Market Review: November 8, 2017

Scott GreenDaily Market Insights

Closing Recap
Wednesday, November 8, 17
  
Equity Market Recap
·      Stocks bounce off earlier lows, once again ending near the best levels of the day as the sectors that had dragged markets lower late yesterday and early today (financials and technology) rebounded off the lows, while defensive/dividend paying sectors also outperformed. Bonds end little changed and the dollar mixed, while oil prices were volatile, ending the day lower after trading at fresh 2-year highs earlier. Gold jumped to three week highs. Stock averages remain buoyed by tax reform hopes, though there were mixed reports related to the timing of the Senate bill. Axios first reported that the Senate will not release the tax bill on Thursday as they had previously outlined. However later in the day, Politico reported that the Senate to plan tax bill release at 11:30 AM EST. Senate tax plan won’t include controversial 20% excise tax on imports by multinational co’s., CNBC reported. The Dow Industrial Average came into the day with a 6-day win streak, while the NASDAQ ended a few points off its record intraday levels yesterday (of 6,795). No major economic data for a second today or Fed speakers as the focus remained on the earnings barrage and tax news. Today also marked the 1-year anniversary of President Trump election (Dow Jones up 28.5%, S&P up 21.2% and NASDAQ up 30.7% since the election). Media stocks were active, led by a decline in TWX after the Department of Justice demanded AT&T to sell asset of CNN in order to approve TWX purchase. The Congressional Budget Office on Wednesday said the tax bill written by House Republicans would boost the deficit by $300 billion more than lawmakers estimated. The CBO said the Tax Cut and Jobs Act would increase the deficit by $1.7 trillion over a decade.
 
Commodities
·      Oil ends lower; it was a volatile session for energy prices, with WTI crude settling the day at $56.81 per barrel, down 39c, but well off earlier 2-year highs of $57.92. Oil prices initially dipped (touched lows of $56.41) following bearish inventory data, as the EIA posted a surprise inventory build of +2.23M barrels vs. expected drawdown of -2.45M barrels, though gasoline and distillates post larger than expected draws of -3.3M barrels each; Crude production jumps to record high as output touched 9.62M b/d. Prices later rallied to highs of $57.92 per barrel as momentum has been to the upside, but prices lost steam late day, ending lower
·      Gold prices advanced $7.90, or 0.6% to settle at $1,283.70 an ounce, closing at the highest in nearly three weeks. Palladium futures, meanwhile, topped $1,000 an ounce to settle at their highest since early 2001, after four failed attempts this month to break that level. Strong demand and a shortage of palladium have supported prices for the metal. December palladium jumped $21.70, or 2.2%, to end at $1,015.80 an ounce.
 
Currencies & Bonds
·      The dollar index ends near unchanged, holding under the 95 level and posting small losses vs. the yen, euro and loonie, but advanced against the pound. The dollar sunk against emerging markets given the rebound in oil prices, falling to 1.2716 against the Canadian Loonie. Bitcoin trades to new all-time highs after a group of key developers called off Segwit2x, a proposed upgrade to bitcoin’s blockchain that would have increased the block size. This change likely would have caused more disagreements in the cryptocurrency community and could have led to another bitcoin split, Bloomberg noted (Bitcoin touched a high of $7,882 before fading)
·      Bonds slipped late session as stocks rebounded from earlier lows; yields inched higher in what was a tight trading range most of the day; the 10-yr yield inched higher by about 1 bps to 2.325% but was little changed as markets await the tax reform changes (maybe tomorrow – though mixed reports) from the Senate. No economic data for a second day kept bond volatility low
   
Sector News Breakdown
Consumer
·      Retailers; watch maker FOSL plunges to new 17-year low on significantly lower earnings and outlook; 52-week lows today for JWN and FL in retail; WWW beat on top-line and positive margins with expenses also coming in ahead; GOLF Q3 sales slightly above expectation with EBITDA in-line with the street (narrowed year Ebitda); KSS and Macy’s (M) report tomorrow
·      Auto’s; CVNA shares fall after the company posted 3Q revenue below analysts’ estimates and trimmed the top end of its full-year revenue and unit sales outlook (CARG, KMX, LAD, ABG, AN, GPI, PAG, SAH all active); Morgan Stanley cautious on auto parts retailer AAP saying they expect it to report a poor 3Q and lower guidance, but not as bad as market expectations; AXL 15M share Spot Secondary priced at $17.55
·      Consumer Staples; BETR downgraded to hold at SunTrust following the company’s 3Q results and lowered guidance; VSI shares fall after weak Q23 results, posting an unexpected Q3 loss; SBH downgraded to underweight at Morgan Stanley as the retail segment facing tougher competition which is leading to negative comps/margin erosion and amplifying EBIT pressure; in protein space, PPC rises as Q3 EPS, revs, Ebitda top views; ELF downgraded at Piper; PFGC posted mixed Q12 with EPS beat and slight rev miss but reaffirmed guidance; MED jump on EPS beat; in restaurants, busy week of earnings, with WEN, FOGO moving on results overnight
·      Housing & Building Products; KBH hosted an intra-quarter investor update call last night, not changing any of its 2019 goals, but appeared confident that it is on target;FRTA strong Q3 results as Ebitda totals and guidance well above consensus views; TCS benefits from improved guidance as Q2 sales beat and raises year EPS/sales view;DHI reports tomorrow in homebuilders
·      Casino, Lodging & Leisure; in casinos, MGM meets quarterly profit; In lodging, MAR, RRR and ILG both reported quarterly results; in leisure, PLNT Q3 with quarterly beat on strong membership and margin gains, while management announced a 10% pricing increase on its higher-cost memberships; in boating, MBUU Q1 proved better than expected
 
Energy
·      Sector initially weak on softer oil prices given the bearish oil inventory data this morning… but prices rebounded as markets focused on upward momentum and the bullish gasoline and distillate figures; MLPs mostly lower after a few earnings reports (NS declines on results as well as ETP, while DCP moved higher)
·      E&P and equipment sector; CLR boosted its production forecast for the full year to 238,000 to 242,000 boe/d, from prior 230,000 to 240,000 after Q3 results topped views; XOG slides on concerns amid higher spending, disappointing 4Q oil production guidance; CRZO slightly softer Q4 outlook and FY budget increase slightly offset by Q3 beat, ops; FTK falls after unexpected quarterly loss and revenue miss
·      Drillers; Jefferies said HP and PTEN are top picks within US land drillers and they got more bullish on the group as believe dayrates can improve in early 2018 and the group can catch up to onshore services as growth visibility for services is priced in to shares (the firm also upgraded shares of NBR to buy)
·      Utilities; 52-week highs for several utilities again today (SRE, DUK, ES, AEP, AWK, ED, AEE) though the sector pared early gains (defensive and high dividend paying names led early)
 
Financials
·      Large Cap banks; sector mostly lower for a second session, down ahead of Senate tax proposal reveal (tomorrow), while KBW said today that investors began to evaluate the impact of big Democratic election wins in Virginia and New Jersey. “If we are right and Virginia signals increased chances that control of the House flips, then investors need to start thinking about Rep. Maxine Waters (D-CA) as the next chairman of the House Financial Services Committee. While we doubt that Waters could implement an anti-bank, anti-financials agenda, the financial sector would no longer have a wind at its back from Congress and we think the headline risk for the industry would increase significantly,” said KBW (GS, BAC, WFC, JPM, C active); MBI approved a new $250M buyback after prior buyback was exhausted; FHN upgraded to strong buy at Raymond James; UMPQ upgraded at KBW
·      Lending and finance; SQ reports earnings after the close tonight; GDOT shares jump to 52-week highs as earnings top consensus on accelerated debit card growth/announced partnership with INTU prepaid card for TurboTax; LC reported earnings in line expectations, but announced a plan to restrict lending to all but the most creditworthy borrowers, hurt shares; GPN slides after results as some analysts question North America growth; BR Q1 EPS beat; STC upgraded at KBW after announced a strategic review exploring options including a potential sale of the company; NNI falls on EPS miss of lowest estimates
·      REITs; CLI reported an in-line FFO result on light revs; CBL and TCO both downgraded at Mizuho as an early read on the broader retail REIT sector shows deceleration of malls will persist in 2018
 
Healthcare
·      Pharma movers; DEPO results that were mixed – missed on revenues and beat on EPS; ARNA wider Q3 EPS loss; OCUL reported 3Q loss per share of 54c which was worse than cons estimates by 1c (revs inline); MNK downgraded by several analysts after yesterday lower Acthar sales forecasts and EPS miss
·      Biotech movers; REGN Q3 results led by Eylea sales growth that was above expectations; NKTR rises after announcing plans to file an NDA for NKTR-181 by April 2018 and better top and bottom line earnings; ALNY rises on earnings and pipeline hopes; TSRO biggest decliner in the space after Q3 Zejula sales of $40M trail estimates
·      Medical devices and equipment; DVA among top decliners in S&P after earnings/guidance; EYES said the FDA granted Expedited Access Pathway status for the Orion Visual Prosthesis System; INGN shares jumped on Q3 beat and boosted guidance for the year
·      Healthcare services and facilities; in managed care, HUM shares fell after saying it would cut 13K jobs as it tries to cut costs after an EPS beat/ said its 2018 profit growth would be “a bit below” 11%; AMED mixed Q3 on EPS beat rev miss; IVC shares jump sales beat low expectations while EPS was roughly in-line and KeyBanc believe investors will view earnings release with a sigh of relief and can now look for an overall turn beginning next quarter
·      Other gainers on earnings: AFAM, ALDR, DEPO, HALO, JAZZ, NKTR, OPHT
·      Other decliners on earnings: ACAD, BEAT, DVA, HUM, OCUL
 
Industrials & Materials
·      Industrial & Machinery; ROK misses earnings estimates on higher costs as operating margin contracted to 17% from 19.8% last year due to higher investment spending and restructuring activities; CECE falls after missing Q3 results and suspending its dividend; AVAV mentioned cautiously by SprucePoint saying they see 30-50% downside risk, another hyped tech name
·      Transports; Transport index slips again to 9,600 levels (now more than 400 points off record highs of 10,080 on 10/13; CAR falls again after dropping yesterday on lower guide; EXPD falls as one analyst noted revenue margin pressures remain despite reporting solid volume growth 
 
Technology, Media & Telecom
·      Internet; SNAP shares drop as 3Q revenues and DAU missed estimates and it announced a redesign of its application, though got a boost after China’s Tencent said it took a 10% stake; CARS reported 3Q results below estimates and forecast 2017 revenue to be down ~1% (follows weak guidance from TRUE the day prior); ZG Q3 revs top estimates and raised year Ebitda and revenue outlook
·      Semiconductors; SYNA Q1 EPS/revs top consensus and in-line Q2 rev guidance; COHR 52-week highs after sales top highest estimates and EPS beat; LSCC shares jumped on earnings and guidance; overall semi index (SOX) was little changed on the day
·      Hardware & Comm equipment; AAPL became the 1st publicly traded U.S. company to reach a $900 billion market capitalization today (next closest GOOGL which surpassed $700 billion for the first time last month); INFN rises (ahead of earnings tonight) as NFLX deployed the Infinera Cloud Xpress 2 to expand their delivery capacity for streaming videos; DXC posts top and bottom line quarterly beat; ERIC falls as said its targeted 12% operating margin will take longer to reach than originally planned due to currency movements and some weak markets.
·      Software movers; NEWR revenue, billings, margins, and EPS loss all beat, with billings accelerating to 33% from 24% growth last quarter; WK quarter of margin upside and solid net add activity, offset volatility in quarterly billings (flat growth y/y off of a difficult 53% comp)
·      Video game makers rally; TTWO easily surpassed Street forecasts for 2QFY18 and posted higher guidance outlook for next quarter and year as upside reflects the continued success of the GTA franchise and NBA 2K; ATVI said Call of Duty: WWII has surpassed more than $500M in sell-through worldwide in its first 3 days of release;ZNGA 3Q results led by its  Forever Franchise with bookings ~2% ahead  and better Ebitda
·      Optical sector; very busy of week for this group, with AAOI results out overnight as 3Q results in-line with preannouncement while 4Q sales guide is below, but EPS guidance was above consensus due to tax benefit (OCLR, NPTN, LITE, FNSR active this week); MKM said they think the QSFP28 and China market issues should be fairly well understood for group after earnings reports
·      Media & Telcom; TWX shares fell after AT&T CFO said that timing of the Time Warner deal closing is “now uncertain” because of ongoing talks with the DOJ – AT&T later said it is prepared to fight with U.S. over TWX as it is unwilling to part with CNN, HBO, TNT and WB Studio; MTCH shares jump on profit beat and record paying member count up 18% YoY to 6.6M driven by a record increase in Tinder of +476K to 2.56M
·      Other advancers on earnings: CALX, COHR, LSCC, MTCH, NEWR, RPD, VRTU
·      Other decliners on earnings: CABO, CSRA, CVG, DIOD, EXTR
 

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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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