Market Review: March 1, 2018

Scott GreenDaily Market Report

Closing Recap
Thursday, March 1, 18
  
Equity Market Recap
·      Stock prices plunged, adding to recent woes as potential “trade wars” are added to ongoing rising rate hike and inflation expectation fears. Stock markets were initially lower as the market digested a 2nd round of testimony from new Federal Reserve Chairman Jerome Powell, but took another leg lower after President Trump announced tariffs on steel and aluminum imports which he said he will sign next week. The news sparked a bout of volatility, with the CBOE Volatility index (VIX) jumping more than 20% topping the 25-level (before slipping). Fears of potential trade wars given the tariff news sunk stocks as the Trump Administration has plans for 10% tariffs on aluminum tariffs and 25% for steel. Several sectors moved in reaction to the news, with metals and miners logically rising (X, AKS, AA, and CENX), though energy stocks fell as API said tariffs would raise costs for oil & Gas sector. With today’s losses, the Dow & S&P 500 fell more than 1% for a 3rd-straight down day, longest streak since January 2016. The dollar was strong initially, but lost momentum late day on trade war fears and Powell comments.
·      All eleven S&P sectors were lower again – led by Financials, Industrials, Healthcare and Technology the biggest losers – Energy, Utilities and telecom down the least. Bonds gained, sending yields to lowest level in 2-weeks (10-yr yield dropped below 2.8%) amid a rotation into defensive assets and as Federal Reserve Chairman Jerome Powell said he saw no signs of significant wage pressure and the economy is not overheating in congressional testimony, an attempt to walk back his hawkish comments at Tuesday’s hearing. The Nasdaq Composite traded as high as 7,307 and as low as 7,117, falling and then reclaiming its 50-day moving average of 7,172. The Dow Jones Industrial Average fell as much as -586 points before paring losses, while the S&P also pared losses after dropping as much as 2%. The Fed’s Dudley didn’t help allay the fears of more aggressive rate hikes after saying that “four rates hikes is still gradual” though he also said it’s hard to tighten aggressively with inflation low. Overall, no rebound for stocks after falling yesterday, with the S&P and Dow posted its worst monthly return since January of 2016 and the Nasdaq Comp since October 2016

Economic Data
·      ISM manufacturing in February was highest since May 2004, rising to 60.8 from 59.1 in prior month and above the 58.7 estimate; new orders fell to 64.2 vs 65.4 prior month, while employment rose to 59.7 vs 54.2; customer inventories fell to 43.7 vs 45.6 and prices paid rose to 74.2 vs 72.7; backlog of orders rose to 59.8 vs 56.2
·      Construction spending unchanged in January, below the estimate for a rise of 0.1%, though the prior month revised up to 0.8% from 0.7%; Private construction fell 0.5% in January, Private residential construction rose 0.3% and Private nonresidential construction fell 1.5%
·      Consumer spending in January rose 0.2%, in-line with expectations, while spending fell for the first time in a year if adjusted for inflation, the government said.Personal incomes rose 0.4%, topping the 0.3% estimate and after-tax incomes posted the biggest gain since 2012 in the wake of the Trump tax cuts. The combination of higher incomes and slower spending boosted the U.S. savings rate to 3.2% from 2.5%.
·      Inflation data points in-line with consensus: January PCE Core MoM was 0.3%, and core year 1.5%, while the PCE Deflator MoM 0.4% and year 1.7% – all in-line with economic estimates
·      Initial U.S. jobless claims fell by 10K to 210K, well below the 225K estimate, while prior week was revised lower to 220K from 222K; continuing claims, increased by 57,000 to 1.93 million; the 4-week moving average declined by 5,000 to 220,500 and also hit the lowest level since 1969
 
Commodities
·      Oil prices fell 65c, or 1.1% to settle at $60.99 per barrel, its lowest settlement in 2-weeks following a mixed inventory report yesterday, and as recent momentum in prices moves to the downside. Crude oil prices slumped 4% in February, its biggest monthly decline since August. Gold declines $12.70, or 1%, to settle at $1,305.20 an ounce, its lowest settlement since late December (down sharply from the Feb 16th high of $1,364.40 an ounce)
 
Currencies
·      The U.S. dollar reversed earlier gainer, ending the day broadly lower (dollar index fell -0.3% to 90.30 – off highs of 90.93) vs. the euro and yen, while volatile against the Canadian dollar and Mexican peso amid fears the impact of higher tariffs will have on Nafta negotiations. The dollar started weakening after Federal Reserve Chairman Powell told Congress there was some slack left in the labor market saying that “nothing suggests wage inflation is at the point of acceleration,” and that the labor market could strengthen some without leading to higher consumer price inflation. The dollar is coming off a strong February, rising over 1.5%.
 
Bond Market
·      Bonds surged, sending yields lower as investors rotated out of riskier stocks and commodity prices and into the safety of paper. The 10-year yield fell to its lowest level in 2-weeks, dropping about 7 bps to under 2.8% (well off last week highs of above 2.95%), before trading back above 2.81%, while shorter-term 2-yr yield dipped to 2.21% and the 30-yr back under 3.10% (off last week highs above 3.21%). Bonds were up slightly earlier after a busy day of mixed economic data and commentary from Fed Chair Powell downplaying wage pressure, but buying increased as stocks faltered for a 3rd straight day.
   
Sector News Breakdown
Consumer
·      Auto movers; monthly auto sales released for February: 1) GM February sales fall (-6.9%) vs. est. for a (-4.5%) drop as GMC and Chevy leading declines with Chevy Brand sales down 8.8%, GMC brand sales down 8%, Buick brand sales up 1.2% and Cadillac brand sales up 14%; 2) Ford (F) monthly auto sales fell (-6.8%) to 194,132 vehicles vs. est. (6%); 3) FCAU said U.S. sales fell (-1.4%) vs. est. (-11%) with Fiat brand sales down 42%, with Chrysler brand sales down 3%, Jeep brand sales up/down 12% and Dodge brand sales up/down 8%; 4) Mazda North American Operations total Feb. U.S. sales of 25,731 vehicles, up 12.7%; 5) NSANY Feb US auto sales fell (-4.3%) vs. est. (-3.1%); 6) TM Feb auto sales rose 4.5% vs. est. 3.7%; 7) HMC said Feb auto sales fell (-5%) vs. est. (-2.3%)
·      Retailers; BBY reported Q4 results that topped estimates across the board (Q1 comps up 9% vs. est. 3%) and Q1 rev guidance of $8.65B-$8.75B better than the $8.66B estimate; saw suppliers to BBY move early (NTGR, GRMN, VOXX, GPRO); KSS Q4 EPS beat by 22c on better sales of $6.78B and mostly in-line comps of up 6.3%, while margins were weaker/CEO says too early to give update on AMZN partnership pilot; LB shares fall after guiding Q1 and full-year profit below consensus forecasts; KR and WMT the latest retailers to raise the age of buying a gun to 21
·      Consumer Staples; MNST reported 4Q results and both top and bottom line both missed with one analyst noting the +6.5% organic sales in the Q came in well below their +11% estimate; DAR was downgraded at BMO Capital as sees “a less compelling risk/reward” amid limited upside to PT, near-term headwinds (also downgraded at Goldman Sachs); in research, Piper downgraded CPB to underweight and upgraded Kellogg (K) to overweight; TWNK rises on earnings; NWL rises as Carl Icahn confirms reports he has large stake in company (spoke on CNBC)
·      Housing & Building Products; BLDR shares jumped as Q4 sales of $1.78B topped the $1.69B estimate; housing group was hit recently on softer LOW earnings and guidance; rising interest rates also seen as negative for the sector as it may slow housing sales
·      Casino, Lodging & Leisure; in leisure, BC shares rise as its board has agreed to spin off its fitness business into a standalone company called FitnessCo; RV sector shares fell (THO, LCI, WGO) after Trump tariff news on aluminum; BID shares pop back above its 50, 100 and 200 day moving average resistance today following earnings, shares rise; in lodging space, HGV posted modest Q4 rev beat, ILG outperformed  on better rev forecast and said was in talks about strategic review, while LQ shares dropped on below consensus earnings and revs
 
Energy
·      Energy sector among those hit following headlines of upcoming tariffs on foreign steel and aluminum prices; API said tariffs would raise costs for oil & Gas sector; in stock news; QEP rises after reporting Q4 results, production guidance/expects to deliver year-over-year total oil-equivalent production growth of approximately 15% in 2018; HK shares dropped after reporting quarterly results Wednesday with a larger-than-expected quarterly loss
·      Utilities, Solar and Alternative power; BLDP shares slide as forecasts FY 2018 revenues coming in flat Y/Y at $121M vs. $132M consensus estimate; utilities held up better than most S&P sectors, helped by plunging yields and rotation into more defensive stock sectors
·      Other movers; CLH downgraded to perform at Oppenheimer; CRZO was upgraded to buy at Jefferies after recent underperformance following lackluster 4Q results (down ~20% since the release vs the XOP down ~5%)
 
Financials
·      Large Cap banks; banks in general among hardest hit sectors as yields crumbled with bonds rallying; WFC in the news again saying they are examining wealth mgmt fiduciary, custody accounts in probe which includes 401k rollovers, brokerage – though said probe of fiduciary products in ‘preliminary stages’; LC shares surge after closing previous session at record low; IBKR said its February-end client equity was $130.5B, 3% lower than the prior month and 40% higher YoY
·      REITs; CLNS shares plunge after cutting its annual dividend target to 44c a share for 2018, down from $1.05 last year and posted big Q4 FFO miss of 16c vs. est. 35c; 52-week lows for several REITs: KMI, MAA, HCP, VTR, AVBEDR drops as lowers its year FFO outlook, prompting a downgrade at KeyBanc on long-term growth concerns
·      Services; Block chain related stocks slumped early after the WSJ reported that the SEC is ramping up pressure on the initial-coin-offerings industry, issuing scores of subpoenas and information requests to companies. https://goo.gl/8FGnj8 ; FLT is joining the ranks of WU and MGI and teaming up with Ripple to explore how it can use the decentralized ledger technology; OSTK received a request from U.S. securities regulators asking for documents related to its plan to issue digital tokens as per regulatory filing
 
Healthcare
·      Large Cap Pharma; MYL announced collaboration with RVNC for developing a Biosimilar version of AGN’s Botox/licensing agreement includes an upfront payment of $25M from Mylan to Revance, “very significant” sales royalties (undisclosed) plus additional milestone payments; MYL also beat quarterly results and maintained guidance; TENX rises in apparent reaction to its announcement of preclinical data on levosimendan
·      Biotech movers; PTLA shares dropped after disclosing that the FDA may require a randomized study for AndexXa/downgraded at Morgan Stanley saying the lack of clarity on the comments, and significant uncertainty that the study could be required post-approval; SRNE subsidiary SCILEX Pharmaceuticals received FDA approval under a 505(b)(2) for ZTlido; NVAX said its Nanoflu vaccine demonstrated higher immune responses over the market leading flu vaccine for older adults against three tested H3N2 strains
·      Healthcare suppliers and services; GKOS announced 2018 revenue guidance of $160-165 million, which implies only a slight increase from the level last year and below the $169M est.; CCRN shares fall after reporting a large Q4 shortfall and Q1 guide that was well below as well (downgraded by one analyst post numbers);HIIQ rises as provided very strong FY’18 guidance, well ahead of Street consensus estimates (upgraded at Raymond James); AXGN jumps as Q4 revenue topped consensus; MMSI 4Q was modestly above expectations but the 2018 guidance came in well above
·      Dental sector soft after PDCO owered its 2018 EPS outlook, as Baird downgraded on the results; PDCO guided year EPS $1.65-$1.70, well below the $2.16 estimate as Q3 EPS also miss by 9c (shares of dental peers XRAY and HSIC moving); ALGN weak after saying that its partner, SmileDirectClub (SDC), has accused ALGN of breach of contract
 
Industrials & Materials
·      Machinery; falls with broader market on fear of rising costs on tariffs; ETN was upgraded to overweight at JP Morgan saying the risk/reward is balanced ahead of the company’s analyst day; NAV upgraded to overweight at Piper saying recent selloff provides a chance to buy NAV prior to sustained upward estimate revisions
·      Industrial movers; MTZ was downgraded to neutral at Baird after better earnings saying a strong recent performance could leave the company a “victim of its own success” as expectations for above-consensus results are now expected; HCCI shares jumped on top/bottom line beat
·      Transports; after earlier outperforming broader markets led by gains in UPS in package delivery, CSX in rails and several airlines – the group comes for sale along with market weakness, falling more than -100 points late day
·      Metals (steel/aluminum) gained after President Trump said he will impose tariffs on imported steel and aluminum in the amounts of 10% for aluminum and 25% for steel and said he will sign next week; shares of AKS, NUE, X, STLD, AA, CENX, and CLF all advanced on the headlines
 
Technology, Media & Telecom
·      Semiconductors fall; the Philly semi index (SOX) underperforms Nasdaq, down over 2.5% to lows below 1,330, down from highs of 1,397.99 just 2-days ago – as selling pressure broad based for markets – group was down across the board – no specific stock stories
·      Software movers; CRM positive mention by several analyst after earnings – Citi noted they reported a strong Q4 with ~$450M in upside to street billings, highest backlog growth number (+48%/+39%) since FY14 and balanced revenue growth across key product areas; WAGE announced that it is delaying its annual report for the year ended December 31, 2017 and its financial results and associated conference call for Q4 of 2017
·      Hardware movers; BOX shares fell as reported in-line Q4 revenue and billings ahead of views (28% vs. 22% year ago), though guides year revs $616M vs. est. $626M; in 3D space, DDD delayed the announcement of full year 2017 earnings results due to accounting issues; HLIT rises on earnings results
·      Media movers; AMCX after the company reported Q4 revenue that fell below Wall Street expectations; lots of media related earnings movers today includingLXSMA, FWONA
·      Advertising stocks tumble initially after WPP reported a disappointing 4Q17 and an outlook that was more negative than previously anticipated/company slashed the profit outlook and predicted a year of no growth (shares of OMC, IPG also moved in reaction)
·      Wearables market up 7.7% in 4Q 2017 & 10.3% in 2017 according to IDC which showed AAPL moved past competitors FIT and Xiaomi to claim overall leadership for both the quarter and the year in the wearables market; Apple’s 4q wearables shipment volume 8.0m vs 5.1m in prior yr; market share 21% vs 14.4% while Fitbit’s 4q wearables shipment volume 5.4m vs 6.5m in prior yr; market share 14.2% vs 18.5%
 
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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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