Thursday, April 26, 18
Equity Market Recap
· Stocks surged higher, led by outperformance in the technology sector as investors cheered quarterly results from the likes of Facebook, AMD, ORLY and a handful of biotech companies while Treasury yields pulled back after recent gains. The Dow Jones Industrial Average moved higher for a second straight day, after snapping a five-session losing streak yesterday. The barrage of quarterly earnings today was overwhelming, with results out from some of the biggest companies (and more to come tonight) helping lift major averages. Transportation stocks dropped on results from AAL, LUV and UNP; telco space weighed down by AT&T results, while autos were mixed after results from GM, F, FCAU and several suppliers. On the flip side, tech paced today’s gains on several earnings beats and high expectations ahead of INTC, MSFT and AMZN results tonight. Restaurant stocks buoyed by CMG earnings and comps, ahead of SBUX earnings tonight. Energy stocks also climbed along with oil prices and ahead of earnings from CVX and XOM tomorrow morning. In non-individual stock news, the euro slid vs. rival currencies as the ECB said QE will continue running at EU30B per month until end of September “or beyond, if necessary, while leaving interest rates and asset-purchase target unchanged.
· Durable Goods Orders for March rise 2.6%, topping the 1.6% estimate helped by a big increase in contracts for Boeing planes; Durable goods new orders revised up to 3.5% for Feb. from 3%; New orders ex-trans. unchanged in March after 0.9% rise and new orders ex-defense rose 2.8% in March after 3% rise; non-defense capital goods orders ex-aircraft fell 0.1% in March
· Weekly Jobless Claims fell 24K to 209K, well below the 230K estimate; the 4-week moving avg. at 229.25k in the week ending April 21, while continuing claims fell 29K to 1.837M
· Advanced Goods Trade deficit for March stood at (-$68B) vs. the est. (-$75.0B), and narrowed from (-$75.9B) last month; imports fell 2.1% in March to $208.124B from $212.548B in Feb., while exports rose 2.5% in March to $140.087B from $136.674B in Feb.
· The 30-year fixed-rate mortgage averaged 4.58%, according to Freddie Mac’s weekly survey, out Thursday. That marked an 11 basis point gain during the previous week, and the highest since August 2013. The 15-year fixed-rate mortgage averaged 4.02%, up from 3.94%
· Oil prices closed higher on Thursday, rising 14c to settle at $68.19 per barrel, holding near its recent 3 ½ year highs despite bearish inventory data yesterday and the possibility that the U.S. will reimpose sanctions on Iran. Gold futures fall -$4.90 or 0.4% to settle t $1,317.90 an ounce, its lowest settlement in about 5-weeks as the dollar trades higher again (DXY tops 91.50). The combination of increased prospects the FOMC will get more aggressive in its rate hikes and the surge in U.S. stocks today following earnings dulled the appeal of safe haven assets such as gold.
· The U.S. dollar added to its recent strength, as the dollar index pushed higher 0.4% topping the 91.50 level, its best level since late January (and approaching its 200-day resistance of 92.00)as the euro falls following its policy meeting where it kept rates unchanged, as the euro sunk to lows around $1.21 after earlier highs 1.2210. The Japanese yen was little changed, while the Pound dropped slightly. In crypto currency, Bitcoin prices dropped over 2% to move under $8,900
· Treasury market’s rebound as the benchmark 10-year Treasury yield pulls back from the psychologically significant 3% level (fell more than 4 bps to under 2.99%), after trading as high as 3.03% yesterday, its best levels since December 2014. Economic data today came in stronger than expected for weekly jobless claims and monthly durable goods orders. The U.S. Treasury sold $29B in seven year notes at a yield of 2.952% vs. 2.958% when issued prior to auction, with a bid-to-cover at 2.56 vs. 2.34 prior auction and indirect bidders awarded 65.8% of auction and directs only 12.7%. Bonds have been plunging since the FOMC minutes a week ago, as the 10-year yield is up roughly 60 bps since the beginning of the year.
Sector News Breakdown
· Consumer Staples; sector continues to be a drag on the S&P, with MO falling in tobacco space (after recent PM miss) amid continued weak volume levels and as domestic cigarette shipments fell -4.2%; HSY sales topped estimates for Q1, but as has been the issue for staples, reported lower gross margins; SPB shares plunged as much as 30% after Ebitda and organic sales missed estimates, driven by facility disruptions and unfavorable weather; Kellogg (K) share slipped after being named a new “short” at Prescience saying shares could fall 35%; PEP a bright spot in consumer staples sector, rising after its quarterly results
· Restaurants; CMG surges after being upgraded by at least three analysts, as Wall Street turns positive after change in leadership turned margin recovery path more quickly and improved comp sales; CAKE Q1 revs, comp top consensus views, while EPS missed by wide margin (12c) amid higher labor costs; DNKN named as a short by Jim Chanos of Kynikos (on CNBC today), though company posted beat and raise quarter; BLMN Q1 EPS/revs comps top views; DPZ rallies after strong Q1 results, rising as much as 9% as comp sales 8.3% topped 4.7% estimate
· Housing & Building Products; in housing, DHI posted Q1 EPS that topped estimates but its orders figures came in below comes expectations
· Casino, Lodging & Leisure; cruise lines active after RCL reported 1Q EPS that topped analysts’ highest estimate and raised its year EPS forecast (CCL and NCLH also move)/RCL also reported better than expected quarterly net yields, and raised its 2018 view; In gaming, LVS beats estimates for Macau and Singapore results better but dragged lower on Las Vegs RevPAR cut; MGM Q1 revs missed estimates; in regional gaming, PENN 1Q results that beat its own forecast and boosted its year view (shares of GLPI, RRR, CZR active on report); BYD reports tonight; boating stocks outperform after stronger earnings reports from HZO and BC
· Auto movers; auto parts retailers after ORLY Q1 adjusted EPS and comp sales topped estimates (AAP, AZO) and said sees long-term drivers for industry intact; in auto’s, Ford (F) rises initially after Q1 EPS/sales beat and reiterated all key FY18 targets and forecasts an 8% EBIT margin by 2020; GM Q1 EPS topped views on revs $36.1B, which was down 3.1% YoY and still expect 2018 core adjusted automotive free cash flow to be in line with 2017; FCAU reported Q1 adjusted Ebit that missed the lowest analyst estimate; CVNA 11M share Secondary priced at $27.50; in auto suppliers, BWA Q1 results topped views while mid-point of year guidance just missed est.; auto retailers SAH and GPI also active on earnings
· Integrated oil; COP posted its best quarterly performance in three years thanks in large part to a resurgence in oil prices, followed prior reports from RDS/A and TOT; tomorrow, investors will get quarterly results from Dow components and oil giants CVX and XOM; Husky Energy (HSE.CN) lowers yearly oil production guidance as 1Q upstream output fell 10% y/y to 300.4k boe/d amid reduction of heavy oil production in Lloydminster area; refiners outperformed on back of oil prices and better results from VLO; note PSX is expected to report earnings tomorrow morning
· E&P and equipment sector; RRC Q1 results came in slightly ahead of expectations, supported by a slight gas production beat while Q2 volumes were guided roughly -1% below the Street, though full-year guidance of 11% growth and $941M of capex were reiterated; OIS and PTEN rally after Q1 results; CRK shares rose as Jerry Jones’ Arkoma Drilling LP is buying about 84% of the company for $620M https://yhoo.it/2r5nNCq ; AR production exceeded estimate on higher nat gas vols, while light on crude, it was in line with consensus; CLB reported in-line
· Coal, utility, Solar space; ARCH shares fell as reported disappointing Q1 results and guidance with adjusted EBITDA $105MM below consensus of $135MM (weighs on other coal producers); FSLR expected to report earnings tonight in solar
· Utilities; SJW rejected an unsolicited, non-binding indication of interest it received from CWT regarding a potential proposal to acquire all issued and outstanding shares of SJW Group for $68.25 per share in cash; ETR was upgraded to buy at Wolfe Research on continued execution of its strategy; Susquehanna said PCG’s legal exposure from the 2017 California wildfires should be $5B-$7B, “much less than headlines suggest,” while sees EIX’s exposure $500M-$1B
· Large Cap banks active as European banks DB and BCS both report quarterly results; COLB falls after missing Q1 EPS by 11c; other movers on earnings in broker/asset manager space included: LM, RJF, moving higher and IVZ lower
· Insurance; AFL Q1 results topped estimates, but noted Japan sales were modestly weaker than expected in 1Q; RE shares fell after Q1 results, while AXS Q1 revs in-line on better earnings
· Finance and Payments; PYPL Q1 top/bottom line beat on higher operating margins and raises year outlook w/better-than-expected Venmo progress and new bank partnerships; Visa (V) Q2 results that were above expectations and increased FY18 revenue and EPS growth guidance; CYS rises after TWO acquires them for $1.21B deal https://on.mktw.net/2Jv1j5c
· REITs; a handful of REITs active after quarterly results: AVB rises despite FFO miss and lower guide; UDR rises after Q1 result, issues 2Q guidance; storage REITs rise on PSA Q1 results despite fact margins tightened, and occupancy dipped (CUBE, JCAP, LSI moved higher); KRC rises on Q1 FFO beat and narrows guidance; others movers on earnings: DRE, WRE
· Large Cap Pharma/Biotech; ABBV shares benefit from strong Hep C results, as one analyst said beat by more than 45%; BMY Q1 EPS beat and raised 2018 EPS guidance to $3.35-$3.45 from $3.15-$3.30 as management now sees worldwide revenues increasing in the mid-single digits; ALXN posted positive results for its late-stage study of ALXN1210 in an extremely rare blood disorder, while also posted quarterly results; BMRN posted a slight quarter miss excluding favorable one-time items
· Healthcare services; Hospital stocks fall after UHS missed Q1 EPS and revs driven by weaker-than-expected patient volumes in hospitals and behavioral centers, as well as wage pressures (shares of THC, LPNT, HCA declined early); PRAH Q1 beat but guidance unchanged; EVHC shares were pressured after Jim Chanos of Kynikos said he was short shares; in managed care MGLN shares declined after it lowered its year profit outlook following Q1 18c EPS miss; ANTM was upgraded to overweight at JP Morgan
· Medical equipment and devices; ALGN rallies after another strong quarter last night, with case shipments, revenue, and EPS nicely exceeding Street and raised full-year rev growth view; BEAT shares jumped over 10% after Q1 sales beat and commentary about positive momentum; VAR quarterly results mixed as one analyst noted to EPS and rev beat but said oncology order growth was weaker than expected; in ortho, ZBH Q1 EPS and sales topped consensus
Industrials & Materials
· Multi industry; Machinery; BGG shares fell as results were mixed – revenue was shy of expectations and reduced guidance; AXE shares dropped over 20% after Q1 EPS and sales missed estimates; WCC shares fell despite boosting its forecast for the full year and beating consensus ests. on the top and bottom line; ITW and PHboth declined following its quarterly results
· Airlines fall after AAL lowered its profit outlook for the year (to $5.00-%6.00 from $5.50-$6.50 prior) as reported higher revenue amid strong travel demand, but rising fuel costs ate into its bottom line; LUV warned of weaker bookings after the recent passenger fatality (shares of JBLU, UAL, SAVE, JBLU also active)
· Transports; rails fall after UNP reported earnings and said it will miss its 2019 target of a 60% operating ratio, and that coal and international intermodal are dragging on pricing; UPS Q1 EPS and revenue topped consensus estimates with wide outlook for year EPS $7.03-$7.37 vs. est. $7.24; in trucking space, LSTR Q1 EPS/rev beat and higher Q2 outlook; KNX mixed Q1 as EPS beat by 4c with a revenue miss, sending shares lower; FWRD rises on sales beat (upgraded at Stifel)
· Metals & Mining; aluminum prices jumped after Oleg Deripaska is said to plan on keeping control of Rusal (U.S. has said additional sanctions against Russia could be lifted if Oleg gave up control); shares of AA and CENX advanced on news; KALU also a mover after earnings; gold miners NEM and GG posted quarterly results
Technology, Media & Telecom
· Semiconductors movers; AMD shares after Q1 EPS topped views, but guided Q2 revenue well above consensus (lifted shares of NVDA); XLNX mixed Q1 results, but guides Q2 revs above consensus and raises dividend; QCOM better Q2 results, but Q3 EPS and rev guidance short of consensus; earnings tonight from INTC, MXIM, KLAC; PLXS falls as revenue forecast missed views; UCTT better than expected results and revenue guidance; AXTI strong EPS after a negative sales preannouncement and guided 2Q sales below consensus, but EPS largely in-
· Internet; FB shares rose on Q1 beat EPS $1.69/$11.97B vs. est. $1.35/$11.41B, announced $9B share repurchase/Q1 results well ahead of expectations driven by broad-based growth across products and regions; EBAY posted mostly in-line quarterly result though revs slightly miss and guidance disappoints and posted +13% GMV growth was in line, but there was some sequential slowdown in active customers
· Hardware movers; Samsung reported earnings, outlining expectations for ongoing strong demand for both DRAM and NAND, with relatively balanced supply still expected for the year; Bernstein cut its iPhone estimates for the second and third quarters and said AAPL may forecast third quarter results below analyst expectations; BHE reported better Q1 results but guidance of $590M-$630M missed the $635M estimate;
· Software movers; CTXS shares climb on Q1 EPS/rev beat on higher deferred revs; AZPN shares advanced after earnings; NOW another gainer on earnings and guidance/ Subscription billings of $638M was +28% adjusted for FX shifts and duration changes, above the +26% guide
· Telecom and Media; AT&T (T) with a 2c EPS miss on lower revs, underperforming stronger results from its rival VZ earlier this week/margins weak driven by the ongoing shift to lower-margin OTT video and wireless promotional activity; CIEN shares declined on lower spending from AT&T; CRTO shares fell after unexpected CEO change
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.