Mid-Morning Look: May 24, 2019

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Mid-Morning Look

Friday, May 24, 2019

Index

Up/Down

%

Last

 

DJ Industrials

70.37

0.28%

25,560

S&P 500

8.38

0.30%

2,830

Nasdaq

32.86

0.43%

7,660

Russell 2000

13.85

0.92%

1,515

 

 

U.S. equities rise for the first time in three days, bouncing off their worst day in months after Trump said last night that issues with Huawei could be included in a trade deal with China, although no trade talks are currently planned, while China committed to striking a trade deal with the U.S. but said it’s also ready to respond with more counter-measures. Headlines on trade have been the key macro drivers over the last 2-weeks – mostly negative – with US adding additional tariffs on $200B of China goods, China retaliating with its own tariffs and then the ban by the U.S. of China based tech company Huawei, put on its “blacklist” – prompting several suppliers to issue lowered guidance in reaction this week. Stocks opened with a broad-based rebound after stumbling yesterday on trade and growth concerns as well (weak global economic data), but markets have slowly been paring gains. U.S. Treasury prices pull back from yesterday’s big advance, pushing yields higher while crude rises modestly after falling to 2-month lows yesterday, dropping below $58 per barrel. The Dow Industrial Average on track for a 5th straight weekly loss (hasn’t lost 5-straight weeks since 2011 according to CNBC), while the S&P 500 and Nasdaq Comp on track for their third straight weekly decline. In Europe, British Prime Minister Theresa May announced that she will step down as Conservative Party leader on June 7, while staying on as PM until the leadership contest is concluded.

 

Treasuries, Currencies and Commodities

·     It has been a volatile week for currencies, Treasuries and commodity prices, but markets are relatively quiet today as investors ease into the long holiday weekend. The US dollar index is down on the day (and now week) after jumping to 2019 highs Thursday (DXY topped out at 98.37 yesterday before sliding), as the British Pound partially rebounds on news UK’s Teresa May will step down on June 7th as Prime Minister. After falling yesterday to their lowest levels since late 2017, the 10-yearTreasury yield inches higher to around 2.33%, but down on the week.

·     Commodity prices are mixed as gold prices pares yesterday’s near 1% advance as stocks rebound, dulling interest in the safe-have asset. Oil prices look to recover after its worst day of the year yesterday, dropping almost 6% as the commodity got caught in the rush out of risky assets. Tensions in the Middle East had helped to shelter crude but given the China trade dispute with the U.S. and the bearish inventory data this week, prices are on track for big weekly losses.

 

Economic Data

·     Durable Goods Orders (Apr-P) fell (-2.1%), in-line with analyst estimates while Durable Goods ex: transportation was unchanged (also in-line with estimates). Non-military capital goods orders excluding aircraft dropped (-0.9%) from the prior month after a downwardly revised 0.3% gain

 

 

Macro

Up/Down

Last

 

WTI Crude

0.39

58.30

Brent

0.43

68.19

Spot Gold

-1.45

1,282.00

EUR/USD

0.0013

1.195

JPY/USD

-0.03

109.58

10-Year Note

0.006

2.329%

 

 

Sector Movers Today

·     Retailers; in footwear two mixed reports as DECK rises after handily topping quarterly earnings (85c vs. est. 7c) as UGG brand revenue fell 7.2% Y/Y to $239M during the quarter, while Hoka One revenue was up 33% to $67M; FL shares fell after Q1 earnings missed estimates on weak profit and revenue numbers, while lowering its outlook for year earnings to be up by high-single digits, down from the double digit increase it had forecast earlier; BKE Q1 comp sales fell 1.3% in Q1, despite a 5.6% increase in online sales during the quarter, while net income was $15.1M vs. $18.3M a year ago; ROST reported 1Q comps +2% despite a difficult environment and beat its EPS guidance ($1.15 vs. guide of $1.05-$1.11, including a 2c benefit from an expense shift) even as Ladies apparel (26% of sales) continues to underperform

·     Metals & Materials; DOW was upgraded to neutral at JPMorgan as believe that risk and reward for Dow now splits more evenly. Optimism or pessimism over the economy could push the shares a little in either direction, though we do think that further incremental cuts to Consensus EBITDA estimates are likely; SQM was downgraded at BMO Capital citing concerns surrounding a lithium rebound, along with worries that it will take longer for sentiment to bottom

·     Internet; BABA was added to Stifel select list with a $220 tgt noting that the price is even cheaper on earnings from the company’s core marketplace-based businesses; SNAP shares active after the WSJ reported it is looking to let users add music to Snapchat posts; SINA was downgraded to neutral at Macquarie and lowers the target from $75 to $38, implying an 11% downside after the company reported mixed Q1 results yesterday

·     Utilities; the Utility sector touches another fresh all-time high early, getting a recent boost higher given the recent pullback in Treasury yields (Bloomberg notes the utilities gauge pays a dividend yield of 3.67%, a fat premium of 1.34 percentage points over 10-year Treasuries) – another day of 52-week highs for AEP, DTE, ED, D, SP, XEL, NEE, PNW, AEE, AWK, ETR, PEG

 

Stock GAINERS

·     APHA +8%; outperforms in Cannabis space after Jefferies initiated with a buy and $15 tgt saying it scores highly, and third overall behind only Canopy and Aurora and that despite its strong global outlook, its valuation is the cheapest across their space

·     BLMN +3%; upgraded to buy from neutral at Guggenheim as sees momentum picking up after two consecutive quarters of improved results (note BMO’s downgraded pressured shares of it and CMG yesterday citing concerns surrounding African Swine Fever adding more risk)

·     CVCO +15%; Q4 revenues of $241.1M a decrease of 0.06% Y/Y, due to reduced home sales volume, largely offset by price increases and product mix while margins improved

·     DECK +6%; handily top quarterly earnings (85c vs. est. 7c) as UGG brand revenue fell 7.2% Y/Y to $239M during the quarter, while Hoka One revenue was up 33% to $67M

·     HIBB +14%; after Q1 beat handily and raised guidance; Q1 EPS $1.61/$343.3M vs. est. $1.31/$326.1M; sees FY EPS $2.00-$2.15 up from prior view of $1.80-$2.00 (est. $1.89); sees FY comparable sales +0.5% to +2%, saw -1% to +1%; Q1 comp sales rose 5.1% vs. est. 1.2%

·     HPE, HPQ +3%; both performing well on the back of quarterly results

·     INTU +5%; as Q3 EPS and revs topped consensus while raises FY19 revenue view to $6.738B-$6.758B from $6.53B-$6.63B (est. $6.66B);

·     SNAP +4%; as mentioned positively by TickerTags saying viral filters may lead to more daily active users, while WSJ reported it is looking to let users add music to Snapchat posts

·     TSS +8%; after Bloomberg reported it has held preliminary talks with GPN about a potential merger deal and have also discussed possible joint ventures and other ways to partner up that may not include a merge https://yhoo.it/2VPR2pP

 

Stock LAGGARDS

·     ADSK -5%; as reported softer-than-expected headline results for F1Q, with subscription revenues and operating margin below consensus though maintained FY20 guidance

·     BCRX -4%; downgraded to sector perform from outperform at RBC and cut tgt to $4.50 from $16 based on disappointing efficacy data for ‘7353

·     FL -16%; after Q1 earnings missed estimates on weak profit and revenue numbers, while lowering its outlook for year earnings to be up by high-single digits, down from the double digit increase it had forecast earlier

·     LGF -6%; after Q4 results fell short of consensus (11c/$914M vs. est. 22c/$947.7M)

·     ROST -2%; reported 1Q comps +2% despite a difficult environment and beat its EPS guidance, but guided Q2 EPS below estimates ($1.06-$1.11 vs. est. $1.14)

·     STZ -3%; downgraded at Morgan Stanley saying they don’t see enough upside here to justify an overweight after a recent run-up, particularly with risk around beer revenue growth

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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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