Mid-Morning Look: March 26, 2019

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Mid-Morning Look

Tuesday, March 26, 2019

Index

Up/Down

%

Last

 

DJ Industrials

226.84

0.89%

25,743

S&P 500

24.28

0.87%

2,822

Nasdaq

66.77

0.87%

7,704

Russell 2000

14.04

0.93%

1,526

 

 

U.S. equities rebound after two days of selling pressure, getting a boost from technology and energy (as oil recovers back to $60 per barrel), though mixed economic data keeps markets on edge (softer than expected consumer confidence and housing starts data). A resumption of U.S.-China trade negotiations also may be delivering some hope to investors with meetings scheduled later this week in Beijing between trade negotiators. Overnight, Bloomberg reported China could increase U.S. pork imports to the highest ever this year as part of its commitment to bolster purchases of American farm goods to resolve the trade war between the two countries. Managed-care stocks underperform (CNC, WCG, UNH) the broader market today as the House Democrats plan to unveil health-care legislation aimed at lowering costs and protecting people with pre-existing conditions. Treasury yields bounce off more than 1-year lows, while the dollar partially recovers and gold prices slip after three-days of gains. Housing and related building product stocks slip on soft data a weaker stock outlook while discretionary names rise.

 

Treasuries, Currencies and Commodities

·     In currency markets, the U.S. dollar posting strong gains vs. the safe-haven Japanese yen as stocks rebound, while the greenback slips against the euro and Pound; WTI crude prices rally after yesterday’s dip, with WTI crude moving back to $60 per barrel ahead of weekly inventory data (which was very bullish last week, posting large inventory drawdowns); gold prices drop after 3-days of gains in a bout of profit taking as the dollar recovers; Treasury market’s rally sending yields off more than 1-year lows, with the 10-yr up at 2.43% (off yesterday lows 2.38%) and the 2-yr yield at 2.27% and the 30-year yield 2.87%. Mixed economic data today moving bonds.

 

Economic Data

·     Housing Starts for February fell (-8.7%) to 1,162M annualized, below the est. 1,210M and was below the prior month reading of 1.273M when they grew 11.7%; single family starts fell to 805k; multifamily starts rose to 357k in February. Building permits fell (-1.6%) to 1,296M vs. 1,317M in January and below the 1,305M est.; completions rose to 1,303M in Feb. from 1,247M MoM

·     Consumer Confidence for March fell to 124.1 from 131.4 the prior month and was below the 132.5 economist estimate; the present situation confidence fell to 160.6 vs 172.8 last month while the expectations fell to 99.8 vs 103.8 last month

·     Richmond Fed’s March Manufacturing Survey at 10, in-line with estimates as shipments fell to 2 after 12 the prior month, new order volume slowed to 9 after 19 the prior month, order backlogs fell to -13 after -7 the prior month and capacity utilization slowed to 1 after 8 the prior month

·     S&P CoreLogic Case-Shiller 20-City Index up 3.58% YoY vs. est 3.80%; S&P CoreLogic Case-Shiller National Home Price index rose 4.26% y/y in Jan. after rising 4.60% in prior month; the S&P/Case-Shiller 20-city NSA index at 212.41 after 212.88 in Dec.

 

 

Macro

Up/Down

Last

 

WTI Crude

1.17

59.99

Brent

0.62

67.83

Gold

-8.00

1,321.00

EUR/USD

-0.0018

1.1294

JPY/USD

0.64

110.60

10-Year Note

0.027

2.427%

 

 

Sector Movers Today

·     Housing & Building Products – sector weaker after BECN lower look and softer housing starts economic data; BECN pre-announced Q2 to the downside to reflect unfavorable weather conditions and lowered its FY guidance to the low end of the range (sees FY19 EPS at lower end of $2.90-$3.50 vs. est. $3.13); Homebuilding stocks have rallied the last few days on a lower interest rate outlook from the Fed last week (keeping mortgage rates lower) which could overshadow earnings the next few days (KBH and LEN to report earnings); also, markets watching as the Senate starts two days of hearings focused on mortgage giants Fannie Mae and Freddie

·     Consumer Staples; in food, MKC Q1 EPS beat by 8c with mostly in-line sales of $1.23B but on weaker margins (37.9% vs. 40.8% est.) and in-line guidance for the year; ANFI announced a raised in previously announced $30M contract to $42M, for suppling third party branded basmati rice to a repeat customer; MCD is buying decision-logic technology company Dynamic Yield Ltd. to better personalize menus in its digital push/reports indicate is spending more than $300M

·     Healthcare services and providers; Piper comments on CNC, WCG, MOH saying despite the negative Medicare-for-all headlines pressuring MCOs heading into 2020 elections, they dug into the $9B Medicaid expansion opportunity that is rarely talked about. We identified 6+ states that could add Medicaid expansion to the ballot in 2020, a $2.9B opportunity, and potential for $4.6B more in states that could gain legislative backing; NEOG reported both a top and bottom line Q3 miss, sending shares lower initially

·     Semiconductors; Samsung Electronics Co. shares slipped overseas after the company issued a premarket earnings warning, saying Q1 results will miss consensus views because of weakened sales of its display panels and memory chips; NVDA was initiated overweight and $200 tgt at Piper saying margins bottomed in Q4 and they we see significant margin expansion (and earnings growth) over the next several quarters

 

Stock GAINERS

·     ALDX +48%; its Phase III ALLEVIATE Trial of 0.25% and 0.5% reproxalap topical ophthalmic solution in patients with allergic conjunctivitis met the primary endpoint and the key secondary endpoints

·     BBBY +26%; is being targeted by three activist funds — Legion Partners Asset Management LLC, Macellum Advisors GP LLC and Ancora Advisors LLC — which together control a roughly 5% stake and are preparing to launch a proxy fight to replace its entire board https://on.mktw.net/2FruRjU

·     CMG +1%; trades to 52-week highs (all-time highs $758.61 in August 2015)

·     ENDP +7%; after Purdue Pharma and the Sackler family reached a settlement with Oklahoma over claims that illegal marketing of the OxyContin painkiller harmed local communities

·     NVDA +3%; initiated overweight and $200 tgt at Piper saying margins bottomed in Q4 and they see significant margin expansion (and earnings growth) over the next several quarters

·     VIAB +4%; NY Post reported CBS and Viacom are gearing up to resume merger talks — and settle once and for all who will be CEO of the combined comp https://nyp.st/2Wm8EKJ

·     VRTX +2%; upgraded to outperform at William Blair on expectations the company’s cystic fibrosis franchise will continue dominating after Proteostasis (PTI) reported disappointing triplet data

 

Stock LAGGARDS

·     BECN -4%; pre-announced Q2 results to the downside to reflect unfavorable weather conditions and lowered its FY guidance to the low end of the range (sees FY19 EPS at lower end of $2.90-$3.50 vs. est. $3.13)

·     CCL -6%; reported a top and bottom line beat (49c/$4.67B vs. est. 44c/$4.31B), but provided Q2 EPS of 56c-60c, below the 72c estimate and cuts year EPS to $4.35-$4.55, from $4.50-$4.80

·     CNC -2%; as the Trump administration hardened its legal position toward the Affordable Care Act, arguing the entire law is unconstitutional. The Justice Department had previously held the view that large parts, but not all, of the law should be struck down

·     CRTO -3%; was downgraded by two analysts (KeyBanc, SunTrust) citing yesterday’s report that GOOGL is considering ad tool changes that would target restrictions at the browser level

·     DHI -1%; as homebuilders take a breather following weaker housing starts data for the month and ahead of earnings in the group (KBH, LEN) – group has rallied last few days on lower rate outlook

·     INFO -2%; reported mixed Q1 results as EPS topped views but revenue just fell short of consensus while backing its year outlooks

·     NEOG -10%; reported both a top and bottom line Q3 miss, sending shares lower initially

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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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