Mid Day Outlook: April 27, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Friday, April 27, 2018

U.S. equities have erased initial gains, turning lower over the last 30-minutes amid profit taking in the technology sector as shares of AMZN, INTC, and MSFT all pull back from earlier record highs, despite each posting stellar quarterly results overnight. Energy stocks mixed after Dow component CVX posted an earnings/production beat, but XOM disappointed. For the first time this week, defensive/safe-haven assets are seeing a lift, with bonds recovering from recent losses (10-year yield slides to 2.96% from highs of 3.03% on Wednesday), while gold prices bounce off 5-week lows, trading back above $1,320 an ounce. The economic data today for Q1 GDP and Michigan sentiment both beat the top-line estimate, but underlying showed a bit weaker as the GDP rose 2.3% vs. est. 2%, but personal consumption rose 1.1% in 1Q, weakest quarter since Q2’13 and was blow last quarter 4%. Similarly, the UoM sentiment rose to 98.8 from prior 97.8, but was down from last month reading over 101. The data could be weighing on markets as well. Optimism was high overnight after the Korea summit produced a deal from both sides, as North Korean leader Kim Jong Un and South Korean President Moon Jae-in agreed to end a seven-decade war this year and pursue the “complete denuclearization” of the Korean Peninsula.

Treasuries, Currencies and Commodities

· In currency markets, the dollar has pulled back from earlier highs, now turning negative against the euro and yen; earlier, the dollar was rising, extending its rally the last 2-weeks, and nearly erasing its entire year-to-date loss, led by top-line beats for Q1 GDP today, while data overseas this week in Europe (UK softer GDP lowers chance of rising rates) weighs on their currencies; the dollar was up 0.4% before sliding the last 30-minutes

· Commodity prices; gold has slid all week, down to 5-week lows late yesterday as the dollar has regained solid footing, nearly erasing its YTD losses over the last few weeks on rising rate expectations amid a stronger economy. Today however, gold prices getting a boost, as stocks come for sale after early gains and bonds rise. Energy futures are little changed, with WTI crude holding around yesterday closing levels at $68.19 per barrel, while natural gas prices dip

· Treasury market’s advance, paring back some of this week’s declines, as the 10-year yield slips under 2.96% (was as high as 3.03% 2-days ago) amid mixed economic data and as stocks pull back from earlier highs as investors rotate into defensive assets.

Economic Data

· The U.S. economy grew 2.3% in Q1, the slowest pace in a year owing to a big pullback in consumer spending, but a better performance than expected (est. 2%). Personal consumption rose 1.1% in 1Q, weakest quarter since Q2’13 (but in-line with estimates); GDP price index rose 2% in 1Q after rising 2.3% prior quarter and core PCE q/q rose 2.5% in 1Q after rising 1.9% prior

· Michigan Sentiment final April reading fell to 98.8 from 101.4 last month, but was above the 98 estimate and the preliminary reading of 97.8; the expectations index fell to 88.4 vs. 88.8 last month, while the current economic conditions index fell to 114.9 vs. 121.2 last month.

Sector Movers Today

· Semiconductors; INTC shares jumped, helping lead the Dow higher as March quarter results and June guidance were significantly above expectations, with Data Center leading the way (upgraded at Bernstein after results) – shares have since pared gains; MXIM delivered a solid Q1, but weaker Q2 sales guidance; NXPI upgraded to buy at SunTrust saying deal or no deal, shares look compelling; POWI reported March quarter (1Q18) results in line with expectations; FORM downgraded at Needham citing several reports suggesting slower growth ahead; in semi-equipment, KLAC reported/guided Q1 and Q2 revs and EPS above estimates, delivering record revenues and earnings at a time when Foundry shipments are at lowest levels since 2009;

· Integrated oil movers; group was led higher yesterday by better results from COP, RDS/A and TOT, but today, XOM Q1 earnings and production missed, similar to prior quarter results; XOM also said its not planning a buyback to reduce shares outstanding; CVX better however, as profits soar 36% to $3.6 billion amid rising oil prices, with production topping estimates

· Restaurants; SBUX Q2 results largely in-line including 2% comp sales, driven by a lower tax rate and share count that offset weaker Americas margins and lower equity income; EAT was upgraded to outperform at RBC Capital as stock price doesn’t reflect expectation for accelerating sales trends in the back half of year; BJRI reported better than expected sales and earnings fueled by 4.2% SRS gains vs. est. 2.5%, the strongest quarterly gain in over five years and driven by 3.8% check and traffic growth; CMG was downgraded at Maxim after the surge in shares yesterday

· Software movers; MSFT traded to a record high after earnings results, topping consensus expectations and the high end of the software company’s guidance across each of their three segments; SPLK was upgraded to outperform at Wedbush and raised tgt to $118 taking advantage of a pullback in shares to get on the right side of the emerging leader in security analytics; APTI downgraded to neutral on valuation at JP Morgan; LOGM shares fell as lowered its 2018 forecast and provided a 2Q earnings outlook that missed estimates

Stock GAINERS

· AMZN +9%; on two major announcements as it is raising the cost of a Prime membership to $119 from $99 and posted a blow-out quarter and strong guidance

· BIDU +5%; sales and EPS came in better than consensus on better search/news feed

· EXPE +7%; bookings and EBITDA results exceeded expectations for Q1 and the company maintained FY18 EBITDA growth guidance

· FSLR +5%; posted on earlier than expected timing of system revenues while ’18 guide unchanged

· GDI +4%; after boosting its yearly adjusted Ebitda outlook and better Q1 revs

· INTC ; as March quarter results and June guidance were significantly above expectations

· MSFT ; record high after earnings results, topping consensus expectations and the high end of the software company’s guidance across each of their three segments

· SIVB +17%; after Q1 results topped consensus views

· Sprint (S) +7%; Reuters reported is making progress in their merger negotiations with TMUS, aiming to complete the deal talks as early as next week https://on.mktw.net/2JwqF2I

Stock LAGGARDS

· ATHN -12%; as softer Q1 bookings, down 32% YoY, overshadowed stronger quarterly earnings

· CHTR -12%; Q1 results mostly in-line but weaker subscriber metrics (lost -122K TV customers)

· FLEX -15%; after the contract manufacturer missed profit expectations, provided a downbeat outlook and said it was investigating allegations of improper accounting

· FORM -14%; downgraded at Needham citing several reports suggesting slower growth ahead

· LOGM -9%; lowered its 2018 forecast and provided a 2Q earnings outlook that missed estimates

· REGN -5%; after drug partner SNY reported 1Q sales of Dupixent, Praluent, Kevzara below ests

· X -9%; slightly better Q1 earnings on in-line revs, but its 2Q Ebitda view missed estimates citing operational challenges at the Great Lakes Works steelmaking facility

· XOM -3%; Q1 earnings and production missed, similar to prior quarter results

Syndicate

· Docusign (DOCU) 21.7M share IPO priced at $29.00

· Goosehead Insurance (GSHD) 8.53M share IPO priced at $10.00

· Smartsheet (SMAR) 11.63M share IPO priced at $15.00

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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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