Mid-Morning Look: February 01, 2019

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Mid-Morning Look

Friday, February 01, 2019






DJ Industrials




S&P 500








Russell 2000






U.S. equities are higher early in what is a very busy day of earnings and news to end the week (but start the month). Stocks are coming off stellar gains in January as the S&P 500 climbed 7.9% for its best January since 1987, while the Dow rose 7.2%, its best January since 1989 and the Nasdaq Comp had its best January since 2001 on the back of a 9.7% monthly gain. A week of dovish Fed commentary (said will remain patient and eco data driven), better economic data (jobs data today crushed estimates), strong earnings results and improved trade rhetoric with China (China pledged to buy substantially more U.S. crops, services and energy and cooperate on IP rights and tech transfers) have all driven stocks higher over the last few weeks. The Dow Industrials Averages trades to its best levels since late November, boosted by MRK on earnings as well as oil giants XOM and CVX which are each up over 2% on their better results this morning. The S&P 500 index nearing key technical levels (100-day MA 2,710 and 200-day MA higher at 2,741 – hasn’t closed above 100-day since October). The Nasdaq Composite underperforms with AMZN shares sliding on a softer Q1 outlook.


As for the jobs data, U.S. hiring in January topped all forecasts while wage gains cooled and the government shutdown pushed up the unemployment rate, signaling job gains remain robust without major inflation pressures. Payrolls rose 304,000, topping all estimates in a survey calling for 165,000 with the biggest gain in almost a year, but revisions to prior two months subtracted 70,000. Average hourly earnings rose 0.1% from the prior month, missing estimate for a 0.3% rise. The jobless rate edged up to 4% from 3.9% as the participation rate edged up to a five-year high of 63.2%


Federal Reserve Bank of St. Louis President James Bullard applauded its decision this week to signal it had placed interest-rate increases on a prolonged pause and said “we’re willing to move in either direction.” “I thought this was a very good decision for the FOMC. I think it sets us up for a good couple of years here” Fed’s Kaplan this morning also agreeing with the recent move.


Treasuries, Currencies and Commodities

·     Commodity prices oil prices rise and gold prices slide on a mixed dollar; after surging 18% in January, WTI crude starts the new month off with a 1% gain as output from OPEC fell by 930,000 barrels a day last month to 31.02 million, while Saudi Arabia cut production by 450,000 barrels a day from December to reach 10.2 million (more than expected). Gold prices take a breather after jumping 3% in January topping the $1,330 an ounce level yesterday. Treasuries are tumbling with the short-end getting hit harder than the long-end. The 10-year yield rises about 5-bps to 2.68% (but remember the 10-year yield was 2.7585% last Friday) while the 2-year yield down at 2.51%.


Economic Data

·     Jobs data very strong: the Nonfarm Payrolls for January rose 304K, handily topping the 165K estimate while the unemployment rate inched higher to 4% (vs. prior and est. 3.9%) as the participation rate 63.2% vs prior 63.1%. Wages slowed as average hourly earnings rose 0.1% MoM, below the est. 0.3%, and prior month reading 0.4% (Y/y 3.2%, prior 3.3% est. 3.2%). Nonfarm private payrolls rose 296K topping the 175K est. (and prior 206) while manufacturing payrolls rose 13K after rising 20K in the prior month

·     ISM Manufacturing for January rises to 56.6 topping the 54.0 est. as new orders rose to 58.2 vs 51.3 prior month, employment fell to 55.5 vs 56.0, supplier deliveries fell to 56.2 vs 59.0 and inventories rose to 52.8 vs 51.2; prices paid fell to 49.6 vs 54.9

·     The U.S. Jan. Final Michigan Sentiment fell to 91.2 from 90.7 prelim and below the 90.7 est. (and down from 98.3 last month); the expectations index fell to 79.9 vs. 87.0 last month and the current economic conditions index fell to 108.8 vs. 116.1 last month. The end of government shutdown caused only modest boost in Sentiment Index

·     Markit Manufacturing PMI for Jan at 54.9 vs. Flash Reading 54.9 as index rises to 54.9 from 53.8 in December (year ago 55.5); output rises to 55.7 vs 54.3 in Dec. (highest reading since Sept. ’18)







WTI Crude















10-Year Note





Sector Movers Today

·     Healthcare services and providers; sector under pressure today (CI, CVS, ABC, MCK, UNH, CAH) after the Department of Health and Human Services (HHS) announced a proposed regulation designed to create incentives to lower drug prices and reduce patient out-of-pocket spending on prescription drugs – specifically, eliminating the safe harbor for rebates paid by drug manufacturers to Part D plans and Medicaid MCOs, and instead creating new safe harbor protection for discounts offered to patients at the pharmacy counter

·     Big oil in focus on earnings as XOM shares rise after Q4 EPS beat highest estimates amid booming oil production in the Permian Basin while strong crude flows from North America’s most-prolific oil field softened the blow of declining output. Also, Reuters reported XOM and Qatar Petroleum are expected to announce plans next week to proceed with a $10B project to expand the Golden Pass liquefied natural gas export facility in Texas. CVX posted Q4 results that beat estimates while production rose to a record, climbing above 3 million barrels of oil equivalent a day for the first time, even as crude prices fell.

·     Medical equipment and devices; ZBH shares jump as Q4 EPS/sales top consensus on mostly in-line 2019 EPS guidance; ISRG raised its stock buyback to $2B; PKI 4Q18 core growth came in better and EPS beat the Street by 2c, but the print/guide was a bit messy; EW revs beat by $6M with EPS inline and reaffirmed 2019 guidance as TAVR was +11%, with positive commentary on US and Japan

·     Housing & Building Products; busy day of news/research: TPC downgraded at UBS as view TPC as a backlog burn story, with a lingering balance sheet overhang over the next 12-18 months; PEGI downgraded at BMO Capital as the stock has approached our US$21 target following strong relative performance; FND was downgraded to underperform at Bank America as comp sales slow; DOOR issued prelim Q4 results were below expectations, as volumes were weaker than expected (particularly December), which resulted in fixed-cost under absorption; FBHS reported below-consensus Q4 results and guided 2019 EPS 3% below the street (midpoint)



·     AON +5%; Q4 EPS from continuing operations of $2.16 beats by 3c and Q4 revs rose 3% to $2.77B/Q4 adjusted operating margin, on pro forma basis, increases by 280 bps to 25.8%

·     CVX +2%; posted Q4 results that beat estimates while production rose to a record, climbing above 3 million barrels of oil equivalent a day for the first time, even as crude prices fell

·     CY +8%; reported solid results with guidance below estimates as expected but the better-than-feared guidance was attributable to the well documented weakness in China

·     DECK +8%; as reported F3Q19 EPS well ahead of forecasts on stronger revenue, gross margin & SG&A leverage/UGG growth driven by new styles and classic re-orders/Hoka momentum rose

·     FMC +5%; preannounced Q4 earnings in a range of $1.62-$1.67 vs. the prior guidance of $1.33-$1.43 and consensus $1.39 as the major driver of the higher EPS is a lower tax rate

·     HON +2%; rises on Q4 beat, seeing strong 2019 with sales by segment: Aerospace +10%; Home and Building Technologies +1%; Performance Materials and Technologies flat; Safety and Productivity Solutions +15%

·     MRK +2%; Q4 results beat as higher medicine sales and lower restructuring and other costs lifted drugmaker Merck to a $1.83 billion profit in Q4

·     SYMC +12%; as reported F3Q19/Dec ’18 results that exceeded almost every consensus metric (revenue, op margin, EPS, cash flow, billings) on better guidance



·     AMZN -4%; beat on Q4 EPS and sales, while soft 1Q19 revenue/operating income guide, risk from India’s new E-com regulation, prospects for higher investments in 2019 weigh on shares

·     CLS -15%; as reports Q4 EPS miss and weaker guidance (follows stronger results from rivals SANM and FLEX in the EMS sector this week)

·     CORT -8%; guides 2019 revenue guidance between $285M-$315M, missing est. of $320.2M; preliminary 4Q revs of $66.8M below $70.4M est.

·     CI -3%; after the Department of Health and Human Services announced a proposed regulation designed to create incentives to lower drug prices and reduce patient out-of-pocket spending

·     DOOR -4%; issued prelim Q4 results were below expectations, as volumes were weaker than expected (particularly December)

·     PZZA -8%; after Reuters reported Papa John’s pursues stake sale after abandoning outright sale

·     SNE -8%; after FQ3 revenue trailed estimates slightly (¥2.4T vs. ¥2.6T) to take the shine off a guidance hike for FY19 profit of ¥835T from ¥705T/profit in Sony’s gaming business fell in FQ3 to ¥73.1B from ¥85.4B a year ago

·     WMT -2%; extends recent declines after India Prime Minister Narendra Modi’s government tightened rules for the retail giants (AMZN as well) after complaints from small shops and domestic sellers


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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