Mid-Morning Look: April 08, 2019

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Mid-Morning Look

Monday, April 08, 2019

Index

Up/Down

%

Last

 

DJ Industrials

-105.69

0.40%

26,319

S&P 500

-4.73

0.16%

2,888

Nasdaq

-12.89

0.16%

7,925

Russell 2000

-5.08

0.32%

1,577

 

 

U.S. equities start the week off in negative territory, pulling back slightly from fresh 2019 highs for the S&P 500 index and Dow Industrials last Friday as investors lock in some profits heading into earnings season. Energy stocks among the early leaders with WTI crude topping the $64 per barrel level, along with gains in metals as the commodity trade has recently perked up given the better economic data points out of China. The recent overly dovish FOMC outlook has also boosted interest rate sensitive names given the Fed recent lowered rate hike view, while at the same time the strong headline jobs report Friday and slower wage growth eases any inflation fears for the time being. One of the hardest hit sectors today related to aircraft stocks after Dow component Boeing said its cutting production of its 737 jet output 19% to 42 airplanes a month by mid-April (from 52 per month) to reduce its spending on the 737 (seeing shares of suppliers such as SPR, AYI, TGI as well as airlines like LUV decline). Today’s stock pullback is minimal compared to the torrid gains to start the year from large to small cap stocks.

 

Treasuries, Currencies and Commodities

·     In currency markets, the U.S. dollar tumbling to start the week as the dollar index (DXY) falls to the 97 level (off overnight highs around 97.40); the Turkish lira extends slide amid political uncertainty; the Canadian dollar rises as oil prices top the $64 level for WTI crude. Commodity prices are benefiting from the decline in the greenback, with WTI crude topping the $64 level (first time since November), while Brent moves above $70 per barrel. Gold prices also moving higher, back around the $1,300 an ounce mark. Treasury market’s edge lower to start the week, as the 10-year Treasury yield moves above the 2.51% level while the 2-year stands above 2.34%.

 

Economic Data

·     Factory Goods Orders for February fell (-0.5%), in-line with estimates while factory orders for January were revised to unchanged from 0.1% gain. Capital goods non-defense ex aircraft new orders for Feb. fall 0.1% after rising 0.9% in January. Durables goods orders for Feb. fall (-1.6%) after rising 0.1% in January but was in-line with estimates

 

 

Macro

Up/Down

Last

 

WTI Crude

1.05

64.13

Brent

0.46

70.80

Gold

9.00

1,300.75

EUR/USD

0.0054

1.1270

JPY/USD

-0.34

111.38

10-Year Note

0.02

2.511%

 

 

Sector Movers Today

·     Consumer Staples; PG upgraded to Outperform at Wells Fargo and raised tgt to $115 from $91 as believe a sense of urgency & accountability has been infused into the organization, driven by CEO David Taylor; at JPMorgan, ELF upgraded to neutral saying the worst may be behind the company after 10 months of distribution declines, while the firm downgraded CLX to underweight saying it has little room to offset sales challenges for charcoal, bags & wraps after recent price hikes; SJM was upgraded at Credit Suisse noting recent improvement in retail sales trends and the margin expansion in its Coffee division have exceeded their expectations; NBEV rises after announcing a distribution deal with Walmart for the company’s Marley brand; POST says its unit has submitted a draft registration statement to the SEC on its proposed IPO of its active nutrition business

·     Casino & Leisure movers; HOG was downgraded at Wells Fargo as believe risk/reward is now less attractive at current levels amid continued heavyweight motorcycle market weakness, tariff uncertainty, and long path to stabilization; PII was upgraded to overweight at KeyBanc saying while 1Q19 ORV retail checks are in the -LSD/MSD range, they believe this slow start is relatively understood at this point; in gaming, WYNN was upgraded to buy with $170 tgt at Jefferies following better than expected gross gaming revenue results from Macau for March and signs that suggest it is reasonable to expect economic improvement throughout 2019 in China

·     Aerospace & Defense; Dow component BA shares fell after the company said its cutting production of its 737 jet output 19% to 42 airplanes a month by mid-April (from 52 per month) to reduce its spending on the 737 and preserve cash; shares of Boeing suppliers declined after the plane maker cut output of its 737 MAX by nearly 20% (ATI, SPR, HXL, TDG); SPR was downgraded to hold at Canaccord after the Boeing announcement saying SPR will face incremental costs and the loss of the volume increase on the 737 is material; AAXN was upgraded at Raymond James to Strong Buy from Outperform and laying out the case for a $100 share price exiting 2021

·     Utilities & Solar; Goldman Sachs downgraded OGE and WEC to sell from neutral and AEP to neutral from buy while upgrades AGR to neutral from sell and NI to buy from neutral; removes NEE from conviction list, remains buy-rated – Goldman moves to a more cautious outlook on utility stocks after sector outperformance since the start of 4Q 2018

 

Stock GAINERS

·     CHRS +11%; pre-announced Q1 sales for Udenyca, a generic of AMGN’s Neulasta, was higher than consensus estimates (Citi raised its tgt to $28 from $25)

·     CXO +2%; as energy stocks among top gainers in the S&P with WTI crude topping $64 per barrel

·     NBEV +23%; after announcing a distribution deal with Walmart for the company’s Marley brand

·     SNAP +3%; upgraded to Outperform at RBC Capital and raised its price target to $17 from $10 saying they see early evidence that its Android platform improvements are finally gaining traction

·     SNE +7%; after Reuters reported that Third Point is buying a stake to push for changes; says seeking up to $1B invest vehicle for Sone

·     SYMC +7%; upgraded to buy at Goldman Sachs and raised tgt to a Street-high $28 as expect FY20 to show improvement on key metrics

·     ZG +3%; upgraded at Cowen saying longer-term targets in its move toward flipping houses are achievable, while its internet, media and technology unit has enduring value

 

Stock LAGGARDS

·     BA -3%; after the company said its cutting production of its 737 jet output 19% to 42 airplanes a month by mid-April (from 52 per month) to reduce its spending on the 737 and preserve cash

·     GE -6%; downgraded to Underweight at JPMorgan and lowered target to $5 from $6 as believe many investors are underestimating the severity of the challenges and underlying risks at GE

·     LUV -2%; downgraded to market perform from outperform at Raymond James due to MAX fleet grounding-related near term earnings risk, which may run into the summer months

·     MC -5%; after Morgan Stanley cut its Q1 EPS view and tgt to a Street low $45 citing a partial fixed-income market shutdown late in Q4, along with the U.S. government shutdown in January

·     ROKU -5%; downgraded to sell at Citigroup citing the stock trading at near record highs, the risk of greater competition in the changing OTT landscape, and the potential for dilution from increased option grants and restricted stock

·     SPR -6%; downgraded to hold at Canaccord after Boeing (BA) announced that it is lowering 737 production levels to 42 per month starting in mid-April

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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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