Closing Summary: Coasting into ChristmasFriday's trading session for the stock market was a forgettable one and that's exactly how most market participants probably hoped it would be. There were no fireworks ahead of Monday's Christmas holiday, which will leave capital markets closed for a three-day stretch. The major indices dipped at the open and then held in tight trading ranges just shy of their starting levels over the course of the trading day.
The fireworks -- or the bombs really -- were reserved for bitcoin. It slumped below $11,000 today, which in itself doesn't mean much until one understands that was more than 30% below where it traded most of Thursday.
The collapse in bitcoin prices was not driven by any news, yet the collapse itself was the news. Buyers eventually emerged to repair a good portion of the damage, but it wasn't completely fixed. Bitcoin was last trading around $14,000 as of this writing.
The trading volume in the stock market was predictably low as many participants had clearly checked out for the day. NYSE volume totaled just 599 million shares.
Overall, there wasn't much conviction on the part of buyers or sellers. The final standings didn't show a single sector gaining, or losing, more than 1.0%.
The best-performing sector was real state (+0.7%), which also happened to be one of the worst-performing sectors for the week (-2.3%), suggesting it garnered some bargain-hunting interest. The same can be said for the utilities sector (+0.2%), which dropped 4.7% this week.
Those sectors, though, don't carry the weight to move the broader market, which was held back by losses in the more heavily-weighted financial (-0.2%), health care (-0.3%), consumer discretionary (-0.2%), and information technology (-0.1%) sectors.
The energy sector (+0.2%) for its part moved modestly higher, completing what was an excellent week (+4.6%) as it benefited from sector rotation activity.
Dow component Nike (NKE 63.30, -1.47, -2.3%), meanwhile, ended the week on a disappointing note after its fiscal second quarter report and outlook failed to excite investors further following a big run in the stock ahead of the report.
In other developments, Congress approved a continuing resolution to keep the government funded through January 19. President Trump signed that resolution today shortly before he also signed the tax bill into law.
Reviewing this morning's economic data, which included the Personal Income and Spending, Durable Orders, New Home Sales, and University of Michigan Consumer Sentiment reports:
- Personal income increased 0.3% (consensus +0.4%), led by a 0.4% increase in wages and salaries, following an unrevised 0.4% increase in October. Personal spending jumped 0.6% (consensus +0.4%) following a downwardly revised 0.2% increase (from 0.3%) in October.
- The personal savings rate dropped to 2.9% from 3.2%. That is the lowest personal savings rate since November 2007.
- The PCE Price Index was up 0.2% (consensus +0.3%), leaving it up 1.8% year-over-year versus up 1.6% year-over-year in October. The core PCE Price Index, which excludes food and energy, increased 0.1% (consensus +0.2%) and was up 1.5% year-over-year versus up 1.4% year-over-year in October.
- The key takeaway from the report lays in the upward drift of the PCE Price Index. It is moving closer to the Fed's 2.0% longer-run target, which is supportive of the Fed's inclination to pursue an upward drift in the target range for the fed funds rate.
- Durable orders increased 1.3% (consensus +2.1%) following an upwardly revised 0.4% decline (from -1.2%) for October. Durable orders excluding transportation declined 0.1% (consensus +0.4%) after increasing an upwardly revised 1.3% (from +0.4%) for October.
- The weaker-than-expected readings for November were offset to a large extent by upward revisions to October, so they weren't necessarily that far out of line with prevailing expectations in front of the November report.
- The key takeaway from the report is that it will still compute as a positive input for Q4 GDP forecasts since shipments of nondefense capital goods orders excluding aircraft increased 0.3% on top of a 1.3% increase in October.
- New home sales soared 17.5% month-over-month to a seasonally adjusted annual rate of 733,000 (consensus 652,000) from a downwardly revised 624,000 (from 685,000) in October. The November sales pace was the strongest since July 2007.
- The key takeaway from the report is that there was sales growth in all regions, led by a huge pickup in sales in the South and the West, underscoring the solid demand for new homes in conjunction with a very tight market for existing homes.
- The final reading for the University of Michigan Consumer Sentiment report showed a dip to 95.9 (consensus 97.3) from the preliminary reading of 96.8.
- The key takeaway from the report is that consumer sentiment remains at high levels. The final December reading was just below the 2017 average of 96.8, which was the highest average since 2000.
The lone economic release on Tuesday will be the S&P Case-Shiller Home Price Index for October (consensus 6.3%).
- Nasdaq Composite: +29.3% YTD
- Dow Jones Industrial Average: +25.3% YTD
- S&P 500: +19.9% YTD
- S&P 400: +14.6% YTD
- Russell 2000: +13.7% YTD
Week in Review: A Season of Contentment
Notwithstanding the fact that the S&P 500 was only up 0.3% this week, it was a big week for the equity market and for the GOP.
The two were intertwined with the party-line passing of the tax bill, which marked the biggest overhaul of the tax code since 1986.
The featured item of the tax bill was a cut in the corporate tax rate to 21% from 35%, effective in 2018, and it is going to be joined with a reduction in individual tax rates as well.
The stock market has been rallying in recent weeks in anticipation of the tax bill's passage, so the subdued market gains in its wake were a testament to the notion that market participants were inclined to buy the rumor of its passage. They didn't necessarily sell the news, however.
The Dow Jones Industrial Average, the Nasdaq Composite, the S&P 500, the Russell 2000, and the S&P Midcap 400 Index all finished higher for the week, with gains ranging from 0.3% to 0.9%.
Those gains were underpinned by sector rotation, which featured losses for the technology (-0.2%), health care (-1.0%), real estate (-2.3%), utilities (-4.7%), and consumer staples (-0.2%) sectors, and gains for the financial (+0.8%), energy (+4.5%), materials (+2.2%), telecom services (+1.4%), industrials (+1.1%), and consumer discretionary (+1.0%) sectors.
In other words, there was relative strength in many of the cyclical sectors, which are expected to benefit from stronger economic activity. That strength was forged somewhat at the expense of the technology sector, which has been a leading standout all year, inviting concerns that it is overowned and vulnerable to rebalancing efforts as 2017 ends.
Glad tidings pertaining to the expected pickup in economic growth finally availed themselves at the back end of the Treasury yield curve.
The 10-year note yield jumped 14 basis points on the week to 2.49%, which is about even with where it started the year. In turn, the yield on the 2-yr note climbed seven basis points to 1.89%, driving what is referred to as a bear steepening trade in the Treasury market as the change at the back end was greater than the change at the front end.
A steepening yield curve is typically associated with a strengthening economy as stronger growth often invites higher inflation.
The growth outlook was bolstered this week by another batch of generally encouraging data, yet it was fueled by a series of impressive reports out of the housing sector.
The NAHB Homebuilder Index hit its highest level in December since 1999; the pace of existing home sales in November (5.81 million) was the strongest since December 2006; the pace of new home sales in November (733,000) was the strongest since July 2007; and both housing starts and building permits in November were stronger than expected.
Not surprisingly, the iShares U.S. Home Construction ETF (ITB 43.36) outperformed during the week, gaining 1.8%.
On the flip side, the utilities and real estate sectors, which provide nice dividend yields, fared poorly as the jump in long-term rates challenged their appeal for income-oriented investors.
The utilities sector, which is highly regulated, also got pinched by concerns that it won't benefit much from the changes in the tax code.
Fortunately for the broader market, the utilities sector has a very small weighting in the S&P 500, so its large losses were easily offset by the gains in the more heavily-weighted financial and energy sectors.
Generally speaking, then, the stock market is going into the Christmas holiday in good spirits, content to know that a tax cut is coming in 2018 and that Santa is coming on Monday
Gapping down
In reaction to disappointing earnings/guidance:
In reaction to disappointing earnings/guidance:
- CCIH -17.8% (Also a Blockchain name), NKE -2.6%, CAMP -1.6%.
Select Blockchain/Crypto names showing weakness:
- DPW -17.3%, LFIN -17.2%, SSC -16.9%, GROW -13.4%, FTFT -12.3%, RIOT -10.3%, MARA -9.1%, TEUM -6.5%, SRAX -6,3%, OSTK -5.1%.
Other news:
- AGRX -72.3% (Receives complete response letter from the FDA for Twirla NDA for the prevention of pregnancy),
- OTIV -11.3% (Still checking),
- WWE -4.2% (CEO sold 3,340,000 shares in a block trade on Dec 21),
- XNET -4.8% (Still checking),
- CELG -4.6% (Celgene and LYSARC provide update on Phase III ‘RELEVANCE' study of REVLIMID; did not achieve superiority in the co-primary endpoints)
Analyst comments:
- AG -1.6% (Downgraded at BMO Capital).
Gapping up
In reaction to strong earnings/guidance:
In reaction to strong earnings/guidance:
- SGH +10.3%, CTAS +3.3%
M&A news:
- RXDX +72.7%, (Ignyta agrees to be acquired by Roche (RHHBY) for $27.00/share in cash, or approximately $1.7 bln)
Other news:
- LJPC + 11.3% (La Jolla Pharm announced FDA has approved Giapreza),
- NXTD +7.9% (Continued strength),
- MTL +6.4% (Still checking),
- RDHL +4.2% (announces initiation of phase iia study with ABC294640),
- AA +2.1% (Announced decisions regarding smelting assets in the United States and Italy),
- RAD +2.0% (Still checking).
Analyst comments:
- SGH +10.1% (Earnings, Stifel raises tgt to $47).
NIKE: Color On Quarter
- B. Riley FBR, Inc. reiterates Neutral rating, ups PT from 53 to 61. The firm likes Nike's innovation pipeline, int'l runway, and LT margin catalysts, but remain on sidelines and look for improved rev growth, margin execution, and lower inventory growth.
- Stifel reiterates Buy w/ 74 PT. With evidence of firming fundamentals and upside capacity to consensus estimates, the firm continues to view NKE shares as a solid core holding for growth investors
- Telsey maintains Outperform rating w/ 68 PT. The firm continues to believe that product innovation can drive an inflection in NA sales, while stronger gross margins and less F/X headwinds can drive bottom line growth and stock price appreciation, aided by multiple expansion. Longer-term, the firm continues to believe in the strength of the Nike brand and its ability to create value with ROIC of 30%+.
Celgene: Color on Relevance study failure
- Stifel lowers their CELG tgt to $130 from $149 after Celgene announced that its Phase III trial Revlimid (RELEVANCE) did not achieve superiority with its co-primary endpoints. This trial was testing Revlimid + Rituxan (R2) vs. Rituxan-CHOP (R-chemotherapy based regimen) in patients with untreated follicular lymphoma. While Celgene did not announce detailed data or its regulatory intent, their discussions with KOLs indicated that equivalent efficacy and the absence of chemo-associated side-effects would alter their script patterns to R2. However, the absence of R2 superiority, a much cheaper alternative with soon-to-be biosimilar Rituxan + chemotherapy regimen, and an ever increasing bold insurer climate, hamper any sales expectations. They are still positive on R2 r/r FL (AUGMENT) due to response rate expectations with Rituxan in patients who have previously failed Rituxan. AUGMENT is expected to readout during 1Q18.
- Mizuho notes CELG announced tonight that its RELEVANCE Ph 3 trial, Revlimid in untreated follicular lymphoma, failed. Timing of the readout was as expected (before YE 2017). They suspect investors were ~50/50 whether the trial would read out positive. It's not clear how much was in models for this particular trial or indication at peak (~2022) given it is one indication of a handful, however on a risk-adjusted basis, they would peg it around $500MM. Removing $500MM from their model is worth about <$2 or ~2% to DCF.
- SunTrust notes that while the news is disappointing and they anticipate the market reaction to be negative (shares currently down ~5% afterhours), they believe CELG's revised 2020 guidance for new hematology products/indications ($0.7B-$1.4B vs. prior $1.8B) has already reflected a more conservative view of Revlimid's potential label expansion opportunities. In fact, management confirms to them that today's news is not going to affect its 2018 financial goals (which are undisclosed at this point) and 2020 targets. In addition, they see limited read-through to the AUGMENT trial (in r/r FL and MZL; NCT01938001) for which data are expected in 1Q18.
- CELG down 4.5% premarket.
Early premarket gappers
- Gapping up:
-
RXDX +72.7%, LJPC +13.1%, SGH +10.0%, NXTD +7.9%, RDHL +4.2%, CTAS +3.3%, AA +1.9%.
- Gapping down:
- CCIH -17.8%, DPW -17.3%, LFIN -17.6%, SSC -16.9%, GROW -13.4%, FTFT -12.3%, OTIV -11.3%, RIOT -10.3%, MARA -9.1%, TEUM -6.5%, SRAX -6.3%, OSTK -5.1%, XNET -4.8%, CELG -4.6%, FH -3.4%, NKE -2.6%, SQ -1.7%, AG -1.6%, CAMP -1.6%
An Italian confectioner is close to scooping up Nestle’s US candy bar business, The Post has learned.
Ferrero Group — which makes Nutella as wells as the Ferrero Roche chocolate-and-hazelnut bon-bons — is poised to shell out as much as $2 billion to win an auction of Nestle brands including Crunch, Butterfinger and Kit Kat, sources said.
That’s on the heels of Ferrero inking a $1.25 billion buyout earlier this month of Ferrara Candy, which makes Red Hots, Now and Later, Jujyfruits and Super Bubble.
If Ferrero buys the Nestle business, it will become the third biggest US confectionery business trailing only Hershey and Mars.
Ferrero’s main competition in the auction has been Hershey, but that likely changed this week when Hershey agreed to buy Amplify, the maker of Skinny Pop popcorn, for $1.6 billion.
When it comes to the Nestle auction, “the presumption is Hershey is gone,” a source said.
A small group of private equity firms are the only other known suitors still in the process for Nestle’s $922 million US confectionery business, which also includes Baby Ruth, Sno-caps and Willy Wonka.
Nestle, which is being prodded by activist investor Dan Loeb to sell assets, is expected to choose a winner in the first few weeks of the New Year, a source said.
On Thursday, Nestle said it expected to sell the division by the end of March.
Family-run Ferrero, which now generates more than $12 billion in sales, didn’t want to buy the Nestle US confectionery business without a significant US platform to fold it into, sources said, and the Ferrara deal gives it such a platform.
Ferrero early next year plans on opening an innovation center on Cornell’s new tech campus on Roosevelt Island.
Ferrero and Hershey declined to comment.
Axiare bidder Inmobiliaria gets main shareholder CaixaBank's endorsement; obtains financing for acquisition
Inmobiliaria Colonial [BME:COL] has obtained the necessary financing to buy 100% of Axiare Patrimonio SOCIMI [AXIA:SM] after its main shareholder, CaixaBank (29% stake), endorsed the offer, Expansion reported. Colonial has already submitted all the documentation to the CNMV, the Spanish-language paper said, citing sources close to the process.
The deal, if successful, will create a real estate giant with some EUR 10bn in assets, Expansion noted.
Several Spanish banks aspired to this contract, Expansion said, citing sector sources, but it was finally CaixaBank which made the most competitive offer.
The bank guarantee is part of the documentation sent by Colonial to the regulator at the beginning of this month. The CNMV is now analysing the takeover bid, and Colonial expects for the offer to be approved in January.
As reported, the investment bank JPMorgan granted Colonial a bridge loan to start the transaction, while at the same time, the real estate company raised funds from the market - issuing EUR 800m in bonds and carrying out a EUR 338m capital increase - to pay off the bank loan.