Mid-Morning Look: February 26, 2019

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Mid-Morning Look

Tuesday, February 26, 2019






DJ Industrials




S&P 500








Russell 2000






U.S. equities opened lower tracking overnight losses in Asia as optimism over the U.S.-China trade talks petered out and markets awaited semi-annual testimony from Fed Chairman Powell today and tomorrow (to House and Senate) on the economy and monetary policy as markets expressed caution. Also not helping matters, weakness from Dow component HD after quarterly EPS, revs and comp sales missed forecasts on weaker guidance and fellow Dow component CAT shares declined on an analyst downgrade to sell. JPM active in financial space (another Dow component) as it hosts an investor day today. Economic data was mixed following a disappointing Housing Starts reading, falling over -11% in December vs. an expected rise, though consumer confidence for February jumped to 131.4 from 121.7 prior month and Richmond Fed manufacturing also spiked (to 16 from -2 last month). The latter part of economic data helped US equities bounce off earlier lows. Treasuries are little changed along with the dollar though the British Pound rises 0.5% to 1.316 (highest levels in a month) on optimism over a potential delay on Brexit. Meanwhile commodity prices are mixed with metals slipping though the energy complex mostly higher (natural gas, gasoline).


Fed Chairman Powell speaking to the House today in testimony on economy and monetary policy. Ahead of his semi-annual testimony to Congress, prepared text from Fed Chairman Powell showed the U.S. job market “remains strong” and “we are seeing signs of stronger wage growth.” “While we view current economic conditions as healthy and the economic outlook as favorable, over the past few months we have seen some crosscurrents and conflicting signals.” “Financial markets became more volatile toward year-end, and financial conditions are now less supportive of growth than they were earlier last year. Growth has slowed in some major foreign economies, particularly China and Europe.”


Economic Data

·     Housing Starts for December fell 11.2% to 1,078M annualized, well below the 1,256M estimate and 1,214M in the prior month (when it rose 0.4%); single family starts fell to 758k while multifamily starts fell to 320k in December. Building permits rose to 1,326M vs. 1,322M in Nov. and above the 1,290M estimate; Permits rose 0.3% in Dec. after rising 4.5% the prior month

·     Consumer Confidence for February rose to 131.4 from 121.7 prior month and above the 124.9 estimate; the present situation confidence rose to 173.5 vs. 170.2 last month while the consumer confidence expectations rose to 103.4 vs. 89.4 last month

·     Richmond Fed’s Feb. Manufacturing Survey jumped to a 16 reading, easily topping the 5 estimate and above last month’s negative -2 reading; shipments rose to 12 after -8 the prior month while new order volume increased to 19 after -11 the prior month

·     S&P CoreLogic Case-Shiller National Home Price index rose 4.72% y/y in Dec. after rising 5.09% in prior month; S&P/Case-Shiller 20-city NSA index at 212.96 after 213.45 in Nov.







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10-Year Note





Sector Movers Today

·     Pharma movers; AZN results from a Phase 3 clinical trial, POLO, evaluating its PARP inhibitor Lynparza (olaparib) for the first-line treatment of BRCA mutation-positive pancreatic cancer showed a statistically significant improvement in progression-free survival (PFS) compared to placebo, the primary endpoint; ZYNE rises after securing a new U.S. patent for the treatment of a rare genetic condition known as fragile X syndrome with ZYN002, a cannabidiol gel patch; AERI shares rise on earnings as Oppenheimer said revenues and cash burn in line with management’s prior guidance range; MNK shares jumped after Q4 sales, earnings and a strong 2019 forecast topped analyst expectations as key brands including Acthar and INOmax beat consensus)

·     Restaurants; PBPB reversed overnight gains and fell after projecting 1Q comp sales growth to be lower than 4Q; SHAK Q4 traffic fell 0.3% and the guided to 0% to 1% same-Shack sales for the full year consistent with 2018/sees FY19 revenue $570M-$576M vs. consensus $576.44M; CBRL Q2 EPS beat by 2c on slightly better revs while restaurant comp sales rose 3.8% topping the 1.3% est. but EPS guidance for the year fell short of consensus

·     Medical equipment and devices; EXAS was upgraded to buy at Goldman Sachs and $120 tgt as believe the current momentum of the Cologuard commercial ramp provides strong basis for the company’s premium valuation; OFIX was downgraded to neutral at BTIG after the company reported its Q4 results and announced that its chief executive officer would retire; PODD reported a Q4 beat, topping consensus revenue by ~$2.5M and coming in 9c ahead on EPS but 2019 revenue guidance was slightly below Street and implies decelerating revenue growth over the next few quarters

·     Media & Telecom movers; Evercore/ISI initiated Intelsat (I) with an Outperform rating and $50 price target as see shares as an attractive, but speculative, way to benefit from the repurposing of C-Band spectrum to support the growth of 5G terrestrial wireless; CTL was downgraded to neutral at Bank America saying that the dividend cut was based on leverage, maturities, and the state of the bond market, not any fundamental change in the business; DISCA posted Q4 EPS and revenue that fell short of consensus; RP reported a slightly lower 4Q and guided 2019 modestly lower on longer implementation cycles said one analyst; NXST Q4 results beat as revenue topped consensus with double-digit growth in Q4 while profits fell



·     AZO +7%; after Q4 EPS handily topped consensus on in-line revs while comparable sales growth of 2.6% topped the 2.1% consensus and gross margin of 54.1% vs. 52.9% a year ago

·     DDS +19%; as Q4 EPS topped consensus driven largely by a benefit in taxes related to the Tax Cuts and Jobs Act of 2017, and lower interest expense, while revs just miss

·     ETSY +13%; given a Q4 beat on strong holiday sales and positive FY19 guide with int’l GMS growth of 32% vs. 27% in 3Q and paid GMS grew 55% on top of 45% growth in 4Q17

·     HSII +25% after earnings and revenue results

·     MNK +11%; after Q4 sales, earnings and a strong 2019 forecast topped analyst expectations as key brands including Acthar and INOmax beat consensus

·     SJM +6%; Q3 results topped estimates while sales were up 1% on favorable volume/mix in the U.S. retail coffee and U.S. retail consumer foods/also provided better outlook



·     CAT -3%; downgraded to sell from buy at UBS as it expects more than half of the company’s end markets to peak in 2019, pressuring revenue and margins in 2020 as demand declines and cut price target to $125 from $154

·     CDEV -18%; after guiding FY19 oil production 15% below consensus with capex only 10% below and FY19 guidance is bad with full-year oil volumes actually guided lower than Q4:18 oil production (downgraded at BMO as 2019 guidance shows weaker capital efficiency)

·     CTMX -27% after announcing it will indefinitely postpone clinical studies of CX-188 and disclosing that BMY terminated a trio of discovery targets.

·     DISCA -7%; posted Q4 EPS and revenue that fell short of consensus

·     HD 2%; Q4 comp sales rose 3.2% vs. est. 4.5%; sees FY19 EPS $10.03 vs. est. $10.26 after posting Q4 top and bottom line results below consensus

·     MEDP -17%; after posting 4Q EPS upside, but lackluster 2019 EPS guidance of $2.58-$2.69 (+1.8% y/y at midpoint), well below consensus ($2.97)

·     SMLP -15%; announces series of “strategic actions” that include changes in leadership and cutting its quarterly distribution in half to $0.2875 unit from $0.575 previously; CEO steps down

·     SPOT -1%; after the WSJ reported U.S. Justice Department officials are considering overhauling two longstanding music licensing rules opponents say unfairly disadvantage artists and limit the ability of publishers to create own deals

·     TSLA -1%; after the SEC asked a judge to hold CEO Elon Musk in contempt for violating last year’s settlement with the agency requiring him to seek pre-approval from Tesla Inc. for social media posts and other written communication that would be material



·     Floor & Decor (FND) 10M share Spot Secondary priced at $37.75

·     GoDaddy (GDDY) 8.55M share secondary priced at $75.35 per share

·     Sage Therapeutics (SAGE) 3.33M share Spot Secondary priced at $150 per share


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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