Mid Day Outlook: March 13 2018

Scott GreenDaily Market Report

Mid-Morning Look
Tuesday, March 13, 18
Equities open strong, with all eleven S&P sectors opening higher and the index touching its best levels in about 6-weeks following in-line inflation data (CPI), alleviating fears of higher interest rates. The tech heavy Nasdaq Composite looking to make it an 8th straight day of gains (would be longest since July), again led by strength in semiconductors as the Philly semi index (SOX) rises to another record high, paced by gains of MU and Dow component INTC, while QCOM slides after President Trump issued an executive order blocking AVGO from acquiring the chipmaker. More drama out of Washington as President Bush removed Rex Tillerson as secretary of state after a series of disagreements and nominated CIA director Mike Pompeo to run the State Department. Transports active, especially airlines, amid updates out of the JP Morgan Aviation and Transport conference. Stocks have had a good bout of news for the most part starting with better jobs data Friday, while inflation expectations have eased after moderating wages Friday and the in-line CPI today, ahead of the FOMC meeting next month (though a rate hike is still widely expected) – helping lift markets and making the brief February 10% correction for the S&P 500 and Dow Industrials nothing but a memory.
Treasuries, Currencies and Commodities
·      In currency markets, the dollar slipped vs. most currencies after the surprise ousting of Secretary of State Rex Tillerson earlier this morning by President Bush, as the revolving door in Washington continues; the dollar did rises back above the 107 level vs. the Japanese yen, but slumped vs. most other currencies; Bitcoin rebounds back above the $9,000 level after falling yesterday
·      Commodity prices generally higher, with a lift in both gold and oil, helped by a declining dollar on the surprise announcement that Secretary of State Tillerson was removed from his position; weekly oil inventory data tonight with API after the close as WTI up above $61.50 per barrel
·      Treasury markets erase earlier gains, trading to lows as bond yields bounce to highs (near yesterday closing levels) – 10yr yield 2.868%. Earlier, bonds saw buying, pulling yields lower, as an inflation report matched expectations, easing concerns the Federal Reserve would speed up its pace of rate hikes from a widely expected three to a more aggressive four. The 30-yr yield bounces back to 3.135% after touching 3.10%
Economic Data
·      Consumer price index (CPI) for February was reported in-line across the board, as the 12-month rate of core CPI flat at 1.8% in February, 12-month gain in CPI inflation rises to 2.2% from 2.1% (but in-line with the 2.2% est.) and Feb core CPI, minus food and energy, increases 0.2%. The headline of a 0.2% rise was in-line and slowed from the 0.5% jump last month. Feb. Real Average Weekly Earnings up 0.6% YoY and avg. weekly earnings rose 0.3% MoM in Feb
·      The index of small-business optimism from the National Federation of Independent Businesses rose 0.7 in February to a reading of 107.6, the second-highest reading in its history and slightly above the 107.1 consensus forecast
Sector Movers Today
·      Airlines active @ JP Morgan conference; UAL raised its Q1 Prasm up 1%-3%, vs prior view of flat to up 2% and now sees 1Q adjusted pre-tax margin flat to up 2%, vs prior flat. (narrows Q1 consolidated capacity of up 3.5%-4%); HA raises Q1 RASM view to 3%-5% from (0.5%)-2.5% and narrows Q1 cost per ASM ex-items view to 4%-6% from 3.5%-6.5%; raises Q1 ASMs view to 4%-5% from 3%-5%; JBLU Feb traffic rose 6.8% YoY on a capacity increase of 6.8% and expects Q1 revenue per available seat mile (RASM) growth to range between 3.5%-5.5 vs. Q1’17; DAL narrows Q1 EPS to 65c-75c from 60c-80c and sees Q1 pre-tax margin 6.5%-7.5% from 6%-8%
·      Semiconductors surge to fresh record highs again, led by another advance in MU shares (up 51% YTD) as analysts remain positive ahead of earnings (tgt raised to $66 at Mizuho today after Nomura boosted to $100 yesterday); the Philly Semi index (SOX) spikes over 1% and now up around 20% YTD, with broad strength in both chip and equipment names;
·      Housing & Building Products; Raymond James Initiated U.S. wallboard manufacturer USG with an Outperform and Market Perform ratings on both EXP and CBPX, saying they favor USG over the others at this point in time due to its “self-help” productivity initiatives; in housing, Morgan Stanley said ZG’s rental business is under-monetized and “could be a new set of legs for the story,” as they raise tgt to $55; homebuilder MDC was upgraded to buy from sell at UBS
·      Insurance; shares of Private Mortgage Insurers (ESNT, RDN, MTG) declined yesterday following news that Freddie Mac has introduced an alternative for securing mortgage insurance as a pilot program with Arch Capital that has pricing “solidly below” published mortgage insurer lender-paid singles rate cards – several Wall Street analysts defended the private MI’s saying weakness overdone following news
·      ATUS +3%; added to Goldman Conviction List citing solid fundamentals and attractive valuation
·      BLCM +3%; interim clinical data of BPX-501 in pediatric patients with acute myeloid leukemia and primary immunodeficiencies showed low rates of cancer recurrence
·      CENX +8%; upgraded at Cowen (2nd analyst in as many days) primarily due to Trump’s decision on Section 232, allowing the company to restart significant U.S. production capacity
·      DSW +11%; quarterly earnings and comp. sales beats and liquidation of eBuys
·      INTC +3%; after President Trump blocked the QCOM and AVGO deal
·      KOS +7%; upgraded to buy and $7 tgt at Jefferies
·      KSS +2%; retailers generally stronger
·      MU +5%; analysts remain positive ahead of earnings/tgt raised to $66 at Mizuho today
·      PTI +68%; as its PTI-428 named breakthrough therapy for cystic fibrosis
·      ADXS -15%; said the FDA placed a clinical hold on its Phase 1/2 trial of durvalumab with Imfinzi for treatment of patients with HPV-associated cervical cancer after a patient death
·      CERN -1%; downgraded shares to hold noting although posted record 4Q bookings, margins are falling; SunTrust said they think estimates need to come down after investor meeting
·      CVGI -20%; as Q4 EPS and revenue missed estimates
·      DKS -8%; Q4 comp sales missed estimates and said it would no longer provide quarterly guidance/said 4Q ecommerce sales growth decelerated to up 9% y/y from 3Q’s growth of 16%
·      GE -3%; tgt cut to Street low $11 at JP Morgan and remains underweight
·      MYGN -10%; after receiving HHS subpoena for Medicare, Medicaid billing probe
·      NCMI -10%; after Q4 sales missed and cut its dividend to 17c from 22c
·      QCOM -2%; CEO Steve Mollenkopf said Broadcom (AVGO) must permanently abandon its attempt to acquire the company in response to the Presidential order to block the merger issued last night
·      Armstrong World (AWI) 2.35M share Block Trade priced at $60.00
·      BlackLine (BL) 8M share Spot Secondary priced at $41.50
·      Moelis (MC) 5M share Spot Secondary priced at $51.00
·      Houlihan Lokey (HLI) 4M share Spot Secondary priced at $47.25
·      Sabre (SABR) 15M share Spot Secondary priced at $22.45


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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