Mid-Morning Look: March 11, 2019

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Mid-Morning Look

Monday, March 11, 2019

Index

Up/Down

%

Last

 

DJ Industrials

45.95

0.18%

25,496

S&P 500

26.82

0.97%

2,769

Nasdaq

98.71

1.33%

7,506

Russell 2000

9.35

0.61%

1,531

 

 

U.S. equities are broadly higher to start the week, getting a boost from technology after several analysts raised their ratings on large cap companies (AAPL, FB, FEYE all receiving upgraded ratings today). With the early gains, major averages are on pace to snap their 5-day losing streaks. The Dow Industrial Averages is lagging due to negative news out of component Boeing, (BA) as shares dropped as much as 13% (before paring losses), after one of the company’s 737 Max 8 planes operated by Ethiopian Airlines crashed shortly after takeoff from Ethiopia on Sunday, killing all 157 people on board. It was the second fatal crash for its 737 Max 8 planes in recent months. Semiconductors rise as much as rising 1.8% to 1,340 (having bounced off the 200-day MA support line at 1,300 the other day) – with all 30 components currently higher in the SOX index, led by MLNX after being acquired by NVDA in a near $7B M&A deal. Economic data was mixed today after retail sales and business inventory reports (more below). Over the weekend, Fed Chairman Powell said downside risks to economic outlook have increased, balance sheet reduction process “well along” and should reach new normal level in Q4. A good start for broader averages to start with still several macro catalysts yet to be resolved including trade talks between the US and other partners (EU, China) and Brexit.

 

Treasuries, Currencies and Commodities

·     In currency markets, the dollar dipped on mixed retail sales data as sales rose by 0.2% in January (slightly beating the 0% est.), but the December reading of -1.2% was revised to -1.6%. January figures excluding cars and excluding cars and gas, rose 0.9% and 1.2%, respectively. Retail sales suffered their biggest 2-month drop in over a decade. The British Pound rises after Germany’s Merkel says the EU has made the UK “an important offer.” Commodity prices were mixed with gold slipping while WTI crude edges higher on Saudi comments. Treasury market’s slip early after stocks generally move higher, looking to snap 5-day losing streak, as the yield on the 10-year up above 2.63% after falling nearly 15 bps last week

 

Economic Data

·     January retail sales rose by 0.2%, (slightly beating the 0% est., but the December reading of -1.2% was revised to -1.6%. January figures excluding cars and excluding cars and gas, rose 0.9% and 1.2%, respectively. Retail sales suffered their biggest 2-month drop in over a decade. Retail sales less autos rose 0.9% in Jan., above the est. up 0.3%

·     Business inventories for December rise 0.6%, in-line with estimates, while Business sales declined (-1.0%) after falling 0.6% the prior month; Wholesalers inventories rose 1.1% m/m in Dec. after rising 0.4% prior month

 

 

Macro

Up/Down

Last

 

WTI Crude

0.51

56.58

Brent

0.66

66.40

Gold

-5.30

1,294.10

EUR/USD

0.0008

1.1243

JPY/USD

-0.02

111.15

10-Year Note

0.011

2.636%

 

 

Sector Movers Today

·     Airlines/Aerospace; airlines falling (LUV, AAL, UAL) after Dow component BA shares plunged as much as 12% earlier after one of the company’s 737 Max 8 planes operated by Ethiopian Airlines crashed shortly after takeoff from Ethiopia on Sunday, killing all 157 people on board. The crash comes months after a crash of the same plane flown by Indonesia’s Lion Air killed 189 people. Reports indicate that China has grounded all 96 of its 737 Max 8 planes. Southwest (LUV) shares fell more than 3%, even as the carrier expressed confidence in its Boeing aircraft and said it has no plan to change operations. Deliveries of the plane total about 350, according to Boeing, and it has been purchased by many airlines; in research, Barclay’s upgraded SAVE to overweight and raised its tgt to $70 from $65 (and top pick) while firm downgraded JBLU

·     Metals & Materials; Jefferies upgraded the Materials sector to Market Weight from Underweight citing early signs of “green shoots” in China, a turn in the inventory cycle, and housing data that “does not look as bad as stocks act; GOLD has dropped an $18B hostile bid for NEM, saying on Monday it had agreed to launch a joint venture with its rival instead (ownership to be 61.5% Barrick; 38.5% Newmont – and Barrick to be operator); NUE was downgraded to neutral at Longbow on reduced near-term earnings visibility and disappointing steel survey feedback; OEC was downgraded at JPMorgan and had its tgt cut at Barclay’s

·     Forest and Paper industry; BMO Capital said after waiting patiently on the sidelines for over a year, they think the current backdrop offers an interesting entry point into the lumber stocks as they upgraded shares of WFT, and WY to Outperform. Firm said demand should improve “seasonally” with spring construction activity and put upward pressure on lumber prices. At the same time, we think financial valuations are attractive

·     Oil drillers active; RIG reported two of its rigs, Ocean Rig Corcovado and Ocean Rig Mykonos, were awarded 629-day and 550-day contracts by Petrobras; Barron’s positive on the sector saying the offshore drilling business (DO, RIG, ESV, RDC) has suffered its deepest downturn in 30 years, as investment capital has rushed to land, chasing shale, but there are early signs of a return to the sea and investors who dive in now could profit nicely

 

Stock GAINERS

·     AAPL +2%; upgraded to buy and raised tgt to $210 at Bank America citing several positive factors and noting shares are down 26% from its peak

·     AXGT +41%; reported mid-stage study results for its gene therapy for Parkinson’s disease/two patients treated with the lowest dose of AXO-Lenti-PD showed an average of a 42% improvement in a doctor-assessed scale of motor functioning

·     CFX +4%; S&P announced late Friday XPO and CFX will replace DO and BIG respectively in the S&P MidCap 400, and DO, BIG will replace MHLD and QHC respectively in the S&P SmallCap 600

·     FB +2%; upgraded to buy at Nomura and raised tgt to $215 from $172 as heard at industry events that the transition appears to be occurring more quickly than we expected, lessening our concern

·     FEYE +6%; upgraded to overweight at JPMorgan saying the YTD performance for FEYE’s stock has been 23% below our overall coverage, and is now trading at 3.7x our FY19 revenue estimates

·     MLNX +8%; after NVDA agreed to acquire the company for $125 per share, paying $6.9B, confirming several reports over the weekend https://on.mktw.net/2J6tdt7

·     PTE +14%; after the FDA decided not to take or recommend any enforcement actions against its manufacturing facility, after the FDA raised concerns about the Salt Lake City site last summer

·     WDC +3% along with strength in STX as semi’s, HDD stocks outperform early

 

Stock LAGGARDS

·     ARA -9%; downgraded at SunTrust on the heels of Friday’s announcement delaying its 4Q release and 10-K filing

·     BA -7%; after one of the company’s 737 Max 8 planes operated by Ethiopian Airlines crashed shortly after takeoff from Ethiopia on Sunday, killing all 157 people on board

·     LLY -2%; weakness in the large cap healthcare space early

·     NEM -3%; GOLD dropped an $18B hostile bid for NEM, saying on Monday it had agreed to launch a joint venture with its rival instead (ownership to be 61.5% Barrick; 38.5% Newmont)

·     OEC -5%; downgraded at JPMorgan and had its tgt cut at Barclay’s

·     QHC -24%; as being removed from the S&P Small Capp 600 index

·     SPR -6%; down in sympathy as supplier to Boeing aircraft

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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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