Mid-Morning Look: March 28, 2019

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Mid-Morning Look

Thursday, March 28, 2019

Index

Up/Down

%

Last

 

DJ Industrials

81.02

0.32%

25,706

S&P 500

13.20

0.47%

2,818

Nasdaq

39.95

0.52%

7,683

Russell 2000

13.13

0.86%

1,535

 

 

U.S. equities off to a good start as stocks appear unphased by the lower growth outlook today for GDP (revised lower to 2.2% from 2.6%), as recent data telegraphed the weaker report. Pending home sales meanwhile declined for a 14th consecutive month, a negative data point in what has been a strong rally for homebuilders (on plunging mortgage rates). Consumer discretionary space among the market leaders again today (one of few bright spots on Wednesday as well), helped by better reactions to earnings/guidance from LULU, PVH this morning. Dollar strength a stand-out, posting large gains vs. rival currencies (1% vs. the Pound and big moves vs. emerging markets), with Treasury yields steady after plunging the last week as global central banks are getting more dovish. U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steve Mnuchin arrive in Beijing for a new round of talks set to begin Thursday, which will be followed by talks in Washington next week. Also a heavy dose of Fed speakers on the calendar today (Quarles, Clarida, Bowman, Bostic, Bullard).

 

Treasuries, Currencies and Commodities

·     In currency markets, the U.S. dollar strong on the day, as the dollar index (DXY) rises over 0.5% to 97.25 (off last week post FOMC lows of 95.74), despite a weaker GDP reading for Q4. The dollar strength more of a factor that other economies are just weaker, with the British Pound getting “pounded”, down over 1% today as political confusion over Brexit deepens; the Turkish Lira plunges 5% amid currency crackdown; the euro extends losses to lowest level in 3-weeks. Gold prices plunge on the dollar spike, while oil dips after President Trump tweeted “very important that OPEC increase the flow of Oil. World Markets are fragile, price of Oil getting too high.” Treasury yields take a breather, holding near 15-month lows (10-year 2.38%).

 

Economic Data

·     The U.S. economy was revised lower for GDP to 2.2% from 2.6% prior and just below the economist estimate of 2.3% (GDP rose 3.4% in prior quarter); Personal consumption rose 2.5% in 4Q after rising 3.5% prior quarter (est. 2.6%) while the GDP price index rose 1.7% in 4Q after rising 1.8% prior quarter (est. 1.7%). Core PCE q/q rose 1.8% in 4Q after rising 1.6% prior quarter

·     Weekly Jobless Claims fell 5K to 211K, better than the 220K estimate while the prior week claims revised down to 216K from 221K; the 4-week moving avg. slipped by 3,250,000 to 217,250; continuing claims rose 13k to 1.756m in the week ending March 16

·     Pending Home Sales for February fell (-1%) vs. estimated decline of (-0.5%) as the Northeast fell -0.8%, Midwest fell -7.2%, South up 1.7% and the West up 0.5%

·     The 30-year fixed mortgage rate for week ended today fell to 4.06% from 4.28%, according to Freddie Mac, its’ lowest since Jan. 2018 while the 15-year rate avg 3.57%, down from 3.71%

 

 

Macro

Up/Down

Last

 

WTI Crude

-0.62

58.79

Brent

-0.67

67.16

Gold

-19.60

1,297.20

EUR/USD

-0.0021

1.223

JPY/USD

0.24

110.75

10-Year Note

0.008

2.388%

 

 

Sector Movers Today

·     Housing & Building Products; homebuilders were the standout sector to the upside yesterday after better earnings/new orders data from LEN and KBH, while the global rally in bonds has pushed down Treasury yields (in turn lowering mortgage rates); TREX was upgraded to buy at Stifel saying the stock is trading at an attractive level (at a 13% discount to 5-yr avg), and believe with the risk reward very favorable below $60

·     Transports; FDX was downgraded to neutral at Susquehanna saying there is no clear path to a free cash flow inflection emerging near-term, given an uncertain macro backdrop and a capex that is more likely to rise before it falls; in truckers, Deutsche Bank said ODFL could see a large miss in the first quarter, noting that the “entirety” of the miss is already priced in

·     Consumer Staples and Restaurants; CHD said it would acquire FLAWLESS Brand for $475M plus earn-out and sees deal boosting 2019 cash earnings by 4%; Citigroup took a more positive view on the tobacco sector as they upgraded Imperial Brands and BAT to Buy and also lifted price targets on PM, MO and Swedish Match; MNST mentioned positively at Credit Suisse, named a top pick saying the variety of headwinds that have pressured the stock this month “do not put the Monster story at risk (reit outperform)

 

Stock GAINERS

·     ACN +5%; on better Q2 results as cloud figures help the earnings beat while bookings hit a record $11.8 Billion and boosts forecast for the year

·     AMRN +3%; after the American Diabetes Association updated its Standards of Medical Care to include a recommendation that Vascepa be considered for certain patients with diabetes

·     LULU +15%; posted a strong 4Q on robust momentum across products, channels and margins, with initial 2019 guidance that is already above consensus (EPS guidance of +17% to 19% y/y); Q4 comparable-company sales rose +17% and gross margin expanded +110 bps

·     MOV +13%; as earnings handily beat by 12c on better sales ($199.4M vs. $194M est.) while margins improved to 55.7% of sales vs. 52.7% a year ago

·     PVH +18%; Q4 earnings beat expectations with EPS of $1.84 beating by 8c, driven mainly by stronger than expected revenue growth (beat rev ests for Calvin Klein and for Tommy Hilfiger)

·     QTNA +18%; agreed to be acquired by ON for $24.50 per share in all cash transaction; this transaction has an enterprise value of value of $936M https://on.mktw.net/2V5yXox

·     VRNT +9%; rise post earnings as Q4 results beat expectations and raised its fiscal 2020 outlook (Wedbush raised tgt to $63 and Oppenheimer to $65 on results)

 

Stock LAGGARDS

·     ARA -34%; following another mgmt resignation; CFO Jason Boucher resignation follows former CFO Jonathan Wilcox’s departure in September (analysts lower tgts)

·     NLSN -10%; after the New York Post reported Private equity giant Blackstone Group is dropping out of the sales process — putting the future of the auction in doubt https://nyp.st/2Wu3I6u

·     PRTO -80%; as its vonapanitase treatment in chronic kidney disease (CKD) patients failed to beat placebo in second late-stage study

·     QIWI -1%; Q4 results beat estimates and the company’s board approves a targets distributing 65%-85% of its adjusted net profit for 2019 as a dividend to shareholders starting in Q1

·     SPWH -8%; after Q4 net sales just missed estimates, and guided Q1 sales $174M-$180M, below the $183.7M estimate/announced its CFO is leaving

·     WBC -10%; to be acquired by Switzerland-based auto components maker ZF Friedrichshafen AG in a deal valued at more than $7 billion, with holders getting $136.50 in cash (6.5% discount to Wednesday’s closing price of $146.01) https://on.mktw.net/2JLbk3d

 

Syndicate

·     EyePoint (EYEP) 10.5M share Spot Secondary priced at $1.90

·     Precision BioSciences (DTIL) 7.9M share IPO priced at $16.00

·     WWE 3.2M share Block Trade priced at $84.50

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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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