Tuesday, March 27, 18
Equity Market Recap
· Stocks end much lower, erasing most of yesterday stellar gains. After bouncing between gains and losses earlier for the NASDAQ, a sharp technology driven sell-off midday (led by FB, NVDA, TSLA and TWTR) dragged down both the Dow and S&P late day and took the NASDAQ down as much as 3.8%. After trading up as much as 240 points, the Dow Industrials turned lower late session by more than -400 points, while the S&P index declined over 2%. The Nasdaq Composite decline was paced by additional weakness in FB (as Mark Zuckerberg expected to testify before Congress on April 12 to examine the harvesting and sale of personal information from more than 50M Facebook users), NVDA (led semi’s lower after suspending its self-driving car testing) and TSLA (as Model 3 Lags, U.S. probes crash) with the index falling more than 280 points off its intraday highs 7,255. U.S. stocks surged on Monday as global trade-war tensions between China and the U.S. have appeared to ease for the time being…but another “tech-wreck” rained on the parade today. Treasury prices gained, sending yields lower (10-yr fell over 6 bps to 2.77%) in a flight to safety and following a round of weaker than expected economic data. European and Asian markets both logging strong overnight gains after the U.S. bullish move yesterday, as the FTSE 100 snapped its 4-session skid and ends sharply higher, rising 1.6% to settle at 7,000 (index had fallen to Dec ’16 lows yesterday). Volatility continues to rattle markets, with late day sell-offs three of the last four trading days weighing on markets and sentiment.
· Coming into today, with two full trading sessions left in the first three months of the year, the Dow Jones Industrial Average is down 1.3% for the quarter (down more after today). If it closes in negative territory for the period, that will snap a nine-quarter streak of gains, the longest such streak for the blue-chip average since an 11-quarter rally that ended in the third quarter of 1997. The S&P 500 also entered the year’s first quarter with nine straight quarterly gains, matching a streak that ended in the first quarter of 2015. Currently the S&P 500 is down 0.2% for the quarter, a move it could easily erase between now and the closing bell Thursday – Marketwatch.com
· Consumer Confidence for March falls to 127.7 from 130 prior and below the 131 level; the present situation index slipped to 159.9 from 161.2, while the index that measures future conditions dropped to 106.2 from 109.2
· Richmond Fed Manufacturing Index for March reported at 15, below last month reading of 28 and estimate of 22; Shipments fell to 15 after 31 the prior month, while new order volume slowed to 17 after 27 the prior month and order backlogs fell to 10 after 18 the prior month
· The S&P/Case-Shiller national index rose a seasonally adjusted 0.5% in the three-month period ending in January, and was up 6.2% compared to a year before. The 20-city index rose a seasonally adjusted 0.8% for the month, and 6.4% for the year. The 20-city SA index rose 0.75% m/m in Jan. after rising 0.67% the prior month
· Oil prices end modestly lower, with WTI crude falling 30c, or 0.5% to settle at $65.25 per barrel pulling back from earlier gains, ahead of a U.S. government report due Wednesday that’s expected to reveal a weekly rise in crude inventories. Geopolitical risks to supply have continued to bolster the market, with oil prices recently trading at its best levels in 2-months. The weekly API report due out after the close and the EIA inventory report tomorrow morning.
· Gold prices slipped for the first time in 5-session, falling $13.00, or 1% to settle at $1,342 an ounce for April futures, taking a pause as the dollar rebounded off 5-week lows. It appeared to be more about profit taking for the precious metal after surging the last few weeks despite the FOMC raising rates and sounding more bullish on the economy, as investors focused on trade tensions between the U.S. and China.
· The U.S. dollar advanced for the first time in 3-sessions (and off 5-week lows), as the euro is slipped as much as down -0.6% to 1.2373 before paring losses (and off overnight highs 1.2476). Meanwhile, the dollar index (DXY) rebounds off overnight lows of 88.94 (first time below 89 level since Feb 19th), trading up around 0.5% in rebound. The dollar rebounded as trade fears continue to subside along with weaker economic data abroad (though US data was softer as well). The dollar strengthened against the Chinese yuan after the Chinese currency hit its highest level versus the buck earlier as the PBoC guided the yuan to its strongest level since August 2015.
· Treasury market’s advanced, with yields falling broadly following weaker than expected economic data readings (Richmond Fed miss, while consumer confidence, despite being at elevated levels, pulled back from last month and was below views) and as investors rotated back into safety of bonds following a late morning decline in tech. The 10-year yield dropped as low as 2.77% (down about 6 bps), while the 30-yr yield fell under 3.03%. The U.S. Treasury sold $35B in 5-year notes at a yield of 2.612% vs. 2.609% when issued prior, with the bid-to-cover (demand) at 2.50 vs. 2.44 prior auction and indirect bidders awarded 62.5%; today’s 5-yr auction was the second leg of the $94B in coupon offerings this week.
Sector News Breakdown
· Retailers; couple of earnings reports this week in retail space include SPWH, GME, OXM, PVH, and LULU (tonight); AEO officer Foyle sells 22K shares yesterday at average price $19.69; FRAN reported a 15% Q4 same-store sales decline and gave weak guidance, but shares bounced off early lows; OSTKshares fell after filed to sell 4M shares of stock
· Consumer Staples; MKC Q4 EPS beat by 10c on in-line revenue and mid-point of year guidance topping consensus; Wells Fargo said now that the Q4 earnings dust has settled, some names look particularly attractive as valuations have come in and guidance looks conservative and highlight USFD, DLTR, DG, KR, andSFM as top ideas in food and STZ in beverages; tobacco stocks outperformed mid-session (PM, MO, BTI)
· Casino, Lodging & Leisure; LVS and MGM 2018 Macau Ebitda estimates raised by 2% by Morgan Stanley saying YTD visitation, YTD mass gross gaming revs (GGR), and company-reported 4Q mass GGR have all outperformed/continues to estimate Macau GGR increasing 16% in 2018, mass market growth est. is raised to 15% from 12%, while VIP segment growth is reduced to 18% from 20%; raises tgt on LVS, WYNN and MGM; WYNN upping its 2018 and 2019 Macau property level EBITDA estimates by 3%, taking into account our anticipation of continued healthy growth in Macau and WYNN-specific premium mass momentum, raise tgt to $214
· Energy stocks mixed early, with several rating changes by analysts in the MLP space, while energy complex turns to weekly inventory data with API inventory tonight and tomorrow morning the weekly EIA energy inventory data report. The Alerian MLP Index (AMZ) traded to fresh 52-week lows of 231 as group has remained under pressure following recent FERC tax ruling, as well as a rising rate environment making dividend paying sectors less appealing (rising oil prices have not helped lift stocks) – but reversed higher late day
· MLPs; lots of analysts weighing in today; 1) Citigroup said top large cap picks include: ETP, MMP, MPLX, WMB, KMI, WPZ, EPD, and PAA. Top SMID picks include: GEL, BWP, SHLX, and CNXM. Upgrading KMI, WES & WGP to Buy; SMLP to Buy/High Rise; ENBL was upgraded to buy; 2) DM was downgraded to in-line from outperform at Evercore/ISI as selloff has challenged ability to advantageously fund future dropdowns
· Gas E&Ps sector; Bernstein is bearish on gas through 2025, lowering its gas price forecast to $2.25/mmbtu from 2021-2025; CHK cut to underperform from market perform, RRC cut to market perform from outperform; also cites weaker view on RRC’s Terryville asset; reiterates COG and SWN at market perform;WMB cut to market perform from outperform, citing macro gas view and upgraded LNG to outperform from market perform as sees co. best positioned
· Stocks news; SM announced that it completed the previously announced sale of the majority of its assets in the Powder River Basin for $500M; ECR said it has initiated a process to evaluate and consider a full range of potential strategic, operational and financial alternatives to maximize shareholder value; PXDsigns purchase and sale pact with Sundance Energy to sell about 10,200 net acres in western portion of Eagle Ford Shale acreage position, valued at $102M;PUMP posted a 4Q17 miss as adjusted EBITDA of $42M came in below consensus
· Solar sector; CSIQ was downgraded to underweight at JPMorgan and $17 tgt citing valuation, and potential downside risk from U.S. tariffs or potential slowing in China, while saying the stock capped by CEO’s non-binding take-private offer/prefers SEDG; JASO CFO Zhao has resigned, effective Tuesday, to pursue other interests
· Utilities; XEL was upgraded to buy at Mizuho and raised 2018 through 2021 estimates for the company to reflect higher capital spending at the utilities; NIwas downgraded to neutral at Citigroup
· Large Cap banks held up relatively well today despite the decline in bond yields; in research; BBT was upgraded to outperform and tgt raised to $63 at Wells Fargo saying should inflect on efficiency, growth, returns, and stock price after 5 years of underperformance
· REITs; mall REITs fall after BPY signed a deal to acquire the rest of GGP it doesn’t own for $9.25B in cash, as well as 254M shares as GGP holders can elect to receive $23.50 per share in cash, a share of Brookfield, or a share of a new U.S. REIT https://goo.gl/UYk297 (the price came in below some analyst views, which pressured the sector – SPG, MAC, KIM); Morgan Stanley initiates REG at OW and $65 PT, upgraded AAT and downgraded KIM to underweight as they remain cautious on REITs, but higher quality strips are better positioned to mitigate decelerating growth risks and is cutting PTs across the board to reflect slower growth than previously anticipated
· Mortgage REITs; Raymond James initiates CRE sector saying they believe strong commercial real estate transaction volumes, appreciation in commercial real estate valuations, lower CMBS issuance, and reduced competition from traditional financial institutions will result in continued strong demand for non-regulated financial companies, such as commercial real estate (CRE) mortgage REITs, to provide financing; top picks ae GPMT and LADR
· Financial services; INFO Q1 EPS and revenue topped consensus views with mostly in-line guidance for the year; FDS Q2 operating margins of 31.4% below 33.1% YoY and guided 2018 GAAP operating margin of 27.5%-29.0% vs its prior forecast of 28.5%-30.0%; LFIN shares plunged on reports to be ousted from Russell indexes this week
· Large Cap Pharma; GSK agreed to pay NVS $13B for its 36.5% stake in their consumer health care joint venture, moving to consolidate the unit just three years after it and Novartis joined forces https://goo.gl/fExukY ; MRK said the Japanese Ministry of Health, Labour and Welfare (MHLW) has granted SAKIGAKE ‘fast-track’ designation for its investigational molecule tepotinib* for patients with advanced non-small cell lung cancer
· Biotech movers; ANAB reports positive top-line, proof-of-concept (POC) data for ANB020, the company’s lead antibody and inhibitor of interleukin-33 (IL-33), from its ongoing Phase IIa clinical trial in adults with moderate-to-severe baseline adult peanut allergy (6 of the 13 patients getting the experimental treatment showed improved peanut tolerance after a single dose of ANB020); PETX was upgraded to buy at Stifel and raised tgt to $8; ESPR said top-line results from a Phase 2 study of its bempedoic acid cholesterol drug added-on to PCSK9 inhibitor met primary endpoint with 30% of additional LDL-C lowering/combo observed to be safe, well-tolerated; ARWR initiated buy and $10 target at Jefferies
· Healthcare services/Equipment; AET said it will automatically pass along drug rebates to a portion its members starting in 2019, benefiting an estimated three million individuals; BFAM 4.6M share Spot Secondary priced at $102.70; DXCM rose late day after the FDA approves marketing of Dexcom G6 glucose monitoring system
Industrials & Materials
· Transports; in autos, TSLA shares dropped after reports the National Transportation Safety Board (NTSB) is sending two investigators to examine issues raised by a fatal Tesla Inc. crash in California; airlines were mixed though low cost airline carriers weak for a second session (SAVE, JBLU) – Bloomberg noted yesterday they expect U.S. domestic fares to decline in 1Q, after they suffered in February due to intense low-cost competition
· Metals & Mining; ATI said it filed for an exclusion from steel tariffs on behalf of its recently formed joint venture with China-based Tsingshan Holding; RIO said that it has sold its entire stake in the Kestrel coal mine in Queensland, Australia, for $2.25 billion to a consortium comprising of private equity manager EMR Capital and Adaro Energy https://goo.gl/NRHXAt
· Chemicals; a consortium led by U.S. private equity giant CG agreed to buy the specialty chemicals business of AKZOY for EUR10.1B ($12.6B) including debthttps://goo.gl/iucNrq ; CC raised its 2018 profit outlook to the high end of views thanks to heightened demand for products including its pigments, propellants and resins; ALB tgt cut to $125 from $148 at Argus and reduced 5-year growth outlook to 15% from 17%
· Industrials and Multi industry; general quiet for sector that has fallen over the last 2-weeks on trade war fear concerns; GE shares bounced off more than a decade low yesterday, rising over 5% late day
Technology, Media & Telecom
· Internet; FB still remains a key focus after the Cambridge Analytica data leak revealed last week – today CNN reported that FB CEO Mark Zuckerberg said to testify before Congress regarding the leak – later confirmed for April 12th; TWTR mentioned cautiously by Citron Research as Andrew Left recommends shorting the stock with a short-term target for the stock of $25 per share;
· Semiconductors; INTC helps pace gains in semiconductors, extending gains from yesterday when it advanced 6.3% on Raymond James upgrade; Philly semi index (SOX) rises above 1,390 level before paring gains, but index has bounced firmly from its recent test of the 100-day MA support level of 1,321 last week; However, NVDA shares slid after Reuters headline they suspended self-driving testing after Uber fatality – NVDA later confirmed the temporary suspension – the semi index reversed lower following NVDA move
· Software movers; RHT shares rise on impressive quarter, with broadly positive results and strong FY19 guidance and a strong F4Q18 billings beat of $1,234M topping consensus of $1,121M and rose 25% YoY; other software stocks failed to rally in sympathy with broader Nasdaq losses
· Cable, Wireless and Telecom; the AT&T merger trial (with TWX) resumed today behind closed doors, with DISH executive testifying today; SWIR upgraded to buy at Roth Capital based on improving market dynamics for IoT solutions, de-risked impact from the Numerex acquisition and the valuation; Cowen initiated cable names with outperform on ATUS and CHTR, market perform on CMCSA;
· Optical, Hardware, and components; IIVI announced that it had acquired CoAdna for $85 million in cash; ROKU upgraded to neutral at Citi saying upcoming catalysts could include: 1) the IPO lock-up expiration this week; 2) Q1 earnings (likely the week of May 7th); 3) the roll-out of a new “content first” user interface and 4) roll-out of The Roku Channel app on Samsung Smart TVs; AAPL announced a “school work” iPad for schools which will cost $299 for them