Mid-Morning Look: May 16, 2019

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Mid-Morning Look

Thursday, May 16, 2019

Index

Up/Down

%

Last

 

DJ Industrials

239.40

0.93%

25,887

S&P 500

34.05

1.19%

2,885

Nasdaq

105.42

1.35%

7,927

Russell 2000

17.37

1.12%

1,565

 

 

U.S. equities on track for a third straight daily advance, with the Dow Industrial Average getting a boost from better earnings out of components CSCO and WMT, and the Nasdaq Composite moving higher despite negative news for semiconductor chips/optical names, as its rallies back well above its 50-day MA resistance of 7,860. The S&P 500 index also reclaims its 50-day moving average resistance of 2,866, with broad based gains (outside of a few pockets of tech weakness). Markets are largely ignoring more trade concern/escalation with China after President Trump moved to curb Huawei Technologies Co.’s access to the U.S. market and American suppliers, which it would also stop it buying essential supplies from semi-chip giants while also threatening the rollout of 5G technology across the world. There are a few sectors active today, none moreso then chips and optical stocks (Huawei suppliers such as IPHI, NPTN, LITE, MU) after the U.S. imposed restrictions related to purchases of Huawei products, while also discussing national security concerns. MKM Partners said the ban is devastating for NPTN and ACIA; bad for LITE, IIVI, QRVO, and CRUS; negative impact for the others. On a positive note, the biotech space strong, helped by names several names following upbeat abstracts last night ahead of ASCO conference. Retailers are rallying behind WMT results, though the company warned that increased tariffs lead to increased prices. A round of positive economic data (housing starts, jobless claims and manufacturing out of Philly) also boosting sentiment and the dollar.

 

Treasuries, Currencies and Commodities

·     In currency markets, the British Pound dropped to a three-month low below $1.28 against the dollar and newswires said is headed for its longest losing streak against the euro since 2000 as the risk of a no-deal Brexit flared up again. Meanwhile the euro dropped to the lows on the day, erasing overnight gains, with the greenback generally higher vs. most currencies

·     Commodity prices are mixed as gold slides back below the $1,300 an ounce level on dollar strength while oil prices look to push higher after trading to 2-week highs yesterday

·     Treasury market gains unwind as yields bounce across the board after hitting multi-week lows yesterday for the 10 and 2-yr yields; the 10-year yield bounces back above 2.41% and the 2-year above 2.2% (lows around 2.33% and 2.13% yesterday respectively) as investors jump back into stocks which are rebounding for a third session

 

Economic Data

·     Housing Starts for April rose 5.7% to 1,235M annualized, above the 1,209M estimate, while the prior month was revised up to 1.168M from 1.139M. Building permits rose 0.6% to 1,296M vs. 1,288M in March and slightly above 1,289M estimate

·     Weekly Jobless Claims fell 16K to 212K, below the 220K estimate while the 4-week moving average stood at 225K; prior week claims were unrevised from 228K; continuing claims fell 28k to 1.660m in the week ending May 4

·     Philadelphia Fed Index for May rises to 16.6, well above the 9.0 estimate; general business conditions were 8.5 in the prior month while prices paid rose to 23.1 vs 21.6 MoM, new orders fell to 11.0 vs 15.7 and employment rose to 18.2 vs 14.7. The Six-month outlook rose to 19.7 vs 19.1 and the six-month outlook for capex fell to 23.3 vs 30.9

·     The 30-year fixed-rate mortgage (FRM) averaged 4.07% with an average 0.5 point for the week ending May 16, 2019, down from last week when it averaged 4.10%. A year ago at this time, the 30-year FRM averaged 4.61%. The 15-year FRM this week averaged 3.53% with an average 0.4%, down from last week when it averaged 3.57%

 

 

Macro

Up/Down

Last

 

WTI Crude

1.07

63.09

Brent

1.10

72.87

Gold

-5.60

1,290.90

EUR/USD

-0.0023

1.1178

JPY/USD

0.27

109.87

10-Year Note

0.031

2.407%

 

 

Sector Movers Today

·     Semiconductors; sector volatile as the revenue-risk profile to Huawei’s chip suppliers has increased, as the U.S. Commerce Department added Huawei to its entity list, which could be a framework for a potential U.S. supplier ban – companies such as LITE, SWKS, NPTN, AVGO, ACIA, IIVI, CRUS, QRO, XLNX, INTC among others will be negatively impacted if the new Trump executive order goes into effect versus Huawei and ZTE unless they could get an exception

·     Housing & Building Products; homebuilders KBH and TMHC both upgraded to outperform at RBC Capital (and raised tgts); in building products, Nomura downgraded BLD, GMS, IBP, and OC saying housing fall out hinges on equity market and trade spat duration and there is no roadmap to help quantify the impact from escalated tariffs on U.S. housing demand; MHK was upgraded to buy at Stifel and raised target to $180 from $135 saying the recent volatility in the shares has created a nice entry point, as the stock has discounted the possibility of further downward earnings revisions; EXP reported in-line Q4 EPS and sales of 87c/$284.7M

·     ASCO abstracts moving several names in the biotech space: The abstracts were released last night for the ASCO 2019 conference (American Society of Clinical Oncology) – largest clinical oncology conference held May 31-June 4 (IOVA, MGNX, REGN, AGIO among movers)

 

Stock GAINERS

·     AGIO +7%; said the randomized Phase 3 ClarIDHy Trial of Tibsovo (ivosidenib) achieved its primary endpoint in previously treated IDH1 mutant cholangiocarcinoma patients

·     CSCO +4%; Q3 earnings beat with a 4% rate of growth in organic revenues and new product orders, while guiding July-quarter revenues above consensus and EPS in line

·     IOVA +32%; after updated cervical and skin cancer results last night showed data from one arm of the “InnovaTIL-01” study with the drug lifileucel showed a 38% overall response rate in skin cancer, including two patients whose cancer went into remission

·     MGNX +9%; as ASCO abstracts provided incremental details surrounding the magnitude of the absolute median PFS benefit and emerging OS trend (both favoring margetuximab) observed in the P3 SOPHIA trial

·     NTES +6%; as reported in-line revenue and stronger-than-expected earnings (40% higher than the Street estimate) amid higher gross margins helped by gaming business

·     WMT +3%; mixed Q1 results as comp-store sales of 3.4% met estimates, while EPS beat the street on mostly in-line revenue/U.S. e-commerce sales up 37% y/y vs up 43% in 4Q

 

Stock LAGGARDS

·     AOS -7%; following a short report from J Capital Research’s Anne Stevenson-Yang saying channel checks indicate the company’s China revenue will fall by as much as 21% in 2019

·     DDS -12%; as EPS beat estimates driven by lower SG&A expenses and asset sales while comp results disappointed and retail GPM was down 141 bps vs. Deutsche Bank est. down 50 bps

·     FTCH -17%; posted solid 1Q results and reinforced its focus on growth & market share over N-T profitability while JPM said shares likely fell on the lower Q/Q take rate & less than expected 2019 topline guide upside

·     NKTR -7%; as abstract on NKTR-214 plus BMY’s Opdivo data from a study of patients with various sarcomas shows some responses but no full data

·     NPTN -13%; as the revenue-risk profile to Huawei’s chip suppliers has increased, as the U.S. Commerce Department added Huawei to its entity list

·     QCOM -2%; also falling with chip names on Huawei ban (XLNX, SWKS, IPHI, QRVO)

·     VRTU -27%; after Q4/FY19 miss on both revenues and CEPS reflecting weaker-than-expected results from large clients Citi and BT (17% and 5% of mix, respectively) as well as an unexpected tax according to several analysts

 

Syndicate

·     Clear Channel Outdoor (CCO) 17M share Block Trade priced at $5.20

·     Evolus (EOLS) 4M share Block Trade priced at $20.00

·     Plymouth Industrial REIT (PLYM) 3M share Spot Secondary priced at $17.50

_________________________________________________________________

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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