Market Review: April 3, 2018

Scott GreenDaily Market Report

Closing Recap
Tuesday, April 3, 18
  
Equity Market Recap
·      After fluctuating between positive and modestly negative territory most of the trading session, U.S. stocks ripped higher the final 90-minutes of trading to end in strong fashion. The Dow Industrials spiked 300 points late, day (moved back above 24K), the Nasdaq posted a 100-point spike out of negative territory and the benchmark S&P 500 jumped firmly back above its 200-day moving average technical level (of 2,590). The move was prompted by a Bloomberg report that the White House is not holding talks concerning action against Amazon.com. The recent fears the White House was “attacking” AMZN has led the weakness in the shares, dragging technology stocks lower. The auto sector was a bright spot for major averages, with March monthly auto sales coming in firmly above consensus estimates from GM, Ford, FCAU and others. The late day stock rally extended losses for Treasury prices, with yields jumping across the board (lifting interest rate sensitive financials). The S&P 500 found itself back above its 200-day average after having its streak of 442-consecutive days above it snapped yesterday. After trade war fears, and the recent tech sell-off attention will now likely turn to jobs data with monthly ADP private payroll data tomorrow, jobless claims Thursday and the Nonfarm Payroll report (and wages) Friday. We’ll see if stocks can extend today’s gains as stocks have been in a downtrend the last few weeks, as the last time the S&P last rose for two days in a row on March 8-9th
 
Commodities
·      Oil prices advanced, with WTI crude rising 50c to settle at $63.51 per barrel (high of day $63.77 and lows $62.86 per barrel), rebounding after prices fell over 3% yesterday, the biggest 1-day decline in 7-weeks. Oil prices inched higher with a rise in stocks ahead of weekly inventory data tonight (API) and tomorrow morning (DOE).
·      Gold futures fell -$9.60 or -0.7% at $1,337.30 an ounce, sliding as the dollar advanced and as stocks bounced after the recent technology inspired selloff. Gold prices spiked yesterday as investors rotated back into the safety of bonds and other defensive asset classes as stocks tumbled late afternoon to lowest levels since November.
 
Currencies
·      The U.S. dollar gained as the dollar index (DXY) up about 0.2% at 90.20, leading vs. the euro and, yen, while little changed vs. the Pound; the dollar falls over -0.6% against the Canadian dollar (Feb lows) as fears of trade wars diminished after reports that the Trump administration is pushing for a preliminary Nafta deal to announce at a summit in Peru next week (Mexican peso also gained). In crypto currency, Bitcoin prices rise more than 7% topping the $7,400 level
 
Bond Market
·      Treasury markets declined as yields spiked, with the 10-yr yield topping the 2.77% level after lows around 2.72% late yesterday as bonds dipped following the bounce in U.S. stocks. There were no major economic data today points today, but attention turns to jobs data this week (ADP tomorrow and Nonfarm payroll Friday). A sharp stock-market selloff on Monday prompted buying of Treasuries, pushing the yield on the 10-year note to its lowest since late January. Treasury Market Outlook: bonds were weaker overnight with Treasuries leading yields higher. The 2-year rate gained 3 bps to 2.278%, with the 30-year topping 3%
   
Sector News Breakdown
Consumer
·      Retailers; URBN said in April 2 10-K filing that retail comp sales “thus far during the first quarter” are up in low double-digit range; SIG maintained its FY outlook but posted well-below consensus 1Q impacted by previously closed stores; in consumer electronic, GME was downgraded to hold at Loop Capital as Technology Brands dramatically underperformed, and collectibles sales missed expectations in Q2; in guns, RGR and AOBC active after positive monthly NICS firearms data showed 2.76M figure for March, topping Feb 2.3M
·      Autos; monthly auto sales data released today: 1) GM March US sales rose 15.7% vs. est. 5.1% after saying it will cease monthly sales reports/Chevy sales jumped 15.6%; GMC sales rose 11.4%; Buick sales soared 28%; Cadillac sales up 12.7%; 2) Ford (F) March U.S. Light-vehicles sales rose 3.46% vs. an estimated gain of 0.8% as truck sales up 6.7%, SUV sales up 7.5%, car sales down 8.1%; 3) FCAU March US auto sales rose 13.6% vs. estimate up 1.9%; 4) HMC March US sales rose 3.8% vs. est. 2.1%; 5) TM March US auto sales rose 3.5% vs. est. 3.9%; 6) NSANY said March US auto sales fell (-3.7%) vs. est. (-2.1%)
·      In other auto news; GM said it is abandoning its practice of reporting monthly auto sales, and will begin reporting on a quarterly basis immediately; AAP announced that CFO Tom Okray is leaving the company to become CFO at W.W. Grainger after only 17 months at the company; TSLA gave update saying Q1 production totaled 34,494 vehicles, a 40% increase from Q4 and by far the most productive quarter in Tesla history. 24,728 were Model S and Model X, and 9,766 were Model 3/Q1 deliveries totaled 29,980 vehicles, of which 11,730 were Model S, 10,070 were Model X, and 8,180 were Model 3; auto suppliers (BWA, LEA, AXL) benefit from auto sales data
·      Consumer Staples; STZ was downgraded to hold at Stifel after nearly five years recommending the shares, because they think the market is pricing in substantial beats and those will be tough to generate; tobacco stocks (MO, PM) advanced after IRI data show “robust” U.S. tobacco-product sales trends for 4-week period ended March 25, Bloomberg reported
·      Casino, Lodging & Leisure; ISCA shares dropped after mixed Q1 results as EPS beat but revenue fell short of consensus; RRR was downgraded to neutral at Macquarie
·      Staffing sector; Barclay’s said they think RHI’s outperformance over MAN YTD (+3.4% vs. -9.8%; SPX -3.5%) will continue and upgraded RHI to outperform given its accelerating revenue growth trajectory and leverage to an improving US economy while cut MAN to underweight given a likely deceleration in growth rates, uncertainty surrounding CICE changes in France and uninspiring margin targets that might take longer to achieve
 
Energy
·      E&P sector; Seaport Global said the sector mismatch between rebounding operational performance and sliding equity performance seen as more of an opportunity vs. a threat as the firm upgraded OAS to buy while downgraded PE and REN to neutral citing limited NAV upside and cut RRC to neutral citing lower debt-adjusted production growth outlook. Seaport said top 5 large-cap picks: COG, PXD, FANG, MRO, DVN
·      Oil services; SLB was upgraded to buy at SunTrust saying weakness has created an attractive entry point and company is typically one of the best stocks to own in down markets” to maintain exposure to oil-field service; Piper upgraded BHGE to Overweight driven by a combination of relative valuation, balance sheet strength, capital light business model, and FCF generation, while the firm downgraded WFT to neutral driven by a prodigiously heavy balance sheet (~$7B in net debt, ~$2B in equity market cap, ~$580M in annualized interest expense) and the diminishing likelihood of a decisively satisfying resolution to its financial inflexibility in the foreseeable future
·      Other energy movers; STO said it has awarded contracts worth a total of 12 billion Norwegian kroner ($1.53 billion) for services on 18 of its fixed platforms; CRK announced a series of transactions to improve the balance sheet, including a sale of the producing portion of its Eagle Ford for $125M, a $75M equity infusion from Jerry Jones, its calling all of its existing debt, the issuance of a new $600M unsecured bond offering, and a new $300M secured credit facility
 
Financials
·      Large Cap banks continue to move in sympathy with bond yields, but BMO Capital said today that investors should stop trading banks based on where 10-year Treasuries are and start trading them according to real fundamentals, which are driven more by short-term rates; earnings season kicking off in the next 2-weeks, with large cap banks expected first (JPM)
·      Finance and Lending; MGI announced the launch of Walmart2World, a new money transfer service that allows customers to send money from U.S. WMT stores to MoneyGram locations in 200 countries; LFIN disclosed that on 3/5, the SEC informed the company that it is conducting an investigation in the matter of trading in the securities of Longfin Corp. and requested the company provide certain documents in connection with its investigation, including documents related to its IPO, other financings and the acquisition of Ziddu.com
·      Insurance space; Morgan Stanley raised 1Q EPS by 5% due to lower catastrophe losses, but rising rates and volatile equity markets could hamper BV growth and said the recent wave of industry consolidation should provide valuation support to P&C shares (AIG, CB, IFC, and WLTW favorites)
 
Healthcare
·      Large Cap Pharma; FLXN rises after Wells Fargo said they got a “big win” with its Zilretta billing code from CMS, which will become effective July 1; AZN said the FDA approved its once-weekly BYDUREON (exenatide extended-release) injectable suspension as add-on therapy to basal insulin in adults with type 2 diabetes (T2D) with inadequate blood sugar control; also AZN and MRK report European Medicines Agency has validated LYNPARZA Marketing Authorization Application for review in patients with BRCA-mutated HER2-negative metastatic breast cancer
·      Managed Care; Jefferies noted CMS 2019 Medicare Advantage Final Notice indicates a rate increase of 6.5%, which is better than the February Advance Notice of 4.9% and an acceleration from 3% in 2018 (said update should produce a positive stock reaction for MA-exposed MCOs (HUM, WCG, UNH, AET). Further, the favorable rate backdrop and HIF moratorium should help accelerate enrollment growth in 2019
·      Biotech movers; CELG falls as announced the departure of President and COO; PBYI’s Nerlynx in treatment guidelines for certain breast cancer patients; RIGL said Phase II proof-of-concept study assessing fostamatinib, branded as Tavalisse, in patients with IgA nephropathy failed to achieve the primary endpoint; UTHR upgraded to neutral at Credit Suisse as sees limited downside; ALNA rises for a 12th straight day – yesterday Roth Capital initiated buy and $61 tgt
·      Medical Devices and Equipment; ANGO upgraded to Outperform at Raymond James citing attractive valuation, inflection in gross margins, and view that management should engage in more active portfolio management; EXAS was upgraded to buy at BTIG noting shares have fallen 35% which provides an attractive entry point
·      Healthcare services and suppliers; BFAM downgraded at RBC Capital saying that risk-reward is less compelling at the upper end of his target valuation range; EHTH rises after CMS said it will increase payments to Medicare Advantage plans by an average of 3.4% next year, almost double the amount it had previously estimated
 
Industrials & Materials
·      Transports; in trucking/freight space, LSTR boosted its Q1 revenue outlook to $1.03B-$1.05B. above consensus of $963M and also boosted its Q1 earnings outlook citing continued strength in truckload volume and pricing (shares of ECHO, JBHT, CHRW, EXPD, FWRD active on guidance); after the airline index fell over 3% yesterday, group tries to rebound, asDAL said March traffic up 4.3% and sees March TRASM up about 5%; overall, transports to the highs, rallying over 2% late afternoon back above 10,400 (shy of its 100-day resistance 10,460) as all 20-components higher (CAR, ALK, KEX, UAL all up over 4%)
·      Metals & Mining; in the steel sector, Citigroup raises steel price forecasts post-232 tariff announcements and upgrades X to Buy with a $46 price target from $43 and downgradesCMC to Neutral rating with a $22 price target from $29 (notes that X has sold off 25% in recent weeks following iron ore lower)
 
Technology, Media & Telecom
·      Internet; sector continues to try and rebound after heavy selling pressure the last few weeks as President Trump ramps up verbal attacks on AMZN and as industry faces privacy backlash led by FB after its data leak with Cambridge Analytica; SPOT trades for the first time as a public company (prices opened at $165.90 per share but traded to $150 per share), avoiding the traditional IPO process by using a so-called direct-listing process which allows existing shares float publicly without offering any new shares on an exchange;AMZN shares bounced late day after the White House said no current action on Amazon
·      Semiconductors; NVDA added to Bank America US1 list saying the company is levered to growth markets in artificial intelligence, gaming, virtual reality and autonomous cars; MXLannounced that Adam Spice, VP and CFO, has given notice that he will be leaving the company on May 23
·      Telecom movers; SWCH reported a wider-than-expected Q4 loss, while revenue was in line, while one analyst noted cap-ex was higher in Q4; ZAYO added to Citigroup focus list
·      Media movers; CBS plans to make an all-stock offer for VIAB that values the U.S. media company below its current market valuation, Reuters reported late Monday https://www.reuters.com/article/us-viacom-m-a-cbs-exclusive/exclusive-cbs-plans-all-stock-bid-for-viacom-below-current-valuation-sources-idUSKCN1H91UEFOXA said DIS was prepared to buy Sky PLC’s news channel, a move that would help Fox consolidate its ownership of the European pay-TV operator https://www.marketwatch.com/story/disney-could-buy-sky-news-fox-tells-uk-watchdog-2018-04-03
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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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