Mid-Morning Look: October 26, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Friday, October 26, 2018

Equities in broad sell-off mode again, as major averages remain on track for big weekly declines as round of disappointing earnings and outlooks in the technology sector (AMZN, GOOGL, WDC) dragging the Nasdaq down as much as 3%. As of Thursday, the Dow was off 1.8%, the S&P 500 2.2% and the Nasdaq Comp 1.8%. For the month of October so far, the S&P has lost 7.15%, the Dow is down 5.57%, and the Nasdaq Comp has shed 9.05%. Overall, stocks tumbled for the 7th day in eight as a slightly better-than-expected reading on the U.S. economy, rising 3.5% in the third quarter and faster-than-expected personal consumption wasn’t enough to boost sentiment. All 11 main S&P 500 sectors are lower initially, as bonds jump (rotation out of stocks), with yields and near month lows. Other safe-haven assets such as gold and other precious metals also rise while the dollar dips. Today’s declines have thus far erased all of yesterday’s gains as weaker guidance hits stocks, while macro factors remain such as slowing China growth, trade tariff impact and the problems in Europe with Italy and Brexit talks. The other concern, rising borrowing costs, has temporarily taken a back seat as bonds rally off lows.

Treasuries, Currencies and Commodities

· In currency markets, the dollar mixed, falling vs. the Japanese yen to 111.60, its lowest levels since mid-September; the dollar index (DXY) overall has slumped following the mixed economic data and lower move in stocks

· Commodity prices mixed as gold prices holding above $1,235 an ounce on dollar slide and rotation into defensive assets, while the energy complex among the hardest hit with natural gas, gasoline and WTI crude all sliding

· Treasury markets gain as yields fall; 10-year down below 3.08% and 2-yr slips to 2.80% as stocks fall (more than 3-week lows for bond yields as investors rotate into safe-haven assets and out of stocks); mixed economic data today also not helping as GDP growth beat estimates, but fell from the prior quarter while sentiment for October also dropped

Economic Data

· The U.S. economy slowed a bit in Q3, as GDP posted a still solid 3.5% annual rate, down from the 4.2% rate in the prior three-month period, but came in above consensus views of 3.3%. Personal consumption rose 4.0% in 3Q after rising 3.8% prior quarter and topping views of up 3.3% (largest increase since 4Q 2014), while the GDP price index rose 1.7% in 3Q after rising 3.0% prior quarter (and was below the 2.1% est.). Core PCE q/q rose 1.6% in 3Q after rising 2.1% prior (es.t 1.8%)

· Michigan Sentiment for Oct-F fell to 98.6 from 100.1 last month and slightly below the 99 est.; the expectations index fell to 89.3 vs. 90.5 last month, while the current economic conditions index fell to 113.1 vs. 115.2 last month.

Sector Movers Today

· Internet; GOOGL slides as Q3 sales missed analysts’ expectations and revenue growth from its main Google sites, including Search and YouTube, came in at 22%, slower than the prior period; SNAP trades to record lows all-time lows as revenue and EBITDA beat estimates and guidance, but DAUs declined for the second straight quarter, and are expected to decline again in Q4; TWTR was upgraded to outperform at Oppenheimer after Q3 earnings and revenue that topped estimates/noted mgmt signaled that daily active users should continue to grow; several analysts upgrade and defend GRUB after pullback in shares yesterday post earnings; EXPE Q3 EPS beat estimates, boosted by growth in short-term rental unit HomeAway ; saw its gross bookings rise 11%, led by a 24% increase at HomeAway

· Memory, flash pricing/HDD; WDC posted Q1 rev miss and significant December quarter guide down, becoming a real drag on flash/memory space; WDCsaid Q1 results reflected strength in capacity enterprise, surveillance hard drives and embedded flash solutions, with each growing revenue over 30% from the year-ago quarter…but strength in these end markets was offset by ongoing declines in flash pricing (weighing on shares of MU as well as rival HDD co STX); WDC was downgraded by at least three analysts on the news

· E&P sector; NOV reported EPS of 0c, significantly below consensus of 12c of $240M below the $251M est. as Wellbore Technologies and Completion & Production Solutions (CPS) lagged our forecast; CFWFF upgraded at BMO Capital after delivered its third consecutive solid quarter in Q3/18, with EBITDA well above expectations; COG raises dividend and boosts debt, but Q3 EPS and revenue missed estimates; SWN posted Q3 EPS beat

· Semiconductors; INTC posted strong results and guidance, both well above consensus as execution and product traction remain impressive/66% GM included ~2 points of reserve inventory shipments and a one government incentive; MLNX rises after CNBC reported overnight the has hired a financial adviser to help it seek a sale after drawing acquisition interest from at least two companies https://cnb.cx/2PQRnq5 ; CY moved on earnings and announced plans to: significantly reduce opex and divest its NAND business into a JV with Hynix; POWI falls on earnings as Loop downgrade noted similar to TXN, the small order push-outs of 2Q turned into a broad slowdown in orders and turns business in 3Q

       Stock GAINERS

· CMG +1%; posted 3Q18 EPS of $2.16 topping the $2.02 consensus, though the +4.4% comp was below the +5.0% mean/posted stronger-than-expected restaurant level margin of 18.7%

· EXPE +3%; as Q3 EPS beat estimates, boosted by growth in short-term rental unit HomeAway ; saw its gross bookings rise 11%, led by a 24% increase at HomeAway

· INTC +1%; posted strong results and guidance, both well above consensus as execution and product traction remain impressive

· MLNX +12%; has hired a financial adviser to help it seek a sale after drawing acquisition interest from at least two companies, CNBC reported https://cnb.cx/2PQRnq5

· TSCO 1%; upgraded at Wedbush, Bank America and RBC Capital after earnings citing two straight quarters of comp and tick growth helping margins

Stock LAGGARDS

· AKS -13%; posted a shipments miss in Q3 on weaker Ebitda of $160.8M, and said anticipates lower Q4:18 earnings relative to Q3:18, with lower pricing and flat sales

· AMZN -8%; after mixed results as EPS for Q3 beat, but revenue missed and provided lower than-expected forecasts for revenue and operating income in Q4

· CERN -13%; missed revenue but reported in-line EPS/Bookings grew 43% to $1.6B. Lower license software and tech resale revenue pressured the top line

· ELLI –21%; downgraded by four analysts saying the magnitude of the cut in the company’s guidance was much steeper than expected/Q4 guidance that calls for revenue growth to slow to 0%-3% vs. the 13% average organic growth over the last seven quarters

· FLEX -33%; on a spate of bad news including breaking off its relationship with NKE after concluding it can’t ramp profitably; CEO Mike McNamara announced his “retirement,” with no successor lined up and lowered year guidance

· FSLR -7%; cut its annual shipment forecast for the second straight quarter as it struggles to ramp up production of its flagship panel (lowers FY18 EPS view to $1.40-$1.60 below consensus $1.65)

· GOOGL -5%; as Q3 sales missed analysts’ expectations and revenue growth from its main Google sites, including Search and YouTube, came in at 22%, slower than the prior period

· MHK -22%; 52-week lows as Q3 results and commentary on the next two quarters were extremely disappointing citing disappointing volume trends in multiple markets around the world

· NOV -7%; reported EPS of 0c, significantly below consensus of 12c of $240M below the $251M est. as Wellbore Technologies and Completion & Production Solutions (CPS) lagged our forecast

· PFPT -18%; reported slight F3Q18 upside, and guided F4Q18 EPS approximately in line with consensus, but guided FY19 significantly lower

· RARE -14% after discontinues development of UX007 in Glut1 DS indication as announces Phase 3 study of UX007 did not achieve primary endpoint

· SGEN -16%; as reported Adcetris sales of $127MM, below consensus of $135MM and company guidance of $130-135M/sees Q4 Adcetris revs $128M-$133M vs. est. $145M

· SGYP -66%; BTIG downgraded to neutral citing revenue shortfall for Trulance and noted SGYP announced that no interested parties are willing to make a fair offer for the Co

· SNAP -15%; all-time lows as revenue and EBITDA beat estimates and guidance…but DAUs declined for the second straight quarter, and are expected to decline again in Q4

· WDC -20%; posted Q1 rev miss and significant December quarter guide down, becoming a real drag on flash/memory space (downgraded by at least three analysts)

· WY -7%; after Q3 EPS missed by 3c and sales of $1.9B misses the $1.95B est

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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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