Morning Preview: December 19, 2018

Terrie AmengualDaily Market Report

Early Look

Wednesday, December 19, 2018

U.S. stocks are pointing to a strong open ahead of the FOMC two-day meeting results later this afternoon while also tracking gains overseas after signs of budget progress in Italy and on trade hopes with China. Overnight, Treasury Secretary Steven Mnuchin said the U.S. and China will meet in January to try to broker a cease-in the ongoing trade dispute, in an interview with Bloomberg on Tuesday. Chinese officials confirmed that a meeting would take place next month, the report said. Italian stocks and debt rallied early on Wednesday after the government said it had reached a budget agreement with the EU that will allow it to dodge a painful sanctions process. However, the story of the day remains the Fed with expectations for the FOMC to hike interest rates by 25 basis points, but also the likelihood for a revised dot plot that may signal fewer hikes in 2019 (while an unexpected pause can’t be ruled out given the latest round of economic data and market tantrum as well). The Fed decision is expected at 2:00 PM EST followed by a press conference from Fed Chairman Powell. In Asian markets, The Nikkei Index fell -127 points to 20,987, the Shanghai Index fell -27 points to 2,594 and the Hang Seng Index gained 51 points to settle at 25,865. In Europe, the German DAX is up about 50 points around 10,800 while the FTSE 100 is also up around 50 points at 6,750.

Stocks are looking to yesterday gains in what was yet another turbulent day of trading as major averages swung almost 2% on Tuesday as investors awaited the Federal Reserve’s Wednesday interest rate decision. The S&P 500 ended the session about where it started, after rising as much as 1.1% and falling as much as 0.7%, trying to recover from its lowest levels since the autumn of 2017. Treasury prices rose on Tuesday, pushing yields lower, as US stocks fell from intraday highs on Tuesday and as Chinese President Xi Jinping struck a defiant tone against opposition to its economic and trade policy. The 10-year Treasury note yield fell about 3 bps to 2.828% while the 2-year yield slipped 3.3 bps to 2.667%.

Market Closing Prices Yesterday

· The S&P 500 Index managed a small gain of 0.22 points, or 0.01%, to 2,546.16

· The Dow Jones Industrial Average rose 82.66 points, or 0.35%, to 23,675.64

· The Nasdaq Composite climbed 30.18 points, or 0.45%, to 6,783.91

· The Russell 2000 Index declined -0.97 points, or 0.07% to 1,377.18

Events Calendar for Today

· 7:00 AM EST MBA Mortgage Applications Data

· 8:30 AM EST Current Account Balance for Q3…est. (-$125.0B)

· 10:00 AM EST Existing Home Sales MoM for November…est. 5.2M

· 10:30 AM EST Weekly DOE Inventory Data

· 2:00 PM EST FOMC Rate Policy Decision (25 basis point hike expected)

Earnings Calendar:

· Earnings Before the Open: GIS, NCS, PAYX, WGO

· Earnings After the Close: MLHR, PIR, RAD, REVG, TWST

World News

· Inflation in the U.K. cooled in November, bringing the annual rate closer to the Bank of England’s 2% target. The central bank has signaled that it is poised to raised interest rates three or more times in the next couple of years to keep a lid on price growth, assuming Britain’s exit from the European Union in March goes smoothly. Annual inflation in the U.K. was 2.3% in November, down from 2.4% a month earlier, the Office for National Statistics said

· Investor Intelligence said equity newsletter writers classified as bulls erases more of the jump that occurred two weeks ago; tumbles to 39.3% versus 45.4% last week; those expecting a correction recoups more of Dec. 5th’s large drop, rises to 39.3% from 34.2%; while bearish sentiment rises to 21.4% from 20.4%; prior week was 21.5%

Sector News Breakdown


· Steelcase (SCS) Q3 EPS 36c/$901M vs. est. 30c/$900M; sees Q4 EPS 24c-28c on sales $860M-$885M vs. est. 26c/$858M; 3Q gross profit margin 30.9%

· Sears Holdings (SHLDQ) said it expects to incur charges of about $443M in Q3 and Q4 as a result of the store closures announced on 10/15; said the charges include $81M in markdowns, $9M in severance costs, $335M in lease termination costs, $12M in other charges, and $6M in depreciation


· Centerbridge Partners L.P. has inked a deal to buy Civitas Solutions Inc. (CIVI) for $1.4 billion, the company said; Centerbridge will pay $17.75 a share in cash

· Diamondback Energy (FANG) said it sees 2019 annual production 275 MBoe/d to 290 MBoe/d; sees year capital expenditures of $2.7 billion to $3.1 billion and boosted its annual cash dividend to 75c per share from 50c

· The American Petroleum Institute (API) reported that U.S. crude supplies rose by 3.5M barrels for the week ended Dec. 14, showed that gasoline stockpiles climbed by 1.8M barrels, while distillate inventories fell by -3.4M barrels


· Pfizer Inc. (PFE) and GlaxoSmithKline PLC (GSK) plan to combine their consumer health-care units, and eventually spin the joint venture off — creating a global giant in the business of selling drugstore staples like Advil and Sensodyne toothpaste.

· Eli Lilly (LLY) raises its quarterly dividend to 64.5c from 56.25c ahead of its investor day; sees 2019 adjusted EPS $5.90 to $6.00 vs estimate $5.82; sees 2019 revenue $25.3B-$25.8B vs. estimate $24.7B and reaffirms 2018 adjusted EPS forecast

· Ligand (LGND) sees FY19 adjusted EPS roughly $5.50 and sees FY19 revenue at least $212M, vs. consensus $204.23M; expects revenue in 2019 to be at least $212M, with up to an additional $40M of potential milestone and license payment; raises FY18 EPS view to roughly $6.63 from $6.52

· Eli Lilly and Company (LLY) and Aduro Biotech, Inc. (ADRO) announced a research collaboration and exclusive license agreement for Aduro’s cGAS-STING Pathway Inhibitor program for the R&D of novel immunotherapies for autoimmune and other inflammatory diseases. Aduro will receive an upfront payment of $12M and will be eligible for milestones up to approximately $620M

· Alkermes (ALKS) downgraded to Sell from Neutral at Goldman Sachs with $26 tgt

· Sage Therapeutics (SAGE) files automatic mixed securities shelf

· OraSure (OSUR) files $300M mixed securities shelf

Industrials & Materials

· FedEx (FDX) Q2 EPS $4.03/$17.8B vs. est. $3.94/$17.75B; Q2 operating margin 7.5% vs. 7.6% last year; cut its year outlook citing European weakness to $15.50-$16.50 from $17.20-$17.80 (est. $17.33) and announced cost reduction actions that include a “voluntary buyout program for eligible employees, international network capacity reductions at FedEx Express, limited hiring in staff functions

· AAR Corp. (AIR) Q2 EPS 59c/$493.3M vs. est. 57c/$498M; 2Q adjusted Ebitda $40.8M; Consolidated sales increased 17.3% over the prior year period due to continued growth in our trading, distribution and programs activities

· ABM Industries (ABM) Q4 EPS 58c/$1.65B vs. est. 56c/$1.68B; sees FY adjusted EPS $1.90-$2.05 vs. est. $2.05; raises quarterly dividend to 18c from 17.5c

· MDU Resources (MDU) announced that its construction businesses have record November combined backlog of $1.6B as of Nov. 30, 2018, compared to backlog of $1.1B at the same time last year

· 3M (MMM) announced that it has entered into a definitive agreement to acquire the technology business of M*Modal, for a total enterprise value of $1B. M*Modal is a healthcare technology provider of cloud-based, conversational artificial intelligence, or AI-powered systems

Technology, Media & Telecom

· Micron (MU) shares fell -5%; reported sales that fell short of analysts’ estimates; Q1 EPS $2.97/$7.91B vs. est. $2.96/$8.02B; reduced stated plans to increase production of both NAND and DRAM memory, admitting that increased supply would have outpaced wakening demand; sees Q2 EPS $1.65-$1.85 on revs $5.7B-$6.3B well below the $2.39/$7.26B est.

· Jabil (JBL) Q1 core EPS 90c/$6.5B vs. est. 88c/$6.1B; sees Q2 core EPS 51c-71c on revs $5.8B-$6.4B vs. est. 61c/$5.81B

· Semi-equipment stocks (AMAT, LRCX, KLAC) slipped after hours yesterday after Micron cap-ex

· Facebook Inc. (FB) shared its users’ data with major companies to a far greater extent than it had previously admitted, the New York Times reported Tuesday night


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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