>>> US Close Dow +1,40% S&P +0.86% Nasdaq +0.67% Russell +0,68%


Closing Market Summary: Financials, Materials Lead Another Positive Outing

Stocks rallied for a fourth straight session on Wednesday, with financials and materials shares leading the charge. The Nasdaq and the Russell 2000 hit new record highs for the third day in a row, adding 0.7% apiece, and the Dow led the major indices with a solid gain of 1.4%. The benchmark S&P 500 index added 0.9%, closing at its best level in three months.

10 of 11 S&P 500 sectors advanced on Wednesday. The financial space (+1.8%) was strong throughout the session, underpinned by a sharp rise in Treasury yields, which hit their highest levels in nearly two weeks. The yield on the benchmark 10-yr Treasury note climbed six basis points to 2.98%. The materials (+1.9%), consumer discretionary (+1.0%), health care (+1.2%), and telecom services (+1.5%) sectors were also notably strong.

On the flip side, rising yields weighed on the interest-rate-sensitive utilities sector, which finished at the bottom of the sector standings with a loss of 2.1%. The top-weighted technology group finished in the green with a gain of 0.5%, but had trouble keeping up with the broader market. Within the space, Facebook (FB 191.34, -1.60) was particularly weak, dropping 0.8%, after reports that the company gave data access to at least four Chinese electronics companies, including one flagged by American intelligence officials as a national security threat.

In other corporate news, Tesla (TSLA 319.50, +28.37) spiked 9.7% after its CEO, Elon Musk, said at the company's annual shareholder meeting on Tuesday evening that it's "quite likely" that Tesla will hit its target for producing 5,000 Model 3 electric vehicles per week by the end of June. Signet Jewelers (SIG 52.27, +8.12) also had a strong outing, soaring 18.4%, after reporting better-than-expected earnings and revenues for the first quarter and reaffirming its earnings guidance for the fiscal year.

The energy sector (+0.6%) was volatile on Wednesday after the Department of Energy reported an unexpected build in crude oil inventories. The DOE said that U.S. crude stockpiles increased by 2.1 million barrels last week, while estimates had expected a draw of around 3.6 million barrels. West Texas Intermediate crude futures were down around 0.2% ahead of the release, but finished the session lower by 1.1% at $64.76 per barrel, which ties a two-month low.

In Europe, ECB officials said that inflation is moving towards the 2.0% target, suggesting that next week's policy meeting could provide investors with some guidance about the wind-down of the central bank's asset purchase program. The euro climbed to a two-week high against the U.S. dollar following the comments, jumping 0.5% to 1.1772.

Reviewing Wednesday's economic data, which included the April Trade Balance, the revised readings for first quarter Productivity and Unit Labor Costs, and the weekly MBA Mortgage Applications Index:

  • The April trade balance showed a deficit of $46.2 billion (consensus -$48.8 billion). The March deficit was revised to $47.2 billion from $49.0 billion.
    • The key takeaway from the report is that the real goods deficit in April was 6.0% less than the first quarter average, which suggests net exports should be factored as a positive input for upbeat Q2 GDP growth forecasts.
  • First quarter unit labor costs were revised upward to 2.9% (consensus +2.8%) from +2.7% in the preliminary reading, while first quarter productivity was revised to +0.4% (consensus +0.6%) from +0.7% in the preliminary reading.
    • The key takeaway from the report is that productivity continues to run at relatively weak levels, which will stand in the way of GDP growth maintaining an accelerated growth rate above 3.0%.
  • The weekly MBA Mortgage Applications Index increased 4.1% to follow last week's decrease of 2.9%.

On Thursday, investors will receive weekly Initial Claims (consensus 225K) and April Consumer Credit (consensus $13.9 billion).

  • Nasdaq Composite +11.4% YTD
  • Russell 2000 +9.2% YTD
  • S&P 500 +3.7% YTD
  • Dow Jones Industrial Average +1.7% YTD

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance:

  • AMBA -11.4%, NEPT -3.6%, OLLI -3.1%, CSV -2.2%, (ticking lower; announces balance sheet recapitalization; guides EPS and revenue), GWRE -1.2%, YY -0.8%, FAST -0.5%, (May comps)

Other news:

  • IMGN -5% (announces proposed public offering of 12 mln shares of common stock)
  • TWTR -2% (to offer $1 bln aggregate principal amount of convertible senior notes due in 2024 in a private placement)
  • MDGL -1.4% (files mixed securities shelf offering; commences proposed public offering of $200 mln of common stock; in addition, 363,625 shares are being offered by selling shareholders)
  • NXPI -1.1% (after seeing late spike higher on reports of ZTE deal lifting sanctions -- seen as improved chances of Chinese approval for acquisition by Qualcomm)

Analyst comments:

  • M -0.5% (downgraded to Neutral from Overweight at Atlantic Equities)
  • PRGO -0.5% (downgraded to Equal Weight from Overweight at Barclays)
  • TRMB -1.5% (removed from Conviction Buy List at Goldman; remains Buy rated)
  • YELP -2% (downgraded to Sector Weight from Overweight at KeyBanc Capital Mkts)
  • FSLR -2.7% (downgraded to Mkt Perform from Mkt Outperform at JMP Securities)

>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance:

  • NCS +8.5%, CVTI +7.9%, SIG +7.6%, VRA +7.1%, HUYA +5.5%, LAYN +4.8%, LB +3.1%, (May comps), X +2.7%, (to restart second Granite City Works blast furnace, now guiding full-year EBITDA to at or near high end of prior $1.7-1.8 bln range and is reaffirming Q2 EBITDA guidance of approximately $400 mln), NOC +0.5%, (closes OA acquisition; raises guidance)

M&A news:

  • PLUG +4.4% (acquires American Fuel Cell, a developer of Membrane Electrode Assembly technology)
  • BW +2.4% (to sell its MEGTEC and Universal businesses to Dürr AG for $130 mln)

Select fiber optical related names showing strength:

  • ACIA +3.5%, OCLR +3.1%, LITE +2.8%, FNSR +2%, NPTN +0.6%

Other news:

  • AXON +65.7% (licenses exclusive worldwide rights to develop and commercialize OXB-102 (now AXO-Lenti-PD) from Oxford BioMedica)
  • EXAS +5.7% (identifies blood-based DNA biomarker panel to accurately diagnose hepatocellular carcinoma)
  • DVN +4.3% (monetizes interests in EnLink Midstream (ENLK), increases share-repurchase program to $4 billion)
  • MNKD +3.1% (established stock purchase plan for directors and exec officers to purchase shares of common stock directly from the company )
  • TSLA +2.9% (lifting on comment from shareholder meeting; production targets)
  • AMRS +2.9% (amended R&D Note to extend the maturity date from May 31, 2018 to July 2, 2018)
  • BIG +1.1% (enters into accelerated share repurchase of $100 mln of common shares)
  • UNH +1.1% (increases quarterly dividend to $0.90/share from $0.75/share, renews 100 mln share repurchase authorization)
  • WSM +0.7% (positive mention on CNBC FastMoney)
  • UAA +0.7% (positive mention on CNBC FastMoney), . 

Analyst comments:

  • CI +3.3% (upgraded to Buy from Neutral at Goldman)
  • VRX +2.1% (upgraded to Overweight from Equal Weight at Barclays)
  • SAGE +1.9% (initiated with a Buy at Ladenburg Thalmann)

>>> US Early premarket gappers


Gapping up:

  • AXON +42.9%, CVTI +14.6%, HUYA +8.7%, NCS +8.5%, EXAS +6.7%, ACIA +3.5%, LAYN +3.5%, MNKD +3.1%, OCLR +3.1%, AMRS +2.9%, TSLA +2.2%, UAA +1.6%, NOC +0.9%, WSM +0.6%, NPTN +0.6%, X +0.5%

Gapping down:

  • AMBA -10.2%, IMGN -6.1%, OLLI -4.7%, NEPT -3.6%, CSV -2.2%, MDGL -2%, TWTR -2%, SIG -1.8%, GWRE -1.7%, NXPI -1.2%, YY -1.2%, FB -0.7%