Mid Day Outlook: January 4, 2018

Scott GreenDaily Market Report

Mid-Morning Look
Thursday, January 4, 18
  
Record highs for U.S. stocks the first three days of the year! Big week of milestones for major U.S. averages in just the first three days of trading in 2018, with the S&P 500 topping 2,700 yesterday (now around 2,725), the Nasdaq Composite closing above 7,000 for the first time ever on Tuesday (and now approaching 7,100), and the Dow Industrial Average topping the 25,000 mark today (only taking 23 days to rise from the 24K level, outpacing the 24 sessions it took to ascend to 21K last March and the move to 11K back in May of 1999). Markets jumping globally again as the Nikkei Index surged 741 points (3.26%) to end at 23,506 as its markets reopened (and moves to a 26-year high), the Shanghai Index gained 16 points to finish at 3,385 and the Hang Seng Index rose 175 points to settle at 30,736. The upbeat market sentiment is being buoyed by a continued rise in commodity prices, solid economic data and bond yields remaining at historic lows. Weather wreaking havoc across the Northeast as most flights were canceled and public schools in the city are closed as the greater New York area gets ready to face up to 12 inches of snow and wind gusts of up to 45 miles per hour. CBOE Volatility index (VIX) trades back under 9 near all-time record lows on zero market fear.
 
Treasuries, Currencies and Commodities
·      In currency markets, the dollar index (DXY) slides back near weekly lows (and 3-month lows) to around 91.80 after a brief rebound yesterday; the move lower comes despite another round of stronger economic data after ADP posted big upside surprise in private payrolls; the euro rises to 1.2081 (just shy of last year highs 1.2092), while buck rises against the yen
·      Precious metals little changed as gold prices try to extend its current 9-day winning streak, though so far is down slightly
·      Energy futures are little changed, benefitting from the colder weather temperatures across the United States this week; WTI crude touched earlier highs of $62.21 but has pulled back after hitting 3-year highs
·      Treasury markets tumble following a strong reading of private payrolls earlier this morning (250K jobs vs. est. 190K), sending yields jumping across the board; the benchmark 10-yr up around 2.48%, while the 2-yr yield topped 1.97% before paring gains and the 30-yr up around 2.81%
 
Economic Data
·      ADP’s private-payrolls tracker increased by 250K in December, handily topping the 190K estimate by economists, while November’s figure was downwardly revised by 5K; almost all of the December gain was in the service-providing sector, which accounted for 222K of the jobs; the data comes ahead of tomorrow’s nonfarm payroll (est. 190K and unemployment rate 4.1%)
·      Weekly Jobless Claims rose 3K to 250K, above the 240K estimate; the 4-week moving average rose slightly — they were up 3,500 to 241,750 while continuing claims fell 37K to 1.914M; claims remain at historic lows shows ongoing strength in the labor market; this is the 147th consecutive week of claims under 300,000, the longest stretch since 1970
   
Sector Movers Today
·      Retailers getting smashed early, possibly on the impact from the cold weather blast/snowstorms across the U.S. along with some profit taking after an upward move post-strong holiday sales (shares of M, JCP, KSS, URBN, JWN fall early); LB shares plunge on weaker outlook/comps
·      Multi industry & Machinery; ITW was downgraded to market perform at BMO Capital on valuation, while raised tgt to $195 for CATcalling it his best large-cap idea in the sector and PH is 3rd favorite citing new mgmt team helping profitability; at Deutsche Bank, DE was named top machinery pick, and CNHI upgraded to buy saying agriculture equipment is the only end market that has not yet benefited from a material recovery.
·      Media sector; Wells Fargo upgraded the Media sector to Overweight from Market Weight given positive ratings for DIS, FOXA, CBS & AMCX. Their top NT Media pick is FOXA with ~20% potential upside post DIS deal and also highlight CMCSA given innovation and the most optionality post tax reform and DISH as the market unfairly discounts DISH’s spectrum value, in our view. Wells upgraded TGNA & WWE to Outperform given potential NT catalysts
·      Sector rating call at Bank America in the oil complex: the firm downgrade CVX, OXY & EOG to Neutral saying XOM is our preferred Major with COP the most heavily discounted ‘yield’ name. Rate of change favor MRO, NFX & CXO (upgrade all to buy) while long-dated asset plays keep APC, NBL, HES as Dislocation stories for 2018. CRC moves to Neutral on Binary exposure to $60 oil. RRC is lowered to Neutral despite ‘seasonal’ gas leverage, offset by uncertain growth plans that depend on a gas price outlook that beyond weather we see challenged versus oil on a relative basis. SMID US oils: Top 2018 picks: WPX, PE and RSPP
·      Consumer Finance and Payments; RBC Capital upgraded VNTV to top pick and up tgt to $97 saying it offers the most compelling upside option over the next two years in payments” given the company’s purchase of Worldpay/RBC still positive on MA, but downgraded it to outperform from top pick (PT to $180 from $159) after its 47% rally in 2017; Private equity firm APO is nearing a deal to acquire investment firm Fortress Investment Group LLC’s stake in U.S. subprime lender OMF https://goo.gl/okiW25  
·      Marijuana/Weed stocks pressured after AP reports that Attorney General Jeff Sessions will rescind policy allowing for expansion of legal marijuana without federal intervention (shares of WEED.CN, APH.CN, ACB.CN, CMED.CN, EMC.CN, EMH.CN, LEAF.CN, THC.CN were active)
·      Homebuilders pullback after many trading at or near 52-week highs yesterday (LEN, TOL, MTH, DHI, PHM); TMHC was upgraded to positive at Susquehanna, though the homebuilder priced 11M share secondary at $26.15
 
Stock GAINERS
·      AMD +6%; advances for a second session on negative INTC headlines about security flaws
·      APOP +853%; made a breakthrough in a stem cell trial/successfully completed transplantation of stem cells in the first group of three patients using its ApoGraft technology in a mid-stage trial
·      CNET +146%; announces partnership with Wuxi Jingtum Network Technology to develop blockchain-related applications
·      CVS +4%; upgraded at Raymond James and provided guidance for quarter
·      DPZ +4%; upgraded to outperform at both Oppenheimer and Credit Suisse
·      RSG +3%; upgraded to buy at Stifel ad waste service stocks extend gains
·      ZUMZ +14%; December comp sales rose 7.9% vs. est. 4.1%/raises Q3 EPS to 88c-90c from 78c-84c
 
Stock LAGGARDS
·      FL -5%; broad selling pressure in retail sector today
·      INCR -6%; announced that the CFO would leave in April
·      INTC -4%; extends losses after admitted that its chips have a vulnerability that will require software patches, but denied a media report that said other companies’ chips were not affected
·      LB -13%; guided Q4 EPS about $2.00 vs. prior view $1.95-$2.10 (est. $2.05)
·      MGI -5%; extends losses from yesterday after terminating deal with Ant Financial
·      MJX -6%; ETFMG Alternative Harvest ETF (MJX), which is the first pure-play marijuana ETF to list in the U.S. falls as US AG Sessions will rescind policy allowing for expansion of legal marijuana without federal intervention.
·      ROKU -6%; downgraded to underweight at Morgan Stanley saying valuation hard to justify
·      S -5%; hired former ATUS NV Chief Executive Officer Michel Combes as president and chief financial officer (the hire removes M&A speculation in the stock)
·      TSLA -1%; delivered 1,550 Model 3s in the final three months of 2017, trailing analysts’ average estimate for about 2,900 units and delays Model 3 production goal
·      WBA -4%; despite a slightly better Q1 EPS and revenue beat on mostly in-line guidance

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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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