Morning Preview: March 27, 2019

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Early Look

Wednesday, March 27, 2019

Futures

Up/Down

%

Last

DJ Industrials

-72.00

0.28%

25,604

S&P 500

-5.50

0.19%

2,817

Nasdaq

-5.50

0.07%

7,371

 

 

U.S. stock futures are lower, with investors in apparent “risk-off” mode, as Treasury prices resume their upward climb, with yields falling to new 14-month lows (10-year down 5 bps to 2.36%) as investors weighed a worrying economic outlook against a decisive turn towards accommodation by major central banks. In Germany, bunds are sold with a negative yield for the first time since 2016 as lower global bond yields are pressuring sentiment in equity markets. In Asian markets, The Nikkei Index fell -49 points to 21,378, the Shanghai Index rose 25 points to settle at 3,022 and the Hang Seng Index gained 161 points to settle at 28,728. In Europe, the German DAX is down about -40 points to 11,375, while the FTSE 100 is down around -20 points at 7,175. There was a big M&A deal announced in the managed care sector overnight as Centene (CNC) said it would buy WellCare (WCG) for $305.39 per share, with the deal valued at $17.3 billion. More pressure on the Fed after the person President Trump has nominated for the open seat on the FOMC. Stephen Moore told the NYT that December’s hike was “inexplicable,” and that the Fed should cut rates by 50 basis points now. Transports could be under pressure after airline Southwest (LUV) cuts capacity outlook, while homebuilders will be active after earnings results from LEN and KBH (while helped by plunging yields). U.S. stock benchmarks gained but finished well off their best levels on Tuesday as investors continue to deal with plunging rates, inverted yield curves and recession fears amid fears of slowing global growth. The S&P 500 and Nasdaq each snapped modest 2-day losing streaks despite weaker housing and consumer confidence data. The 10-year Treasury yield was at 2.418%, holding near its lowest since December 2017.

 

Market Closing Prices Yesterday

·     The S&P 500 Index gained 20.10 points, or 0.72%, to 2,818.46

·     The Dow Jones Industrial Average rose 140.90 points, or 0.55%, to 25,657.73

·     The Nasdaq Composite gained 53.98 points, or 0.71%, to 7,691.52

·     The Russell 2000 Index advanced 15.30 points, or 1.01% to 1,528.17

 

Events Calendar for Today

·     7:00 AM EST      MBA Mortgage Applications Data

·     8:30 AM EST      Trade Balance for January…est. (-$57.0B)

·     10:00 AM EST    Current Account Balance for Q4…est. (-$130.0B)

·     10:30 AM EST    Weekly DOE Inventory Data

·     5:30 PM EST       Fed’s George speaks to Money Marketeers of New York

 

Earnings Calendar:

·     Earnings Before the Open: FUL, HOME, LEN, YOGA

·     Earnings After the Close: FIVE, LULU, OMN, PAYX, PVH, SNX

 

 

Macro

Up/Down

Last

WTI Crude

-0.43

59.51

Brent

-0.16

67.81

Gold

2.90

1,324.30

EUR/USD

0.0015

1.1281

JPY/USD

-0.31

110.33

10-Year Note

-0.054

2.466%

 

 

World News

·     The Fed should cut rates by 50 basis points now, according to the person President Trump has nominated for the open seat on the FOMC. Stephen Moore told the NYT that December’s hike was “inexplicable.” He said he’s not a dove, though he may ruffle a few feathers if confirmed

·     Investor Intelligence poll shows that equity newsletter writers classified as bulls tumble for the second time in three weeks, falling to 52.0% vs 53.9% last week which was the highest since October 10, while bearish sentiment was unchanged at 20.6%; those expecting a correction snap a 7-week losing streak, rise to 5-week high of 27.4% from a five-month low of 25.5% last week

 

Sector News Breakdown

Consumer

·     KB Home (KBH) Q1 EPS 31c/$811.5M vs. est. 25c $832.3M; 1Q deliveries 2,152, net orders declined -4%, the 1Q cancellation rate was 20% and Q1 backlog -16%; 1Q adjusted housing gross margin 21.3%

·     Lennar (LEN) Q1 EPS 74c/$3.87B vs. est. 76c/$4.11B; reports Q1 deliveries of 8,820 homes, Q1 new orders up 24% to 10,463 homes and reports Q1 backlog of 17,259 homes

·     Shoe Carnival (SCVL) Q4 EPS 9c/$234.7M vs. est. 6c/$233M; sees FY EPS $2.60-$2.70 on sales $1.04B-$1.06B vs. est. $2.66/$1.04B; 4Q comparable sales +4.7%; reiterates year comparable store sales increase of low single digits

·     Gildan Activewear Inc. (GIL) revealed that it will write off a debt from a distributor that is expected to be liquidated; said a trade receivable of $19M-$23M from Heritage Sportswear will become an impairment charge in the current quarter after a receiver filed in court for Heritage’s liquidation; said it would cut 9c-11c of its forecast

·     Ollie’s Bargain Outlet (OLLI) Q1 EPS 71c/$393.9M vs. est. 69c/$396.97M; Q4 comparable store sales increased 5.4% vs. est. 6.3% and vs. 4.4% YoY; sees FY19 EPS 2.10-$2.15 on revs $1.436B-$1.449B vs. est. $2.14/$1.44B; sees FY19 comp store sales growth of 1.0% to 2.0%; announces $100M Share Buyback Authorization; sees opening of 42 to 44 new stores

·     Tesla Inc. (TSLA) CEO Musk will face off against the SEC on April 4 to argue over whether he should be held in contempt of court, a federal judge in Manhattan said Tuesday.

·     Vitamin Shoppe (VSI) announced that Bill Wafford resigned from his current position as Executive Vice President, CFO of the company, effective April 5, in order to take a position as CFO at J. C. Penney (JCP).

 

Energy, Industrials & Materials

·     The American Petroleum Institute (API) reported that U.S. crude supplies climbed by 1.9M barrels for the week; showed stockpile declines of -3.5M barrels for gasoline and 4.3M barrels for distillates

·     Southwest Airlines (LUV) cuts forecast for Q1 capacity to 1% from 3.5%-4% previously as a result of the cancellations due to weather and unanticipated events; said it expects Q1 unit revenues to increase in the 2%-3% compared with its previous guidance of an increase in the 3%-4%

·     Dow (DOW) will replace DowDuPont (DWDP) in the Dow Jones Industrial Average effective prior to the open of trading on Tuesday, April 2. This change follows DowDuPont’s announcement that it is splitting into three companies, with Dow being spun-off effective April 2

·     Dow (DOW) will be added to the S&P 100 prior to the open of trading on Tuesday, April 2. Dow will replace Halliburton (HAL) which will be removed from the S&P 100 effective prior to the open of trading on Wednesday, April 3

·     Dow (DOW) will be added to the S&P 500 prior to the open of trading on Tuesday, April 2. Dow will replace Brighthouse Financial (BHF), which will be removed from the S&P 500

·     The Federal Aviation Administration said a Southwest Airlines Boeing (BA) 737 Max jet made a safe emergency landing Tuesday in Orlando, Florida, after experiencing an apparent engine problem.

 

Financials

·     Equifax (EFX) and Fair Isaac (FICO), the creator of the FICO credit score, plan to start working together to sell consumers’ data to banks, The Wall Street Journal reported

·     Paychex (PAYX) Q3 EPS 89c/$1.1B vs. est. 88c/$1.04B; says outlook unchanged, excluding impact of Oasis deal

·     Performant Financial (PFMT) Q4 EPS loss (1c) on revs $39.7M; forecast revenue for 2019 of $158 million to $168 million; sees 2019 adjusted Ebitda loss $2 million to $6 million

 

Healthcare

·     Centene (CNC) said it would buy WellCare (WCG) for $305.39 per share, with the deal valued at $17.3 billion. Bloomberg News on Tuesday reported that the health-care companies were in merger talks. Centene, a health insurer focused on Medicaid and Affordable Care Act markets, has about 14 million members, while WellCare has about 5.5 million Medicaid and Medicare-oriented members.

·     Novartis AG’s (NVS) Mayzent (siponimod) — seen as a potential blockbuster drug–was approved by the FDA as an oral, once daily tablet to treat adults with relapsing forms of MS

·     Agios Pharmaceuticals, Inc. (AGIO) said the FDA granted Breakthrough Therapy designation for TIBSOVO® (ivosidenib) in combination with azacitidine for the treatment of newly diagnosed acute myeloid leukemia (AML) with an IDH1 mutation in adult patients who are ≥75 years old or who have comorbidities that preclude use of intensive induction chemotherapy.

·     Jazz Pharmaceuticals plc (JAZZ) announced positive top-line results from the global, double-blind, placebo-controlled, randomized-withdrawal, multicenter Phase 3 study evaluating the efficacy and safety of JZP-258 for the treatment of cataplexy and excessive daytime sleepiness (EDS) in adult patients with narcolepsy. JZP-258 is a novel oxybate product candidate with a unique composition of cations resulting in 92% less sodium than Xyrem

·     Achillion Pharmaceuticals (ACHN) says it has completed enrollment in ACH-4471 Phase 2 PNH trial in combination with eculizumab

·     Genfit (GNFT) 6.65M share Secondary priced at $20.32

·     MyoKardia (MYOK) 4.93M share secondary priced at $51.00

 

Technology, Media & Telecom

·     Optical sector changes at Morgan Stanley: Lumentum Holdings (LITE) was upgraded to overweight from equal-weight while Acacia Communications (ACIA) was downgraded to underweight from equal-weight; the price target was raised to $44 from $38.

·     ON Semiconductor (ON) upgraded to buy from neutral at Goldman Sachs and raised tgt to $26 from $22 saying the company had improved its position on a number of secular growth opportunities

·     Ctrip (CTRP) upgraded to Outperform from Market Perform at Bernstein

·     Veon (VEON) 100M share Spot Secondary priced at $2.16

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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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