Morning Preview: May 31, 2019

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Early Look

Friday, May 31, 2019

Futures

Up/Down

%

Last

DJ Industrials

-289.00

1.15%

24,901

S&P 500

-34.50

1.23%

2,756

Nasdaq

-110.50

1.52%

7,145

 

 

U.S. stocks are plunging on the final day of the month, on track for another day of sharp declines on trade war concerns…but this time, President Trump targets Mexico, saying the United States will impose tariffs on all Mexican goods from next month. President Donald Trump tweeted last night: “On June 10th, the United States will impose a 5% Tariff on all goods coming into our Country from Mexico, until such time as illegal migrants coming through Mexico, and into our Country, STOP. The Tariff will gradually increase until the Illegal Immigration problem is remedied, at which time the Tariffs will be removed. Trump said the tariffs will rise to 10% on July 1 if the crisis persists, and by another 5% for every successive month, up to 25% by Oct. 1. The commentary adds to an already tense global trade situation with China as the tariff threat pushed stock markets down as investors moved to safer assets like government bonds, gold and the Japanese yen, while the Mexican peso fell around 3%. With today’s move, U.S. markets are on track to open below key technical support levels.

 

Defensive and safe haven assets are surging given the broader “risk-off” attitude for global markets, as the yield on the 2-year dropped more than 7 bps to 1.992%, dropping below the 2% threshold for the first time since February 2018. The benchmark 10-year Treasury note yield fell over 7 bps to 2.151%, the lowest since September 2017. Yields overall falling globally as the 10-year German government bond fell more than 4 bps to at negative -0.21% as the new tariff threat raised concern about economic growth.

 

Stocks gained for the first time in three days on Thursday as investors digested a fresh batch of economic data that suggested the U.S. expansion was on firm footing. Economic growth for the first quarter was revised down by less than expected amid stronger consumption and exports. But today’s tariff related news is weighing heavily. In Asian markets, The Nikkei Index dropped -341 points to 20,601, the Shanghai Index slipped -7 points to 2,898 and the Hang Seng Index fell -213 points to 26,901. In Europe, the German DAX is down over -200 points to 11,680, while the FTSE 100 is down about -75 points to 7,140.

Market Closing Prices Yesterday

·     The S&P 500 Index climbed 5.84 points, or 0.21%, to 2,788.86

·     The Dow Jones Industrial Average rose 43.47 points, or 0.17%, to 25,169.88

·     The Nasdaq Composite gained 20.41 points, or 0.27%, to 7,567.72

·     The Russell 2000 Index declined -4.42 points, or 0.30% to 1,485.53

 

Events Calendar for Today

·     8:30 AM EST      Personal Income for April…est. 0.3%

·     8:30 AM EST      Personal Spending for April…est. 0.2%

·     8:30 AM EST      PCE Deflator MoM for April…est. 0.3%

·     8:30 AM EST      PCE Core Deflator MoM for April…est. 0.2%

·     8:30 AM EST      PCE Core Deflator YoY for April…est. 1.6%

·     9:45 AM EST      Chicago PMI for May…est. 54.0

·     10:00 AM EST    University of Michigan Sentiment, May-F…est. 101.5

·     1:00 PM EST       Baker Hughes Weekly Rig Count

 

Earnings Calendar:

·     Earnings Before the Open: BBW, BIG, GCO

 

 

Macro

Up/Down

Last

WTI Crude

-1.18

55.41

Brent

-1.99

64.88

Gold

10.25

1,299.00

EUR/USD

0.0023

1.1152

JPY/USD

-0.88

108.74

10-Year Note

-0.07

2.151%

 

 

World News

·     The United States will impose tariffs on all Mexican goods from next month, the Trump administration said late on Thursday, in an attempt to pressure its neighbor to halt an influx of migrants

·     Trump administration delays new sanctions on Iran’s petrochemical industry that were planned for mid-May, WSJ reports, citing unidentified people familiar. U.S. Treasury Department spokesman told WSJ its policy isn’t to comment on prospective actions

·     Trump’s announcement could also derail the United States-Mexico-Canada Agreement, the successor to the North American Free Trade Agreement. Earlier Thursday, the Trump administration triggered the process for submitting a bill to Congress that would implement the new trade deal with Canada and Mexico, the Associated Press reported.

 

Sector News Breakdown

Consumer

·     Uber (UBER) reports Q1 EPS loss ($2.26)/$3.1B vs. est. loss ($1.46)/$3.08B; reports Q1 gross bookings $14.65B, up 34% year-over-year; says Q1 results at or near high end of ranges shared in IPO prospectus; Q1 Latin America revenue $450M, down 13% while Q1 U.S. and Canada revenue $1.75B, up 26%

·     Gap (GPS) shares fell -11%; Q1 adjusted EPS 24c/$3.7B below est. 32c/$3.77B; cuts FY19 adj. EPS view to $2.05-$2.15 from $2.40-$2.55 (est. $2.46); 1Q gross margin 36.3%; comp breakdown: 1Q Old Navy comparable sales -1% vs. +3% YoY, 1Q Gap Global comparable sales -10% vs. -4% YoY and Q1 Banana Republic comparable sales -3% vs. +3% YoY; sees FY19 SSS down low single digits

·     Costco (COST) Q3 EPS $2.05/$34.74B vs. est. $1.82/$34.67B. Q3 benefitted from a non-recurring tax item of $73M, or 16c per diluted share; 3Q total company comp sales +5.5% vs. +10.2% y/y, and estimate +4.9%; 3Q total company comp sales ex: fuel, +5.6% vs. +7.00% YoY

·     Ulta Beauty (ULTA) Q1 EPS $3.26/$1.74B vs. est. $3.06/$1.75B; Q1 comp sales increased 7.0% (in-line with est.) and down from 8.1% YoY; 7.0% comparable sales increase was driven by 4.3% transaction growth and 2.7% growth in average ticket; raises FY19 EPS view to $12.83-$13.03 from $12.65-$12.85 (est. $12.80) and sees FY19 total sales in low double digit ranges, with comp sales roughly 6%-7%

·     Red Robin (RRGB) shares fell -10%; Q1 EPS 19c/$409.86M vs. est. 50c/$409.42M; Q1 comparable restaurant revenue decreased -3.3% in Q1 (in-line with ests); sees year adjusted EPS $1.14-$1.77, which includes the impact of an estimated tax benefit of 73c-96c

·     Scholastic (SCHL) cut its 2019 views for adj. EPS, revenue and adj. EBITDA primarily as a result of certain factors affecting its Children’s Book Publishing and Distribution segment in the fourth quarter; lowers FY19 EPS view to 83c-$1.03 from $1.60-$1.70 and cuts FY19 revenue view to $1.64B from $1.65B-$1.70B

·     Williams-Sonoma (WSM) shares rose 11%; Q1 EPS 81c/$1.24B vs. est. 69c/$1.23B; Q1 comp brand revenue growth of 3.5% vs. est. 1.6% (but down from 5.5% YoY), including double-digit comparable growth for West Elm; raises FY19 EPS view to $4.55-$4.75 from $4.50-$4.70 (est. $4.60) while reaffirms FY19 revenue $5.67B-$5.84B

·     Big Lots (BIG) Q1 EPS 92c/$1.3B vs. est. 70c/$1.3B; Q1 comp sales up 1.5% vs. est. 2/6%; raises FY19 EPS view to $3.70-$3.85 from $3.55-$3.75 (est. $3.66) and backs guidance for FY19 comp sales to increase in the low single digits

 

Energy

·     Oil prices are on track for another sharp decline, with WTI crude off over 2% and Brent 3%, as prices tumble to their lowest levels since March following a smaller than expected decline in U.S. crude inventories and fears of a global economic slowdown from the U.S.-China trade war. WTI crude is on track for its sixth loss in eight days and on track for losses around 15% for May

·     Eversource (ES) 15.6M share Spot Secondary priced at $72.50

 

Healthcare

·     Cooper Companies (COO) Q2 EPS $2.94/$654.3M vs. est. $2.76/$654.21M; sees FY19 EPS $12.15-$12.35 up from prior view $11.85-$12.15 on revs $2.63B-$2.67B vs. est. $11.99/$2.66B

·     Merrimack Pharmaceuticals Inc. (MACK) board has decided not to sell the company outright or any of its assets as it could not reach acceptable terms with potential buyers

·     Centene (CNC) announced that upon completion of the pending combination with WellCare (WCG), Ken Burdick, currently CEO of WellCare, and Drew Asher, currently executive VP and CFO of WellCare, will join Centene in executive leadership positions.

·     Amicus (FOLD) 16.28M share Secondary priced at $10.75

·     Myovant Sciences (MYOV) 15.15M share Secondary priced at $8.25

 

Industrials & Materials

·     Heavy duty truckers/machinery downgraded at Evercore/ISI as they cut Paccar (PCAR), Terex (TEX), Cummins (CMI) and Oshkosh (OSK) to In Line from Outperform

·     LyondellBasell (LYB) to buy back up to 10% of shares and boosted its dividend to $1.05 from $1.00

 

Technology, Media & Telecom

·     Dell Technologies (DELL) Q1 EPS $1.45/$22.0B vs. est. $1.22/$22.27M

·     Marvell (MRVL) Q1 EPS 16c/$662.5M vs. est. 14c/$653.78M; 1Q adjusted gross margin 64.1% vs. 62.5% y/y and storage revenue $278.7M; still sees 2Q adjusted EPS 13c-17c on revs $650M +/- 3% vs. est. 19c/$689.1M

·     Nutanix (NTNX) shares fell -16%; Q3 EPS loss (56c)/$287.62M vs. est. loss (60c)/$297.22M; sees Q4 EPS loss (65c) on revs $280M-$310M vs. est. loss (48c)/$334.23M

·     Okta (OKTA) raises 65: Q1 adjusted EPS loss (19c)/$125.2M vs. est. loss (21c)/$116.86M; said had 52% year-over-year growth in subscription revenue, which was driven by acceleration with enterprise customers; raises FY20 EPS view to (49c)-(45c) from (53c)-(48c) and ups FY20 revenue view to $543M-$548M from $530M-$535M

·     TiVo (TIVO) raises year revenue forecast to a range of $644M-$660M from prior $640M-$654M (est. $644.7M); names Raghu Rau as vice chair of the board and guides year EBITDA $175M-$%185M from prior $172M-$178M

·     VMware (VMW) Q1 EPS $1.32/$2.27B vs. est. $1.28/$2.24B; backs FY20 revenue view of $10.03B and GAAP operating margin of between 21.4% and 22.8% and non-GAAP operating margin of 33%; Q1 billings growth +25% vs. +17% y/y; added $1.5B in stock repurchases

·     Yext (YEXT) Q1 EPS loss (5c)/$68.7M vs. est. loss (10c)/$66.7M; sees Q2 EPS loss (14c) to (12c) on revs $70.8M-$71.8M vs. est. loss (10c)/$71.75M

·     Zscaler (ZS) Q3 EPS 5c/$79.1M vs. est. 1c/$74.9M; sees Q4 EPS 1c-2c on revs $81M-$83M vs. est. 1c/$78.87M

·     Zuora (ZUO) shares fell -26%; Q1 EPS loss (11c)/$64.1M vs. est. loss (13c)/$64.4M; 1Q negative free cash flow $3.84 million and 1Q cash and cash equivalents $62.6 million; guides Q2 EPS loss (15c)-(13c) on revs $66M-$68M below est. loss (11c)/$71.14M; guided year revenue $268M-$278M below est. $292M

·     Twilio (TWLO) 7.01M share Secondary priced at $124.00

·     Amazon (AMZN) is interested in acquiring Boost Mobile from T-Mobile (TMUS) and Sprint (S), Reuters reported https://reut.rs/30YKiK7

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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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