Mid Day Outlook: January 10, 2018

Scott GreenDaily Market Report

Mid-Morning Look
Wednesday, January 10, 18
  
U.S. equities are lower for the first time this year, pulling back from record highs for each of the major indices (Dow, S&P, NASDAQ, Russell, Transports) in a bout of profit taking. U.S. stocks follow weakness out of Europe after officials reviewing China’s foreign-exchange holdings were said to have recommended slowing or halting purchases of Treasuries. Bonds are plunging as well, with the yield on the 10-year trading above its 2017 high, now around 2.58%. Rising yields can be a two-edged sword for stock markets as it can signal that investors are becoming more confident about the economic outlook and therefore dump safe-haven bonds…but if they rise too fast or too high, that move may weigh on the stock market, because it becomes more attractive to invest in the bond market rather than in stocks. Interest rate sensitive sectors such as real estate, utilities and telecom could come under further pressure of yields continue to rise (making dividend paying sectors less appealing). The dollar is lower as oil and gold prices rise, stocks slip form highs and bonds remain under pressure. Next market catalyst, quarterly earnings with the unofficial start Friday with big banks.
 
Treasuries, Currencies and Commodities
·      In currency markets, the dollar index (DXY) on track to snap its 3-day win streak, falling broadly (-0.5%), but declining the most against the Japanese yen following news the Bank of Japan cut its bond purchases, marking a possible slowing to years of loose monetary policy. Crypto currency markets under pressure, with Bitcoin down over 3% to trade under $14,000
·      Cryptocurrency news; Warren Buffett is confident the cryptocurrency story will end in tears, but he isn’t putting any money on it. “In terms of cryptocurrencies generally, I can say with almost certainty that it will come to a bad ending,” the Berkshire Hathaway CEO said on CNBC
·      Commodity prices outperform given the pullback in the dollar; precious metals rise as gold climbs to highest level in 4 months on weak dollar and concerns over report about Chinese purchases of U.S. debt; Energy futures rise after large weekly crude oil inventory draw according to API report (the EIA data coming up at 11:00 AM EST)
·      Treasury markets starts the year weak, with yields surging; the yield on the 10-yr trades just shy of 2.60% (ended 2017 around 2.41%), surpassing its 2017 high of 2.58%; the yield on the 2-yr rises to around 1.98% and the long-end 30-yr yield trades 2.93%. The 6 bps move higher yesterday to 2.54% partially on news the Bank of Japan cut its bond purchases, sparking chatter that the Japanese central bank is getting ready to end years of ultra-loose monetary policy
 
Economic Data
·      Import Prices for December rise a smaller-than-expected 0.1%, missing the 0.4% estimate, while the prior month was revised to 0.8% from 0.7% (due to a spike in oil); if you excluded energy, import prices fell (-0.1%); for the full year, import prices rose 3% to mark the biggest increase since 2011; export prices fell (-0.1%) in December after rising 0.5% in November
·      Wholesale Inventories rose 0.8% in November, slightly above the 0.7% estimate; Nov. wholesale inventories increased to $611B vs. $606.1B in prior month; Wholesale inventories excluding oil rose 0.7% in November and Wholesale sales rose 1.5% after rising 0.8% the prior month
   
Sector Movers Today
·      Homebuilders; the homebuilders sector was active today amid earnings as LEN Q4 EPS missed views, but the company noted the miss was due to a “single, strategic transaction shifted into the first quarter of 2018” (delayed land sale that was pushed into Q1); KBH expected to report tonight after the close; DHI aid it sees a Q1 charge about $115M to cut deferred tax asset/sees the Tax Act having a favorable effect on its FY18 results; also CAA (which LEN is in process of purchasing), also released strong preliminary 4Q data
·      More companies continue to get involved in Blockchain solutions: shares of KODK surged yesterday after saying it is launching a cryptocurrency called “KODAKCoin” for photographers, part of “KODAKOne.” Today, AMRH, COGT, HMNY the latest companies to announce they to expand its service offering with blockchain functionality; other companies that have been volatile in recent weeks on blockchain commentary have included: NETE, NXTD, LFIN, TEUM, LBCC
·      Movie theatres; RBC Capital upgraded CNK to outperform from sector perform, PT $40 saying CNK would provide upside in the event box office results outperform/sees a potentially meaningful dividend hike driven by tax reform; firm downgrades AMC to sector perform from outperform due to its high leverage and RBC’s assumption for flat box office results in 2018; PT $15 unchanged; IMAX was downgraded to neutral and tgt cut to $21 at Piper as believe faces another wave of major estimate revisions for Q4 and 2018
·      Airlines outperform after UAL and AAL both posted preliminary 4Q unit revenue above their prior views; UAL Q4 numbers beat (raises Q4 capacity to 4% from 3.5% prior), driven by better unit revenue and lower non-fuel unit costs, while AAL better 4Q numbers were due to improving yields in all geographic regions and higher than expected domestic close (Q4 TRASM up 5%-6% vs. prior 2.5%-4.5% view); UAL was also upgraded to buy at Citigroup
 
Stock GAINERS
·      AAWW +5%; upgraded to outperform at Cowen saying is positioned for growth into 2018
·      AFSI +24%; after a Stone Point group proposed to acquire the company at $12.25 per share https://goo.gl/LMsnGr
·      CLDR +6%; upgraded to neutral at both Mizuho and Citigroup saying recent concerns over Cloudera’s growth in cloud and its lack of profitability are overdone and estimates are too low
·      HMNY +16%; as CEO said has examined blockchain technology “for well over a year now” and would consider an initial coin offering (ICO)
·      ISRG +5%; as raises Q4 revenue to about $892M vs. estimate $847.5M
·      SHLD +8%; raises $100M in new financing, eyes $200M in cost cuts
·      SM +4%; agreed to sell its Powder River Basin assets for $500M
·      STT +2%; upgraded to buy along with BK at Citigroup as digital transformation is likely to gain importance over the next several years
·      UAL +5%; rises along with AAL after both posted preliminary 4Q unit revenue above prior view
·      VNCE +8%; shares soar as holiday same-store sales rose 15.9%
·      VOXX +19%; on earnings results
·      WDAY +3%; upgraded to overweight and $145 price target at Morgan Stanley as believes can sustain subscription revenue growth of over 30%
 
Stock LAGGARDS
·      DPZ -4%; after CEO Patrick Doyle announced his plans to depart the company in June
·      MOH -4%; was notified by New Mexico Human Services Dept. that it wasn’t selected for tentative award of order under RFP issued Sept. 1 for Centennial Care 2.0
·      MSM -3%; Q1 top/bottom line top consensus, but Q2 sales guidance ($761M-$775M vs. est. $774.6M) missed views
·      SIG –5%; narrowed its FY18 EPS view and reports Holiday Season same-store sales declined 3.5%
·      SIMO -7%; downgraded to reduce at Nomura as sees 30% risk to sales
·      SNX -3%; falls despite Q4 top/bottom line beat and midpoint of Q1 guidance above views
·      SVU -8%; 3Q net sales/comp sales missed estimates, and as expenses rose more than expected

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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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