Mid-Morning Look: December 21, 2018

Scott GreenDaily Market Report

Mid-Morning Look

Friday, December 21, 2018

U.S. equities, which coming into today was on track for weekly losses of over 5% for all major indexes, failed early, sliding to lows as fears of a government shutdown intensified. However, Fed President John Williams (although there weren’t supposed to be any Fed comments for the rest of the year post FOMC), walked back Wednesday’s FOMC policy statement and Powell press conference, saying in a CNBC interview that the Fed would promise to “listen carefully” to the market and said stands ready to “re-assess” its view. Williams emphasized in the CNBC interview that the language had been softened from suggesting those future hikes were projections. He said it’s not a matter of “right or wrong” with Wall Street and the Fed appearing on divergent paths right now. The comments helped boost markets well off the earlier lows, moving back into positive territory. Shares of Dow component NKE helping after stronger-than-expected quarterly results. Next possible catalyst for markets, hopes to avoid the partial government shutdown set to start at midnight. President Donald Trump will meet with Senate Republicans Friday morning to discuss government funding and border security, White House press secretary Sarah Sanders said. The meeting comes just hours before parts of the government are scheduled to shut down on no funding agreement. Oil prices rebound off earlier lows (still on track for big weekly losses), while the dollar surges after three-days of declines and yields higher.

Economic Data

· GDP data slight miss; the U.S. economy grew at an annual 3.4% pace in Q3 instead of 3.5%, revised government data show as slightly weaker consumer spending mostly accounted for the downward revision (GDP rose 4.2% last quarter). Personal consumption rose 3.5% in 3Q after rising 3.8% prior quarter and was below the 3.6% estimate.

· GDP price index rose 1.8% in 3Q after rising 3.0% prior quarter (and was above the 1.7% estimate) while core PCE q/q rose 1.6% in 3Q after rising 2.1% prior quarter (above the 1.5% est.)

· Durable Goods Orders for November rise 0.8%, missing the 1.6% estimate while Durable goods new orders unrevised in Oct. at -4.3%; new orders ex-trans. fell 0.3% in Nov. after 0.4% rise and new orders ex-defense fell 0.1% in Nov. after 1.4% fall

· The U.S. Michigan Sentiment (Dec-F) rose to 98.3, topping the 97.4 estimate and was above the 97.5 in the preliminary reading (which was same last month); the expectations index fell to 87.0 vs. 88.1 last month and the current economic conditions index rose to 116.1 vs. 112.3 last month

· Personal Income for Nov rose 0.2%, slightly missing the 0.3% estimate while personal consumption rose 0.4%, topping the 0.3% estimate; real personal spending rose 0.3% (in-line with estimates) while PCE prices rose 0.1% (vs. est. 0.0%) and up 1.8% YoY; core inflation rose 0.1% (below the 0.2% est.) and rose 1.9% YoY; savings rate at 6.0% in Nov. vs 6.1% last month

Sector Movers Today

· Aerospace & Defense; stocks in the sector (LLL, GD, NOC, LMT, RTN) trading at 52-week lows today, with renewed selling coming as concerns of a government shutdown intensified, and after the Secretary of Defense James Mattis resigned last night following the President’s announcement about withdrawing troops from Syria

· Semiconductors; AVGO was added to JPMorgan’s Analyst Focus List calling it their top pick in semiconductors heading into 2019 citing multiple tailwinds that include the cloud datacenter networking upgrade cycle and broadband segment recovery; CAMP reported Q3 results generally in-line with the pre-announcement with the shortfall attributable to supply chain diversification efforts and European (UK) macro weakness;TER was downgraded to neutral at Baird; NXPI was initiated overweight and $100 tgt at Piper saying it has about 70% exposure to “two of the best” end markets for semiconductors, automotive and industrial and attractive valuation

· Energy; Citigroup upgraded COG, CLR, MRO and PE to Buy saying despite lowering estimates sharply, they believe there is limited downside to oil prices apart from a global economic recession. And valuations for coverage group, on average, currently reflect $49/Bbl (WTI) and $2.65/MMBtu. Thus, while they remain cautious near term, they are more constructive longer term with an outlook for improving returns

Stock GAINERS

· DFRG +4%; after saying it started a review of strategic alternatives, including a possible sale of the company or any of its dining concepts

· KMX +6%; after reporting 3Q used unit sales in comparable stores fell an unexpected (-1.2%), vs. estimate rise of +1.8, while Q3 sales just miss at $4.3B vs. est. $4.33B but EPS beat

· NKE +8%; upgraded by a few analysts (JPM, Pivotal) after reported better-than-expected 2Q19 sales and EPS and raised its sales and GM guidance for the year

· NTES +4% and TCEHY rise after a senior official with China’s government watchdog says the first batch of game approvals had been completed.

· OBLN +54%; after announcing the FDA approval for its Navigation System, which removes the need for an x-ray when placing the Obalon Balloon System obesity treatment

· ZNGA +5%; after announced $560M acquisition of a top grossing Finnish mobile game called Empire & Puzzles and also raised the 4Q outlook, thanks to strong performance of key games

Stock LAGGARDS

· CAMP -7%; reported Q3 results generally in-line with the pre-announcement with the shortfall attributable to supply chain diversification efforts and European (UK) macro weakness

· LMT -2%; as defense stocks fall to 52-week lows on government shutdown fears and resignation of Secretary of Defense James Mattis last night

· MO -2%; downgraded to sell from neutral at Citigroup and cut its tgt to $45 from $67 on view the price paid offsets most of the future potential benefit

· PRGO -21%; following a tax dispute with Irish authorities, including a $1.8 billion tax assessment, which relates to the 2013 sale by a Perrigo subsidiary, Elan Pharma

· TLRY -5%; after shares jumped this week on two large strategic partnerships with market leaders in the pharmaceutical and the beverage industries

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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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