Mid-Morning Look: November 14, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Wednesday, November 14, 2018

U.S. equities advanced, as the S&P 500 index looks to snap its 4-day losing streak, with gains broad sector based early. However, much like yesterday, stocks were unable to hold early gains, with the Nasdaq Composite falling more than 80 points off its intraday best levels back to the 7,200 level as tech remains a drag on markets (has since bounced again). Consumer prices (CPI) offered mixed messages on the inflation outlook. Energy prices are higher, as WTI crude looks to snap its record 12-day losing streak, while natural gas prices surged to best levels since 2014 on forecasts for unseasonably cold temperatures along the Northeast. Energy companies leading higher for a change as oil prices recover, while retailers mixed despite better results from Macy’s this morning. With a December interest rate hike likely fully priced in, market attention remains on trade with China (which had a set of mixed economic data overnight), the UK Brexit issue and Italy debt concerns, as the potential partial government shutdown in about three weeks as we head into the holiday season.

Treasuries, Currencies and Commodities

· In currency markets, the U.S. dollar slipped from earlier highs, as the euro climbs and the Pound moves back to the 1.30 level as markets assess the likelihood U.K. Prime Minister Theresa May will be able to win approval of a draft Brexit deal in the face of heavy skepticism from members of her own government. If May is able to win support for the proposal from government ministers, a summit of European Union leaders could be called for later this month. The dollar rises back near the 114 level vs. the Japanese yen. Today’s inflation data (CPI) was in-line with forecasts, but still showed a spike in prices, following “hotter” PPI data last week. Treasury prices little changed.

· Precious metals are little changed after falling from 7-month highs just last week, with prices back down around the $1,200 an ounce level. Oil price actionhas moved from a selloff to a collapse, with West Texas Intermediate plunging 7.1% in yesterday’s session after OPEC warned that demand for its crude is falling faster than expected. Oil prices with a modest rebound today after falling more than 23% from its best levels just a few weeks ago ahead of inventory data

Economic Data

· Inflation data mostly in-line (but still biggest increase since January) as consumer prices for October rose 0.3%, matching the economist estimates while core prices (ex: food & energy) rose 0.2%, also in-line; Year-over-year, headline CPI rise 2.5% (in-line) and core was 2.1%, slightly below the 2.2% estimate. The CPI data comes in lighter than last week’s surge in producer prices

Sector Movers Today

· Cannabis sector active after earnings; TLRY shares initially fell on Q3 EPS (8c) on revs $10M and a lower average selling price per gram (average net selling price per gram was $6.21 (C$7.98), down from $7.53 a year ago) as the cannabis producer prepared for legal sales in Canada; its net loss was $18.7M, or 20 cents a share, compared with $1.8M; sold 1,613-kilogram equivalents of cannabis in the quarter, more than double the prior year’s sales of 684 kilograms; CGC shares fell following its fiscal Q2 report that missed consensus as revs were C$23.3M (+31.8%), gross profit: (C$10.9M) and net loss: (C$337.1M) (-999%) while kilograms and kilogram equivalents of cannabis sold: 2,197 (+8.8%)

· Autos; sector active as MTOR slides past consensus estimates with its FQ4 report on better revs and Ebitda driven primarily by conversion on higher revenue and the favorable impact of changes to retiree medical benefits; Bloomberg reported the Trump administration will hold off for now on imposing new tariffs on imported automobiles, according to Bloomberg (NSANY, HMC, TM shares were active on the reports); auto supplier price targets were lowered by about 20% at Morgan Stanley as sees limited support for the stocks until there is more clarity around China and the guidance for 2019 is de-risked (cut tgt on ADNT, APTV, AXL, BWA, DLPH, GT, LEA, MGA, TEN, and VC); Morgan also upgraded GPI to equal-weight saying sales pressures in the U.K. from a new regulation have been sufficiently discounted in the stock; ORLY announced $1B share buyback

· Natural Gas E&P stocks active (CHK, SWN, COG, RRC, GPOR) as nat gas prices spike more than 13% to $4.636/MMbtu (moved above $4 yesterday for 1sttime since 2014) on an outlook for colder winter weather across most of northeast U.S. Nov. 19-23 according to NOAA

· Consumer Staples; CAG was downgraded to underperform at Bernstein and cut tgt to street-low $31 from $34 amid slowing growth in frozen entrees, troubling trends at recently-acquired Pinnacle Foods, and demands from retailers for more investment; in tobacco, Wells Fargo moves PM to top stock pick as visibility further improves/set up heading into 2019 is even more positive than we originally thought (OW rated and $100 tgt); Kellogg (K) was cut to neutral at JPMorgan

· Brokers/Asset managers; SCHW reported net new client assets for the Oct. of $14.9B and Oct. new brokerage accounts 133,000; ETFC says it added 46,760 gross new brokerage accounts in October, and ended the month with 3.95 million brokerage accounts. Morgan Stanley upgraded AMTD to overweight as favor discount brokers saying its more defensive earnings profile and upside to consensus on BDA revs drive our upgrade. Morgan downgraded APO and CGto Equal-weight as they reduce capital markets exposure (top picks are AMTD, ETFC, SCHW, and VCTR)

       Stock GAINERS

· GOOS +15%; reported better results on higher margins and boosted guidance for full year to rev growth of at least 30% from prior view of 20%

· MTSI +16%; reported largely in-line F4Q results and guided F1Q near consensus

· PENN +9%; added to the JPMorgan focus list saying valuation seems to be the most mispriced among the lot of downtrodden gaming operator stocks

· QIWI +13%; as boosts its 2018 guidance on strong performance from its payment services segment and the recognition of Tochka project revenue for most of H2 2018

· REZI +4%; quarterly results beat, helped by solid growth at ADI, as revs were $1.2B/full-year guidance was raised to the high-end of the range

· SVMK +10%; delivered stronger-than-expected results across almost every metric, including ending paying users, ARPU, and profitability, as revenue came in above estimate

· TAHO +46%; after PAAS agreed to buy the company for around $1.07B or $3.40 per share cash (or in stock at 0.2403 PAAS shares) https://reut.rs/2RUfWmW

Stock LAGGARDS

· AMRS -24%; as Q3 EPS loss (63c)/$14.9M vs. est. loss (17c)/$46.72M (missing estimates)

· CDLX -15%; as reported softness in 3Q revenues and the 4Q outlook, due in part to a few advertisers not being in the channel in 3Q and less certainty around the timing of advertiser spend for new Chase users in 4Q

· CF -8%; as nitrogen based names fall (NTR as well) after India’s latest urea tender price of $335/tonne fell short of expectations

· PCG -18%; after an electrical power equipment owned by California’s largest utility company appeared to have malfunctioned in an area where the state’s deadliest wildfire started last week, according to a filing/also said after drawing down revolving credit facilities

· SGMO -10%; downgraded at JPM today as the company said it was no longer planning to present hemophilia results at the ASH conference in December

· SNAP -6%; after the company said it was subpoenaed by DOJ, SEC for information about its March 2017 IPO, Reuter’s first reported

· SWCH -9%; results were mixed, as revenues and adjusted EBITDA just missed estimates, but full-year guidance was maintained/BMO said new customer activity has been slower than expected

· TLRY -8%; Q3 EPS (8c) on revs $10M and a lower average selling price per gram (average net selling price per gram was $6.21 (C$7.98), down from $7.53 a year ago)

Syndicate

· Amalgamated Bank (AMAL) 2M share Spot Secondary priced at $19.25

· Baker Hughes (BHGE) 92M share Secondary priced at $23.00

· CareDx (CDNA) 2M share Spot Secondary priced at $24.50

· Ladder Capital (LADR) 5.8M share Spot Secondary priced at $17.25

· Vapotherm (VAPO) 4M share IPO priced at $14.00

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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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