Thursday, October 25, 2018
The U.S. equity market has regained its footing, with all three main stock market benchmarks near highs and paring some of yesterday’s massive losses, as a good round of better earnings helping lift sectors. Dow component MSFT leading the charge after quarterly results topped views, while several other sectors getting a lift on earnings such as autos (TSLA, F, BWA), airlines (AAL), though there were a handful of disappointments as well (AMD, SWK, BUD, WPP, HSY). Central banks in focus as the ECB reiterates plan to halt bond purchases in December and Mario Draghi said he remains confident in the Eurozone’s “broad-based economic expansion” despite a spate of “weaker than expected” economic data. Overall, there was no change in either ECB rates or the central bank’s expectation to end QE in December. Policy makers also kept their language on leaving borrowing costs unchanged at least through the summer of 2019. The S&P 500 index is looking to snap its 6-day losing streak, the NASDAQ to move out of correction territory (was down -11.7% for October coming into the day) and the Dow to move back above the 25,000 level. In drug sector, President Trump is scheduled to unveil a plan at 2:00 PM EST that will make significant changes to the way Medicare pays for certain drugs, with expectations for the plan to test three strategies for lowering prices.
Treasuries, Currencies and Commodities
· In currency markets, the euro big reversal off earlier highs (1.1432), falling to lows of the day (1.1371, -0.15%) before paring losses; the dollar rises vs. the yen; overall, the dollar index road gains with the index (DXY) rising 0.2% to above 96.60 (not far from 52-week high of 96.98 on August 15th); Treasury markets little changed, as yields inch higher after declining yesterday after rotation into safe have assets
· Commodity prices holding up well early despite the bounce to highs in the dollar; with gold and oil prices both posting modest gains (after a week of selling pressure); WTI crude trying to hold above $67 per barrel after falling to 2-month lows this week with the downdraft in stocks
· Weekly Jobless Claims rose 5K to 215K, in-line with economist estimates while the 4-week moving average was unchanged at 211,750, while continuing claims fell by 5,000 to 1.64 million in the week that ended Oct. 13 (the lowest level since August 1973)
· Durable Goods Orders for Sept rise 0.8%, beating the (-1.5%) estimate; Durable goods new orders revised up to 4.6% for Aug. from 4.4%; new orders ex-trans. rose 0.1% in Sept. after 0.3% rise and new orders ex-defense fell 0.6% in Sept. after 2.5% rise
· The US goods trade deficit has widened to the highest level ever recorded, just as trade tensions between the US and China escalate. The Sept. advanced trade deficit of goods widened to $76B from $75.5B in prior month, as imports rose 1.5% in Sept. to $216.988B from $213.878B in Aug., while exports rose 1.8% in Sept. to $140.952B from $138.422B in Aug.
· Pending Home Sales rise 0.5% MoM, above the estimate to hold unchanged, with declines in the Northeast and South, but gains in the Midwest and West. The 30-Year fixed mortgage rate rose to 4.86% this week from 4.85%, Freddie Mac said; the 15-year rate avg 4.29%, up from 4.26% a week earlier
Sector Movers Today
· Auto stocks rallied amid results from several: TSLA posted only its third quarterly profit ever and generated more cash than expected/reaffirmed its forecast for profit and positive free cash flow in the fourth quarter; Fiat rises as an Italian government official said the country doesn’t have the power to block Fiat’s sale of its Magneti Marelli unit to a foreign firm; Ford (F) Q3 profit and revenue both topped estimates; in suppliers, BWA Q3 sales beat the highest estimate, adjusted EPS also was above estimates; DDAIF warned of the very challenging environment facing the automotive industry as it reported a sharp fall in Q3 profits; VNE warned it saw downside risk to its 2020 total sales target in auto parts space
· In airlines; AAL 3Q profit and revenue matched estimates, as company adapts to the higher cost environment with lower planned capacity growth, and cancellation of unprofitable flying; meanwhile, LUV shares fell after 3Q operating revenue and adjusted EPS were slight beats, but the company’s cost outlook dampened investor enthusiasm; GOL will become the launch partner for GOGO’s Aircraft Data Service, Wireless Quick Access Recorder; ALK Q3 EPS and operating revs top estimates; ALGT Q3 EPS missed on slightly better revs
· Housing & Building Products; tools maker SWK shares fall after cutting its 2018 EPS forecast, blaming higher input costs, including tariffs, FX & commodities (SNA recently guided as well); OC was upgraded at Barclay’s following the recent rout in shares; homebuilders try and rebound, with Evercore/ISI upgrading KBH, MDC, MTH, PHM, TOL to outperform from in-line after pullback in sector; home appliance get a bounce after WHR EPS of $4.55 a blowout vs. $3.75 est. and sees EPS at the high-end of its prior annual guidance driven by tax and strong NA results
· Paper and Forest products; IP shares surge after 10c EPS beat and slightly better revs of $5.9B as CEO sees continued healthy demand for Q4; PKG another beat in paper sector, with Q3 top/bottom line beat and guided Q4 slightly above views; Citi noted that since peaking in June, WY & RYN shares have fallen 24-28% on a combination of lower lumber prices, mediocre housing starts, a broader sell-off in Materials, and a tick-up in rates/expect modest rebound in lumber prices
· AAL +6%; 3Q profit and revenue matched estimates, as company adapts to the higher cost environment with lower planned capacity growth
· CMCSA +4%; squeezed out a rise in quarterly profits/added 363,000 internet subscribers in the period, a 70 percent increase from a year earlier
· IP +7% and PKG both rise after quarterly beats in the paper sector
· KN +11%; announced better than expected 3Q top-line results and generally in-line Q4 guidance
· MSFT +5%; delivered both accelerating revenue growth and significant operating margin expansion in Q119, with operating income +29% YoY and >20% for three Qs in a row now
· NDLS +5%; partial rebound after cancelling its secondary offering (fell -24% yesterday)
· TSLA +9%; reported better-than-expected results on strong auto sales led by Model 3 at 56K deliveries this quarter, beating its 5K production goal in the last week of Q3/posted only its third quarterly profit ever and generated more cash than expected
· TWTR +15%; following better fundamental results while user metrics were a tad light/beat on both top and bottom line and EBITDA was meaningfully ahead of views/MAUs were weak
· WHR +4%; EPS of $4.55 a blowout vs. $3.75 est. and sees EPS at the high-end of its prior annual guidance driven by tax and strong NA results
· XLNX +14%; after Q2 top/bottom line beat and raises FY19 revenue view to $2.95B-$3B from $2.8B-$2.9B
· ALGN -19%; after the maker of the Invisalign dental product reported better-than-expected Q3 earnings, but also said average selling prices (ASPs) declined and provided a downbeat outlook.
· AMD -20%; following mixed results and disappointing revenue guidance as the company is experiencing some near term growth headwinds/ guided 4Q18 below the Street by almost $150 million, blaming “channel GPU inventory”
· BUD -9%; announced a 50% dividend cut and posted both volume and sales that missed expectations in every region, with big miss from Latin America
· HSY -6%; Q3 results and outlook disappointed investors while margins shrank in the quarter as it faced higher freight and shipping costs
· SHW -5%; after its 3Q miss and lower year guidance ($19.05-$19.20 vs. est. $19.23) with lower Q3 margins of 42.5%
· SWK -3%; after cutting its 2018 EPS forecast, blaming higher input costs, including tariffs, FX & commodities
· TRN -13%; as Q3 EPS misses the 41c estimate on in-line revs, though the real news was an unexpected early 2019 EPS guide for TRN rail remains 90c-$1.10, below Street
· WPP -17%; as the largest advertiser in the world after quarterly sales missed estimates and the U.K. advertiser cut its full-year outlook
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.