Mid-Morning Look: October 30, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Tuesday, October 30, 2018

A nice start for U.S. equities, rallying with the bounce in Asia overnight, as investors look to scoop up heavily beaten up stocks in a recent rout that has seen the S&P 500, Dow Industrials, Nasdaq Comp and Russell 2000 Index all fall more than 10% during this stretch and erase gains on the year for the S&P and Dow. A combination of mid-term election concerns, increased trade rhetoric between the US and China, sour commentary of future earnings/revenue outlooks from large cap giants given potential impact of tariffs and rising costs and EuroZone macro issues have all played a part. The recent pullback of multi-year highs in Treasury yields have eased the spike in borrowing costs, but that and the FOMC rate hike trajectory still playing an important part. Despite the strong start for U.S. markets today, major averages are well off their intraday day highs as every market rip has been followed by added selling pressure. Consumer confidence came in at 18-year highs today as US data remains better, while GDP in Europe disappointed, weighing on the euro.

Treasuries, Currencies and Commodities

· In currency markets, the U.S. dollar roses as the dollar index (DXY) traded just shy of 52-week highs (96.94 high vs. year high 96.98) as the euro falls following another blow to European market confidence after a Q3 EuroZone GDP reading disappointed; the dollar rises vs. the safe-haven yen as well; the midterm elections and FOMC rate hike trajectory are potential risks to the buck (the dollar is up roughly 5% for the year)

· Precious metals were little changed after slipping yesterday; safe haven assets pullback after US stock open the day higher, as investors rotate back into riskier assets…but gold still holding up well despite the rise in the US dollar as well; gold at $1,225 an ounce

· Energy futures under pressure, extending its recent declines as WTI crude falls below $66 per barrel with same issues plaguing sentiment (rising inventory, Saudi rising production to offset Iran amid upcoming sanctions, and slowing global demand with China growth slowing)

· Treasury market’s slide as stocks rise; bonds dipped and yields rise given the positive reaction in stocks to start the day; 10-yr yield up a few bps at 3.115%; 2-yr 2.843%

Economic Data

· Consumer Confidence for Oct rose to 137.9 (18-year highs) from 135.3 in the prior month and above the est. 135.9; the present situation confidence rose to 172.8 vs. 169.4 last month while consumer confidence expectations rose to 114.6 vs. 112.5 last month.

· The S&P/Case-Shiller 20-city index rose a seasonally adjusted 0.1% and was 5.5% higher compared to its level a year ago, the lowest annual increase in 20 months. S&P CoreLogic Case-Shiller National Home Price index rose 5.77% y/y in Aug. after rising 5.99% in prior month. S&P/Case-Shiller 20-city NSA index at 213.72 after 213.77 in July

Sector Movers Today

· Housing & Building Products; several building product related companies moving on earnings today including, LL, AWI, MAS, TREX; in housing, WLH slides after it softens guidance for the rest of the year as higher house prices and interest rates make home ownership less affordable; VMC Q3 results and full-year forecast beat market expectations, helped by higher aggregates pricing and declining unit costs (EXP, SUM, MLM active today)

· Semiconductors; MKSI agrees to acquire ESIO in a deal valued at $1 billion; MKSI will pay $30 in cash for each ESIO share a 101% premium https://on.mktw.net/2DcVZEm ; KLAC reported solid results in F1Q, beating estimates across all metrics; NVDA upgraded to overweight with $255 tgt at JPMorgan saying it has a strong long-term growth outlook thanks to its gaming division and position in driverless car technology; IPGP shares fall as lowers FY18 revenue growth view to 1%-4% from 7%-9% after in-line Q3 results (guides Q4 below views)

· Software mover; APTI posted a solid beat and raise quarter, and raised 4Q revenue guidance but shares fell around billings volatility in 3Q and less incremental operating margin expansion; BLKB reported Q3 revenue and EPS above consensus expectations/reiterated its 2018 guidance in line with the previously lowered guidance earlier this month; APPF posted 3Q revenue higher than expected, though lower EPS on acquisition- and litigation-related expenses

· Video gamers; TTWO rises as reports its new game Red Dead Redemption 2 has achieved $725 million in worldwide retail sell-through during its first three days; SNE raised its earnings outlook for a second straight quarter, thanks to a series of hit video-game titles that have boosted its PlayStation business; NTDOY Q2 operating income of 30.87 billion yen missed the estimate 37.89 billion yen while net income beat, but sales were weaker

· REITs; big night of earnings; UDR 3Q adjusted FFO was in line with expectations, and management’s 2018 adjusted FFO guidance ticked up 0.5% at the midpoint; TCO reported a big 3Q beat, driven primarily by a stronger core performance (and other income), which exceeded expectations and led management to raise the FY comp center NOI forecast for the second straight quarter; CBL falls as posted 1c miss though management maintained its FY 2018 FFO guidance/ slashed the dividend 63% for 2019 to an annualized rate of 30c from 80c; AVB reported a 3Q core FFO beat, and management increased 2018 core FFO by 0.3% at the midpoint

· Truckers active after Bank America double upgraded ODFL to buy following the 30% pullback and says quality of business too good to ignore; XPO also upgraded to buy at Bank America as shares have fallen over 25% from all-time highs in late September; WERN was upgraded to overweight at KeyBanc following their annual shipper survey, as are incrementally confident in our 2019 estimates given more favorable pricing commentary relative to our expectations

· Pharma movers; PFE lowered the top end of its full-year sales outlook partly blaming the strength in the US dollar and said its Q3 revenues missed estimates even as profits jumped 45%; ALKS falls as FDA briefing documents raise questions about Alkermes drug including statistical methods, safety; AGN 3Q results beat estimates and posted a 2018 forecast increase, driven by one-time factors like lower expenses and a delay to competition for the company’s eye treatment

        Stock GAINERS

· AKAM +9%; after Q3 beat and better guidance as analysts raise tgts (upgraded @ SunTrust)

· AMED +9%; raised its full year 2018 outlook by less than the 3Q18 upside

· CHGG +10%; strong Q3 results and raised guidance and upgraded by First Analysis after pullback

· ESIO +86%; after MKSI agrees to acquire the chip maker in a deal valued at $1 billion; MKSI will pay $30 in cash for each ESIO share a 101% premium https://on.mktw.net/2DcVZEm

· KLAC +8%; reported solid results in F1Q, beating estimates across all metrics

· SCG +7%; after South Carolina ORS recommended that the new settlement be approved on Dominion deal, according to testimony in regulatory filing, Bloomberg reported

· SCHW +1%; upgraded to buy by two analysts after pullback in shares

· TTWO +12%; as reports its new game Red Dead Redemption 2 has achieved $725 million in worldwide retail sell-through during its first three days

· UAA +22%; posted better-than-expected earnings for Q3, beating by 12c while inventories were down 1% to $1.17 billion/boosted its EPS forecast for the full year to as much as 22c from as much as 19c and full-year revenue-growth expectations remained flat

· VMC +11%; Q3 results and full-year forecast beat market expectations, helped by higher aggregates pricing and declining unit costs (EXP, SUM, MLM active today)

· WRD +1%; to be acquired by CHK in a cash and stock deal valued at about $3.977B; under the terms of the deal, WildHorse shares will receive 5.989 Chesapeake shares or a combination of 5.336 shares plus $3 in cash, for each WildHorse share owned https://on.mktw.net/2Ogcv7B

Stock LAGGARDS

· ALKS -3%; as FDA briefing documents raise questions about Alkermes drug including statistical methods, safety

· APTI -16%; delivered a mixed Q3 with better than expected P&L but posted a miss on billings

· CYH -14%; hospital providers report earnings as CYH 3Q adjusted EPS loss was wider than est. and cut its outlook

· ELVT -32% after reporting disappointing Q3 earnings and slashing annual guidance, prompting a few analyst downgrades

· FLIR -12%; mixed Q3 as EPS beat but revs miss and guides year forecast below estimates

· GE -1%; cut its dividend for the second time in less than 12 months, as it reported earnings below analysts’ expectations and announced a radical restructuring of its divisions

· IPGP -3%; as lowers FY18 revenue growth view to 1%-4% from 7%-9% after in-line Q3 results (guides Q4 below views)

· SSTK -10%; on mixed Q3, narrowed FY guide

· TXRH -12%; following the company’s 3Q EPS miss reflecting lower margins (labor, G&A) that more than offset continued strong comp outperformance

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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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