Mid Day Outlook: April 16, 2018

Scott GreenDaily Market Report

Mid-Morning Look

Monday, April 16, 18

U.S. equities advance, adding on to last week’s strong gains, 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 is heading for a four-week high, led by nearly all sectors (energy lags early, but has been a market leader the last few weeks with oil prices surging/closing at its best levels since November 2014 last Friday). 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 are leading on better JBHT earnings and truckers in general, while biotech and pharma space active after several data points. 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. Also speaking today, 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.”

Treasuries, Currencies and Commodities

·      In currency markets, the dollar under pressure to start the week (dollar index = DXY down -0.4% at 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 and recent comments of the Fed Minutes. The British Pound climbs above $1.43 for first time since January and the Euro advanced

·      Commodity prices: Precious metals rise, with gold back above the $1,350 an ounce level given the sharp decline in the dollar today; while oil prices pare recent gains, sliding from more than 3-year closing highs last Friday (WTI crude posted gain of about 8.6% last week, its best weekly performance since July)

·      Treasury markets extend last week slide, with yields rising across the board; 10-year yield up above 2.85% as global tensions ease after US coordinated attack against Syria on Friday

Economic Data

·      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

Sector Movers Today

·      Retailers; COST upgraded to outperform at Wells Fargo and up tgt to $220 as expects it to sustain strong comp momentum despite difficult comps; CROX downgraded 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

·      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 violate U.S. sanctions by shipping goods to Iran, according to Reuters, which reported on the ban this morning (both are suppliers to ZTE); Cyber security watchdog also warns UK telcos against using equipment from Chinese supplier ZTE – other suppliers that gets revs from ZTE included IPHI, NPTN, LITE and FNSR according to Bloomberg

·      Transports; 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

·      Credit card data: 1) 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; DFSMarch 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

 

Stock GAINERS

·      ALKS +6%; on news the FDA has accepted for review its marketing application seeking approval for ALKS 5461 for the adjunctive treatment of major depressive disorder

·      ERI +15%; 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

·      JBHT +7%; Q1 EPS matched views on slightly better revs

·      LOXO +2%; upgraded to overweight at Morgan Stanley as feels competitor BPMC data was at the lower-end of Loxo investors’ expectations

·      NAV +4%; 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

·      SCHW +2%; 1Q EPS and revenue beat estimates as Q1 trading activity rose ~40% y/y to all-time high, with 443,000 new accounts

Stock LAGGARDS

·      ACIA -31%; as well as weakness in OCLR; both are suppliers to ZTE and fall after the U.S. imposed a denial of export privileges against Zhongxing Telecommunications Equipment

·      ALGT -3%; after analysts weigh in on CBS 60-minutes segment that was negative on the company; analysts noted report was more damaging than originally thought

·      BMY -6%; after rival MRK said its Keytruda with chemotherapy showed “practice-changing” results in a study presented at the American Association for Cancer Research meeting. BMY data met its goal in certain set of patients, but still doesn’t have overall survival data

·      BPMC -12%; 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

·      CLDX -59%; Phase IIb METRIC Study of glembatumumab vedotin compared to Xeloda in metastatic triple-negative breast cancer failed to meet primary endpoint

·      NLNK -14%; said it is putting plans for a Phase III study of indoximod in advanced melanoma on hold as it evaluates path forward

·      NOV -6%; said 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

·      WPP -6%; 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

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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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