Mid-Morning Look: October 17, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Tuesday, October 16, 2018

U.S. equities in rally mode early, helped by a bounce in Europe as well (Italian markets on track for best day in about 5-weeks as EU budget clash continues), as market attention may turn to fundamentals after strong earnings results this morning from bank/brokers (MS, GS) and healthcare giants (JNJ, UNH). Major averages trying to get “right” technically as the Dow and S&P 500 now both firmly back above their 200-yday moving averages, though the tech heavy Nasdaq Comp continues to struggle with its level (currently stands at 7,508). Action overseas as the EU and the UK could still be weeks away from a Brexit deal, the bloc’s chief negotiator Michael Barnier warned today. Theresa May has urged her divided cabinet to “stand together” during Brexit talks. More tension between the U.S. and Saudi Arabia given missing journalist and trade woes with China remain. While earnings were generally solid, there were a few names hit hard today as housing/product stocks another warnings as JELD guides lower, restaurants active as DPZ warns of rising food costs and GWW guide hits industrials. Early on though, major U.S. averages up on average about 1% as defensive bonds slip, while the dollar bounces. Economic data was also favorable today with a better jobs, housing and production reports.

Treasuries, Currencies and Commodities

· In currency markets, the U.S. dollar bounces off earlier lows as economic data comes in strong (jobs data), lifting views of the economy, while the surge in stocks sends defensive currencies (Japanese yen , Swedish Franc) lower; the British pound moves back above 1.32 vs. the dollar amid ongoing Brexit hopes, while the euro slips back to little changed on the day

· Commodity prices; group mixed as energy prices are little changed (Iran sanctions coming in November and tensions between US and Saudi Arabia over missing journalist) are being offset by the bounce in the dollar off lows and inventory demand (big builds last week weighed on prices. Meanwhile, gold prices extend recent gains, trading above $1,230 an ounce

· Treasury markets pare recent gains, as yields move up across the board (modestly) as the 10-year above 3.17% 2-year 2.865% and 30-year 3.35% as stocks jump in both the U.S. and Europe

Economic Data

· Industrial Production for Sept rose 0.3% vs. est. 0.2% and after rising 0.4% in August (which was unchanged); Capacity utilization unchanged in Sept. at 78.1%; prior month unrevised; factory production rose 0.2% in Sept. after rising 0.3% in Aug.

· Home Builders’ Confidence in October rises to 68 vs. est. 66 and compares to 67 last month, according to NAHB/Wells Fargo; the present single family sales rise to 74 vs 73 last month, future single family sales rise to 75 vs 74 last month and prospective buyers traffic rises to 53 vs 49 MoM

· U.S. job openings (JOLTs) rose 59K to 7.136M in August, up from 7.077M in prior month; the Aug job opening rate (job openings as a % of total employment plus openings) 4.6% vs 4.5% prior month; Aug. pace of hiring3.9% vs 3.8% prior month

Sector Movers Today

· Bank movers; GS Q3 EPS and revenue top consensus handily as Q3 investment banking revenue $1.98B topped Bloomberg est. $1.75B, though Q3 FICC sales & trading revenue of $1.31B was below some estimates; MS shares bounce off 52-week lows after earnings results as Q3 EPS beat by 16c and revs of $9.87B topped views as 3Q FICC sales & trading revenue $1.18B and equities sales & trading revenue $2.02B (both above estimates); other bank earnings from regionals CMA and FHN today as well (FULT, HOPE, LTXB, UBNK report tonight)

· Pharma movers; Dow component JNJ Q3 EPS and sales narrowly top consensus while boosted its full-year earnings and sales outlook though said pricing pressure impacted all Ortho divisions; SPRO was downgraded to underperform and tgt cut to $9 at Bank America following a review of SPRO’s key pipeline assets; KALA submits a U.S. NDA for KPI-121, a topical product which could be the first FDA-approved product for temporary relief of dry eye disease symptoms; AMRN tgt raised to $25 at Citigroup saying the company’s heart drug Vascepa will be easy for primary care doctors to prescribe with potential sales of $3b by 2025; ACRS agreed to acquire global rights to AGN’s RHOFADE (oxymetazoline hydrochloride) cream 1% for $65M

· Managed care active after UNH posted quarterly beat and raise quarter with positive outlook for 2019 saying that “the current market consensus estimate for adjusted earnings per share captures our 2019 outlook, within a typically sized range.”(AET, WCG, HUM, ANTM active)

· Cannabis related stocks (TLRY, CRON, GWPH, CGC) shares volatile as Canada’s legalization of recreational marijuana use goes into effect Wednesday

· Refiners and Downstream; Jefferies with preview of sector as they believe will beat 3Q are EPD, where our EBITDA estimate is ~8% ahead of consensus, HFC, where we are 9% ahead on EPS and PSX where we are 8% ahead on EPS – firm upgraded OKE to buy after ~8% since mid-July despite a strong 2Q report; upped HFC to hold as expect strong 3Q and upgraded PSX to hold noting the company is the largest importer of Canadian crudes, capitalizing on the wide WCS differentials, and is well positioned with IMO 2020

       Stock GAINERS

· ADBE +6%; backs Q4 EPS view of roughly $1.87/$2.42B vs. est. $1.89/$2.42B; reaffirmed its 2018 sales and profit targets and said it expects revenue 20% higher for 2019

· CRY +8%; guided Q3 revs about $64M vs. est $61.8M, reflecting growth of ~47% over Q3 GAAP results LY and ~17% growth on a non-GAAP basis

· DVN +3%; estimates 3Q U.S. net production will be about 418,000 Boe per day, which exceeds guidance range, adjusted for the non-core asset sales, of 398,000 to 417,000 Boe per day.

· MS +4%; bounces off 52-week lows after earnings results as Q3 EPS beat by 16c and revs of $9.87B topped views as 3Q FICC sales & trading revenue $1.18B and equities sales & trading revenue $2.02B (both above estimates)

· OMC +5%; as Q3 EPS beat consensus by 3c on higher revs and operating profit

· RACE +6%; was added to Bank America US 1 list as continue to believe that Ferrari is an iconic asset, with strong growth prospects, making it attractively priced stock after recent sell-off

· SEND +12%; agreed to be bought by TWLO for $2 billion in an all-stock deal; at the closing, expected for the 1H’19, SEND holders will receive 0.485 TWLO shares for each share of SEND, which equates to $36.9 per share price based on closing price https://on.mktw.net/2OowI05

· UNH +4%; posted quarterly beat and raise quarter with positive outlook for 2019

Stock LAGGARDS

· BLK -4%; as more investors pulled out money from the asset manager’s institutional index funds in Q3 with the company’s iShares ETFs $33.67B in new money, down from $52.31B a year ago

· DPZ -3%; posted a 20c Q3 EPS beat but revs of $786M missed estimates and Q3 total system-wide domestic store comp. sales up 6.3% vs. est. up 6.5%

· ELF -9%; shares underperform as JPM said sell-through continues to decline

· GWW -12%; after Q3 sales missed views and reported EPS slumped 35% which included $139M of non-cash impairment charges

· IPHS -10%; as guided 2018 revs up 10%-12%, below prior view of 12%-14% and lowers 2018 Ebitda to up 3%-7% from prior 15%-17%

· JELD -20%; guided Q3 revs and EBITDA below views and cuts FY18 revenue growth view to 15%-17% from 16%-18% and cuts FY18 adjusted EBITDA view to $455M-$470M from $500M-$520M

· SPRO -18%; downgraded to underperform and tgt cut to $9 at Bank America following a review of SPRO’s key pipeline assets

· TWLO -7%; after acquisition of SEND overnight (details above)

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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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