Mid Day Outlook: April 24, 2018

Scott GreenDaily Market Report

Mid-Morning Look

Tuesday, April 24, 2018

Equities opened to the upside, but has slowly pared gains (and in some cases turned negative), as investors try to soak in the slew of corporate earnings, with tech stocks lower on fear of rising spending from Internet giant GOOGL, as shares fall 2%. Industrials mixed as Dow component CAT posts strong results, lifting shares, though fellow Dow component MMM weighs on the index after cutting its yearly forecast. In other Dow earnings news, KO fails to rally on better results, while VZ posts a quarterly beat, but TRV slides on higher catastrophe costs. Interest rate sensitive/defensive sectors such as consumer staples and utilities lag the S&P 500, falling to session lows after the 10-year U.S. Treasury yield rose above 3% for the first time since January 2014. Consumer Staples sinks for the fifth straight day as yield news and disappointing quarterly results continue to pressure the index. Commodity prices mostly higher with oil and gold advancing (Brent tops $75 per barrel), while industrial metals (aluminum) pare recent gains. Alongside earnings, Treasury yields the other top story with the 10-year topping 3% and the 2-yr topping 2.5% (best levels in 4 and 10 years respectively). Few tech giants (GOOGL, AAPL) both dropped below their 200-day MA support levels.

Treasuries, Currencies and Commodities

· In currency markets, the dollar extends gains vs. the yen, rising to around 109 level, the best since mid-February; overall though, the dollar index with a “little giveback” after jumping the last few days alongside rising yields and better economic data. The data today was mixed on better new home sales, but softer manufacturing data. Bitcoin prices up another 4%, trading as high as $9,412 before paring gains, with Bitcoin up 20% over the last 10-trading days

· Commodity prices are mostly higher; gold prices up over $7 topping $1,330 an ounce as the dollar takes a breather from going higher; oil prices also holding strong, trying to set new multi-year highs ahead of inventory data tonight and tomorrow morning; industrial metals nickel and aluminum prices are sliding after their recent surge

· Treasury market’s slide further as yields rise again; the 2-year yield touches 2.50% for the first time since September 2008; the benchmark 10-year yield also hits a new milestone, topping the 3% level for the first time since 2014 as well; stocks are trying to bounce after a small slide the last few days, as investors unload defensive assets

Economic Data

· March new home sales rose 4% to 694,000 annual rate, topping the 630K estimate; the previous three months’ new home sales data revised up by 62K; median new home price rose 4.8% y/y to $337,200; average selling price at $369,900

· Richmond Fed’s April manufacturing survey weak, falling to -3 vs 15 last month and the 16 estimate; shipments fell to -8 after 15 the prior month, while new order volume slowed to -9 after 17 the prior month and order backlogs fell to -4 after 10 the prior month; Inventory levels of finished goods increased to 15 after 5 last month

· Consumer confidence in April rose to 128.7 vs. 127.0 prior month and above the 126.0 estimate; the present situation confidence rose to 159.6 vs. 158.1 last month, while the consumer confidence expectations rose to 108.1 vs. 106.2 last month

· S&P CoreLogic Case-Shiller National Home Price index rose 6.34% y/y in Feb. after rising 6.11% in prior month; the S&P/Case-Shiller 20-city NSA index at 206.67 after 205.16 in Jan.; 20-city SA index rose 0.83% m/m in Feb. after rising 0.81% the prior month; National home price index rose 0.51% m/m in Feb. after rising 0.57% the prior month

Sector Movers Today

· Aerospace & Defense; UTX raised its 2018 profit forecast and reported first-quarter results far exceeding expectations; in defense, LMT boosted its sales forecast for the year, after Q1 EPS and revenues handily topped consensus views; ATI topped Q1 estimates (aero suppliers HAYN, CRS active); shares of BA, GD report tomorrow morning in defense

· Metals & Mining; FCX lowered its copper sales, operating cash flow guidance, and raising cost view for the year and also cut 2018 operating cash flows to $5.6B vs $5.8B previously; VALE downgraded at RBC Capital as expect that iron ore markets are likely to come under further pressure over the coming months; AA downgraded at Citigroup citing valuation

· Semiconductors; INTC positive mention at Citigroup saying data center business should grow 14% this year and every 1% of growth boosts EPS by 3c as firm raises revenuer outlook and tgt to $60; Mizuho downgraded SWKS to neutral while staying at buy on AVGO and SYNA, saying believe the effects of a maturing handset cycle could start to impact the RF suppliers; MU active after Hynix echoes TSM and AMS AG in warning of slowing mobile demand after reporting overnight

· Large Cap banks and regional benefit from spike in treasury yields and better earnings results; regional banks with earnings: FITB rises on strong 9c EPS beat on higher NIM 3.18% and lower provisions for loan losses; SNV same as FITB, beating by 7c with higher NIM 3.78%; HBAN Q1 EPS in-line with estimates at 28c; Other banks on earnings; BANR, BHLB, WSFS, HMST (falls on EPS/rev miss), ZION also gains after results

Stock GAINERS

· CAT +3%; Q1 results beat and the company raised its full-year profit forecast, citing strength in many of its end markets and strong cost control

· CDNS +11%; reported/guided Rev/EPS for C1Q and C2Q above Street estimates (was also upgraded at Needham)

· PHM +5%; Q1 results easily topped consensus estimates, while March new home sales data also a positive for the industry

· SANM +18%; Q1 top/bottom line top consensus as well as upbeat guidance

· SHPG +3%; received a further proposal from Japan’s Takeda Pharmaceutical Co. and is considering its position after rejecting four earlier proposals (offer last Friday was GBP47 a share, including GBP21 a share in cash and GBP26 a share in equity) https://on.mktw.net/2qWqmY3

· VZ +2%; the Dow component posted good operational results and tight opex management with easy comps and tax tailwinds to deliver solid 1Q18 results

· WHR +5%; after better quarterly earnings

Stock LAGGARDS

· AGO ; after David Einhorn of Greenlight Capital recommended shorting Assured Guaranty yesterday at the Ira Sohn hedge fund conference

· EPZM -12%; after the FDA has instituted a partial clinical hold on all of its tazemetostat trials on a report that a pediatric patient developed a secondary lymphoma

· FCX -9%; lowered its copper sales, operating cash flow guidance, and raising cost view for the year and also cut 2018 operating cash flows to $5.6B

· GOOGL -3%; Q1 results easily topped views, but shares fell on fears of increased spending

· INCY -6%; and LLY said an FDA advisory panel voted 10-5 in favor of its experimental drug for rheumatoid arthritis, Olumiant (baricitinib), recommending approval for the 2mg dose only while committee voted 5-10 against approving the 4mg dose, asking for more clinical data

· MMM -7%; Q1 results mostly in-line but cut its earnings per share forecast for the full year

· TRV -4%; said losses from natural disasters were above $300 million for the fifth straight quarter, leaving profit short of analysts’ estimates

· TVTY -3%; posted a small miss primarily driven by adverse winter weather and a severe flu season during the first two months of the quarter which depressed gym visits by members

· WAT -9%; posted Q1 EPS miss of 9c on lower than expected sales of $530.7M

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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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