Monday, November 12, 2018
U.S. equities start the week under pressure, led by declines in technology yet again, as a profit warning in the Apple supply chain drops shares of opticals, semiconductors and Dow component AAPL. The Philly semi index (SOX) falls as much as 45 points or 3.7% to trade as low as 1,182, while energy stocks look to rebound with oil prices on track to snap their record 10-day losing streak following commentary from OPEC members this weekend on production. European Brexit pressure on sterling creating further pound volatility as the US dollar broadly higher on the day. Treasury markets are closed today due to the U.S. Veteran’s Day holiday. Trading volumes a little thinner than normal given the US holiday, but markets slowly pulling back throughout the morning thus far, with the S&P 500 index falling back below its 200-day MA support of 2,762, while the Nasdaq drops over 1.75%. Busy week of economic data, Fed speakers, while earnings season begins to slow and attention turns back to trade with China.
Treasuries, Currencies and Commodities
· In currency markets, the US dollar is broadly higher vs. major such as the euro (falls to 18-month lows) and British Pound (back down near the 1.29 level), while flattish vs. the Japanese yen; the Canadian dollar is one of the best performers, buoyed by climbing oil prices and rising against the greenback even as most of its peers slide against the U.S. currency. Precious metals on track for its 8th straight day of declines, falling in reaction to the recent spike in the US dollar. Treasury markets are closed in observance of Veteran’s Day.
· Energy prices look to rebound, with oil trying to snap its record 10-day losing streak; WTI crude rises after Saudi Arabia said OPEC and its allies should reverse about half the increase in oil output they made earlier this year. Note both crude benchmarks have plummeted around 20% since trading at 4-year highs just a month ago. WTI crude moves back above $61 per barrel after dropping below $60 per barrel late last week.
Sector Movers Today
· Consumer Staples; tobacco stocks decline amid news of a possible ban on menthol cigarettes in the U.S., which would eliminate certain products/a senior FDA official said last week that the agency is looking at restricting menthol in traditional cigarettes (shares of BTI, MO, PM fell); BUD downgraded at Argus saying mgmt cutting the dividend in half, reduces the attraction of the stock for the income it generates; COTY CEO s stepping down with immediate effect for family reasons
· Optical sector volatile again; group rallied last week behind IIVI $3B deal to acquire FNSR; however, the group crushed this morning after Apple supplier LITE cut its Q2 outlook (sees Q2 EPS $1.15-$1.34 on revs $335M-$355M below est. $1.67/$422.2M) as one of its largest Industrial and Consumer customers for laser diodes for 3D sensing asked to meaningfully reduce shipments for previously placed orders (AAPL is LITEs biggest customer); shares of OCLR (which is being bought by LITE), CIEN as well as Apple suppliers QRVO, CRUS lower
· Semiconductors; Citigroup downgraded SWKS to Neutral from Buy on broad smartphone weakness, disappointing iPhone XR unit sales, and high Apple concentration ~39% of sales in F17, also cut tgt on QRVO to $75 from $86 as weak iPhone XR units where Qorvo won incremental mid-high band $ content will have a negative impact on gross margins and cut tgt on NVDA ahead of earnings to $270 from $300 on market multiple compression. Longbow warned that Apple is facing weak iPhone demand in China
· Morgan Stanley recommends buying midcap banks after the recent selloff as fundamentals remain relatively solid (“still-positive NIM expansion from further Fed rate hikes, excellent credit quality, and mid-single-digit loan growth, despite growing nonbank competition”) as the firm upgraded both CMA and SNV to an overweight and downgrade CFR to an underweight
· APTI +50%; acquired by Vista Equity Partners for $1.94B, with shareholders getting $38 a share, representing a 53% premium to Friday’s closing price of $24.85
· ATHN +8%; confirmed reports over the weekend, as agrees to be acquired by Veritas for $135 per share, in deal valued at about $5.7B in cash
· ISCA +7%; Nascar offered to acquire the company in a deal valued at $1.85B, or $42 and would combine the companies into a privately held group
· KORS +2%; upgraded at Bernstein given a more balanced risk reward profile at current valuation
· NKTR +8%; as a highly-anticipated clinical update from Nektar Therapeutics at a cancer meeting on Friday failed to impress, but showed encouraging complete responses in melanoma patient
· AAPL -4%; dragging the Dow and Nasdaq lower after iPhone parts supplier Lumentum issues profit warning, dragging down the whole Apple supply chain
· ABMD -10%; released the results from STEMI DTU study over the weekend for Impella/Guggenheim said expect the data to strike investors as somewhat underwhelming, with no significant difference in infarct size observed between the two arms
· ACM -8%; after the company sets disappointing guidance as sees full-year EPS is $2.60 to $2.90 below the $3.01 consensus
· BTI -7%; amid news of a possible ban on menthol cigarettes in the U.S., which would eliminate certain products (shares of PM, MO also weak)
· GE -6%; falls below $8 per share with Credit Suisse the latest to be cautious on shares, cutting tgt to $10 citing poor visibility into fundamentals, such as Power and Aviation margin, as well as uncertainty around liabilities
· GNC -16%; after Q3 earnings missed the lowest estimates
· LITE -29%; cut its Q2 outlook as one of its largest Industrial and Consumer customers for laser diodes for 3D sensing asked to meaningfully reduce shipments for previously placed orders; sees Q2 EPS $1.15-$1.34 on revs $335M-$355M below est. $1.67/$422.2M
· PCG -22%; and EIX shares plunge amid California wildfires/so-called Camp Fire in Northern California and the Woolsey Fire in suburban LA have destroyed more than 6,700 structures and could cost the state, insurers and homeowners at least $19 billion in damage
· SWKS -3%; Citigroup downgraded to Neutral from Buy on broad smartphone weakness, disappointing iPhone XR unit sales, and high Apple concentration ~39% of sales in F17
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.