Friday, May 4, 2018
Equity Market Recap
· Stocks close the week out with strong gains! After opening the day weaker following a headline nonfarm payroll report jobs miss (U.S. added 164K jobs in April, missing the 193K estimate), major averages have been up, up and away since, with the Dow Jones Industrial average rising around 400 points (and 500 off the lows) while the S&P 500 index held its 200-day moving average key technical support level of 2,615, before jumping above the 2,670 level late day. The gains were broad based today, thought technology outperformed amid a 2% spike for the Nasdaq Composite trading up more than 170 points off its lows of the day to move above 7,225 late in the session (and well off the 6,991 lows yesterday morning). AAPL helped propel the market as well, as the Dow component traded to new all-time highs after better earnings and guidance earlier in the week started the initial push, but news that Warren Buffett added a further 75M shares in the quarter also boosted sentiment on the company. Aggressive rate hike expectations from the FOMC also took a backseat after the jobs report today as the headline miss coupled with a smaller than expected rise in average hourly earnings helped its case. That coupled with hopes the US/China trade negotiations that took place this week will ease tensions also helped. The Wall Street Journal reported that U.S. officials handed China a lengthy list of demands on trade, ranging from timely cutting a trade imbalance by $100 billion a year to halting all Chinese government support for advanced technologies. The dollar traded to a new 2018 highs this week, while WTI crude settled just shy of $70 per barrel.
· Nonfarm Payrolls for April rose 164K jobs, below the 193K estimate, while March payrolls were upwardly revised to 135K from 102K and net revisions, 30k from prior two months; the labor participation rate 62.8% vs prior 62.9%, as the unemployment rate drop to 3.9% from 4.1% (came in below the 4% estimate); average hourly earnings rise a less than expected 0.1% vs. est. 0.2%. Nonfarm private payrolls rose 168K vs. prior 135K and below est. 190K
· Oil prices close at the highs of the week, rising $1.29 to settle at $69.72 per barrel (highs of day $69.97 and lows $68.12) and back near 3 ½ year highs Oil markets overlook another rise in weekly rigs (Baker Hughes said another 11 rigs added this week, 9 of them oil), and bearish inventory data (larger builds reported for crude by both the DOE and EIA) as attention turns to the possible supply disruption of Iranian supplies ahead of an expected decision by President Trump next week whether he will pull out of the Iranian nuclear deal. OPEC’s success in clearing a global crude glut has also helped prices.
· Gold futures for June end moderately higher, rising $2.00 to settle at $1,314.70 an ounce, but still closed lower for the week, sliding -0.7% (its 3rd straight weekly decline). The move in the dollar to 2018 highs amid rising inflation and rate hike expectations has weighed on gold prices, but after today’s weaker jobs report (headline number), gold got a little bounce off the lows.
· The U.S. dollar jumped again, trading to its best levels of the week (and year) before paring gains, with the dollar index (DXY) touching highs of 92.90, before ending up just above the 92.50 level. The dollar advanced despite another weak economic data point, as headline payroll figures missed the economist estimates. The euro fell to a fresh 2018 low of 1.1911 before paring its losses while the yen was little changed vs. the dollar at 109.10 (off highs of 110 earlier this week). The British pound dropped to lows below 1.35 vs. the buck, and dropping below its 200-day MA support of 1.354 (first time below the 200day since April 2017), but rebounded.
· Treasury yields end the day slightly higher, erasing earlier declines but ending the week little changed for a third straight week around the 2.96% level (though has traded in range of highs 3.03% and lows 2.92% during that stretch). The 10-year yield fell below the 2.92% level earlier after a softer monthly jobs report headline. However, yields later recovered as the report also showed a drop in unemployment to under 4%. Global trade negotiations between China and the U.S. Friday is in the final day and being closely watched by Wall Street. The 2-year yield moved back above the 2.50% level late and the 30-yr up slightly at 3.13%.
Sector News Breakdown
· Retailers; VFC shares slide after quarterly results , though beat on earnings and said tax rate boosted profit in quarter; Macy’s (M) was upgraded to positive at OTR Global; FRED falls further after earnings miss; NWL posted weaker Q1 results as sales missed and expects to hit low end of 2018 guidance but expands divestiture plan, to sell Waddington for $2.3B
· Consumer Staples; better day for sector with broader market gains (after early losses); NGVC, BGS, POST and JBSS in food and grocer related sectors all moved higher after earnings despite some mixed results; been a rough few weeks for the Staples sector with negative reaction to results for PM, MO, TAP, PG, EL
· Dietary space, WTW posted Q1 top/bottom line beat and raised its EPS outlook for the year saying they added 1M more members from last year; HLF also with a quarterly beat and raise quarter (watch NTRI, GNC); lastly, MED shares jump after Q1 EPS beat and raised its outlook for the year by 40c on top and bottom line
· Restaurants; SHAK Q1 EPS beat by 7c on better revs and boosted its year sales and comp sales outlook; TACO Q1 EPS and sales just below consensus and midpoint of year guidance misses; LOCO reported in-line quarterly earnings; WING shares jump after Q1 EPS beat by 5c, driven by stronger same-store sales and restaurant margin from lower expenses
· Baker Hughes (BHGE) weekly total rig count rises again, up 11 to 1,032, with oil rigs up 9 to 834, gas rigs up 1 to 16, and miscellaneous rigs up 1 to 2
· E&P movers; CRC trades to more than 2-year highs after earnings results as reports an unexpected quarterly profit on strong production and raises cap-ex; EOG EPS beat while FY guidance unchanged albeit EOG continues to track above 5-year plan; ESTE Net positive Q1 with -5% production but -39% capex; PE EBITDAX of $282MM handily beat expectations on higher oil volumes and lower operating costs
· Gas & equipment movers; BAS the latest to disappoint in space as earnings loss of 55c narrower than estimates but on lower revs, sending shares down 15% (TUSK dropped on miss yesterday)
· MLP sector; BPL shares fall after reported earnings which missed estimates for a sixth straight quarter citing shortfall to challenging market conditions, contract expiration in earnings release
· Utilities move higher, helped by bond yields slipping early in session and some better earnings
· Financials have been moving with rates, but big week for brokers and insurance amid earnings results; in brokers and exchanges, GHL shares jump over 14% on strong Q1 EPS and sales beat VIRT shares decline despite 1Q results showing a jump in trading income, while CBOE falls despite its earnings beat estimates and it forecast it will spend less – VIRT call also flagged uncertainty in getting used to European MiFID II rules; note BRK/A holds annual meeting this weekend
· In banks, FHB was upgraded to buy at Deutsche Bank while firm announces pair trade favoring SBNY vs. NYCB; ISBC upgraded to Equal Weight at Barclays on belief that ISBC will now meet or modestly exceed the 2018 and 2019 consensus EPS forecasts
· Consumer finance; FLT shares fell as Q1 revenue trailed expectations and disclosed a data breach in its gift-card business; CATM rises as EPS was 19c above estimates and raised year guidance; WEX beat-and-raise 1Q18 amid substantial growth re-acceleration in Travel; PFSI downgraded at Well Fargo after a disappointing first-quarter report after adjusting for MSR mark to market
· Biotech sector; looks to bounce after CELG quarterly results come in better than feared as soft reports from others this week (GILD); industry remains under pressure ahead of President Trump speech on drug pricing next Tuesday; SRPT posted 1Q Exondys 51 sales of $64.6M (just below views) would reaffirms confidence in 2018 revenues and future DMD franchise growth; PTLA rises as the FDA approves its Andexxa, a reversal agent for patients on anticoagulation therapy who are experiencing uncontrolled or life-threatening bleeding; ALNY rises on earnings; TSRO Q1 Zejula sales were at the high end of guidance but Q2 outlook light of views
· Medical equipment and devices; PODD trades to 52-week highs after quarterly results and raised guidance, before shares reversed lower; BRKR results beat consensus estimates both on the top and bottom lines, including 4% organic revenue growth that is tracking ahead of full year guidance of 3%; MTD shares were under pressure despite beat and raise quarter
· Healthcare services and facilities; MDRX Q1 bookings missed consensus, the $304M posted was up 6.3% YoY, while software bookings rose 54% while client services declined 32%; AMN shares plunge after Q1 results & guidance that showed slower growth in its nurse staffing business (shares downgraded at Baird after results); DVA shares get a boost after Q1 EPS and sales beat aided by better margins and stabilizing rates
Industrials & Materials
· Engineering & Construction; FLR shares dropped over 20%, the top decliner in the S&P 500 index after reported an unexpected 13c loss due to a project write down and slashes its year profit outlook to $2.10-$2.50 from $3.10-$3.50 (est. $3.30) – shares downgraded at Baird (results and guidance weighed on E&C sector KBR, JEC)
· Transports; HA downgraded by one analyst saying LUV’s news of beginning service to Hawaii, including inter-island flying, is larger in scope than previously thought; CAR shares rebound after leading index lower yesterday following guidance
· Metals & Mining; CENX the standout weakness in metals space, falling over 10% after results and as JP Morgan downgraded to neutral and cut estimates citing rising costs and a modestly lower Midwest premium; rest of materials and metals sector broadly higher today (steels strong gains)
· Waste services; good week of earnings for the sector with CWST and SRCL both advancing following its results overnight; the move comes after ADSW, RSG rising yesterday on its resultsand CLH upgraded at Baird after its most recent beat as well
Technology, Media & Telecom
· Internet; Pandora (P) upgraded to buy at SunTrust after quarterly results with $8 target/reported a better than expected quarter with topline upside and a more narrow loss. Ad revenue declined by 4% y/y (vs. consensus -11%); BABA tops revenue forecasts as investments clip margins, while outlook tops estimates as spending drives growth
· Semiconductors; SWKS reported Q2 beat, but guidance was weaker than estimates due to softness in smartphone demand and a $25-30M impact from recent ZTE trade restrictions; OLED surges despite quarterly rev miss and guidance missing lowest ests
· Hardware movers; AAPL rises after CNBC reported that Warren Buffett’s Berkshire bought around 75M shares of the company during Q1; on the flip side, CNBC noted Warren Buffett says Berkshire Hathaway has sold completely out of IBM
· Software movers; CYBR reported better than expected 1Q revenue/EPS and 2Q guidance also modestly better across the board; FTNT solid 1Q results across the board, with revenue, margins, and EPS better vs Street estimates and 2Q guidance was also better but shares slip
· Comm Equipment and Networking movers; ANET reports strong Mar-Q and committed to rest-of-year revenue growing mid- 20% (below some bullish expectations of 30% growth) – but overall beat and raise quarter overshadowed by lower margin guidance 62%-64% (est. 64%)
· Optical sector; relief rally continues in space, as group higher despite ACIA reporting Q1 miss and lower guidance for Q1 following the recent ZTE ban from the U.S. that clipped the sector; shares of LITE, CIEN, FNSR, OCLR moving as well (recall better LITE results this week)
· Media movers; CBS results were well ahead of expectations with revenue of $3.76B and EPS and operating income also topping views helped by interest and tax and more confident in its 2018 growth outlook for HSD revenue growth and high-teens EPS growth; LYV rises after Evercore/ISI upgraded to buy following Q1 results and guidance
· Telecom movers; ZAYO disappointing Q3 headline results, which was driven by a greater churn in Allstream as well as a variety of one-time adjustments/departure of COO; GOGO falls after withdrawing its yearly forecasts; G falls as 1Q operating margins and free cash flow disappointed
· Gainers on earnings: ATVI, BNFT, CTRL, GPRO,
· Decliners on earnings: ANET, APPN, WEB
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.