Friday, April 27, 2018
Equity Market Recap
· Stocks end Friday little changed, struggling for direction most of the session as markets appeared tired after a very busy week of quarterly earnings. After several weeks of volatile trading on several non-fundamental related topics (trade concerns with China, geopolitical fears with Russia, or the drama out of Washington), stocks traded on earnings this week, with mixed results in technology, consumer staples slumping on margin fears, energy mostly higher, industrials down after CAT, MM results/commentary earlier in the week and transports starting strong, but fading on airlines weakness (AAL, LUV fell yesterday on earnings). For the first time this week, defensive/safe-haven assets are saw a lift as bonds recovered from recent losses (10-year yield slides to 2.96% from 4-year highs of 3.03% on Wednesday), gold prices bounce off 5-week lows, and utility stock helped lead the S&P. It looked like it was going to be a good for technology after AMZN knocked the cover off the ball last night and Dow components INTC and MSFT also posted favorable earnings results, with all three trading to record highs earlier (before pulling back). News out of Korea also provided optimism for today’s trading as North Korean leader Kim Jong Un and South Korean President Moon Jae-in agreed to end a seven-decade war this year and pursue the “complete denuclearization” of the Korean Peninsula. But major averages couldn’t hold their gains, ending the day quietly. Economic data for Q1 GDP and Michigan sentiment both beat the top-line estimate, but underlying showed a bit weaker as the GDP rose 2.3% vs. est. 2%, but personal consumption rose 1.1% in 1Q, weakest quarter since Q2’13 and was blow last quarter 4%. Similarly, the UoM sentiment rose to 98.8 from prior 97.8, but was down from last month reading over 101. Overall, a very busy week of earnings, not to be outdone by another heavy dose of corporate results upcoming.
· The U.S. economy grew 2.3% in Q1, the slowest pace in a year owing to a big pullback in consumer spending, but a better performance than expected (est. 2%). Personal consumption rose 1.1% in 1Q, weakest quarter since Q2’13 (but in-line with estimates); GDP price index rose 2% in 1Q after rising 2.3% prior quarter and core PCE q/q rose 2.5% in 1Q after rising 1.9% prior
· Michigan Sentiment final April reading fell to 98.8 from 101.4 last month, but was above the 98 estimate and the preliminary reading of 97.8; the expectations index fell to 88.4 vs. 88.8 last month, while the current economic conditions index fell to 114.9 vs. 121.2 last month.
· The amount of U.S. government bills, notes and bonds held in custody at the Federal Reserve Bank of New York fell to $3.06 trillion as of April 25, down from a record $3.11 trillion reached in March, data released Thursday show.
· Energy futures end little changed, with WTI crude slipping 9c to settle at $68.10 per barrel, while natural gas prices dip. There was little news in oil space outside of the weekly rig count which showed another 8 total rigs were added in the latest week (5 oil and 3 gas). Oil prices held around 3 ½ year highs this week as crude and petroleum mixed inventory data was offset Iran sanctions worries and expectations the U.S. will abandon the Iran nuclear deal. Iran now exports around 2.5 million barrels a day of crude oil, said Mizuho. If the U.S. abandons the agreement and renews sanctions, Iran’s are expected to fall by 350,000 to 500,000 barrels a day. The price of Brent earlier this week topped $75-a-barrel threshold for the first time since late 2014.
· Gold prices managed a gain of $5.50, or 0.4% to settle at $1,323.40 an ounce, recovering off a 5-week closing low yesterday, though posted a decline of roughly 1.1% for the week as the dollar surged to nearly erase its YTD losses and Treasury yields touched their highest levels in several years on rising rate expectations amid a stronger economy.
· The U.S. dollar ended slightly higher, adding to weekly gains and extending its rally over the last 2-weeks, nearly erasing its entire year-to-date loss after top-line beat for Q1 GDP. Data overseas weakened the Pound as UK posted softer GDP, lowering the chance of rising rates. The euro suffers its worst weekly drop in two months as nears the $1.20 level (traded lows 1.2056 today before rebounding), falling on the week after the European Central Bank struck a relatively cautious tone at its meeting on Thursday. Even trading mixed today vs. counterparts, the dollar index posted its best weekly performance since late November 2016 up over 1.5%). The pound dropped to $1.3778, down from $1.3915, its lowest level since early March. The Japanese yen was range-bound most of the day.
· Treasury market’s pushed higher as yields retraced some of their weekly gains, with the benchmark 10-year yield slipping under 2.96% after trading above 3.03% 2-days ago (best levels in 4-years. Bonds rallied off lows amid mixed economic data and as stocks pull back from earlier highs as investors rotate into defensive assets. However, the Fed’s rate path likely won’t be swayed by the seasonally weak GDP report and the uptick in wages. For the week, the 10-year Treasury yield is unchanged at 2.96% as investors bought after the 3% threshold was breached. Meanwhile, the dollar’s rally faded after data and the euro rebounded. The yield on the 30-year bond fell by 4.3 basis points to 3.131%, after also marking its sharpest fall in about three weeks.
Sector News Breakdown
· Consumer movers: UAA shares advanced with Jefferies saying that business trends are improving, while management turnover is stabilizing and strategic direction is becoming more focused (ahead of results next week); MAT Q1 earnings beat estimates on a Barbie and Hot Wheels boost; COLM benefited from cold weather and was buoyed by strong outlet comps as earnings beat; in space, CL said flat unit volume growth in emerging markets was to blame for organic sales that missed; ELY Q2 results and guidance well-exceeded estimates on robust new product sell-in and improved market conditions
· Restaurants; SBUX Q2 results largely in-line including 2% comp sales, driven by a lower tax rate and share count that offset weaker Americas margins and lower equity income; EAT was upgraded to outperform at RBC Capital as stock price doesn’t reflect expectation for accelerating sales trends in the back half of year; BJRI reported better than expected sales and earnings fueled by 4.2% SRS gains vs. est. 2.5%, the strongest quarterly gain in over five years and driven by 3.8% check and traffic growth; CMG was downgraded at Maxim after the surge in shares yesterday
· Integrated oil movers; group was led higher yesterday by better results from COP, RDS/A and TOT, but today, XOM Q1 earnings and production missed, similar to prior quarter results; XOM also said its not planning a buyback to reduce shares outstanding; CVX better however, as profits soar 36% to $3.6 billion amid rising oil prices, with production topping estimates
· Baker Hughes (BHGE) weekly rig count showed the total U.S. rig count rose 8 rigs to 1,021, with oil rigs up 5 to 825, gas rigs up 3 to 195, and miscellaneous rigs unchanged at 1
· E&P and services; SWN Q1 EPS beat by 3c as benefited from seasonally strong pricing that drove a beat to consensus, while production of 2.5 Bcfe/D was in line with the midpoint of guidance, down 5% q/q/shares fell as SWN did not provide an update to its 2018 guidance; other names active on earnings included COG, NOV
· Utilities and Solar sector; solar names gets good results from FSLR as posted on earlier than expected timing of system revenues while ’18 guide unchanged/announced new 1.2 GW factory in Ohio; utility index (UTY) traded to high as yields slipped and investors rotated into defensive assets/sector; the UTY was up over 1.2% midday, led by D (earnings), AES, XEL and AEP; AEP results were slightly below expectations, and flat YoY
· Refiners; group outperformed yesterday on back of better VLO results; today, PSX Q1 EPS topped estimates but the group slipped with the broader market; SUN was downgraded to hold at Jefferies and cut ’18 and ’19 EBITDA estimates to below consensus and believe the Street is too low on operating costs; INT shares dropped despite in-line earnings results
· Bank and advisor movers; SIVB shares jumped on earnings beat, as did shares of SBCF; BOFI shares fell after Q3 earnings beat by a penny, but included higher-than-expected expenses and NIM compression; FII shares dropped amid weaker-than-expected long-term net flows and money market flows; PJC shares fell as much as 10% after Q1 revs were hurt by tough muni markets on changing tax laws (EPS missed)
· Retail REITs; sector outperformed amid gains in SPG and TCO after quarterly results allay fears that recent retailer bankruptcies would pressure mall operators; a decline in bond yields today also helped lift shares (CBL, PEI, SPG, KIM)
· REITs; DLR reported 1Q results with record leasing as well as a beat on margin and the bottom line; CBL weak 1Q results amid slight FFO adjusted miss relative to consensus; OFC reported 1Q comparable FFO/share at the midpoint of guidance; CUBE solid 1Q18 results while tightening/raising same-store revenue growth and core FFO/share guidance
· In non REIT earnings: BKD entered into definitive agreements to restructure the portfolio of 128 communities leased from VTR to combine substantially all of the Ventas leased communities into a single Master Lease and Security Agreement. RBC Capital said BKD’s agreement to restructure its lease agreement with Ventas is likely to remove the overhang on Ventas shares
· Biotech movers; REGN shares pressured after drug partner SNY reported 1Q sales of Dupixent, Praluent, Kevzara below ests; SGEN shares rallied after Q1 revs of 4140.6M topped the $120M estimate but more importantly 2Q Adcetris sales guidance is above consensus
· Pharma movers; BMY upgraded to outperform at BMO Capital; MNOV said it will present more data from a Phase 1b/2a trial at the American Academy of Neurology (AAN) meeting/data show that patients with ALS who completed 6 months or 12 months treatment with MN-166 showed improved survival in the 30 months post treatment
· Healthcare services and technology; ATHN shares dropped as softer Q1 bookings, down 32% YoY, overshadowed stronger quarterly earnings results; EHTH shares jumped Q1 beat and revised guidance propels shares higher; EHC shares rise after quarterly results
· Healthcare equipment and devices; ABAX shares fell despite Q4 EPS and revenue topping consensus with one analyst noting product cycle concerns; RMD Q3 EPS and revs beat consensus but was helped by favorable FX and lower R&D and tax rates, which weighed on shares; ATRC mixed Q1 as posted wider Q1 loss but better revs and reaffirmed outlook; EXAS advanced on earnings, with analysts raising tgts after 1Q Cologuard tests beat Street-high expectations (220K-230K vs. est. 216K); SYK traded to 52-week highs after earnings results
Industrials & Materials
· Industrial & Machinery; CX was downgraded at Longbow saying catalysts such as improving U.S. and Mexico market and rapid de-levering, have not materialized; GDI shares rallied after boosting its yearly adjusted Ebitda outlook and better Q1 revs; BOOM shares jumped as results surpassed estimates and guidance as its DynaEnergetics products take share and end markets continue rapid expansion; Aerospace parts maker KLXI jumps on WSJ report BA is near deal https://on.wsj.com/2I1CA8Z
· Metals & Mining; steel stocks pressured at U.S. Steel (X) posted slightly better Q1 earnings on in-line revs, but its 2Q Ebitda view missed estimates citing operational challenges at the Great Lakes Works steelmaking facility; steel maker AKS to report earnings on Monday; aluminum producers AA and CENX slipped on reports Oleg Deripaska agreed to cut stake to below 50% or Rusal and, to resign (seen as a positive move for the U.S. to pare back sanctions against Russia)
Technology, Media & Telecom
· Internet; AMZN shares soared on two major announcements as it is raising the cost of a Prime membership to $119 from $99 and posted a blow-out quarter and strong guidance/strong beat was driven by a combination of continued momentum in Prime and the acceleration of higher-margin, faster-growing business segments, including AWS and advertising services; BIDU sales and EPS came in better than consensus on better search/news feed and higher margins thanks to lower costs and OPEX leverage; CHGG downgraded at Raymond James saying risk/reward less favorable; online travel space gets a boost after EXPE bookings and EBITDA results exceeded expectations for Q1 and the company maintained FY18 EBITDA growth guidance;
· Semiconductors; INTC shares jumped, helping lead the Dow higher as March quarter results and June guidance were significantly above expectations, with Data Center leading the way (upgraded at Bernstein after results); MXIM delivered a solid Q1, but weaker Q2 sales guidance; NXPI upgraded to buy at SunTrust saying deal or no deal, shares look compelling; POWI reported March quarter (1Q18) results in line with expectations; FORM downgraded at Needham citing several reports suggesting slower growth ahead; in semi-equipment, KLAC reported/guided Q1 and Q2 revs and EPS above estimates, delivering record revenues and earnings at a time when Foundry shipments are at lowest levels since 2009; WDC shares dropped with analysts noting gross margin compression likely to continue; AMKR and CY fall on earnings
· Software movers; MSFT traded to a record high after earnings results, topping consensus expectations and the high end of the software company’s guidance across each of their three segments (Revenue growth accelerated to 16% YoY, EBIT grew 23%, EPS grew 36%); SPLK was upgraded to outperform at Wedbush and raised tgt to $118 taking advantage of a pullback in shares to get on the right side of the emerging leader in security analytics; APTI downgraded to neutral on valuation at JP Morgan; LOGM shares fell as lowered its 2018 forecast and provided a 2Q earnings outlook that missed estimates; DOCU opened at $38 after IPO priced at $29
· EMS sector: FLEX downgraded at Raymond James after the contract manufacturer missed profit expectations, provided a downbeat outlook and said it was investigating allegations of improper accounting; CLS Q1 results in-line to slight beat while Q2 rev forecast came in above estimates
· Telecom and Media; TMUS and Sprint (S) shares active after Reuters reported they are making progress in their merger negotiations, aiming to complete the deal talks as early as next week https://on.mktw.net/2JwqF2I ; towers (AMT, CCI, SBAC) under pressure following the Reuters report that TMUS and S making progress on deal; cable stocks weak led by CHTR after Q1 results mostly in-line but posts weaker subscriber metrics (lost -122K TV customers); IPG posted Q2 earnings below consensus, though revs came in above views
· Internet security movers; PFPT delivered a solid Q1 report with better than expected results and a slight increase to its 2018 outlook though the lack of a significant increase to billings and cash flow guidance likely weighed on sentiment; SYMC was downgraded at JMP Securities; IMPV delivered Q1 results that were mostly in line with expectations
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.