Market Review: May 11, 2018

Terrie AmengualDaily Market Report

Closing Recap
Friday, May 11, 2018

Equity Market Recap
· Major U.S. averages end the day mixed, but posted solid returns of more than 2% for the week on what ended up a very eventful one. Tamer inflation readings (CPI/PPI lowers aggressive rate hike chances), the U.S. backing out of the nuclear Iran deal (raising supply woes), a central bank meeting (BOE kept rates unchanged), the last busy week of earnings, a plan to change prescription drug pricing (announced today), a meeting scheduled between the U.S. and North Korea, and stocks ending near their best levels in about 2-months. Not to mention, oil prices dipping after trading to best levels since November 2014, the dollar pulling back after 5-month highs earlier in the week and the benchmark 10-year yield hovering around 3%. With all of that, the Dow Industrial Average advanced for a 7th straight session.
· Healthcare stocks were active, falling initially late day after President Donald Trump started presenting his plan to cut prescription drug costs, but quickly reversed to trade higher. Some changes to policy announced by Trump and Health and Human Services Secretary Alex Azar included drug price negotiation by government programs among other items (see below). Shares of Pharma (PFE, MRK, BMY, LLY), managed care (AET, UNH, CI) and healthcare supply chain (ESRX, CVS, MCK, ABC) were some of the broad movers.

Economic Data
· Preliminary May Michigan Sentiment unchanged at 98.8, in line with last final reading of April while also above the 98.3 prelim estimate; the current economic conditions index fell to 113.3 vs. 114.9 last month; the expectations index rose to 89.5 vs. 88.4 last month.
· Import Prices for April rose 0.3% MoM below the 0.5% estimate but up after falling (-0.2%) in March. Import prices ex-fuels rose 0.2% after rising 0.1% in March. Export prices rose 0.6% after rising 0.3% in March

· Oil prices ended lower on Friday, with WTI crude slipping 66c, or around 1% to settle at $70.70 per barrel, off its best levels in over 4-years, but still ended the week highs by about 1.4%. For the week, oil prices advanced after bullish inventory Wednesday (greater weekly drawdowns in oil stockpiles) and after President Trump backed out of the Iran nuclear deal, which triggered sanctions against the OPEC member, raising supply fears for oil. Gold futures end down -$1.60 to settle at $1,320.70 an ounce, ending the week roughly 0.5% higher, getting a boost as the dollar slips from 5-month highs. The weekly gain was the first in about a month.

Currencies & Bonds
· The U.S. dollar with a little “give-back” after touching 5-month highs earlier in the week. The dollar now down three straight days, with the dollar index falling a point from highs (DXY to 92.36 low, after highs of 93.41 on Tuesday) before paring losses. The Canadian dollar sinks vs. the greenback as Canadian data showed weaker-than-expected employment numbers. Overall it has been a strong rally for the greenback, touching fresh 2018 highs this week only to slip the last few days on reduced aggressive rate hike expectations from the Fed after tame inflation data. The Argentinian peso plunged over 6% as the central bank intervenes to try to slow the plunge, which took the currency as low as 24.22 per dollar. The Mexican peso and Brazilian real also weakened.
· Crypto currency markets weaker, led by declines in Bitcoin (down over 6%) falling to $8.500 along with weakness in Ethereum, Ripple and Litecoin after reports South Korean prosecutors this morning raided the offices of Upbit, one of the globe’s top-five busiest crypto exchanges. The exchange – on which about $1.6B in trades took place in the last 24 hours – says all client assets are safe, and transactions and withdrawals are unaffected
· Treasury markets were little changed most of the session, with yields inching higher (bigger move higher on short end of curve with 2-yr yield up around 2.54%), as the 10-year holds around 2.97%, down from earlier week highs at 3.03%. Yield curve has flattened following the weaker-than-expected inflation report on consumer prices yesterday.

Sector News Breakdown
· Retailers; KSS was downgraded to neutral at Credit Suisse saying it is more weather-sensitive than its peers, creating 1Q same-store sales risk; into earnings, JPMorgan says they are cautious on discretionary names that had a significant ramp in comps into the record 4Q holiday given unfavorable Spring weather, EPS weighting to the back half; GME said its CEO is resigning for personal reasons after just three months on the job, the second time the company lost its chief; dollar stores DG and DLTR downgraded at MoffettNathanson; FL downgraded at OTR Global
· Consumer Staples; in protein space, PPC Q1 results top on both lines of its report as adjusted EBITDA rose 18.9% Y/Y to $272M on stronger volume and said it’s slightly ahead of synergy targets for operational improvements initiatives; COTY was downgraded to hold at Deutsche Bank following COTY’s results and management’s generally uninspiring commentary this week; WTW 7.5M share Secondary priced at $69.00; ANFI surges on earnings results

· Oil prices posted solid gains again this week, closing back near 4 ½ year highs after bullish inventory Wednesday (greater weekly drawdowns in oil stockpiles) and after President Trump backed out of the Iran nuclear deal, which triggered sanctions against the OPEC member, raising supply fears for oil.
· Baker Hughes (BHGE) said its total weekly count rose 13 rigs to 1,045, with oil rigs up 10 to 844, gas rigs up 3 to 199, and miscellaneous unchanged at 2. JAG Q1 results were in line with its recent prerelease, and management maintained 2018 guidance of 28-31 MBOED (~80% growth) with 2Q18 guidance 6% above consensus

· Financials failed to rally with broader averages though news flow was relatively quiet; ICE 3.8M share Block Trade priced at $70.50; JRVR 3.3M share Spot Secondary priced at $36.50 and VIRT 15M share Secondary priced at $28.00; RDFN Q1 report beat revenue estimates with a 33% Y/Y growth and met EPS estimates along with in-line Q2 guidance though margins were weaker; USB was upgraded to buy at Citigroup

· Healthcare/Biotech sector was in focus today ahead of President Trump’s speech on drug prices. Shares of Pharmacy benefit managers and companies with drugs exposed to a Medicare program known as Part B (ESRX, MCK, ABC, and CAH) were active yesterday and today – trading higher initially but falling after the plan was released
· The plan showed: HHS has identified four challenges in the American drug market: 1) High list prices for drugs, 2) seniors and government programs overpaying for drugs due to lack of the latest negotiation tools, 3) High and rising out-of-pocket costs for consumers and 4) foreign governments free-riding off of American investment in innovation
· Under President Trump, HHS has proposed a comprehensive blueprint for addressing these challenges, identifying four key strategies for reform: 1) Improved competition, 2) better negotiation, 3) Incentives for lower list prices, and 4) lowering out-of-pocket costs. HHS’s blueprint encompasses two phases: 1) actions the President may direct HHS to take immediately and 2) actions HHS is actively considering, on which feedback is being solicited
· Large Cap Pharma; AKCA shares active after the FDA’s Endocrinologic and Metabolic Drugs Advisory Committee (EMDAC) voted in favor (12-8) of supporting the approval of volanesorsen (WAYLIVRA) for the treatment of patients with familial chylomicronemia syndrome; AZN said its Phase III clinical trial, GALATHEA, evaluating (Benralizumab) in patients with moderate-to-severe chronic obstructive pulmonary disease (COPD) failed to demonstrate a statistically valid decrease in exacerbations, the primary endpoint; SGYP falls on softer Trulance revs
· Biotech movers; REGN rises as Bayer gets Eylea approval for second indication in China; XON shares fall on lower revs due to drop in R&D services for certain collaborators; OMER shares higher despite weaker Q1 results as says it started preparations for a rolling BLA submission “later this year” of OMS721, having met recently with the FDA on requirements for approval in high-risk HSCT-TMA; VYGR shares upgraded at Wedbush on valuation; in research, Barclays downgraded HALO while they upgraded SRPT, RARE, ZYME
· Medical devices & Equipment movers; BSX shares active on reports CBS’ 60 Minutes will feature a report this Sunday, May 13, on the 48K lawsuits facing Boston Scientific related to its transvaginal mesh device

Industrials & Materials
· AG & Machinery; CAT said its April rolling 3-month retail machine sales rose 28% vs March 26% rise, Feb. up 33% while North America machine sales up 25% after rising 27% in March; FLS shares pressured after reporting weak Q1 orders and margins and reaffirming 2018 guidance/seen as messy quarter given the adoption of new revenue recognition standards; MG shares downgraded to underperform at Bank America citing its biz model is being challenged
· Transports; CHRW shares higher after announcing added 15M share buyback; ARCB shares traded to more than 3-year highs following quarterly profit after year ago loss, easily topping consensus views; trucking group outperformed on the earnings news;

Technology, Media & Telecom
· Internet; TTD shares among top gainers after strong Q1 results and issued better Q2 outlook and raised its full year revenue and adjusted EBITDA guidance; YELP reported mixed 1Q results with the best quarter of net new PAA growth of all time yet a disappointing quarter in terms of sequential local ad dollar growth; BIDU was upgraded to market perform at Bernstein; HUYA 15M share IPO priced at $12.00
· Semiconductors; NVDA posted solid Q1 beat and a modest (in relation to recent history) FY2Q raise with FY1Q reported sales/EPS 11%/23% above the Street and FY2Q sales/implied EPS guidance 5%/12% above the Street (shares fell as came into earnings at record highs); KLIC shares fall as reports prelim Q2, and said it won’t file 10-K in timely manner
· Software movers; security stocks SYMC shares downgraded by at least five analysts citing the audit committee investigation announced in yesterday’s earnings report/company also issued guidance for next quarter well below consensus; FSCT shares rise after Q1 results that beat EPS and revenue estimates with a 42% Y/Y revenue growth and guided Q2 revs $61M-$64M vs. est. $59.3M; DBX reported a strong beat-and-raise quarter in its first earnings report as a public company and paying user upside, but slipped as not massive beat; QTWO downgraded at BTIG
· Hardware & Services; GLOB reported strong top-line quarterly results and raised 2018 revenue and EPS guidance; PSDO shares plunge after being downgraded at RBC Capital following disappointing March-qtr results and FY18 guide; DOX shares slipped on results/guidance; TIVO declines following wide EPS miss and lower revs
· Telecom & Media movers; UNIT 1Q results matched expectations across key categories, while also said it would acquire CTL fiber divestitures, and reiterated expectations to achieve 50% revenue diversification from Windstream by mid-2019 and increased 2018 AFFO/share guidance; VZ was upgraded to overweight at JPMorgan after meetings as came away with a better understanding that Verizon’s organic approach to wireless has the company on an increasingly stable footing; NWSA shares sunk after mixed quarterly results; AMCX downgraded at Evercore

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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