Mid Day Outlook: October 30, 2017

Scott GreenDaily Market Report

Mid-Morning Look
Monday, October 30, 17
  
U.S. stocks open mixed, with the Dow Industrials falling as MRK leads index lower on study news (though Dow has already nearly recovered all losses), while technology picks up where it left off last week, extending record highs for the Nasdaq Comp ahead of another round of key earnings this week. Apple and Facebook are both expected to report earnings later in the week (each trading at record highs after MSFT, INTC, GOOGL, AMZN surged last week to record after better earnings results). Financials and Consumer Discretionary stocks a drag on markets early while tech keeps churning higher and energy finds solid footing with oil prices rising. There was also a handful of M&A deal announced today in the education space (STRA/CPLA), housing (CAA/LEN), utility (DYN/VST), and healthcare (AAAP/NVS), which are helping boost sentiment.
 
Another busy week of news and earnings is expected, ranging from the FOMC meeting midweek (no change to rates or policy expected) and the Bank of England meeting on Thursday; President Donald Trump’s expected announcement on the selection of the next Fed chairman, and another round of economic data, highlighted by the monthly jobs report on Friday. Congress debates tax cuts also mid-week lifting market hopes. The S&P 500 slips after hitting all-time high Friday while the NASDAQ makes new highs. The Stoxx 600 in USD is up 20% vs the S&P 500 up 15% through Oct. 27, putting the European benchmark on pace to exceed the U.S. for the first time since 2012. Big news out of Washington as Paul Manafort and Richard Gates indicted on 12 counts: conspiracy against the United States, conspiracy to launder money, unregistered agent of a foreign principal, false and misleading FARA statements, false statements, and seven counts of failure to file reports of foreign bank and financial accounts, according to statement from Special Counsel’s office
 
Treasuries, Currencies and Commodities
·      In currency markets, the dollar slips after one of its best weekly returns of 2017 last Friday, helped following the improving outlook for U.S. tax reforms and solid economic data. The euro tumbled last week to a more-than three-month low against the dollar after the ECB said it will extend its quantitative easing program another nine months from January, albeit at a slower rate; the dollar index high 94.92 but lower now. Bitcoin up over 6% after overnight highs of $6,252
·      Commodity prices; gold prices posting small gains early, getting a lift as the dollar pares gains after spiking last week on tax reform and better economic data. Energy futures also modest gains on expected output cut extension by OPEC (after comments last week). Iraq has increased exports from its southern oilfields to 3.45 million barrels per day (bpd) to make up for a shortfall from the northern Kirkuk fields – Reuters reported – Brent hold above $60 per barrel
·      Treasury market’s rise as yields fall after in-line economic data today (PCE core inflation rise 0.1%, in line expectations); investors awaited President Donald Trump to announce the next chief of the Federal Reserve and for the Republicans to release its tax bill.
 
Economic Data
·      Personal Income for September rose 0.4%, in-line with estimates while personal consumption/spending rose 1.0%, slightly above the 0.9% estimate; real personal spending rose 0.6% vs. est. 0.5%; inflation readings in-line as core inflation rose 0.1% (and 1.3% YoY) while PCE prices rose 0.4%; est. 0.4% (rose 1.6% YoY); the savings rate at 3.1% in Sept. vs 3.6% prior
   
Sector Movers Today
·      Retailers; group continues to suffer amid analyst downgrades as business remains soft; JCP downgraded by a few analysts after lowered outlook last Friday sending shares to record lows; Citigroup downgraded both JCP and Macy’s (M) to sell ratings today; UAA downgraded to underperform and Street low $12 at Bank America given continued weakness in North America athletic footwear and apparel retail market; TGT mentioned positively in Barron’s where they outline that Target’s stock could climb to $75 to $80 in the next two years; SHLD ratings cut deeper into “junk” by S&P, lowering credit rating to CCC from CCC+
·      Transports slide to the lows, index down as much as -0.75% before paring losses, trading back below 9,900 level as nearly all components (CAR higher) down led by JBHT, UAL, AAL, LUV
 
Stock GAINERS
·      ADMS +18%; as Evercore/ISI raises price target to $85 and initiate outperform saying it is just getting started given the combo of modest ~$430M mkt cap and a robust pipeline of opportunity
·      ALNY +1% FBR’s Alpha Generator Pick on franchise potential with $150 tgt
·      AMZN +1%; spikes to new all-time highs of $1,119, rising again after Thursday earnings beat
·      BMY +2%; upgraded to buy and tgt raised to $75 from $55 at SunTrust as MRK’s KN-189 data delay to ’19 & withdrawal of EU 1L NSCLC filing improves BMY’s competitive position
·      DO +4%; after Q3 earnings beat
·      ENDP +10%; helps lift beaten up generic/specialty pharma sector after guiding Q3 revs to $785M on EPS of 85c (above $784M and 66c view) and guides year EPS to upper end of range
·      FNSR +3%; Bloomberg said press reports indicate that Apple has asked suppliers to increase shipments due to stronger-than-expected demand for the iPhone X
·      NTDOY +3%; raised its earnings forecast for the current fiscal year as it reported strong sales of its Switch console during the fiscal second quarter/raised its Switch unit forecast (to 14M from 10M)
 
Stock LAGGARDS
·      AMD -4%; downgraded to underweight at Morgan Stanley citing slowing microprocessor momentum and potential for cryptocurrency gains to fade
·      AWI -4%; Q3 EPS and revs missed consensus estimates despite guiding year EPS view higher
·      FDC -3%; reported in-lien Q3 EPS and res, but one analyst noted revenue from the Global Business Solutions (GBS) unit fell short of the firm’s expectations
·      GE -1%; after plunging 12.8% last week on weak earnings/dividend cut fears
·      GM -2%; downgraded to sell at Goldman Sachs citing an expected negative earnings inflection in 2018; sees 28% downside potential to shares with GS’s $32 PT; says cyclical pressure and product cycle changeover in North America should drive overall EBIT-adjusted down 22% y/y
·      ICON -17%; as WMT won’t renew DanskinNow license beyond January 2019
·      MRK -5%; the Dow component downgraded by at least three analysts after the company withdrew the European application for Keytruda combo as a first-line treatment for metastatic nonsquamous non-small cell lung cancer
·      ODP -11%; downgraded to underweight at JP Morgan
 
M&A movers today
·      AAAP +10%; Novartis AG (NVS) agreed to acquire Advanced Accelerator Applications SA (AAAP) in an offer valued at $3.9 billion; NVS said it would offer $41 in cash for each ordinary share of AAAP and that it plans to finance the deal fully through external debt. https://goo.gl/v7V9Bn 
·      CAA +23%; Home builders Lennar Corp. (LEN) and CalAtlantic Group Inc. (CAA) said they plan to merge in a deal worth about $9.3B, including $3.6B in assumed net debt. Each CalAtlantic share will be exchanged for 0.885 share of Lennar Class A common stock in a move that values CalAtlantic shares at $51.34, a 27% premium to where they closed Friday https://goo.gl/dsz413  
·      CPLA +29%; Strayer Education Inc. (STRA) said it would merge with smaller peer Capella Education Co. (CPLA) in an all-stock deal valued at $1.9 billion; STRA shareholders will own about 52% of the combined company, and Capella shareholders about 48% https://goo.gl/VwKJE6 
·      DYN +13%; as Vistra Energy (VST) will buy Dynegy Inc. (DYN) in an all-stock deal worth $1.74 billion, the U.S. power producers said; Dynegy investors will get 0.652 shares of Vistra common stock for each share of Dynegy stock they own or about $13.24 per share https://goo.gl/CkymNM
·      STZ ; Constellation Brands (STZ) has agreed to take a 9.9% stake in Canopy Growth Corp., a Canadian marijuana company, and plans to work with the grower to develop and market cannabis-infused beverages – WSJ https://goo.gl/57pFUP
 
 
 

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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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