Closing Market Summary: Heavyweights Push the S&P to Year-to-Date UptickThe stock market ended an upbeat week on a positive note as the S&P 500 (+0.4%) extended its win streak to five weeks and also managed to enter positive territory on a year-to-date basis (year-to-date +0.3%). Contributing factors to today's trade included leadership from the weary health care (+1.3%) and financial (+1.0%) sectors, a reversal in crude oil, and the inability to clear a key resistance level in the benchmark index.
Today's trading day began on a higher note as strength from the oil patch lent support to the broader market. However, this early support reversed as volatility increased in the oil trade. WTI crude came under pressure as investors took to profit taking in light of the week-to-date gain of 6.4% in the energy component. To be fair though, the first uptick of the year in the Baker Hughes U.S. Rig Count (387; prior 386) may have contributed to the air of selling pressure. WTI crude ended its day lower by 1.2% at $41.16/bbl.
Despite the tumble in crude, the major averages were able to maintain their footing in positive territory as heavyweight sectors outperformed. To that point, health care (+1.3%), financials (+1.0%), and industrials (+0.8%) were able to end the day with the largest gains. Meanwhile, the largest losses came from telecom services (-1.0%), utilities (-0.6%), and consumer staples (-0.2%). Interesting to note though, the two best performers of the day show the largest year-to-date declines with health care and financials down a respective 7.1% and 4.6% so far in 2016. Conversely, the two worst performers have the largest gains in 2016 with utilities and telecom services climbing a respective 12.4% and 13.3%.
Heavily-weighted health care (+1.3%) benefited from some broad-based strength as drug manufactures, drug wholesalers, and biotechnology all demonstrated relative strength. On that note, McKesson (MCK 158.31, +6.62) outperformed after the company announced its restructuring plan. Meanwhile, biotechnology trimmed its weekly losses. The iShares Nasdaq Biotechnology ETF (IBB 251.34, +4.25) ended its day higher by 1.7%, but finished with a loss of 4.1% over the week.
In the economically-sensitive financial sector, money center banks demonstrated relative strength as increases to JPMorgan Chase's (JPM 60.48, +1.73) and Bank of America's (BAC 13.79, +0.39) share buyback programs moved them to the top of the sector. The broader group traded higher in sympathy, extending its week-to-date gain to 1.5%.
The Dow Jones Transportation Average (+1.5%) continued its recent streak of outperformance as airlines topped the index, which benefited the broader industrial sector (+0.8%). Separately, large-cap Boeing (BA 133.96, +3.26) climbed 2.5% in the aerospace sub-group. To be fair though, the entire space is likely benefiting from recent weakness in the U.S. Dollar.
The U.S. Dollar Index (95.11, +0.35) ended its days near its high, but lost 1.2% for the week. The greenback managed to make up some ground against the yen and the euro today with the dollar/yen pair ending higher by 0.2% at 111.57 while the euro/dollar pair ended down 0.3% (1.1277).
Today's trade saw the S&P 500 (+0.4%) re-test a resistance level at 2050/52, but the index was unable to clear that level. As a result, the broader market ended off its best levels of the day with the Dow Jones Industrial Average (+0.7%) finishing ahead of the Nasdaq Composite (+0.4%) and the S&P 500 (+0.4%).
The Treasury complex traversed a narrow range today as the yield on the 10-yr note fluctuated between 1.87% and 1.89% before ending at the bottom of that range.
Today's participation was well above the recent average as options expiration boosted the number of shares traded on the NYSE floor to more than 2.147 billion.
Today's economic data was limited to the preliminary reading of the Michigan Sentiment Index for March:
- In a bit of a surprise, the preliminary University of Michigan Consumer Sentiment Survey showed a dip in consumer sentiment to 90.0 from the final reading of 91.7 for February. The consensus estimate projected a slight increase to 92.2.
- The downturn in consumer sentiment in March did not match at all with the strong upturn in investor sentiment in March, as expressed in quickly rising stock prices. The reason being, according to the report, is that consumers were worried more about prospects for the economy and had an expectation that gas prices would start moving higher during the year ahead.
- The latter may have contributed to a pickup in consumers' expected change in inflation rates for the next year and next five years to 2.7%, respectively. In February, the expected inflation rate for both periods was 2.5%. In March 2015, however, the expected change in the inflation rate for the next year was 3.0% while the expected change in the inflation rate for the next five years was 2.8%.
- Concerns about the economy and rising gas prices helped drive a downturn in the Expectations Index to 80.0 from 81.9, although the Current Economic Conditions Index also slipped to 105.6 from 106.8.
- Notwithstanding the aforementioned concerns, consumers reportedly still felt good about their own personal financial situations as they did not expect the low growth to lead to an appreciable rise in the unemployment rate.
- The report said consumers do not anticipate a recession, yet they no longer expect the economy either to do better than the 2.4% growth rate recorded in the past two years.
Monday's economic calendar will also be light with Existing Home Sales for February (consensus 5.37 million) set to cross the wires at 10:00 ET.
S&P affirms Portugal sovereign rating at BB+; outlook Stable
The ratings on Portugal are supported by our view of export sector resilience, ongoing budgetary consolidation, a significantly improved government debt maturity profile, and an accommodative monetary stance, contributing among other things to maintaining government borrowing costs at sustainable levels. At the same time, the ratings remain constrained by high public and private sector indebtedness, fragility in the domestic banking sector, and a weak monetary transmission mechanism, all of which in our view hinder Portugal's economic growth potential in the medium-to-long run. - Source TradeTheNews.com
PBR US - Reportedly mulling sale of majority stake in fuel division BR Distribuidora - press
Did central bankers make a secret deal to drive markets? This rumor says yes
The dollar has taken a surprisingly big stumble in recent weeks, prompting traders to ask: What’s really driving the selloff? The answer some are coming up with smacks of conspiracy theory.
Rumors are flourishing that global policy makers made a secret deal at the G-20 meeting in Shanghai late last month. This “Shanghai Accord” to weaken the greenback was aimed at calming the financial markets, which had gotten off to an awful start to the new year, according to the chatter.
No foreign-exchange pact was announced at the February meeting of central bankers and policy makers from the 20 largest economies. That hasn’t stopped speculation that a plan of action was whipped up behind closed doors, as its supposed effects are beginning to emerge now: The greenback DXY, +0.12% has shaved off more than 3% since the gathering, sparking a rally in stocks, emerging markets assets and commodities.
“To any conspiracy theorists, it’s all become quite clear,” said Chris Weston, chief market strategist at IG, in a note Friday. “There is a global coordinated central bank effort to weaken the [dollar] in play, which in turn has led to a massive de-risking in equity and credit markets.”
“A weaker [dollar] has been a key reason why we have seen a 54% rally in U.S. crude CLJ6, +0.05% and 40% rally in Brent LCOK6, +0.67% ” he noted.
The theorists argue a strong dollar would be bad for the global economy and could spark market volatility — ringing alarm bells with policy makers after the greenback’s strong 2015 rally.
The dollar index jumped almost 10% last year. In December, it reached its highest level in more than a decade on expectations the Federal Reserve would start to increase interest rates.
This 2015 run-up sent ripple effects through financial markets, with emerging markets and U.S. exporters suffering in particular. Oil prices were also hit, although the substantial decline in crude futures was largely due to a persistent supply glut.
Unexpected moves
Another argument is that central bankers have made some unexpected moves recently, taking markets by surprise.
“Since the G20 meeting in Shanghai there have been many red flags,” noted Weston. “Whether it’s the [People’s Bank of China] easing the Reserve Ratio Requirements (RRR) by 50 basis points, the [Reserve Bank of New Zealand] cutting its cash rate by 25 basis points (very much out of consensus), or the ECB moving to a focus on credit markets and going significantly above and beyond expectations.”
Read: A weaker euro isn’t a top priority for Draghi’s ECB
This week the Fed struck a surprisingly dovish tone and hinted it would significantly slow the pace of rate hikes year. The comments sparked a selloff in the dollar, with some market observers seeing it as another evidence of the secret “Shanghai Accord”.
The action was meant to help jump-start the U.S. economy by reversing an extended run-up by the greenback.
Read: To stave off currency war, is it time for a coordinated response to the Chinese yuan?
Joachim Fels, global economic adviser at bond-trading firm PIMCO, told Bloomberg he also suspects central bankers have coordinated their actions to prevent the dollar from growing stronger.
“There seems to be some kind of tacit Shanghai Accord in place,” he told the news outlet. “The agreement is to roughly stabilize the dollar versus the major currencies through appropriate monetary policy action, not through intervention.”
However, not everyone agrees something is afoot. Esty Dwek, global strategist at Loomis, Sayles & Co., said she’d be surprised by a secret deal and that she hasn’t heard anything about it.
Instead the recent dollar weakness comes down to two other factors, she said.
“First of all, the dollar has had a huge rally over a number of years,” she said. “And second, historically, what we see often is that the dollar actually stops rallying once the Fed starts hiking. It rallies before
--> SHOP +4% pre market
On the apps side, the search giant is also quietly exploring buying its way in.
Google has assembled an early working list of possible acquisition targets in enterprise that include a number of startups, according to sources familiar with the discussions. The list includes: Metavine, an automated app services startup that has raised $5.5 million; Shopify, a Canadian e-commerce public company with a market cap of $2.25 billion; CallidusCloud; Xactly; and Namely, a startup that handles payroll and health benefits services that raised a combined $77 million $108 million in three rounds, its latest led by Sequoia Capital.
Sources stressed the approaches have so far been preliminary in nature and haven’t reached a formal stage. Google declined to comment. Reps from Shopify, Namely and Metavine declined as well. Xactly and Callidus did not return requests for comment.
The list is full of companies that serve so-called “middle-market” businesses, which employ anywhere from a few hundred to a few thousand employees. Google is aiming to reach this group to expand its cloud business, a priority for CEO Sundar Pichai. He hired Diane Greene from VMware last November, and the list marks the first serious advances on enterprise for Google in years.
And it underscores the broad edict and influence that its new enterprise SVP Diane Greene has at the company as it aims to compete with Amazon and Microsoft.
The thinking behind the potential moves is twofold, sources say.
First, Google has a noticeable gap in its base of customers for Google Apps. It does well both with small companies and large ones, but has struggled to gain the traction it wants with companies between those two bookends. Acquiring applications aimed at that market would raise the appeal of its apps offerings: Namely is a human resources and employee benefits app; Shopify is a cloud-based set of e-commerce tools; Xactly uses cloud software to track the effectiveness of a company’s sales process.
In October, Google sought to lure companies with 3,000 employees or fewer away from competing platforms like Office365 by paying them $25 per user to help them manage the transition in exchange for a one-year commitment.
Second, by acquiring some of these companies, Google would have the opportunity to move their internal systems to its cloud platform, Google Cloud. Here Google competes against Amazon Web Services and Microsoft’s Azure in the business of leasing computing resources that power applications. Google trails AWS by a wide margin, but has added some big-name customers, including Macy’s, Sony and Spotify. It also recently picked up Apple.
After starting in November, Greene, a Google board member, has accrued considerable power within the company. With her arrival, Google merged the enterprise apps and cloud divisions under her leadership. Shortly thereafter, the entire portfolio of Google’s apps — Gmail, Docs, etc. — shifted over to Greene.
The company is holding its first annual cloud developer user conference Wednesday and Thursday of next week.
Gapping down
In reaction to disappointing earnings/guidance: ARO -41.7%, (announces review of strategic alternatives), TITN -9%, TIF -1.6%
M&A news: TRP -4.1% (To acquire Columbia Pipeline (CPGX) for $25.50/share in cash, or ~$13 bln), PBA -3.2% (Pembina Pipeline to acquire certain sour natural gas processing assets from Paramount Resources for cash consideration of ~$556 mln & expects immediate earnings accretion, increases monthly dividend from $0.1525/share to $0.16/share ; announced C$300 mln bought deal financing; ~8.8 mln shares priced at C$34/share)
Other news: HTBX -35.8% (following 150%+ move higher on Thursday), CBAY -7.6% (CymaBay Therapeutics announces top-line results from its pilot Phase 2 clinical study of MBX-8025), CPS -3.5% (prices 6.62 mln common stock offering at $37.75/share for gross proceeds of $249.9 mln, upsized from 5.5 mln shares), REG -2.9% (prices offering of 3,100,000 shares of common stock at $75.25), NVS -1.8% (still checking), GSK -1.6% (still checking), DFT -0.9% (prices 6.62 mln common stock offering at $37.75/share for gross proceeds of $249.9 mln, upsized from 5.5 mln shares)
Analyst comments: PYPL -1.1% (downgraded to Hold from Buy at Stifel)
Gapping up
In reaction to strong earnings/guidance: WRES +9.2%, SCVL +7.1%, ADBE +6.9%, TRQ +5.1%, BVX +4.9%, AMDA +2%, AGRO +1.9%
M&A news: CPGX +6.1% (Columbia Pipeline to be acquired by TransCanada for $25.50/share in cash, or ~$13 bln)
Select EU financial related names showing strength: RBS +2.7%, BCS +1.4%, HSBC +1%, UBS +0.9%, DB +0.6%
Select metals/mining stocks trading higher: CLF +6%, BBL +2.8%, BHP +2.5%, VALE +1.9%, FCX +1.7%, AU +1.7%, GOLD +1.1%, SLW +1.1%, AA +0.7%
Select oil/gas related names showing strength: DNR +7.3%, SDRL +4.5%, PBR +4.1%, WLL +4.1%, BAS +4%, OAS +4%, CHK +3.3%, MRO +1.6%
Other news: AERI +6.2% (updates on positive safety results for Rhopressa QD, expects to submit an NDA in Q3), VRX +3.2% (Bloomberg discusses that Valeant (VRX) CEO has reassured his employees that the company will not go bankrupt), VTAE +2.4% (following 65% move higher on Thursday), SHPG +2.3% (cont strength), JPM +1.3% (authorizes $1.88 bln increase to equity repurchase program), BAC +1% (authorized the repurchase up to $800 mln of common stock to offset share count dilution resulting from equity incentive compensation recently awarded to retirement-eligible employees), TWTR +0.8% (competing for rights to stream live television, according to NY Post)
Analyst comments: MGM +3.4% (positive industry note from Macquarie Research), WYNN +2.6% (positive industry note from Macquarie Research), LYG +1.7% (Nomura comments -- names Lloyds among its top picks), LVS +1.3% (positive industry note from Macquarie Research)