Tug of War in the Market

February 23, 2018.

Again, the market pared gains mid-session, off its intraday high. Solid data on the labor market seemed to do the trick, in quelling fears about inflation and a T-bond yield nearing 3%. But then, the market lost traction, financial and health care stocks dipping into the red in afternoon trading. As we’ve noted recently, rising rates bode well for banks, which can usually rack up higher profits with higher interest rates giving them more wiggle room to charge clients more in lending costs.

Daily Summary: The blue chip Dow climbed 0.7%, though traded off 300 points from its intraday high. The S&P 500 tacked on 0.1%, the NASDAQ breaking from the pack with losses of 0.1%. The tech-leaning index is down now 4 sessions in a row.

The 10-year T-bond yield stayed pretty high yesterday at just around 2.92%. The catalyst for the latest fears was a recent wage reading featuring growth at the most rapid clip in years, spurring fears of higher inflation, and in turn, prompting fears about more or faster rate hikes. It was the second session in a row in which the Dow relinquished intraday gains. On Wednesday, it was the FOMC minutes that propelled fear and concern, the blue chip index seeing a steep drop in the last trading hour.

With that said, the Fed’s been trying to place a damper on apprehensions that we’re invariably on track for four hikes this year. James Bullard, St. Louis Fed President, took on the issue head on: “The idea that we have to go 100 basis points in 2018, that seems like a lot to me.” The Fed’s vice chair for supervision also weighed in yesterday, noting that the economy is “performing very well.”

In yesterday’s economic news, jobless claims in the U.S. fell 7,000 to 222,000 in the week ending February 17^th. That was the second lowest reading since the 2007-9 recession came to a close.

Not everybody was worried about the economy, despite the rockier trading we’ve seen of late. Four Woods Capital Partners CEO, Steven Baffico, shared, “We’re seeing a repricing of risk, given the anticipation of inflation and higher rates, but some of that is a byproduct of an improving economy, one that’s growing faster than normal. In general, the broader economic conditions continue to improve.”

Roku (ROKU) toppled 18% on heavy volume, the media streaming company having released a disappointing forecast late on Wednesday. Pandora Media (P) also took a big hit, tumbling 7.2%. Its quarterly revenues came out stronger than expected, but its adjusted net loss was higher than the market wanted. The online home retailer, Wayfair (W), plunged 23% after seeing a larger than expected Q4 loss. Some of the day’s biggest winners included the rental car company, Avis Budget Group (CAR), which soared 13.45% after beating the consensus, Cheesecake Factory (CAKE) tacking on 3.7% despite weaker than expected quarterly revenue. Chesapeake Energy (CHK) skyrocketed 22% after beating Q4 earnings estimates. The energy sector rose 2% on the day, given the large boost from Chesapeake.

After the closing bell yesterday, Hewlett Packard Enterprise (HPE) soared as much as 19% after its revenue and earnings numbers trounced the market consensus. HPE, likewise, issued better than expected guidance for both the upcoming quarter and fiscal year 2018. HP also shot up in extended trading, gaining 8% after beating on the top and bottom line. Its EPS came out at 48 cents, blasting past expectations of 42 cents. The domain register and site hosting company, GoDaddy (GDDY) saw strong Q4 and fiscal 2018 financial results. Two of the key barometers for business health shined, total bookings up 25% year-over-year, with a 7.4% increase registered in revenue per user. The stock ended extended trading up 3%.

Today’s Economic Diary is slim, William Dudley speaking at 10:15.

Friday’s Hot Stocks: HPE, HPQ, WING, GDDY

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