Morning Preview: October 24, 2018

Terrie AmengualDaily Market Report

Early Look

Wednesday, October 24, 2018

U.S. futures are pointing to a much weaker open, with Dow futures falling more than 200 points before paring losses, putting the S&P 500 index on track for its 6thstraight daily loss and is off nearly 6% so far in October. The Dow Industrial Average is set to decline for a third straight day and has declined 4.8% thus far this month. The Nasdaq Composite has experienced a particularly volatile stretch among its peer benchmarks, falling 7.6% thus far in October. Rising rate hike fears, China’s recent stock market troubles and political drama in Europe surrounding Italy’s budget with the European Union as well as the UK’s efforts to leave the trade bloc has also hurt investor sentiment. European equities brush off weaker flash PMIs which underscored the growing impact of trade wars and tariffs. Brent crude oil dropped to near $75 a barrel, extending a sell-off since early this month to more than 13% as Saudi Arabia’s promise to keep raising oil output. The pound was under pressure, falling to a six-week low as markets remain on edge for new developments on the Brexit front. The euro slipped morning after a bout of disappointing data on the Eurozone’s two largest economies. The Bank of Canada is expected to raise rates today, while the ECB meeting is tomorrow.

It was a wild ride for U.S. stocks on Tuesday, with major averages closing lower, but well off their worst levels, but the S&P 500 finished lower for the fifth straight day. Industrial stocks led the declines following weaker outlooks from Dow components 3M and Caterpillar, adding to market concerns that rising material costs, tariff prices could erode profit margins. In big bright spot, shares of Dow components McDonald’s, Verizon and UTX advanced after better results.

In Asian markets, The Nikkei Index rose 80 points to 22,091, the Shanghai Index ended higher by 8 points closing at 2,603 in volatile trading while the Hang Seng Index fell -96 points to settle at 25,249. In Europe, the German DAX is higher by about 30 points above 11,300, while the FTSE 100 is up around 50 points moving back above the 7,000 level. There are a few Fed speakers today with Mester and Brainard speaking, along with a few economic data points in the U.S.

Market Closing Prices Yesterday

· The S&P 500 Index dropped -15.19 points, or 0.55%, to 2,740.69

· The Dow Jones Industrial Average fell -125.98 points, or 0.50%, to 25,191.43

· The Nasdaq Composite slumped -31.09 points, or 0.42%, to 7,437.54

· The Russell 2000 Index declined -12.91 points, or 0.84% to 1,526.59

Events Calendar for Today

· 7:00 AM EST MBA Mortgage Applications Data

· 9:00 AM EST FHFA House Price Index MoM for Aug…est. 0.3%

· 9:45 AM EST Markit US Manufacturing PMI, Oct-P…est. 55.3

· 9:45 AM EST Markit US Services PMI, Oct-P…est. 54.0

· 10:00 AM EST New Home Sales MoM for Sept…est. 625K

· 10:30 AM EST Weekly DOE Inventory Data

· 1:10 PM EST Fed’s Bostic speaks at Energy Summit in Baton Rouge

· 1:10 PM EST Fed’s Mester speaks in New York

· 2:00 PM EST Fed Beige Book released

Earnings Calendar:

· Earnings Before the Open: AB, ALXN, APH, BA, BCS, BKU, BSX, CHKP, DB, EVR, FCX, GD, HLT, IR, ITW, NDAQ, NSC, NYCB, OC, SIRI, SLAB, STM, T, TMO, TUP, UPS.

· Earnings After the Close: AFL, AGNC, AHL, AMD, ARI, BHE, CCMP, CLB, CLGX, DRE, ELY, F, FFIV, FTI, FWRD, KN, KNX, LM, LSTR, NOW, MLNX, PKG, PLXS, PTC, RJF, UNM, V, WHR, XLNX

World News

· In an interview with The Wall Street Journal, President Trump said: “Every time we do something great”, Fed Chairman Powell raises interest rates. Trump added that while he respects the Fed’s independence, he “maybe” regrets nominating Powell as the head of the FOMC. The president sees the Fed as “the biggest risk” to the economy “because rates are being raised too quickly

· Secretary of State Mike Pompeo said the U.S. is revoking visas for some of the Saudi officials responsible for the death of Washington Post journalist Jamal Khashoggi at the Saudi consulate in Istanbul. He didn’t say how many visas were being revoked as he said the U.S. was looking into using its Global Magnitsky Act powers to sanction them

· Sweden’s central bank confirmed its intention to raise interest rates either this December or in February 2019, but signaled that it won’t rush to lift the key policy rate into positive territory.

· The euro-area composite PMI tumbled to 52.7 in October from a prior 54.1, well below expectations. The manufacturing and services gauges also slumped.

· At least one ticket matched all six numbers in the Mega Millions jackpot Tuesday night, which carried a record pot of $1.6 billion. The winning numbers drawn late Tuesday were 5, 28, 62, 65, 70 and Mega Ball 5. One ticket in South Carolina matched those six numbers, the lottery’s website reported late Tuesday

Sector News Breakdown

Consumer

· Owens Corning (OC) Q3 adjusted EPS $1.54/$1.8B vs. est. $1.65/$1.89B; lowers 2018 adjusted EBIT view to $855M from $925M-$975M

· Hawaiian Holdings (HA) Q3 adjusted EPS $1.91/$759.09M vs. est. $1.77/$762.62M; 3Q PRASM 13.04c; 3Q capacity +8.1%; sees year effective tax rate 21% to 23% as a result of Tax Cuts and Jobs Act and discretionary contributions to defined benefit and other postretirement plans

· iRobot (IRBT) Q3 EPS $1.12/$264.5M vs. est. 47c/$245.11M; raises FY18 EPS view to $2.55-$2.75 from $2.30-$2.50 and raises FY18 revenue view to $1.08B-$1.09B from $1.06B-$1.08B

· Noodles & Company (NDLS) Q3 EPS 4c/$116.7M vs. est. 4c/$114.76M; reports Q3 comp sales rose 5.5% system-wide; sees FY18 EPS 1c-4c on revs $457M-$460M vs. est. 3c/$455.86M; sees FY18 systemwide comparable restaurant sales of up 3.5% to 4.0%; filed to sell 8.75M shares

· Robert Half (RHI) Q3 EPS 95c/$1.47B vs. est. 91c/$1.46B

· Rollins (ROL) announces 3-for 2 stock split, special cash dividend of 14c per share

· USANA (USNA) Q3 EPS $1.24/$296.8M vs. est. $1.12/$291.73M; raises FY18 EPS view to $5.00-$5.15 from $4.75-$5.05 (est. $5.02) and raises FY18 net sales view to $1.185B-$1.2B from $1.17B-$1.2B (est. $1.19B)

Energy

· The American Petroleum Institute (API) reported that U.S. crude supplies rose by 9.9M barrels for the week ended Oct. 19, showed supply declines of -2.8M barrels for gasoline and 2.4 million barrels for distillates

· Avangrid (AGR) Q3 EPS 45c/$1.55B vs. est. 46c/$1.31B; now expects lower end of previously announced $2.22-$2.50 adj. EPS range for 2018

· Range Resources (RRC) Q3 EPS 26c/$811M vs. est. 21c/$771.7M

Financials

· Ameriprise (AMP) Q3 EPS $3.74/$3.29B vs. est. $3.69/$3.21B; Assets under management $485B

· Capital One (COF) Q3 EPS $3.12/$7B vs. est. $2.88/$6.89B; 3Q card delinquencies 3.28%; 3Q credit-card charge-offs 4.15%; 3Q provision for credit losses $1.27 billion; 3Q net interest margin 7.01%; 3Q net interest income $5.79 billion; 3Q non-interest income $1.18 billion

· Carlisle (CSL) Q3 GAAP EPS $1.59/$1.18B vs. est. $1.71/$1.20B

· Chubb (CB) Q3 core EPS $2.41 vs. est. $2.36; book and tangible book value per share increased 0.4% and 1.3%, respectively, from June 30, and now stand at $110.46 and $66.83, respectively; P&C net premiums written were $7.5B and Global P&C net premiums written, which exclude Agriculture, were $6.7B, up 2.5% and 3.5%, respectively, and up 2.8% and 3.9%, respectively

· Deutsche Bank AG (DB) said Q3 profit fell 65% to EUR229 million ($263 million) as a slump in trading revenue hurt the underperforming German lender, which is under pressure to cut costs and stabilize earnings.

· CoStar Group (CSGP) Q3 non-GAAP EPS $2.16/$306M vs. est. $2.08/$305.71M; raises FY18 non-GAAP EPS view 14c to $7.95-$8.03 and raises FY18 revenue view to $1.183B-$1.189B

· Equity Residential (EQR) Q3 FFO 83c/$652.9M vs. est. 83c/$644.86M; produced Physical Occupancy of 96.2%, new lease rate growth of 1.2% and renewal rate growth of 5.1 for Q3

· Total System Services (TSS) Q3 EPS $1.16/$1.02B vs. est. $1.09/$999.2M; Q3 adjusted Ebitda $348.5M; sees 3Q adjusted EPS $4.41-$4.47 vs. est. $4.39

· SEI Investments (SEIC) Q3 EPS 80c/$408.69M vs. est. 76c/$410.35M;

· Chemical Financial (CHFC) Q3 EPS 98c vs. est. 99c; 3Q return on average equity 17.5% and 3Q return on average assets 1.37%

· W.R. Berkley (WRB) Q3 EPS $1.26/$1.94B vs. est. 85c/$1.88B; 3Q net premiums written $1.62 billion

Healthcare

· Edwards Lifesciences (EW) shares fell -3%; Q3 EPS $1.07/$921M vs. est. $1.02/$928.18M; sees Q4 adjusted EPS $1.05-$1.20 on revs $950M-$1B vs. est. $1.21/$995.4M; backs FY18 adjusted EPS view $4.60-$4.75; Transcatheter Heart Valve Therapy sales $557.8M, Surgical Heart Valve Therapy sales $184.6M and Critical Care sales $164.2M

· Illumina (ILMN) Q3 EPS $1.52/$853M vs. est. $1.26/$828.59M; sees FY18 adjusted EPS $5.70-$5.75 vs. est. $5.45; sees FY18 revenue growth roughly 20%, consensus $3.31B

· Varian Medical (VAR) Q4 EPS $1.16/$802M vs. est. $1.20/$766.26M; sees FY19 adjusted EPS $4.60-$4.75 on revs $3.06B-$3.15B vs. est. $4.76/$3B; sees FY19 cash flows from operations range of $460M-$510M; 4Q Oncology gross orders $1.07 billion

· Proteostasis (PTI) 11M share Secondary priced at $6.75

· Dermira (DERM) announced the completion of patient enrollment in the Phase 2b dose-ranging study evaluating its anti-IL13 monoclonal antibody, lebrikizumab, in patients with moderate-to-severe atopic dermatitis

Industrials & Materials

· Canadian National (CNI) Q3 EPS C$1.50/C$3.69B vs. est. C$1.47/C$3.58B; sees FY capital expenditure about C$3.5B in -line with prior view and still sees FY adjusted EPS C$5.30-C$5.45

· Covenant Transportation (CVTI) Q3 EPS 66c/$243.3M vs. est. 61c/$237.85M; sees business conditions favorable into 2019; says will be major participant in holiday peak shipping in Q4

· IDEX Corp. (IEX) Q3 EPS $1.41/$622.9M vs. est.$1.31/$613.92M; Q3 orders up 7% at $615.1M; sees Q4 EPS $1.25-$1.27 vs. est. $1.33

· Ingersoll-Rand (IR) Q3 EPS $1.75/$4.03B vs. est. $1.71/$4.02B; raises FY18 adj. EPS to $5.55-$5.60 from about $5.50

· Rush Enterprises (RUSHA) Q3 EPS $1.03/$1.4B vs. est. 89c/$1.38B

· KapStone Paper (KS) Q3 EPS 78c/$893.6M vs. est. 69c/$938.5M; 3Q adjusted Ebitda $163M vs. estimate $156.0M

· Valmont (VMI) Q3 EPS $1.82/$678.7M vs. est. $1.71/$677.34M; lowers FY18 EPS view to $7.50-$7.65 from $7.55-$7.65 and sees FY18 revenue $2.75B-$2.80B vs. est. $2.79B citing anticipated incremental LIFO expense and unfavorable currency impacts

Technology, Media & Telecom

· Texas Instruments (TXN) shares fell -6%; Q3 EPS $1.58/$4.26B vs. est. $1.53/$4.3B; sees Q4 EPS $1.14-$1.34 on revenue $3.6B-$3.9B below the consensus $1.38/$4B; sees FY18 ongoing annual operating tax rate about 20%

· Juniper (JNPR) Q3 EPS 54c/$1.18B vs. est. 45c/$1.18B; sees 4Q adjusted gross margin +59% to +61%, estimate +59.6%; sees 4Q adjusted EPS 54c-60c on revs $1.19N-$1.25B vs. est. 57c/$1.25B; 3Q gross margin exceeded high end of co.’s forecast; sees Q4 impacted by slower pace of Cloud deployments

· Manhattan Associates (MANH) Q3 EPS 49c/$142.35M vs. est. 40c/$142.38M; raises FY18 adj. EPS view to $1.69-$1.71 from $1.57-$1.61 (est. $1.60) and raises FY18 revenue view to $552M-$555M from $548M-$560M (est. $554.04M)

· Teradyne (TER) Q3 EPS 71c/$566.8M vs. est. 63c/$556.8M; sees Q4 EPS 46c-54c vs. est. 42c

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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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