Mid-Morning Look: August 23, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Thursday, August 23, 2018

U.S. equities are steady, holding at or near record highs for the S&P 500 and Russell 2000 index, while the Nasdaq outperforms, rising to within 7-points off its record best level 7,933.30 (on 7/25), led by better results in the Internet space after BABA earnings and semiconductor strength (AMD 52-week highs after positive analyst comments). Corporate earnings and a strong economy have helped overshadow macro market distractions such as the Washington drama over the last 48-hours (Cohen, Manafort), ongoing trade/tariff issues with China (another round of tariffs on imports from China – this one targeting $16B worth of goods – went into effect overnight despite a two-day summit in Washington between U.S. and Chinese officials), the Brexit negotiations in Europe and the start of the Fed’s annual symposium at Jackson Hole tonight (with Powell speaking tomorrow). European market trade near their flat lines, while Asia was mixed overnight. The S&P has gotten a boost over the last week, led by stronger earnings out of retail for the most part, with WMT, TGT, LOW, URBN, WSM boosting sentiment after their results (though LB plunges on a lower outlook). The dollar rebounds after 6-days of declines, weighing on commodity prices (gold, oil), while Treasuries are little changed ahead of FOMC. Kansas City Federal Reserve President Esther George said Thursday that she thought two more interest-rate hikes would be appropriate this year and “several more” would likely be needed next year (one of first comments ahead of Jackson Hole meeting and in response to President Trump’s latest displeasure about the recent Fed rate hike cycle).

Treasuries, Currencies and Commodities

· In currency markets, the U.S. dollar rebounds after 6-days of declines; euro falls on the day to around 1.1565 (off recent highs above 1.16), the dollar jumps above 111.25 vs. the yen and the Pound falls to 1.2830; currencies leveraged to health of commodities such as the Canadian and Aussie dollar slipped this morning as the US dollar staged a rebound (looking to snap its 6-day losing streak), weighing on commodity prices; the South African Rand falls after comments from President Trump overnight about land and farm seizures and expropriations

· Precious metals and Energy futures pulling back from recent highs as the 5-day win streak for WTI crude is threatened as the dollar rebounds; oil jumped yesterday on bullish inventory reports from both the API and EIA on the week; gold prices move back below $1,200 an ounce

· Treasury markets are quiet ahead of the Jackson Hole central bank symposium; the 10-year yield around 2.82%, the 2-yr 2.60% and 30-yr yield 2.98% (down sharply from last week levels, but in-line where they have trade the last few days)

Economic Data

· Weekly Jobless Claims fell 2K to 210K, below the 215K estimate while prior week claims unrevised at 215K; the 4-week moving average declines 1,750 to 213,750; continuing claims fell 2k to 1.727m in the week ending Aug. 11

· New Home Sales for July fell to 627K, well below the 645K estimate, while the prior month was upwardly revised to 638K from 631K; previous three months’ new home sales data revised down by 13K; median new home price rose 1.8% y/y to $328,700; average selling price at $394,300

· The 30-year fixed mortgage rate for week ended today fell to 4.51% from 4.53%, Freddie Mac said, while the 15-year rate avg 3.98%, down from 4.01% a week earlier and 5/1-year ARM rate avg 3.82%, down from 3.87% a week earlier.

· IHS U.S. flash services PMI drops to 55.2 in August from 56; August U.S. PMI Composite Flash 55.0 vs. 55.6 consensus, 55.9 prior and Manufacturing PMI 54.5 vs. 55.1 consensus, 55.5 prior

Sector Movers Today

· Housing & Building Products; housing related furniture/furnishing got a boost yesterday after LZB better quarterly results sent shares to all-time highs (downgraded today at KeyBanc on price rally); overnight, WSM the latest to lift the sector after headline adjusted results were better, with a 9c EPS beat, healthy comps +4.6%, and higher gross margin (though analysts were mixed) – shares moved to new 52-week highs after results; homebuilders fall for a second straight day on weaker economic data as new home sales drop to 9-month lows (followed weak existing home sales data yesterday) – and giving back much of the gains from Tuesday after TOL earnings

· Optical sector active after two analyst upgrades; Piper upgraded ACIA to overweight (and raised tgt to $46) from neutral saying overall demand for optical is improving, and sees Acacia’s leadership in certain products (Coherent DSPs, PiCs and DCOs) as the best way to play the upcoming 400G cycle; firm also upgraded FNSR to overweight from neutral saying China demand is returning, and FNSR has easy comps following five quarters of depressed demand

· Specialty/generic pharma; HNZP positive mention at Goldman Sachs saying is confident in sales forecast for the company despite the potential threat from SELB’s SEL-212; LCI issued an 8K this morning noting that the JSP contract nonrenewal triggers a goodwill impairment analysis under GAAP and LCI expects that the analysis could result in a material impairment impacting Q1 results; GBT announced a global licensing deal with RHHBY for the development and commercialization of inclacumab (GBT will pay $2M upfront, up to $125M in milestones and tiered royalties on net sales); AKRX added to Deutsche Bank short-term catalyst buy list

· Protein/packaged food names under pressure after SAFM and HRL quarterly results; HRL lowered its year revenue outlook to $9.4B-$9.6B from prior view $9.7B-$10.1B while reporting 2Q decline in operating margin vs last year noting a dramatic decline in commodity profits; separately, SAFM posted weaker-than-expected 3Q report reflecting “significant counter-seasonal weakness in market prices for boneless breast meat produced for food service customers,” as per the company (watch shares of TSN, PPC as well on results)

       Stock GAINERS

· AMD +4%; 52-week highs as tgt raised to $30 at Rosenblatt citing a renewed conviction post-meetings of a multi-year double digit growth profile

· BABA +3%; mixed Q1 results as EPS of 8.04 yean missed estimates of 8.19, but sales and adjusted Ebitda topped consensus views/said has mobile monthly active users of 634M

· HON +1%; raises guidance as spin-offs near completion, as now sees it’s full-year 2018 EPS $8.10-$8.20, up by 5c on top/bottom line

· SNPS +7%; Q3 EPS and revs topped views, with better outlook for Q3 and raised its FY18 profit and sales outlook citing strong products and customer relationships in EDA and IP

· WSM +10%; after headline adjusted results were better, with a 9c EPS beat, healthy comps +4.6%, and higher gross margin (though analysts were mixed)

Stock LAGGARDS

· ABM -7%; downgraded shares to neutral at Baird citing a more balanced risk/reward and cuts 2019 estimates below consensus with an expectation that labor market inflation pressures continue to serve as an overhang

· CATO -14%; following quarterly results and July comps up 2% vs. est. 5%

· CMG -1%; cautious mention at William Blair saying its survey of 900 consumers after the illness outbreak related to a store in Ohio suggests potential for an increase in customer resistance

· HRL -2%; lowered its year revenue outlook to $9.4B-$9.6B from prior view $9.7B-$10.1B while reporting 2Q decline in operating margin vs last year

· LB -12%; as Q2 top/bottom line beat, but guided Q3 EPS well below views (0c-5c vs. 16c est.) and cut its FY18 EPS view to $2.45-$2.70 from $2.70-$3.00 (est. $2.77)

· LCI -13%; issued an 8K this morning noting that the JSP contract nonrenewal triggers a goodwill impairment analysis under GAAP and LCI expects that the analysis could result in a material impairment impacting Q1 results

· QD -9%; downgraded at Bernstein to market perform after Bloomberg report that Ant Financial is said to plan end to partnership with Qudian

· SAFM -4%; after its weaker-than-expected 3Q report; 3Q results reflect “significant counter-seasonal weakness in market prices for boneless breast meat produced for food service customers,” as per the company

 

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