Mid-Morning Look: May 22, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look
Tuesday, May 22, 2018

U.S. equities opened higher, as the Dow Industrial Average and S&P 500 look to add to their best trading levels in over 2-months, while the Small Cap Russell 2000 looks to make it a 5th straight day of record gains. Futures were higher overnight after new signs of trade tensions easing between the U.S. and Beijing. The Chinese government said Tuesday that it will cut import duties on passenger cars as of July 1 to 15% from the current 25%, giving a lift to auto stocks. Tech, consumer and financial stocks led gains early with semiconductors pacing the gains after Micron’s $10B share buyback announcement. However, stocks have since pared gains and reversed lower amid a handful of sectors weighing on the S&P 500 index. Homebuilders fall after TOL earnings miss/slower orders, retail reverses lower as comments about weather and traffic on upcoming quarters overshadows KSS beat and raise quarter, and defense stocks fall as Credit Suisse downgraded RTN and cut targets across the board. Ten-year yields are holding steady at 3.07%, while the dollar index also little changed after surging to best levels of the year last week. The lone piece of economic data today positive, as the Richmond Fed Manufacturing index reported at 16, topping the economist estimate of 10 (and above last month’s -3 reading).

Treasuries, Currencies and Commodities
· In currency markets, after jumping last week for its 5th straight weekly advance, the U.S. dollar little changed for a 2nd day; flat vs. the yen at 111 after jumping last week, while the euro slips; the British pound also little changed at 1.3435
· Precious metals are in a tight range, with gold moving back above the $1,290 an ounce level after having slipped to 2018 lows last week on a surging dollar, abating fears of trade issues with China and rising rate hike expectations given better economic data
· Energy futures adding to 3 /12 year highs, with WTI crude back above the $72 per barrel level and holding steady ahead of inventory data tonight and tomorrow, while Brent back above $80 per barre – Iran sanctions and reduced supply/possible sanctions on Venezuela lifting prices
· Treasury markets slip – but in tight range the last 2-days after the 10-year yield jumped over 10 bps last week; the 10-yr yield at 3.07%, where it spent most of yesterday, but off last week’s 7-year highs above 3.11%

Sector Movers Today
· Auto movers; FCAU along with gains in GM and F after China was said to have decided to cut import tariffs on passenger vehicles to 15% from 25% effective July 1st; in auto parts retailers, AZO shares rise as the company blew past profit estimates for Q1 EPS, but sales and comps missed, while AAP reported a surprise drop in Q1 comp sales of (-0.8%) vs. est. +0.3% on mixed EPS (beat) and sales (missed); CRMT also advances on earnings
· Aerospace & Defense; Credit Suisse lowers defense sector outlook to neutral from bullish as reiterates a Neutral rating on LMT and cut tgt $335 from $380 and downgraded RTN to neutral as lowered PT to $219 from $250…maintains OP on LLL (tgt cut to $218 from $244), neutral on HII (cut tgt to $259 from $301) and reiterated OP on GD but lowers tgt to $234 from $263; AIR lowers Q4 outlook, sees similar or slight improvement over Q3
· Semiconductors helping pace the gains in tech; MU advances after several analyst reiterating positive stance on stock following analyst day yesterday where the company raised guidance; PLAB shares rally behind Q1 EPS and rev beat, while guidance midpoint for Q3 beat the highest analyst estimate (sees Q3 12c-18c on revs $128M-$136M vs. est. 9c/$128.3M)
· Homebuilder and Construction; in homebuilders, TOL shares slumped after Q2 results fell short of analyst estimates, with EPS of 72c missing by 4c amid higher impairment costs, and posted gross margins slightly below expectations while MKM noted order growth of 6% missed its est. 8% (shares of LEN, MTH, KBH, PHM all active on earnings)
· Retailers; KSS shares fall despite Q1 beat & raise quarter similar to Macy’s report last week (recall JWN disappointed last week) – slipping on commentary about headwinds in Q3 and Q4 citing weather; Macy’s (M) was upgraded to positive at Susquehanna; TJX Q1 EPS, revs and comp sales all beat though guided Q2 EPS 87c-89c, below the $1.10 estimate, but raised its full-year view; JCP announces resignation of CEO Marvin Ellison (leaves for LOW)

Stock GAINERS
· CRMT +13%; on earnings results
· CPB +3%; rebounds after falling the last few days on weaker earnings results
· FCAU +2%; along with gains in GM and F after China was said to have decided to cut import tariffs on passenger vehicles to 15% from 25%
· MU +7%; announces $10B share buyback, while analysts positive post analyst day
· PLAB +17%; Q1 EPS and rev beat, while guidance midpoint for Q3 beat the highest analyst estimate (sees Q3 12c-18c on revs $128M-$136M vs. est. 9c/$128.3M)
· TJX +1%; after earnings results

Stock LAGGARDS
· AIR -6%; lowers Q4 outlook, sees similar or slight improvement over Q3
· AZO -4%; the company blew past profit estimates for Q1 EPS, but sales and comps missed
· BMRN -4%; released hemophilia drug data today
· DY -15%; after Q1 miss, big guidance cuts as reported Q1 revenue and EPS of 65c/$731M below the 69c/$735M view, but Q2 below views and cuts full-year outlook
· KSS -5%; despite Q1 beat & raise quarter similar to Macy’s report last week (recall JWN disappointed last week) – slipping on commentary about headwinds in Q3 and Q4 citing weather
· PSTG -6%; reported modest upside in Q1 and guided slightly above consensus, though expectations were high heading into the report
· SHOP -4%; declines in sympathy after ADBE acquires Magneto Commerce for $1.6B
· TOL -7%; after Q2 results fell short of analyst estimates, with EPS of 72c missing by 4c amid higher impairment costs, though reaffirmed year outlook

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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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