(JPM) Equity Strategy : Should the pullback continue for much longer? It is the

Should the pullback continue for much longer? It is the case that some
indicators are looking stretched, but…
 MXWO was off 3% last week, but despite this global equities are still up 3.5% ytd, TR. It appears that the call for
a 10-15% correction is fast becoming consensus. Should one position for it? We revisit a number of tactical
indicators that we tend to follow, and the results are not that clear cut. Yes, on the negative side:
 1. MXWO was as recently as a week ago heavily overbought. We didn’t experience any material weakness in
SPX for almost 2 years. Sentiment is complacent. The spread between bulls and bears in II survey is the highest
since 1986. Positioning is long, with elevated HF beta.
 2. Investors are almost unanimously bullish on growth/earnings, but US CESI is rolling over and China dataflow
appears to be stalling – see page 9.
 3. Valuations of Cyclicals are above 1 st. dev. expensive vs Defensives. The pricing of market internals is in
stark contrast to the start of ‘16, when Cyclicals were outright cheap and consensus view was overwhelmingly
bearish.
 However, on the positive side: 1. Inflows into equites are extremely strong and this should not be seen as a
contrarian indicator. These flows will ultimately provide a floor for the market.
 2. Our work suggests that equities didn’t tend to correct from the peak in CESI or in ISM. Some have been
calling for the rollover in 2nd derivative to hurt stocks for months now, without success. If CESI moves below zero,
then this would create a more clear bearish signal, with Cyclicals lagging Defensives. There is still some way to
go before we get there.
 3. Bond yields breaking out are seen by many as a red flag for equities. We disagree. The cushion between
equities and bonds in relative value terms is still very significant and real rates remain outright negative.
Equities tended to shrug off sharp 50-100bp sell-offs in bonds – see page 32. Credit spreads and peripheral
spreads remain well behaved and any further move up in bond yields might bring about an asset allocation
switch.
 4. Seasonals remain positive until April. Also, our work shows that strong starts to the year, such as what we
had in January, have actually resulted in above normal market performance for the remainder of the year
– see page13.

*OERLIKON IS SAID PREPARING TO SELL DRIVE SYSTEMS BUSINESS: RTRS

FRANKFURT, Feb 5 (Reuters) - Swiss technology group OC Oerlikon OERL.S is preparing a potential sale of its drive systems business as it continues to streamline its portfolio, people close to the matter said.

The company has asked UBS UBSG.S to evaluate options for the business, which makes gears and transmission systems for products ranging from agricultural machinery to construction equipment, the sources said, speaking on condition of anonymity.

The options include a possible sale to a private equity investor, they added.

The business may be valued at 600-700 million Swiss francs ($643-$751 million) under a deal, one of the sources said.

Oerlikon and UBS declined to comment.

Oerlikon’s drives division, its second biggest after surfacing solutions, includes its Italian Graziano unit that makes components for sports cars including Lamborghini, Maserati, Ferrari, Aston Martin and McLaren, as well as for farm tractors.

Its U.S.-based Fairfield Manufacturing unit, with operations in India and China, makes gears and custom drives for construction and mining equipment, as well for oil and gas production.

But the business's operating margins have long lagged Oerlikon's growing surfacing solutions business that it sees as the future of the company. Analysts have therefore seen the drives division as a prime candidate for disposal.

The business has seen a recovery in 2017 following restructuring. Through the first nine months, sales rose nearly 15 percent to 532 million francs.

>>> US Gapping down

Gapping down
With US Futures trading down 0.5-0.9% lower, many stocks are indicated lower. The following is a list of stocks moving on specific catalysts
In reaction to disappointing earnings/guidance:
  • GOLD -3.7%, HES -3.7%, RYAAY -3.6%, BAH -3%, ON -2.8%, XNET -2.6%, ARNC -1.9%
Other news:
  • WFC -6.7% (Federal Reserve restricts WFC' growth until firm improves governance and controls)
  • MLNX -5.2% (shareholder Starboard 'Expresses Concern Regarding the Staggering Number of Insider Sales over the Last Ten Year)
  • OSTK -4.8% (likely lower with recent weakness in crypto-currencies)
  • SQ -3.4% (continued weakness)
  • X -3.4% (continued weakness)
  • SNE -3.4% (pulling back following last week's strength)
  • SPPI -1.9% (announces that ROLONTIS has Met the Primary Endpoint in the Phase 3 Study)
  • BOMN -1% (files $200 mln mixed securities shelf offering)
Analyst comments:
  • PEG -1.1% (downgraded to Neutral from Buy at Mizuho)
  • VMW -1.2% (downgraded to Neutral from Buy at Citigroup)
  • CVX -1.4% (removed from Conviction Buy List at Goldman)
  • ERIC -3.7% (downgraded to Underperform from Buy at BofA/Merrill)
  • GRUB -3.8% (downgraded to Mkt Perform at Raymond James)
  • DKS -4.7% (downgraded to Underweight from Equal Weight at Barclays)

>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance:
  • TOPS +38.1%, BMY +4%, CTLT +3.5%, SYY +0.5%
M&A news:
  • BG +5.9% (reports that the company may be in advanced talks to be acquired by ADM (ADM))
  • ADM +1.4%
Other news:
  • CAPR +11.5% (announces that the FDA has granted CAP-1002 Regenerative Medicine Advanced Therapy designation)
  • MNOV +10.3% (continued strength),
  • CIT +1.1% (received a 'non-objection' from the Federal Reserve yesterday to an amendment to its 2017 Capital Plan)
  • TTNP +1.1% (amends loan agreement; to prepay $3 million of outstanding $7 million principle amount)
Analyst comments:
  • NOK +1.9% (upgraded to Buy from Neutral at BofA/Merrill)
  • NCLH +0.9% (upgraded to Overweight from Neutral at JP Morgan)

>>> Early premarket gappers

Early premarket gappers
Gapping up:
  • TOPS +39.2%, MNOV +10.3%, APRI +8.1%, ATOS +7.5%, SPPI +6.6%, BMY +4%, M +3%, AG +1.9%, VIAB +0.9%
Gapping down:
  • AKER -9.1%, WFC -7.9%, ADMP -7.9%, CANF -4.4%, OAS -4.1%, ERIC -3.9%, SQ -3.7%,RYAAY -3.6%, OSTK -3.6%, SNE -3.3%, X -2.7%, AMAT -2.1%, RAD -1%, RENN -0.9%,BPMX -0.9%

>>> Hess misses by $0.10, misses on revs

Hess misses by $0.10, misses on revs (47.79)
  • Reports Q4 (Dec) loss of $1.01 per share, excluding non-recurring items, $0.10 worse than the Capital IQ Consensus of ($0.91); revenues fell 6.5% year/year to $1.3 bln vs the $1.32 bln Capital IQ Consensus.
    • Net production averaged 282,000 barrels of oil equivalent per day (boepd), excluding Libya, reflecting unplanned downtime at the third-party operated Enchilada platform in the Gulf of Mexico which reduced fourth quarter production by approximately 17,000 boepd; Bakken production was 110,000 boepd;
2018 Guidance:
  • E&P capital and exploratory expenditures are expected to be $2.1 billion;
  • Oil and gas production, excluding Libya and reflecting an estimated 15,000 boepd reduction due to the extended Enchilada platform shutdown, is forecast to be in the range of 245,000 to 255,000 boepd, compared to full year pro forma 2017 net production, excluding Libya and assets sold, of 242,000 boepd.

>>> Bristol-Myers beats by $0.01, beats on revs; guides FY18 EPS in-line; Pivota

Bristol-Myers beats by $0.01, beats on revs; guides FY18 EPS in-line; Pivotal Phase 3 CheckMate -227 study demonstrates superior progression-free survival (pfs) with the Opdivo Plus Yervoy Combination versus chemotherapy in first-line non-small cell lung cancer (NSCLC) patients with high tumor mutation burden (TMB) (63.48)
  • Reports Q4 (Dec) earnings of $0.68 per share, excluding non-recurring items, $0.01 better than the Capital IQ Consensus of $0.67; revenues rose 3.9% year/year to $5.45 bln vs the $5.35 bln Capital IQ Consensus. revenues increased 7% to $2.9 billion in the quarter compared to the same period a year ago. International revenues increased 1%. When adjusted for foreign exchange impact, international revenues decreased 3%. Gross margin as a percentage of revenue decreased from 73.6% to 69.3% in the quarter primarily due to product mix.
  • Opdivo +4% to $1.36 bln vs. $1.3 bln estiamtes; Eliquis +44% to $1.36 bln.
  • Co issues in-line guidance for FY18, sees EPS of $3.15-3.30, excluding non-recurring items, vs. $3.23 Capital IQ Consensus Estimate. Worldwide revenues increasing in the low- to mid-single digits. Gross margin as a percentage of revenue to be ~70% for both GAAP and non-GAAP. Marketing, selling and administrative expenses decreasing in the low- to mid-single digit range for both GAAP and non-GAAP.
  • The ongoing Phase 3 CheckMate -227 study met its co-primary endpoint of progression-free survival (PFS) with the Opdivo (nivolumab) plus Yervoy (ipilimumab) combination versus chemotherapy in first-line advanced non-small cell lung cancer (NSCLC) patients whose tumors have high (=10 mutations/megabase, mut/mb) tumor mutation burden (TMB), regardless of PD-L1 expression. In the study, TMB was evaluated using Foundation Medicine's (Nasdaq: FMI) analytically validated assay FoundationOne CDx. Additionally, based on an interim analysis for overall survival (OS), the Data Monitoring Committee recommended that the study continue. The safety profile was consistent with previously reported findings in first-line NSCLC for the combination schedule of Opdivo 3 mg/kg every two weeks and low-dose Yervoy (1 mg/kg) every six weeks. "TMB has emerged as an important biomarker for the activity of immunotherapy. For the first time, this Phase 3 study shows superior PFS with first-line combination immunotherapy in a predefined population of NSCLC patients with high TMB."