Mid-Morning Look: May 17, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look
Friday, May 18, 2018

U.S. equities are mixed in early trading, with technology stocks lower on softer guidance from semi-equipment maker AMAT (dragging index lower), while retail space hit by lower comp sales from JWN and food space lower on CPB lower outlook after surprise CEO retirement. Markets also digest mixed headlines over trade talks between China and the U.S. as reports overnight suggested China had offered to reduce its trade surplus with the U.S. by up to $200B, but the government has since denied the reports. The three major indexes on target for weekly losses while the small-cap Russell 2000 looks for a weekly rise after hitting an all-time high yesterday. U.S. Treasury yields have slipped since yesterday’s close, with the benchmark 10-year yield 2 bps lower at 3.09% after finishing Thursday at a seven-year high. Meanwhile, the U.S. Dollar Index (DXY) has climbed to its best level since mid-December amid the rise in yields. Note as of Thursday’s close, the Dow was set to drop 0.5% for the week, with the S&P 500 and Nasdaq Composite looking at losses of 0.3% each.

Treasuries, Currencies and Commodities
· In currency markets, the U.S. dollar on track for its 5th straight weekly advance; the euro weakened against the dollar to $1.1781, compared with $1.1794 late Thursday (lowest level since December), while the Pound falls back below the 1.35 level vs. the greenback. Bitcoin prices lower by 1.5% at $8,075, off overnight lows of $7,928, on track for a weekly decline of roughly 4%
· Commodity prices: Precious metals are little changed, moving slightly lower, and on track for a weekly decline of over 2% as the dollar rises. Energy futures are inching lower ahead of the weekly Baker Hughes rig count data later this afternoon – but WTI crude and Brent still posting good gains this week – trading to best levels in over 4-years on Iran sanctions, Venezuela production issues and bullish inventory data
· Treasury market’s rise as yields pullback from highs; 10-yr down at 3.08% (above 3.11% yesterday) – no economic data today to mover markets, but bonds have been under steady selling pressure over the past week

Sector Movers Today
· Semiconductors; in the semi-equipment space, AMAT reported Q2 revs/EPS above the Street, but guided Q3 revs below consensus ($4.33B-$4.53B vs. est. $4.53B) as miss was driven by weaker SSG due to pushouts in NAND/guided 2019 display revenues to decline, and pushed out their 2020 targets for Display revenues (weighs on shares of AEIS, ENTG, MKSI); several analysts positive on MU ahead of its analyst day on Monday with RBC saying the company may pre-announce positive FY3Q results, providing a catalyst for the stock; SWKS was downgraded to market perform at Raymond James as they don’t see enough potential upside to estimates to justify our former price target; MLNX upgraded to overweight at Piper and raise tgt to $100
· Lodging sector; LHO was upgraded to buy at BTIG after reported a better than forecast 1Q18 result as the rebound in demand from business and international demand segments more than offset operating weakness; HLT active after largest shareholder BX agreed to sell its 15.8M shares to exit stake; lodging rating changes at Evercore/ISI as they upgraded MAR and HST to outperform, HLT and SHO to in-line and downgraded DRH to in-line
· Internet; BIDU falls as former MSFT executive Qi Lu, who was hired to oversee virtually every aspect of its business, has stepped down from all active management roles just 14 months in the job (downgraded at CSFRB on news); SPOT initiating with a Strong Buy at Raymond James and $190 tgt as feel is well positioned to double its subscriber base, expand gross margin, and generate material free cash flow; BABA tgt raised to $280 at MKM and raising estimates following another strong quarter and encouraging outlook; YELP upgraded to buy at B Riley as believe YELP has a significant opportunity to consolidate its engagement in the restaurant vertical and benefit from accelerating growth in the home services vertical
· Refiner sector; another positive analyst call, this time at Tudor Pickering (follows recent VLO upgrade at Morgan Stanley) as the firm upgraded CVRR, HFC, VLO to buy as looks for pure-play names with Midland crude exposure and refiners that are prepared for IMO 2020 regulations; said transportation issues mean Midland crude may fall to a price that compels E&Ps to stop completions and drilling until new pipes come online in late 2019 or early 2020 (firm also downgraded ANDV and MPC to hold)
· Casual dining; JACK extends losses after falling 8% yesterday after Q2 EPS and system-wide comp. sales missed estimates and failed to provide long-term forecasts…JACK was the last of major casual dining names to report for qtr and disappointed …that coupled with rising fuel (gas) costs and rising rates, expect to dent optimism in sector (SONC, YUM, WEN, CMG, PZZA, SHAK)

Stock GAINERS
· AFSI +2%; after Carl Icahn disclosed a stake in the company and said he planned to oppose its plans to go private
· AMGN +1%; after the FDA approves Aimovig, making it the first preventative treatment for migraine (NVS marketing it), which encompasses both chronic and episodic migraine. The US list price is a fixed $575 for one monthly 70 or 140mg single-use auto injector, or $6,900 annually
· CERN +1%; after announces deal with the Department of Veterans Affairs/Cerner will serve as prime contractor for the $16B 10-yr project, with CERN’s portion estimated at $10B
· DE +5%; Q2 EPS and sales below consensus ($3.14/$10.72B vs. est. $3.30/$9.83B), but raises FY adjusted net to about $3.1B, up from prior $2.85B (est. $3.09B) and sees FY net income $2.3B (had seen $2.1B)
· IQV +4%; after company and selling stockholders terminate the previously announced secondary public offering and repurchase due to the recent market conditions/reaffirmed guidance
· QTNT +16%; said it completed the MosaiQ verification and validation (V&V) phase for its initial blood grouping MosaiQ microarray and started its European field trials

Stock LAGGARDS
· AMAT -9%; reported Q2 revs/EPS above the Street, but guided Q3 revs below consensus ($4.33B-$4.53B vs. est. $4.53B) as miss was driven by weaker SSG due to pushouts in NAND
· BIDU -7%; as former MSFT executive Qi Lu, who was hired to oversee virtually every aspect of its business, has stepped down from all active management roles just 14 months into the job
· CPB -11%; CEO to retire effective immediately, without providing a reason and reported Q3 adjusted gross margin fell 3.9% to 32% hurt by higher supply chain costs/also cuts forecast
· INSY -5%; on release of briefing documents for next Tuesday’s Ad Com review for Buvaya
· JWN -9%; as 1Q comp result of +0.6% came in below the +1.0% estimate, with softness in the off-price segment/company did post better EPS and raised guidance
· OPK -20%; after draft policy by Medicare administrative services provider Novitas Solutions denying coverage for its 4Kscore test

Syndicate
· Boot Barn (BOOT) 7.21M share Spot Secondary priced at $23.50
· Caesars (CZR) 24.9M share Block Trade priced at $13.06
· Calyxt (CLXT) 3.6M share Secondary priced at $15.00
· Myers Industries (MYE) 4M share Secondary priced at $18.50
· Primo Water (PRMW) 4.64M share Spot Secondary priced at $14.00
· Regency Centers (REG) 1.7M share Block Trade priced at $56.10

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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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