Mid-Morning Look: January 9, 2019

Terrie AmengualDaily Market Report

Mid-Morning Look

Wednesday, January 9, 2019
 

U.S. equities on track for a 4th straight day of gains, longest such streak since November as rising expectations of a trade deal between the United States and China boosted demand for risk assets across the globe. Semiconductor chip stocks among the top sector gainers despite SWKS EPS/rev warning last night, not as severe as expected given recent warnings from Apple and Samsung. Financials gaining as a few analysts turn positive on the sector following sell-off. Energy shares rise as oil prices climb for an 8th straight day on bullish Saudi comments. The dollar extended losses to 3-month lows after comments from two Federal Reserve officials, hours before the central bank FOMC Minutes. Treasury yields are steady after rising earlier (10-year moved above 2.74%), while gold rises. Federal Reserve Bank of Chicago President Charles Evans said the central bank can take some time before it raises rates again amid an uncertain economic outlook. Federal Reserve Bank of Atlanta President Raphael Bostic, a non-voting member, said the Fed has short-term interest rates about where they need to be right now amid uncertainty over the economic outlook. Not much reaction from President Trump’s plea last night on the border wall with Mexico, as the partial government shutdown rolls into day-19.

 

Treasuries, Currencies and Commodities

· In currency markets, the US dollar declined to a near 3-month low, as the euro rises above the $1.15 level (best levels since October), falling further vs. the Canadian dollar as oil prices extend recent gains, and the British Pound gains ahead of Brexit vote next week. The dollar extended losses Wednesday on dovish comments from two Federal Reserve officials (Evans/Bostic). The Bank of Canada held interest rates steady as expected and indicated the pace of future hikes could be more gradual as the economy is hit by slumping prices for oil.

· Commodity prices outperform, with oil prices rising for an 8th straight day, topping $51 per barrel for WTI and $60 for Brent after bottoming at 18-month lows above $40 2-weeks ago, helped today by positive Saudi Arabia comments and a pullback in the dollar. Gold prices also benefitting from the drop in the dollar and further gains in stocks (rotate out of defensive names)

 

Sector Movers Today

· Housing & Building Products; LEN reported lower-than-expected quarterly home sales and orders on while also put off giving a forecast for 2019 citing “continued softness and uncertainty” in the housing market; DHI was upgraded at Keefe Bruyette & Woods, more positive sentiment and a 43 basis-point decline in mortgage rates may drive a rally in homebuilder stocks soon as firm likes DHI and LEN due to product segmentation, geographic footprint, and product segmentation; LOW was upgraded to overweight at Barclay’s saying it should trade at a discount to HD until it can sustain comparable sales of a similar, or even a slightly lower level than HD

· Retailers; URBN was upgraded to overweight at Morgan Stanley with $44 tgt, saying that the stock’s recent pullback is a good entry point; RL was upgraded to buy and $157 tgt at Buckingham saying while trade and tariff legislation and central bank uncertainty remain, a recent sharp share retrenchment across the Global Branded Apparel, Footwear and Retail Coverage largely bakes in these risks; NKE was downgraded to neutral at Baird while upgraded FL to outperform and raised its tgt to $65 from $60; GCO downgraded to hold at Pivotal; FIVE downgraded to hold at Loop Capital whileJCP 9-week comp store sales fell 3.5% on shifted basis

· Casino & Leisure movers; in lodging, JPMorgan cut their 2019 and 2020 estimates for RevPAR, or revenue per available room, by ~100 basis points due to expectations of slowing corporate transient travel in the U.S. and weaker growth abroad. CPLG upgraded to neutral from underweight, PT $14 from $16, seeing a more balanced risk-reward at current valuation; raises WYND PT to $45 from $43; stays positive on HGV while cutting PT to $36 from $38

· Bank movers; lots of analysts weighing in on banks today given pullback in sector: 1) UBS upgraded banks BAC to buy and is recommending adding exposure to large-cap bank shares as sentiment on stocks “has come full circle” after a dismal 2018 (also upgraded regional banks RF and MTB); 2) Citigroup upgraded CFG and MS to Buy, downgrades BK to Neutral and reassumes coverage on FITB with a Buy as see ~15% upside on average for their universe from here as expect bank valuation multiples to re-rate higher as risk sentiment improves

· Packaging stocks; Wells Fargo downgraded IP and PKG to market perform from outperform saying headline risk of falling containerboard prices, incremental capacity, and trade uncertainty could render containerboard stocks range bound (at very least) for the next six-twelve months. Should domestic containerboard prices erode beyond our current $50/ton assumption, they see potential downside risk of 15-20% across the containerboard complex. Goldman Sachs said that when the packagers report in upcoming earnings season, initial 2019 guidance likely to disappoint the market; recommends buying BERY, SEE as resin and freight costs are subsiding

· Auto sector; Morgan Stanley noted auto-supplier stocks’ (BWA, ADNT, LEA) have risen over 12% the last three day, likely been driven by short covering amid optimism for stimulus in China; AAP was upgraded to buy at Bank America saying the recent pullback in the stock presents a particularly attractive opportunity, while GPC was raised to neutral from underperform saying while the company’s auto segment is expected to see accelerating growth trends, GPC’s other business segments are likely to decelerate, mitigating the auto cycle benefit

 

      Stock GAINERS

· CHK +15%; topped estimates for Q4 output saying it expected total production to have been between 46K-464K barrels of oil equivalent (boe) per day in the three months to Dec. 31, above the 447K estimates

· DBD +19%; and NCR both upgraded to buy at Davidson as sees a modest recovery in unit shipments in 2019 following three years of declines

· GMED +12%; as announced preliminary 4Q18 revenue of $196M topping consensus by more than $7M while US Core Spine grew >9% (~7.5% adj for days) during the quarter

· GOGO +20%; said they didn’t incur certain forecast costs associated with further de-icing efforts in Q4, raising its Adj. Ebitda forecast to the high end of its previous range of $45M-$60M for year

· ISRG +4%; said prelim Q4 revs $1.0B vs. est. $1.03B as da Vinci procedures growth powered instrument and accessory revenue gains

· MU +5%; upgraded to outperform citing a more positive risk/reward for Micron in 2019 after the sharp correction in memory names (cut tgt to $52 from $60)

· SWKS +3%; lowered its F1Q19 outlook due to lower-than- expected demand in the smartphone market/cut the revenue guidance to $970M from the previous outlook of $1.00B-$1.02B and reduced the EPS forecast to $1.81-$1.84 from $1.91

 

Stock LAGGARDS

· AKRX -15%; as received warning letter dated Jan. 4 related to inspection of its Decatur, Illinois manufacturing facility in April and May 2018/to respond to FDA within required 15 working days

· BKNG -2%; after Morgan Stanley and Jefferies downgraded shares given the highly discretionary nature of travel spend and expectations for a slowdown

· SGH -22%; after its Q2 revs, adj profit forecast falls largely below estimates as one analyst noted the Brazilian government’s decision on Dec. 7 not to increase its mobile phone local content manufacturing rules by 10% led to weaker guidance

· STZ -11%; as trimmed FY19 EPS guidance for as much as 7% growth, down from 10%, primarily reflects its acknowledgement of higher net interest costs tied to its investment in Canopy Growth. Beer segment depletion growth in 3Q was a bit slower than expected

· TLND -8%; shares fell after guided Q4 revenue $55.4M-$55.8M below prior guidance of $56.6M-$57.4M (est. $56.7M)

 

 

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.

Live Trading

Open an Account

Paper Trading

Register