Monday, April 16, 18
Equity Market Recap
- U.S. stocks start the week broadly higher, with all eleven S&P sectors advancing as the Dow Industrial Average climbed above its 50-day moving average, a level it hasn’t breached since March 13, and which it hasn’t closed above since March 9, while the benchmark S&P 500 index traded just shy of its 50-day moving average resistance level of 2,687, and posted its highest close since March 22. The snap back in major U.S. stocks came as geopolitical tensions over Syria eased and investors now turn their attention to the quarterly earnings. Almost 70 S&P 500 companies are scheduled to report results this week as earnings season kicks in full swing (NFLX the big one tonight), while the benchmark index post four-week highs. Stocks reacted favorably on Monday, despite news over the weekend that the U.S. joined with France and the UK to launch missiles that destroyed much of Syria’s chemical-weapons capabilities on Saturday.
- Economic data was mixed as New York manufacturing dropped from the prior month and was below estimates while retail sales snapped its 3-month streak of declines, rising 0.6% and topping estimates. Transports led markets today, rising more than 2.5% on better JBHT earnings and truckers in general, while biotech and pharma space was active after several data points, though Dow component Merck rallied on better lung cancer data (sending BMY shares lower).
- Retail Sales for March rose 0.6% (snapping a 3-month streak of declines), and topping the 0.4% estimate while retail sales less autos rose 0.2% in March, in-line with estimates. Retail sales fell an unrevised (-0.1%) in February. Auto dealers posted their best month since last September as sales rose 2%
- New York Fed Empire Index for April fell to 15.8 from 22.5 in March and was below the 18.4 estimate as the index for future business conditions slipped twenty-six points to 18.3, its lowest level in more than two years; prices paid fell to 47.4 from 50.3 and new orders fell to 9 from 16.8
- U.S. Home Builders’ Confidence (NAHB) index in April falls to 69 vs prior, as present single family sales falls to 75 vs 77 last month and future single family sales falls to 77 vs 78 last month
- Business Inventories rose 0.6% MoM, in-line with estimates as business sales rose 0.4% in Feb. after falling 0.3% the prior month; Jan. business inventories rose unrevised 0.6% MoM; retailers inventories rose 0.4% m/m in Feb. after rising 0.7% prior month
- Commodity prices were mixed as June gold edges up by $2.80, or 0.2%, to settle at $1,350.70 an ounce, getting a boost from a decline in the dollar. Oil prices dropped, falling from more than 3-year closing highs last Friday to settle at $66.22 per barrel, down $1.17, or 1.7%. The oil drop appeared to be more profit-taking given its latest run as WTI crude posted gain of about 8.6% last week, its best weekly performance since July
- The U.S. dollar fell against most currencies, as the dollar index (DXY) dropped -0.4% to 89.45, erasing last weeks late bounce, after President Trump tweeted “”Russia and China are playing the Currency Devaluation game as the U.S. keeps raising interest rates. Not acceptable!” Dollar also failing to gain momentum after somewhat hawkish commentary by Fed members today. The British Pound climbs above $1.43 for first time since January and the Euro advanced. The Russian ruble was volatile after news the U.S. is looking to slap more sanctions on Russia. The euro rose to $1.238, up from $1.2331 late Friday.
- Bonds were volatile as yields end up only slightly, paring earlier gains as stocks ended the day higher. The yield on the benchmark 10-year traded above 2.85% earlier before paring gains, best levels in a few weeks, but the yield on the 2-yr remains elevated around 10-year highs, up above 2.37%. Bonds slid early as global tensions ease following the U.S. coordinated attack with France and the UK against Syria on Friday following its chemical attack on its civilians a week ago. Hawkish comments by the Fed also helped bonds slide early.
Other Interesting tidbits
- Federal Reserve President Neel Kashkari said recent steps by the federal government to stimulate economic growth, including tax cuts, make reaching a 2% inflation objective more likely. That means the Fed can most likely move ahead with additional planned interest-rate hikes this year, he said – WSJ.
- Fed’s Dudley said Fed may have to hike at faster pace if inflation were to go well above 2% target; also said 3 or 4 rate hikes this year seems like reasonable expectation this year and said “we’re back to more reasonable level of volatility in stock market.”
- Federal Reserve Bank of Atlanta President Raphael Bostic said the central bank is getting mixed reactions from businesses about whether they have pricing power. “We are having a conversation about why we have struggled to reach” the Fed’s 2% inflation target
Sector News Breakdown
- Retailers; COST upgraded to outperform at Wells Fargo and up tgt to $220 as expects it to sustain strong comp momentum despite difficult comps; CROXdowngraded to negative at Susquehanna saying to much optimism in current stock price; in mattress retail, TPX downgraded to sell at Loop Capital and tgt to $36 from $49 saying checks with vendors, customers, and competitors this quarter have not gone well, particularly for the Sealy line; TSCO upgraded to buy at Goldman Sachs as see an opportunity to buy into a well-positioned franchise at a long-run trough relative P/E at a moment when store growth remains productive; ULTA upgraded to buy at Guggenheim after mgmt meetings, combined with the results of our proprietary survey of over 500 Ultamate Rewards members. Discount/dollar stores downgraded at Raymond James, cutting BIG, DLTR and DG rating to outperform (and lower targets) on concerns from our updated pricing surveys that WMT is becoming increasingly price competitive
- Consumer Staples; Credit Suisse downgraded KHC to underperform and tgt to $55 from $77 saying while KHC stock has devalued considerably since the start of the year, they believe it will head lower still as consensus sales and EBITDA estimates revise down; SJM downgraded to underperform at Credit Suisse as well as expect margins to head lower; Goldman Sachs also commenting on food, as they upgraded SAM in beverage space citing improving near-term volume outlook, while downgraded DF to sell citing unfavorable exposure to fluid milk
- Restaurants; MCD was downgraded at Stephens saying mid-single-digit comp growth of recent quarters should not be considered the norm; WING shares rise as Morgan Stanley raises tgt to $52 citing expectation that the strong late 4Q comp sales momentum continued into 1Q
- Casino, Lodging & Leisure; ERI entered into a definitive agreement to acquire Tropicana Entertainment’s (TPCA) gaming and hotels business in a cash transaction that is valued at $1.85B https://reut.rs/2EPoIvz ; in leisure space, RV stocks, THO, WGO, CWH dropped after an analyst comment at Northcoast said supply chain checks point to product cuts
- Analyst changes in energy space; OXY was upgraded to overweight at Piper; in E&P sector, SunTrust upgraded PXD and downgraded REN saying while they believe the Permian is likely to remain the hottest US play, they forecast Midland Basin Hub issues along with other logistical & operational problems to limit YE18 growth
- Equipment and Services; NOV shares dropped after saying 1Q preliminary revenue of $1.8B, vs. est. $1.94B, below prior expectations citing reduced progress on new offshore rig construction and customer-delayed deliveries in equipment
- Utilities; index was better, rising more than 1% early despite a bounce in bond yields; PEG was upgraded to buy at Bank America saying last week’s NJ legislation not only benefits PEG Power’s nuclear units Salem and Hope Creek, but also creates an opportunity for further capex expansions on the renewable side; AWK was upgraded to buy at Janney
- MLPs; Alerian MLP Index (AMZ) trades to highs of the day, rising more than 3.5% as they outperformed the broader energy complex
- Large Cap banks try and rebound after sliding Friday; BAC reported a 34% rise in Q1 profit, topping consensus as benefited from higher interest rates and growth in loans and deposits, while trading revenues were slightly below views; SCHW 1Q EPS and revenue beat estimates as Q1 trading activity rose ~40% y/y to all-time high, with 443,000 new accounts, highest quarterly level in 18 years; BCS upgraded to buy at Jefferies saying activist interest could help unlock upside valuation scenarios if efficiency benefits in the investment bank can be extracted (we est £900m pretax).
- Credit card data: JPM March net credit losses 2.65% vs. 2.28% last month and 30-plus day delinquency rate 1.22% vs. 1.24% last month; SYF March net charge offs 4.81% vs. 4.90% last month and 30-plus day delinquency rate 3.03% vs. 3.12% last month; DFS March charge-off rate 3.3% vs. 3.6% last month and delinquency rate 2.3% vs. 2.4% last month; ADS March net charge offs 6.3% vs. 6.9% last month and delinquency rate 5.3% vs. 5.6% last month; BACMarch default rate 2.81% vs. 2.78% last month and delinquency rate 1.69% vs. 1.72% last month; AXP March NCOs’ 2.2% vs. 2.2% last month and past due loans 1.4% vs. 1.4% last month
- Lending and finance; ELLI downgraded to neutral at Bank America citing near-term risk/reward, though long-term positive view remains unchanged
- Large Cap Pharma and biotech active after headline the White House confirms President Trump to give a speech on prescription drug prices, now scheduled for April 26 (IBB); in large caps, BMY shares dropped as MRK advanced after its Keytruda with chemotherapy showed “practice-changing” results in a study presented at the American Association for Cancer Research meeting. While Bristol-Myers’s drug combination also met its goal in certain set of patients, the company still doesn’t have overall survival data – shares of other players in space also fell on MRK’s strong data (NKTR, MRTX, JNCE, FPRX)
- Other pharma stocks news; ALKS rises on news the FDA has accepted for review its marketing application seeking approval for ALKS 5461 for the adjunctive treatment of major depressive disorder; SHPG announces the sale of its oncology business to Servier for $2.4B https://on.mktw.net/2viDQ58 ; also at the AACR meeting this weekend: DVAX abstract showed SD-101combined with Merck’s Keytruda had a “promising response rate” in anti-PDL-1 treatment; NLNK said it is putting plans for a Phase III study of indoximod in advanced melanoma on hold as it evaluates path forward;
- Biotech movers; BPMC shares fell after presenting Phase 1 data at AACR that showed its drug BLU-667 helped patients with RET-altered solid tumors/analysts note high expectations going into the conference; LOXO upgraded to overweight at Morgan Stanley after competitor BPMC provided initial data at the AACR meeting on its RET inhibitor BLU-667 that he believes was at the lower-end of Loxo investors’ expectations from a competition standpoint;CLDX plunges as its Phase IIb METRIC Study of glembatumumab vedotin compared to Xeloda in metastatic triple-negative breast cancer failed to meet primary endpoint of progression-free survival
- Medical equipment and devices; GMED downgraded to neutral at BTIG noting shares have appreciated ~66% over the past 12 months driven by strong results in FY17 in both core spine and the first quarter of robotics commercialization; BSX acquired NVision Medical, a privately-held company focused on women’s health, for upfront cash payment of $150M. Shares of CVS, ABC, MCK, WBA jumped after CNBC reported Amazon has shelved a plan to sell drugs to hospitals https://cnb.cx/2qBzhOB
Industrials & Materials
- Machinery & Industrials; NAV shares rally early after Reuters reported VLKAY is open to buying at some point a majority stake in the U.S. truck maker as it pushes to expand its truck division’s global presence and tap capital markets https://reut.rs/2qDvKhA ; GE restated 2017, 2016 earnings due to accounting change; said were required to adopt several new accounting standards effective as of January 1, 2018/voluntarily changed one accounting principle
- Transports rise; ALGT shares volatile after analysts weigh in on CBS 60-minutes segment that was negative on the company/Stifel said ALGT has been “dogged” for years for allegations of being unsafe, though this is the worst piece of PR that the company has had; in trucking space, JBHT Q1 EPS matched views on slightly better revs; CHRW was upgraded to buy at UBS saying Q1 trends are favorable, pointing to strong results; Morgan Stanley also positive on truckers saying they see 3 out of 4 truckload companies beating in the quarter, with HTLD the only one likely to miss
Technology, Media & Telecom
- Internet; after several headlines the last few weeks in the sector with FB’s Zuckerberg testifying on capitol hill last week and EU tax talk vs. names like GOOGL, today was quiet before the storm ahead of NFLX earnings after the close (shares up over 60% YTD into numbers)
- Semiconductors; semi’s advanced on the day, but underperformed broader technology space; MU positive mention by KeyBanc saying is expected to benefit from DRAM capacity adds struggling to keep up with demand
- Media movers; WPP shares fell as Sir Martin Sorrell has stepped down as CEO with immediate effect and Chairman Roberto Quarta becomes Executive Chairman until the appointment of a new CEO; NLSN was upgraded to outperform at BMO Capital on Watch opportunity and valuation; Vivendi acquires global ticketing network Paylogic spanning Europe and the U.S. (shares of LYV were active on news)
- Optical and equipment movers; shares of ACIA and OCLR were under pressure after the U.S. banned American companies from selling components to China-based ZTE Corp. ZTE pleaded guilty to conspiring to vio
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.