Equity Market Recap
- U.S. stocks ended mixed on the day, with the Nasdaq Composite outperforming the S&P and Dow Industrials, while the Russell 2000 slipped again, as markets await details of the Healthcare Bill vote tomorrow. The mixed market results came after a volatile sell-off yesterday that saw financials, tech and industrials drag major averages lower on Tuesday. Today was a more stable environment, as investors await details of the vote.
- The House is expected to vote on the Republican health care bill Thursday, but the replacement to Obamacare has seen pressure not just from Democrats, but from some conservative GOP members as well. On Tuesday afternoon, the Freedom Caucus threatened to formally oppose the bill if the language in it did not change dramatically. The bill itself is one of the first steps towards Donald Trump’s new administration changes, which is also expected to include large infrastructure spending bills, tax reform and regulation (but those could be delayed with a prolonged battle on Healthcare). Shares of hospital stocks, managed care and life science tools will be among the biggest movers on tomorrows vote.
- Transports were mixed after FDX earnings report/weak airlines (after analyst downgrade). Energy prices a drag early after bearish weekly inventory data (oil touched Nov lows), while gold rises a 5th day on a weaker dollar. Consumer discretionary/retail stocks weighed down by NKE outlook/revenue/futures orders and SHLD comments that it may be unable to continue as a going concern is having a ripple effect on shares of retail REITs
- Shots were fired near the U.K.’s Houses of Parliament in London, in an apparently concerted attack including the stabbing of a policeman and a car driving at people outside the building, according to media reports. Lawmakers heard loud bangs outside parliament early Wednesday afternoon local time, the BBC reported. According to the latest reports, four people died in the attacks and at least 20 were injured.
- Existing-Home Sales for Feb fell (-3.7%) to 5.48M rate, below estimate of 5.55M (January was unrevised at 5.69M); there were 3.8 month’s supply in Feb. vs. 3.5 in Jan as inventory rose 4.2% to 1.75M homes; said 1st-time buyers 32% of total sales; all cash 27%; investors 17%; distressed sales 7% of total sales; of which foreclosures 6%; median home price rose 7.7% YoY to $228,400
- Oil futures ended lower, but well off its worst levels, falling 20c to $48.04 per barrel. Prices initially slid to lows of $47.01 (Nov lows) after another round of bearish oil inventory data. Last night, the API reported a climb of 4.5M barrels in U.S. crude supplies for the week ended March 17…the DOE with similar build of 4.95M barrels (vs. est. 3M build). Following the data (and after bearish rig count data Friday), oil prices extended losses as Brent crude dropped below the $50 per barrel mark for the first time since December.
- Gold futures advanced for a 5th straight session, rising $3.20, or 0.3% to settle at $1,249.70 an ounce; earlier, gold topped the $1,250 an ounce level, holding around a 3-week high. The weaker dollar and flight to safer/defensive assets given stock pullback helping prices.
Currencies & Bonds
- After volatile moves yesterday given the sharp pullback in U.S. stocks, the U.S. dollar and bonds extended those moves (dollar lower and bonds higher), but in a much steadier fashion. The dollar index (DXY) dropped about -0.2% to lowest levels since early February (99.547 low), as the dollar fell below the 111 level against the yen (110.73 low) for the first time since late November, while the euro traded around 7-week highs vs. the dollar to 1.0825 before ending flat on the day.
- Treasury market’s rise as yields touch 3-week lows amid market uncertainty surrounding the key health-care vote and as investors rotate into more defensive assets (gold up a 5th day) such as bonds, and out of riskier assets (for now) such as stocks; the yield on the 10-yr drops below 2.4% after trading at 2-year highs more than a week ago above 2.61%
Sector News Breakdown
- Retailers; a group that has been under significant pressure over the last few months (weak earnings season), gets another negative data point overnight, as Dow component and footwear giant NKE reported a Q3 EPS beat of 15c, but sales of $8.43B missed est. $8.47B/also posted Q3 margins of 44.5% (slight miss), while worldwide futures orders were down (1%) vs. est. up 3.4%
- In other retailer news; SHLD shares plunged after the company warned of “substantial doubt” about its ability to keep operating/added that actions taken in 2016, early 2017 will enhance liquidity, financial flexibility (SHLD late said auditors provided an “unqualified audit opinion”); SQBG CEO stepped down; DLTH shares surge as Q4 EPS and revenue results topped expectations; PERY revenue forecast below consensus; and in research: KATE downgraded at Citigroup, while KeyBanc upgraded URBN to overweight, but cut LB to underweight and ASNA to sector weight
- Auto’s; little rebound in auto space after the group got crushed yesterday on auto lender ALLY comments about pricing (said used vehicle price declines) and industry yesterday; BWA was upgraded to buy at Deutsche Bank; AZO may buy back up to $750M in additional stock
- Housing & Building Products; TMHC 10M share Secondary priced at $21.00; TPH 11.986M share Secondary priced at $12.76; group been active with falling mortgage rates after a jump last week and recent LEN earnings yesterday; KBH to report results tomorrow morning
- Inventory data was bearish on both counts for the energy sector as the API reported a climb of 4.5 million barrels in U.S. crude supplies for the week ended March 17, while the DOE was out with similar build of 4.95M barrels (vs. est. 3M build); PBR up after earnings and analyst upgrade
- Alternative energy/Utilities/Solar; RUN was upgraded to buy at UBS saying the pitfalls with 4Q are behind, sees accelerating prospects; 52-week highs in S&P dominated by utilities – AEE, PCG, NEE, D, PNW; group still seeing strength as rates have come down and investors have rotated into more defensive/dividend paying sectors; solar names broadly lower – FSLR, SPWR down about 2%; group weak yesterday after CSIQ results (CSIQ down a 4th straight day)
- Large Cap banks were mixed, with some bouncing off yesterday’s mass sell-off on lower rates; group has been hit the last few days amid uncertainty surrounding the outcome of the upcoming vote on the House Republican health care bill (as tax reform maybe contingent on passing of bill), as well as technical selling and overcrowded longs – with most expectations bond yields would be rising given the FOMC stance of raising interest rates
- Mall REITs; shares of SPG, MAC, SKT, GGP among those active after another warning in retail, as SHLD disclosed that it may be unable to continue; in other REIT news, CBL shares fell after a downgrade by KeyBanc; group getting positive momentum from lower rates, but the weakness in retail REIT very sector given the recent store closing announcements from the likes of M, JCP, SIG, and BEBE
- Large Cap Pharma/Managed care/Hospitals; all eyes remain on Capitol Hill and the passage of the GOP Healthcare bill. Republican pressure to vote for the healthcare repeal is “not going to work now,” Rep. Jim Jordan, R- Ohio, said on MSNBC. This is “not how the legislative process is supposed to work,” Freedom Caucus founder says “This bill does not repeal Obamacare” and that’s “fundamentally” why conservatives don’t support
- “Even with recently submitted changes, the American Health Care Act has too many Obamacare-like flaws,” conservative group FreedomWorks said in statement. “We hope leadership will bring in House conservatives, including the Freedom Caucus, to have an open amendment process in the future,” FreedomWorks statement said
- Secondary/deal pricings overnight; ADAP 14M share Spot Secondary priced at $4.20; CALA 6.83M share Secondary priced at $10.25; RGNX 3.75M share Spot Secondary priced at $20.50; VTL 8.75M share Spot Secondary priced at $4.00
Industrials & Materials
- Industrial & Machinery; the sector bounced partially after falling sharply yesterday despite little news flow (more of a reversal of some “Trump” trades since the election as machinery and infrastructure names fell Tuesday); AYI mentioned cautiously at Roth Capital saying checks with component suppliers are reporting a particularly weak start to 2017/also continue to see Cooper Lighting (ETN) as a pressure on Acuity’s overall performance
- Aerospace & Defense; TDG shares add to recent losses after being downgraded to market perform at Cowen ($219 tgt), saying the outside prospect of a DoD inquiry, potential elimination of the interest deductibility for tax purposes, high financial leverage and headline risks hurt
- Transports mixed; FDX managed to rally despite Q3 EPS missed lowest estimate on in-line revs of $15B, while reaffirms outlook as sees rebound in ground unit as E-commerce fuels growth; airlines open weak after Morgan Stanley downgraded the sector to in-line from attractive due to increasing domestic supply, estimated at +4-5% for 2017/2018, margin deterioration stagnated pricing (firm downgraded AAL in conjunction with call) – group pared recent losses; ZNH rises on Bloomberg report that as AAL in talks for $200M stake in China Southern Airlines
- Metals & Mining; iron ore maker CLF has been under pressure after ore with 62% content in Qingdao fell to $84.99/dry ton, trimming YTD gains at 7.8% after benchmark peaked at $94.86 on Feb. 21; in steel sector, JP Morgan raised estimates and price targets for X, STLD, NUE, and AKS to reflect conviction that the companies are poised for stronger earnings growth over the next several quarters; SLW rises on better earnings results; SCHN guides Q2 EPS 34c-37c vs. est. 33c
- Chemicals; Dutch paint and chemicals firm Akzo Nobel NV (AKZOY) said it had rejected a sweetened EUR22.37 billion ($24.19 billion) takeover proposal from rival PPG. Akzo said PPG’s revised offer worth EUR88.72 a share, which comes just weeks after its initial EUR83-a-share offer was rebuffed, undervalues the company and doesn’t warrant engaging with its U.S. suitor https://goo.gl/WmKLMt
Technology, Media & Telecom
- Internet; SNAP gets second analyst upgrade as Drexel initiates buy and $30 tgt; rest of the high-beta Internet sector was mostly higher (FB, TWTR, AMZN)
- Semiconductors; MU tgt raised to $35 from $30 at Credit Suisse (ahead of earnings this week); semis outperform in tech, as SOX rises after the group dropped 2.36% yesterday, falling over 23 points after touching 17-year highs early Tuesday of 1017…shares of ASML, MU (ahead of eps tomorrow night), QRVO, MCHP, ON leading
- Telecom & Media; Goldman Sachs downgraded FTR to sell with street low tgt of $1.50 (from $3) implies 38% potential downside, excluding the dividend (17% yield), which they view as at risk; Goldman also reinstated WIN with sell and $4.50 tgt; SIRI was downgraded at Barclay’s; MDP boosted its year EPS forecast to $3.85-$3.90 (est. $3.75); CNK cut at Wunderlich
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.