Mid Day Outlook: May 1, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Tuesday, May 1, 2018

U.S. equities pullback in another broad based sell-off, with the Dow Industrials trading down more than 240 points, back under the 24K level, while the S&P 500 index failed to top the 50-day moving average resistance recently (2,684) after a handful of earnings disappointments (and concern ahead of AAPL quarter tonight) and apprehension ahead of the Fed two-day policy meeting. Commodity, consumer staples and financial shares led the retreat, while auto’s fall on disappointing April auto sales data. Technology shares are holding up relatively well with the NASDAQ posting small gains. Economic data also a mixed bag with ISM manufacturing data falling to its lowest level since July, while construction spending posted an unexpected drop. New that President Trump postponed steel tariff decision for Canada, EU, and Mexico for a final 30 days is weighing on material stocks. The dollar continues its recent push higher (turns positive for the year) into the two-day FOMC policy meeting (starts today with decision and commentary tomorrow afternoon), as the euro falls to lowest levels since mid-January, the last time it dropped below the 1.20 level. Treasury prices also rebounding after its end of month bond buying, as yields inching up all morning. Retailers edge lower on TPR and UAA results.

Treasuries, Currencies and Commodities

· In currency markets, dollar index (DXY) tops 92.40 level, up another 0.6% on better economic data and turns positive on the year; the Canadian dollar rallied against the dollar after data showed the Canadian economy had expanded at a faster pace than expected in February. But the dollar remains strong as the euro extends losses vs. the buck, falling below its 200-day moving average for the first time since April 2017, nearing the 1.20 level to the downside (January lows). The Pound breaks below the $1.37 level vs. the dollar, while the greenback rises vs. the yen

· Commodity prices are broadly lower, mostly due to the recent surge in the US dollar, with gold prices tumbling to around the $1,300 an ounce level and oil prices down over 1.5% ahead of inventory data tonight and tomorrow

· Treasury markets slip, but remain in tight range for a 3rd day, with the yield on the 10-year yield inching higher to 2.96% from 2.95% yesterday, but well off the 3.03% highs last week; Treasuries remain active ahead of the FOMC two-day policy meeting (today and results tomorrow)

Economic Data:

· Construction Spending for March fell (-1.7%), below the expected rise of 0.5%, while February revised to up 1% from 0.1% gain; Private construction fell 2.1% in March, Private residential construction fell 3.5% and Private nonresidential construction fell 0.4%

· ISM Manufacturing for April falls to 57.3 from 59.3 last month (lowest reading since July 2017) and was below the 58.5 estimate; new orders fell to 61.2 vs 61.9 prior, employment fell to 54.2 vs 57.3 and inventories fell to 52.9 vs 55.5; prices paid rose to 79.3 vs 78.1, highest level since April 2011 and backlog of orders rose to 62.0 vs 59.8 prior

· U.S. final April Markit PMI rose 0.9 points to 56.5 from March’s 55.6, and is unchanged from the preliminary. It was 52.8 a year ago. This is the highest reading since September 2014

Sector Movers Today

· Autos; FCAU strong auto sales for April up 4.5% vs. est. -1.4%; Ford (F) US light vehicle sales for April fell (-4.5%) vs. est. (-5%); GM said last month it won’t issue monthly auto sales going forward; DAN downgraded to neutral at Guggenheim as sees the company’s growth decelerating, as some of its largest end-markets approach peak conditions; on earnings, AN Q1 revs in-line at $5.3B and announces $250M added buyback; HMC April US auto sales fell (-9.2%) vs. est. (-7.3%); NSANY April auto sales fell (28%) vs. est. down (9.7%)

· Aerospace and defense; KLXI shares fell after BA said it would buy the plane-parts specialist for $3.2B, paying $63 a share (below the current market value of shares) and take on about $1B in net debt https://on.mktw.net/2HIW15s ; TDG Q2 results topped views for EPS/revs, though Ebitda missed/guidance for year above views; LLL to sell its Vertex Aerospace business, including Crestview Aerospace and TCS business units, to American Industrial Partners for $540M; separately, LLL reported quarterly results

· Semiconductors; Apple supply chain estimates cut at Canaccord and Oppenheimer ahead of earnings tonight reflecting widespread evidence of incremental downside in iPhone units likely in C2Q (SWKS, AVGO, QRVO among them); MPWR stronger-than-expected results were driven by Computing and strength in Servers, SSDs, and high-end PC NB/raised guidance; IDTI results slightly above and guidance roughly in line with estimates despite ZTE headwinds on strong Galaxy S9 sales; QRVO was upgraded to overweight at Barclay’s ahead of earnings

· Software movers; APPN upgraded to buy at SunTrust citing the potential for significant upside to our subscription revenue estimates as well as cash flow; VRNS Q1 results exceeding consensus revenue estimates ($53.5M, vs. $49.7M), and billings driven by healthy data security; CTXS added to conviction buy list at Goldman Sachs and up tgt to $122

Stock GAINERS

· AKAM +1%; solid March quarter, topping consensus expectations and raised guidance

· HLIT +10%; after Raymond James upgrade following improved Q1 results

· INGN +21%; Q1 earnings beat as revenue upside came from direct-to-consumer sales force expansion and B2B growth

· KPTI +13%; company plans to use results from a mid-stage study to seek accelerated FDA approval for its myeloma drug, selinexor

· NTRI +20%; Q1 sales, EPS, and EBITDA upside surprises vs. consensus and raised 2018 guidance

· QRVO +6%; upgraded to overweight at Barclay’s ahead of earnings

Stock LAGGARDS

· CGNX -9%; first in line Q since 3Q’15 and light guide on declines in consumer electronics

· COMM -29%; on lower earnings outlook to reflect the price reductions at certain large North American operators expected in 2018 and 2019, as well as higher input costs

· IVAC -27%; said revenue growth will pause in 2018, sending shares lower

· KLXI -8%; BA said it would buy the plane-parts specialist for $3.2B, paying $63 a share and take on about $1B in net debt https://on.mktw.net/2HIW15s

· PFE -4%; Dow component slides on in-line earnings and revenue miss and said hasn’t gotten an “acceptable offer” for its consumer health unit

· STX -9%; posted Q3 beat but shares weighed down on margins and enterprise revenue and said sees 4Q total revenues flat sequentially

· TPR -11%; Q3 EPS/sales beat but Kate Spade comps of -9% vs. est. -7% and guidance for the year missed estimates

· UAA -5%; quarterly results topped views, but analyst notes high inventory levels as high receivable (+28%) and elevated inventory (+27%)

· X –5%; steel stocks dip after the U.S. extends the temporary tariff relief another month

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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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