Mid-Morning Look: September 20, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Thursday, September 20, 2018

U.S. stocks surge to start the day as the Dow Industrials trade to new all-time intraday record highs, surging another 200 points (taking out the January 26th record closing high of 26,616), the S&P 500 trades above its all-time best of 2,916.50 on 8/29 and the Nasdaq opens strong, rising over 50 points and reclaims the 8,000 level as market fear remains non-existent. This huge stock run has come in the face off Brexit uncertainty as UK/EU at odds over sticking points, global trade fears as China/US announced additional tariffs this week and ahead of the FOMC rate decision next week, where a 25 bps hike is expected. The yield on 10-year Treasuries climbed, trading well above 3% (3.09%) and approaching its high for the year. The greenback weakened after a report said the U.S. and Canada are unlikely to reach a deal on Nafta in Washington this week – falling broadly. Stocks have been buoyed by strong corporate earnings results and better economic data showing the US on firm footing (lots of data this morning reinforcing US strength). Fear index plunges further as the CBOE Volatility index (VIX) slides back to lowest levels since early August. An additional rally in financial stocks (led gains yesterday as well after lagging this year), given the spike in yields is also helping broader markets.

Treasuries, Currencies and Commodities

· In currency markets, the dollar under broad selling pressure, falling vs. major currencies such as the euro and Pound (dollar index slides -0.6% to move below the 94 level, first time since mid-July); the Pound moves to best levels vs. the dollar (1.3298) since mid-July as well following upbeat U.K. retail-sales data, despite signs a Brexit compromise still remains far away. The dollar falling broadly vs. emerging markets as well; falls to 1.29 vs. Canadian loonie

· Commodity prices extend recent gains as gold prices get a boost on the pullback in the US dollar (despite expectations of another Fed rate hike next week); meanwhile, oil prices are little changed, but WTI crude holding above $71 per barrel after its recent surge

· Treasury markets are steady, with yields holding at recent elevated levels across the board; the 10-year yield touched 4-month highs of 3.09% earlier before paring gains, the 2-yr yield holding above 2.8% and the 30-yr yield above 3.2%, rising more than 10 bps over the last week

Economic Data

· Weekly Jobless Claims fell 3K to 201K, beating the 210K estimate while prior week unrevised at 204K; the 4-week moving average slipped by 2,250 to 205,750, a fresh 49-year low; continuing claims fell 55K to 1.645M in the latest week

· Philadelphia Fed Index for Sept rises to 22.9 from 11.9 in the prior month and topping the 18.0 estimate; Sept. prices paid fell to 39.6 vs 55.0, while new orders jumped to 21.4 vs 9.9 prior and employment rose to 17.6 from 14.3; shipments rose to 19.6 vs 16.6

· Existing-Home Sales for August were unchanged at 5.34M, slightly missing the 5.37M estimate after falling 0.7% prior month; there was 4.3 months’ supply in Aug. vs. 4.3 in July; said inventory unchanged 0% to 1.92M homes; median home price rose 4.6% from last year to $264,800

· The 30-Yr Fixed Mortgage Rate rose to 4.65% this week from 4.6% according to Freddie Mac; the 15-year rate avg 4.11%, up from 4.06% a week earlier

Sector Movers Today

· Industrial & Machinery; CAT, MTW and SNHY all upgraded to outperform from neutral at RW Baird on a combo of good fundamentals and inexpensive valuation/notes steel prices have started to roll over with OEMs enacting outright price increases (the three aforementioned names along with Deere) instead of surcharges likely to benefit; GE another negative mention at JPMorgan as cut tgt to street low $10 saying the impact on ’asset value’ from a failure at GE’s US H-frame launch customer, while tough to estimate, represents a negative development

· Software mover; RHT fell after its Q3 revenue forecast came in below estimates (87c/$848M-$856M vs. est. 92c/$862.7M); posted Q2 adjusted EPS at 85c beat, while $823M in revenue fell short of estimate; IQV announced the expansion of its alliance with CRM to build a clinical solution for life sciences on Salesforce Health Cloud; in security software, FTNT downgraded to neutral at Bank America primarily on valuation risks

· Media & Telecom movers; LYV’s Ticketmaster is accused of colluding with scalpers, and collecting double fees in the process, in a weeks-long investigation published by CBC and the Toronto Star https://bit.ly/2MLd4ps ; VIAB was upgraded to outperform at Macquarie saying the co has made some impressive investments in data and technology that will drive growth in TV advertising; IPG was also upgraded to outperform at Macquarie

· Drilling stocks; RBC Capital positive on offshore drilling stocks saying they are poised to outperform the Oil Service ETF (OIH) over the next 12 months, as sees definitive improvements in offshore activity increases and company commentary is pointing to a resumption in offshore spending (upgrades DO, NE, RDC, RIG to outperform from sector perform) – note RIG shares up nine of last ten days with two analyst upgrades this week and two positive buy initiations

       Stock GAINERS

· CRON +5%; after announcement of the start of a joint study with Aleafia Health evaluating medical cannabis to improve the management and treatment of insomnia and daytime sleepiness

· DRI +4%; Q1 EPS beat by 10c, on better revs of $2.06B and Q1 comp sales rose 3.3%, topping the 2.1% estimate/also boosted its EPS view

· GALT +13%; after the company said that combining its therapy, GR-MD-02, with MRK’s Keytruda, appeared to have better results for patients with advanced melanoma than Keytruda alone

· MLHR +9%; as reported Q1 EPS and revenue above consensus views and mid-point of Q2 sales view $635M-$655M topped estimates of $639M

· MU +4%; positive mention at Bank America (ahead of earnings tonight) saying sees stable DRAM ASP, solid demand for server DRAM, and record high profits sustainable

· UAA +5%; raised low end of Q3 EPS to 16c-19c from 14c-19c while said to cut about 3% of jobs/sees added $10M in charges

Stock LAGGARDS

· BRKR -8%; downgraded to underweight at Morgan Stanley as specific leading indicators continue to decelerate/see 9% downside to consensus ’20 revenue

· CRSP -5%; filed to sell $200M in stock

· LLL -2%; defense stocks weak (NOC, RTN, LMT, LLL) after Bernstein said a proposed change to Defense Federal Acquisition Regulation (DFAR) could significantly reduce progress payments to large defense contractors

· RHT -7%; after its Q3 revenue forecast came in below estimates (87c/$848M-$856M vs. est. 92c/$862.7M); posted Q2 adjusted EPS at 85c beat, while $823M in revenue fell short of estimate

· SFIX -10%; cut to neutral at Piper saying emergence of Amazon Prime Wardrobe as a competitor and rising customer acquisition costs are two of the threats that Stitch Fix faces

· SKK -5%; downgraded to market perform at Cowen and cut tgt to $28 from $32 saying Street estimates are too high going into Q3 eps where they expect weak Q4 guidance

· SSW -9%; downgraded to hold at Deutsche Bank and cut tgt to $9 citing recent strong performance of the shares and increased risk from the trade war between China

· THO -11%; as 4Q EPS and gross margin missed lowest street estimates, posting a sales drop of 3% in FQ4 and a profit decrease of 19% citing raw material and commodity-based component inflation from the steel and aluminum tariffs as a drag on profit (comps WGO, LCII, CWH) and also warns that it has “more work to do” in FY19 and 1H FY19 faces tougher y/y comparisons

Syndicate

· Bank7 (BSVN) 3.4M share IPO priced at $19.00

· Elanco (ELAN) 62.9M share IPO priced at $24.00

· Eventbrite (EB) 10M share IPO priced at $23.00

· Kosmos (KOS) 9M share Block Trade priced at $9.10

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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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