Mid-Morning Look: January 30, 2019

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Mid-Morning Look

Wednesday, January 30, 2019

Index

Up/Down

%

Last

 

DJ Industrials

268.83

1.09%

24,848

S&P 500

13.06

0.50%

2,653

Nasdaq

57.50

0.82%

7,085

Russell 2000

-3.06

0.21%

1,468

 

 

U.S. equities jump out of the gate, led by strength in Dow components AAPL and Boeing after better-than-expected quarterly earnings results and/or guidance/commentary with major averages pushing higher ahead of a busy day of significant macro-market drivers (outside of earnings). Outside of earnings (113 S&P components with results this week), today marks decision day from the 2-day FOMC meeting, with no changes in rates expected as the Fed is widely anticipated to hold off on raising due to a slowing of global economic growth. Trade talks also resume today between the U.S. and China with reps from Beijing as well as Mnuchin and Lighthizer meet. Fed Chairman Powell also to hold a press conference later this afternoon following the FOMC policy statement.

 

Sector movers: Broadcasting, Cable and Telco sector under pressure early (AT&T falls on results), semiconductors rally behind better than expected commentary from AMD for 2H, packaging names mixed on earnings (PKG, SLGN), while asset managers sink on soft earnings from BEN, IVZ, TROW; networking space falls on weaker JNPR outlook (CIEN downgraded); metals stocks rising led by iron ore stocks as VALE lowers production/disrupts supply; defense group mixed as BA soars on results and GD falls on guidance; cruise lines jump on better RCL results/guidance

 

Treasuries, Currencies and Commodities

·     In currency markets, the dollar inches higher vs, rival currencies ahead of the FOMC rate decision later this afternoon, down vs. the Canadian dollar on rising oil prices after mixed inventory data today; gold prices steady, up around $1,315 an ounce, best level inn 8-months ahead of the FOMC (which is expected to remain dovish – hold off rate hikes). Treasury prices steady as well with yields little changed (10-year 2.72%)

 

Economic Data

·     Private payrolls rose 213K jobs in January according to ADP Research, topping the 181K estimate, while ADP trimmed its original estimate of new jobs in December to 263,000 from 271,000. Big companies added 66,000 new jobs in January, mid-sized firms filled 84,000 jobs and small businesses increased employment by 63,000. Data comes ahead of Friday payroll report

·     Pending home sales for December fell (-2.2% MoM) vs. est. up 0.5%; Northeast fell 2%; Nov. rose 2.7%, Midwest fell 0.6%; Nov. fell 2.3%, South fell 5%; Nov. fell 2.9% and the West up 1.7%; Nov. rose 2.5%; unadjusted pending homes fell 9.5% y/y after falling 7.8% y/y in November

 

 

Macro

Up/Down

Last

 

WTI Crude

0.63

53.94

Brent

0.57

61.89

Gold

0.40

1,315.60

EUR/USD

-0.0019

1.1414

JPY/USD

0.23

109.63

10-Year Note

0.006

2.722%

 

 

Sector Movers Today

·     Semiconductors; AMD posted in-line 4Q results and offered soft 1Q guidance amid a graphics slowdown and softening industry dynamics…but projects a sharp rebound in 2H led by new 7 nm products and share gains; in the semi-equipment space, KLAC posted a strong F2Q beat as it pulled in shipments from March while F3Q guidance is soft/seeing business shift to foundry/logic; MKSI posted 4Q revenue above consensus and EPS above consensus and within its guidance range while offered 1Q guidance below consensus; COHR falls after being downgraded to hold from buy at Needham after the “much weaker” Q2 outlook and the company’s decision to pull FY guidance; MLNX rises early on reports INTC has bid $5.5-$6 billion in cash and stock to buy the Israeli company, Israeli media reported on Wednesday https://reut.rs/2sVG5Hi; MXIM shares active after mixed Q2 results and lower #q rev guidance ($520M-$560M vs. est. $595M)

·     Asset managers/advisors weak; IVZ falls after Q4 adjusted EPS misses consensus estimate due to the market slump and a “challenging investment environment” at the end of last year, while Q4 average assets under management of $924.4B, down 6.2% from Q3-end; TROW posted lower top and bottom line miss and BEN Q1 EPS missed by 12c on weaker operating revs $1.41B vs. est. $1.45B and lower AUM of $649.9M vs. $652M Bloomberg est

·     Packaging sector mixed; PKG mixed results as EPS beat by 3c while sales of $1.75B missed the $1.78B est. while KeyBanc said it missed operationally in 4Q (beat on adj. EPS on lower taxes and interest), with the miss relative to estimate coming in its containerboard business, while its uncoated freesheet business posted much better results; SLGN posted top and bottom line Q4 beat gut guidance of $2.10-$2.20 missed the $2.23 estimate (BMS, BERY, IP active)

·     Transports; CHRW reported 4Q EPS of $1.34 well above the $1.21 estimate on stronger than expected gross margin expansion (+127bps better than Bernstein estimate)/more balanced market and continued pricing momentum, especially in NAST; KNX reported 4Q profit above expectations amid improved efficiency at the Swift unit’s truckload business, as well as a strong freight market; RYAAY was upgraded at Raymond James with an $85 target price as the risk-reward at current levels is too compelling to ignore

·     Metals & Materials; VALE announced it would halt all operations around the upstream method dams and that these dams would be decommissioned. The announcement affects iron ore production of 40MM mtpa, including pellet feed for 11MM mtpa of pellets. This represents ~10% of Vale’s iron ore production and 17% of its pellet production capacity; AKS downgraded by several analysts following earnings results; Metals are mostly rising today, led by iron ore, as Vale’s disaster has led to supply disruptions (CLF in iron ore)

 

Stock GAINERS

·     AAPL +4%; rallied on better-than-feared results and F2Q19 (March) guide and reported sharp growth in its service revenue business though iPhone sales slow

·     AMD +13%; in-line 4Q results and offered soft 1Q guidance amid a graphics slowdown and softening industry dynamics, but projects a sharp rebound in 2H led by new 7 nm products and share gains

·     ANTM +7%; after earnings beat and accelerated plans to launch its own pharmacy- benefits manager/forecast strong earnings for the coming year (guided EPS to top $19 vs. est. $17.61)

·     BA +6%; posted strong Q4 results and full-year outlook significantly above estimates/sees FY core EPS $19.90-$20.10 on revs $109.5B-$111B well above the $18,44 and $107.13B estimates

·     BABA +4%; Q3 results beat EPS estimates but missed on revenue despite a 43% Y/Y growth as core commerce revs, $14.95B (+40% Y/Y); Cloud computing, $962M (+84%);

·     CARS +4%; after NY Post article overnight that CDK is expected to make a takeover offer for CARS with final round bids next week https://nyp.st/2GaHcLh 

·     CLF +13%; as iron pre prices jump , as Vale’s disaster has led to supply disruptions/ Iron ore price estimates are raised by most analysts as Vale decided to curb 40m tons/year of iron ore

·     MLNX +4%; on reports INTC has bid $5.5-$6 billion in cash and stock to buy the Israeli company, Israeli media reported on Wednesday https://reut.rs/2sVG5Hi

·     SYK +9%; on better earnings and organic sales growth rising to a 10-year high of 8.6% despite a challenging YOY comp

 

Stock LAGGARDS

·     ALGN -6%; disappointing results, with the issue this time around margins (posted lower-than-expected 4Q18 growth (-7.5% y/y and a sequential decline for third quarter in a row)

·     BEN -6%; Q1 EPS missed by 12c on weaker operating revs $1.41B vs. est. $1.45B and lower AUM of $649.9M vs. $652M Bloomberg est

·     COHR -10%; after being downgraded to hold from buy at Needham after the “much weaker” Q2 outlook and the company’s decision to pull FY guidance.

·     EGHT -11%; posted topline results were slightly better than expected, with Service subscription revenue of $85.9M but guidance lowered for 4Q growth amid weaker bookings trends

·     GD -4%; Q4 EPS and revenue top consensus with backlog of $67.87B (follows good results in defense yesterday) but guides year EPS $11.60-$11.70 vs. est. $12.00

·     GNTX -10%; after earnings miss as automotive net sales down 2% to $442.8M in Q4, while gross margin rate fell 130 bps to 37.9% and operating margin rate declined 150 bps to 27.7%

·     JNPR -11%; after reported mixed 4Q18 results and provided disappointing 1Q19 guidance as cloud and service provider performance remained a drag on the top line

·     T -5%; misses revenue estimates on slower wireless customer growth; AT&T’s pay-television business lost more than 650,000 customers in the fourth quarter

·     TUP -27%; after issues disappointing guidance and lowers its dividend payout rate/sees Q1 EPS 90c-95c and year $4.06-$4.21 below 95c/$4.48 consensus and plans to redeploy $80M in annual dividend payments towards transformation initiatives and buybacks; cuts dividend

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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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