Mid-Morning Look: May 7, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Monday, May 7, 2018

U.S. equities extend Friday’s rally, getting a lift from energy stocks as WTI crude tops $70 a barrel for the 1st time since November 2014, while technology gets another lift from Apple, which is on track for a sixth straight day of gains (and reaches a record high for a 2nd straight day). All major industries gained early except for defensive utilities, while the Dow Industrial Average rises more than 200 points and the Nasdaq Composite up over 50 points above 7,260. There were also a handful of M&A, deal related announcements that are moving specific stocks and sectors in the healthcare IT space, REITs, restaurant, semiconductor and consumer staples sectors (all details below). Overall, with the Federal Reserve meeting, monthly jobs report and the bulk of the earnings season behind us, U.S. equity investors will have no choice but to turn their focus back to global trade headlines and macro headlines related to Iran. Stocks jump early as bonds are steady, the dollar rises along with oil.

Treasuries, Currencies and Commodities
· In currency markets, the dollar rally continues, as the dollar index (DXY) rises another 0.2% to 92.75 (touched highs of 92.97), back at 4-month highs in broad based rally. Bitcoin prices dropped after cautious comments by MSFT CEO Bill Gates and BRK/A CEO Buffett this morning on CNBC. Bitcoin prices slide 4% to around $9,300 after reaching a weekend high of $9,954.95. British Pounds rises to best levels of day vs. the dollar at 1.3563 (up 0.25%), bouncing off 4-month lows

· Precious metals little changed, with gold holding around the $1,315 an ounce level despite another advance by the U.S. dollar. Energy futures surging on geopolitical and macro risks; U.S. on average now $2.90 per gallon for gasoline, posts its 10th straight-week of increases. Iran center stage with markets preparing for a re-imposition of U.S. sanctions on the oil producer

· Treasury markets little changed, with the benchmark 10-year yield around the 2.95% level (remains in multi week trading range of 2.90%-3.03%. No major economic data today to move markets but a few Fed speakers later today.

Sector Movers Today
· Restaurant news; Nestlé SA (NSRGY) entered a deal to market coffee chain SBUX consumer and food service products. The deal will give Nestle perpetual rights” to market Starbucks products globally outside of its coffee shops and will pay $7.15B up front https://on.mktw.net/2rsdwQy ; MCD was added to conviction buy list at Goldman Sachs; SHAK cut to underweight at JPM on valuation; DRFG Q1 EPS missed while revenue topped views on lower comp sales (-3.6%); JACK was downgraded to mixed from positive by OTR Global

· Consumer Staples; TSN reported Q2 EPS and sales miss citing a drop in pork sales while freight and labor costs increased (raises concerns for poultry and meat producers PPC, SAFM); in food space, SYY Q3 sales and margins in-line with consensus views; IFF entered into a definitive agreement to buy Frutarom Industries Ltd., in a cash and stock deal valued at around $7.1 billion. https://on.mktw.net/2I0QnvY ; CHD was upgraded to neutral at Macquarie

· Semiconductors; NVDA strong as Bank America said remains positive ahead of 1Q earnings scheduled for May 10 and expects a beat and raise driven by data center segment sales and strong cloud capex; MSCC shares rally on report the company’s purchase of MCHP has been cleared by China’s Ministry of Commerce https://bit.ly/2HXc2VB

· Industrials & Machinery; Evercore/ISI upgraded shares of DE, TEX and ETN to outperform saying the rate hike cycle is not a death sentence for the machinery industry, especially early in the cycle; ETN was downgraded at Barclays as believes the company’s organic growth has peaked and will begin to slow in 2019

· Large Cap Pharma; industry focusing on President Trump’s speech later this week which is expected to focus on drug price competition; the FDA approved NVS’ combined use of its Tafinlar and Mekinist for the treatment of a type of thyroid cancer; KIN gets FDA approval for problem weight loss in cats; HZNP edged higher on news the HHS wants to delay effective date on the 340b program to July 2019 from July 2018 to consider “alternative and supplemental regulatory provisions” (Mizuho noted rule would have hurt sales for HZNP’s gout therapy, Krystexxa)

Stock GAINERS

· AAPL +1%; trades to new record high, rising a sixth straight session, the longest win streak since September 2017 (positive comments from Warren Buffet helping the last few days)

· ATHN +19%; after CNBC’s David Faber reported Paul Singer’s Elliott to make all-cash offer for Athenahealth of $155-$160 a share https://cnb.cx/2rpxCvP (Elliott later confirmed it made an offer for $160 per share)

· GPT +15%; BX said it would buy GPT which is an asset manager of commercial real estate, in a deal valued at $7.6 billion in cash. https://reut.rs/2rw9Jmv

· NCMI +14%; reported a narrower than expected Q1 adjusted EPS loss

· NVDA +4%; as Bank America said remains positive ahead of 1Q earnings scheduled for May 10 and expects a beat and raise driven by data center segment sales and strong cloud capex

· QURE +4%; Leerink raises tgts on a few names based on discussions with MEDACorp payor specialists and analysis of better pricing for hemophilia gene therapies/QURE to $63 from $26

Stock LAGGARDS

· CTSH -6%; Q1 results were mostly in-line while Q2 guidance for EPS and revenue fell short

· DFRG -11%; Q1 EPS missed while revenue topped views on lower comp sales (-3.6%)

· IFF -7%; after acquiring Frutarom Industries in deal valued at around $7.1 billion

· TSN ; Q2 EPS and sales miss citing a drop in pork sales while freight and labor costs increased

· XRAY -6%; reported Q1 was better than expected, but lowered its full year outlook by 15c at the midpoint, citing increased marketing support, additional sales reps, and other efforts

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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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