Wednesday, November 7, 2018
Equities rally as uncertainty subsides following results of last night’s mid-term elections, falling in-line with market consensus as attention now turns to the Fed on Thursday and China trade concerns. U.S. equities rise following Tuesday night’s midterm election results which saw the Democrats regain control of the House while the Republican Party kept their Senate majority. The initial market reaction showing big gains in Health Care, Technology, and Consumer Discretionary, while Financials reverse lower, followed by weakness in Staples and utilities (details of some winners and losers below). Energy looks to rebound, with oil on track to snap its 7-day losing streak ahead of OPEC gathering this weekend. Volatility (VIX) hits its lowest level in almost a month (Oct 10), when it hit 15.83. Cannabis companies are being buoyed by legalization in Michigan, while energy investors liked results in Colorado. Banks initially gained as regulations are likely to keep easing, and tech stocks rallied (NASDAQ up over 15%) as investors’ mulled possible trade and regulatory developments. Gold on track for its first gain in 4-days as the dollar moves broadly lower vs. counterpart currencies. The S&P 500 trades back above its 200-day moving average resistance while the Nasdaq Comp spikes above the 7,500 level.
Treasuries, Currencies and Commodities
· In currency markets, the US dollar drops following the results of the US Mid-term election overnight as the Democratic Party won in the House of Representatives but the GOP held the Senate. The net impact from this is that Donald Trump will not be able to pass legislation as easily as he would have previously. The dollar has rallied over the last year on views President Trump’s policies will fuel further economic growth, and lead to higher interest rates. Seeing decline in the dollar vs. all major currencies to start the day. Treasuries rally early as yields slip.
· Commodity prices rise; Precious metals with a small bounce, as gold prices trade back above the $1,230 an ounce level following the pullback in the dollar today on mixed Congress outcome overnight. Energy futures rise, on track to snap a 7-day losing streak, ahead of weekend meetings for OPEC and its allies and the potential there for an announced supply cut. Inventory data, as has been the week for over a month, remains bearish
Sector Movers Today
· Medical equipment and devices; DVA and FMS shares rally after a proposition in California to cap dialysis profits appears to have been defeated (according to the ballot the two companies earn almost $400 million each year in California); ABMD upgraded to overweight at Morgan Stanley saying STEMI market is compelling and have conviction on a positive readout from the DTU trial on 11/11; QDEL reported a slight revenue miss along with an EPS/operating margin beat as Flu was primarily the cause for the revenue miss, due to lower distributor inventory; MYGN slides as Q1 results mixed but full year revenue guidance was reduced by 5-6 percentage points
· Healthcare supply chain/services; MGLN forecast year EPS lower as guidance missed the lowest analyst and also cuts forecast citing utilization pressures in Healthcare business; INGN shares drop as Q3 results beat but 2019 guidance signals lower sales and earnings growth; MB downgraded by a few analysts after it gave a 4Q revenue outlook that missed expectations, with one analyst saying the purchase of Booker “has brought sales execution and operational issues much bigger than we anticipated at the time of the deal”; DPLO plunges after Q3 EPS misses on lower revs and Baird downgraded as believes consensus estimates are too high
· Cannabis stocks gained (TLRY, WEED, CRON, CGC, ACB) after Michigan voted to legalize adult recreational use, and Missouri approved a medical marijuana ballot measure. Michigan becomes the 10th U.S. state to allow recreational use, along with Washington, D.C.; a similar measure in North Dakota failed to gain support. Missouri joins more than 30 other states in allowing medical use, while Utah also appeared likely to approve a medical proposal
· Software mover; FIVN rises another very strong beat and raise quarter as revenue growth accelerated to 30% y/y; DATA reported a solid Q3, with upside to annual recurring revenue (ARR) from continued subscription uptake in the enterprise segment; UCTT posts better results but disappointing guidance; MODNpost top and bottom line beat 4Q numbers but FY19 guidance is below street estimates due to ASC 606; TWLO impressive quarter with robust metrics across the business, leading to the third straight quarterly guidance increase, and sending shares higher; NEWR quarter ahead of expectations and raised its FY19 rev. target above current consensus
· Housing & Building Products; ZG missed expectations for quarterly revenue and cut its full-year guidance, sending shares sharply lower; Jefferies said with a split Congress between the Republicans and Democrats, it’s generally viewed as a positive catalyst for infrastructure spending, and they expect VMC, MLM, SUM, and EXP to react favorably; NWL with two asset sales as Pure Fishing will be sold to Sycamore Partners for around $1.3B, while Jostens was unloaded for ~$1.3B
· APC +6%; after Colorado voters rejected drilling limits, sending shares of APC, NBL, BCEI, HPR, SRCI, PDCE higher. Colorado’s proposal would have effectively banned new drilling in many parts of the state via a 2,500-ft. setback for new oil and gas development.
· ARRS +11%; following a report late yesterday that COMM was near a deal to acquire Arris for more than $5.6B
· DVA +11%; after a proposition in California to cap dialysis profits appears to have been defeated, while rival FMS shares rallied overnight in Germany
· ETSY +23%; as announces $200M stock repurchase program and raises FY18 revenue, GMS year-over-year growth view and adjusted EBITDA margin view after Q3 beat
· ITG +7%; as VIRT is buying the co for about $1 billion, with ITG shareholders to receive $30.30 in cash for each share they hold
· QEP +3%; as agreed to sell its assets in the Williston Basin in North Dakota and Montana to Vantage Energy (VEAC) for as much as $1.725B
· TLRY +6%; after Michigan voted to legalize adult recreational use, and Missouri approved a medical marijuana ballot measure
· TWLO +15%; impressive quarter with robust metrics across the business, leading to the third straight quarterly guidance increase, and sending shares higher
· ADDYY -2%after cutting its full-year currency-neutral revenue outlook to +8% to +9% growth from a prior forecast of +10%
· COTY -16%; slides after Q1 net revenue missed the lowest estimate and like-for-like revenue dropped 7.7% (group rallied yesterday after better ELF results)
· DF -16%; after lowering FY2018 Adjusted EPS expectation to 10c-30c from prior view 32c-52c, reported a bigger-than-expected quarterly loss, cut its cash-flow guidance
· DLPH -12%; trimmed full-year 2018 guidance noting a “challenging external environment, particularly in China”
· DPLO -26%; plunges after Q3 EPS misses on lower revs and Baird downgraded as believes consensus estimates are too high
· INFN -31%; on soft F3Q revenues and soft F4Q guidance and lowering its 2019 revenue outlook to ~$1.4B from an expected $1.6B annual revenue run rate (downgraded at Nomura)
· KORS -16%; cut its full-year comps sales estimate and sees its 3Q comps sales down due to unfavorable foreign exchange impact, sending shares lower
· MTCH -7%; after 3Q earnings beat estimates but 4Q revenue guidance of $440M-$450M was below the $454M estimate saying majority of the softness is external rather than fundamental
· SMG -7%; larger than expected Q4 loss, missing revenue estimates and offering disappointing full-year guidance/says Q4 sales in its U.S. consumer segment fell 2% Y/Y to $252.6M
· ZG -19%; missed expectations for quarterly revenue and cut its full-year guidance, sending shares sharply lower
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.