Market Review: August, 02, 2018

Terrie AmengualDaily Market Report

Closing Recap

Thursday, August 2, 2018

Equity Market Recap

· U.S. equities end well off worst levels as a rally in technology shares for a second session took the Nasdaq Composite higher by more than 1%, led by gains in AAPL (NASDAQ rises as much as 145 points off the session low). The iPhone maker traded to new all-time highs following its earnings beat Tuesday night, with the shock headline “the first company to cross the $1 trillion market cap”. The move in tech helped offset trade fears that sunk global markets overnight after reports President Trump directed U.S. Trade Rep. Robert Lighthizer to consider increasing proposed tariffs on $200B in Chinese goods to 25% from 10%, senior administration officials said. China of course responded saying it would retaliate with their own response.

· Gains today were broad based, as retailers, MLPs, household products, transports, Internet security, solar were some of the top performers, while housing, casinos, and generic Pharma weak. The next upcoming catalyst comes tomorrow morning, with the monthly nonfarm payroll report at 8:30 expected to show 192K jobs added and unemployment to tick back below 4%. The report comes after the positive private payroll reading from ADP on Wednesday. The dollar was strong ahead payroll report, with the dollar index back at best level in 2-weeks. Ironically, it comes just a few weeks after U.S. President Donald Trump complained about the dollar’s strength reducing America’s competitive edge, as the latest trade threats from his administration is paving the way for further greenback gains. In Europe, the Bank of England boosted its benchmark rate from 0.5% to 0.75% (unanimous decision), which was widely expected.

Commodities

· Oil prices close higher, as WTI crude rises $1.30, or 1.9% to settle at $68.96, snapping its 2-day losing streak and bouncing off 6-week lows. Strength came despite a spike in the dollar and following one day after an EIA report showing an unexpected weekly build in oil stockpiles. However, reports today pointed to a Genscape report that showed Cushing, Oklahoma, inventories sank 1.1 million barrels from Friday to Tuesday.

· Gold prices slipped on Thursday, falling -%7.50, or 0.6% to settle at $1,220.10 an ounce, market its lowest closing level (not intraday) in over a year, falling for a second session in a row as trade tensions between the U.S. and China resurfaced (weighing on metals) and a day after the Federal Reserve affirmed its intention to lift rates further in 2018. Both factors have lifted the U.S. dollar. Gold has declined for four of the past five sessions.

Currencies & Bonds

· The U.S. dollar was on cruise control, moving broadly higher vs. rival currencies, as the dollar index (DXY) hit new highs late afternoon, rising 0.5% to top the 95.10 level (2018 highs 95.65 on 7/19). The euro sunk below the 1.16 level mid-afternoon, down over -0.5% and lowest levels in about 2-weeks after hawkish commentary by the Fed yesterday at its policy meeting. The British pound declined vs. the dollar as the Bank of England’s interest-rate hike wasn’t enough to lift the currency against the buck. The U.K. central bank upped its benchmark rate by 25 basis points to 0.75% in an unexpectedly unanimous vote. After falling the last few days on rising rate hike expectations and strong economic data, Treasury prices inched higher while yields pulled back from 4-week highs as the 10-yr fell to 2.98% and the 2-yr 2.66%.

Economic Data

· Weekly Jobless Claims rose 1K to 218K, slightly below the 220K estimate (prior week claims unrevised at 217K); the 4-week moving avg. fell 3,550 to 214.5K in the week ending July 28; continuing claims fell 23k to 1.724m in the week ending July 21

· Factory orders for June rose 0.7%, in-line with estimates while May unrevised at 0.4%; new orders ex-trans. for June rise 0.4%; new orders ex-defense for June rise 0.9% after falling 0.1% in May. Capital goods non-defense ex aircraft new orders for June revised down to 0.2% gain from 0.6% advance; rose 0.7% in May; Capital goods non-defense ex aircraft new orders, 3-month rolling average annualized change for June a rise of 10.2% after rising 5.2% in May

· The 30-year fixed-rate mortgage averaged 4.60% in the August 2 week, according to mortgage provider Freddie Mac. The 15-year fixed-rate mortgage averaged 4.08%, and the 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 3.93%. All three products rose six basis points during the week. It was the second straight weekly gain for the popular 30-year-fixed.

Sector News Breakdown

Consumer

· Retailers; GIL shares surge after Q2 sales and profit top views and year midpoint guidance tops estimates; FIT reported Q2 results and outlook which were largely better than expected except for a decline in free cash flow; FOXF jumps as posted solid quarter and raised ’18 guidance well ahead of consensus, with strong organic growth plus the benefit of the Tuscany acquisition; SONO 13.889M share IPO priced at $15.00

· Auto’s; TSLA shares jump after earnings as reported Q2 losses that were greater Street’s expectations, but revenues beat expectations, and cash burn slowed while posting better gross margins of 21% vs. estimates 16%; RACE was upgraded to equal-weight at Morgan Stanley and tgt upped to $120 as believe the stock reflects a more balanced assessment of the risks to the 2022 €2bn EBITDA target

· Consumer Staples; CLX mixed results as EPS beat though sales fall short, while margins top estimates/FY guidance better at $6.32-$6.52 vs. est. $6.37; APRN posted a wider loss for Q2 as revenue fell short of estimates, falling 25%; Kellogg (K) lifts profit guidance to a view for full-year EPS growth of +11% to +13% on a constant currency basis, though Q2 organic sales fell (-0.4%) and adjusted operating profit was down (-0.3%)

· Housing & Building Products; Wayfair (W) 2Q revenue topped estimates and grew faster than expected (Q2 revs $1.66B vs. est. of $1.60B); FND shares decline on mixed Q2 results as EPS beat, but miss on revs while trips its FY outlook (Q2 comps rose 11.4%); homebuilder MDC double upgrade to buy from underperform at Bank America

· Casinos; after the group dropped Wednesday following lower RevPAR guidance from CZR on its conference call and Macau July GGR was MOP 25.33bn (~US$3.13bn), +10.3% y/y, below Bloomberg consensus of 12% and was at lower end of their estimate (10%-12%), group hurt again last night after big earnings miss from WYNN, with a 40c EPS miss and lower revs as Macau revs fall 14.9% for quarter; MGM also posts Q3 revenue miss of $2.86B vs. est. $2.97B and said Q3 net revenues at its Las Vegas Strip resorts to be lower by approximately 8% to 10%

· Restaurants; RRGB shares plunge after Q2 EPS missed by 20c and cuts FY18 EPS view to $1.80-$2.20 from $2.40-$2.80 well below est. $2.54; CHEF Q2 EPS and revenues topped consensus; YUMC Q2 EPS and revs topped views but Q2 comp sales fell an unexpected -1% vs. est. up 2.5%; HABT shares rise as beat on top and bottom line for Q2 and raises FY18 revenue view to $393M-$396M from $389M-$393M; DIN upgraded to strong buy at Raymond James on strengthening Applebee’s, discount valuation; DFRG 11.25M share Secondary priced at $8.00; WEN was downgraded to neutral from buy at Kalinowski Research; SBUX will start coffee deliveries in China next month as part of a new tie-up with BABA; YUM profits strong in 2Q, but some weakness in same-store sales and backs year outlook

Energy

· Earnings dominate the sector, especially in exploration and production, while overall oil prices rebound after multiple days of selling pressure that saw WTI crude move to 6-week lows.

· E&P sector; APA EPS beat as Permian oil volumes beat expectations and US volumes at 255kboed beat the 248kboed guide; LPI falls after boosting 2018 capex to $630M from $585M, while reaffirming annual oil production guidance; HK 2Q18 results were light and full year 2018 output and capex guidance lowered; MRO rebounds after EPS missed consensus on lower realizations and higher exploration expense/FY18 Guidance raised after strong 2Q performance in OK; WTI sharply higher after reporting much better than expected Q2 earnings and a 21% Y/Y increase in revenues/Q2 production fell below year-ago levels but rose 2.7% Q/Q; MTDR posted Q2 beat related to stronger production, partially offset by cash operating costs; CXO reported better than projected adjusted EPS and EBITDA as stronger pricing more than offset lower than projected volumes/production guidance for 3Q18 of 280-285 mboe/d is roughly flat sequentially

· MLPs, Coal and Utilities; DUK misses Q2 earnings expectations after failing to keep a lid on operating expenses; in coal, CNX rises after raised full-year earnings guidance and increased a buyback program; The Alerian MLP Index (AMZ) rises over 2% today, moving to its best levels since early February above the 285 level, well off its 52-week low of 231.86 late March, getting a lift from ETP today (up 13%) and ENLK (up 7%) after ETE said it buy out the related business of ETP, moving to simplify and reduce debt.

· Refiners weak; HFC shares drop as Q2 EPS missed by 18c, though revs beat; meanwhile Bank America cuts estimates for group saying Saudi-Russia warning on E&P volatility; marking 3Q18 refiners lower

Financials

· Insurance; mixed results as LNC missed quarterly earnings as investment income came in modestly weaker, while MET revs and EPS topped consensus; ALL Q2 net income per share of $1.90 easily beating the consensus estimate of $1.51 behind the better results was a lower combined ratio and higher premiums in its P&C business, stronger than expected life insurance results and lower corporate expenses; VOYA posts all-round 2Q18 beat in multiple segments

· Payments and finance; SQ Q2 results beat expectations, but forecast Q3 adjusted EPS that disappointed and reiterated annual earnings expectations/also raised its 2018 adjusted revenue outlook to $1.52B-$1.54B from $1.45B-$1.48B; GPN raises low end of 2018 adjusted EPS to $5.05-$5.20 versus its prior forecast of $5.00-$5.20 after Q2 results that beat estimates.

· REITs; PGRE’s results were solid with attractive cash NOI bridge, 2) CLI lowered its FFO guidance while 2Q results were disappointing, 3) KW’s results impressed as management executes on the plan, 4) FRT posted another quarter beat and raised FFO guidance, and 5) MAC’s 2Q operating metrics lagged behind A-Mall peers, while asset sales and lower expected lease terminations were behind the guidance cut; CWK 45M share IPO priced at $17.00

Healthcare

· Large Cap Pharma and Managed Care; generics active after TEVA missed Q2 analyst expectations for revenue amid falling U.S. sales and price erosion for generics (MYL, BHC, PRGO active); AET and CI both report quarterly earnings, but focus more on M&A after late yesterday, WSJ reported Carl Icahn has built a sizable stake in CI and plans to vote against the health insurer’s $54 billion planned purchase of ESRX https://on.wsj.com/2AuPSuB ; as for AET, the U.S. DoJ should sue to block the $69B merger between CVS/AET, California’s insurance regulator said yesterday

· Biotech movers; REGN jumps as handily topped Q2 EPS/revs with $5.45/$1.61B revs vs. est. $4.70/$1.57B; EPZM said it will discontinue a Phase 2 trial of tazemetostat in patients with relapsed and/or refractory diffuse large B-cell lymphoma (DLBCL) after an interim assessment showed the activity didn’t warrant further development of the drug in DLBCL as a monotherapy; ZYME upgraded to buy at Citigroup saying it well capitalized following their June offering with a cash runway expected to last through at least one planned Ph2/3 registrational study for ZW-25; other movers on earnings: CLVS, ICPT,

· Medical equipment; DXCM shares surged after narrower Q2 EPS loss and raised its year revenue outlook by more than $60M; PKI beats top and bottom line for Q2; EXASshares plunge as reported disappointing 2Q18 results and 3Q18 guidance based on unexpected slowing in test volume growth ascribed to 1) patient resistance to potential out of pocket expense and 2) lower compliance rate in second half of June. Test volumes of 215,000 missed the lower end of guidance for 220,000-230,000 and our estimate of 229,500

· Medical devices; IRTC guides 2018 revs $138M-$141M vs. consensus $133.79M; CNMD Q2 EPS and revs topped consensus views while raises full-year 2018 constant-currency sales guidance; MASI Q2 top and bottom line results beat expectations and raises FY18 EPS view to $3.07-$2.90 from $3.01-$2.88 and ups revs for the year as well;.

· Healthcare services; TDOC revenue and adjusted EBITDA were both above consensus, and the company raised full-year guidance on both metrics; ESRX reported mixed 2Q18 results, including relatively in-line revenue and adjusted EPS; CCRN plunges to 52-week lows, down over 27% as Q2 revenue decrease of 2.3% Y/Y to $204.6M, gross profit margin declined 80 bps to 26.2% and Adj. EBITDA margin declined 96 bps to 4.25%; AXGN posted Q2 EPS and rev miss sending shares lower; HIIQ rises for a 4th straight day, up today on earnings after jumping yesterday on HHS ruling, expanding the duration of short-term medical plans to a maximum term of one year

Industrials & Materials

· Transports; HUBG shares jump as Q2 earnings were well above consensus views/prompt Loop upgrade to buy; XPO reported solid 2Q results that were a bit ahead of estimates with no change to full year ebitda and free cash guidance; AAWW posted 2Q adjusted EPS and revenue above expectations, but reiterated its outlook for 2018 revenue and adjusted Ebitda.

· Metals & Mining; metals weaker on trade concerns with US/China; as US Steel (X) results as Q2 EPS handily topped estimates with beat from the Flat Rolled segment, driven by higher shipments and higher realized prices and raised its 2018 EBITDA guidance to $1.85B-1.90B from the high end of its previous guidance of $1.7B-1.8B; CENX was upgraded to buy at Deutsche Bank on 2Q18 results and upcoming production enhancements; FCX was upgraded to neutral at Bank America citing valuation, reduced political risk at Grasberg, and a more constructive view on copper; KGC Q2 revenues and production slide, costs rise; CRS a bright spot with strong top/bottom line beats

· Chemicals; DWDP shares active after quarterly results; potash related names active after NTR, IPI and CF reported quarterly results; CF rises as announced a new $500mm buyback, while reaffirming its commitment to debt pay-down and as Q3 EPS of 63c tops highest estimates while said it expects a tightening nitrogen supply-and-demand balance; NTR shares jumped early after raising its full-year profit outlook; WLK slides as 2Q EPS and Ebitda missed estimates that were mainly driven by its Vinyl business; FMCQ2 EPS/revs beat, but Q3 guidance short of estimates; IPI with unexpected Q2 loss sends shares plunging; VVV drops as cuts forecasts for yearly profit following a Q3 EPS miss

Technology, Media & Telecom

· Internet; online travel active as TRIP falls on quarterly revs missing views while its core click-based and transaction sales for hotels declined 7% vs. a 6% increase last year; IQ was downgraded to neutral at Goldman Sachs; WIFI trades to record highs after its quarterly results and raised guidance as their Wi-Fi offload business remains the largest growth driver; STMP better report and in-line guidance

· Semiconductors; CRUS Q1 EPS/revs top consensus but midpoint of Q2 rev guidance slightly below views as overall prospects for growth reacceleration remain muted; QRVOsimilar to CRUS with top/bottom line beat but similar Q3 rev guidance; ESIO among top gainers on its results

· Software movers; APTI reported solid Q2 results with revenue/EPS upside from solid customer wins in the strategic and enterprise segments; LPSN strong quarterly revs sent shares higher; HIVE better than expected Q2 results

· Internet security; CSCO has agreed to pay $2.35 billion for security startup Duo Security, n authentication service that focuses on two-factor authorization https://on.mktw.net/2n4JH6U ; shares of OKTA active as comparable rival; FTNT 2Q revenue/EPS above Street estimates though a shift to ASC 606 standards contributed $5.2mn/7c of the beat; FEYE reported better than expected 2Q results; 3Q guidance and FY18 outlook were mostly in-line with expectations, but shares fell to 6-month lows amid sharp drop in recurring billings

· Media & Telecom; TMUS mixed Q2 as EPS beat on light revs while raises 2018 adjusted EBITDA outlook to $11.5B-$11.9B; ATUS shares fell as reported a fall in sales and warned that margins would be squeezed for the full year; AMCX shares drop as Q2 EPS missed consensus; BCE shares dipped as quarterly profits decline and miss views

· Comm equipment, services and components; ARRS shares slide early after guiding Q3 below consensus and as Q2 revs missed estimates; CTSH shares drop as missed estimates for quarterly revenue and forecast a weak third quarter, hurt by lower-than-expected spending from clients in the financial industry

· Video gamers; ATVI and TCEHY announce a collaboration to bring Call of Duty to mobile in China. The all-new, free-to-play mobile title will launch in the coming months; the news comes ahead of earnings tonight for it and TTWO

· Other movers higher on earnings: HIVE, MANT, RUBI, TRMB, ZNGA

· Other movers lower on earnings: CSGS, HUBS,

· Worldwide tablet shipments decreased 13.5% in Q2, according to IDC data. Total tablet shipments fell to 33M with slate form tablets accounting for 28.4M units (-14.5% Y/Y). Detachable tablets also declined. Apple led the quarter with 11.5M shipments and a nearly 35% market share for a 1% Y/Y growth. Samsung came in second with 5M units, a 15.1% share, and a 16% Y/Y decline.

_______________________________________________________
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.

Live Trading

Open an Account

Paper Trading

Register