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FactSet StreetAccount Summary - US Weekly Recap: Dow (1.21%), S&P (0.88%), Nasdaq (0.38%), Russell 2000 (0.45%)

May 29, 2015


  • US equities finished lower in holiday-shortened trading this week. Trading was fairly choppy despite any notable changes in the macro backdrop, while there was little apparent conviction in moves in either direction. Some of the volatility continued to be chalked up to the outsized focus on US monetary policy. However, while economic data was mixed, there was no meaningful shift in recovery sentiment and the latest batch of Fedspeak did not break much new ground. Greece was cited as another driver of volatility, though there was still much more noise than actual news in the headlines. It was a somewhat quieter week in terms of corporate newsflow. The M&A theme continued to grab most of the headlines with semis, cable and healthcare in focus. Retail dominated the earnings calendar, though both takeaways and post-earnings performance drivers were mixed. In terms of sell-side conference developments, cautious commentary from equipment rental names weighed on the industrials late in the week. The sector was the second-worst performer this week, behind energy. Healthcare, utilities and tech fared better, but still ended lower. Next week is expected to be busier with several notable macro-related events. 

Mixed economic data:

  • There were some mixed takeaways from this week’s economic data and the calendar did not seem to have much impact on broader recovery sentiment. In addition, when it comes to the Fed liftoff debate, next week’s release of the May employment report is widely seen as the next key input. On Tuesday, a combination of better-than-expected April core durable goods orders and shipments, new home sales and May consumer confidence data was cited as an overhang on equities. This played into concerns that the market’s focus has reverted to a “good news is bad news” theme. However, a soft May Chicago PMI print on Friday did not provide a catalyst for stocks, nor did the second estimate of GDP data that showed the economy contracted 0.7% in Q1 after an initially reported 0.2% gain. The GDP revision was widely telegraphed and seemed to keep the focus on the largely transitory nature of the recent headwinds and the traction surrounding the residual seasonality dynamic. In terms of the latter, the BEA said late last week that it is working on a multi-pronged action plan to improve estimates by better identifying and mitigating potential sources of residual seasonality. 

No surprises from Fedspeak:

  • Fedspeak remained in focus this week, though policy takeaways were limited. The combination of dollar strength and equity weakness on Tuesday triggered thoughts that Fed Chair Yellen may have been more hawkish than initially perceived last Friday. However, this may have been more a function of the broader policy complacency concerns that continue to get some press. Reuters touched on this dynamic this week, highlighting the extent to which “new normal” or “secular stagnation” theses have quickly moved into the consensus. In terms of the other Fed commentary, Richmond Fed President Lacker (voter) said a strong case can be made for tightening in June, but noted he had not made up his mind whether to push for such as a move. Like Lacker, San Francisco Fed President Williams (voter) was fairly dismissive of Q1 weakness, highlighting expectations for above-trend growth the rest of the year. He said he needs to see more data before deciding on liftoff and expects the policy normalization process to take a few years. Vice Chair Fischer argued that the market is putting too much importance on when the Fed will raise rates and should be more focused on what he believes will be a gradual and relatively slow tightening cycle. 

Still more noise than news surrounding Greece:

  • It was another week of headline volatility surrounding the Greek saga. Greek officials seemed much more optimistic about the prospects for a near-term reform-for-funding deal. On Wednesday, a Greek government official said work had begun on drafting a staff-level agreement, helping to drive a rally in US and European equities. However, European officials were quick to dismiss the comment, noting that key issues surrounding pension and labor market reform, as well as fiscal targets, have yet to be resolved. They also expressed skepticism about Greece’s push for a draft accord by Sunday. Greece is expected to dominate the headlines again next week with a €300M IMF payment due on Friday. While Athens said late this week that it will honor the payment, Europe is reportedly skeptical of its ability to meet three further payments totaling ~€1.25B on 12-Jun, 16-Jun and 19-Jun. A WSJ article also discussed creditor concerns that even if the two sides can work out a last-minute deal (which is still the market consensus), it could still be derailed by internal divisions within Syriza. 

Semi, cable consolidation leads M&A headlines:

  • It was another week in which the higher-profile corporate newsflow revolved around M&A. The widely speculated consolidation in the cable space came to fruition as CHTR +2.1% announced the acquisition of TWC +5.7% in a deal valued at $78.7B. The consolidation trend in the semi space also continued as AVGO +11.6% agreed to purchase BRCM +20.3% in a well-received cash-and-stock deal valued at $37B, the biggest in the history of the semi space. Even before the official announcement, Dealogic data showed that the semi group has seen over $26B of announced deals already this year, more than double the volume in the year-earlier period and the largest year-to-date total since it started tracking data in 1995. Late in the week, the NY Post reported that INTC +3% is closing in on a $15B acquisition of ALTR +3.1% that could be announced as soon as next week. Pharma/biotech deal speculation remained in the headlines as the FT reported that CLLS +26.2% is in talks about a potential sale. The NY Post reported that TEVA (1.6%) could get help from MYL +4.3% shareholder Paulson in its unsolicited pursuit of the company. In ag chemicals, SYT +1.9% was underpinned by continued speculation of a near-term bump from MON (2.8%). 

Industrials lag on machinery, transport weakness:

  • The industrials sector came under pressure this week. Machinery/capital equipment names were hit particularly hard with TEX (13.9%), OSK (8.5%), JOY (7.9%) and MTW (7.7%) some of the big decliners. Much of the blame was chalked up to cautious comments from equipment rental companies at the KeyBanc Industrial conference. KeyBanc said that both URI (15.2%) and HEES (11.1%) noted a near-term soft patch in May utilization and rental equipment rates, pointing to challenging weather and more onerous E&P headwinds. The Transports (2.2%) also came under scrutiny given the perceived read-throughs for the underlying economy. Airlines only put in a mixed performance after last week’s selloff on pricing and capacity concerns despite an aggressive sell-side defense. Rails were hit with CP (6.8%), CSX (3.9%) and NSC (3.7%) some of the big decliners. Worries about the weak volume backdrop seemed to be the big headwind after TCK (7.9%) said that it would reduce capacity. A number of trucking stocks sold off on Friday. BofA Merrill Lynch downgraded KNX (4.3%), ARCB (4.3%), CNW (3.6%) and JBHT (1.4%). It cited a rapid decline in its macro transport statistics and continued weakness in its proprietary Truck Shipper Survey. 

Healthcare best performer, but still down slightly:

  • Healthcare fared the best this week, but still finished slightly lower. M&A speculation was not limited to pharma/biotech as managed care rallied on Friday on a Dow Jones report HUM +19.9% has received takeover interest from a couple of potential suitors. Utilities held up better, likely with the better tone in Treasuries. Semi consolidation helped tech with the SOX +3.5%, though like healthcare, M&A headlines were not limited to one group. A Bloomberg report that ERIC +2.2% is open to large M&A helped networking plays like CIEN +3.8% and JNPR +0.7%. Consumer discretionary was largely in line with the focus on mixed takeaways from the retail/apparel/accessories reporters. Notable movers included TIF +7.9%, GME +6.4%, EXPR +4.2%, COST (0.8%), ANF (1.7%), CHS (2.1%) and KORS (24.6%). Protein, HPC and cosmetics and grocers weighed on the consumer staples. The financials sector was a slight laggard, though there did not seem to be anything specific behind the move. Comments from banks out of the Bernstein Conference this week did not break any new ground. Energy put in the worst performance this week despite a big Friday rebound in oil. Drillers and coal stocks came under outsized pressure. 

Sector Performance (vs S&P 500):

  • Outperformers: Healthcare (0.02%), Utilities (0.28%), Telecom (0.46%), Tech (0.49%), Consumer Disc. (0.87%) 
  • Underperformers: Energy (2.06%), Industrials (1.92%), Financials (1.03%), Materials (1.02%), Consumer Spls. (0.91%)
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