Mid-Morning Look: January 25, 2019

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Mid-Morning Look

Friday, January 25, 2019

Index

Up/Down

%

Last

 

DJ Industrials

268.12

1.09%

24,817

S&P 500

24.82

0.94%

2,667

Nasdaq

72.66

1.03%

7,144

Russell 2000

14.55

0.99%

1,478

 

 

U.S. equities off to a strong start on the final day of trading for the week, with the Dow Industrial Average jumping over 200-points, led by gains in industrials (DWDP, CAT, MMM) with INTC the biggest drag following its “soft” EPS/revenue guidance last night (falling over 7%) and Pharma weak as well. Treasuries yields rose and the dollar weakened against most of its major peers, while gold prices top $1,300 an ounce. Stocks jumped overnight amid hopes that a government shutdown solution will happen soon and for a resolution to the U.S.-China trade war. Also helping sentiment is report in today’s WSJ suggesting that the Fed may end its balance sheet unwind sooner than expected. Hopes of revived talks to re-open the government today (shutdown into day-35) as new negotiations between the Senate’s top Republican (McConnell) and Democrat (Schumer) and the White House signaled the potential for a deal even as President Donald Trump continued to insist on money for a border wall that Democrats reject. Earnings season kicks into full-gear next three weeks after big large cap names (several Dow components reported this/last week already – INTC, IBM, GS, PG, UTX, JPM, TRV, UNH).

 

Treasuries, Currencies and Commodities

·     In currency markets, the U.S. dollar drops after recent gains, with the British Pound rising near 1.315, its best levels since early November, while the euro also moves solidly higher (rebounding after cautious growth outlook from Draghi yesterday); the Japanese yen little changed. No major economic data today as Durable Goods and New Home Sales data postponed due to gov.t shutdown. Treasury market’s slide as yields inch higher given the rally in stocks (10-yr 2.74%)

·     Commodity prices higher as gold prices top the $1,300 an ounce level as the dollar declines and amid several geopolitical events being watched (Venezuela, UK Brexit, China trade). Meanwhile oil prices are little changed, having risen yesterday despite bearish weekly inventory data.

 

 

Macro

Up/Down

Last

 

WTI Crude

0.05

53.19

Brent

0.00

61.09

Gold

13.70

1,299.60

EUR/USD

0.0077

1.1382

JPY/USD

0.01

109.65

10-Year Note

0.03

2.74%

 

 

Sector Movers Today

·     Housing & Building Products; DHI shares rose early despite its Q1 EPS miss (76c vs. 78c est.) and order growth of 3% missing the 6.5% Bloomberg est.; NVR shares rise after Q4 EPS topped consensus estimate, fueled partly by a tax rate that sank to 16.3% from 52.3% in the year-ago quarter; Bloomberg noted the S&P Super composite Homebuilding Index has gained over 9% this year, its best start since 2013, while the broader S&P 500 is up just 5.4%

·     Transports; a day after rail strength following better results from UNP and CP, NSC shares decline following its results as Deutsche Bank downgraded to hold after the company reported slightly weaker-than-expected 4Q results after adjusting for a significant non-cash gain ($145M) from a land sale; in airlines, HA downgraded to hold at Deutsche Bank as well, the latest to warn on the impact of Southwest Airlines starting service to Hawaii; airlines were active (UAL, AAL, DAL) after FAA halting flights into LaGuardia Airport due to staff shortage

·     Industrial & Machinery; WBC shareholders to own 50.8% of Wabtec after GE Transportation merger vs. 49.9% under previous terms; HDS was upgraded to outperform at Baird citing renewed confidence the FM business has returned to profitable growth, and see a key overhang on the stock now removed; FLIR also upgraded at Baird as major defense awards are providing good visibility for Government growth and the reset in the FLIR stock (down 30% in last four months) creates an attractive risk/reward

·     Medical equipment and devices; ISRG shares active as posted a Q4 EPS miss, delivered 19% procedure growth for 4Q18, and reiterated its procedure growth guidance (13-17%), but plans to increase operating expenses by 20-28% in 2019; the FDA grants 510(k) clearance for ZBH ROSA Knee System for robotically-assisted total knee replacement surgeries; ILMN was downgraded to hold at Deutsche Bank saying forward revenue expectations lack upside

·     Semiconductors; just a day removed from semiconductor stocks surging on better-than-feared results out of LRCX, XLNX, and TXN, Dow component INTC disappointed last night as delivered softer-than-expected 4Q results and issued Q1 guidance well below estimates/sees 1Q revenue about $16B, below the $17.34B est. and EPS about 87c vs. $1.02 est; WDC shares jump as quarterly results missed, but wasn’t as bad as feared, lifting memory and HDD stocks

 

Stock GAINERS

·     AVYA +8%; upgraded at Barclay’s noting upside in Avaya’s current multiple vs. its rivals’ legacy multiples; raise tgt to $21

·     CGC +7%; Piper raised its tgt to $60 from $40 as continues to estimate a $250B-$500B potential long-term global cannabis market, with a $15B-$50B near-term opportunity

·     ELF +3%; after activist letter Marathon Partners Equity Management LLC asks for re-evaluation at the stockholders agreement

·     NCNA +9%; after saying it was withdrawing its proposed offering of American Depositary Shares (ADS) after shares plunged initially following announcement

·     SBUX +3%; posted better earnings (10c beat) as comp sales rose 4% in the Americas (topping the 3.3% est.) and overall comps also up 4% while China comps rise 1%

·     SLM +2%; upgraded to outperform at BMO Capital following yesterday’s strong print suggesting there’s still another 50% upside

·     WDC +6%; as quarterly results missed, but wasn’t as bad as feared, lifting memory and HDD stocks; Mizuho said investors believe the worst is behind them

 

Stock LAGGARDS

·     ABBV -6%; following its Q4 miss while company guided only a modest ~1% rise in revenues and said it expects Humira sales to grow 7% domestically but drop 30% internationally as biosimilar competition continues to heat up/Q1 guide for revs of $7.7B vs. $8.0B est.

·     DF -9%; after Goldman Sachs said an amendment to Dean Foods’ existing receivable purchase agreement announced in a filing may bode poorly upcoming earnings

·     INTC -6%; delivered softer-than-expected 4Q results and issued Q1 guidance well below estimates/sees 1Q revenue about $16B, below the $17.34B est. and EPS about 87c vs. $1.02 est

·     ISRG -3%; posted a Q4 EPS miss, delivered 19% procedure growth for 4Q18, and reiterated its procedure growth guidance (13-17%), but plans to increase opex by 20-28% in 2019

·     PCG -14%; pares gains after surging over 70% yesterday after being cleared of responsibility for the deadly 2017 Tubbs fire, as analysts still feel a bankruptcy is possible

·     RMD -15%; downgraded at JPMorgan, Goldman after its Q2 revenue and EPS miss and also noting pricing headwinds in sleep products and software services

 

Syndicate

·     Alteryx (AYX) 1M share Block Trade priced at $67.50

·     Corbus Pharmaceuticals (CRBP) 5.38M share Spot Secondary priced at $6.50

·     HEXO Corp (HEXO) 7.7M share Secondary priced at CAD6.50

·     Smartsheet (SMAR) 1.4M share Block Trade priced at $27.50

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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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