Mid Day Outlook: March 27, 2018

Scott GreenDaily Market Report

Mid-Morning Look
Tuesday, March 27, 18
  
Equities swing between gains and losses early, trying to find direction after Friday’s sharp declines, only to be outdone yesterday when major U.S. averages posted some of the best one day gains in its history, as global trade-war tensions between China and the U.S. have appeared to ease for the time being. U.S. stocks open firmly higher, attempt to book second positive day in a row, while the dollar rebounds, though a market environment that includes rising yields, a more hawkish Fed after raising rates, trade war concerns, and tech issues after FB data leak last week remain in investors’ minds. The tech heavy NASDAQ has erased early gains (falling 50-points off intraday highs), while the S&P 500 is little changed and the Dow Industrials post early gains. Bond prices gains (sending yields lower) following a round of weaker than expected economic data, while energy prices little changed. European and Asian markets both logging strong overnight gains after the U.S. bullish move yesterday.
 
Treasuries, Currencies and Commodities
·      In currency markets, after touching 5-week highs yesterday vs. the US dollar, the euro is down -0.5% at 1.2383 (off overnight highs 1.2476); 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
·      Commodities: Precious metals on track to snap its 4-day win streak, as prices pull back from 5-week highs amid a dollar rebound; gold prices drop around 1%, back under $1,350 an ounce. Energy futures little changed, holding near multi-week highs ahead of weekly API inventory data after the close and tomorrow morning the weekly EIA energy inventory data report
·      Treasury market’s rise early, with yields falling broadly after 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); the 10-year yield dropped under 2.82%, while the 2-year at 2.29% and the 30-yr yield 3.057%.
 
Economic Data
·      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
   
Sector Movers Today
·      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 KIMto 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
·      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 debt https://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%
·      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
·      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 COGand 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
 
Stock GAINERS
·      ARWR +14%; initiated buy and $10 target at Jefferies
·      CC +3%; raised its 2018 profit outlook to the high end of views
·      ESPR +7%; said top-line results from a Phase 2 study of its bempedoic acid cholesterol drug added-on to PCSK9 inhibitor met primary endpoint
·      GE +4%; rebounds after falling to more than decade low yesterday
·      RHT +4%; impressive quarter, with positive results and strong FY19 guidance and a strong F4Q18 billings beat of $1,234M topping consensus of $1,121M and rose 25% YoY above 13%-14% view
·      WYNN +2%; positive gaming commentary by both JPMorgan and Morgan Stanley; JPM raises tgt for WYNN to $214
 
Stock LAGGARDS
·      FDS -2%; declined after 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%
·      FRAN -5%; after it reported a 15% Q4 same-store sales decline and gave weak guidance
·      GGP -4%%; 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 (price below some views)
·      LFIN -33%; on reports to be ousted from Russell indexes this week
·      MAC -5%; downgraded at JPMorgan, and falls with GGP offer and weakness in mall REIts
·      OSTK -8%; after filing to sell 4M shares of stock
·      PUMP -3%; posted a 4Q17 miss as adjusted EBITDA of $42M came in below consensus
·      RRC -3%; as gas leveraged stocks fall on Bernstein sector downgrade
 
Syndicate
·      Bright Horizons (BFAM) 4.6M share Spot Secondary priced at $102.70
·      Gladstone Land (LAND) 1M share Spot Secondary priced at $12.15
·      GreenTree Hospitality (GHG) 10.2M share IPO priced at $14.00

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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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