Mid-Morning Look: December 17, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Monday, December 17, 2018

U.S. equities start off the week under pressure, as the Dow Industrials falls as much as 300-points or over 1.25%, breaking below the 24K level, while the S&P 500 index took out is December 10th intraday low of 2,583 earlier. Data in the U.S. weaker as Empire State manufacturing index missed estimates, slumping in December to 19-month lows, ahead of FOMC rate meeting this week (further improves chances of the Fed taking rate hikes slower in 2019). Negative headlines for several Dow components over the last 2-days as JNJ extends its losses from Friday despite the company adamantly refuted allegations that it knew a popular baby powder product was contaminated. Today, managed care giant UNH falls after a U.S. federal district court ruled that the Patient Protection and Affordable Care Act (PPACA) of 2010 was unconstitutional (hitting HMO’s and hospitals) and GS shares slide after Malaysian authorities filed criminal charges against the company and a former partner of the bank in connection with the 1MDB financial scandal. Busy week upcoming for global markets with rate decisions in the U.S, England and Japan and as the U.S. remains on course for a partial government shutdown later this week. The news doesn’t even take into account the ongoing market fears of trade with China and UK Brexit.

Treasuries, Currencies and Commodities

· In currency markets, the dollar falling quickly vs. the safe-haven Japanese yen, down -0.4% to move below the 113 level (off overnight highs 113.52); the US dollar overall, generally lower vs. major rivals, with the pound and euro moving higher; weaker US manufacturing data (NY) not helping the greenback ahead of the FOMC meeting later this week

· Commodity prices a little boost as the dollar slips, with gold prices inching higher to around $1,245 an ounce; meanwhile oil prices are lower, with WTI crude falling below $51 per barrel extending last week’s slide; natural gas prices extend losses, down another 4% (this after January natural gas dropped 29.7c, or 7.2%, to settle at $3.827/mln Btu’s Friday, down roughly 15% for the week and well off its November highs of $4.964 mln btu’s)

· Treasury market’s rally as stocks tumble, with investors rotating into safety yields still sliding as the 10-year down at 2.862%, 2-yr under 2.7% and the 30-yr down at 3.12%

Economic Data

· New York Fed Empire Index dropped to 10.9, well below last month’s 23.3 reading and below the estimate reading of 20, falling to the lowest since May 2017; breakdown showed Prices paid fell to 39.7 vs 44.5 last month while new orders fell to 14.5 vs 20.4; the number of employees rose to 26.1 vs 14.1 though work hours fell to 8 vs 9.2; six-month general business conditions fell to 30.6 vs 33.6; December shipments fell 7 points to 21

· U.S. Home Builders’ Confidence index (NAHB) in December falls to 56 vs 60 last month (down from 74 a year ago), touching the lowest levels since May 2015; the present single family sales falls to 61 vs 67 last month and the future single family sales falls to 61 vs 65 last month

Sector Movers Today

· Hospitals and Managed care industry under pressure after a U.S. federal district court ruled that the Patient Protection and Affordable Care Act (PPACA) of 2010 was unconstitutional. Seventeen Democrat-led states have intervened and will lead a coalition appealing Judge Reed O’Connor’s decision to the 5th U.S. Circuit Court of Appeals. O’Connor didn’t issue an injunction, so there’s thus no immediate effect on the ACA for 2019 (shares of HMO’s UNH, WCG, MOC, CNC, CI, HUM were active as well as hospital providers THC, UHS, CYH)

· Retailers; European retailers fell after online retailing giant ASOS PLC cut its full-year outlook, sending its rivals into the red; BBY was downgraded to underperform at Bank America amid concerns on sales of TVs, gaming products and the Apple business/thinks slowing industry growth, tough compares in key products and cost inflation hurts the upside case on BBY; Stifel upgraded shares of both LULU and GIII to buy from hold; European Union regulators fine GES €$40M for creating higher consumer prices by blocking cross-border sales in Europe through its actions; BKS was upgraded to buy and $10 tgt at Craig Hallum noting several data points indicating an improved holiday season

· Chemicals; SMG upgraded to outperform at Raymond James based on our view that the stock’s recent pullback is not indicative of any material deterioration in fundamentals and thus provides an improved risk/reward profile; SHW was upgraded to overweight at JPMorgan and up tgt to $415 saying raw material prices for paint and coatings companies should be lower in 2019 than in 2018; LYB was upgraded to buy at Deutsche Bank as expects the ethylene cycle downturn to be short and shallow as LYB is trading at the low end of the peak earnings range for sector

· Industrial & Machinery; EMR was downgraded at Barclays saying that the company’s top-line growth will decelerate and the cyclical backdrop is deteriorating/separately, EMR said trailing three-month orders increased 5% and underlying orders remained in the 5%-10% range; ABB agreed to sell an 80.1% stake in its power grids division to Hitachi, generating net cash proceeds of between $7.6 billion and $7.8 billion; https://on.mktw.net/2rEbUE1

· Credit card sector; monthly credit card data out as: 1) SYF November net charge-off rate 4.64% vs. 4.85% last month and 30-plus day delinquencies 2.91% vs,. 2.95% last month; 2) ADS Net charge-offs fall to 5.5% of average receivables in November from 5.7% in October and card services delinquency rate improves slightly to 5.7% from 5.8% in October; 3) JPM Nov. Credit-Card Charge-Offs 2.26% vs. 2.19% MoM while delinquencies 1.19%, vs. 1.18% in October; 4) COF November net charge-offs 4.72% vs. 4.25% last month and 30-plus day performing delinquencies 4.08% vs. 3.99% last month/auto credit card charge-offs 1.88% vs. 2.04%

       Stock GAINERS

· ERJ +4%; finalized the terms of a proposed deal to sell 80% of its commercial aviation business to BA for $4.2B, though the transaction still needs approval from the Brazilian government, as well as shareholders and regulators

· JACK +5%; said it is exploring strategic and financing alternatives, which could include a sale of the company or executing on previously announced plans to increase its leverage

· MSG +4%; after ESPN reported New York Knicks owner James Dolan, who has put the New York Liberty up for sale, said he couldn’t rule out selling the Knicks if the right offer came along https://es.pn/2UUrzwa

· STT +2%; as financials among the top gainers in the S&P 500 index early after underperformance by large cap, regional and trust banks on lower yields, slowing growth fears

Stock LAGGARDS

· ACHC -6%; after the company replaced CEO Jacobs with Debbie Osteen, former President of the Behavioral Health Division of Universal Health Services, Inc

· BBY -3%; downgraded to underperform at Bank America amid concerns on sales of TVs, gaming products and the Apple business/thinks slowing industry growth, tough compares in key products and cost inflation hurts the upside case on BBY

· CNC -6%; along with weakness in HMO’s/Hospitals after a U.S. federal district court ruled that the Patient Protection and Affordable Care Act (PPACA) of 2010 was unconstitutional

· GS -2%; after Malaysian authorities filed criminal charges against the company and a former partner of the bank in connection with the 1MDB financial scandal

· JNJ -2%; took out Friday’s low of around $130, extending last Friday concerns that J&J knew for decades that asbestos had been found in its talc products

· MOH -14%; along with weakness in HMO’s/Hospitals after a U.S. federal district court ruled that the Patient Protection and Affordable Care Act (PPACA) of 2010 was unconstitutional

· PCG -6%; now faces potential penalties for allegedly breaking natural gas pipeline safety rules and falsifying records, state regulators said

· TDOC -4%; after Teladoc’s COO and CFO Hirschhorn resign while the company reaffirms guidance

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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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