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Leigh Baldwin & Co.

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The Week In Review

3/24/16

The stock market ended an abbreviated week with a rally off its opening lows. Thanks to the final-hour push, the market ended the day on a mixed note as the S&P 500 (UNCH) recovered all but one point from its opening decline while the Nasdaq Composite (+0.1%) ended slightly above its flat line. Today's trade saw oil in focus, renewed strength from the dollar, and relative weakness from the financial sector (-0.7%). Separately, diverging commentary among Fed officials also impacted today's trade.

The cash market opened under selling pressure as oil slipped along international bourses. The tumble in the energy component followed yesterday's larger than expected build in crude stockpiles. This persistence of the supply glut took some shine off the commodity as WTI crude carved out fresh session lows during the opening half hour. However, oil was able to rally off those early levels, ending its pit session lower by 0.8% at $39.49/bbl.

Meanwhile, the economically-sensitive financial sector (-0.7%) saw pressure on two fronts as weaker-than-expected data overseas and at home weighed on the space. Domestically, February Durable Goods Orders (-2.8%; Briefing.com consensus -2.9%) disappointed investors as the report also contained a downward revision for the prior month.

Four sectors ended their day on a lower note as financials (-0.7%), industrials (-0.3%), and health care (-0.1%) led the downside. Meanwhile, telecom services (+1.0%), energy (+0.5%), and utilities (+0.3%) outperformed.

The commodity-sensitive energy space (+0.5%) was able to move from laggard to leader as oil rallied off its low throughout the session. Independent oil and gas names outperformed while pipeline companies and oilfield servicers ended on a mixed note. Meanwhile, Dow components Exxon Mobil (XOM 83.98, +0.23) and Chevron (CVX 94.85, +1.26) ended ahead of the price-weighted index.

In the financial sector (-0.7%), life insurance names underperformed while money center banks rebounded from their worst levels of the day. Meanwhile, PayPal (PYPL 38.92, -1.60) plunged 4.0% after Re/Code reported that Apple (AAPL 105.67, -0.46) is looking to expand it Apple Pay service to outside websites by the end of the year.

On the central bank front, St. Louis Fed President Bullard (FOMC voter) echoed his statements from yesterday when he said that a rate hike may not be "far off" if economic conditions evolve as expected. President Bullard again did not discount a rate hike at the FOMC's April meeting. This diverged from the latest policy statement, which struck a dovish tone by lowering long-term target rate projections.

In the consumer discretionary space (+0.1%), Amazon (AMZN 582.95, +13.32) led as it extended its week-to-date gain to 6.2%. Meanwhile, media names like Disney (DIS 97.22, +0.39) and Comcast (CMCSA 60.01, +0.76) also outperformed.

Conversely, airline names underperformed in the industrial sector (-0.3%). The space as a whole was likely facing some headwinds from the recent gain in the dollar and the weaker than expected durable goods orders for February. Furthermore, General Dynamics (GD 129.08, -5.24) slipped 3.9% after being downgraded to "Hold" at Deutsche Bank.

 

The U.S. Dollar Index (96.11, +0.11) ended modestly higher as the dollar gained against the yen. The dollar/yen rose 0.4% to 112.82.

The Treasury complex tumbled at the beginning of the session as equities moved off their lows. The yield on the 10-yr note increased two basis points to 1.90%.

Today's participation fell below the recent average as fewer than 870 million shares changed hands on the NYSE floor.

Today's economic data included weekly initial claims and Durable Goods Orders for February:

The initial claims data stayed true to its range-bound form. Initial claims for the week ending March 19 were 265,000 (Briefing.com consensus 268,000), up 6,000 from the prior week.

There were no special factors influencing initial claims, which have now run below 300,000 for 55 straight weeks, which is the longest such streak since 1973.

The four-week moving average for initial claims was little changed at 259,750.

Continuing claims for the week ending March 12 were 2.179 million, down 39,000 from the downward revision for the prior week.

The four-week moving average for this series fell 13,500 to 2.207 million.

The Durable Goods Orders report for February was a disappointment, partly because it contained downward revisions for January but also because almost every category, excluding transportation, registered a month-over-month decline in new orders.

Furthermore, orders for nondefense capital goods excluding aircraft -- a proxy for business spending -- declined (-1.8%) while shipments of those goods (-1.1%), which factor into GDP forecasts, declined for the second straight month. Total durable orders fell 2.8% (Briefing.com consensus -2.9%) in February and were revised for January to show 4.2% growth versus the previously reported 4.8% growth. On a year-over-year basis, durable orders are up 2.6%.

Excluding transportation, orders were down 1.0% in February (Briefing.com consensus -0.2%) and were said to have increased 1.2% in January versus 1.8% before. On a year-over-year basis, orders excluding transportation are unchanged.

Markets will be closed tomorrow in observance of Good Friday. However, the third estimate of fourth quarter GDP (Briefing.com consensus +1.0%) will still be released at 8:30 ET.

Monday's economic data will include PCE Prices for February (Briefing.com consensus +0.2%), Personal Income for February (Briefing.com consensus +0.1%), and Personal Spending for February (Briefing.com consensus +0.1%), which will each cross the wires at 8:30 ET. Meanwhile, Pending Home Sales for February (Briefing.com consensus +1.1%) will be released at 10:00 ET.

 

Russell 2000 -5.0% YTD

Nasdaq Composite -4.7% YTD

S&P 500 -0.4% YTD

Dow Jones +0.5% YTD

Week in Review: Win Streak Snapped

 

After posting five consecutive weekly gains, the stock market ended the holiday-shortened week on a lower note with hawkish commentary from St. Louis Fed President and FOMC voting member James Bullard putting a damper on investor sentiment. The S&P 500 lost 0.7% for the week.

Mr. Bullard said that a rate hike in April is not off the table, but that sentiment remains at odds with the fed funds futures market, which sees only a 14.0% chance of a rate hike at the upcoming policy meeting. The market sees a 40.0% chance of a hike in June while expectations for a hike in July are running at 51.0%.

However, it wasn't just Mr. Bullard's tone that weighed on the market as crude oil retreated notably, falling 4.1% for the week. To be fair, dollar strength was likely a contributing factor as the Dollar Index rose 1.4%, erasing its entire decline from the previous week.

All in all, the past week's action was underscored by below-average trading volume as many participants got an early start on the Easter Holiday. Furthermore, it wouldn't be too difficult to argue that the market was simply due for a pullback after surging nearly 10.0% in the previous five weeks.

Seven of ten sectors finished the week in negative territory with energy (-2.4%), financials (-1.9%), materials (-1.7%), and industrials (-1.0%) leading the decline while health care (+0.6%), utilities (+0.6%), and telecom services (+0.5%) eked out slim gains for the week.

  

16:17  VIVO Meridian Bioscience acquires Magellan Biosciences for $66 mln (19.56 -0.13) 

 

 Magellan is the leading provider of point-of-care lead testing systems with placements in more than 6,500 physician offices and clinics nationwide. Magellan has a robust product development pipeline and plans to introduce a third generation platform that will include a menu of additional high value CLIA-waived pediatric tests including, but not limited to, lead testing.

Magellan was acquired from an investor group including Ampersand Capital Partners as the majority owner, along with Abingworth, Tekla Capital Management and Boston Community Venture Fund. Magellan sales for 2015 were $16 million and the business is growing and profitable. Meridian expects Magellan to be accretive to earnings per share during the second half of calendar 2017. Meridian will finance the purchase price of $66 million using a combination of cash on hand and a $60 million five-year term loan. Meridian remains conservatively capitalized and in a position to maintain its indicated annual cash dividend rate, fund expected growth requirements, and pursue additional acquisitions.