Mid-Morning Look: July 27, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Friday, July 27, 2018

U.S. equities struggle for direction as a record quarterly profit in AMZN overnight fails to offset selling pressure in Dow component INTC following its guidance/delays and lower user data and revs at TWTR, which echoed the slowdown in Facebook the night prior. The other big story this morning, the stellar Q2 GDP report which showed the biggest figure in four-years, topping the 4% level, but was still slightly below economist estimates. For the week, the Dow was looking at a gain of 2%, the S&P 500 was up 1.4%, and the NASDAQ rose 0.5%. Both the Dow and the S&P are on track for their fourth straight positive week, their longest such streak since January. The gains come on the heels of mixed trade news (appears to be improving with the EU, but nowhere closer with China), the busiest week of quarterly earnings (more than half way home) and several economic data points. Energy also a standout sector this morning after Dow components XOM and CVX both reported lower than expected earnings results.

Treasuries, Currencies and Commodities

· In currency markets, the dollar slips to morning lows, with modest gains for the euro, pound, yen and Canadian dollar as the GDP number comes in very strong above 4% for Q2, but was not above the high expectations the market had been hoping for

· Commodity prices are steady, as gold prices rebound off earlier lows (after settling near recent 1-year lows) given the dollar slippage, while oil prices also steady, with WTI crude slipping to around $69 per barrel, down about 50c

· Treasury market’s rise and bond yields slip after the U.S. economy grew 4.1% in Q2, the fastest pace since 2014, but was shy of estimates for 4.2% (and even more bullish expectations). Personal consumption was up a strong 4%, while inventories were a headwind, while inflation core PCE rose 2% in Q2 vs. estimates for 2.2% (strong report – but given the number slightly below estimates and inflation as well not as “hot” tempers fear of FOMC raising rates too far too fast; the 10-yr dips 2 bps to 2.956%, while the 2-yr steady just under 2.68%.

Economic Data

· GDP tops 4%: The U.S. economy accelerates to 4.1% rate in second quarter, mostly in-line with the 4.2% forecasts and the fastest in almost 4 years; GDP rose 2.2% in prior quarter (upwardly revised form 2% prior). Personal consumption rose 4.0% in 2Q after only rising 0.5% prior quarter. Government spending also accelerated at both the federal and state levels. The GDP price index rose 3% in 2Q after rising 2.0% prior quarter (well above the 2.3% estimate), with the core PCE for Q2 rose 2.0% in 2Q after rising 2.2% prior quarter.

· University of Michigan sentiment (final) fell to 97.9 from 98.2 last month but above the 97.1 in the preliminary reading; the current economic conditions index fell to 114.4 vs. 116.5 last month and the expected change in median prices during the next year fell to 2.9% vs. 3.0% last month.

Sector Movers Today

· Big oil stocks with earnings misses today as CVX Q2 EPS of $1.78 missed the $2.08 estimate as Net oil-equivalent production increased to 2.83M barrels per day from 2.78M barrels per day, missing the 2.85M barrels per day est.; while XOM Q2 EPS of 92c missed the $1.26 estimate as production of 3,647 mboe/d, missed the consensus estimate of 3.83M, while cap-ex of $6.63B was much higher; BP agreed to acquire a portfolio of unconventional oil and gas assets from BHP for $10.5B bringing extensive oil and gas production and resources in the regions of the Permian and Eagle Ford basins in Texas and in the Haynesville gas basin https://on.mktw.net/2AaxM0V

· Semiconductors; INTC the lone drag on the index after posted a Q2 beat and raised its guidance for the year but was downgraded at Bank America (and Citi) given a deceleration in FY19 earnings growth, a competitive position that is becoming tougher with nex-gen 10mn product delays, higher capex from insourcing memory, and potential gross margin declines; NXPI was upgraded by several analysts (SunTrust, Mizuho, Deutsche) after QCOM merger fails to go through and saying near-term earnings growth is supported by a larger than typical $5B buyback; MXIMdelivered upside to their 4Q results and 1Q guide as Auto/Industrial (now >50% of sales) grew double digits in the Jun-qtr; CY jumps on Q2 top/bottom line beat and above average guide

· Semi-equipment; LRCX quarterly revs missed consensus saying that both memory and foundry segments have witnessed short-term reduction in equipment demand, with the largest adjustment occurring in DRAM/also lowered its full year 2018 WFE (wafer fab equipment) growth outlook from low-double-digit % to single-digit % – however, LRCX called a n-t bottom on its call, lifting shares of several semi related names (KLAC, MKSI, AMAThigher)

· E&P and equipment movers; CHK agreed to sell its Utica Shale assets (320,000 net acres, 107 MBOE/d (67% natural gas, 24% NGLs and 9.0% oil) of 2017 net production, 480 MMBOE (72% natural gas, 23% NGLs and 5.0% oil) of YE ’17 proven reserves, for ~$2.0 billion; NFX was downgraded to hold at SunTrust as believe NFX shares currently and should trade on par with its peer group average and at a premium to a number of comparable operators; SWN falls as Morgan Stanley sees risk to the company’s Fayetteville sale process expectations after BHP announced the sale of its U.S. shale assets; COG reported a Q2 EPS miss of 7c and cut 2018 daily production growth guidance range from 10%-15% to 10%-12%

· Restaurants; CMG reported 6c EPS beat driven by stronger restaurant-level margin and modestly better same-store sales (rose 3.3% vs. est. 2.7%) driven by 5.1% average check growth that was partially offset by a (1.8%) decline in traffic; BJRI delivered another strong quarter highlighted by +5.6% comp sales and EPS upside; NDLS 8.5M share Secondary priced at $10.00; TACO mixed results as Q2 comps beat (3.3% vs. est. 24%), but EPS missed and guidance midpoint missed

       Stock GAINERS

· AMZN +2%; trades to record highs after quarterly earnings and operating income far surpassed analyst estimates, overshadowing slightly weaker revs

· BJRI +6%; delivered another strong quarter highlighted by +5.6% comp sales and EPS upside

· CHK +5%; as agreed to sell its Utica Shale assets in Ohio to closely held Encino Acquisition Partners for $2 billion

· CMG +7%; reported 6c EPS beat driven by stronger restaurant-level margin and modestly better same-store sales (rose 3.3% vs. est. 2.7%)

· EXPE +10%; Q2 EPS topped estimates by wide margin and raises adjusted FY18 EBITDA growth view to 7%-12% from 6%-11%

· PTEN +3%; upgraded by two analysts to buy (CSFB and Seaport Global) citing recent underperformance on activity concerns

· TEAM +12%; as reported higher profits and higher sales than estimated

· ZBH +7%; after 2Q revenue and EPS beat analyst expectations, driven by a noticeable increase in its knee segment, citing one analyst


· ABBV -5%; after better quarterly results/mixed commentary

· AMID -40%; cuts quarterly dividend to 10.31c per unit from 41.25c and plans asset sales as revised capital allocation strategy identifies about $350M-$400M of noncore assets

· EA -5%; after reporting better than expected 1Q earnings but 2Q guidance below estimates (live services growth of 7% Y/y came in light of Goldman 12% est.)

· FSLR -9%; after posting significantly weaker Q2 earnings miss, much lower revenues

· IMPV -19%; downgraded by several analysts after earnings results

· INTC -8%; posted beat and raise results, but downgraded by two analysts as cautions shipping delays and rising revenue from lower-margin products will hurt profitability

· JNPR -8%; disappointing Q3 guidance, saying shortfall was attributed to pull-ins in the Enterprise business and further delays with large cloud customers

· NCR -8%; as missed 2Q18 revenues/EBITDA and beat EPS (lower taxes); cut FY18 guidance by even more than guidance/Street

· SAM -12%; after Q2 EPS missed the lowest estimate (83c miss) with selloff driven by the revised gross margin guidance coming from the higher commodity and logistics costs

· SWN -8%; as Morgan Stanley sees risk to the company’s Fayetteville sale process expectations after BHP announced the sale of its U.S. shale assets

· TWTR -18%; after Q2 monthly active users fell short of estimates, and it forecast further declines as the social network battles fake accounts


· Adial Pharmaceuticals (ADIL) 1.46M share Secondary priced at $5.00

· Endava (DAVA) 6.34M share IPO priced at $20.00

· Nabriva Therapeutics (NBRV) 18.182M share Secondary priced at $2.75

· Noodles & Company (NDLS) 8.5M share Secondary priced at $10.00

· Opera (OPRA) 9.6M share IPO priced at $12.00

· State Street (STT) 13.244M share Spot Secondary priced at $86.93


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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