Mid Day Outlook: May 2, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Wednesday, May 2, 2018

U.S. equities start the day mixed, with the Dow Industrials on track for its 4th straight day of losses, while the Nasdaq Comp outperforms, led behind Apple related earnings strength. Focus for the time being shifts from earnings to the Federal Reserve’s rate decision at 2:00 PM EST (no rate hike is expected, but markets watch for signals about future pace of hikes). Treasuries steady ahead of the announcement, while the U.S. dollar extends gains. U.S. Treasuries remain little changed as the government announced the size of quarterly debt auctions. The U.S. Treasury Department will boost the amount of long-term debt it sells to $73 billion this quarter. China fears also remain as they return from holidays and weaken the yuan versus dollar before U.S. officials arrive to discuss trade issues. The Dow and S&P are down 2.5% and 0.7% for the year, as of Tuesday’s close. The Nasdaq Composite has climbed 3.3%.

Treasuries, Currencies and Commodities

· In currency markets, the dollar looks to make it a tenth gain in the last twelve trading days, rising early ahead of the FOMC decision later this afternoon, with the euro moving to lows, back below the 1.20 level; the pound headed for its first increase in six days, while the euro pared an advance after manufacturing and economic growth ebbed; the dollar rises vs. the Canadian dollar as oil prices weaken following inventory data

· Commodity prices; gold prices little changed, holding multi-week lows around $1,306 an ounce ahead of the FOMC rate decision this afternoon; Energy futures reverse gains, falling as EIA reports a more than 6 million barrel rise in U.S. crude supplies

· Treasury markets steady heading into the FOMC meeting this afternoon; Treasury markets slipped earlier after the better ADP private payroll report, sending yields slightly higher but have leveled off back at the 2.96% level; the 2-yr yield 2.504%

Economic Data

· Private-sector payroll data from ADP stayed strong in April, as employers added 204K jobs, topping the 198K estimate, while the prior month was revised down to 228K from 241K. This is the sixth month in a row of job growth above 200,000. Small firms added 62,000 jobs in April, medium-sized businesses added 88,000 to large companies added 54,000

Sector Movers Today

· Consumer Staples; in food, MDLZ Q1 results slightly better; in cosmetics, EL Q3 results topped views on top/bottom line, while raises year outlook view but concerns about slowing sales growth in Americas and weak U.S. store traffic weigh on shares (COTY, AVP shares move); CLX cuts year EPS view to $6.15-$6.30 from prior $6.17-$6.37 as worsening gross margin outlook offsets lower expected effective tax rate of 22%-23%; HSY downgraded at Argus; beer industry weak led by TAP after Q1 EPS and net sales that missed analysts’ estimates amid weakness in U.S. beer industry (BUD, STZ also active)

· Transports; in airlines, DAL April rose 3.7%, with a 7.1% gain in domestic traffic offsetting a 1.6% decline in international and capacity rose 4% systemwide; in trucking, CHRW drags truckers lower as reported 1Q results below sell-side consensus according to one analyst; WERN rises after reports UPS is in talks with at least one U.S. trucking firm to launch an in-home delivery service for large, heavy goods such as couches and treadmills https://reut.rs/2KtIBwh

· E&P sector; CHK reported Q1 earnings that beat expectations, helped by higher pricing and gas production; CXO reported strong 1Q results as both production and prices beat and raised the low end of FY guidance from ~223 MBOED to ~227 MBOED while maintaining the top end at 231 MBOED; DVN rises as Q1 came in better than expected while also increased oil production and announced 2 incredible wells (12k+ Barrels a day) in Delaware and in STACK; APC oil beat was primarily driven by GOM while the cash flow miss was due to a number of factors and also raised FY’18 capex guidance by 2% at the midpoint to $4.4B; NFX Q1 production estimates by ~3%, though the positive variance came from non-Anadarko regions while raised its 2018 domestic output target by 2% at the midpoint, though entirely due to higher gas/NGL’s

· Hospitals; sector surges a second day, led by CYH result ; Credit Suisse said the co is making progress on its debt restructuring & received two amendments that unlock senior debt capacity that could be used to exchange or restructure current outstanding notes; note the group jumped yesterday after THC results (ended higher 19% Tuesday)

· Restaurants; YUMC shares fall after its KFC beat top line expectations as it successfully lapped CNY promotions, but Pizza Hut posted its weakest comp since 1H16 (KFC comps remain strong (+5%) and system sales growth (+9%) is generally consistent with the industry); TXRH was downgraded to underweight at JPMorgan as doesn’t see upside; DENN shares fall after Longbow downgraded shares after earnings results

· Building product companies MLM & VMC upgraded to buy at Bank America saying seasonally slow quarter facing tough y/y comps Q118 results likely reflected a typical seasonal trend of weather-related disruptions that hamper activity but can be offset by better volumes

Stock GAINERS

· AAPL +3%; reported better-than-feared Q2 results and guidance and announced 16% dividend boost and $100B stock buyback; Q1 iPhone units were essentially in-line and gross margin was 38.3% (report alleviate fears of slowing demand)

· ABC +4%; 2Q results likely better than feared as group has been under pressure over the past on fears of AMZN to enter into the space

· CYH +25%; on earnings and as offers to exchange up to $1.93 billion of its new 9.875% junior-priority notes due 2023 for its $1.93 billion of 8% notes due 2019

· DVN +6%; came in better than expected while also increased oil production and announced 2 incredible wells (12k+ Barrels a day) in Delaware and in STACK

· HCHC +38%; HC2 announces Pansend Life Sciences Portfolio company BeneVir Biopharm to be Acquired by Janssen Biotech, Inc. for up to $1.04B https://on.mktw.net/2jkWr7E

· MA +4%; after posting another quarter of strong growth and revs up 27% while raises 2018 revenue growth to be in the high-teens vs. a prior forecast for growth at a mid-teens rate

· MTSI +20%; after posting better than expected second quarter results and in-line guidance

Stock LAGGARDS

· CHRW -5%; drags truckers lower as reported 1Q results below sell-side consensus

· ESPR -20%; bempedoic acid successful in late-stage study, but mortality rate spooks investors

· GILD -5%; as company missed consensus expectations for sales and non-GAAP earnings by 5% and 10%, respectively and total sales also miss

· SKT -11%; downgraded to underweight at KeyBanc saying conditions seem to be deteriorating at a faster pace across the firm’s pure-play outlet center portfolio

· SNAP -19%; Q1 brought softer results that were negatively impacted by ongoing app changes, as quarterly revenue fell short of consensus as well as deceleration in DAU growth

· SSYS -9%; misses 1Q adj. EPS and revenue estimates, weighs on 3D space (DDD reports tonight)

· TAP -10%; Q1 EPS/sales that missed analysts’ estimates amid weakness in U.S. beer industry

· UNM -15%; as Q1 operating EPS missed estimates that included disappointing long-term care (LTC) results

· YUMC -14%; KFC beat top line expectations as it successfully lapped CNY promotions, but Pizza Hut posted its weakest comp since 1H16

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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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