Mid-Morning Look: August 22, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Wednesday, August 22, 2018

U.S. equities are bouncing off overnight lows, with the Dow Industrials and S&P 500 looking to make it a fifth straight day of gains as markets look to make new record highs. The S&P 500, Russell 2000, MidCap 400 and Dow Transports all touched intraday record highs yesterday before paring gains late. Markets slipped overnight on political concerns after former Trump campaign chairman Paul Manafort late Tuesday was found guilty on eight charges including tax fraud, and the president’s former lawyer Michael Cohen said he violated campaign-finance law at President Donald Trump’s direction. However, markets taking the news in stride, turning their attention to strong earnings (TGT, URBN, LOW), positive trade hopes and monetary policy ahead of the FOMC minutes later today and the Jackson Hole central bank meeting this week, with Fed Chair Powell speaking on Friday. The health of the U.S. consumer appears strong after better than expected quarterly results from Target, Urban Outfitters Lowe’s and Lazy Boy. Regarding trade, NAFTA the topic today as Mexican economy minister Ildefonso Guajardo says Nafta handshake would happen when the United States, Mexico, and Canada are all done with negotiations. Guajardo, speaking to reporters in Washington, DC, says announcements depend on progress of negotiations. U.S.-China trade talks are still expected this week, though details are quiet. The dollar is currently lower for a sixth straight session, while oil jumps on bullish inventory data.

Treasuries, Currencies and Commodities

· In currency markets, the dollar slides for 6th day in a row amid Fed rhetoric, political turmoil as the dollar index down around the 95 level; the Russian ruble dropped amid concern that the US president’s former attorney Cohen may reveal new claims related to Russian interference into the 2016 US elections; Bitcoin spikes today, up over 3% to 2-week highs; the euro back up around the 116 level vs. the greenback while the yen is little changed

· Precious metals up slightly, with gold prices barely above the $1,200 level, looking to make it a 3rd day of gains, buoyed by the recent pullback in the dollar. Energy futures higher as oil prices eye their fifth straight session of gains, after last night bullish API data lifted prices after saying U.S. crude supplies fell by -5.2M barrels for the week. EIA also posts weekly draw of -5M barrels

· Treasury markets holding steady, with the 10-year yield at 2.82%, 2-yr back under 2.6% and the 30-yr holding under 3% as markets await the FOMC minutes later today (2:00 PM EST)

Economic Data

· Existing-Home Sales for July fell (-0.7%) to 5.34M rate, missing the 5.4M estimate while June at 5.38M was unrevised; existing-home sales fell 0.7% after falling 0.6% prior month; there was 4.3 months’ supply in July vs. 4.3 in June; Inventory fell 0.5% to 1.92M homes; median home price rose 4.5% from last year to $269,600

Sector Movers Today

· Retailers; TGT trades to record highs after Q2 EPS, sales, margins and comp sales (6.5% vs. 3.9% est.) all top consensus along with upbeat guidance (EPS $5.30-$5.50 vs. est. $5.29); URBN reported Q2 comp of +13% vs +11.6% est. EPS beat by 7c as each brand grew comps at a double digit rate/gross margin beat of 35.4% by 40 bps and increased 180 bps YoY driven by reduced markdowns across all brands and fixed cost leverage; TIF was downgraded to neutral at Bank America as thinks share valuation prices in sales acceleration and upward estimate; NWY said it is partnering with film actress Kate Hudson in a multi-year deal that will make her Brand Ambassador of its $200 million “Soho Jeans” collection; earnings tonight from LB

· Housing & Building Products; in home improvement retail, LOW erased pre-market declines (fell nearly 5%) despite the company lowering its year EPS/rev/comp sales views, which reflect the closure of all Orchard Supply Hardware stores – shares helped after conference call as said free cash flow about $5.8B (had seen $4.8B) and cash flow from ops about $7B (had seen $6.5B); furniture stocks get a boost after LZB posted strong quarterly results as Q1 sales of $384.7M topped the $370M est. on better comps (shares of ETH, PIR, WSM, BBBY, BSET among movers); WSM expected to report tonight after the close

· In truckers and freight, LSTR upgraded to outperform at Wells Fargo as have become more positive on the brokers into ’19; on revised ‘19 ests and ~19x target multiples, increase PTs to $133/ believe the truckload rate environment has seen a top and brokerage players will be less susceptible to gross margin pressure; YRCW upgraded to buy at Deutsche Bank as gained greater appreciation for company-specific drivers of equity value improvement, including continued pricing/yield improvement, renewal of YRCW’s aging fleet

· Auto movers; Auto suppliers dropped after Germany’s Continental AG slashed its guidance for the second time this year, citing disappointing sales in China and Europe, and increased spending on new technologies to keep pace with an industry that is rapidly moving toward electric and self-driving cars (shares of BWA, LEA, DLPH, AXL fell early); Ford (F) said it was recalling about 500K Focus electric charge cords

       Stock GAINERS

· EXAS +22%; announced a co-promotion agreement with PFE starting in Q4 and running through 2021 which expands Cologuard’s reach both with physicians and health systems; EXAS now says it sees $700M in revs next year, above the consensus $611M

· LOW +9%; positive comments about free cash flow and cash operations overshadow weak guidance for the year EPS, sales and comp sales

· LZB +18%; posted strong quarterly results as Q1 sales of $384.7M topped the $370M est. on better comps

· MOMO +5%; Q2 results beat estimates with a 58% Y/Y revenue growth with upside Q3 guidance of $525M-$540M (vs. est. $516.61M)

· MYGN +6%; 52-week highs after the company reported Q4 above expectations and raised its outlook for the year

· NAVG +8%; as HIG agrees to acquire the company for about $2.1 billion in cash to expand product offerings and geographic reach; NAVG holders to receive $70 per share, about a 9% premium to yesterday’s closing price https://on.mktw.net/2LchR2p

· PSTG +14%; reported results that exceeded expectations across the board, as success with larger customers and cloud players continues to play out and raised its full-year guidance

· TGT +4%; trades to record highs after Q2 EPS, sales, margins and comp sales (6.5% vs. 3.9% est.) all top consensus along with upbeat guidance (EPS $5.30-$5.50 vs. est. $5.29)

· ZNGA +8%; announced that it had inked a deal with DIS for the rights to develop and publish a new “Star Wars” mobile game under its NaturalMotion studio

Stock LAGGARDS

· ADI -2%; Q3 results beat estimates with an 8% Y/Y revenue growth and reported mostly in-line Q4 guidance

· BNED -13%; after the company missed earnings estimates for its Q1

· CTL -5%; downgraded to sell at MoffettNathanson with $19 tgt

· FNSR -3%; after Raymond James downgraded to market perform saying it will face challenges pressuring its data center transceiver business

· MNK -1%; as received a CRL from the FDA regarding its marketing application seeking approval for stannsoporfin for the treatment of severe jaundice in at-risk neonates

· PSA -3%; downgraded to sell at Goldman Sachs

 

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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