Mid-Morning Look: September 10, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Monday, September 10, 2018

U.S. equities are edging higher to start the week, as the S&P 500 index and Nasdaq Composite look to snap 4-day losing streaks. The potential impact on Hurricane Florence which is making its way up the east coast is weighing on life insurers and some retailers/restaurants, while home improvement stocks HD and LOW advance. Telecom and real estate shares led the early market recovery as investors rotate into more defensive sectors/assets on trade/tariff concerns. Apple falls ahead of its product announcement on Wednesday after the company said late Friday the proposed China tariffs will boost prices for some of its consumer goods such as the Apple Watch and AirPods headphones. Not much regarding trade developments over the weekend after news last week President Donald Trump said the U.S. had tariffs ready to go on another $267 billion in Chinese goods, on top of tariffs on $200 billion in goods the administration is now preparing weighed on markets last week. The S&P 500 index dropped 1% last week, the Dow Industrials logged a weekly decline of 0.2% and the Nasdaq Composite underperformed, falling 2.55% for the week.

Treasuries, Currencies and Commodities

· In currency markets, British Pound jumps after the EU’s top Brexit negotiator Michael Barnier said it would be realistic for a deal to be forged by early November (6-8 weeks)/cable moved back above the 1.30 level following the headlines. The U.S. dollar has come under broad pressure following the reports that a Brexit deal remains a possibility as the dollar index (DXY) has fallen to 95.04 lows from 95.35 at the open, as Cable rallied over 1.305 from 1.2950, and EUR-USD picked up to 1.1616 from 1.1570. US dollar reverses early gains vs. the CAD, off highs of 1.3198 earlier

· Precious metals are again little changed, as gold prices continue to move back and forth at the $1,200 an ounce level over the last few weeks (had hit 18-month lows 3-weeks ago sub $1,200), as the dollar remains volatile given FOMC commentary on rates, strong economic data and weakness in emerging market currencies (Lira, Peso, Rand)

· Energy futures standout to the upside getting a boost from its biggest weekly loss in two months as speculation of a crude supply shortage overshadowed escalating trade tensions between the U.S. and China. WTI crude rises over 60c, trading back above the $68 per barrel level

· Treasury markets inch higher, sending yields lower, as stocks sell-off from overnight highs, with investors rotating out of riskier assets amid ongoing trade fears and into safety assets

Sector Movers Today

· Insurance; sector in focus, especially Property & Casualty names (AIG, ALL, TRV, CB) on expectations for losses from Hurricane Florence/high auto insurance coverage includes ALL, BRK/A (Geico), PGR and reinsurers include RE, RNR, AXS; Goldman Sachs more constructive on the life insurers due to more favorable fundamental trends, de-risking opportunities, and attractive valuations relative to historical levels and adds PRU to its conviction list, upgrades LNC to a neutral and downgrades TMK to a sell

· Utilities; Goldman Sachs upgraded DUK to buy on relative valuation, and upgrades PPL from Sell to Neutral mainly on higher expected valuation for its UK segment and less currency risk/firm downgrades AEP to Neutral as they assume lower multiples in our sum of the parts, and cut both WEC and AEE to sell – primarily on below consensus estimates, especially for 2019, and for relative valuation; Guggenheim upgraded AEP to buy and raised tgt to $77 from $64, as see an inflection point w/shares trading at an attractive valuation level vs. peers on conservative estimates and downgraded NI and NJR to neutral based solely on valuation – solid run and believe fundamentals remain very sound but these levels are becoming harder to justify

· Restaurants; restaurants DRI and TXRH both downgraded to neutral from outperform at RW Baird citing recent strength and recommends a more disciplined approach to buying in the short-term as many restaurant names begin to look extended; TXRH was also downgraded to neutral at Wedbush on valuation & increased risk to 2019 margin expectations; DIN was downgraded to outperform at Raymond James but raise tgt to $108 saying gains alter the risk/reward from here, though they see a higher probability for further upside

· Housing & Building Products; shares of HD, LOW, BECN, OC, GNRC among names active ahead of Hurricane Florence coming up the east coast; RH was upgraded to outperform at KeyBanc saying the pullback in shares presents a compelling buying opportunity, in our view, given the LT transformation of the gallery network and NT margin and merchandising initiatives; homebuilder HOV reported a narrower than expected Q3 EPS loss

       Stock GAINERS

· AKAM +2%; after upgrade to buy at Davidson with $93 tgt

· ECYT +4%; as the FDA accepts Endocyte’s rPFS as an alternative primary endpoint of the VISION trial in addition to OS/ alternative primary endpoints of the trial agreed to by the FDA are rPFSand overall survival

· EGL +4%; SAIC agreed to acquire rival government services contractor EGL for $1.5 billion, paying $40.44 per share in stock https://reut.rs/2x1AKRh

· FL +4%; upgraded to outperform as see brighter days are ahead for FL due primarily to 1) improvement in the Nike-brand assortment, 2) an alleviation of the Jordan-brand and 3) an alleviation of the headwinds in Europe

· FRED + 55%; after WBA said it will pay $165M to buy pharmacy patient prescription files and related inventory from 185 Fred’s pharmacies in 10 Southeastern states

· URI +4%; announced a deal to buy BlueLine Rental in a cash deal valued at $2.1 billion from private-equity firm Platinum Equity https://on.mktw.net/2N4MVH2

· WTW +5%; added to the S&P MidCap 400, replacing KLXI

Stock LAGGARDS

· AAPL -1%; warned that a list of proposed tariffs would affect many of its products and increase costs/Apple suppliers ADI, AVGO, TSM, CRUS, SWKS among those active after the comment

· ACOR -13%; as loses Appeals Court bid to revive Ampyra patents, Bloomberg reported

· ANTM -1%; and UNH both downgraded to neutral from buy at Citigroup as firm said taking a more selective view of the managed care sector into year-end/2019

· BABA -2%; Co-founder and Executive Chairman, Mr. Jack Ma, today announced his plan to step down on Sept 10, 2019 with current CEO, Mr. Daniel Zhang, succeeding him as Chairman

· CBS -2%; as Les Moonves will step down as CEO of CBS on sexual harassment allegations and National Amusement/CBS have arranged a standstill agreement where NAI will not attempt to recombine CBS and VIAB

· SNAP -1%; said its Chief Strategy Officer, Imran Khan, would step down

· TMK -3%; after being downgraded to sell at Goldman Sachs in life insurance call

· TXRH -3%; downgraded by two analysts (Baird and Wedbush) citing valuation from both

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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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