Mid Day Outlook: November 3, 2017

Regal HelpdeskDaily Market Report

Mid-Morning Look
Friday, November 3, 17
U.S. equities are mixed, as major averages look to end a very busy and news filled week on an up note. Coming into today, the Dow Industrials and Nasdaq Comp were set for weekly gains of 0.4% and 0.2%, respectively, while the S&P was eyeing a 0.1% loss for the week – with all trading at or near record closing levels throughout the month of October. Economic data was mixed as the headline jobs total for Oct missed estimates, the unemployment rate fell to 4.1% (due to lower participation rate), and wages failed to rise, missing estimates. However on a positive note, ISM services data came in above the 60 level for only the 4th time in its 20-year history and best level since 2005. Financial stocks in the S&P 500 slipped as bond yields fell after the employment report, dragged down by AIG which also reported a sizable earning miss. Conversely, sectors that tend to benefit from a low rate environment, such as utilities (record levels) are moving higher. This week had many moving parts including the long-awaited Republican tax plan which was published yesterday, as the bill is estimated to add $1.49 trillion to the budget deficit. The headlines include the promised corporate tax cut to 20%, the reduction of most individual tax brackets, and the phasing out of the estate tax over five years. Also this week saw the FOMC hold rates steady (but comments suggest a real possibility for rates to rise in December), the Bank of England raising its interest rates for the first time in a decade, and the news Fed Chair named by President Trump, calling upon current Fed Governor Jerome Powell to replace Yellen. Oh yeah, and another super busy week of earnings, highlighted by AAPL’s beat last night.
 
Treasuries, Currencies and Commodities
·      In currency markets, the dollar bouncing around on mixed economic data today, falling initially on the jobs miss, but spiking after the ISM services data beat; dollar little changed vs. yen and up vs. euro in a busy week of news with Powell names new Fed chair and tax report proposal released yesterday; bitcoin epic surge continues, rising as high as $7,448
·      Commodity prices; much like the dollar, gold whipsawed this morning on the economic data, currently lower as the greenback bounced; gold down under $1,277 an ounce; Energy futures little changed, but holding recent gains, with WTI crude up around $54.70 per barrel (topped the $55 per barrel level earlier briefly)
·      Treasury markets are flat now after rising earlier; the yield on the 10-year down around 2.35% (well below the highs around 2.47% last week), with markets focusing on several factors this week influencing bonds (Fed Chair, tax reform, FOMC decision, BOE decision and jobs data); yield on the 2-yr back above 1.62% (fell to 1.59% right after jobs miss)
 
Economic Data
·      Jobs report missed; the October payroll report showed 261K jobs were added, below the 313K estimate, while prior month upwardly revised to 18K from (-33K); private payrolls rose 252K, below the 302K estimate (prior revised to 15K from -40K), though manufacturing jobs rose 24K topping 15K estimate; the unemployment rate dipped to 4.1% from 4.2% (as the participation rate dropped to 62.7% from 63.1%, while hourly wages were unchanged vs. an expected 0.2% increase (and below the 0.5% rise last month)
·      Trade Deficit for September widened to (-$43.5B) from (-$42.8B) last month and vs. est. (-$43.2B); imports rose 1.2% in Sept. to $240.31B from $237.51B in August and exports rose 1.1% in Sept. to $196.82B from $194.75B in August
·      ISM Non-Manufacturing for October rises to 60.1 (only the 4th time in 20-years keeping data over 60 level per CNBC), topping the 58.5 estimate and above 59.8 prior month; composite index at the highest level since Aug. 2005; segment breakdown: new orders fell to 62.8 from 63.0, while employment rose to 57.5 vs 56.8; prices paid fell to 62.7 from 66.3
·      Factory Goods Orders for September rise 1.4% vs. est. up 1.2%; new orders ex-trans. for Sept. rise 0.7% while new orders ex-defense for Sept. rise 1.3% after rising 1.5% in Aug; Capital goods non-defense ex aircraft new orders for Sept. rise 1.7% after rising 1.4% in Aug.
Sector Movers Today
·      Restaurants; SBUX bounced off overnight losses after lowering their long-term top-line + earnings algorithm, removing nearly a year-long overhang on the stock and guiding 2018 in-line with the new algorithm; WING solid 3Q comp beat highlighted traction from national advertising and delivery; BLMN Q3 EPS missed by 3c on in-line revs and guided year profit below views;LOCO also Q3 EPS miss of 3c on weaker revs $101.2M and year guidance misses; PBPB 1c EPS beat on rev miss and comps down (-4.8%); RUTH Q3 revs miss on comp sales decline (-1.6%)
·      Media movers; CBS mixed quarter as softer than expected Entertainment and Local Media revenues were offset by better Entertainment margins; 52-week lows in S&P for VIAB, FOX, DISCA, DISCK, IPG, OMC, CBS in the media/advertising sector – follows CBS results today, lower guidance/EPS miss this week from DISCA
·      REITs; Mall reits pressured early after CBL plunges as the company missed on FFO, cut guidance, and cut the dividend by 25% to preserve cash for redevelopment and debt reduction (shares of MAC, SKT, SPG, WPG, TCO were active)
·      Mortgage insurers ESNT, MTG, NMIH and RDN downgraded to hold at Deutsche Bank saying recent strong performance leaves limited upside to target prices. While they remain bullish on the outlook for the sector, the stock prices appear to currently reflect this outlook
·      Utility sector; 52-week highs for several utilities – ED, WEC, DUK, EXC, SO, AEE (DUK and ED reported earnings results) – utility index (UTY) to record highs above 705 level
 
Stock GAINERS
·      AAPL +4%; trades at new record highs after delivering upside earnings/sales surprise
·      BLUE +6%; second analyst upgrade in as many days after sickle cell data at ASH abstracts
·      BOOT +17%; 2Q results above plan despite the hurricanes, with strong comps and gross margin
·      FLR +4%; as Q3 EPS and revs top consensus and narrows year guidance
·      MOH +14%; after earnings/sales beat, rising to 52-week highs
·      NWL +5%; bounces after more than 20% decline yesterday on lower outlook
·      RCII +8%; after Vintage Capital offered $13 per share/$693M a week after the furniture retailer said it was exploring strategic options https://goo.gl/gde2rJ
·      VRX +3%; after the FDA approved the company’s Vyzulta drug for open angle glaucoma
·      XRAY +5%; Q3 EPS and sales top views, but lower margins
 
Stock LAGGARDS
·      ACIA -3%; Q3 results beat, but guidance of 19c-36c on revs $83M-$93M came in way below
·      AIG -4%; downgraded to neutral at Bank America after Q3 EPS posted sizable miss
·      CBL -24%; as the company missed on FFO, cut guidance, and cut the dividend by 25% to preserve cash for redevelopment and debt reduction (weighs on MAC, SKT, SPG)
·      DATA -11%; as Q3 results below expectations citing faster ramp in the ratable license bookings mix metric
·      MTD -5%; among top decliners in S&P after earnings (was at 52-week high)
·      -25%;  big miss for Q3 revs and Q4 guidance below views (prompts many analyst downgrades)
·      RMAX -11%; postpones Q3 results due to internal investigation over allegations of wrongdoing in employment practices and of a previously undisclosed loan of personal funds

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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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