Market Review: July, 26, 2018

Terrie AmengualDaily Market Report

Closing Recap

Thursday, July 26, 2018
Equity Market Recap

· U.S. equities end the day mixed, as the Nasdaq Composite closed down around 1% after a 20% decline in Facebook shares following weak quarterly revenue and average daily user figures, while the Dow Industrial Average rallied more than 100-points to its best levels since February. The Nasdaq decline comes one day removed from all-time highs (7,933.30), as markets brace for another round of important tech earnings tonight, including AMZN, semiconductors INTC, CY, MXIM, LRCX, LSCC, software EA (video game), PFPT (security) and restaurants also busy (CMG, SBUX). Semiconductors were a bright spot today after AMD, XLNX and QCOM shares all jumped following their better earnings results. While earnings was a key driver today, trade remains a key factor along with economic data. Tomorrow attention turns the Q2 GDP figure, which is expected to rise by 4.2%, though there have been expectations for even higher – which would likely continue to keep the FOMC on its trajectory for 4-rate total hikes this year.

· Trade and tariffs the other big market driver as reports earlier today that the Chinese government has a plan to retaliate against increases in U.S. tariffs regardless of the volume of goods targeted, according to an official in Beijing, weighed on sentiment. China is ready to respond to measures from U.S. President Donald Trump whether they involve $16 billion or $200 billion of Chinese imports, said the official. The news with China not as rosy as that with the EU (for now) after stocks jumped late yesterday as President Trump said he and EU President Jean-Claude Juncker agreed to “to work together toward zero tariffs” and “zero subsidies” on non-auto industrial goods during meeting at the White House. The ECB kept rates unchanged at its monetary policy meeting today, but commentary sunk the euro, as the dollar ended near the highs. Meanwhile Treasury yields hit their highest levels in over a month ahead of the GDP reading tomorrow (10-yr 2.98%, 2-yr 2.68%). German stocks finish at a five-week high Thursday, leading European equity markets upward, with shares in auto makers finding relief after the European Union’s top official struck a truce on trade issues with U.S. President Donald Trump.

Economic Data

· Weekly Jobless Claims rose 9K to 217K vs. est. 215K; Prior week claims revised up to 208K from 207K; the 4-week moving average drops 2,750 to 218,000; continuing claims fell 8k to 1.745m in the week ending July 14

· Durable Goods Orders for June rose 1%, below the up 3% estimate; Durable goods new orders revised up to -0.3% for May from -0.4%; new orders ex-trans. rose 0.4% in June after 0.3% rise and new orders ex-defense rose 1.5% in June after 1.4% fall; non-defense capital goods orders ex-aircraft rose 0.6% in June after rising 0.7% in May

· Advanced Goods Trade Deficit for June (-$68.3B) vs. est. (-$67.0B), widening from (-$64.8B) in prior month; Imports rose 0.6% in June to $210.263B from $208.921B in May and exports fell 1.5% in June to $141.931B from $144.155B in May


· Oil prices ended higher, with WTI crude rising 31c or 0.43% to settle at $69.61 per barrel, getting a little bump on reports late yesterday that Saudi Arabia is suspending oil shipments through the Red Sea following an attack from Yemen on two of its giant crude carriers. Oil prices also managed to close higher despite the negative impact the dollar strength had on commodity prices. August gold prices close lower, sliding -$6.10 or 0.5% to settle at $1,225.70 an ounce, dropping in reaction to the dollar spike on the day. The dollar’s move, and therefore gold’s, was at least partly influenced by weakness in the euro which followed the European Central Bank’s latest monetary policy update.


· The U.S. dollar rallied late day, adding to early gains as the dollar index (DXY) rose more than 0.5%, topping 94.75 after fading the last few sessions, moving higher vs. most counterparts but outperformed against the euro. The euro dropped after the European Central Bank kept rates unchanged, as expected, emphasizing that it was holding to a plan laid out in June to unwind its asset purchases, but wouldn’t move to commence tightening policy until next summer. The euro fell to session lows late day, down around -0.75% at 1.1642 (off overnight highs 1.1744). The USD/CAD traded to highs of 1.3093 on Nafta headlines, and as the greenback continues to gather strength. The Turkish Lira falls after the US threatened it will impose “significant sanctions” on Turkey unless an Evangelical pastor on trial in Turkey is released, said Vice-president Mike Pence.

Bond Market

· Treasuries slipped as yields ended near their best levels of the day, with the 10-year yield up around 2.97% (up about 3 bps off the lows), while the shorter-term 2-year note yield rises above 2.68% ahead of tomorrow’s GDP estimate. Shorter term rates are rising in anticipation of a strong GDP reading (estimates for 4.2% for Q2), which will likely continue to support the FOMC current trajectory of four total hikes this year. The 30-year yield up around 3.09%, rising about 15 bps from last week lows. Bonds were active early as the ECB kept rates unchanged as expected. Also today, the U.S. Treasury to sell $30B in 7-year notes at a yield of 2.93%, in-line with where it traded when issued prior, with a bid-to-cover (demand) at 2.49 vs. 2.53 prior and indirect bidders awarded 64.6% of auction.

Sector News Breakdown


· Autos get another day of soft results as Ford (F) lowers 2018 adjusted EPS outlook $1.30-$1.50 from $1.45-$1.70 saying outside of North America, it was a particularly challenging quarter for Asia Pacific and Europe (Ford’s lower guidance follows that of GM and FCAU yesterday); auto supplier LEA shares dropped on earnings miss; in other auto parts and dealers, several names moving on earnings today: BWA, MNRO, GPI, ORLY, PAG

· Retailers; UAA Q2 sales top expectations on global growth, while posts a slightly narrower than expected Q2 EPS loss (still sees year 14c-19c vs. est. 18c); SNBR and TPX both report earnings in mattress sector while SNBR was downgraded at Piper; CRI shares fell despite Q2 topping estimates as operating margin fell 130 bps to 8.2% during the quarter; toy retail MAT drops on its quarterly results as also said to cut 2,200 jobs

· Food sector; in grocer space, SVU agrees to be acquired by UNFI for $32.50 per share, in a total deal valued at $2.9B which includes debt ; in food, MDLZ reported higher than expected profits in its second quarterly earnings as they continued to boost sales in North America; HSY said its acquisition of SkinnyPop popcorn maker Amplify had helped it boost sales in the US by nearly 6% in its latest quarter, topping estimates

· Consumer Staples; European drinks stocks slid after disappointing Q2 results from BUD; in tobacco, MO Q2 revenue declined (missing views) as the company saw its cigarettes U.S. retail market share decline to 50.2% from 50.9% same quarter a year before; shares of names like BF/B jumped early on reports last night of concessions reached between US/EU on tariffs; cosmetics names active after L’Oreal (LRLCY) 1H sales missed views (EL shares dipped); SPB shares jumped after Q3 EPS, sales and margins all topped views, but only reaffirmed forecasts

· Restaurants; Dow component MCD earnings and revenues topped consensus, though its US comp sales rose 2.6% for Q2, below the 3% estimate; CMG expected to report earnings tonight; CBRL was upgraded to buy at Maxim on expectations for stable same-restaurant sales and low food costs; DNKN Q2 EPS and sales topped consensus on slightly better comp sales of 1.4%, though year EPS guidance $2.68-$2.72 below $2.73 est.; YUMC shares spiked more than 25% (before paring gains) after reports Hillhouse Capital Group, which is one of China’s most prominent tech investors, is in talks to acquire Yum China, according to an article in The Information

· Housing & Building Products; MHK Q2 results missed by wide margin and on lower guidance (another name guiding lower in the home improvement space after OC yesterday); homebuilder PHM reported 2Q EPS and revenue beats but weaker new home orders of down 1% vs. Bloomberg estimate of up +9.6% weighed on results – group has been pressured this week amid rising Treasury yields (pushing mortgage rates higher, weaker new home sales data – and several companies in building space lowering forecasts; DHI a bright spot in homebuilders on earnings

· Casino, Lodging & Leisure; in casino’s, LVS reported 2Q18 Marina Bay Sands (MBS) operating results came in well below consensus expectations -meanwhile PENN Q2 net revs misses estimates and also guided FY revs below est. $3.24B; in leisure/boating space, BC Q2 EPS miss by 5c on better sales of $1.5B, while HZO reports in-line Q3 EPS but revs missed; in educations, shares of BPI surged as much as 40% after its quarterly results much higher than estimates


· Oil space gets earnings from Dow components XOM and CVX tomorrow; earlier today, COP EPS beat by a penny while guides FY production 1,225 to 1,255 mboe/d and said 2Q cash flow from operations $3.34 billion; RDSA announced a $25B buyback, but shares slumped on profit miss

· E&P and equipment sector; APY shares rally as quarterly sales top views; PTEN with negative reaction after Q2 results as both Pressure Pumping and Directional Drilling posted disappointing results with lower margins according to one analyst; BRY 13.05M share IPO priced at $14.00; CRR Q2 revs miss on slightly wider EPS loss; HP mixed results as EPS missed but revs beat; QEPshares fell around 10% after a failed auction of oil assets in the U.S. Bakken Shale region as the company said offers for its North Dakota assets were “below values reflective of the underlying quality”

· Refiners; CVI shares rise on mixed quarterly results as Q2 net sales total $1.91B; VLO Q2 earnings beat by 17c, topping the highest estimates while revs above $31B easily beat views and reaffirms cap-ex plans this year; MPC also lifting refiners after its Q2 24c EPS beat on better revs as margins from processing crude oil into fuels surged (lifts PBF, HFC, DK)

· Utilities; AEP rebound off earlier pullback despite news the Texas Public Utility Commission rejected the project as proposed, saying it doesn’t offer enough benefits for rate payers as currently structured; PCG shares jumped as Q2 operating EPS beat by 23c, though revs missed estimates and said is not providing FY18 EPS guidance due to uncertainty related to wildfires; CMS Q2 EPS beat by 7c on better revs;


· Brokers and investment advisors; COWN shares rise after Q2 EPS handily beat estimates saying momentum in scaling businesses, driving margin, diversifying rev streams, “harmonizing” balance sheet activities with operating businesses; RJF shares slipped as Q3 EPS missed the lowest estimate, while LAZ Q2 EPS toped the highest estimates; LM shares slumped as Q1 operating revs of $747.9M just missed estimates; IVZ slipped as EPS in-line at 66c, but revs missed

· Cards and services; V reported another solid quarter, including an acceleration in revenue growth to +13.3% CC in 3Q (Sep FY) from 11.8% CC in 2Q, double digit cross-border volume growth, and raised EPS guidance; MA reported better-than-expected earnings and in-line revenue but said Q2 purchase volume of $1.084 trillion that missed the average estimate of $1.169 trillion – Bloomberg; PYPL fell as delivered in-line 2Q results and raised year view, but guided Q3 revenue $3.62B-$3.67B below est. $3.71B; SYF shares slipped midday after Dow Jones first WMT ends deal with SYF after 19 years, taps COF to issue private label, co-branded Walmart cards

· Movers on earnings in banks/insurance: results today from BANC, BRKL, CUBI, CFR; mortgage related insurers getting a lift today behind strength in financials and on back of better RDN results; MMC was downgraded to neutral at Bank America


· Large Cap Pharma; RHHBY raised its guidance for earnings and sales this year; BMY shares topped $60 for the first time since April after Q2 results beat, helped as Opdivo totaled $1.6B, up 36% from a year ago and topping analysts’ estimates while raising its forecast (but shares later reversed after CEO said to get negative CHMP opinion in first-line renal for Opdivo combo; AGN Q2 results top views and raises its outlook amid strong sales of Restatis and Botox;

· Biotech movers; BIIB shares fall as much as 10% as although its BAN2401 drug slowed progression of the earliest stages of Alzheimer’s by 30%, doctors and patient advocates said more information is needed from larger, longer studies; ACIU falls in sympathy with BIIB Alzheimer data as its crenezumab is currently in Phase 3 studies for Alzheimer’s disease under a pact with Roche’s Genentech; SRPT announced the phase I/II trial of its micro-dystrophin gene therapy (GT) for DMD has been placed on clinical hold; CELG Q2 results beat estimates and the drugmaker raised its forecasts, including on its top-selling cancer drug Revlimid; GILD delivered a strong quarter with both HIV and HCV sales beating Consensus while guidance of product sales was reiterated/though announced its CEO is leaving

· Healthcare services and suppliers; in hospitals, UHS quarter was inline, following after the beat and raise by HCA yesterday; EHC results were strong operationally driven by increased demand; ICLR reported another good, high-quality quarter; ALGN shares dropped after lower-than-expected forecast for 3Q despite Q2 top and bottom line beat; MCK with 4c EPS beat for Q1, while revs modest miss hitting shares, but reaffirmed its outlook for the year

· Medical devices & equipment; BEAT Q1 revs beat, and organic revenue growth accelerated to 14% y/y, while EBITDA margins also expanded significantly; ABMD shares dropped despite better Q1 revs as market fretted that they only raised the low end of guidance but not the high end after its Q1 earnings beat; IART was upgraded to buy at BTIG

Industrials & Materials

· Industrial & Machinery; farm machinery stocks get a lift, led by CNHI after earnings beat and raised guidance, giving a boost early to AGCO, DE, LNN; APD mixed Q3 as EPS beat but revs missed and guidance for Q4 fell below estimates but above for the year; JBT shares surged more than 20% after its Q2 results beat and backed its year outlook

· Aerospace & Defense; ARNC rises on report weighs buyout deals from Apollo and Blackstone-Carlyle, WSJ reports ; RTN posted Q2 results well above consensus views and also raised its guidance for the year, but shares weakened amid same fears that drove NOC lower yesterday on better results, as gains primarily driven by lower taxes associated with tax reform; LLL Q2 EPS and sales beat with higher guidance, but shares also slipped

· Transports; truckers a rough night of earnings as both LSTR and KNX quarterly EPS missed estimates, (KNX guidance for the next two quarter also failed to impress), while CVTI quarterly revenue missed estimates by about $3M; Morgan Stanley noted strength on the KNX side and the surprise miss on the Swift side; FWRD shares jumped on its revenue beat

· Airlines; ALK Q2 EPS beat and in-line revs, while year consolidated capacity view of up 6.1% vs view given last month of up 6.2%-6.5%; AAL cut its full-year earnings guidance to $4.50-$5.00 from prior view of as much as $6.00 because of higher fuel prices, adding it would cut capacity growth this year and defer delivery of 22 Airbus; LUV Q2 EPS beat by 3c while total op revs miss and said sees significant improvement in 3Q RASM vs. 2Q, in range of down 1% to up 1% YoY; ALGT falls as cuts its 2018 profit forecast on fuel/growth outlook

· Metals & Mining; Gold miners disappoint as AEM and ABX both reported lower than expected Q2 earnings, while GG shares dropped early on sales miss, as group has been hit amid a 10% pullback in gold prices from its peak 2-months ago; uranium stocks rally (UUUU, UEC) after CCJ shuts down McArthur mine indefinitely in the face of persistent low prices; CDE falls after 2Q cash flow was hurt by Mexican income tax payments; in steels, RS mixed as Q2 EPS beat/revs miss

Technology, Media & Telecom

· Internet; FB shares dropped as much as 20% from all-time record highs after Q2 revs fell short of consensus on slightly lower than expected MAU and DAU’s while said sees revenue decelerating in Q3, Q4; PDD 85.6M share IPO priced at $19.00; SPOT shares touch record highs after posting better-than-expected subscriber numbers (overshadows large quarterly loss); AMZN next giant expected to report earnings after the close and TWTR tomorrow morning

· Semiconductors; QCOM shares outperform after reporting better earnings and guidance, and terminating its planned acquisition of NXPI (sending those shares lower) and saying it will execute on a $30B share repurchase plan in its place; AMD posted slightly better-than-expected earnings as analysts raise their price targets following clean 2Q beat though notes outlook for 3Q revenue was below estimates; MPWR delivers strong performance, with a solid 2Q18 and higher outlook for 3Q18; XLNX double upgrade to Buy at Bank America following solid beat/raise results which addressed prior concerns around limited growth/leverage; ENTG led the declines in semi’s despite top and bottom line beat and mid-point of guidance above views

· Software movers; CTXS reported a much better than expected 2Q as subscription revenue growth remained strong and license revenue surprisingly showed meaningful upside; CANG 4M share IPO priced at $11.00; DDD downgraded to underweight at Piper in the 3D sector saying it is facing intensifying competition for its main product lines and its system demand has ticked down; TENB 10.9M share IPO priced at $23.00; JG opens at $9.00, IPO priced at $8.50 per share; NOW shares trade near all-time highs after its earnings results

· Media & Telecom movers; cable giant CMCSA Q2 EPS and revenue topped the highest estimates amid strong FCF of $4.3B and posted better metrics: 2Q high-speed Internet net change 260k, est. 199k and 2Q voice net change -16k, est. -57k; NLSN shares plunge after Q2 revenue missed estimates, citing weakness in multinational client spending in EM and announced CEO retirement

· Hardware and component movers; NOK shares plunged after 2Q adj. operating profit missed estimates on slumping network demand

· Other gainers on earnings; AMD, ASGN, IIN, NOW, QCOM, XLNX

· Other decliners on earnings: CLGX, DLX, FB, NOK


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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