Monday, June 4, 2018
Equity Market Recap
· U.S. stocks advanced on Monday, climbing to their highest levels since mid-March, with gains led by technology and consumer discretionary (retail). The rally came despite China warning it will withdraw from commitments it made on trade if President Donald Trump carries out a separate threat to impose tariffs on the Asian country. Markets also overlooked additional trade threats from Canada, Mexico, and Europe this weekend at G7 after US imposed tariffs last week. It was also a record setting performance in some cases today as four Dow components trade to 52-week (and record) highs today: AAPL, INTC, MSFT, V, while the Nasdaq Composite surpassed its March 12th closing record high of 7,588 (still off record intraday high of 7,637 on March 13th) and Small Caps another record high as the Russell 2000 index tops the 1,650 level. Treasuries extended losses from Friday after the solid jobs report, while the positive risk tone weighed on the dollar. Energy remains a drag on major averages, as WTI crude fell below $65 a barrel after an OPEC committee stressed the need to ensure supplies can meet growing demand. In tech, Apple provided updates at its worldwide developer’s conference, while several biotech/pharma companies (LOXO, BLUE, NKTR, IMMU, GHDX, MRK, BMY, and CELG) were among top movers after data from ASCO cancer conference.
· Factory Goods Orders for April fall (-0.8%) vs. est. decline of (-0.5%), while Factory orders for March revised up to 1.7%; New orders ex-trans. for April rise 0.4% and new orders ex-defense for April fall 0.9% after rising 2.4% in March; capital goods non-defense ex aircraft new orders for April rise 1% after falling 1% in March
· Durables orders for April fall (-1.6%) after rising 2.7% in March; consumer goods shipments for April rise 0.6% after rising 0.8% in March and consumer goods new orders for April rise 0.5% after rising 0.9% in March
· Oil futures fall, closing just off the lows of the day, down -$1.06, or 1.6% to settle at $64.75 per barrel (highs $66.04 and lows $64.57). The downward momentum in energy continues after touching 3 ½ year highs above $72 per barrel less than a month ago – while also setting near fresh new multi-month lows today (fell over 3% last week as well) amid fears of growing U.S. production and the possibility that OPEC and its allies will boost output prompted U.S. benchmark prices to settle at their lowest level in 2-months.
· Precious metals end lower, with gold prices slipping -$2.00 to settle at $1,297.30 an ounce, down slightly as market expectations for rising rate hikes from the Fed continue to weigh on sentiment (FOMC meets June 13th). The easing of macro and geopolitical tensions (European political news and North Korea summit back on) also lessening demand for safe-haven gold
· The U.S. dollar ended lower, but off its worst levels, with the dollar index (DXY) ending back around the 94 level (highs 94.19 and lows 93.66). The euro edged back up around the 1.17 level (well off last week lows 1.151), while the dollar advanced vs. the yen. European currencies have recovered off recent 2018 lows as political concerns ease amid Italy and Spain political issues resolving themselves (Populist parties the Italian 5 Star Movement and the League formed a coalition administration, while Spain also has a new government after a Socialist Party leader Pedro Sánchez was sworn-in as prime minister on Saturday). Trade tensions remain a key catalyst for the dollar vs. other currencies (Peso, Loonie, Aussie dollar). Finance ministers from Canada, France, Germany, Italy, Japan and the U.K. issued a rare rebuke to the U.S. at a Group of Seven meeting on Saturday.
· Treasury market’s drop, with the yield on the 10-year rising back above 2.93% (off last week lows of 2.76%), as rate hike expectations have risen following last Friday’s strong jobs report; rotation also out of safe-haven assets and back into riskier assets with stocks extending last week gains; 2-yr yield back around 2.50% and 30-yr above 3.08%.
Sector News Breakdown
· Retailers; sector outperforms, led by apparel, hardline, and department stores; ROST added to focus list and $98 tgt at JP Morgan noting management cited no change to the long-term double-digit earnings growth model with +5-6% unit growth; FOSL tgt raised at KeyBanc to $32 citing combination of expense reductions, focus on wearables, and a more favorable secular watch environment; strength throughout the day in retail with 52-week highs for RL, KSS, TJX, M, TIF
· Restaurants; CMG tgt raised to $500 at BTIG citing improving new unit sales volumes, declining labor turnover, and the boosted restaurant margin outlook; PLAY positive mention at Raymond James saying likelihood of pursuing a sale increases after Hill Path Capital’s new 3% stake
· Housing & Building Products; LOW said CFO Croom announces plans to retire after about a year in the role; WHR shares upgraded to outperform at Credit Suisse noting there’s been an average 5% increase in appliance list prices, but channel checks show sell-through growth holding at 2-4%
· Casino, Lodging & Leisure; casino stocks lower again after falling last week on softer Macau gaming revs which came in 12.1% YoY in May, viewed as a disappointment relative to the Street’s ~17-18% estimate; latest concern comes ahead of World Cup, as Deutsche Bank noted today it could cause some VIP softness in June as they lower estimates on WYNN and tgt
· Energy stocks were mixed with utilities falling as defensive sectors declined and yields climbed; solar stocks drop amid a potential plunge in silicon solar panel prices on China’s push for a lower subsidy; oil prices dropped on continued momentum lower; top stories were PBR shares rebounded after falling Friday on announcement CEO stepping down; VNOM was downgraded to hold as expects widening basis differentials to lead to distributions that trend modestly higher through 2018, modestly decline in the first half of 2019; ORA extends losses as the geothermal power plant operator that has drilled wells into rock near volcanoes to tap underground heat and generate electricity was already forced to idle its Puna plant on Hawaii’s Big Island
· Solar stocks; (JKS, CSIQ, FSLR) Roth Capital noted overnight, China’s NEA released its anticipated “Solar Management Plan.” While saying they had been expecting downside risk to China demand for months, the policy update is more severe than we expected with potentially negative consequences for traditional utility scale and DG demand in 2018. Additionally, the FY’18 FITs for utility scale projects and fully-connected to the grid DG projects were lowered by ~6-9% (firm ended up downgrading JKS, ASYS in conjunction with the call)
· Refiners; PBF upgraded to Outperform at Raymond James saying with U.S. crude production outpacing our above-consensus model, they have increased their outlook for oil price differentials (Brent-WTI, Bakken diffs, heavy diffs, etc.) which they expect to provide a substantial boost for the refining group and PBF.
· Insurance; Goldman Sachs upgraded PRU to buy from neutral saying while life insurers have underperformed this year, there are pockets of opportunity in firms with above-average cash flow or redeployed capital, good organic growth opportunities, and riskier businesses that are contained or could be transferred/firm also downgraded MET to neutral
· Finance and Lending; SQ shares trade to record highs after Cantor upped its tgt to $69 from $51 after the company updated guidance to reflect its Weebly acquisition; WEX hitting all-time highs, after agreement with RDSA for new commercial fleet cards portfolio; Dow component Visa (V) trades to all-time record highs, along with 52-week highs MA, ADP
· American Society of Clinical Oncology (ASCO) conference winners/losers from data this weekend:
· Winners: LOXO shares rise response to its announcement of preliminary results from a Phase 1 clinical trial, LIBRETTO-001, evaluating RET inhibitor LOXO-292 in RET fusion cancers (confirmed response rate was 74% in all RET fusion-positive cancers and 74% in RET fusion-positive NSCLC) – analysts very positive and raise tgt prices; GHDX said the TAILORx study provided definitive evidence that the Oncotype DX Breast Recurrence Score test identified 70% of early-stage breast cancer patients who receive no benefit from chemotherapy and can be effectively treated with endocrine therapy alone; MRK multiple announcements of study results for PD-1 inhibitor Keytruda (pembrolizumab); BLUE and its partner CELG announced updated results on bb2121, an investigational anti-B-cell maturation antigen CAR-T cell therapy/phase 1 clinical trial results for the CAR-T cell therapy bb2121 showing that median patients survived for 11.8 months without their cancer progressing; IMMU as results from the single arm Ph. II of sacituzumab govitecan were presented Sunday at ASCO. Key new data include median PFS of 6.8 months and median duration of response of 7.4 months. ORR of 31% was consistent with the abstract
· Losers: JNCE shares fall (downgraded at JPMorgan) following disappointing JTX-2011 data at ASCO/assessing lead candidate JTX-2011, alone and in combination with BMY’s Opdivo (nivolumab), in patients with advanced solid tumors; NKTR falls after the company released early data from a phase 1/2 clinical trial testing the company’s NKTR-214 in combination with BMY’s cancer drug Opdivo/expectations were very high with shares of NKTR rising 11% on Friday into results (BMY down in sympathy with JNCE and NKTR data); ZYME declined after data from its novel bispecific antibody, ZW25, presented at ASCO; BPMC shares slide after LOXO data
Industrials & Materials
· Airlines; LUV cuts its Q2 RASM view to down (-3%) YoY; said it now sees 2Q operating RASM at the lower end of the company’s previous guidance range of down 1%-3%, primarily driven by lower bookings largely due to reduced marketing efforts following the Flight 1380 incident; AAL warned airline passengers may face higher ticket prices if oil prices remain high, prompting carriers to remove seats from the market, according to Reuters; DAL said total system traffic up 2.9%, capacity up 3.5% YoY and load factor 86.3% vs. 86.7% a year ago
Technology, Media & Telecom
· Tech in general strong: There are 40 S&P names making 52-week highs today: in tech space NVDA, VRSN, ADI, AMZN, INTC, INTU, TRIP, EXPD, AAPL, MSFT, EA, FFIV, ADBE, NFLX. AAPL held its worldwide developers forum today – Apple Inc. highlighted improvements to its augmented-reality software, a key foundation for iPhones, iPads and future devices.
· Semiconductors; AMD and NVDA mentioned positively by Bank America saying graphics chip makers may benefit amid expanding adoption from the PC gaming sector and minimal risk to the market from a collapse in demand for cryptocurrency mining rigs (sees PC gaming market growing 27% annually through 2020, up from prior view 19%); MU shares slipped ……
· Software movers; MSFT trades to all-time highs/agreed to acquire GitHib, a software development platform, for $7.5 billion in company stock https://on.mktw.net/2HiLGMG ; Internet security software stocks outperform after PANW Q3 results topped consensus with record billings beat ($45M+ beat), license revenue ($20M+ beat), and total revenue beat
· Media movers; DISCA has agreed to pay $2B to get 12-year international TV and online rights to the PGA Tour; DISCA also upgraded at Pivotal Research today; WWE trades record high as another analyst bullish on shares with KeyBanc upping tgt to $71 from $49 on likeliness of TV rights for Raw and Smackdown greatly exceeding prior expectations; DIS’ “star Wars movie disappoints a 2nd week with less than $30M in revs in second weekend