Mid Day Outlook: March 19, 2018

Scott GreenDaily Market Report

Mid-Morning Look
Monday, March 19, 18
Equities trading lower, led by a sharp decline in tech stocks following reports about Facebook’s data leak and that Europe is considering a 3% tax on revenue for large digital companies such as GOOGL. Separately, AAPL suppliers in Asia came under pressure after our reporting that the company is developing its own device displays for the first time. With the early broad market declines, stocks are extending last week’s losses ahead of the FOMC policy meeting results Wednesday (2-day meeting starts tomorrow with results the following day – widely expected for a 25 bps hike). Geopolitical tensions remain a hot button issue involving the Trump and Putin presidencies as well as trade war fear concerns with China after Trump’s tariff proposal. Overall, the S&P 500 is on track for the 5th decline in 6 days on broad sector weakness, while the Nasdaq Comp falls over 1% and the Dow tumbles over 200 points.
Treasuries, Currencies and Commodities
·      In currency markets, the dollar declines (dollar index down over -0.25% to trade back under the 90-level), while the British pound jumped to its highest level (1.4088) in more than a month after the EU’s and the U.K.’s Brexit negotiators, Michel Barnier and David Davis, confirmed they’ve reached a transition deal. Barnier said the two sides had agreed to a transition period from March 2019 until the end of 2020. The dollar small gains vs. the yen, but down vs. the euro. Bitcoin trades into positive territory above $8,600 (overnight lows $7,386).
·      Commodity markets; gold prices steady ahead of this week’s FOMC interest rate policy meeting (prices have slid over the last 2-weeks in anticipation of rising rates). Energy futures slightly lower, though WTI crude holds above the $62 per barre level.
·      Treasury markets slip as yields rise on fears of hawkish rate guidance from the Fed, and now ECB; the benchmark 10-year yield up at 2.86%, up around 2 bps from Friday levels while the 2-year yield has climbed to 2.305%, its highest since the summer of 2008 ahead of the FOMC meeting results Wednesday (rate hike expected).
Sector Movers Today
·      Auto sector; auto supplier active after DAN raised its 2018 adjusted EPS and Ebitda view, citing strengthening end-market demand, most notably in off-highway and commercial vehicles, (BWA, LEA, DLPH, AXL, TRW, ALV, TEN, LEA among those active); TSLAshares active after Goldman Sachs said Q1 2018 Model S/X deliveries are tracking below guidance and believes Model 3 deliveries will fall “well short” of consensus expectations
·      Software movers; KeyBanc on security sector, positive bias toward potential platform plays, names showing demand inflection and improved profitability timelines/metrics, as up tgts on APTI, NEWR, OKTA, SAIL, and NOW, but downgrade FTNT to sector weight;ZS shares declined early after surging last Friday following IPO release; BL was downgraded to hold at SunTrust as recent gains in the stock price have made the risk-reward less compelling
·      Heavy duty machinery; Deutsche bank reevaluated ratings in the Machinery space following the recent pullback in the shares as upgraded OSK to buy and CMI to hold, while downgraded PCAR to sell noting over the past month, the group has fallen 3%, worse than the 2% gain for the S&P 500, which makes sense given substantial steel content in heavy machinery
·      REITs; last week the RMZ increased 1.1%, outperforming the S&P 500 and the Russell 2000; GGP shares outperform after Reuters reported BPY has submitted a new bid to acquire GGP, as the new offer comes over three months after a special board committee of GGP spurned a $14.8B takeover bid https://goo.gl/5KuT4G (Mizuho upgraded GGP on the news); BTIG lowered targets on strip center REITs (KMI, KRG, REG and ROIC); UBS with a few REIT rating changes, upgrading CPT to neutral and EQR to buy, while downgraded UDR to neutral
·      CMCM +6%; after quarterly earnings results
·      CSIQ +6%; after quarterly earnings/guidance results
·      CSRA +1%; as CACI made a roughly $7.2B bid to buy CSRA in an attempt to break up the information-technology provider’s sale to GD/CACI has offered $44 per share in cash and stock, above the $40.75-a-share all-cash deal CSRA agreed to last month with GDhttps://goo.gl/Bu569o
·      HRTX +30%; after the company announced positive results in a late-stage trial of an anesthetic used for patients undergoing bunionectomy and hernia repair
·      ORBK +6%; after KLAC agreed to acquire the company in deal with equity value of about $3.4B; KLAC will pay $38.86 a share in cash, plus 0.25 of a share in stock https://goo.gl/S2mqPR
·      STC +9%; bought by FNF for $50.00 per share, subject to potential adjustment in deal valued at about $1.2B (will be paid 50% in cash and 50% in FNF common stock) https://goo.gl/NS2NWq
·      ANET -4%; downgraded to sell from hold at Deutsche Bank and slash tgt to $195 from $245 as lowers top line growth and earnings estimates for FY18-20
·      FB -5%; after concerns arise how the company manages third-party access to its users’ information after a firm with ties to the 2016 Trump campaign improperly kept data for years despite saying it had destroyed those records
·      NWL -3%; announced that it entered into a cooperation agreement with Carl Icahn, Chairman of IEP who beneficially owns approximately 6.9% of the company’s outstanding shares
·      OLED -10%; on reports AAPL is designing and producing its own device displays for the first time, using a secret manufacturing facility near its California headquarters to make small numbers of the screens for testing purposes, Bloomberg https://goo.gl/HFQnJc
·      PCRX -5%; falls in reaction to positive pain killer drug results from HRTX
·      TSLA -1%; Goldman Sachs said Q1 2018 Model S/X deliveries are tracking below guidance and believes Model 3 deliveries will fall “well short” of consensus expectations
·      ZS -14%; pares gains after surging Friday on its IPO offering


Market commentary provided by Hammerstone Markets, a division The Hammerstone Group, a firm separate from and not affiliated with Regal Securities L.P.  Regal Securities L.P. has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.

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