Market Review: April 12, 2018

Scott GreenDaily Market Report

Closing Recap

Thursday, April 12, 18

Equity Market Recap

·      U.S. stocks finished strong, led by gains in the important technology and financial sectors ahead of key bank earnings tomorrow from JPMorgan, Wells and Citigroup while geopolitical tensions eased after President Donald Trump suggested that a military strike on Syria may not be imminent. Trump said in a tweet on Thursday that a possible attack on Syria could occur “very soon or not so soon at all,” easing fears of confrontation with Russia. Stocks also got a midday boost on reports Trump was considering rejoining the Trans-Pacific Partnership (TPP), directing U.S. Trade Representative Robert Lighthizer and National Economic Council Director Larry Kudlow to consider renegotiating entry into TPP, the trade deal Trump withdrew from on his first day of office. Defense and safe have related assets declined given the surge into stocks, with gold falling from 10-week highs and bond yields moving to their best levels in over a week. The China trade spat with the U.S. remains a short-term risk for policy makers but news quiet the last two-days after President Xi allayed fears at his keynote speech in China Tuesday. There was brief mid-afternoon pullback in stocks off highs after CNBC reported the U.S. considering striking eight potential targets in Syria, including two Syrian airfields, a research center and a chemical weapons facility the move was short lived). Energy stocks rebounded off earlier lows, settling at over three year highs. The macro picture has been very cloudy with China, Russia/Syria, the Fed, economic data, White House distractions, but hopefully attention turns towards earnings over the next month.

Economic Data

·      Weekly Jobless Claims fell 9K to 233K vs. the 230K est. while prior week claims unrevised at 242K; the 4-week moving average rose by 1,750 to 230,000; continuing claims rose 53kKto 1.871M in the week ending March 31. Labor Department says claims for Colorado and Maine were estimated last week

·      Import Prices for March unchanged MoM (due to lower cost of oil) vs. est. up 0.1% and after rising 0.3% in February; import prices rose 3.6% y/y in March; Excluding fuel, import prices rose 0.2% last month after rising 0.5% in February; auto prices fell 0.2% after rising 0.2% in Feb


·      Gold prices drop, falling from 10-week highs of $1,360 yesterday, to settle lower by -$18.10, or 1.3% to finish at $1,341.90 an ounce as the dollar rebounded and profit taking ensued. Defensive assets declined early after President Trump stepped back the immediacy of response to Syria situation, though note that prices began to retreat late yesterday after mostly hawkish reading of Fed minutes (raising expectations the Fed may get more aggressive in their pace of hikes). Safe haven trades got a little boost off lows late afternoon after reports contrary to Trump’s tweets earlier with MSNBC reporting the U.S. considering striking eight potential targets in Syria. With today’s decline, gold snapped its 4-day winning streak.

·      Oil prices rebounded off earlier lows, with May WTI closing higher by 25c to settle at $67.07 per barrel (high $67.33 and low $66), and the June contract up 20c, adding to gains after closing at its highest level since December 2014 Wednesday, when President Trump tweeted that he would fire missiles at Syria in response to a suspected chemical weapons attack. Oil rebounded despite a dollar bounce as the threat off an attack on Syria weighs on markets. OPEC raised its non-OPEC oil production guidance Thursday, as crude supplies from the U.S., Canada, Brazil and the U.K. grow. OPEC said it now sees non-OPEC production growing by 1.7 million barrels per day in 2018, an increase of 80,000 bpd. Most of the growth will come from the U.S., which OPEC sees boosting production by 1.5 million bpd.


·      The U.S. dollar snapped its 4-day losing streak, rising against the yen and euro, and bouncing off 7-week lows vs. the Canadian dollar; the euro was a top underperformer, falling against the US dollar and Pound after unexpectedly dovish ECB minutes; the dollar recovered as tensions ease for the moment bitcoin prices notable jump, rising 11% above $7,700 (traded as high as $8,055). Currency markets have had plenty to “chew-on” the last few weeks between trade war fears with the U.S. and China, the risk of a military attack in Syria and commentary out of the Fed that underscore the Federal Reserve’s intention to slow too-hot economic growth.

Bond Market

·      Treasury prices declined as yields extend recovery on the week (10-year had hit its lowest level in a week early yesterday), with the 10-yr benchmark yield up 5 bps around 2.83% and the shorter term 2-year yield up at 2.34%. Yesterday’s March FOMC meeting minutes were seen as hawkish, raising expectations the Fed may get more aggressive in its rate hike outlook on boosting rates this year to prevent US growth from “over-heating”. Bonds caught a brief bid on some more Syria/U.S. headlines in the afternoon but was quickly erased. The U.S. Treasury sold $13B I 30-year notes at a yield of 3.044% vs. 3.045% pre-sale when issued, with a bid-to-cover at 2.41 vs. 2.38 prior auction and indirect bidders awarded 61%.

Sector News Breakdown


  • Retailers; sector active after a few retailers post March comp sales guidance; LB March sales rose 4% vs. est. 3.1% but said that the earlier Easter this year will hurt total company April comp. sales by ~2-3 points; COST rises as comparable sales of 6.7% for U.S. and 5.8% for the whole company top estimates; ZUMZ March comp sales rose 12.6% well above the 4.2% Retail Metric estimate; CATO March comp sales beat; BKE comp sales fell (-1.1%) slightly less than consensus estimates; AOBC upgraded to buy and $13 tgt at LakeStreet Capital
  • Housing & Building Products; home furnishing lower after BBBY shares drop as reported 4Q sales and EPS that came in slightly better than views but the 2018 outlook was worse than the Street forecast, sending shares lower (shares of WSM, PIR, ETH, HVT active); in building, APOG Q4 revenue missed estimates and guided year EPS below views


  • Energy research: in E&P sector; PDCE was upgraded to buy from neutral at Goldman Sachs as sees an easing of DJ Basin midstream bottlenecks driving a growth inflection in 2019, while firm downgraded REN to neutral as its execution discount has narrowed; Goldman also cut CLR to neutral on valuation and added PXD to its conviction buy list; Goldman also upgraded FTI to buy in equipment space owing to expectations for higher inbound orders in 2019
  • Frac sand sector; Goldman Sachs downgraded SLCA to neutral with a $31.50 price target to reflect near-term peaking of frac sand margins and the prospects for frac sand price pressures beginning in H2 this year/also cuts its price targets for frac sand peers FMSA, EMES and SND to $3.75, $9 and $7.50, respectively
  • Utilities strong reversal lower as nearly all 20-components in the UTY were lower, as investors flee defensive sectors, EXC, AWK, AES, XEL among top decliners; AWK announced that it has agreed to acquire Pivotal Home Solutions from Southern Company Gas, a subsidiary of Southern Company, for approximately $365 million in cash, including estimated working capital; AWK priced 2.32M share Spot Secondary priced at $80.50


  • Large Cap banks; earnings begin, with better results from CBSH and OZRK today, but markets await big bank results from C, JPM, WFC and PNC tomorrow morning. Last night, the Fed proposes to reduce the minimum requirements for the Supplementary Leverage Ratio (SLR), the capital requirement that’s based on total assets. Morgan Stanley said this is positive, showing that regulators are making progress on easing bank regulation
  • Asset managers/Alt managers; BLK Q1 EPS and revenue handily topped consensus estimates, though saw net flows for its global iShares exchange-traded funds decline 46% in Q1 to $34.6 billion from a year earlier; BEN said it would buy back up to 80M shares; WDR preliminary assets under management of $80.2B for the month ended March 31, 2018, compared to $81.4B MoM; VRTS March prelim total AUM $87.4B
  • Finance & Lending; ELLI shares fall after Wedbush downgraded to underperform based upon what is shaping up to be a disappointing year for mortgage originations in 2018
  • Blockchain Services; Bitcoin prices jump over 10% after reports from one senior market analyst says Wall Street is set to inject “new liquidity” into bitcoin as part of a plan to “build bridges” between the markets. . Shares of RIOT, OSTK, MARA, DPW, NETE, NXTD, names that have announced blockchain initiatives all surged on the report


  • Large Cap Pharma; BMY shares underperformed other large cap Pharma names after Citigroup said in a note PFE’s CEO made it clear to them that PFE has no interest in BMY in the absence of transformational data or a de-rating. PFE has high conviction in its current pipeline and believes that the ROI is considerably higher than high risk transformational deals; MYL was upgraded to outperform at Leerink following investor day; INCY was upgraded to buy at UBS; MNK shares underperformed after SunTrust initiated hold; RAD earnings topped consensus after completing sale of stores to WBA
  • Biotech movers; BLCM shares rise as announced that the FDA has lifted the clinical hold on studies of BPX-501 in the U.S.; PBYI downgraded to equal-weight at Barclays and cut tgt to $70 from $90 as survey of U.S. oncologists showed a lower than expected growth rate for future Nerlynx penetration; NVAX 30.303M share Spot Secondary priced at $1.65

Industrials & Materials

  • Industrials and Multi-industry; GE is exploring a public offering for GE Transportation and discussing hybrid deals with public cos to combine assets, the WSJ reported. Hybrid deals would leave GE shareholders with stakes in multiple public companies ; MDR active after reaffirming 2018 outlook, outlining CBI synergies (CBI also rises); USG active after Berkshire Hathaway says it plans to oppose the wallboard maker’s four board nominees in an upcoming vote
  • Transports; overall strength in the sector, rising as much as 1.8% mid-session with broad gains in truckers, rails and airliners;  airlines look to rebound after DAL earnings results came in slightly above consensus and issued favorable unit revenue guidance for Q2 despite concerns of deterioration in the U.S. domestic market (JBLU, AAL, UAL, LUV active)
  • Metals & Mining; aluminum prices coming into today have risen roughly 13% as traders react to U.S. sanctions on Russia that extend to that country’s aluminum giant Rusal PLC (shares of AA and CENX beneficiaries); gold miners a little give back after rising the last few days on gold prices touching 10-week highs; steel stocks outperformed
  • Aerospace & Defense; Citigroup positive on shares of Dow component BA saying the free cash flow builder shows a path of more than 50% upside to shares, at an attractive 7% free cash flow yield

Technology, Media & Telecom

  • Internet; NFLX rises for a 4th straight day as analysts continue to get bullish ahead of its earnings report this upcoming Monday; overall a very strong performance for Internet stocks in a big “risk-on” day for stocks, though FBand TWTR lagged
  • Semiconductors; strength in group led by INTC up over 3%; NXPI resumed neutral at Citigroup and $127.50 tgt as expect QCOM to close the acquisition of NXP at the current proposed price of $127.50 per share; MPWR rises after Raymond James initiated strong buy and $140 tgt saying the combination of strong FCF and high-teens revenue growth puts Monolithic in a unique niche within the industry; MLNX upgraded to overweight and raise tgt to $90 at Barclays; AXTI lowered Q1 revenue guidance


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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