There was no economic data on Monday, but be prepared for PPI and CPI on Tuesday and Wednesday with some inflation moderation likely. Retail sales should show a decline on Tuesday morning. We have housing data with the NAHB Housing Market Index on Wednesday expected to remain below 20 and Housing Starts on Thursday expected to rebound slightly in May. Industrial data points include New York Fed Empire State Survey and Industrial Production on Wednesday and the Philly Fed Index on Thursday. The Dow Jones Industrial Average began the week with an oversold bounce to 12,011 then traded into the red down to 11,918 before an afternoon rebound. The NASDAQ opened as high as 2657 then traded into the red down to 2630 before an afternoon rebound.
Asian stocks were mixed again on Monday for the fourth consecutive day with the Nikkei 225 down 0.7% to 9,448 with the Hang Seng up 0.4%. European stocks were also mixed with the FTSE down 1.4%, the DAX up 0.2% and the CAC 40 virtually flat. The yield on the 10-Year U.S. Treasury note rose from 2.967 percent to back above 3% on Monday morning then traded back below 3% in the afternoon. Comex gold traded down to $1524.4 pre-market then rebounded to $1533.9 the Troy ounce, and then traded down again to $1511.4. Nymex crude oil traded down from $99.32 per barrel to $97.81 then rebounded to $99, and then traded down to $96.13. The euro traded between 1.4326 and 1.4429 on Monday with the high in the final hour of trading. The Dow Industrial Average declined 199 points last week to 11,952 up just 3.2% year to date and down 7.2% since its May 2nd high at 12,876. The NASDAQ slumped 89 points last week to 2644 down 0.3% year to date and down 8.4% since its May 2nd high at 2887.75.
Energy
Brigham Exploration (BEXP) was upgraded to Buy from Neutral at SunTrust but shares were down 2.6% in mid-morning trading. Patriot Coal (PCX) was upgraded to Outperform from Market Perform at FBR Capital. Shares were up 2% in the first hour of trading, but faded to the flat line in the second hour and then into the red in afternoon trading down 1.5%. Transocean (RIG) has been upgraded to Buy from Hold at Argus on the theory that uncertainty is already priced into the share price slide. RIG shares slipped 1.0% in morning trading. Dow components Chevron (CVX) and Exxon Mobil (XOM) moved sideways to slightly lower on Monday
Energy Select Sector SPDR (XLE) was trading at $72.05 at 4:00 PM on Monday, down 1.75% on the day – up 5.57% year-to-date.
Materials
Cliffs Natural Resources (CLF) was initiated with a Buy rating and a $122 price target at UBS. Shares were sown 1.0% in afternoon trading. Bemis (BMS) is downgraded to Sell from Neutral at Goldman and shares slip by 0.8%. Dow components Alcoa (AA) and Dupont (DD) were mixed with Alcoa down 0.9% afternoon trading and Dupont up fractionally. A big winner was Graham Packaging (GRM) up 18.1%.
The Materials Select Sector SPDR (XLB) traded at $37.39 at 4:00 PM on Monday, down 0.53% on the day – down 2.66% year-to-date.
Industrials
Ryder System (R) was upgraded to Buy from Hold with a $63 price target at KeyBanc Capital amid positive current fleet dynamics and freight trends. The stock rebounded 1.5% in morning trading. Dow components – Boeing Co (BA) was up 0.4% mid-afternoon. Caterpillar (CAT) was down 1.0%. General Electric (GE) was up 0.8%. United Technologies (UTX) was up 0.4%.
The Industrial Select Sector SPDR (XLI) traded at $35.26 at 4:00 PM on Monday, up 0.14% on the day – up 1.12% year-to-date.
Consumer Discretionary
Timberland (TBL) shares surged 42.5% at the open on the news that VF Corp (VFC) will buy the footwear and apparel company for $43 a share. VFC shares opened 12% higher on this $2 billion deal. Ford (F) will appeal a $2 billion judgment awarded to commercial truck dealers who say that the company overcharged them for 11 years. Ford shares traded down 2.7% in afternoon trading. Best Buy (BBY) will likely decide against further expansion in Europe due to difficult market conditions. 1.6%. Lululemon Athletica (LULU) was upgraded to Neutral from Reduce at Nomura and shares slumped 2.4% in afternoon trading. Chico’s FAS (CHS) was upgraded to Overweight from Neutral at JP Morgan and shares rose 3.8% in afternoon trading. Under Armour (UA) has been upgraded to Buy from Neutral at Sterne Agee with a price target up to $80 from $60. The stock was up 6.1% in mid-afternoon trading. Vera Bradley (VRA) has been upgraded to Outperform from Neutral at Robert W. Baird, after a China consumer survey trip and a visit to the company’s sourcing office. The stock rallied 8.0% in mid-afternoon trading. MGM Resorts (MGM) has been upgraded to Outperform from Market Perform at Bernstein and the stock rebounded 1.0% in afternoon trading.
The Consumer Discretionary Select Sector SPDR (XLY) traded at $37.85 at 4:00 PM on Monday, down 0.03% on the day – up 1.18% year-to-date.
Consumer Staples
Mead Johnson Nutrition (MJN) is initiated as a new Outperform at William Blair and shares rose by 2.1% in afternoon trading. Molson Coors Brewing (TAP) has been downgraded to Hold from Buy at Stifel Nicolaus due to continued news that Coors may jointly bid for Foster’s. TAP declined 0.8% in morning trading, but rebounded to a 0.2% afternoon gain. Dow components – Coca Cola (KO) traded up 0.4% in afternoon trading. Kraft Foods (KFT) moved higher by 1.6%. Proctor & Gamble (PG) was up 0.7% in afternoon trading. Wal-Mart (WMT) was up fractionally on the session.
The Consumer Staples Select Sector SPDR (XLP) traded at $31.08 at 4:00 PM on Monday, up 0.55% on the day – up 6.04% year-to-date.
Healthcare
The FDA has provided limited Authorization for the drug Potiga, an epilepsy treatment from GlaxoSmithKline (GSK) and Valeant Pharmaceuticals (VRX). The companies expect the drug to be available in the US at the end of the year, after the FDA’s final classification. Analysts expect the drug to have peak annual sales of $200 million to $800 million. Universal Health (UHS) is upgraded to Outperform from Market Perform at Leerink Swann and the stock was up 0.3% in afternoon trading. Dow components – Johnson & Johnson (JNJ) was up 1.1% mid-afternoon. Merck (MRK) was flat on the session at mid-day. Pfizer (PFE) was up 2.2% at mid-afternoon trading.
The Health Care Select Sector SPDR (XLV) traded at $34.99 at 4:00 PM on Monday, up 0.52% on the day – up 11.08% year-to-date.
Financials
The audit committee of Regions Bank (RF) is investigating whether or not bank executives delayed the disclosure of loans that were going sour during the financial crisis. In addition the bank will likely agree to pay $200 million to settle SEC charges that it defrauded investors by inflating the value of subprime securities. Regions shares opened 2.3% lower on Monday, but shaved the loss to 1.5% in the afternoon. New York Attorney General Eric Schneiderman and Delaware counterpart Joseph Biden have requested information from Bank of New York (BK) and Deutsche Bank (DB) in a new inquiry into whether or not the repackaging of mortgages into securities was properly documented and valid. HSBC (HBC) plans to wind down its $33 billion US credit card business if it can’t find a buyer for the division. The bank’s strategy is to slash $3.5 billion in costs and cut back on retail banking activities. Dow Components – American Express (AXP) was 0.7% higher mid-afternoon. Bank of America (BAC) was up 1.4%. JP Morgan (JPM) was up 1.4%. Travelers (TRV) traded 0.4% lower in afternoon trading.
The Financial Select Sector SPDR (XLF) traded at $15.00 at 4:00 PM on Monday, up 1.15% on the day – down 5.96% year-to-date.
Information Technology
Apple (AAPL), Research in Motion (RIMM) and Microsoft (MSFT) are among the companies likely to make initial bids for thousands of Nortel patents and patent applications before the deadline today at 4 pm ET. Any proposals would join a $900 million bid from Google (GOOG). Intel (INTC) is also thought to be interested. The auction is due to take place next Monday. Nokia (NOK) gets a downgrade to Hold from Buy with Wunderlich and shares fell 1.25% in morning trading. Semiconductor Stocks: Fairchild Semi (FCS) and Diodes (DIOD) were downgraded to Neutral from Outperform at Robert Baird, and both traded lower with FCS down 7.5% and DIOD down 2.6% in afternoon trading. Other Dow components – Cisco Systems (CSCO) rebounded by 0.3%. Hewlett Packard (HPQ) fell by 1.0%. IBM (IBM) traded around the flat line.
The Technology Select Sector SPDR (XLK) traded at $24.82 at 4:00 PM on Monday, up 0.2% on the day – down 1.47% year-to-date.
Telecommunications Services
Boingo Wireless (WIFI) was initiated with a Buy rating and $15 price target at Deutsche Bank and to Outperform at Credit Suisse. The stock popped by more than 25% in the opening hour of trading before fading to a 20% gain. The stock was 24% higher in afternoon trading Vodafone (VOD) rallied 2.0% at mid-afternoon on Monday. Dow components – AT&T (T) traded 1.6% higher mid-afternoon. Verizon (VZ) rallied by 1.5%.
The NASDAQ Telecommunications Index (IXTC) traded at $206.38 at 4:00 PM on Monday, down 0.29% on the day – down 8.43% year-to-date.
Utilities
Public Service (PEG) gets upgraded to Buy from Neutral at Goldman and shares rebounded 0.8% in morning trading, but faded to the flat line in the afternoon. Great Plains Energy (GXP) was upgraded to Buy from Neutral at Goldman and shares were 1.3% higher in afternoon trading. Sempra Energy (SRE) has been downgraded to Neutral from Buy at Goldman and shares traded around the flat line during the day. Duke Energy (DUK) tacked on 1.6%. Dynegy (DYN) added 1.5% in early trade but returned to the flat line in the afternoon. Progress Energy (PGN) rallied 1.4%.
The Utilities Select Sector SPDR (XLU) traded at $33.12 at 4:00 PM on Monday, up 0.45% on the day – up 5.88% year-to-date.
STOCKS: BEXP, PCX, RIG, CVX, XOM, CLF, BMS, AA, DD, GRM, R, BA, CAT, GE, UTX, TBL, VFC, F, BBY, LULU, CHS, UA, VRA, MGM, MJN, TAP, KO, KFT, PG, WMT, GSK, VRX, UHS, JNJ. MRK, PFE, RF, BK, DB, HBC, AXP, BAC, JPM, TRV, AAPL, RIMM, MSFT, GOOG, INTC, NOK, FCS, DIOD, CSCO, HPQ, IBM, WIFI, T, VZ, VOD, PEG, GXP, SRE, DUK, DYN, PGN
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