollar did however fall against the safe haven yen. Bitcoin prices down about 1% at $10,600 (well off overnight highs of $11,062)
Bond Market
·      Treasury markets edging higher as yields pullback following yesterday’s spike on perceived hawkish commentary from Fed Chair Powell to Congress; the yield on the benchmark 10-yr slips over 2 bps to 2.885%, while the 30-yr yield drops over 3 bps to 3.145%. Powell yesterday emphasized the strength of the U.S. economy, which boosted rate hike expectations. Though bonds end higher today, it has been a month of declines on rising rate hike views, with the 10-year touching highs of 2.95% mid-month and the 30-year topping last year’s 3.21% highs. Today’s economic data had little impact on prices, as GDP came in-line with expectations, rising 2.5%.
Sector News Breakdown
·      Retailers; TJX posted Q4 sales beat on higher comps of 4% with dividend boost and stock buyback; DKS said it is immediately ending sales of all assault-style rifles in its stores, NYT reported (AOBC, RGR fall again); BGFV said it expects a 1Q loss per share of (14c-6c) vs. est. loss (4c) and sees 1Q comp sales down high-single-digits y/y; CROX shares fall as falls short of Q4 forecasts after EPS miss; CHS shares surged as Q4 EPS beat by 5c on better sales and comp sales fell less than thought; LB reports earnings tonight and BBY tomorrow morning
·      Consumer Staples & Restaurants; BGS falls to 52-week lows as Q4 sales miss views and guides year EPS below views ($2.05-$2.25 vs. est. $2.26); HLF announces a 2 for 1 stock split, name change, modified Dutch auction, refinance of some debt; ELF was downgraded to market perform from outperform at BMO Capital and lowered the price target to $19 from $24 after the company’s Q4 results and FY18 outlook; In tobacco, Citigroup said tobacco companies’ financials have become much harder to understand as they upgrade PM to buy and cut BATto neutral; WTW rises after results and said to evaluate business strategy in 2018; PZZA ended its NFL sponsorship along with reporting earnings
·      Housing & Building Products; home improvement retailer LOW disappoints, as quarterly earnings missed by 13c, though comps of 4.1% beat on higher total sales, but also guided year EPS $5.40-$5.50, below the $5.85 estimate; PPG slipped after LOW said it would expand its partnership with SHW in paints; homebuilders slip after IBP reported Q4 EPS that missed the lowest estimate
·      Oil prices dropped as weekly U.S. crude stockpiles rise more than expected; CVX was upgraded to buy at Bank America saying both it andXOM are attractive after the recent pullback, offering low risk routes to reweighting energy; RSPP Q4 production miss though 2018 guidance better than feared with 2019-20 outlook implying better than expected capital efficiency, said CSFB; OAS reported strong 4Q earnings and maintained its long-term growth outlook; CPE 4Q earnings beat on cash unit expense and strong realizations and did not alter ’18 spending/production guidance; EOG 2018 capex and oil production guidance disappointed, sending shares down; RRC earnings topped consensus views and said actively pursuing asset sales
·      Large Cap banks remain in focus amid the rising rate hike expectations after the rosy economic picture Fed Chair Powell noted yesterday; in individual stock news; SQ earnings topped consensus, though did post another quarterly loss (shares initially opened higher before slipping); PHH agreed to be acquired by OCN for $360M in cash; in services; MCO said it is looking at applications of blockchain technology for the company’s analytics business; HURN shares dropped my most on 2-years on earnings miss; NYCB, SBNY, DBslipped on afternoon Bloomberg headline the banks being asked about Kushner
·      Pharma movers; in specialty Pharma, VRX shares fall as Q4 sales fell 10% YoY with lower revenue in all three of its major units and forecast for 2018 on both top and bottom line below estimates; DEPO declines after one analyst called its 2018 guidance “aggressive”; other movers on earnings included HZNP, JAZZ and SUPN
·      Biotech movers; CELG shares fell as received a Refusal to File letter from the FDA regarding its New Drug Application (NDA) for Ozanimod for the treatment of patients with relapsing forms of multiple sclerosis; TSRO shares slip after 4Q sales of its lead asset, Zejula, modestly missed analyst expectations and guidance for 2018 sales came in below Street estimates; ACAD shares fall after 4Q revenue and Nuplazid sales came in below analyst expectations
·      Healthcare services, facilities and equipment; EVHC reported solid 4Q results marked by decent volumes across segments, strong FCF and full year 2018 guidance ahead of expectations; THC was upgraded at Raymond James after better earnings results; ESRX 4Q results marked by solid core trends, strong expected ’18 retention and robust FCF; CYH a drag on hospitals after weaker earnings results; BIOshares rally as Q4 EPS topped consensus; DXCM Q4 EPS topped views by 7c and reaffirmed its guidance; TDOC reported earnings in-line with Consensus and maintained its preliminary 2018 revenue and adjusted EBITDA estimate guide; SYNH surges on EPS beat
Industrials & Materials
·      Industrial & Defense; Dow component BA trades to new all-time highs; AAXN shares jumped after reported an unexpected profit for Q4/was upgraded to buy at Ladenburg; ALRM shares fell despite results beating across the board driven by both SaaS & license and HW strength – falling on reports of AMZN acquisition of; UTX helped lead the Dow after CNBC reported that Pershing Square has been building a stake in UTX; MTZ Q4 earnings topped estimates; HEI raised its revenue growth guidance view to 12%-14% from 10%-12%
·      Transports; sector underperforms, led by weakness in car rental and rails; car rental weak after HTZ posted larger-than-expected quarterly loss and said it incurred higher expenses as it upgraded technology, spent more on marketing; Cowen lowered estimates on rail companies citing lower volume growth and poor services impacted by difficult weather conditions thus far in 2018 and could drive operating expenses up (CSX, UNP, NSC)
·      Chemicals; ALB posted upside to consensus revenue ($858M vs. $797M) and adjusted EBITDA ($246M vs. $229M) estimates while guiding 2018 modestly above consensus midpoint – but shares fell (recall recent downgrade at Morgan Stanley this week citing concerns on both supply and demand)
Technology, Media & Telecom
·      Internet; in online travel, BKNG shares jumped as reported a solid quarter result with a positive outlook driven in part by favorable currencies which boosted gross bookings growth; MELI was upgraded to overweight and street high $500 at JP Morgan as Fintech ventures should add value to its impressive e-commerce business; ETSY upgraded by at least two analysts as stocks trades to 52-week high after quarterly results and revenue guidance
·      Semiconductors; ADI posted Q1 EPS, revs and gross margin beats, though shares failed to lift; overall, fairly quiet in the semiconductor space, a sector that has bounced solidly from its earlier month lows (SOX index to around 1,370 today from lows of 1,203 on 2/9)
·      Software movers; WDAY delivered a solid quarter against a high bar, with billings and subscription backlog both coming in above investor expectations; VEEV shares jumped to fresh 52-week highs with Q4 beat, upside guidance, 26% subscription growth; TIVO rises after earnings/ says starts to examine strategic alternatives; CRM reports tonight
·      Media & Telecom; FTR falls after announcing a dividend suspension with earnings, while Jefferies downgrades the stock to hold citing no near-term catalyst; CMCSA was downgraded to neutral at Macquarie on Sky bid, while firm upgraded VIAB on expected turnaround; SBGIshares dropped after Q1 sales missed estimates; ATUS Q4 beat forecasts while LYV shares dropped on its quarterly results

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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