Mid-Day Outlook: March 27th, 2017

eOptionDaily Market Report

Equities start the day lower, extending the recent downtrend in markets, as the S&P 500 drops below technical support for the first time since early November. Failure of the Healthcare Bill passage by the GOP last Friday has weighed on market sentiment and is being seen as upcoming failure on taxes and deregulation, further pressure markets/unwinding certain trades. Financials (crushed early), Industrials, Materials biggest decliners (unwind of Trump trades since the election), while defensive sectors (utilities) outperform. The S&P 500 index dropped below the 50-day moving average of 2,331 earlier (last time below was mid-November), while the Dow industrials traded below its 50-day MA of 20,460. Note, the Dow Industrials come in riding a 7-day losing streak (haven’t seen an 8-day losing streak since 2011). The GOP health-bill collapse creates near-term relief for hospitals and Medicaid insurers, which had the most to lose from the proposal, according to some analysts. The market has been in a downward spiral over the last 2-weeks, starting with the FOMC rate hike, followed by the disappointment related to the Healthcare passage bill. The dollar extends losses, along with weakness in energy and other commodity prices, while defensive/safe haven trades rallying early (bonds/gold). Lower oil prices put pressure on energy companies.

Treasuries, Currencies and Commodities

  • In currency markets, the dollar falls further, extending recent declines as the British Pound rises above the 1.26 level for the first time since early February; dollar/yen just off lows of 110.11 (lowest since late November); the euro tops 1.09 against the dollar (up nearly 1%) – and above 200 day MA of 1.0882 – highest levels since early November
  • Commodity prices mixed; Precious metals outperform as dollar fades, and stock markets decline, as gold trades to best levels in over a month, rising above $1,262 an ounce. Energy futures decline despite dollar weakness, on failure of pro-growth stimulus packages likely being enacted
  • Treasury markets jump early, with yields on the 10-year down around 2.33%, but have since pared gains as stocks pare losses. Rotation out of riskier assets such as stock, seeing flows into bonds and gold early in the day

Sector Movers Today

  • Hospitals; one of the few beneficiaries thus far from the failure of the Healthcare bill last Friday;  HCA and UHS were upgraded to buy at Mizuho today after Health Care Bill was scrapped citing the threat of a roll-back on expanded Medicaid benefits diminishing (HCA tgt to $98 and UHS to $138); other names such as THC, LPNT, CYH also active
  • Auto’s; Wedbush said they remain cautious on KMX into print on April 6th as credit related pressures continue to ramp higher partially offset by better sales trends; CPRT announced a 2-for-1 stock split; Goldman Sachs lowered estimates for auto rental stocks (HTZ/CAR); HOG tgt was raised to $72 at BMO Capital citing good feedback on retail sales thus far in the first quarter; Evercore cut estimates on Ford by 10% and GM by 2% for 2017 EPS
  • Large Cap banks; group under assault early on lower bond yields (hurting lending), while names that benefitted over the last few months on hopes of Trump plans to lift group (tax reform and deregulation) fading after failure of Healthcare Bill last Friday; MS downgraded at Compass Point as views shares overvalued based on the elongated trajectory towards earning a competitive ROE; CMA, HBAN, SIVB, ZION, FRC among those lower
  • Transports; Transports bigger technical breakdown – broke through 100 day support last week of 9109…traded under 8,800 level today (all-time highs 3/1/17 of 9,639); airlines, etc. (AAL, DAL) all broadly lower; car rental estimates and tgts lowered at Goldman Sachs (HTZ/CAR) against a backdrop of increasing vehicle depreciation expense, increasing interest rates, a structural impediment to industry pricing, and another transition
  • Metals & Mining; metal sector slammed this morning (X, CLF, AKS, FCX) on infrastructure spending worries by Trump administration; gold miners however seeing early gains amid further bounce in gold prices on weaker dollar (AEM, ABX, NEM)
  • Protein sector; KeyBanc said much has changed in the industry outlook in recent weeks, with newfound pricing strength, export market turmoil and improved feed costs leading them more favorable stance near-term (prefers SAFM which is upgraded while downgraded PPC)

Stock GAINERS

  • BBY +2%; BBY upgraded to overweight at Piper and tgt upped to $55 at Piper saying store closures from hhgregg and potentially SHLD could lift comp sales
  • EXAS +7%; confirms expanded Cologuard coverage from AET
  • HIMX ; upgraded to overweight and $11 tgt at Morgan Stanley citing optimism about the 3D sensing opportunity in non-Apple smartphones
  • IPXL +22%; appoints Paul Bisaro (formerly of AGN) as President & CEO effective today
  • WFT +9%; upgraded at Wells Fargo after forming joint venture w/SLB taking aim at HAL

Stock LAGGARDS

  • CALM -1%; shares fell to 52-week lows after earnings missed expectations
  • FCX -5%; concern grows that President Trump won’t be able to push through pro-growth policies
  • FOMX -42%; one of two Phase 3 studies of FMX101 in acne missed one of two co-primary endpoints
  • GIII -12%; Q4 loss/sales missed estimates, and forecasts for 1Q and year-end results also trailed
  • HAL -3%; after SLB and WFT joint venture targets competition for company
  • SEE -3%; in pact to sell New Diversey Care division to Bain Capital Private Equity for ~$3.2B
  • SWIR -8%; after Raymond James downgraded to neutral
  • WAGE -7%; downgraded at Wells Fargo

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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