TheChek News Flow

Closing Market Summary: Traders Appear OK With March Rate Hike

A rate hike at next week's FOMC meeting appears to be a mere formality following the better than expected Employment Situation Report for February, which crossed the wires early Friday morning. That seemed to be alright with investors as they pushed the major averages higher to finish a slightly disappointing week on a positive note. The Nasdaq (+0.4%) led the modest advance with the S&P 500 (+0.3%) and the Dow (+0.2%) closing just a step behind. For the week, the benchmark S&P 500 lost 0.4%.

The CME Fed Watch Tool now assigns an implied probability of 93.0%, up from 88.6% on Thursday, to a rate hike at the March 14-15 FOMC meeting after the February jobs report showed that nonfarm payrolls increased by 235,000 (consensus 188,000) and average hourly earnings rose 0.2% (consensus +0.2%). The Federal Reserve will announce its decision on Wednesday at 2:00 pm ET.

Crude oil continued to command investors' attention again on Friday, falling 1.5%. The day's tumble left the energy component 8.8% lower since Wednesday's bearish EIA inventory report, which showed record high U.S. inventories. WTI crude finished the Friday session at $48.49/bbl.

All things considered, the energy sector (-0.1%) held up relatively well, finishing the day near its flat line. Real estate (-0.2%) was the only space to post a wider decline.

Conversely, at the top of the leaderboard, the industrials (+0.7%), utilities (+0.8%), and telecom services (+0.7%) spaces settled with solid gains. The top-weighted technology sector (+0.5%) also outperformed as chipmakers finished Friday's session with notable gains; the PHLX Semiconductor Index closed higher by 1.2%.

Retailers provided the consumer discretionary space (+0.1%) with some support, advancing the SPDR S&P Retail ETF (XRT 42.14, +0.31) higher by 0.7% in the wake of Ulta Beauty's (ULTA 286.42, +12.65) most recent earnings report. The company added 4.6% after reporting better than expected top and bottom lines, but it wasn't enough to keep the consumer discretionary sector from underperforming as restaurants weighed.

In the Treasury market, U.S. sovereign debt saw an uptick in buying interest following the release of the February jobs report. The benchmark 10-yr yield closed three basis points lower at 2.58%.

On a related note, the U.S. Dollar Index (101.22, -0.76) finished solidly lower, losing 0.8% in Friday's session.

Friday's economic data included the Employment Situation Report for February and the February Treasury Budget:

• February nonfarm payrolls came in at 235,000 while the consensus expected a reading of 188,000. The prior month's reading was revised to 238,000 from 227,000. Nonfarm private payrolls added 227,000 while the consensus expected an increase of 185,000. The unemployment rate decreased to 4.7% (consensus 4.7%). Average hourly earnings increased 0.2% (consensus +0.2%), while the previous month's reading was revised to 0.2% (from +0.1%). The average workweek was reported at 34.4, which is in line with the consensus. The previous month's reading was left unrevised at 34.4.
  • Average hourly earnings increased 0.2%, leaving them up 2.8% year-over-year and solidifying the prevailing belief that the Federal Reserve will raise the target range for the fed funds rate at its March 14-15 FOMC meeting. That is the key takeaway from this report, followed closely by the encouraging understanding that the labor market is strengthening, which is aiding the prospects for stronger economic growth.
• The Treasury Budget for February showed a deficit of $192.0 billion versus a deficit of $192.6 billion for February 2016. The Treasury Budget data is not seasonally adjusted, so the February deficit cannot be compared to the $51.3 billion deficit registered in January.

Investors will not receive any economic data on Monday.

• Nasdaq Composite +8.9% YTD
• S&P 500 +6.0% YTD
• Dow Jones Industrial Average +5.8% YTD
• Russell 2000 +0.6% YTD

Energy Closing Prices

• April Crude Oil futures fell $0.75 (-1.5%) to $48.49/barrel
• April Natural Gas closed $0.04 higher (+1.4%) at $3.01/MMBtu
• April RBOB Gasoline closed $0.02 lower (-1.2%) at $1.6/gallon
• April Heating oil futures closed flat at $1.53/gallon

Gilead (Nasdaq: GILD) is close to an agreement to acquire Delaware-based biopharmaceutical company Incyte (Nasdaq: INCY), according to a person claiming to have knowledge of the matter. Talks are said to be at an advanced stage but specifics on timing and price weren't mentioned.

Gilead, based in California, has been under intense pressure from investors to find a way to convert its multi-billion cash hoard into growth, but recent efforts have fallen flat.

Amid criticism from some investors and Wall Street analysts, management at Gilead acknowledged on its fourth quarter conference call that growth would be challenging over the next couple of years without some sort of acquisition, stoking speculation about a takeover of Incyte or another biotech. But in some circles patience has worn thin.

While Gilead has contemplated its next move, Incyte hasn't gotten any cheaper. Shares of the oncology-focused company are up 40% this year alone and it has continued to climb, making fresh highs near $140 per share in recent days.

Incyte's lead asset is Jakafi, an approved drug for treatment of patients with several types of rare blood cancers and the first FDA-approved janus associated kinases (JAK) inhibitor for any indication. Trial results from Gilead’s developmental JAK compound, momelotibib, have been disappointing in comparison.

Representatives for Gilead said it doesn't comment on speculation about M&A. Incyte did not respond to requests to comment on the rumor.