Mid-Morning Look: January 11, 2019

Terrie AmengualDaily Market Report

Mid-Morning Look

Friday, January 11, 2019


U.S. equities are steadily lower, with major averages and oil prices on track to snap respective winning streak (nine for oil and five for stocks) as investors lock in profits after the 7-session start to the year is the best for the Dow, S&P 500 and Nasdaq Comp since 2006 and has climbed about 10% since the Christmas Eve lows. U.S. stocks slipped after an in-line inflation report added to speculation that the Fed will be slow to hike rates this year and political turmoil surrounding the continuing government shutdown continues. We are into day 21 of the US partial government shutdown, with no end in sight: S&P Global Economics estimates that the government shutdown, now the second longest in U.S. history, could shave about $1.2 billion off real GDP in the quarter for each week that part of the government is closed. Autos get a boost after a surprise upward revision from GM while homebuilders add to gains. Financials come into focus next week as earnings season kicks off. The dollar rises after recent pressure while bonds get a boost sending yields lower. The pound advanced even as Prime Minister Theresa May’s office countered reports that Brexit may be delayed.


Treasuries, Currencies and Commodities

· In currency markets, the U.S. dollar rises vs. the Lira as Turkish troop movements on the Syrian border have caused a quick flight to safety. The euro, coming off its best levels since October yesterday (above 1.157) has fallen back below the 1.15 level while the Pound active ahead of key Brexit vote next week. Treasury prices rise as yields sink with the 10-year yield down over 4 bps to 2.68% as stocks slide for the first time in six days. Commodity prices are mixed with gold prices slightly higher but energy prices taking a breather after a nine day rally for WTI crude.


Economic Data

· U.S. consumer prices fell for the first time in nine months in December, dragged lower by gasoline prices, however core inflation remained firm. US CPI for December fell (-0.1%), matching economist estimates while core prices (ex food & energy) rose 0.2% (also in-line). CPI YoY data was in-line as well at 1.9% for headline and 2.2% for core prices


Sector Movers Today

· Asset managers/Exchanges; shares of AMG, BLK, EV, LM, and IVZ all downgraded to hold from buy at Deutsche Bank as believes “investor neglect” toward the stocks should continue on fears of a market downturn, as well as due to poor fundamentals from product outflows and pressure on fee rates and operating margins. Bank America downgraded BEN to underperform, CME to neutral, and NTRS to neutral while upgrade LM to neutral and STT to buy

· Housing & Building Products; Housing sector rises again with broad gains after LEN, KBH earnings this week; in building products/housing, RBC turns cautious as they downgraded PHM, MHK, JELD, IBP, and BLDR and lowered estimates and targets as now assume a flat environment for new construction through ’20. They remain more positive on building products, but become more selective and generally favor those with high R&R exposure and strong balance sheets such as FBHS and MAS.

· Restaurants; sector active after analyst rating changes; Goldman Sachs upgraded TXRH to buy from neutral for lower end exposure, less leverage, and the potential for incremental pricing, while downgrades YUM to sell from neutral as peak valuation does not in their view fairly reflect the risks to the business model discussed above and more challenging value laps at TB and lastly cut SBUX to neutral on valuation, China macro concerns and the comp. sales trajectory in that region, and view that gift cards and digital trends could be “points of caution” in 1Q; Bank America upgraded DRI to buy from neutral based on the view that the company is well positioned for an industry shift towards scale

· Retailers; PVH raises Q4 and FY18 guidance, earmarks $120M for Calvin Klein restructuring and outlines strategy; Barclay’s downgraded GPS to underweight while upgraded high-end retailers TPR (to overweight) and RL (to equal-weight) noting the broader softlines group has underperformed the market since the start of 4Q and sees an attractive opportunity for investors to rotate into high-quality brands at the expense of certain retailers; URBN reported sales for the two and eleven months ended December 31, 2018, with two-month net sales up 5.0%; CHS to close 250 stores in U.S. over three-year period as part of digital expansion


       Stock GAINERS

· CRBP +6%; after Cantor Fitzgerald raised its fair value target to a Street-high $38 (from $36) while maintaining its Overweight rating

· CZR +5% after CNBC’s David Faber said Carl Icahn is building a stake https://on.mktw.net/2QHL48h

· GM +8%; said it expects earnings growth in 2019 and forecasts EPS of $6.50-$7.00 for the year vs. $5.95 consensus and also says that it expects 2018 EPS-diluted-adjusted and adjusted automotive free cash flow to exceed its prior guidance

· INFY +3%; as revenue up 8.3% Y/Y to $2.99B as digital revenue jumped 33.1%/signed large deals of $1.57B entering 2019/raised FY19 revenue guidance to 8.5%-9.0%

· NFLX +3%; upgraded by two analyst today as UBS raised to buy and Raymond James to strong buy with $450 tgt saying deep dive into content investments and the film strategy suggest Netflix is approaching a profit inflection

· PVH +6%; as raises Q4 and FY18 guidance, earmarks $120M for Calvin Klein restructuring and outlines strategy

· TLRY +25%; after its biggest stakeholder Privateer Holdings said it would hold onto shares of the Canadian cannabis company until at least the second half of the year https://bit.ly/2SJwpLy



· ATVI -9%; announced that it will be turning over the publishing rights of the Destiny franchise to developer Bungie and thus no longer recognize economics from the franchise. This is an incremental negative surprise/development according to several analysts

· BEN -2%; shares of AMG, BLK, EV, LM, and IVZ all downgraded to hold from buy at Deutsche Bank

· MTN -9%; as cut its year EBITDA view citing missed pre-holiday results/now expect full year Resort reported EBITDA guidance to be slightly below the low end of the guidance range

· PCG -2%; as long-term corporate family rating was downgraded by Moody’s to Ba3 from Baa2; outlook remains watch negative (second downgrade this week)

· PETX -25%; Stifel downgraded to hold and cut tgt to $5 from $8 saying they have seen ongoing Entyce adoption, but little progress on lengthening the drug’s duration

· WTW -8%; downgraded to Neutral from Overweight at JPM due to a “weak start” to the company’s enrollment period and slashed tgt to $37 from $70




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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