Tuesday, October 31, 17
Equity Market Recap
· U.S. stock markets close out the “scary” month of October in strong fashion, posting its best monthly gains since February amid better earnings (especially in tech and large cap Dow components), strong economic data, hopes of tax reform approval and as macro concerns (political uncertainty in Europe/North Korea/who the next FOMC Chair will be) take a backseat. Bond have declined this month, with the 10-year yield rising (2.37% today and last week highs of 2.47%, best this year) as improving economic data continues to boost expectations the Fed rate hike cycle will pick-up steam (though no changes are expected tomorrow following its monetary policy meeting results). Oil posts its first back-to-back monthly gain since last year amid signs that a worldwide glut is shrinking, closing at $54.28 per barrel, while gold slumped. Record highs again for the Nasdaq Composite, with S&P 500 and the Dow just off their life-time best levels.
· After falling more than 1% yesterday, the Russell 2000 rebounded today ahead of the House bill’s expected unveiling tomorrow of tax reform. Technology paving the way high for broader averages, led by strong gains in the Philly semi index (SOX), touching another fresh 52-week high today ahead of AAPL results later this week (SOX index up 8.9% this month). The Dow Industrials post its seventh monthly advance, with major averages edging higher ahead of several upcoming market catalysts. Tax reform tomorrow (Republicans are expected to unveil a much-awaited bill to overhaul the tax code) and the decision from two-day FOMC policy meeting highlight Wednesday (though no changes expected), while the Fed chair announcement from President Trump is expected Thursday and the monthly jobs report out on Friday. Speaking of data, consumer confidence data came in at 17-year highs today, with housing data nearing record highs and Chicago manufacturing soaring.
· Also a busy week on new issues, with eight initial public offerings (IPOs) coming this week. Eight will be the most deals to come to market in one week since the week of June 26 to 30, according to one report and the first week to reach proceeds of at least $2.0 billion since the week of June 26, 2015, when 13 IPOS were completed for proceeds of $2.8 billion. After a slow year in 2016, the IPO market came back to life this year with 111 deals raising $26.5 billion in the first half. There has been 124 IPOs in 2017 so far, according to IPO Boutique. IPOs expected tonight: ALTR, LOMA; Wednesday night: ALNA, AQUA, EHR, FNKO, SPRO and Thursday night: AQ
· Chicago PMI rises to 66.2 in October from 65.2 in prior month and well above estimates for a 60.0 reading; October Chicago PMI best reading since March 2011
· Consumer Confidence for October rose to 125.9 (17-year highs), above est. 121.5 and 120.6 prior month; the present situation confidence rose to 151.1 vs. 146.9 last month and expectations rose to 109.1 vs. 103.0 last month
· S&P CoreLogic Case-Shiller 20-City Index rises 5.92% YoY, in-line with estimates while National Home Price index rose 6.07% YoY in August after rising 5.88% in prior month; S&P/Case-Shiller 20-city NSA index at 202.87 after 202.02 in July; the 20-city SA index rose 0.45% m/m in Aug. after rising 0.38% the prior month. The national index surpassed the high it previously set at the peak of the housing bubble last year, and is now 5.6% higher.
· Employment Cost Index (ECI) for Q3 rose 0.7%, in-lie with estimates, while the prior quarter unrevised at up 0.5%; said wages rose 0.7% q/q and benefit costs rose 0.8% q/q
· Gold prices slumped -$7.20, or 0.6% to settle at $1,270.50 an ounce, falling amid recent strength in the U.S. dollar on better economic data and rising rate hike expectations. For the month, gold tallied a loss of roughly 1.1% for the month (second straight monthly decline) ahead of tomorrow FOMC monetary policy announcement as well as news of President Donald Trump’s pick to head the central bank, which is expected to occur on Thursday. December gold settled higher Friday and Monday, but gold’s finish at $1,269.60 last Thursday was the lowest since Aug. 8th.
· Oil prices advanced late session, closing the day and month in strong fashion, with WTI crude edging higher by 23c, or 0.4% to settle at $54.38 per barrel (high $5458 and low $53.93). With today’s gains, ahead of API inventory data tonight and DOE tomorrow, WTI crude posted a 4.7% gain for the month. Dec. Brent oil climbs 0.8% to settle at $61.37 per barrel (2-year highs).
Currencies & Bonds
· The U.S. dollar index (DXY) ended flat, holding above the 94.50 level, but off earlier highs of 94.70 despite another healthy round of economic data reports topping expectations handily. The dollar remained steady ahead of the FOMC meeting results tomorrow, dipping midday amid tax-plan jitters surrounding the state and local tax deduction following the words of House Ways & Means chair Kevin Brady who said “no relief for state and local taxes in his plan.” The dollar pulled back after those comments and ahead of plan details expected tomorrow. The dollar gained against the Canadian Loonie (up about 0.5%) after Canada’s domestic August GDP data came in below expectations. The euro was flat despite better-than-expected EuroZone GDP growth of 0.6% in Q3, while the greenback gained against the Japanese yen. Bitcoin surges to fresh record above $6,400 as CME plans digital-currency futures. The British pound rose following reports raising hopes for some progress in the Brexit negotiations and ahead of the BOE meeting this Thursday (the GBP traded up as much as 0.6% late day to around 1.3287). Bond prices were little changed throughout the day ahead of several catalysts this week – 10-yr 2.37%.
Sector News Breakdown
· Retailers; UAA plunges, weighing on sportswear stocks after reported lower Q3 sales/profits and trimmed its full-year outlook as the company continues to struggle with slack demand and increasing competition in North America/sees full-year margins down about 220 bps; BURL, in connection with the launch of a debt repricing and extension transaction, preannounced 3Q comps and EPS ahead of Street expectations and comps up 3.1%; NLS falls after missing revenue estimates with its Q3 report and cutting year revenue outlook; RCII said to explore strategic and financial alternatives after Q3 EPS miss; MAT decline follows recent earnings miss/downgraded by Fitch today to BBB-; SHOO down after results as retail remains weak; CHGG slides despite earnings beat and raised guidance after touching record highs yesterday
· Consumer Staples; in food, Kellogg (K) shares rise after earnings and revenue beat; MDLZ delivers sales growth for the first time since 2013 as results beat views, sending shares higher; the two earnings helping lift the sector; JBSS decliner in food space after earnings and a Sidoti downgrade; FDP Q3 profits hit by one of worst oversupply seasons for bananas; ADM shares fall as Q3 profit misses forecasts
· Housing & Building Products; in building products, LL shares slide early after the hardwood flooring retailer reported a surprise Q3 loss and sales that fell short of expectations; TREX trades to all-time highs today after earnings beat/ noted continued positive trends in consumer confidence and in the repair and remodeling market
· Casino, Lodging & Leisure; gaming stocks rally (MLCO, WYNN), as Bank America noted since their combined mass growth of 2.1% QoQ underperformed the overall market of 5-7% QoQ, they believe Galaxy, MLCO, and SJM are likely to outperform the market with high single digit mass growth/ Gaming Revenues for Nevada and Las Vegas rose in September; Nomura raises Macau gaming Oct GGR growth estimate to +19-21% y/y vs prior +18%; in leisure, boating company HZO surges on EPS beat and guidance
· Auto’s; Automakers are expected to report strong sales for October tomorrow with consumers continuing to replace vehicles damaged during the devastating hurricanes earlier this year. The numbers may not be as strong as September, but they should still be robust, according to analysts with the big three estimates: GM: -1.5%, Ford:+1.4% and FCAU -12%
· Movers; INT extends losses after plunging 10/27 on earnings, said it expects tax rates to rise in 4Q. Sees 4Q effective tax rate 15%-19%, higher than the 13.6% rate it paid in 3Q and 11% rate in 3Q 2016; BP trades to 52-week highs after earnings results
· Utilities, solar and alternative energy; AEIS shares dropped despite earnings beat and raised guidance; coal stocks active as ARCH shares jump on earnings beat and announced stock buybacks while CNX said to split into coal mining, oil and gas extraction companies after its earnings results missed on earnings while sales beat; solar stocks slipped, led by FSLR after ITC recommendation for tariffs as high as 35% on imported solar panels incrementally modest negative for First Solar according to one analyst (JPM) – said penalty of up to $0.13/watt seems to be close to $0.10/watt threshold that Chinese importers consider manageable
· Large Cap banks/financial services; banks were mostly lower ahead of tomorrow’s FOMC meeting results and tax proposal from Republicans; MA Q3 EPS/revenue both topped consensus views as posts record profit on higher global spending; other movers on earnings included BKU, CACC, CG, SF and BPOP with earnings post market expected from: AFG, APAM, FFIC, HRZN, RNR, VOYA
· REITs; OFC 8M share Spot Secondary priced at $31.00; busy night of earnings as AVB core FFO was toward the high end of management’s guidance and slightly below consensus; BRX reported in-line 3Q results, but management tweaked guidance lower by taking the top end of both the FFO and SSNOI growth off the table; CONE report marked another strong print for data center fundamentals, marked by a core FFO beat and a 2017 guidance; CUBE reported a strong 3Q result and increased guidance for the FY; MAC reported a slight 3Q miss despite $0.01/sh of accretion from stock buybacks, but management reaffirmed FY guidance; UDR results were largely in line with expectations; GGP falls as Q4 FFO view misses estimates
· Finance & Lending; SQ tgt raised to street high $45 at Nomura saying consensus underestimates SQ’s profitability; FIS cuts 2017 organic revenue growth view to 2.5%-3.0% for the Integrated Financial Solutions (IFS) segment vs its prior forecast of 3.0%-4.0
· Large Cap Pharma; Dow component PFE reported earnings slightly better and raised year EPS slightly; AZN’s MedImmune and Incyte will evaluate efficacy and safety of epacadostat, Incyte’s investigational selective IDO1 enzyme inhibitor, in combination with AstraZeneca’s Imfinzi; VYGR shares fell after SNY opted against exercising its exclusive option for ex-U.S. development and commercial rights to VY-AADC; VRX said it will exceed its Aug. ’16 commitment to pay down $5B in debt from divestiture proceeds and free cash flow ahead of its previously stated timing of February 2018
· In generics, MYL shares plunged after Bloomberg report said the company’s second-ranking executive (Rajiv Malik) is the target of a civil investigation by dozens of states conducting in a widespread, multiyear probe into alleged price collusion by makers of generic drugs (Bloomberg notes the probe, led by Connecticut’s Attorney General George Jepsen, expanded to 18 companies from six; now includes 15 drugs, up from two); AGN reports tomorrow
· In managed care, AET boosted its operating earnings per share forecast for the full year; the guidance beat the highest analyst estimate though Q3 results were mixed (EPS miss/rev beat) and WCG shares jumped after a strong medical loss ratio (MLR) performance drove a large 3Q earnings beat across the board
· Biotech movers; REGN and SNY reported positive results from their phase 3 trial investigating the use of co-developed drug dupilumab as a steroid-dependent asthma treatment.
· Medical devices and equipment; EXAS rises after posting a 3Q revenue beat and raising its 2017 view again, while unit volume of 171K was ahead of guidance of at least 150K; CRY full year revenue forecast misses lowest estimate; IDXX slides as Q3 EPS and revs miss consensus estimates; OFIX trades to 52-week highs after earnings beat
· Healthcare services and providers; OHI slides after an impairment related to tenant non-payment of rent weighed on disappointing 3Q results according to one analyst;CERN was upgraded to Outperform at Baird, PT $76 saying sentiment has “normalized’ after a disappointing third quarter caused shares to stumble on Cerner’s big reset
Industrials & Materials
· Machinery and Ag names; ALSN Q3 EPS and sales both topped the highest analyst estimates, helped by strong demand in the North America service parts and off-highway end markets/also raised full-year sales guidance (but did warn does not expect Q4 net sales to increase); CMI Q3 earnings and sales both topped highest estimates as N.A. revenue grew 25% due to higher demand in truck, oil and gas and construction markets (but softer margins); CNHI raises year adjusted EPS view; ETN Q3 sales beat and mid-point of year guidance slightly above views; AGCO Q3 results top views, but mixed guidance as year EPS misses while revs beat
· Industrials and automation; CNBC’s David Faber first reported that EMR made multiple offers for smaller rival ROK over the last three months, with the latest cash-and-stock offer, which was made in early October and valued ROK at more $27B but was rebuffed https://goo.gl/b9CovS (EMR and ROK later confirmed the report saying no talks ongoing at this time); GE drops another 1% as comes close to testing below $20 (low was $20.06) after missed earnings recently and fears of a dividend cut
· Metals & Mining; steel earnings out today as AKS posted a surprise Q2 EPS loss (vs. est. 3 gains) and as revenue missed quarterly estimates; U.S. Steel (X) reports after the close tonight; in materials, MOS Q3 EPS and revs handily topped views and lowers expense outlook
Technology, Media & Telecom
· Semiconductors; strong gains in the Philly semi index (SOX), touching another fresh 52-week high today ahead of AAPL results later this week (SOX index up about 9% this month); QCOM shares fall after the WSJ reported that AAPL is designing iPhones, iPads that would drop Qualcomm components https://goo.gl/EFzVuG; semiconductor equipment manufacturers active (AMAT, KLAC, LRCX) after Samsung said it plans to almost double capital expenditures in 2017 with much of Q4 spending directed to the semiconductor business; Samsung said it will make a substantial portion of 4Q investments in the semiconductor business to build infrastructure related to new sites and clean rooms; AAPL supplier Murata cut its operating income forecast for the full year to 170.0 billion yen from 226 billion yen; other semi movers on earnings includedIDTI among top gainers on beat and raise better margins; CY falls on Barclay’s downgrade
· Software & Hardware; IBM authorizes $3B stock buyback plan; SHOP results beat views but shares slipped on lower gross merchandise volume and lack of outlook; CDKdeclines after reducing its full year revenue forecast to +3% to +4%, from a previous view of +4% to +5%; APTI shares jump after earnings and guidance; other movers on earnings: CRAY higher
· Other movers on earnings; SANM led EMS stocks lower after Q4 EPS missed by 12c and guided neat quarter below views as well (though revs beat); HLIT shares jumped after earnings beat and also announces global patent cross-licensing agreement with Avid; optical stocks active as IIVI beat/raised top line, bottom line slightly lower due to opex spend
· Telecom movers; SoftBank Group Corp., concerned about giving up control of Sprint Corp. (S), is abandoning its efforts to merge the U.S. wireless carrier with TMUS, according to people familiar with the matter. SoftBank, which controls more than 80% of Sprint, https://goo.gl/a6SYgV ; tower stocks AMT and SBAC both active after earnings
· Media movers; advertising stocks active after another weak earnings report/guidance from WPPGY as reported a 1.1% rise in turnover for Q3, and said it expects like-for-like revenue and net sales growth to be broadly flat for the year as a whole (IPG and OMC active); MSGN downgraded to Underweight at Morgan Stanley and cut tgt to $20 from $24
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.