Tuesday, November 7, 17
Equity Market Recap
· U.S. stocks end mostly lower, slipping throughout the session from intraday record highs, as a pullback in oil prices from 2-year best levels and a sharp downturn in the financial sector was too much to overcome today. The dollar gained and the Treasury yield curve flattened further as markets reacted to the suggestion that Senate tax writers will release a bill Thursday. It was another busy day of earnings (and plenty more tonight after the close), but earnings for the quarter wind down this week, in what has been a solid quarter (overall) for corporate earnings. Financials were a drag on the S&P and Dow, with large cap (JPM, MS, WFC), regional (FITB, KEY, PNC) and small lenders falling the most amid a flattening yield curve as well as skepticism regarding a resolution on the tax reform bill. Dow component Apple traded to a fresh all-time intraday high of $175.25 earlier before paring some gains, coming just short of the level needed to push the technology giant’s market capitalization above $900 billion for the first time (needed to touch $175.30). Defensive assets outperformed earlier with staples, utilities, REITs and healthcare rising. Small caps also underperformed, with the Russell 2000 index down over 1% most of the trading session (note the Russell the only one of the 4-major averages not to trade to record highs this month).
· Oil prices post small declines, as WTI crude fell for the first time in four sessions, edging lower by 15c, or 0.3% to settle at $57.20 per barrel. The moves comes ahead of weekly API inventory data tonight and DOE tomorrow morning at 10:30, both of which have been bullish catalysts the last few weeks amid larger weekly inventory drawdowns. OPEC said earlier today in its 2017 World Oil Outlook that rapid adoption of electric vehicles could cause oil demand to plateau in the second half of the 2030s, denting OPEC’s longer-term prospects. They also said global demand for OPEC’s crude will rise in the next two years more slowly than expected, as a recovery in prices resulting from an OPEC-led supply cut stimulates renewed output growth from non-members.
· Gold prices slipped by -$5.80, or 0.5% to settle at $1,275.80 an ounce, paring some of yesterday’s 1% jump in prices amid a rise in inflation expectations given the pop in oil. Most dollar-denominated commodity prices gave back nearly half of what they posted a day earlier as a key index tracking the dollar reached its highest levels since mid-July. In other metals, silver for December delivery dropped 29.5c, or 1.7%, to $16.94 an ounce.
Currency and Bond Market
· Treasury markets have slowly and quietly bounced the last two weeks, sending yields lower, despite strong economic data and surging U.S. stock prices; the yield on the 10-year bond down about 16 bps to 2.31% over the last 3-weeks from 2017 highs of 2.47%. Bonds have failed to sell-off despite rising expectations of another Fed rate hike in December. No major economic data again for a second day to influence markets.
· Strong day for the dollar, as the dollar index (DXY) rises as much as 0.4% to highs around 95.15 (best levels in over a week) before fading; the euro slipped to its lowest levels since July, while the dollar rebounds back above 1.28 against the Canadian loonie as oil pulls back from highs. The greenback advanced against the Japanese yen, but pared gains in the afternoon back under 114. Bitcoin quiet, but no real giveback after recent record highs of $7,592 (today flat around $7,129)
Sector News Breakdown
· Retailers; overall retail space weak, led by department stores (KSS, JCP, JWN); TPR misses revenue estimates on surprise drop in Coach sales (report comes a day afterKORS strong beat and guidance lifted shares); UAA upgraded at Susquehanna but cut tgt to $11 saying downside is limited after decline on earnings; CROX drops on Q3 EPS loss; Wayfair (W) and other furniture makers/retailers (ETH, RH, BSET) slip after Amazon launches 2 private-label furniture brands, Rivet and Stone & Beam.
· Consumer Staples; HAIN rises after reporting better-than-expected sales for the fiscal first quarter; WTW Q3 results topped estimates and raised its year EPS view for the third time (helping move shares of NTRI and MED early); DF Q3 EPS and sales missed estimates though EPS guidance of 80c-90c topped the 79c view; IFF 52-week highs on Q3 sales beat; APRN shares fall to record lows
· Restaurants; RRGB underperforms, falling over 20% overnight after Q3 EPS and sales miss while cutting its year EPS profit view and weak comp sales; FRGI also lower after reported quarterly adj. EPS and comp. sales that missed estimates; FRPT Q3 revs in-line while EPS just miss but reiterates year outlook
· Housing & Building Products; in casinos, LVS upgraded to overweight at Morgan Stanley as firm more bullish on Macau after doing a deep dive into the drivers of market growth for the next 5 years/expects LVS will outperform expectations despite losing share; PNK falls as Q3 revs fall short of consensus ($647.4M vs. $652.8M); SEAS falls to record lows before reversing higher after Q3 results; in cruise lines, RCL Q3 EPS beat by 17c on better revs and 2018 bookings seen at higher rates/volume (despite hurricane impact)
· E&P sector; FANG (after touching all-time highs yesterday) announced a 3Q EPS beat and FY production raise by ~2 Mboe/d while tightening up its capex range; SLCAQ3 EPS and Ebitda topped consensus while proppant sales came in above views as well; CPE reported 3Q 2017 adjusted EPS/CFPS/EBITDA all in line or slightly ahead of consensus estimates; RSPP reported 3Q EPS/CFPS/EBITDA in line or very slightly behind consensus projections; MTDR 3Q beat and increasing 2017 production guidance again; COG falls after a federal appeals court ordered a temporary halt in construction of the Atlantic Sunrise natural gas pipeline in Pennsylvania; CRC posted narrower-than-expected Q3 loss lifting shares; PDCE misses on EPS and revenue
· In research; Barclays downgraded QEP to equal-weight after rally in shares while upgraded WPX to overweight as has beat oil forecasts by average of 7% in 1Q-3Q, raised its 2017 production view twice and also provided 2018 guidance exceeding views
· MLPs; PAA and PAGP both advance following quarterly earnings results, while the Alerian MLP Index (AMZ) posts modest gains; DCC says DCC LPG has agreed with NGLto acquire its Retail West LPG division, Hicksgas LLC, based on an enterprise value of $200M
· Financials; banks came under pressure mid-session, with Dow components JPM and GS leading the declines along with regional bank weakness STI, FITB, PNC, SIVB; in insurance; AEL posted big beat for Q3 operating EPS; ATH quarter beat w favorable other liability costs as primary driver; insurance names touching 52-week highs today include: AJG, PGR, ALL, PFG, UNM; 52-week highs for some REITs early on (EQR, CBG, ARE); AFSI weak after reported a $326.9M reserve charge, even though the company simultaneously announced the decision to sell a stake in its U.S. fee businesses; in finance and Lending; OMF shares fall after saying it concluded a strategic review and continues to implement previously disclosed strategies.”; in REITs, GGP shares jumped after Bloomberg reported Brookfield Asset Management (BAM) has been in preliminary talks with GGP about purchasing the shares in the mall owner that it doesn’t already own and taking the company private, Bloomberg reportshttps://goo.gl/P2nKJp
· Large Cap Pharma; VRX shares rise as maintained its profit forecast and posted modest sales growth; MNK shares fall after 3Q net sales miss ($793.9M vs. est. $808.8M) down 10.5% YoY, while sales of its top asset HP Acthar Gel were $308.7M, below views around $325M; KERX falls as posts wider Q3 loss and withdraws guidance though FDA approves Auryxia; LCI reported Q1 results that were ahead of target and the company upped full year revenue and EPS guidance; TLGT plunges on lowered outlook; XOMA, CHRS, CBM, ECYT, SUPN also moved on earnings
· Healthcare services; DPLO mixed 3Q results as revenues slightly trailed estimates but Adj. EPS exceeded estimates driven largely by good cost controls; in hospitals, THCshares reversed earlier losses on EPS outlook cut, with one analyst noting Ebitda guidance cut comes from non-recurring items; GKOS falls as Stifel said the company’s iStent may lose market share to NVS CyPass; KND shares rise on better Q3 results; BKD shares plunged on a lowered year Ebitda outlook; PINC shares fell as Q1 EPS missed estimates
· Biotech movers; FPRX plunges after Cabiralizumab Combo data abstracts fall short of expectations; DERM posts larger Q3 loss, drops UCB drug to fund other launches;IONS in-line results and reports NDA to FDA for inotersen
· Medical devices and equipment; NVRO shares slide early as Q3 earnings beat but revs beat only modest and narrowed year outlook; HAE shares outperform after Q2 results topped views; QGEN slipped despite in-line quarterly results
Industrials & Materials
· Transports; CAR lowered the top ends of its full-year adjusted EPS and revenue views noting operational disruptions faced during the quarter due to hurricanes Harvey, Irma and Maria (HTZ also moved in reaction); EXPD among top gainers in S&P early as Q3 EPS tops highest view; AAWW said adjusted income from continuing operations for this year would rise less than expected, weighing on shares; ATSG revs miss, EPS beat; trucking and logistic names slip after KNX Q3 EPS missed by 4c on slightly better revs and SNDR also missed Q3 results (shares of MRTN, WERN, CGI slip early)
· Engineering & building; little give back after shares of energy sector exposed engineering and construction companies outperformed yesterday given the 2-year high prices for WTI crude oil (EGL, MTZ, MYRG, KBR, HIL, FLR, JEC, DY)
Technology, Media & Telecom
· Internet; group was mostly higher outside of the online travel weakness; GDDY reported solid 3Q results highlighted by strength in Hosting and Presence and Business Applications, and continued strong FCF growth; TRUE posted weak results and lowered FY guidance following poor performance from their USAA partner; ETSY posted Q3 rev beat and reiterated view for the year
· Online travel stocks slip; PCLN solid Q3 results, but guided Q4 below consensus shifting more budget to brand advertising (sees Q4 EPS $13.40-$14.00 vs. est. $15.57);TRIP 3Q revenue missed Street ests. due to declines in rev. per hotel shopper, which was driven by advertisers reducing spending on TRIP (also lowered 2017 forecast for click-based transactions revs); TRVG upgraded at Citigroup to buy saying the 66% selloff since July has created a favorable risk/reward profile
· Hardware, tech services and components; AAPL traded to new all-time highs; FN downgraded to neutral at JP Morgan after Q2 results came in below expectations on soft demand in China; DDD announced award of a new 3-year contract with BMW; QTNA plunged as sees “a delay in the deployment of a key service provider program coupled with near-term softness at one other service provider customer” in 4Q
· Semiconductors; SWKS results above estimates and guidance in-line as SWKS bucked the trend of many Apple suppliers guiding in-line with Street estimates; semi index has continued to outperform on better earnings and recently on M&A activity (QCOM/AVGO and CAVM/MRVL recently announced potential deals); MCHP Q2 beat and slightly higher guidance
· Software movers; CRM initiated FY19 guidance and announced a broad new strategic partnership with Google at Dreamforce yesterday; other movers on earnings:APPF, EVBG (higher)
· Optical sector; Goldman Sachs downgraded FNSR to Neutral and overall Telecom Equipment coverage view to Neutral from Attractive citing a more cautious stance on the optical component cycle as sees softening end markets, rising inventories and industry capacity; NPTN Q3 EPS and revs topped consensus as midpoint of Q4 results seen above views
· Media movers; movie theatres active after earnings as AMC cut 2017 EPS and revenue guidance as weaker box office outlook for 4Q combined with a difficult 1Q outlook suggests challenges ahead; NCMI also slipped early despite Q3 expectations beat; rebound in media related stocks (CBS, VIAB, DISCA) after reports by CNBC yesterday DIS looking at FOXA assets