Market Review: November 2, 2017

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Closing Recap
Thursday, November 2, 17
Equity Market Recap
·      U.S. stock markets closed mixed following several moving parts for investors to keep tabs on. Outside of the obvious earnings barrage (which dominated the action in several names both good and bad – details below), the Republican tax bill proposal dominated the headlines. The next question is whether it can be passed in both houses of Congress before the end of the year. The dollar turned lower, while Treasuries advanced as investors reacted to details of the plan. Homebuilders and private equity sectors were active following the tax plan details (full bullet points below) on margins interest concerns and limits to interest deductions. Also late day, after being well telegraphed the last two weeks, President Trump nominated current Fed Governor Jerome Powell to replace Yellen as Fed chairman next year. Also today, the British pound fell after the Bank of England offered a “dovish” rate hike, raising rates for the first time in a decade, but saying no further hikes appear imminent. Next up, another round of earnings tonight, highlighted by Dow component and tech giant Apple and the monthly nonfarm payroll report tomorrow. Today’s top S&P gainers included ANSS, LB, BDX, YUM, and NRG on earnings with the top decliners from NWL, FLS, DISCA, SYMC, and HBI all on earnings).

Bullet Points from US House of Representatives Tax Bill
·      Bill called the TAX CUTS and JOBS ACT
·      For individuals and families
·      Lowers individual tax rates for low- and middle-income Americans to Zero, 12%, 25%, and 35% so people can keep more of the money they earn throughout their lives, and continues to maintain 39.6% for high-income Americans.
·      Significantly increases the standard deduction to protect roughly double the amount of what you earn each year from taxes – from $6,350 to $12,000 for individuals and $12,700 to $24,000 for married couples.
·      Eliminates special-interest deductions that increase rates and complicate Americans’ taxes – so an individual or family can file their taxes on a form as simple as a postcard.
·      Takes action to support American families by:
·      Establishing a new Family Credit, which includes expanding the Child Tax Credit from $1,000 to $1,600 to help parents with the cost of raising children, and providing a credit of $300 for each parent and non-child dependent to help all families with their everyday expenses.
·      Preserving the Child and Dependent Care Tax Credit to help families care for their children and older dependents such as a disabled grandparent who may need additional support.
·      Preserves the Earned Income Tax Credit to provide important tax relief for low-income Americans working to build better lives for themselves.
·      Streamlines higher education benefits to help families save for and better afford college tuition and other education expenses.
·      Continues the deduction for charitable contributions so people can continue to donate to their local church, charity, or community organization.
·      Preserves the home mortgage interest deduction for existing mortgages and maintains the home mortgage interest deduction for newly purchased homes up to $500,000 – providing tax relief to current and aspiring homeowners.
·      Continues to allow people to write off the cost of state and local property taxes up to $10,000.
·      Retains popular retirement savings options such as 401(k)s and Individual Retirement Accounts so Americans can continue to save for their future.
·      Repeals the Alternative Minimum Tax so millions of individuals and families will no longer have to worry about calculating their taxes twice each year and pay the higher amount.
·      Provides immediate relief from the Death Tax by doubling the exemption and repealing the Death Tax after six years. Family-owned farms and businesses will no longer have to worry about double or triple taxation from Washington when they pass down their life’s work to the next generation
Job/Corporate part of tax plan
·      Lowers the corporate tax rate to 20% – down from 35%, which today is the highest in the industrialized world – the largest reduction in the U.S. corporate tax rate in our nation’s history.
·      Reduces the tax rate on the hard-earned business income of Main Street job creators to no more than 25% – the lowest tax rate on small business income since World War II.
·      Establishes strong safeguards to distinguish between individual wage income and “pass-through” business income so Main Street tax relief goes to the local job creators it was designed to help most.
·      Allows businesses to immediately write off the full cost of new equipment to improve operations and enhance the skills of their workers – unleashing the growth of jobs, productivity, and paychecks.
·      Protects the ability of small businesses to write off the interest on loans that help these Main Street entrepreneurs start or expand a business, hire workers, and increase paychecks.
·      Retains the low-income housing tax credit that encourages businesses to invest in affordable housing so families, individuals, and seniors can find a safe and comfortable place to call home.
·      Preserves the Research & Development Tax Credit – encouraging our businesses and workers to develop cutting-edge “Made in America” products and services.
·      Strengthens accountability rules for tax-exempt organizations to ensure the churches, charities, foundations, and other organizations receiving tax-exempt status are focused on helping people and communities in need.
·      Modernizes our international tax system so America’s global businesses will no longer be held back by an outdated “worldwide” tax system that results in double taxation for many of our nation’s job creators.
·      Makes it easier and far less costly for American businesses to bring home foreign earnings to invest in creating jobs and increasing paychecks in our local communities.
·      Prevents American jobs, headquarters, and research from moving overseas by eliminating incentives that now reward companies for shifting jobs, profits, and manufacturing plants abroad
·      Energy futures manage a small gain, with WTI crude rising 24c or 0.4% to settle at $54.54 per barrel, bouncing back after snapping its 4-day win streak yesterday on profit taking. Inventory data was bullish on Wednesday, but prices managed to close lower. Saudi Arabian Energy Minister Khalid Al-Falih may meet his Russian counterpart Alexander Novak in Tashkent, Uzbekistan, on Friday to discuss oil-output cuts, an official said, Bloomberg reported.
·      Gold prices inched higher Thursday, rising 80c to finish at $1,278.10 an ounce, reversing from earlier losses (but well off best levels) on the back of the Bank of England’s first interest-rate increase in a decade. There was also apprehension ahead of tomorrow’s jobs report.
Currencies & Bond Market
·      The U.S. dollar ended slightly lower overall (dollar index around 94.70) falling after the details of the tax plan from the Republicans caused doubt the bill could pass in its current form. The dollar slipped slightly against the yen, while the euro rose around 0.3%. The pound slumped against the dollar to 1.3043 (lowest since Oct 9) after the Bank of England raised interest rates for the first time in a decade (bringing rates up to 0.5% from a record-low of 0.25%), yet showed concern for Britain’s Brexit-dented economy by indicating that another increase isn’t imminent. Bitcoin prices jumped more than 10% early on to highs of $7,392 (off low $6,573), but finished under $7,000 as the cryptocurrency got a boost this week after CME Group Inc. said it plans to introduce bitcoin futures by the end of the year. Bonds gained as yields slipped following details of the tax plan, better economic data ahead of nonfarm payrolls – 10-yr yield dipped over 2 bps to under 2.35%.
Economic Data
·      Q3 Nonfarm Productivity rose 3.0%, topping expectations of 2.6% while unit labor costs rose 0.5% in 3Q vs. up 0.3% prior quarter; Output rose 3.8% in 3Q vs. up 3.9% prior quarter; Employee hours rose 0.8% in 3Q vs. up 2.4% prior quarter; compensation per hour rose 3.5% in 3Q vs. up 1.8% prior quarter and real compensation rose 1.5% in 3Q vs. up 2.1% prior quarter
·      Weekly Jobless Claims fell 5K to 229K, below the estimate of 235K while prior week was revised to 234K from 233K; the 4-week moving average stood at 232.5K, the lowest since April 1973; continuing claims fell 15k to 1.884m in the week ending Oct. 21; lowest since Dec. 1973
Sector News Breakdown
·      Retailers; RL quarterly revenue, profit beat estimates and sees 2H gross margins up at least 150 bps; LB guided to the top end of guidance for next quarter EPS; FOXF dropped after a strong run in shares as Q3 results topped views; FNKO IPO opened at $8,00 per share, 33% below its $12 pricing; HBI shares fall after guidance falls short of estimates; in mattresses, TPX shares plunge after the loss of a contract with retailer Mattress Firm Inc. weighed on sales last quarter
·      Restaurants; YUM got strong results from its Taco Bell and KFC divisions as earnings results lifted shares; BOJA EPS in-line, announces stock buyback and, though rev guidance misses; SHAK forecasted a narrower decline in its year comparable sales and raising the low end of its year revenue outlook after Q3 beat; CAKE reported Q3 revenue which missed estimates and lowered its full-year profit guidance; DPZ upgraded to buy at Maxim; PZZA downgraded to neutral at BTIG; HABT downgraded by two analysts following the company’s disappointing 3Q results noting comps have dipped into negative territory; SBUX reports earnings tonight
·      Autos; TSLA slides after hours after warning it will take months longer than expected to reach its goal of making 5,000 Model 3 sedans a week, this after posting a larger-than-expected quarterly loss; ADNT falls early on mixed outlook for 2018; AN rises as reached an agreement to maintain and help manage fleets for Waymo, the self-driving car unit of Alphabet Inc.
·      Consumer Staples; health and beauty got a boost recently on better EL results, though AVP posts Q3 EPS miss and CHD Q4 organic revs were a bit on the light side; in food, KHC reported a broadly in line set of results for Q3; APRN initially higher on rev beat but said Q4 sales slowdown to be driven by cuts in marketing; THS plunges after cutting its 2017 adj. EPS forecast and announcing that President Robert Aiken resigned
·      Housing & Building Products; Homebuilder shares slide after the Republican tax plan lowers mortgage interest deduction; the plan proposes capping the tax deduction on new mortgages of $500,000 or less. Presently, Americans can deduct interest on mortgages of up to $1M from their income (shares of MTH, TOL, KBH, LEN, PHM declined on the news); building products makers VMC and MLM reported weak 3Q numbers and lackluster outlooks; both said the Hurricanes Harvey and Irma hurt results (VMC cut forecasts); NWL cut FY17 EPS guidance to $2.80 to $2.85 from $2.95 to $3.05
·      Casino, Lodging & Leisure; gaming related stocks CZR and MLCO active on earnings; in lodging space, earnings from HGV, LQ, H; cruise lines (RCL, CCL, NCLH) active as the House Republican tax bill won’t include measures to increase taxes on the cruise line industry, Nomura said; in leisure, LCII shares plunged after missing estimates (WGO, THO, BC lower today)
·      Another busy day of earnings in the energy sector, with results from MRO, OXY sending shares higher, while PXD and TUSKdropped on results; other movers included MUR, SGY, FMSA;  CHK Q3 revenue misses estimates and EPS beat estimates by 1c as results hurt by decline in revenue from oil, natural gas and natural gas liquids
·      Solar/Utilities; solar gets a boost after SPWR strong beat on top and bottom line quarterly results; utility stocks reversed lower midday as the UTY index turned negative after touching all-time highs earlier of 703.72;
·      Insurance; several carriers report overnight with ALL Q3 results topped views as car insurance gains offset hurricanes; LNC EPS and revs beat; PRU also topped estimates while MET with EPS beat as well and announced a stock buyback of $2B; RNRupgraded to buy at Citigroup; BHF posted Q3 loss that included a $1.07 billion expense tied to its spinoff from MetLife; WLTWEPS missed but better organic growth & margin
·      Private equity names tumbled late day as tax plan details are digested – reports indicated the GOP tax plan would limit interest deductions of many companies to just 30% of EBITDA (shares of APO, BX, KKR, CG, OAK were among the names falling on the news).
·      Consumer finance and lending; FLT quarterly beat while analysts note the outlook for organic sales growth continues to be healthy in the 8-9% range/macro and business trends are improving across the board; CATM fell after SunTrust said the U.K.’s free ATMs may be at risk given recent proposals seeking to change how the ATM network operates
·      Brokers & investment movers; TCAP falls after 3Q NOI per share missed estimates as they trimmed its dividend and announced plans to explore strategic alternatives
·      Large Cap Pharma/Specialty; TEVA shares drop, weighing on the generic sector after warning on the ongoing price erosion for U.S. generics as well as its specialty business being hurt by several products, after Q3 results (VRX, MYL, ENDP active); NBIX 3Q results well above views driven by a massive beat on Ingrezza revenues of $46M; EXEL another gainer on earnings; IONS slips and ALNY rises after presenting detailed study results at a meeting in Paris; OMER falls on Cowen downgrade citing CMS final update to proposed hospital payments for 2018
·      CAR-T stock movers; CLVS shares slid early as RBC noted patient assistance programs hampered 3Q Rubraca sales; JUNOupgraded to buy at SunTrust as analysts generally positive after ASH abstract showed JCAR017 demonstrating best-in-class safety and efficacy in NHL; BLUE was upgraded to buy at BTIG
·      Healthcare services/facilities; CYH shares plunge after results as hospital operators continue to publish weaker than expected earnings and outlooks; AAC shares jumped on Q3 EPS beat and midpoint of year EPS topping views; CSU another gainer on mixed earnings (EPS beat); shares of AMED and HLS were both upgraded to buy at Mizuho; in managed care, CI touched 52-week high before paring gains post earnings
·      Medical devices & Equipment; MYGN slipped early after a study of its GeneSight Psychotropic test on psychiatric treatment response in patients with major depressive disorder missed its primary endpoint; DXCM Q3 EPS beat though guides year revs to low end of view; ZBH downgraded at Piper after lowering yearly outlook yesterday; OSUR plunged on big volume following loss of a large government contract for hep C testing announced on its 3Q earnings call, which prompted a downgrade at Jefferies
Industrials & Materials
·      Transports; most big earnings in airlines, rails and truckers have already been reported; XPO delivered strong 3Q17 overall results, outperforming consensus top to bottom in a hurricane-impacted quarter; broader index down with markets in general as
·      Chemicals; Lithium companies (ALB, FMC, SQM) underperformed after house tax bill is said to repeal electric vehicle (EV) tax credit, which provides $7,500/EV tax credit to purchasers of electric vehicles
·      Forest & Paper products; The U.S. Department of Commerce has reduced softwood lumber duties for all Canadian producers except Resolute Forest Products. In its final determination released today, the Commerce Department says most Canadian producers will pay a combined rate of 20.83%, down from 26.75% in the preliminary determinations.
Technology, Media & Telecom
·      Internet; FB reported a very strong Q3, with results coming in well ahead of expectations and growth trends remaining very impressive – though warns expenses may jump; BABA trades to record highs as raised its outlook for full-year revenue growth after reporting sales that beat analysts’ estimates; YELP beat 3Q expectations, as salesforce initiatives lifted retention rates and local ad sales, which contributed to top and bottom line beats/guidance weaker; Wayfair (W) shares fall on earnings miss; CTRPa mover on earnings
·      Semiconductors; AVGO said it sees Q4 revs at higher end of prior forecast; QCOM posted strong Q4 results but clouded by ongoing chip dispute with AAPL; QRVO downgraded by a few analysts after Q2 beat but Q3 sales view missed views; CAVMposted a modest beat and raise quarter/guidance; ESIO shares surge as EPS and revs top the highest estimates and blowout guidance; KEM plunges as Q2 gross margins of 28.2% fall short of forecast/in-line Q2 revs; MX rises as posts higher Q3 profit
·      Hardware; AAPL reports earnings tonight after the close; GPRO shares slumped after weaker-than-expected Q4 guidance (sees Q4 EPS 37c-47c on revs $470M, plus or minus $10M below est.56c/$521.4M)
·      Optical stocks; OCLR shares drop sharply as reported a Q1 beat on both revenue and earnings, however guidance was well below expectations leading to aggressive negative estimate revisions (the optical sector remain pressured on the OCLR guidance with FNSR, ACIA, NPTN, CIEN lower)
·      Software movers; PI plunges as guides to an unexpected loss for Q4 on weaker rev view; HUBS another beat and raise quarter, with the company demonstrating strong traction with new customer adds; ZEN reported a very strong 3Q beat with all key metrics re-accelerating; ACXM top and bottom line beat with boosted guidance; ANSS & ULTI jumps on earnings
·      Internet security; sector weak as SYMC shares dropped after missing top/bottom line Q2 results, guided next quarter and year below forecasts; FEYE top and bottom line beat for Q3 and raised year outlook but its Q4 billings forecast of $210M-$230M missed estimates of $237M; CYBR with a Q3 EPS/rev beat and guidance just above consensus views
·      Media & Telecom; The Department of Justice has not made a final decision but is preparing for litigation in case it decides to go to court in an effort to block the proposed merger of AT&T (T) with Time Warner (TWX), reported The Wall Street Journal ; DISCA shares fell after Q3 EPS missed lowest estimates on the Street with subscriber declines; AMCXweak as profits overshadowed by revenue decline.


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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