Mid-Morning Look: April 05, 2019

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Mid-Morning Look

Friday, April 05, 2019






DJ Industrials




S&P 500








Russell 2000






U.S. equities are moving modestly higher following positive trade headlines (again) overnight, this time from Chinese President Xi, while the release of the March employment report also boosted markets after headline results topped expectations to the tune of 196K added jobs, beating the 177K estimate, while wage gains cooled and the unemployment rate held near a 49-year low at 3.8%. Some market commentary suggests this morning’s monthly jobs report seen as “goldilocks” as hiring increased, unemployment stayed steady at lows, while wages only rose modestly (indicating there are no price pressures that would push the Fed into over-tightening). Markets also buoyed once again by favorable trade commentary with China after a report that President Xi Jinping said substantial progress had been made on the text for a trade deal. There were big gains overseas this week with the China Shanghai index rising over 5% (due in large part to trade deal hopes as well as better PMI and services economic data earlier in the week), Japan’s Nikkei advanced over 3% while in Europe, the Stoxx 600 closed higher by over 2%. Energy, Materials and Tech are among some of the top market gainers while Financials lag (as Treasury yields slip) and Telecom edges lower. Also this morning, President Trump threatened (in a tweet) that he would impose 25% tariffs on cars made in Mexico if that nation fails to keep making progress in stopping illegal immigration. “If for any reason Mexico stops apprehending and bringing the illegals back to where they came from, the U.S. will be forced to Tariff at 25% all cars made in Mexico and shipped over the Border to us.” U.S. stocks getting closer to their all-time highs last Fall, as the Dow Industrials up over 13% YTD, S&P up over 15% YTD and the Nasdaq up nearly 20% YTD.


Treasuries, Currencies and Commodities

·     In currency markets, the U.S. dollar index (DXY) flat around 97.30 despite the better than expected headline jobs report this morning – and on track for flattish week as well as markets digest tons of important macro moving economic data, trade headlines and strong stock moves. Treasury prices rise following the jobs data with the two-year flat under 2.34% while the 10-year yield down over 3 bps to below 2.50%. The pound reversed an advance after U.K. Prime Minister Theresa May asked the EU to delay Brexit to June 30. In commodities, oil prices looking to close strong after rising to its best levels since early November this week, as Brent prices remain around $70 per barrel – oil rising despite bearish inventory data today – as increasing optimism over a trade deal between China-U.S. has overshadowed.


Economic Data

·     Jobs headline beats – Nonfarm Payrolls for March rose 196K, topping the 177K estimate while nonfarm payrolls, net revisions, 14K from prior two months; the unemployment rate steady at 3.8% (in-line with estimates) while the participation rate 63% down from prior 63.2%; wages slowed as average hourly earnings rose 0.1% MoM, below the 0.3% estimate (and last month’s 0.4% rise); nonfarm private payrolls rose 182K beat prior 28K and est. 177K while manufacturing payrolls fell -6K after rising 1K in February (est. up 10K)







WTI Crude















10-Year Note





Sector Movers Today

·     Housing related sector; LEN was added to JPMorgan’s focus list; BBBY was upgraded to equal-weight at Morgan Stanley saying activist intervention poses a risk to their negative thesis while still question BBBY’s L-T prospects; in products, EXP was upgraded to outperform at Raymond James as believe activist Sachem Head is likely to be successful in achieving favorable changes in Eagle’s portfolio; FND was downgraded to hold at Loop Capital given year outperformance

·     Telecom/Media; VIAB upgraded to outperform at RBC saying its DirecTV deal was less contentious than thought, and think crystallizes its improved standing/more importantly they think it paves the way towards merger talks; AMX was upgraded to overweight at JPMorgan as believe that the potential harm of anti-preponderance measures in Mexico, including further regulation and increasing competition, may have been overstated among investors and ourselves

·     Materials/lumber/packaging; PCH was upgraded to buy at Bank America as sees a brighter outlook from the combination of a reasonably strong expected operating rate in lumber and potential housing catalysts; IP downgraded at RBC citing increased scrutiny of the containerboard market due to softening demand and fears of incremental capacity coming online

·     Consumer Staples; in beverages, SAM was downgraded to sell at Goldman Sachs as see headwinds in 2019 as competition intensifies and the company is unlikely to repeat its innovation success again this year while firm likes STZ within our Alcoholic Beverage coverage as its core beer portfolio remains on a solid footing and there is potential upside to sales; STZ CFO said he thinks CGC could churn up more than $1B in revenue by the end of the fiscal year; BUD was upgraded to buy at Bank America

·     Auto movers; RBC Capital upgraded ADNT to sector perform as see a path for ADNT to start to rebuild credibility by hitting quarterly expectations followed by a debt refinancing which removes a keg overhang, while they downgraded ALV to underperform as believes 1Q19 will prove more challenging than expected and sees negative revisions to 2019/20 consensus forecasts; Ford (F) was downgraded at Nomura to neutral; President Trump threatened in tweet to impose 25% tariffs on cars made in Mexico due to migration



·     ALGN +3%; as Stifel raised its tgt to $340 as checks are bullish and highlight solid industry case volume growth, new Ortho offerings (MAF and First), gaining momentum and sticky market share

·     APA +3%; as energy stocks rebounding after lagging markets yesterday

·     BBBY +1%; upgraded to equal-weight at Morgan Stanley saying activist intervention poses a risk to their negative thesis

·     BOOT +8%; will replace PS Business Parks (PSB) in the S&P SmallCap 600

·     FE +3%; as Bank America said yesterday’s 4% decline driven by the rejection of its $4B restructuring plan by a bankruptcy court has taken its valuation to the “most compelling” level in the past year

·     GBX ; Q4 revenue topped estimates and said that orders for 3.8K diversified railcars were received during the quarter ($450M value)/sees year eps $3.60-$3.80 above $3.61 consensus.

·     LYFT +4%; rises back above $75 per share (after falling as low as $66.10 on 4/2 and well below its recent $72 per share IPO last week), helped after Citron Research advises against shorting

·     SGMS +12%; as files for potential IPO of minority interest in SciPlay

·     SNAP +5%; trades to best levels since August after positive analyst comments a day after the company hosted an event where it announced a suite of new products and services

·     TGI +14%; announced that it is exploring strategic alternatives for its Aerospace Structures business unit as part of its continued portfolio reshaping, debt reduction and cash generation efforts https://yhoo.it/2Da5UJx

·     TROV 16%; as signed a deal with Lincoln Park Capital Fund, LLC for the purchase 382,166 common shares and five -year pre-funded warrants at $3.925 per share and warrant



·     DLTH -23%; on disappointing Q4 results and initial FY19 guidance that is well below expectations

·     DOW -3%; top decliner in the S&P 500 index early after JPMorgan initiated with an underweight

·     INTC -1%; downgraded at Wells Fargo saying after rallying 19% year-to-date, reflect a more balanced risk/reward

·     LIVN -27%; after preliminary Q1 results showed no yoy growth due to unexpected weakness in the U.S. while total sales should be $250.5M (flat YoY and below the $264.6M est./says that it is reviewing its 2019 guidance

·     MACK -11%; said it is discontinuing development of MM-310, its antibody-directed nanotherapeutic for the treatment of solid tumors as the result of a comprehensive review of available safety data from its Phase 1 study

·     SAM -4%; downgraded to sell at Goldman Sachs as see headwinds in 2019 as competition intensifies and the company is unlikely to repeat its innovation success again this year

·     SSNLF – Samsung Electronics Co. said it expects to post a 60% decline in Q1 operating profit as memory-chip demand has faded; said it expected an operating profit of 6.2 trillion South Korean won ($5.5 billion), down from 15.64 trillion won a year earlier


S&P Changes

·     SMTC, PSB, BOOT being added to S&P indexes – S&P Dow Jones Indices will make the following changes to the S&P MidCap 400 and S&P SmallCap 600 effective prior to the open of trading on Thursday, April 11:

·     S&P SmallCap 600 constituent Semtech Corp. (SMTC) will replace ARRIS International plc (ARRS) in the S&P MidCap 400, and Century Communities Inc. (CCS) will replace Semtech in the S&P SmallCap 600. CommScope Holding Company Inc. (COMM) is acquiring ARRIS International in a deal that was completed today.

·     S&P SmallCap 600 constituent PS Business Parks Inc. (PSB) will replace Rowan Companies plc RDC) in the S&P MidCap 400, and Boot Barn Holdings Inc. (BOOT) will replace PS Business Parks in the S&P SmallCap 600. S&P MidCap 400 constituent Ensco plc (ESV) is acquiring Rowan Companies in a transaction expected to be completed on or about April 11 pending final approvals.


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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