Mid-Morning Look: September 27, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Thursday, September 27, 2018

U.S. equities in rebound mode to start the day, led by a strong push in technology shares as the Nasdaq Composite rises as much as 0.8%, while the S&P 500 and Dow look to recover after yesterday’s late day decline (and snap the S&P 4-day slide). Yesterday, Fed Chairman Powell sent a message of a strong growth and stable inflation, while raising interest rates for the 3rd time in 2018 (and another one expected in December). The dollar is rebounding, while gold drops to multi-month lows and Treasury yields hold steady after slipping from 5-month highs last week. Economic data was mixed as Q2 GDP was unrevised at 4.2%, while jobless claims rose and pending home sales fell. European markets rebound from earlier lows despite volatility in Italian assets amid last-minute political conflicts over the budget. Food, retail and cruise lines stock weaker after earnings results (BBBY, MKC, CAG, CCL) while healthcare, financials and technology shares rebound.

Treasuries, Currencies and Commodities

· In currency markets, broad gains in the dollar, in the index (DXY) rising 0.5% (highs of 94.76) after recent weakness, getting a boost after the FOMC went ahead with its 3rd rate hike of 2018 yesterday (and forecasts another one this year) – while economic data was mixed today; Argentina’s peso neared record lows again, finding little support despite the IMF agreeing late last night to lend the country an extra $7.1B – but reversed later to the upside; the Japanese yen tops the 113 level, euro and Pound decline

· Commodity prices; gold prices sink, trading down around $10 to below $1,290 an ounce as the dollar rebounds and FOMC boosted rates yesterday (as expected) with a very positive outlook on the economy; nat gas prices spike after bullish data – smaller weekly build in stockpiles of 46 bcf vs. est. 61 bcf; oil prices resume upward momentum as WTI crude back above $72 per barrel

· Treasury markets little changed after yields dropped around 4 bps on Wednesday after FOMC meeting results (pullback after surge into rate hike increase expectations which were confirmed yesterday); the 10-year yield at 3.06%, 2-yr yield up around 2.83%

Economic Data

· U.S. Q4 GDP growth unrevised at 4.2% rate, in-line with expectations and compared to the second est. of 4.2%; note GDP rose 2.2% in prior quarter. Personal consumption rose 3.8% in 2Q after rising 0.5% prior quarter while GDP price index rose 3.0% in 2Q after rising 2.0% prior quarter. Core PCE q/q rose 2.1% in 2Q (vs. est. 2%) after rising 2.2% prior quarter

· Weekly jobless claims rise 12K to 214K in the latest week and was above the 210K estimate, highest level since early August; the 4-week moving average rose 250 to 206,250; number of people already collecting unemployment benefits rose 16,000 to 1.66 million

· Durable Goods Orders for August rise 4.5% to a 6-month highs, topping the 2.0% estimate as durable goods new orders revised up to -1.2% for July from -1.7%; new orders ex-trans. rose 0.1% in Aug. after 0.2% rise and new orders ex-defense rose 2.6% in Aug. after 0.6% fall; Orders for core capital goods fell 0.5% in August; shipments of these goods rose a slim 0.1%

· Advanced goods trade deficit for August widened to (-$75.8B) from (-$72.0B) in prior month and above the est. (-$70.6B); imports rose 0.7% in Aug. to $213.742B from $212.246B in July, while exports fell 1.6% in Aug. to $137.912B from $140.199B in July

· Pending home sales for August fell (-1.8%) MoM vs. est. down (-0.5%) as the Northeast fell 1.3%, Midwest fell 0.5%; West fell 5.9%; marked 4th monthly decline in the last five

· The 30-year fixed mortgage rate for week rose to 4.72% from 4.65%, Freddie Mac said; the 15-year rate avg 4.16%, up from 4.11% a week earlier; the 30-year rate highest since April 2011

Sector Movers Today

· Casino & Leisure movers; cruise lines weakened after CCL Q3 earnings and revs topped estimates but guided Q4 EPS 65c-69c, below 73c estimate (shares of NCLH, RCL moved in sympathy); in gaming, Nomura initiated VICI buy and $29 tgt and named top pick with a buy on MGP and $37 tgt and neutral on GLPI;casino stocks were weaker as well in leisure

· Consumer Staples; in food, CAG shares dropped after earnings/sales miss estimates, as organic sales only increased 1.2% in FQ1 off of flat volume/guides Q2 EPS below views; in grocers, Morgan Stanley said incrementally more cautious on KR as meaningfully lower their EBIT and EPS forecasts, which are now well below consensus and include ~50 bps of cumulative EBIT margin contraction from ’19-’23e; KDP to buy enhanced water company CORE Nutrition for $525M https://on.mktw.net/2Ij2MMx ; MKC mixed Q3 results as EPS beat by a penny while sales just shy of estimates while slightly boosted its year EPS view; in tobacco, PM said it sees IQos in-market-sales almost doubling in 2018

· Consumer finance and lending; Deutsche Bank said FLT may be a potential buyer of WU’s business-payments arm, after Bloomberg reported that Western Union is said to weigh a sale of the unit; BMO Capital initiated spend-centric payment stocks with Visa (V) and WP top picks as recommend buying stocks that 1) offer upside potential for respective valuation multiples as determined by expected revenue growth, and 2) have the potential to surprise positively relative to revenue growth forecasts; WIX trades to record highs after SunTrust raised its tgt to $145 as firm survey showed that many website designers/creators have heard of and like the company’s Wix Code product

· Healthcare services and providers; ATHN shares active after CNBC reported that the company has received multiple bids and the bids are not seen as being far above the current stock price of $131 https://cnb.cx/2Im5roQ ; Baird noted the House and Senate negotiators recently announced compromise legislation to address the nation’s opioid epidemic and firm feels the final legislation includes a number of provisions that they believe will be positive for several of our covered companies over time, including TRHC, MDRX, UHS, ACHC, TDOC, and HMSY

· Tanker sector; BTIG initiates group with cautious near-term outlook, but the negative rate view is “already in the stocks” – says OPEC’s decision to boost production is positive and should aid rates during winter, but BTIG’s concern is these cargoes are “more replacement than growth (top picks EURN and STNGand neutral on FRO and NAT)

        Stock GAINERS

· AAPL +2%; initiated overweight and $272 tgt at JPMorgan as still see considerable upside to the stock from current levels

· ACHV +53%; after the clinical-stage pharmaceutical company announced positive results from a study of its smoking cessation drug

· CCJ +16%; after Tax Court of Canada has ruled in favor of the company in its dispute of the reassessments issued by Canada Revenue Agency (CRA) for the 2003, 2005 and 2006 tax years (upgraded at BMO with C$16 tgt on news)

· CRM +1%; tgt was raised by several analysts after management provided an upbeat set of presentations at yesterday’s analyst meeting

· CYBR +5%; upgraded to overweight at Morgan Stanley and raised tgt to $92 from $71 stating that near-term demand is strong as Privileged Access Management, becomes more broadly adopted

· WCG +4%; after AET said it plans to sell its Medicare prescription-drug business to WCG, a key step toward completing its $67.5B merger with CVS


· AAOI -12%; was downgraded to sell from hold at Loop Capital and cut tgt to $20 from $45 as industry checks suggest the company is having product quality issues in 100G CWDM4 transceivers and that the pricing environment for 100G data center optics remains very tough

· AMD -1%; downgraded at Northland saying that sentiment is somewhere between “optimistic and euphoric” as investors overestimate the rate of change in the company’s financials

· BBBY -22%; plunges to lowest levels since 2008 as reported another disappointing quarter as Q2 was well below expectations and included its weakest GM in years, while comp sales fell -0.6%, tracked in line with past quarter trends but worse than expected

· CAG -5%; after earnings/sales miss estimates, as organic sales only increased 1.2% in FQ1 off of flat volume/guides Q2 EPS below views

· CCL –6%; Q3 earnings and revs topped estimates but guided Q4 EPS 65c-69c, below 73c estimate (shares of NCLH, RCL moved in sympathy)

· FUL -6%; after Q3 adjusted EPS 86c/$770.1M vs. est. 90c/$784.84M; lowers FY18 EPS to $3.05-$3.20 from $3.15-$3.40 vs. est. $3.23

· GERN -68%; as JNJ said it will end a licensing partnership and return rights to the biotech company’s sole product candidate


· Arvinas (ARVN) 7.5M share IPO priced at $16.00

· BJ’s Wholesale (BJ) 28M share Secondary priced at $26.00

· Kimbell Royalty Partners (KRP) 3M share Spot Secondary priced at $19.00

· LAIX (LAIX) 5.75M share IPO priced at $12.50

· PetIQ (PETQ) 5M share Secondary priced at $39.00

· Ra Medical Systems (RMED) 3.9M share IPO priced at $17.00

· Sutro Biopharma (STRO) 5.667M share IPO priced at $15.00

· Urovant Sciences (UROV) 10M share IPO priced at $14.00


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