Mid Day Outlook: April 25, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Wednesday, April 25, 2018

U.S. equities fell in early trading, adding on to Monday’s decline as weakness in technology (semiconductors, opticals), defense, and consumer discretionary drag markets lower, along with fears of rising inflation and higher rates. Yields on the benchmark 10-year Treasury traded through 3%, highest levels since 2014, raising fears of higher borrowing costs for companies. All 11 main S&P 500 sectors were lower in early trading before some rebounding. In fact. Major averages have nearly erased its morning decline to trade near yesterday’s closing levels. The dollar extends its recent gains, trading to the best levels since mid-January, while commodity prices slide. Comment yesterday from Dow component and machinery giant CAT after its strong earnings beat/raised guidance, saying quarter was “high water mark” grabbed headlines and created notion earnings had peaked. After a very busy morning of earnings results, some large caps after the bell that will grab attention including: FB, AMD, EBAY, QCOM in tech space along with T, PYPL, CMMG, F, LVS and X.

Treasuries, Currencies and Commodities

· In currency markets, the US dollar with another day of strong gains, rising around 0.4% to 91.10, the best level for the dollar index (DXY) since early January on strong economic data and rising rate expectations; Bitcoin prices fall over 5% after its recent run higher; dollar tops 109.30 vs. the yen, while the euro slips below the 1.2175 level

· Commodity prices: Precious metals slump given the extended gains in the dollar while energy prices little changed after weekly inventory data; The American Petroleum Institute (API) reported that U.S. crude supplies rose 1.1M barrels for the week, while the DOE posted an unexpected build of 2.1M barrels, compared to the -2.2M draw expected

· Treasury markets falling again, as the 10-year yield trades above 3.02% for the first time since 2014, and the 2-yr trades 2.5% (but now flat); the 30-yr yield up around 3.19%

Sector Movers Today

· Auto sector; PAG reported a top and bottom line beat; GT Q1 results topped views for EPS/revs and reaffirms 2018 segment op income, but analysts note; LAD soft results on the top and bottom line due to severe weather in the Northeast and unfavorable operating leverage; in research, FCAU downgraded to hold from buy as shares have benefitted from the turnaround and markets appear to be already pricing this in; VLKAY was upgraded to buy at Jefferies

· Media movers; DIS was upgraded to outperform at BMO Capital; CMCSA made a 22 billion pound ($31 billion) offer for pay-TV group Sky (SKYB.L) on Wednesday, beating an already agreed takeover bid from Rupert Murdoch’s Fox (FOXA) by 16% https://reut.rs/2qZgrQR (CMCSA also posted quarterly results); QNST posted Q3 revs of $117.9M< topping $107.8M estimate and better guidance; VIAB posted better-than-expected results and said that its Paramount Pictures studio has returned to profitability,

· Internet; TWTR Q1 revs of $665M beat and had active users 336M on better EPS and Ebitda, while Q2 rev guidance also above (said Q1 daily active users up 10% YoY vs. 12% in Q4); TZOO reported better Q1 earnings that topped views and saw sales growth in all three regions as well as increased membership; TRVG Q1 revs topped views, but its Q1 EBITDA loss of EU21.9M was worse than estimates; EBAY, FB, report tonight, AMZN Thursday 4/26; GRUB downgraded to neutral at Roth as believe elongated adverse 1Q weather could aid 1Q results, which they expect to be mostly in-line; GOOGL upgraded to buy at Stifel

· Aerospace & Defense; Dow component BA handily topped profit estimates and boosted the forecast for this year’s cash and earnings; defense stocks fail to rally, led by declines in NOC and GD after quarterly results (recall yesterday the sector failed to rally on LMT results, weighed down by fact they didn’t raise year after quarterly beat)

· Managed care; HUM, WCG and CNC active after posting surprising wins in Florida Medicaid awards (MOH shares dipped on news); Leerink said WCG, HUM, CNC are the winners, AET gained modestly, UNH & ANTM performed largely in line, while MGLN and MOH failed to retain any contract in the long awaited FL Medicaid reprocurement awards; in earnings, ANTM rallies after quarterly results beat on better guidance

· Generic drug makers (MYL, TEVA, ENDP, MNK, PRGO) weak after a Bloomberg News report late Tuesday that U.S. prosecutors are nearing their first charges against companies in a nearly four-year-old criminal investigation into alleged price-fixing by generic-drug makers

· Optical sector; group pressured again after a Wall Street Journal report indicated that the Justice Department is looking into whether Chinese smartphone maker Huawei violated U.S. sanctions on Iran; shares of LITE, OCLR, FNSR, ACIA among those falling https://on.wsj.com/2qYv5Yw . Recall recently the group was hit after the government banned U.S. companies from selling components to smartphone maker ZTE Corp.


· CBI +9%; after Subsea 7 reaffirmed its offer for MDR without raising it, though it said it’s open to considering amending its proposal

· NSC +7%; Q1 results beat as higher volumes, lower tax rate lifts quarterly profit

· RHI +6%; after quarterly results

· TROW +3%; on earnings results

· TXN +2%; Q1 results solidly above estimates amid strength in auto and industrial markets

· TZOO +16%; reported better Q1 earnings that topped views and saw sales growth in all three regions as well as increased membership


· GD -5%; defense names extend losses after results from GD, NOC (LMT yesterday)

· EW -9%; after disappointing THV (Transcatheter Heart Valve) sales relative to high expectations

· LITE –8%; WSJ report indicated that the Justice Department is looking into whether Chinese smartphone maker Huawei violated U.S. sanctions on Iran https://on.wsj.com/2qYv5Yw

· MGLN -11%; among those not picked for new Florida Medicaid contract

· MRCY -15%; as Q3 revenue missed estimates and downgraded at Bank America saying share premium, compared to cash generative peers like CW, is unwarranted

· TER-12%; after its 2Q EPS outlook well below views as misses the lowest estimate

· WYNN -2%; reported mixed 1Q results last night, with Las Vegas beating estimates, but Macau operations falling short


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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