Mid Day Outlook: November 2, 2017

Scott GreenDaily Market Report

Mid-Morning Look
Thursday, November 2, 17
  
Equities opened higher, but have since reversed lower as investors reacted to details of the Republican plan to cut taxes which were released this morning. The S&P 500 Index turned lower as Republicans presented the tax plan, with homebuilders tumbling on news of changes to mortgage interest. Markets earlier showed little reaction to news the president plans to nominate Jerome Powell to lead the Fed (which had been well telegraphed over the last two-weeks). The pound slumped after the Bank of England raised interest rates for the first time in a decade, yet showed concern for Britain’s Brexit-dented economy by indicating that another increase isn’t imminent. The earnings barrage continued today, with recap of some of the biggest highlights/movers down below – Apple reports after the bell!
 
Few bullet points from the Republican tax plan released today: House Republican leaders began rolling out a tax bill Thursday that contains sweeping changes for business and individual tax rates, including a measure to cut the corporate tax rate to 20%. The bill would cap the mortgage-interest deduction on new home sales at $500,000 ― a departure from the current cap of $1 million for couples filing jointly. It would also impose a tax of as much as 12% on multinational companies’ accumulated offshore earnings, a GOP lawmaker said ― a rate that’s higher than either President Donald Trump or House Speaker Paul Ryan have proposed. The bill will include “no changes” to popular 401(k) retirement plans, according to a House memo, and it’s not expected to repeal the Obamacare individual mandate. It would cut individual tax rates for millions of Americans – full details in closing note later.
 
Treasuries, Currencies and Commodities
·      In currency markets, the dollar was down slightly overnight, but selling pressure picked up following the details of the tax plan from the Republicans, as markets doubted the bill could pass in its current form; the dollar index dropped -0.3%. Bitcoin up over 9% at $7,180 (high $7,392 and low $6,573 in volatile trading) – the cryptocurrency got a boost this week after CME Group Inc. said it plans to introduce bitcoin futures by the end of the year
·      Commodity prices; Precious metals get a lift amid a declining US dollar following the tax proposal release which weighed on stocks as well; Energy futures flat, holding steady after topping $55 per barrel yesterday, but ended lower in bout of profit taking following 4-day run
·      Treasury markets bounce as stocks slide; economic data better today, further boosting likelihood of a Fed hike in December, but bonds still rallying anyway
 
Economic Data
·      Q3 Nonfarm Productivity rose 3.0%, topping expectations of 2.6% while unit labor costs rose 0.5% in 3Q vs. up 0.3% prior quarter; Output rose 3.8% in 3Q vs. up 3.9% prior quarter; Employee hours rose 0.8% in 3Q vs. up 2.4% prior quarter; compensation per hour rose 3.5% in 3Q vs. up 1.8% prior quarter and real compensation rose 1.5% in 3Q vs. up 2.1% prior quarter
·      Weekly Jobless Claims fell 5K to 229K, below the estimate of 235K while prior week was revised to 234K from 233K; the 4-week moving average stood at 232.5K, the lowest since April 1973; continuing claims fell 15k to 1.884m in the week ending Oct. 21; lowest since Dec. 1973
   
Sector Movers Today
·      Homebuilder shares slide after the Republican tax plan lowers mortgage interest deduction; the plan proposes capping the tax deduction on new mortgages of $500,000 or less. Presently, Americans can deduct interest on mortgages of up to $1M from their income (shares of MTH, TOL, KBH, LEN, PHM declined on the news)
·      Internet security; sector weak as SYMC shares dropped after missing top/bottom line Q2 results, guided next quarter and year below forecasts;FEYE top and bottom line beat for Q3 and raised year outlook but its Q4 billings forecast of $210M-$230M missed estimates of $237M; CYBR with a Q3 EPS/rev beat and guidance just above consensus views
·      Semiconductors; AVGO said it sees Q4 revs at higher end of prior forecast;QCOM posted strong Q4 results but clouded by ongoing chip dispute withAAPL; QRVO downgraded by a few analysts after Q2 beat but Q3 sales view missed views; CAVM posted a modest beat and raise quarter/guidance; ESIOshares surge as EPS and revs top the highest estimates and blowout guidance; KEM plunges as Q2 gross margins of 28.2% fall short of forecast/in-line Q2 revs
·      Restaurants; YUM got strong results from its Taco Bell and KFC divisions as earnings results lifted shares; BOJA EPS in-line, announces stock buyback and, though rev guidance misses; SHAK forecasted a narrower decline in its year comparable sales and raising the low end of its year revenue outlook after Q3 beat; CAKE reported Q3 revenue which missed estimates and lowered its full-year profit guidance; DPZ upgraded to buy at Maxim; PZZAdowngraded to neutral at BTIG; HABT downgraded by two analysts following the company’s disappointing 3Q results noting comps have dipped into negative territory; SBUX reports earnings tonight
·      Insurance; several carriers report overnight with ALL Q3 results topped views as car insurance gains offset hurricanes; LNC EPS and revs beat; PRUalso topped estimates while MET with EPS beat as well and announced a stock buyback of $2B; RNR upgraded to buy at Citigroup
·      Software movers; PI plunges as guides to an unexpected loss for Q4 on weaker rev view; HUBS another beat and raise quarter, with the company demonstrating strong traction with new customer adds; ZEN reported a very strong 3Q beat with all key metrics re-accelerating; ACXM top and bottom line beat with boosted guidance; ANSS jumps on earnings
·      Internet; FB reported a very strong Q3, with results coming in well ahead of expectations and growth trends remaining very impressive – though warns expenses may jump; BABA trades to record highs as raised its outlook for full-year revenue growth after reporting sales that beat analysts’ estimates;YELP beat 3Q expectations, as salesforce initiatives lifted retention rates and local ad sales, which contributed to top and bottom line beats/guidance weaker; Wayfair (W) shares fall on earnings miss; CTRP a mover on earnings
 
Stock GAINERS (just a few as sector movers cover many)
·      AN +12%; reached an agreement to maintain and help manage fleets for Waymo, the self-driving car unit of GOOGL
·      FLT +7%; quarterly beat while analysts note the outlook for organic sales growth continues to be healthy in the 8-9% range
·      SPWR +17%; lifts solar with strong beat on top and bottom line quarterly results
·      ZEN +12%; reported a very strong 3Q beat with all key metrics re-accelerating
 
Stock LAGGARDS
·      GPRO -13%; after weaker-than-expected Q4 guidance
·      KEM -29%; as Q2 gross margins of 28.2% fall short of forecast/in-line Q2 revs
·      NWL -24%; cut FY17 EPS guidance to $2.80 to $2.85 from $2.95 to $3.05
·      OCLR -21%; reported a Q1 beat on both revenue and earnings, however guidance was well below expectations leading to aggressive negative estimate revisions
·      PI -33%; as guides to an unexpected loss for Q4 on weaker rev view
·      TCAP -26%; 3Q NOI per share missed estimates and trimmed its dividend
·      TEVA -19%; Q3 results and warned on the ongoing price erosion for U.S. generics as well as its specialty business being hurt by several products
·      TSLA -6%; it will take months longer than expected to reach its goal of making 5,000 Model 3 sedans a week, this after posting a larger-than-expected quarterly loss
·      W -20%; posted wider-than-expected 3Q loss/first time it has missed EPS expectations in year
 
Syndicate
·      Allena Pharmaceuticals (ALNA) 5.333M share IPO priced at $14.00
·      Assembly Biosciences (ASMB) 2.21M share Spot Secondary priced at $27.25
·      Evoqua Water Technologies (AQUA) 27.778M share IPO priced at $18.00
·      Funko (FNKO) 10.4M share IPO priced at $12.00
·      Intellia Therapeutics (NTLA) 6.25M share Secondary priced at $24.00
·      Spero Therapeutics (SPRO) 5.5M share IPO priced at $14.00
 

 

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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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