Tuesday, May 1, 2018
Equity Market Recap
· U.S. stock markets finished mixed, as the Dow Jones Industrial Average stretched its losing streak to three-consecutive sessions, while the S&P 500 closed little changed as gains in technology offset weakness in consumer staples, discretionary and energy. The tech heavy Nasdaq Composite outperformed, rallying ahead of Apple’s quarterly results after the close, trading back above the 7,100 level. The recent surge in the U.S. dollar likely not helping stocks, as the currency strength (turning positive on the year) hurting exporters (multi-nationals). Material stocks weakened after President Trump postponed steel tariff decision for trading partners Canada, EU, and Mexico for a final 30 days. Markets overall a nice recovery off the lows (even the Dow, which was down well over 300 points earlier), as a stronger dollar (up 9th time in last 11 sessions), weak production reading, manufacturing expanding at its slowest pace since July, expectations the FOMC gets more hawkish tomorrow when policy decision is released, rising inflation/borrowing costs, and Iran deal decision due May 12 all weighing on investors sentiment the last few days. Economic data a mixed bag today (ahead of ADP jobs report tomorrow and nonfarm payrolls on Friday) with ISM manufacturing data slipping & construction spending with an unexpected drop.
· Construction Spending for March fell (-1.7%), below the expected rise of 0.5%, while February revised to up 1% from 0.1% gain; Private construction fell 2.1% in March, Private residential construction fell 3.5% and Private nonresidential construction fell 0.4%
· ISM Manufacturing for April falls to 57.3 from 59.3 last month (lowest reading since July 2017) and was below the 58.5 estimate; new orders fell to 61.2 vs 61.9 prior, employment fell to 54.2 vs 57.3 and inventories fell to 52.9 vs 55.5; prices paid rose to 79.3 vs 78.1, highest level since April 2011 and backlog of orders rose to 62.0 vs 59.8 prior
· U.S. final April Markit PMI rose 0.9 points to 56.5 from March’s 55.6, and is unchanged from the preliminary. It was 52.8 a year ago. This is the highest reading since September 2014
· Oil prices slip ahead of inventory data tonight (API) and tomorrow (EIA), with WTI crude falling -$1.32 or 1.9% to settle at $67.25 per barrel, giving back their gains from a day earlier and more, falling to their lowest in about two weeks. Oil prices jumped on the combination of a recent EIA report showing that oil production rose to a record 10.26M bbl/day in February, while another surge in the dollar also took its toll on commodity prices.
· Gold prices tumbled again, with June gold futures falling -$12.40, or 0.9% to settle at $1,306.80 an ounce, its lowest settlement in over 8-weeks as the dollar erased its losses for the year, and the dollar index moving to highs around 92.40 (best levels since early January).
· The U.S. dollar rises turning positive on the year and adding to recent gains as the dollar index (DXY) tops the 92.40 level, rising another 0.6% on mixed data, and rising inflation and rate hike expectations. The Canadian dollar rallied against the dollar after data showed the Canadian economy had expanded at a faster pace than expected in February. But elsewhere, the dollar remained strong as the euro extends losses vs. the buck, falling below its 200-day moving average for the first time since April 2017, breaking the 1.20 level to the downside (January lows), while the Pound trades down over 1% to lows below $1.36 before paring losses,. The greenback also rises vs. the yen to its best levels since early February (shy of the 110 level).
· Treasury markets trade slightly lower, though yields remain in a tight range heading into the two-day FOMC meeting (which began today and concludes tomorrow at 2:00 when they announce changes and outlook). The yield on the 10-year yield traded up above 2.97% briefly before moving back around 2.96% (but well off the 3.03% highs last week). As month-end buying concluded yesterday, bonds returned to its bearish tone amid fears of strengthening inflation and increased supply (and rising rate hike expectations).
Sector News Breakdown
· Retailers; UAA quarterly results topped views, but analyst notes high inventory levels as high receivable (+28%) and elevated inventory (+27%) – shares opened lower but reversed higher; TPR shares dropped after Q3 EPS/sales beat but Kate Spade comps of -9% vs. est. -7% and guidance for the year missing estimates hurt shares; HBI Q1 results top views, but Q2 EPS view just below consensus; sporting goods retailer VSTO drops on Q4 earnings and miss and rev guidance below views/said plans to explore strategic options; BGFV (reports tonight) fell on VSTO results, but FOXF rose on analyst upgrade
· Consumer Staples; NTRI shares lift weight-management peers (WTW, USNA, MED) after posted Q1 sales, EPS, and EBITDA upside surprises vs. consensus and raised 2018 guidance; USFD downgraded at RBC Capital citing near-term industry stagnation; in ag consumer, ADM and SMG both reported quarterly earnings; other food related movers after earnings; JJSF, FDP; 52-week lows today in consumers: MDLZ, FBHS, LEG, PG, HSY, K, CL, KHC, MHK, PEP)
· Restaurants; EAT Q3 results topped views for EPS and sales; TXRH in-line 1Q results and very strong QTD comp trends (+8.5%) but mixed 1Q margins and a slight reduction in ’18 margin forecast
· Housing & Building Products; flooring company LL shares drop as posts larger than expected Q1 EPS loss on inline sales and reaffirms outlook; OC was upgraded to buy at Nomura with $93 tgt
· Casino, Lodging & Leisure; in gaming, BYD was upgraded to overweight at Barclay’s and boosts PT to $40 from $33, which now includes $3 benefit from Penn National/Pinnacle Entertainment properties; big day tomorrow on earnings in lodging: HGV, WYN, H; in leisure, THO was upgraded to outperform at BMO Capital
· Autos; FCAU strong auto sales for April up 4.5% vs. est. -1.4%; Ford (F) US light vehicle sales for April fell (-4.5%) vs. est. (-5%); GM said last month it won’t issue monthly auto sales going forward; DAN downgraded to neutral at Guggenheim as sees the company’s growth decelerating, as some of its largest end-markets approach peak conditions; on earnings, AN Q1 revs in-line at $5.3B and announces $250M added buyback; HMC April US auto sales fell (-9.2%) vs. est. (-7.3%); NSANY April auto sales fell (28%) vs. est. down (9.7%)
· Oil prices slid to around its lowest settlement in about two weeks, failing to build on yesterday’s gains after Israeli Prime Minister Netanyahu accused Iran of engaging in a secret nuclear weapons program as the U.S. Energy Information Administration reported yesterday that oil production rose to a record 10.26M bbl/day in February. A strong U.S. dollar also weighed on crude prices (ahead of inventory data tonight from the API and EIA tomorrow)
· E&P and services sector; NBL Q1 EPS topped views, reporting ahead of APC, VNOM results later this evening; WLL showed stronger-than-expected Redtail vols in 1Q and beat production estimates by 1% – EPS/DCPS also beat on vols, pricing, and taxes and capex was in line; oil drillers RIG and RDC both declined following earnings and on weaker oil
· REITs; BRX reported an in-line 1Q FFO result and management reaffirmed FY FFO guidance and the SSNOI growth forecast of 1.0-1.5% in 2H; ARE Q1 operating results remained strong as FFO topped consensus and tightened guidance; REG core NOI drove the Q1 FFO beat; VNO posted better Q1 FFO results and revs beat; DRE was upgraded to buy at Bank America
· Asset managers and brokers; WDR shares dropped despite top and bottom line beat as Broker-dealer AUM at quarter-end $56.3b, down <1% q/q and Investment mgmt fee rev. down $2.7m, or 2%,, q/q
· Large Cap Pharma; Dow components PFE and MRK report quarterly results, with MRK raising its full-year EPS outlook after beating estimates, while PFE Q1 EPS beat while sales disappointed and said hasn’t gotten an “acceptable offer” for its consumer health unit; in specialty pharma; NBIX beat 1Q expectations with $71M of Ingrezza sales, ahead of $64M consensus; IRWD to split into two entities; in managed care, AET and WCG both reported quarterly earnings; AGN tgt cut to street low $150 at Mizuho after earnings
· Biotech movers; KPTI shares jump as the company plans to use results from a mid-stage study to seek accelerated FDA approval for its myeloma drug, selinexor; REGN downgraded at Guggenheim; INCY posted a wider than expected Q1 EPS loss of 19c on weaker revenue, though Jakafi revs of $313.7M in-line; AMGN shares slide as ESRX agreed to ease restrictions on a heart-disease therapy after its manufacturers, REGN and SNY lowered its $14,600-a-year price.
· Healthcare services; in hospital sector, shares of THC (shares surged on better results) and HCA both reported quarterly results; supplier AXGN falls on earnings as analysts noted the high expectations; BFAM beat driven mainly by better-than-expected revs despite margin contraction, while organic growth was solid
· Medical equipment and devices; DGX and LH both upgraded to outperform from neutral at RW Baird; INGN shares soared after Q1 earnings beat as revenue upside came from direct-to-consumer sales force expansion and B2B growth; EW launches $400M accelerated share buyback program; PKI reported a solid revenue beat but gross margins were weaker than expected; ARAY declined on earnings miss while revs beat
Industrials & Materials
· Industrial & Machinery; lot of movers in the sector after earnings results: ALSN, ETN, EMR, CMI in heavy machinery space; in ag space, AGCO in-line yearly guidance after Q1 beat; IVAC plunges as said revenue growth will pause in 2018, sending shares lower; in E&C and building space, MTZ shares jumped on sales and earnings beat and raised guidance; AYI shares drop in sympathy with ETN earnings report after saying its lighting business was down 10%
· Aerospace and defense; KLXI shares fell after BA said it would buy the plane-parts specialist for $3.2B, paying $63 a share (below the current market value of shares) and take on about $1B in net debt https://on.mktw.net/2HIW15s ; TDG Q2 results topped views for EPS/revs, though Ebitda missed/guidance for year above views; LLL to sell its Vertex Aerospace business, including Crestview Aerospace and TCS business units, to American Industrial Partners for $540M; separately, LLL reported quarterly results; shares of WAIR fell on the BA/MKLXI deal
· Metals & Mining; steel stocks dip (X, AKS, NUE, STLD) after the U.S. extends the temporary tariff relief for the EU, Canada and Mexico another month – follows recent weak guidance from AKS and X for Q2; Gold miners (NEM, ABX, GG) lower on the decline in gold prices, but pared losses
Technology, Media & Telecom
· Internet; FB said its WhatsApp executive leaving, while Wedbush added the stock to its “best ideas” list; AKAM solid March quarter, topping consensus expectations (and the high end of guidance) on both the top and bottom line while security was particularly strong at $149M, up 36% YoY; GRUB shares dropped despite Q1 beat and better guidance for year; SHOP dropped on quarterly results while SABR advanced ; shares of IAC and MTCH declined after FB said its rolling out a new dating feature for non-friends
· Semiconductors; Apple supply chain estimates cut at Canaccord and Oppenheimer ahead of earnings tonight reflecting widespread evidence of incremental downside in iPhone units likely in C2Q (SWKS, AVGO, QRVO among them); MPWR stronger-than-expected results were driven by Computing and strength in Servers, SSDs, and high-end PC NB/raised guidance; IDTI results slightly above and guidance roughly in line with estimates despite ZTE headwinds on strong Galaxy S9 sales; QRVO was upgraded to overweight at Barclay’s ahead of earnings
· Software movers; APPN upgraded to buy at SunTrust citing the potential for significant upside to our subscription revenue estimates as well as cash flow; VRNS Q1 results exceeding consensus revenue estimates ($53.5M, vs. $49.7M), and billings driven by healthy data security; CTXS added to conviction buy list at Goldman Sachs and up tgt to $122; APTI rises on earnings results
· Hardware movers; AAPL reports earnings after the close; in hard-disk drives, STX posted Q3 beat but shares weighed down on margins and enterprise revenue and said sees 4Q total revenues flat sequentially
· Comm equipment; CGNX first in line Q since 3Q’15 and light guide on declines in consumer electronics (Q2 revs missed estimates); HLIT shares rise after Raymond James upgrade following improved Q1 results; COMM shares plunged on lower earnings outlook to reflect the price reductions at certain large North American operators expected in 2018 and 2019, as well as higher input costs; tower stocks dropped after AMT, SBAC earnings results
· Other gainers on earnings: EFII, IDTI, I, IIVI, MX
· Other decliners on earnings: BLKB, CGNX, CVLT, GRUB, IMAX, INST, SBAC, VRNS
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.