Mid-Morning Look: October 31, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Wednesday, October 31, 2018

Equities with a big end of month market surge, seeing strength nearly across the board, but gains paced by a rally in tech stocks after results from FB, EBAY come in better than feared, lifting the beaten up Nasdaq Composite. The Index rises more than 2.5% to around 7,350 (a 400-point move off Monday lows), while the benchmark S&P 500 and Dow Industrials also pare monthly losses with big gains. Coming into today, the Dow was down roughly 6% MTD, the S&P -7.9% and both the NASDAQ and Russell 200 down 11% MTD, but those numbers have improved given the early stock market performance. Food stocks a source of market weakness with Kellogg missing views and cutting forecasts while consumer staples in general mixed on results (CLX falls on outlook, EL rises). Autos with another boost as GM results easily top consensus, while transports in general rise with overall market. Energy stocks get a boost on better earnings results from HES, CXO, HFC though rally this morning broad based as FAANG stocks on track for biggest daily gain in 3-years according to CNBC. Economic data today mixed in the U.S. and private payroll data (ADP) well above consensus views while Chicago PMI index missed estimates. The US dollar inches higher on track for its best month since May, while Treasury yields rise and gold falls. In an interesting stat (and sums up this month’s volatility), CNBC reported that the Dow Industrial Average has moved on average 266 points per day this month

In the banking sector, the Federal Reserve set to vote on proposals Wednesday that would soften requirements for lenders with assets of $700 billion or lower. Banks with between $100 billion and $250 billion of assets would no longer have to adhere to liquidity coverage ratio and proposed net stable funding ratio, Fed Vice Chairman of Supervision Randal Quarles says in prepared remarks. Firms between $100 billion and $250 billion would also face stress tests every two years, instead of annually. Non-Wall Street banks that have more than $250 billion of assets would move to a “calibrated” liquidity coverage ratio that is in the range of 70 percent to 85 percent of full LCR, Quarles says

Treasuries, Currencies and Commodities

· In currency markets, the dollar index builds on monthly gains as the index touches 52-week high f 97.18, rallying against the euro, yen and pound on better US data; Treasury yields rise, as bonds roll given the rotation back into equities and out of defensive.

· Precious metals decline as stocks rally, the dollar jumps and investors exit the “safe-haven” trades that have benefited over the last two-weeks amid the stock market rout; gold prices drop more than $10 to around $1,215 an ounce, while silver also slides

· Energy futures failing to rally with riskier assets, as WTI crude holds below $66 per barrel after more bearish inventory data overnight from API, with crude on track for its worst month since July 2016 as worries continue over the global economy and major producers offer mixed signals on where they see production headed. The Energy Information Administration reported Wednesday that domestic crude supplies rose by 3.2 million barrels for the week ended Oct. 26. That followed five consecutive weeks of gains

Economic Data

· Private payrolls jump the most in 8-months in October, as ADP reported 227,000 new jobs, topping the 187K estimate; large businesses, meaning those with about 500 employees or more, appeared to lead the way, as they added 102,000 jobs – data comes ahead of nonfarm payroll report this Friday with estimate for 195K jobs added

· Chicago PMI index falls to 58.4 from 60.4 in prior month and below est. 60; Prices paid rose at a slower pace, new orders rose at a slower pace, while employment rose at a faster pace; production rose at a faster pace, and order backlogs rose at a slower pace

· Employment Cost Index (ECI) for Q3 rose 0.8% vs. the economist est for up 0.7%; the prior quarter unrevised at 0.6%; wages rose 0.9% q/q and benefit costs rose 0.4% q/q; wages and salaries for private industry workers rose 3.1% for 12-month period ending in Sept.

Sector Movers Today

· Consumer Staples; busy day of consumer staple earnings as CLX slips after the company reduced its year EPS outlook, citing fewer expected share repurchases and more pronounced FX and cost pressures (now sees FY19 EPS $6.20-$6.40, vs. prior $6.32-$6.52 on lower margins); in food, Kellogg (K) said it expects EPS growth of 7% to 8% vs. +11% to +13% prior range citing factors including a shift in mix are impacting Kellogg’s bottom line; beauty stocks active after EL Q1 results topped estimates, raised its dividend and buyback and raised its year adj. EPS forecast

· Restaurants; BJRI 6.9% comp in 3Q18 exceeded the +4.5% mean on better earnings; DENN was upgraded to overweight at Stephens following earnings, while HABT was upgraded to buy at Maxim after its earnings results; CAKE mixed results as beat on top and bottom line but comps of 1.5% blended missed the 1.9% Street est. and tightened guidance; YUMC was upgraded to buy at Bank America amid boosted buyback plan and stabilizing KFC results; YUMjumped the most in almost six months after posting same-store sales and profit that topped analysts’ estimates; DIN slips as Q3 EPS and sales beat while raises year comp view for Applebee’s but lowers iHop comps

· Telecom & Media movers; TMUS reported a solid quarter with 773K postpaid phone adds, above Street-high 700K estimate, while revenue growth of 8% was in line, EBITDA (up 15% on a cash basis) was a 200bps normalized beat and churn low at 0.95%; Sprint (S) also good results as boosts FY adjusted Ebitda view, 2.0% above est. after topping quarterly profit and revenue outlook; Citi upgraded SBAC to buy and cut AMT to neutral; LKSD agreed to be acquired by QUAD, in a deal valued at $1.4B, including debt or $11.41 per share https://on.mktw.net/2Szzu0L

· E&P sector; HES tops expectations for Q3 earnings and revenues, helped by higher prices for its oil and a 62% reduction in costs; APC slightly better than expected oil volumes (US GoM) offset by weaker oil realizations for a largely in-line result; CXO rises on another strong operational quarter (beats on oil production, EPS, CFO), with its largely in-line 2-year guidance; WLL reported a 9%/6% cash flow beat relative to Street due to stronger NGL realizations but reported inline oil production/Q4, production volumes a bit lighter than anticipated

        Stock GAINERS

· ARNC +4%; on Reuters report APO is in advanced talks to acquire the company for over $11B as the private equity firm could reach a deal as early as next week https://on.mktw.net/2SvLdxz

· EL +6%; beauty stocks active after EL Q1 results topped estimates, raised its dividend and buyback and raised its year adj. EPS forecast

· FB +5%; mixed results as 3Q results that were less than 1% below consensus revenue estimates, while EPS beat and user growth came ahead of consensus expectations

· FEYE +9%; better Q3 results and guidance as product billings grew 5% y/y in 3Q18 compared with Deutsche Bank estimated high teens decline in 1H’18

· GM +7%; posted a surprise increase in profit on strong demand for higher-priced Cadillacs in China and SUVs in the U.S. and hinted full-year EPS may be at the high end of the range

· LKSD +30%; agreed to be acquired by QUAD, in a deal valued at $1.4 billion, including debt or $11.41 per share https://on.mktw.net/2Szzu0L

· TAP +6%; Molson Coors reports third-quarter profit up from year ago, tops expectations

Stock LAGGARDS

· CLX -5%; reduced its year EPS outlook, citing fewer expected share repurchases and more pronounced FX and cost pressures (now sees FY19 EPS $6.20-$6.40, vs. prior $6.32-$6.52)

· CLVS -25%; as EPS loss of ($1.71) worse than expected as a result of lower revenue and higher operating expenses while Rubraca sales of $22.8M missed $32M est

· DDD -22%; missed on both the top line and bottom line, with EPS 2c/$164.5M vs. 3c/$165M lowest estimate (SSYS, XONE move)

· K -6%; said it expects EPS growth of 7% to 8% vs. +11% to +13% prior range citing factors including a shift in mix are impacting Kellogg’s bottom line

· MDR -29%; shares fall after top/bottom line miss, cut the estimated value for some projects, announced the sale of assets to reduce debt, and planned to sell $300 million in preferred stock

· OMI -22%; as Q3 revenue missed estimates and cuts its FY outlook, while cutting its dividend to 7.5c from 26c;

· TCS -41%; downgraded at JPMorgan after company Q2 EPS missed by 4c on lower sales

· TTMI -14%; guided Q4 well below Consensus, with revenue of $740M at midpoint vs. est. $827M with shortfall primarily from the smartphone segment

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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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