Mid-Morning Look: May 14, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look
Monday, May 14, 2018

Stocks adding to last week’s more than 2% gains across the board, buoyed by reduced inflation fears (after softer CPI last week), improved trade negotiations by President Trump and Chinese leader Jinping this weekend, stock buybacks and lower aggressive Fed rate hike fears. The dollar falls for a 4th straight day, though the yield on the 10-year moves back to the 3% level. The Dow Industrials strong up over 140 points flirting with the 25K level (high of day 24,980) – moving above its 100-day MA 24,852 and trades its best levels since late March (on track for its 8th straight daily gain – longest since late September). Small Caps also rising as the Russell 2000 traded above its record close early Monday, putting the index on pace to mark its first all-time high since late January. The Russell 2000 broke above its closing peak at 1,610.71 hit late January. Small-cap equities have proved more resilient as they tend to be domestically oriented have avoided worries about trade wars between China and the U.S. and have also enjoyed a boost from the recently enacted tax overhaul. The surprise good news on trade talks with China is helping a few tech sector’s specifically semiconductors (NXPI, QCOM, and MRVL) and optical stocks (ACIA, LITE, OCLR). Defensive sector (Utilities, REITs) under pressure as Tech leads.

Treasuries, Currencies and Commodities
· In currency markets, the euro slides off highs after nearing the 1.20 level (high 1.1996), though remains higher by 0.3% at 1.1982 (well off lows last week of 1.1823 on 5/9); the dollar on track for its 4th straight loss after touching 5-month highs early last week. The dollar has pared recent gains following the tamer inflation readings (CPI and PPI) late last week. The US dollar is up against the yen, but the Pound trades back above the 1.36 level (off last week low 1.346)
· Precious metals are little changed, with gold down slightly around the $1,320 an ounce, getting a boost the last few days as the dollar headed for a fourth consecutive slide, Gold futures have held below Thursday’s settlement at $1,322.30, which marked a recent peak, the highest finish since late April 27 (gold futures logged a roughly 0.5% rise last week, first weekly climb in a month)
· Energy futures remain higher, back near fresh November 2014 highs amid geopolitical headlines with Israel over the weekend and extending last week gains on bullish inventory data (larger than expected stockpile declines) and fears of reduced supply with the U.S. sanctions on Iran. WTI crude prices move back above the $71 per barrel level
· Treasury markets slip as yields rose slightly, with the 10-yr yield back near 3% ahead of a very busy week of Federal Reserve official speeches that could offer clues as to how the recent run of soft inflation data could alter the central bank’s rate hike trajectory. The 10-year Treasury note yield added 2 basis points to 2.99%

Sector Movers Today
· Optical stocks (ACIA, AAOI, LITE, OCLR) among the day’s top performers after President Donald Trump announced this weekend that he was working with China to find Chinese smartphone maker ZTE Corp. a way to get back into business, fast. The comments come after Trump’s administration blocked U.S. companies from selling to ZTE for seven years, alleging that ZTE failed to reprimand employees after violating Iran sanctions.
· Housing & Building Products; in building products space, Wells Fargo upgraded MAS to outperform and downgraded OC to market perform, while reiterate Outperforms on builders DHI, LEN, TOL and KBH. Also, Bank America downgraded FBHS, MAS and JELD to neutral and upgraded builder MTH to buy as they have become more selective within the building products group given: 1) secular themes identified within the primer, 2) input cost headwinds, and 3) company specific challenges, but increased confidence in the homebuilding cycle
· Retailers; LB upgraded to buy at Citigroup saying it’s not an “all’s clear” type of call noting things may get worse before they get better. But says the market has become so bearish on LB that the valuation is just too cheap to ignore; PLCE upgraded to Outperform at Oppenheimer and raise PT to $150 noting it has underperformed YTD (-11%, our universe +8%) and is trading at ~14x-15x, 2-3x compression vs. ’17; SHLD announces initiation of formal process to explore potential sale of assets; TLRD upgraded to buy at Jefferies and raised tgt to $40
· Solar industry active again; the industry got a boost late last week after California requiring homebuilders to install solar panels on nearly all new residential buildings. Barron’s noted this weekend the news should boost shares of RUN and VSLR according to Guggenheim’s analyst
· Gaming sector (WYNN, LVS, MGM, SGMS) active as the U.S. Supreme Court ruled in favor of the state of New Jersey in a case that could open sports betting around the nation. In a 6-to-3 vote, the Supreme Court in Murphy vs. National Collegiate Athletic Association ruled the Professional and Amateur Sports Protection Act doesn’t make sports gambling a federal crime. New Jersey has sought to legalize sports gambling schemes in Atlantic City and at horseracing tracks

Stock GAINERS
· ACIA +13%; after President Donald Trump tweeted this weekend that he was working with China to find Chinese smartphone maker ZTE Corp. a way to get back into business, fast
· CMG +1%; tgt raised to $530 at Piper as think +2% range as suggested by checks is enough for the stock to continue to work
· MYO +16%; announced that the U.S. Centers for Medicare & Medicaid Services (CMS) has made a preliminary decision establishing reimbursement for its MyoPro powered brace.
· NXPI +9%; and QCOM advanced after trade tensions eased between the U.S. and China, as Chinese regulators have restarted their review of QQCOM’s application to acquire NXPI following the reports that President Trump and Xi Jinping are working together to help trade
· SHLD +6%; announces initiation of formal process to explore potential sale of assets
· SYMC +10%; rebounding after Friday -33% decline on lower guidance and information about an internal investigation announced last week
· TNDM +14%; upgraded to overweight at Piper citing better clarity into the upgrade/renewal cycle in front of the company and believe they are about to enter a “Goldilocks Period”

Stock LAGGARDS
· PRGO -3%; and TEVA rises after Perrigo doesn’t launch Generic drug in 4q (late Friday
· RTN -2%; seeing broad weakness in defense stocks (LMT, NOC, LLL also fall)
· SNCR -6%; as common stock to be suspended from trading on Nasdaq
· VIAB -6%; after CBS announced that it has filed a lawsuit in Delaware Court of Chancery alleging breaches of fiduciary duty by National Amusements, the parent of both companies which is pushing for a merger of the two
· XRX -8%; said it will back out of its merger deal with Fujifilm Holdings Corp. as it reached a new settlement with two of its biggest shareholders. Xerox said it reached a settlement to replace its chief executive and overhaul its board https://on.mktw.net/2KVRkaC

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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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