(Bloomberg) -- So the hammer came down last night, when WSJ reported that the U.S. will let Europe’s exemption to the previously announced global steel and aluminum tariffs lapse. The Washington Post went a bit further, adding that Nafta partners Canada and Mexico aren’t expected to be granted a reprieve any longer.
Things have clearly changed in how this market is reacting to fanning trade war fears, as the futures are practically flattish, whereas if this was weeks/months ago, we’d be looking at a 15-20 handle drop at the open, and a couple percentage point drops on Boeing and Caterpillar.
It appears as though everyone realizes that these reports don’t seem anywhere near etched in stone ("plans could still change" and "process remains very fluid" are placed high up in both stories, if that tells you anything), which is why futures are hardly reacting -- though notable that steel stocks were bid up in the post-market session, with AK Steel ripping 5.5%, U.S. Steel gaining 3.8%, Nucor up over 2%, and so on..
If the tariff stories hold up and a deal isn’t reached to extend the exemptions, then the real test begins, for the tape hasn’t seemed to bat an eye at any of the trade headlines since the three-day weekend, whether they were deemed positive or negative.
Part of this was the mega distraction with the political situation in Italy, which hasn’t come close to being resolved but already seems like it was ages ago as the S&P 500 recouped all of Tuesday’s 31-handle plunge on some of the highest volumes in weeks yesterday. And suffice to say that our recent trading range of 2,700-2,740 is now very much intact, a change from when things looked a bit hairy for much of Tuesday.
So the question is what will ultimately move the market? Will it be clarity on the trade war front (looks like EU exemptions are the flavor of the moment until China makes waves again), on the European political discontent (both in Italy and in Spain, ahead of the latter’s no-confidence vote set for Friday), or are we sitting idly by until our own jobs & wage numbers hit tomorrow?
Tech Didn’t Lead, for a Change
One thing that did seem a bit bothersome in Wednesday’s massive bounce, though, was the relative weakness in tech -- S5INFT was the worst performer of all eleven S&P sectors -- granted it wasn’t in the red or a massive laggard, but it was a bit strange to see the stalwart of this tape bringing up the rear when it tends to lead on huge up days, as it had the last three times that the SPX rallied more than 1%.
The reversals in semiconductor beasts like Micron (down ~6% peak to trough on a fairly innocuous note from a lesser known boutique research shop) and Applied Materials, the all-day weakness in Apple, the jitters over the NXP Semi/Qualcomm deal saga.. it may mean absolutely nothing besides a bit of a breather for a group that’s been on fire, or perhaps it’s a very early signal that things might be getting a bit frothy for some of these names that have gone parabolic in the past month; Morgan Stanley appears to see some of this with their downgrade of MU today (more on this below).
Another example is the reaction to BOX’s earnings last night, which reported seemingly fine numbers and yet fell almost 5% after the bell. One sell-side analyst at MUFG who liked the print said he wouldn’t be surprised to see BOX "give back some of its share gains following a strong rally in the month of May as some investors choose to take profits." Perhaps this is a sign for the rest of the group, or maybe its a blip like the panic over Italy.
Notes From the Sell Side
Some of the biggest calls so far..
The most talked about rating change today will likely be Micron’s downgrade at Morgan Stanley to an equal-weight, after that hefty intraday reversal in the stock on Wednesday -- the stock is currently down ~3.5% pre-market -- analyst Joseph Moore has been telling clients to buy MU since late 2015 and has been bullish on memory for two years, but now says the strength in DRAM is priced in while the NAND recovery for the second half that bulls are looking for is "increasingly unlikely."
The truck machinery stocks are a hot topic this morning, with Goldman slashing its view on the broader machinery sector on its expectation that U.S. truck production will peak over the year, and downgrading PCAR in the process. On the flip side, Jefferies has a note out on the electric opportunity for the market, and views "terminal multiple" concerns for established truck players as "wildly overdone" and recommends buying PCAR, NAV, Volkswagen, and Volvo..
Lodging company STAY should have a good day after getting an upgrade from Morgan Stanley, on increased strategic potential ("mgmt highlighted at a recent conference that it could follow a similar path to La Quinta"), and a buy initiation & addition to the Franchise Picks List at Jefferies ("prospective split into opco/propco is strong possibility").
Tick-by-Tick Guide to Today’s Actionable Events
- 7:00am -- CIEN, DCI earnings
- 7:30am -- DLTR earnings
- 8:00am -- AEO earnings
- 8:00am -- PEG investor conference
- 8:00am -- BA, HD, WFC, TEL, BSX, OXY at Bernstein Strategic Decisions CEO conference
- 8:15am -- GLNG (roughly) earnings
- 8:30am -- PCE
- 8:40am -- DNKN at RBC consumer & retail conference
- 9:00am -- HPQ, NOC, SYF, TUP, DWDP, UNH at Bernstein conference
- 9:00am -- IRWD annual meeting (activist battle with Sarissa Capital)
- 9:30am -- MOH investor day
- 9:45am -- Chicago PMI
- 10:00am -- Pending Home Sales
- 10:00am -- TXN, MMM, WEN, MDLZ, NLSN, MTB, LPLA at Bernstein conference
- 10:30am -- EIA natgas storage
- 10:50am -- ACIA at Cowen TMT conference
- 11:00am -- DoE oil inventories
- 11:00am -- AXP, DHR, KMB, COP at Bernstein conference
- 12:00pm -- TTI, CCLP co-host investor day
- 1:00pm -- UNP, LXFT investor days
- 1:00pm -- GS, MU, WCG, XEC at Bernstein conference
- 2:00pm -- COF, ICE, ZBRA, CF, EW at Bernstein conference
- 3:00pm -- TER, GD, HAS, BG, CFG, CRH at Bernstein conference
- 3:20pm -- AMAT at Cowen TMT conference
- 4:00pm -- CNI, CCL, ABB, IPGP, OAK at Bernstein conference
- 4:02pm -- WDAY earnings
- 4:03pm -- ULTA earnings
- 4:05pm -- LULU, GME, MRVL earnings
- 4:15pm -- VMW, YEXT, COST earnings
- 9:00pm -- NBA Finals, Game 1: Cavaliers at Warriors (favored by 12.5)
- 9:45pm -- China Caixin PMI
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