Monday, October 1, 18
U.S. stocks jump to start the week, month and quarter, with the Dow Industrials rising more than 250 points in the early going, led by gains in industrials and financials after trade fears ease. Late last night, just before a deadline was set to arrive at midnight local time Sunday, the U.S. and Canada agreed on a new trade deal with Mexico that replaces the North American Free Trade Agreement (NAFTA), which will be known as the US-Mexico-Canada Agreement (USMCA. The news has eased selling pressure on shares of autos, auto suppliers, transports, and dairy stocks. In other corporate news, GE shares jumped after a management shake-up as CEO is replaced (though company issues profit warning), while TSLA shares jump after CEO Elon Musk announces settlement with the SEC. Again no fear in the market as the CBOE Volatility index slips on the day with stocks surging (S&P, Dow Industrials and NASDAQ all not far from their all-time highs). The dollar is mixed, Treasury yields rise and oil extends gains.
Treasuries, Currencies and Commodities
· In currency markets, the US dollar index (DXY) trading little changed overall (95.10), falling about -0.75% to 1.2815 (overnight lows 1.2787) vs. the Canadian dollar and also slips vs. the Mexican peso after new trade agreement news overnight, drops to lows below 1.28, though the greenback gains modestly vs. the euro and yen
· Commodity prices are mixed as gold prices slip early (but have since pared losses off the lows) given the rebound in the dollar as gold and silver have been in downtrend); oil prices different story, with Brent back at fresh 4 ½ year highs on continued Iran sanction concerns (impact to supply) – oil prices surged last week, posting returns of 3.5% for the week and tacking on about 5.5% for the quarter.
· Treasury markets slip as yields move higher after an agreement between the U.S. and Canada to revise the North American Free Trade Agreement pushed stocks higher as they fled defensive related assets (bonds, gold slide); the 10-year yield moved back up to 3.07%; economic data mostly in-line with consensus this morning not moving the needle for bonds
· ISM Manufacturing for Sept falls to 59.8, just below the 60.0 estimate while falls vs. the 61.3 last month; new orders fell to 61.8 from 65.1 last month, employment rose to 58.8 vs 58.5 and inventories fell to 53.3 vs 55.4; prices paid fell to 66.9 vs 72.1
· Construction Spending for August rose 0.1%, missing the 0.4% estimate while July was revised to 0.2% gain from 0.1%; Private construction fell 0.5% in Aug., third straight month of decline while private residential construction fell 0.7% and private nonresidential construction fell 0.2%
· IHS Markit Economics said U.S. manufacturing purchasing managers’ index for September rises to 55.6 from 54.7 in Aug (vs. year ago 53.1) and was highest reading since May 2018
Sector Movers Today
· Semiconductors; AMD was downgraded to neutral at Baird saying most good news is already priced in; Deutsche Bank downgraded equipment stocks AMAT/LRCX to hold saying the sector lacks positive catalysts, while upgraded ENTG to buy; Mizuho downgraded both LRCX and WDC and cut tgts along with STX), while remains positive on MU after an Asia trip, noting that NAND ASP pricing will continue to decline at a low-double digit rate through the first quarter and a high-single digit rate through 2019; Barclay’s downgraded INTC to underweight saying end-market tailwinds “are likely to reverse (tgt cut to $38) while raised AMD tgt to $25; HIMX upgraded to buy at Roth Capital as believe HIMX represents a differentiated investment opportunity as a diversified display and sensor semiconductor vendor.
· Hardware & Component news; VIAV upgraded to buy at Deutsche Bank and raise tgt to $14 saying FY19-20 are likely early inflection point years, in our view, for 5G and Fiber to X Broadband Services and network roll-outs; INFN shares fall after MKM downgraded to sell and cut tgt to $5 from $10 saying checks indicate Infinera has all but lost its largest customer CTL to CIEN because of concerns with its ability to produce new leading edge DSPs (digital signal processors) every 18-30 months; FFIV was downgraded to underweight at Piper based on 8 factors (demand trends, the software-transition, competition, SD-WAN, capital return, estimate risk, valuation, and that the stock is overbought; ROKU tgt raised to $85 at Needham
· Transports; UPS was upgraded to outperform at BMO Capital with $128 tgt as believe risk/reward is attractive for investors with a medium-term horizon; RYAAYcut its profit guidance for the year due to rising oil prices, strikes and staff compensation costs/sees EU1.10B-EU1.2B from prior forecast FY19 profit of EU1.25B – EU1.35B; Stifel cuts REVG to hold to reflect near term headwinds, listed below, that are likely to persist for a couple or few quarters in many cases, in addition to the recent appreciation in its stock price, now about $3 off its low
· Biotech movers; REGN and SNY won U.S. FDA approval for their first immuno-oncology drug; SGEN & Takeda Pharma phase 3 ECHELON-2 clinical trial met its primary endpoint, demonstrating a statistically significant improvement in progression-free survival of ADCETRIS in combination with CHP; VKTX reported positive results in a mid-stage trial of a treatment for VK5211 for broken hips; AVEO announced analysis of topline data from the Phase 3 TIVO-3 trial evaluating FOTIVDA (tivozanib) compared to Bayer’s NEXAVAR; INSM said the FDA has granted accelerated approval of ARIKAYCE for the treatment of Mycobacterium avium complex lung disease
· DVA +5%; California’s governor Jerry Brown vetoed a state bill that would have curbed premium assistance to dialysis patients to steer them toward more costly insurance.
· GE +15%; bounces off decade lows after they replaced their CEO Flannery with Lawrence Culp (formerly CEO of DHR 2000-14), while company did say it will miss previously provided guidance for free cash flow and earnings per share in 2018
· KSU +2%; leads transports higher, getting a lift from new trade agreement with Canada/US
· MGA +6%; as autos and auto suppliers rally in reaction to the new trade deal with Canada
· REGN +1%; on FDA approval Libtayo (cemiplimab) for patients with metastatic or locally advanced cutaneous squamous cell carcinoma (cSCC)
· PX +4%; Linde AG said on Sunday that it had received approval for its proposed $83 billion merger with Praxair (PX) from the Chinese antitrust authorities
· TLRY +14%; High Park Farms gets sales license from Health Canada to sell cannabis under the Access to Cannabis for Medical Purposes Regulations
· TSLA +15%; as the SEC reached a settlement of fraud charges with Elon Musk, CEO and chairman and with the company that forces Musk’s removal as chairman of the Tesla board for three years and the payment of $40M in penalties, $20M by Musk personally and $20M by Tesla
· XEC +2%; as energy stocks outperform on rising oil prices
· AKRX -53%; after a Delaware judge ruled Fresenius SE had proper grounds for canceling a $4.3 billion buyout of the rival drugmaker and needn’t consummate the deal
· CALM -9%; after missed Q1 earnings and sales estimates and said lower prices may be coming as there will be more chickens to lay eggs (downgraded at Stephens)
· CMG -1%; downgraded to underperform at Oppenheimer on valuation, noting shares are up 82% and has been upgraded 10 different times by the Street, since the announcement of its new CEO
· INFN -13%; MKM downgraded to sell and cut tgt to $5 from $10 saying checks indicate Infinera has all but lost its largest customer CTL to CIEN because of concerns with its ability to produce new leading edge DSPs
· RYAAY -15%; cut its profit guidance for the year due to rising oil prices, strikes and staff compensation costs; cuts full year profit view to EU1.10B-EU1.2B from prior forecast FY19 profit of EU1.25B – EU1.35B
· TRUP -7%; mentioned cautiously in Barron’s saying while shares are down to $35.73 from $46 in midsummer, they remain up by more than 270% from March 2016 levels, and appear overvalued
· WYNN -2%; broad weakness in casino/gaming space
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.