Morning Preview: January 7, 2019

Scott GreenDaily Market Report

Early Look

Monday, January 7, 2019

Stock futures in the U.S. point slightly lower after last Friday’s spike following the better jobs data. Attention this week on trade before the quarterly earnings barrage begins next week as the U.S. and China trade talks began, with both sides pressured by concerns over the economy and market jitters. Chinese Vice Premier Liu He unexpectedly attended the first day of talks. It’s the first formal meeting since Donald Trump and Xi Jinping agreed to a 90-day truce on Dec. 1. Also, British lawmakers will vote on Prime Minister Theresa May’s Brexit plan on Jan. 15, the BBC reported Monday, citing government sources. The vote had been set for December but was called off at the last minute to avoid a defeat.

U.S. stocks ended last week with strong returns, surging higher as a better-than-expected jobs report for December and dovishly interpreted remarks by the chairman of the Federal Reserve boosted stocks across the board. The Dow Jones Industrial Average jumped over 700 points, or 3.3%, and the S&P 500 gained 3.4% while the Nasdaq Composite was the best-performing major index, closing up 4.3%.

In Asian markets, The Nikkei Index jumped 477 points to settle at 20,038, the Shanghai Index rose 18 points to 2,533 and the Hang Seng Index gained 209 points to 25,835. In Europe, the German DAX is down about -40 points at 10,725, while the FTSE 100 is also down about -40 points just under 6,800.

In M&A news, Eli Lilly (LLY) agreed to buy shares of LOXO for $235 per share in a deal valued at about $8B (the second big M&A deal in oncology this year already (BMY agreed to buy CELG in $70B deal last week). Regarding Technology, the Consumer Electronics Show (CES) kicked off this weekend and runs all week. In energy, PG&E (PCG) plunged 15% pre-market after reports it’s considering filing for bankruptcy within weeks to organize the billions of dollars in potential liabilities from the California wildfires. We are into week three of the partial government shutdown as President Trump now plans a steel barrier instead of concrete wall, even as he renewed threats to declare a national emergency (the shutdown deadlock is affecting economic reports this week).

Market Closing Prices Yesterday

· The S&P 500 Index jumped 84.05 points, or 3.43%, to 2,531.94

· The Dow Jones Industrial Average rose 746.94 points, or 3.29%, to 23,433.16

· The Nasdaq Composite spiked 275.35 points, or 4.26%, to 6,738.86

· The Russell 2000 Index advanced 49.92 points, or 3.75% to 1,380.75

Events Calendar for Today

· 10:00 AM EST Factory Orders for November…postponed due to gov’t shutdown

· 10:00 AM EST Durable Goods Orders, Nov-F… postponed due to gov’t shutdown

· 10:00 AM EST ISM Non-Manufacturing Index, for December…est. 59.0

· 12:40 PM EST Fed’s Bostic speaks to Rotary Club of Atlanta

Other Key Events:

· Consumer Electronics Show (CES) 2019 in Las Vegas all week

· JPMorgan 37th Annual Healthcare Conference, 1/7-1/10, in San Francisco, CA

World News

· Tesla Inc. (TSLA) is set to break ground on its first giga factory outside the U.S. “Looking forward to breaking ground on the @Tesla Shanghai Gigafactory today!” Chief Executive Elon Musk tweeted Monday, Shanghai time. “Aiming to finish initial construction this summer, start Model 3 production end of year & reach high volume production next year,” Musk said

· Urban Outfitters (URBN) upgraded to hold from sell at Deutsche Bank

· Restaurants BJ’s Restaurants (BJRI) and Brinker (EAT) upgraded to Buy from Hold at Stifel and downgraded Wendy’s (WEN) to hold from buy

· Charlotte Russe is exploring options including a possible sale or bankruptcy, less than a year after reaching a deal with its lenders to slash debt, WSJ reportshttps://on.wsj.com/2TAdpzb

Energy

· PG&E Corp. (PCG) shares fell over 20% after-hours trading Friday as reports surfaced that the California utility is exploring bankruptcy to cope with massive liabilities from fatal wildfires blamed on its equipment related to fatal wildfires in 2018 and 2017

· Goldman cut its oil forecasts, saying it now expects the market to balance at a lower marginal cost due to elevated inventories, more shale, weaker demand and higher low-cost capacity. WTI will average $55.50 a barrel this year, down from a prior estimate of $64.50 – Bloomberg

· Hess Corporation (HES) and ExxonMobil (XOM) said that drilling has begun on the Haimara-1 exploration well offshore Guyana, the first of two planned exploration wells in January. The Stena Carron drillship is drilling the Haimara-1 well, located 19 miles east of the Pluma-1 discovery in the southeastern part of the Stabroek Block

· Suncor Energy (SU) highlighted total upstream production of 831,000 barrels of oil equivalent per day for Q4 on a preliminary basis, a boost of 12% from 3Q18; 4Q prelim oil sands production about 433,000 barrels per day

Financials

· Barron’s said Morgan Stanley (MS) is among stocks with low price-earnings multiples that will likely do well in coming weeks, saying the investment bank has fallen along with other bank stocks even though its business has become more stable in recent years with a focus on wealth management

Healthcare

· Eli Lilly (LLY) to buy Loxo Oncology (LOXO) for $235 per share in cash in a deal valued at about $8B, a 68% premium to Friday’s closehttps://on.mktw.net/2Qs8le3

· Amarin (AMRN) shares fell Friday late after they projected 2019 net revenue of about $350M vs. the estimate of $417.8M; reports preliminary FY18 revenue $224M-$228M vs. est. $221.35M; sees Q4 revenue $72M-$76M vs. est. $69.43M

· AbbVie Inc. (ABBV) said Friday in a filing it expects to take a $4 billion charge on its $5.8 billion takeover of Stemcentrx Inc. and may write down an additional $1 billion after its main cancer drug failed to live up to expectations

· Alder Biopharmaceuticals (ALDR) files to sell $100M in common stock

Industrials & Materials

· General Electric (GE) shares rose late Friday after Bloomberg reported Apollo Global (APO) is having discussions with bankers about lining up debt to acquire all or part of General Electrics’ (GE) jet-leasing business, which could be worth as much as $40B

· Navistar International (NAV) mentioned positively in Barron’s saying the company has come through layoffs, cost cuts and the sale of peripheral businesses much leaner — and could become an acquisition target, and Jefferies analyst has a $53 target on the stock

· Air Lease (AL) mentioned favorably in Barron’s noting shares are down some 40% over the past 12 months. For an investor with a two-to three-year time frame, this seems a relatively inexpensive price for a well-managed aircraft-leasing company. On the other side of a putative slowdown, the stock could approach its old high of $50

· Commercial Metals (CMC) Q1 EPS 35c/$1.3B vs. est. 35c/$1.33B

· Nucor’s (NUE) board has approved an investment of $1.35 billion to build a new plate mill in the U.S. Midwest, targeting the mill to be fully operational in 2022

Technology, Media & Telecom

· Barron’s said there is still plenty of value in Apple’s (AAPL) core, noting while Apple’s stock performance is currently tied to iPhone sales, its future is tied to a lucrative installed base that’s estimated to be 1.3B devices, and CEO Tim Cook needs to find a better way to monetize that base with more services revenue. Apple trades at 12 times expected 2019 earnings, lower than the 14.2 price-earnings ratio for the S&P 500 index

· Barron’s said AT&T (T) is among stocks with low price-earnings multiples that will likely do well in coming weeks, noting the telecom company has dropped 20% in the past year and investors probably expect a dividend cut, which isn’t likely to happen, according to a Cowen analyst

· Nvidia Corp. (NVDA) announced a new, lower-priced version of its newest graphics cards Sunday evening at an early CES news conference. NVDA introduced the GeForce RTX 2060 card, the latest version of gaming gear based on Nvidia’s Turing architecture for graphics processing units

· Canceled speakers at this year’s CES conference in Las Vegas include Federal Communications Commission Chairman Ajit Pai and at least nine other officials from agencies including the Federal Trade Commission, the Environmental Protection Agency, the Food and Drug Administration and the Department of Homeland Security due to the current gov’t shutdown

· Advertising agencies at Pivotal: upgrade from Hold to Buy both IPG and Publicis (PUBGY), which have $25 and €61 price targets ahead of 4Q18 earnings as fundamental views are generally unchanged but relatively low stock trading levels vs. those YE2019 targets cause firm to upgrade. WPP’s price target is raised to 1140p and we maintain our Buy while Nielsen’s (NLSN) price target is raised to $25, and OMC to $70 but also maintain a constant Hold rating

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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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