Mid-Morning Look: July 25, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Wednesday, July 25, 2018

U.S. equities are mixed, still looking for direction ahead of a few large macro catalysts including: 1) a key trade-related meeting between President Donald Trump and European Union chief Jean-Claude Juncker tonight (“I have an idea for them. Both the U.S. and the E.U. drop all Tariffs, Barriers and Subsidies!” Trump said in a Tuesday night tweet), 2) the European Central Bank policy decision tomorrow with unanimous expectations look for the ECB to leave its three key rates unchanged, 3) NAFTA talks between Canada and Mexico today and Mexican minister speaking with U.S. Trade Representative Robert Lighthizer tomorrow. But so far this morning, markets digesting the onslaught of quarterly corporate earnings as the busiest week of the quarter continues.

Auto sector biggest drag on markets after GM and FCAU both lower their annual profit forecasts, while auto dealer LAD slashes its outlook. New Home sales tumbled to an 8-month low, hitting housing market stocks, along with lower guidance from OC, TUP today (follows WHR yesterday). Transports rebound behind better UPS results. Semiconductors mixed ahead of busy week of earnings and deadline for China gov’t approval of NXPI/QCOM deal tonight. Lodging stocks fall on HLT guidance. Aerospace and Defense names mixed as BA and NOC drag industry lower on guidance, while GD rises. Staples get a lift as beverage giant and Dow component KO raises guidance.

Treasuries, Currencies and Commodities

· In currency markets, the dollar is down slightly, slipping vs. the euro (ahead of the ECB meeting tomorrow), and yen, while little changed vs. the Pound – ahead of Trump/Juncker meeting

· Precious metals rise as gold and silver are outperforming other metals ahead of President Trump’s meeting with European Commission President Jean-Claude Juncker in Washington for trade talks, while copper and aluminum are giving back their gains from yesterday,

· Energy futures spike on inventory data as the EIA reported a weekly draw of -6.14M barrels, more than the expected -3M barrel draw, while gasoline also a bigger draw of -2.3M barrels vs. est. -1.09M – WTI crude around $69.25, up about 1%

· Treasury markets are down slightly to little changed, with the 10-yr yield holding at 2.945% (around yesterday close), though the 2-yr rises further to 2.65% (highest level in 10-years)

Economic Data

· New Home Sales for June fell (-5.3%) to 631K, below the 668K estimate; new home sales fell 35K in June from prior month, while the previous three months’ new home sales data revised down by 27K; median new home price fell 4.2% y/y to $302,100; average selling price at $363,300; 18% of new homes sold in June cost more than $500,000, up from 17% prior month

Sector Movers Today

· Retailers; LULU hired Calvin McDonald as its new CEO. Mr. McDonald was most recently at Sephora; LBdowngraded at Evercore ISI and initiated a 5% short position in his model portfolio after new evidence of declining brand engagement for both Victoria Secret and Pink; LVMHF upgrade to outperform at Raymond James. Saying it diversified profile makes it one of the most defensive and attractive plays in the luxury goods world; COLM was downgraded to hold at Pivotal Research; IRBT shares jump after Q2 results topped views saying int’l sales fueled rev beat, while raising its full-year outlook

· Autos; sector among top underperformers after FCAU and GM lower guidance; GM cut its full-year earnings forecasts because of higher steel and aluminum costs (after Q2 EPS beat by 4c on in-line revenue) – cuts year view to $6.00 from prior mid-$6.00 range, est. $6.41; FCAU posted a 17% miss at Ebit line in 2Q and cut 2018 Ebit guidance by 11% at the mid-point; auto dealers weak as LAD posted Q2 results below consensus and slashed its earnings and revenue forecasts for 2018, saying it will no longer provide annual outlook starting in 2019; also auto industry legend Sergio Marchionne passed away at age 66 amid complication to surgery

· Consumer Staples; KO reported 2Q results that topped estimates and slightly boosted year organic revs and comparable FX-neutral operating income views (now sees “at least” 4% growth in organic revenues and “at least” 9% growth in comp FX-neutral operating vs. prior view of ~4% organic rev. growth and 8%-9% growth in comp FX); in the protein sector, Mizuho downgraded HRL to underperform and maintains TSN as top pick saying in sum, for the quarter, they are below consensus across the board saying they aren’t calling a bottom for protein prices until 1H19 when the swell of protein thins; USNA shares rally early after Q2 beat and guidance

· Homebuilders extend yesterday losses (TOL, KBH, PHM, LEN) on weaker New home sales data for June, missing estimates – Treasury yields holding steady after recent run-up and several housing and/or building product related companies offering lower outlooks the last 2-days weighing (WHR yesterday, today lower views from OC, TPX)

· Aerospace & Defense; Dow component BA weighs on the index after its 2018 EPS outlook midpoint misses analysts’ expectations (sees FY core EPS $14.30 to $14.50 vs. est. $14.50); NOC shares fall despite EPS beat and upped guidance, while GD Q2 revenue topped views and raised its year outlook; LMT upgraded to outperform at Cowen for hiked 2018 prospects & enhanced visibility of ~10% “economic” EPS CGR at least thru 2021

· Semiconductors; all eyes on NXPI as QCOM has yet to win China’s nod to buy the chipmaker for $44B even as a deadline for the offer to expire is just hours away, raising the prospect the deal could be scrapped and QCOM would need to pay a $2B break-up fee (due to trade issues ongoing with China and U.S.); TXN reported strong results and guided roughly in line with expectations and reported upside to guidance last week and week raised estimates; TER jumps on Q2 beat and higher Q3 guidance (59c-66c vs. est. 52c); MKSI results missed views

· Medical devices & equipment; NVRO rebounds more than 20% after JPM noted while Nevro’s systems claims patents were ruled invalid vs. BSX, the company’s broader method claim patents were upheld and said to buy the dip; BSX posted Q2 EPS and sales beat but moving along with NVRO news overnight; SYK reported strong 2Q results showing continued business momentum, including ~7% organic days-adjusted cc revenue growth and a 2% EPS beat (raised guidance); IART in-line Q2 EPS on slightly lower sales while raises low end of year profit view

       Stock GAINERS

· GRUB +15%; Q2 results topped consensus, while revenue guidance for Q3 and the full-year also topped expectations

· HCA +8%; beat 2Q Ebitda estimates and raised its guidance for the full year, as first hospital to report for quarter

· IRBT +22%; after Q2 results topped views saying int’l sales fueled rev beat, while raising its full-year outlook

· KO +2%; reported 2Q results that topped estimates and slightly boosted year organic revs and comparable FX-neutral operating income views

· NVRO +37%; as analysts (JPM, Leerink) defend the stock and advised investors to “buy the dip” after a court ruled some of its patent claims against BSX were invalid

· TORC +59%; said a 10mg daily dose of its RTB101 drug was tied to a statistically significant 30.6% reduction in the percentage of elderly patients with a respiratory tract infection in a Phase 2b study

· USNA +22%; after Q2 beat and guidance


· BA -2%; after its 2018 EPS outlook midpoint misses analysts’ expectations (sees FY core EPS $14.30 to $14.50 vs. est. $14.50)

· FCAU -11%; cut revenue and earnings outlook after disappointing sales in China hurt 2Q results

· GM -6%; after lowering its full-year profit view, citing recent increases in commodity costs and unfavorable foreign exchange impact

· HLT -2%; dragging hotels lower (H, WYN, CHH, STAY, MAR) after reported in-line Q2 EPS of 70c on slightly better Ebitda, but falls as Q3 EPS view of 71c-76c misses the 77c estimate

· OC -12%; slumped after 2Q results missed, and the company said it expected the overall U.S. asphalt shingle market to be down mid-single digits on lower storm demand

· NXPI -1%; as the deadline for QCOM to obtain Chinese regulatory approval for its planned acquisition of NXPI looms at the end of the day

· TRVG -3%; Q2 revs missed lowest estimates as it pared back advertising which hurt revs (BKNG, EXPE also active)


· Aquestive Therapeutics (AQST) 4.5M share IPO priced at $15.00

· Bloom Energy (BE) 18M share IPO priced at $15.00

· Bluebird Bio (BLUE) 3.385M share Secondary priced at $162.50

· Cadence Bancorp (CADE) 12.5M share Secondary priced at $28.40

· Catalent (CTLT) 9.94M share Secondary priced at $40.24

· Reata Pharmaceuticals (RETA) 3M share Secondary priced at $72.00


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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