Mid-Morning Look: August 29, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Wednesday, August 29, 2018

U.S. equities are mostly higher, led by a gain in technology following strength in Internet and software stocks. The S&P 500 Index holding near the 2,900, a level it first breached Tuesday, as Amazon.com and Alphabet rose following an upbeat report from Morgan Stanley. The tech strength has also pushed the Nasdaq Composite to record intraday highs as both indexes are looking to make it a 4th straight day of record levels. Stocks have also been boosted by trade this week after the U.S. agreed to a new deal with Mexico and hopes that a deal with Canada will happen this week. Economic data showed strength in the American economy as GDP was revised higher for Q2 to 4.2%, lifting the dollar early before paring gains, while Treasuries roll sending yields higher. Retailers weaker this morning after earnings/or guidance from DKS, MOV, AEO, CHS weighed on the names/sector.

Treasuries, Currencies and Commodities

· In currency markets, the US. Dollar was up slightly after the stronger than expected Q2 GDP report, only to have pulled back from overnight highs, with the euro little changed around the 1.17 level, but falling vs. the British Pound which moved up about 0.7% at 1.2963 after the EU’s chief Brexit negotiator Michel Barnier indicated that he was close to offering the UK a deal

· Commodity prices are mixed with oil prices edging higher along with mixed inventory data (API and EIA), while gold prices pare recent gains. Overnight the API said U.S. crude supplies barely budged for the week climbing 38,000 barrels; this morning, the EIA posted weekly draw in stockpiles of -2.56M barrels vs. est. draw -1.487M barrels

· Treasury markets roll to lows as yields jump; the 10-yr yield moves above 2.89% and 2-yr at 2.675%; the 30-yr yield edges higher at 3.04%; mixed economic data as GDP for Q2 came in above expectations, though markets received another negative housing report

Economic Data

· Gross domestic product expanded at a 4.2% annual pace in Q2, up from a preliminary estimate of 4.1%, the government said (GDP rose 2.2% in prior quarter); personal consumption rose 3.8% in 2Q (vs. est. 3.9%) after rising 0.5% prior quarter, GDP price index rose 3.0% in 2Q (in-line w/est.) after rising 2.0% prior quarter and core PCE q/q rose 2.0% in 2Q after rising 2.2% prior quarter and was in-line with estimates. Nonresidential fixed investment, or spending on equipment, structures and intellectual property rose 8.5% in 2Q after rising 11.5% prior quarter

· Pending Home Sales for July fell (-0.7%) MoM, missing the up 0.3% estimate; sales were up in the Northeast and Midwest but fell in the South and West; unadjusted pending homes fell 0.5% y/y after falling 4% y/y in June

Sector Movers Today

· Retailers; in apparel, AEO shares fell on mixed results as a softer Q3 EPS outlook (45c-47c vs. est. 49) and a miss in Aerie total brand comp sales for Q2 (27% vs. 29.9%) overshadowed a Q2 revs, margin and overall comp beat; EXPR posted Q2 beat & raise 2Q report while CHS Q2 sales of $544.7M slightly beat estimates and Q2 comp sales of (-3.2%) fell less than the (-4.7% est.); TLRD announced its President and COO Bruce Thorn resigns as becomes CEO of BIG; SCVL 2Q report beats on both earnings and revenue while raises its year outlook to $2.07-$2.15 from $1.90-$2.05 (est. $2.05) and ups year rev view as well

· Auto sector; Morgan Stanley positive on KMX calling it top pick for dealers (OW and $89 tgt) as the directionality of numbers to improve on easier comps; Longbow said they are incrementally more bullish on LEA and APTV’s electrification content per vehicle (CPV) growth opportunities and see future backlog announcements as a positive catalyst for each stock; group has bounced this week on trade deal between Mexico/US and hopes that Canada deal will be reworked

· Consumer finance and lending; SQ tgt was raised to $100 from $75 at Guggenheim and added it to its best idea list following a meeting with the CFO saying the optimism is on Cash App’s future revenue potential, which is underappreciated; PYPL tgt raised to $110 from $100 at Jefferies saying that Venmo monetization is not the only important growth driver for the company as believe core P2P and mobile trends – which have been impressive – should be followed more closely alongside the Venmo success

· Metals & Materials; in gold miner sector, Citigroup said they remain Neutral on the North America gold sector acknowledging that gold price risk is skewed to the upside, but still struggling to see compelling value. Gold miners are cheaper than they were a few weeks ago, but so is the entire mining sector – said they prefer copper miners which offer superior growth/FCF options, while they upgraded ABX to neutral given the ~30% fall YTD and no compelling bear case

       Stock GAINERS

· AFMD +22%; adds to yesterday’s 246% spike after announced a collaboration with Genentech to develop novel NK cell engager-based immunotherapeutics for multiple cancer targets

· AMZN +1%; as Morgan Stanley raises tgt to Street high $2,500 as see AMZN’s rapidly growing, high margin revs allowing it to continue to invest while also generating higher profits

· BLDP +5%; signed a deal with China’s auto engine maker Weichai Power where Weichai to make an equity investment of $163M, or about a 20% stake in BLDP

· GKOS +37%; after NVS said its Alcon unit decided to voluntarily withdraw its competing CyPass MIcro-Stent from the market due to lack of efficacy

· SCVL +10%; as raises FY18 EPS view to $2.07-$2.15 from $1.90-$2.05 (est. $2.05) and raises FY18 revenue view after strong Q2 EPS/sales beat

· SPHS +31%; investigation conclusion of its Phase 2B trial for Topsalysin that the cause of death was determined to be Sudden Cardiac Death most likely due to an arrhythmia, not related to treatment

· TLRY +17%; after earnings as Q2 revenue topped estimates as production doubled

· TSM +3% after competitor Globalfoundries said it’s dropping development of 7-nanometer technology; TSMC is set to benefit from gaining share in AMD orders, Credit Suisse said


· AEO -12%; as a softer Q3 EPS outlook (45c-47c vs. est. 49) and a miss in Aerie total brand comp sales for Q2 (27% vs. 29.9%) overshadowed a Q2 revs, margin and overall comp beat

· BOX -9%; better revenue upside was marred by a slight guide down for 3Q and pushed out the $1B target (now $1+ billion in FY22) that now implies a high teens to low 20% CAGR through FY22

· DKS -7%; Q2 net sales of $2.18B missed the $2.23B estimate and comp sales fell (-1.9%), more than expected, though year EPS view of $3.02-$3.20 mid-point beat the $3.09 est.)

· MOV -14%; after results and guidance disappoint market

· ROKU -2%; following a report by The Information that Amazon’s IMBD subsidiary is working on a free, ad-supported streaming service (possibly similar to The Roku Channel)

· UAA -4%; after DKS said in Q2 commentary that it “experienced continued significant declines in Under Armour sales as a result of their decision to expand distribution”


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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