Mid Day Outlook: April 20, 2018

Scott GreenDaily Market Report

Mid-Morning Look

Friday, April 20, 18

U.S. equities are edging lower amid another busy day of corporate earnings. Energy stocks drop as crude slipped after President Donald Trump criticized OPEC on Twitter, saying oil prices are “artificially Very High.” Consumer Staples extend declines (top declining sector yesterday), with 52-week lows for several names PEP, MAT, CPB, KHC, CLX, PG, LB, TAP, KMB) as earnings results and guidance thus far disappointing amid sales and margin pressures. Rising Treasury yields and rising inflation concerns partially weighing on market sentiment early, adding to those fears. Dow component AAPL falls as much as 3% (earnings next week) after Morgan Stanley the latest with cautious comments saying they forecast in-line March Q but see downside to June consensus estimates following iPhone build cuts and weak China data. Overall, despite a little pullback in stocks the tail end of the week, markets still on track for gains on the week as we head into heart of earnings the next two-weeks.

Treasuries, Currencies and Commodities

· In currency markets, the U.S. dollar extends gains, as the greenback rises to 107.80 level against the Japanese yen, its highest level since late February; strong gains across the board on bullish economic outlook after stronger data points this week

· Commodity prices slide given the rebound in the dollar, as gold prices drop over $10 and as energy futures slide, reversing earlier gains after President Trump said on Twitter, blaming OPEC for “artificially high” prices.

· Trump said “Looks like OPEC is at it again. With record amounts of Oil all over the place, including the fully loaded ships at sea, Oil prices are artificially Very High! No good and will not be accepted!” Crude hit a 3 ½-year high earlier this week and remains on track for a 0.5% weekly rise ahead of a meeting by members of the joint OPEC and non-OPEC ministerial monitoring committee meeting today

· Treasury markets extend recent declines, with another broad gain in yields; Treasury yields still pushing higher on the week, as the 2-yr above 2.43%, 10-yr 2.923% and 30-yr 3.115%

Sector Movers Today

· Semiconductors; sector has been dragging tech lower over the last week, with the Philly Semi index (SOX) having fallen (coming into today) 11% from its March 12 high but it’s still up 2.6% far this year; one analyst notes AAPL earnings could be the turning point after TSMC’s results cast a shadow on iPhone demand (top AAPL suppliers include AVGO, CRUS, QRVO, SWKS)

· Industrial & Machinery; Dow component GE posted slightly better quarterly earnings, but shares rallied after the company reaffirmed its year profit outlook after several analysts warned they would likely cut; HON posted stronger quarterly results and raised its year sales guidance to $42.7B-$43.5B from prior $41.8B-$42.5B (est. $42.37B); HRI downgraded to sell at Goldman Sachs Neutral relative to their Attractive Machinery coverage view with 3% upside to 12-month price target for HRI vs. 26% upside for Machinery coverage on average

· Transports; after a strong week of gains following better earnings (CSX, UAL), group slips slightly early; KSU posted Q1 EPS and revenue miss; in truckers, WERN Q1 EPS and revenue topped consensus on stronger pricing according to analysts; MRTN results were in-line with estimates, while Stephens downgraded on valuation

· Consumer Staples; PF shares jumped after JANA Partners announced they have taken a 9.5% stake and is calling for the company to improve its operations, improve its capital allocation, and consider strategic alternatives including selling itself; CLW shares plunged as Q1 EBITDA below the low end of its guidance range and guided well below consensus for 2Q18 as continues to experience price erosion and significant cost inflation in its tissue business; PGdowngraded by at least three analysts after falling yesterday on sales and margin pressures and PM downgraded and tgt cut by several analyst citing the IQOS Q1 volume miss and more cautious tone on IQOS trajectory in Japan (PG and PM earnings/guidance yesterday responsible for Staples drop); KR closed the sale of its convenience store business to EG Group for $2.15B and said it would use $1.2B for an accelerated share repurchase plan

Stock GAINERS

· GE +3%; posted slightly better quarterly earnings, but shares rallied after the company reaffirmed its year profit outlook after several analysts warned they would likely cut

· KR +3%; as closed the sale of its convenience store business to EG Group for $2.15B and said it would use $1.2B for an accelerated share repurchase plan

· IONS +5%; BIIB said it would take a 9% stake in its pharma partner in a $1B deal, paying $625M for 11.5M shares at $54.34, making BIIB IONS’s second largest holder

· LLNW +23%; after Q1 results top views and raise guidance on improved product quality and margin trends

· MAC +3%; confirmed reports late yesterday that Art Coppola will retire from his position as Chairman and CEO of the Company effective December 31, 2018

· PF +7%; as JANA Partners announced they have taken a 9.5% stake and is calling for the company to improve its operations, improve its capital allocation, and consider strategic alternatives including selling itself

· TRU +10%; reported earnings and also reached agreement to acquire Callcredit, a U.K. credit and consumer data business for $1.4B https://on.mktw.net/2F38uim

· TWTR +2%; was upgraded to buy at MKM Partners with $40 tgt

Stock LAGGARDS

· AAPL -1%; Morgan Stanley the latest with cautious comments saying they forecast in-line March Q but see downside to June consensus estimates following iPhone build cuts and weak China data (also downgraded to mixed by OTR Global)

· CLW -37%; after 1Q EPS missed lowest estimate due to soft tissue market

· MAT -6%; on management shake-up as Executive Chairman Ynon Kreiz replacing Chief Executive Officer Margo Georgiadis, who stepped into the role just 14 months ago

· SKX -26%; as Q2 forecast misses analysts’ estimate, guiding EPS 38c-43c, below the 54c estimate and sees revs $1.12B-$1.15B also below the $1.16B

· SN -13%; after lower Q1 production report and lower Q2 guidance

· SWK -5%; after quarterly beat, but only reaffirmed guidance

· TEAM -11%; Q3 revenue and EPS came in above street expectations, but deferred revenue and forward Q4/FY EPS guidance came in below expectations

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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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