Market Review: Sell Button – Do You Actually Need It?

eOptionDaily Market Report

Equity Market Recap

·      Stocks surge, with momentum firmly to the upside, as the main U.S. stock indexes touch record highs and the S&P 500 topped $20 trillion in combined market-capitalization for the first time ever. The “Trump trade” continues amid ongoing optimism that his policies will jump start a U.S. economy that has been stagnant for years with lower taxes and reduced regulation. The S&P 500 index posted its 14th record close since the election in November, rising for a 5th straight day, while the Dow Industrials record its 22nd record high since the election. Gains were wide-spread, as the Russell 2000 and Nasdaq Composite also posted record closing high ahead of Fed Chair Yellen’s testimony to the Senate banking panel tomorrow morning on monetary policy. Today’s gainers were more focused on financials, materials, metals and industrials, while retailers, energy and some tech sectors lagged. Stocks continue their march higher since the election, up over 10% given the administration’s pro-growth agenda.

Commodities

·      Commodity prices slipped in general, with the CRB Commodity index (CRY) lower, led by losses in the energy complex (after closing last week strong), while industrial metals (copper/aluminum) lead commodity gains; WTI crude oil prices fell 93c, or 1.73% to settle at $52.93 per barrel despite reports that OPEC, which agreed to the cuts with 11 other oil-producing nations in December, is 92% compliant with its pledge to reduce output by 1.2M barrels a day, Kuwait’s oil minister said today. Gold prices dropped, falling -$10.10, or 0.8% to settle at $1,225.80 an ounce, down 0.8% and recorded its biggest one-day percentage loss since Jan. 25 as the dollar rose.

Currencies & Bonds

·      The dollar was broadly higher, as the dollar index (DXY) inched higher to around the 101 level, while the euro slipped to around 1.06. The Canadian dollar firmed against greenback as PM Trudeau met with President Trump this afternoon after Trump said he and Trudeau plan to strengthen the U.S./Canada trade relationship

·      Treasury markets slipped early as stocks surged…but pared losses late day ahead of tomorrow’s Fed Chair Yellen testimony on monetary policy to the Senate banking panel. Will she indicate hikes are coming and cause a sell-off in bonds? Or will she continue to play it dovish? The yield on the 10-yr bond touched highs of nearly 2.45% from a 2.41% close Friday, but ended down around 2.43% by late day.

Sector News Breakdown
Consumer

·      Retailers; Macy’s (M) rises on positive Barron’s article and recent reports of interest from Hudson’s Bay; VRA shares slid on departure of CFO; JCP shares slid to lows in the afternoon down over 1% (upped at MSCO this morning); overall, retailer were generally lower

·      Consumer Staples & Restaurants; HAIN falls after said contacted the SEC in August to alert the agency that it was delaying financial statements because of its own review, according to a filing on Friday; regulators then issued a subpoena seeking relevant documents; LNCE Q4 EPS missed by 2c on better revs; QSR shares advanced early on earnings, while late day, Reuters reported QSR has approached PLKI to express interest in an acquisition https://goo.gl/QBCFPp

·      Autos; TSLA has moved off 180 low in early December – straight up  2 1/2 months to 278 highs today (all-time highs 291.42 on 9/4/14); auto supplier AXL was downgraded at Citigroup; CAR inks new deal with Travelport; MBLY spikes as VLKAY said to cooperate with company on road experience management system

·      Casino, Lodging & Leisure; in casino news, MPEL was upgraded at Morgan Stanley; IGT was mentioned positively in Barron’s calling shares misunderstood and cheap; lodging at Goldman Sachs – says they are constructive on 4Q lodging EPS given recent data points, but, with the recent rally, the stocks appear to be pricing in a better 4Q (sees potential for dispersion as buy MAR/HLT/HGV for idiosyncratic drivers/sell LQ/HST for negative risk/reward)

Energy

·      Energy stocks were among the biggest decliners on the day as oil slipped with commodity prices in general on the stronger dollar. Late day, the EIA reported oil production from seven major U.S. shale plays is forecast to climb by 80,000 barrels a day to 4.873 million barrels a day in March from February. In news, OXY was downgraded at Mizuho to neutral and trim our PT to $70 from $87 citing 1) rich absolute/relative valuations, 2) increasing unit expense trends throughout 2016, 3) a muted dividend growth outlook, and 4) deteriorating debt/leverage metrics; in MLPs, pipeline holders ETP, ETE and SXL popped late day after Dakota pipeline access judge rejects tribe request for temporary hold

Financials

·      Large Cap banks were the market leaders today, adding to recent gains; big cap names such as JPM, C, BAC, GS all jumping today, as did regional banks (PNC, KEY); RBS is preparing to cut more than 1 billion pounds ($1.25 billion) of annual operating costs by eliminating jobs and closing branches as it seeks to bolster profitability – Bloomberg reports – same catalysts likely reason for rising financials: under-owned names, rising rate environment, looser regulations expected ahead; Dow component TRV was downgraded to FBR Capital; overall, several 52-week highs in the S&P 500 index for financial related names – PRU, MMC, XL, AJG, PFG, RMK, UNM, ZION, MS, JPM, LNC, RF, ALL, MTB, PNC, USB, AMP, AXP

·      Finance & payments; FDC reported a beat driven by a lower tax rate and lower expenses; WEX reported solid quarter primarily driven by solid revenue growth across each of the segments

Healthcare

·      Large Cap Pharma; generics maker TEVA posted Q4 EPS/revs that both topped consensus and reaffirmed year outlook/dividend (lifted generic/specialty names early – ENDP, MYL); ZSAN shares jump after successful results from a Phase 3 clinical trial, ZOTRIP, assessing lead product candidate M207 for the treatment of migraine; AXON fell as study did not meet secondary goals as the drug didn’t show statistically significant differences compared with a placebo

·      Biotech; REGN was upgraded to overweight at Piper calling it one of the richest pipelines in the biotech industry with the ability to create long-term shareholder value; SAGE depression candidate SAGE-217 shows positive treatment effect in Part A of mid-stage study

·      Medical equipment and devices; ZLTQ to be acquired by AGN for $56.50 per share in deal valued at about $2.47B https://goo.gl/Sr4lTL (shares of CYNO falls as loses potential M&A given rival ZLTQ acquired); MYGN will replace IQNT in the S&P SmallCap 600 index; ABT with positive mention in Barron’s saying shares may bounce over the next year

Industrials & Materials

·      Chemicals; CC shares surged after it and DD to each pay $335.4M under PFOA settlement – news sent shares soaring after analysts noted positive development (Susquehanna said positive for CC as it lifts the company’s PFOA overhang, and is “significantly” lower than market expectations over the last year and a half, some of which were at $1b or more); in ag chemicals, IPI rises after UBS upped tgt to $2 and MOS rises to 52-week highs as well (Barclays only raised tgt to $25 with underweight rating saying simply can’t get bullish enough on potash/phosphate pricing to get more positive on the stock) – but group strong

·      Shipping and tankers; SINO shares surge after results; CMRE was upgraded at both Wells Fargo and Stifel; the Baltic Dry Index slipped 2% to 688 points (well off 52-week highs of 1257 reached on 11/18/16); STNG posted a smaller-than-expected Q4 loss on lower vessel operating costs, while its revenue beats estimates for the first time in four quarters

·      Metals & Mining; group very strong today on: 1) Reuters reported China considering cuts for steel and aluminum producers; 2) Iron ore expected to defy forecasts for a dramatic price collapse as China’s economy remains strong and the top buyer boosts demand for higher-quality imports, said Bloomberg; 3) also Morgan Stanley said the recent weakness in steel market could blow over quickly, steel prices may resume rally as soon as March (upgraded NUE/cut AKS); 4) copper remains strong, as prices edged to a fresh 20-month high as a strike at the world’s largest copper mine (owned by BHP), raises supply concerns (FCX higher); shares of steel producers X, STLD, rise as does iron ore producer CLF

Technology, Media, & Telecom

·      Semiconductors; ON trades to best levels in 16-years on earnings beat; NVDA shares with profit taking, sliding early in the session; AMD new Ryzen processors are superior to INTC’s CPUs “in most areas,” according to Forbes article

·      Software & Hardware; AAPL rose as much as 1.3%, to highest intraday since April 2015 and set to close at a record high, amid positive comments from Goldman who raised tgt to $150 from $133, citing increased confidence in outlook for the iPhone 8 cycle in 2H; INOV fell on a downgrade at Bank America; WDC and STX moved higher while Mizuho said believe MU and WDC should see strengthening DRAM and NAND pricing tailwinds into mid-year.

·      Telecom & Media; S and TMUS lower after VZ said it started selling unlimited data plans again (spectrum holders such as DISH and towers such as CCI/AMT gained early on news); in media, GCI downgraded to hold at Argus; DIS said Disneyland prices to rise 2.1% to 4.8%

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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