Mid-Morning Look: July 26, 2019

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*** This will be the final e-mail of the day. ***Service will resume normally on Monday.

***Have a great weekend.

 

 

 

 

 

 

Mid-Morning Look

Friday, July 26, 2019

Index

Up/Down

%

Last

 

DJ Industrials

3.65

0.01%

27,144

S&P 500

13.56

0.45%

3,017

Nasdaq

68.23

0.84%

8,307

Russell 2000

7.18

0.46%

1,568

 

 

U.S. equities open strong, led by gains in technology, ahead of a big week coming up! Outside of another barrage of earnings, the FOMC meets for a 2-day meeting with results on Wednesday at 2:00 PM EST (estimates for 25 bps interest rate cut – with 50 bps cut less likely, especially after today’s strong GDP report) as well as China trade meetings in Beijing next week with Lighthizer and Mnuchin flying there. The Nasdaq Composite rises to highs of 8,320 (just shy of Wednesday intraday high of 8,321) before fading, led behind strong earnings from GOOGL, INTC and TWTR (as well as other software names), while AMZN a drag after its earnings miss. Restaurant stocks rise after stronger comps, earnings, guidance from SBUX and MCD. The Q2 GDP reading surprised to the upside, rising 2.1% vs. the 1.8% estimate sending the dollar and Treasury yields higher as it may lower the chance of aggressive rate cuts next week from FOMC. Note hopes that the Fed will cut rates by at least 25 basis points at its policy meeting at the end of this month have powered a solid run in stocks this month, lifting the main indexes to record highs this week for the S&P and NASDAQ. Stocks are looking to rebound after slipping Thursday after ECB President Mario Draghi adopted a less dovish tone than investors had anticipated, even though he all but pledged to ease policy further. So far, two weeks into the earnings season, about 75% of the 185 S&P 500 companies that have reported so far have topped profit estimates, according to Refinitiv data – with another very busy week coming up.

 

Treasuries, Currencies and Commodities

·     In currency markets, the U.S. dollar broadly higher, getting a recent boost after White House economic advisor Kudlow said in a CNBC interview that the White House has ruled out any currency intervention. The Turkish Lira firmed against buck after Erdogan signals gradual rate cuts, strongest in one week. The British Pound falls back to the 1.24 level down -0.5% and at 52-week lows while the buck bounces vs. euro, yen, and Canadian dollar.

·     Oil prices steady, on track for a weekly increase as geopolitical tensions over Iran remained unresolved with Brent on track for a 2% rise (after falling 6% last week) and WTI crude up over 1% on the week after slumping over 7% last week.

·     Gold prices rose after Signatories of the 4th Central Bank Gold Agreement no longer see need for formal agreement as market has developed and matured,” the ECB said in statement. The Swiss National bank Bays said signatories confirm gold remains an important element of global monetary reserves and none of them currently have plans to sell significant amounts of gold.

·     Treasury market’s drop as yields spike following the stronger than expected Q2 GDP reading; the 10-year Treasury yield spiked as high as 2.10% after first reading of Q2 GDP growth came in at 2.1%, topping estimates of 1.9% – 10-year retreated to lows at 2.065%, before bouncing again

 

Economic Data

·     GDP data better – the rate of US economic growth cooled in the second quarter although it still slightly exceeded analysts’ expectations, propped up by solid consumer and government spending. GDP Annualized QoQ for Q2-A was 2.1%, above the 1.8% estimate while Personal Consumption for Q2-A rose 4.3% topping the est. 4.0%. Inflation remained subdues as the Core PCE QoQ, rose 1.8%, less than expected 2.0% rise

 

 

Macro

Up/Down

Last

 

WTI Crude

-0.22

55.80

Brent

-0.23

63.16

Gold

6.40

1,421.10

EUR/USD

-0.0018

1.1129

JPY/USD

0.09

108.73

10-Year Note

-0.005

2.075%

 

 

Sector Movers Today

·     Auto sector; for a second straight session, autos under pressure after earnings and guidance; yesterday autos Ford (F) and TSLA dropped on weaker results, along with auto retailer ORLY and other suppliers; today tire maker GT shares dropped after as miss to the top and bottom line; auto supplier LEA sales fall more than expected as reels from a slowdown in the auto sector while cuts its FY19 core operating earnings, adjusted EBITDA, adjusted net income guidance and FY19 free cash flow guidance; ABG reported better earnings on in-line sales as same store sales rose 2% (trades to new 52-week highs)

·     Internet movers; mixed bag as GOOGL shares jumped over 9% overnight as a rebound in Google’s advertising business for Q2 pushed revenue comfortably ahead of expectations, while AMZN shares slipped on an earnings miss amid rising costs; in online travel, EXPE reported modestly better room night growth and EBITDA beat consensus by 3% ex-Trivago and EBITDA guidance for 2019 was raised modestly to reflect the upside; TWTR mixed Q2 results that beat on revenue but missed on EPS/sees Q3 revenue of $815-875M (est. $829.2M) with operating income of $45-80M/Q2 Average Monetizable DAUs were 139M versus the 135.4M consensus estimate with 110M International mDAUs (est. 107.4M) and 29M U.S. mDAUs (est. 27.97M).

·     Pharma; ABBV Q2 top and bottom line results beat estimates and upped its FY19 adj. EPS view to $8.82-$8.92 from $8.73-$8.83 while Q2 Global HUMIRA sales of $4.87B down 6.1% on reported basis; RHHBY receives CHMP positive opinion for new Tecentriq-based combination therapy as an initial treatment for most common form of advanced lung cancer; GWPH’s marijuana-based treatment Epidiolex has won a positive recommendation for marketing approval from a European Medicines Agency (EMA) panel on Friday for use as an additional treatment for two types of seizures; NVS said a European advisory group backs its Lucentis for rare eye disease in infants; VSTM signs licensing agreement with French drugmaker SNY to develop and commercialize VSTM’s lead cancer drug, COPIKTRA, in Russia, Turkey, the Middle East and Africa

·     Restaurants; SBUX trades to new record highs after Q3 EPS, revs and comp sales (6% vs. est. 4.2% driven by a 4% increase in average ticket) all topped views and raises FY adjusted EPS $2.80 to $2.82, from prior $2.75 to $2.79; MCD posts Q2 U.S. comparable sales increase of 5.7% vs est of 4.5%, making its second straight qtr of beat, while sales were boosted by remodeled stores and new deals, including the 2 for $5 Mix and Match offer

·     Software movers; CARB plunges as posted a solid 2Q print, but weaker-than-expected 3Q guidance and materially lowered the FY19 revenue outlook given continued weakness in its core data protection business (downgraded at Barclays, Craig Hallum); PRO rises wit Q2 beat/raise as solid execution on the sales and product front continues to drive outperformance on subscription revenues/B2B strength continues to drive subscription billings growth better than +30% Y/Y; TEAM solid Q and guide but FY 2020 just in line on cloud mix and on-going investments; in software security, PFPT delivered a beat and raise quarter with 25% revenue growth, strong Operating leverage, excellent Free Cash Flow and raised guidance for CY3Q and the full year; LOGM rises as reported 2Q billings, revenue and EPS upside; SMSI surges on EPS/rev beat

·     Banks; KBW Inc. upgraded GS, C, and BAC upgraded to outperform and raise tgts while upgraded the Universal Bank group to Overweight from Market Weight as believes that the economic cycle will be extended following Federal Reserve rate cuts while also says the current valuations for the group are attractive; BAC tgt raised to $36 from $32, GS tgt to $260 from $225 and Citi to $86

·     Retail; toy retailer MAT posted a smaller than expected Q2 EPS loss on better revs of $860M while cumulative improvement in reported operating income over the past four quarters is $677M, the largest improvement in any four consecutive quarters in more than 15 years; mattress retailer SNBR shares spiked after raising the low end of year EPS view by a dime; DECK posted smaller EPS loss on better sales and raised guidance for year profit and sales but shares fell; COLM boosted its FY outlook after Q2 EPS/rev beat

·     Semi’s; INTC shares surge as beats Q2 profit est. and raises full-year rev forecast, while also saying it will sell the majority of its smartphone modem business to AAPL for $1B/revs in INTC’s client computing business rose to $8.84V topping views of $8.13B while revs from higher-margin data center business rose to $4.98B; XLNX adds to yesterday declines – back below Thursday lows

 

Stock GAINERS

·     BYND shares rose as much as 8% pre-open ahead of earnings on Monday – came into the day with a 6-day win streak rising to $240 today from $170 a week ago

·     CTST +14%; after firing its CEO more than two weeks after Health Canada found the company grew cannabis in unlicensed rooms. Robert Marcovitch, who is chairing a special committee looking into co’s non-compliance with Health Canada regulations, was appointed interim CEO

·     EHTH +20%; posts surprise EPS profit of 10c vs. estimated loss of (36c) while raises 2019 adj EPS forecast to $1.77-$1.97 from prior range of $1.54-$1.73 and ups revs to between $365M-$385M

·     GOOGL +10%; with a strong beat across the board as revs grew, core EBITDA grew and modest acceleration in gross website stabilization in net website revenue

·     HIIQ +2%; as explores strategic alternatives; which could include sale of co – says has not set timetable for process

·     SNBR +16%; after sailing past estimates with its Q2 report and reaffirming guidance while comp sales were up 8.0% during the quarter to smash the consensus estimate for a rise of 2.9%

·     TYPE +24%; enters into a definitive agreement with PE firm HGGC to be acquired for $19.85/share in cash valued at $825M, with a 30-day go-shop period to consider other offers

·     UHS +10%; after Q2 EPS beat by over 25c on better revs

·     VGR +15%; as it will replace TTEK in the S&P SmallCap 600 prior to trading on August 1st

·     VOD +9%; after revealed plans to list its European towers business and posted better Q1 results

·     ZBH +8% as Q2 earnings beat and a boosts the lower end of year guidance

 

Stock LAGGARDS

·     CARB -27%; weaker-than-expected 3Q guidance and materially lowered the FY19 revenue outlook given continued weakness in its core data protection business (downgraded at Barclays, Craig Hallum)/Q3 outlook has revenue of $131-133M (vs. est. $134.2M) – also CEO departs

·     CHTR -5% as Q2 profit and revenue that missed expectations/profit fell to $314M from $273M YoY (EPS of $1.39 below est. $1.85) as revs rise YoY but missed views and said had video net losses of 141,000 and wireline voice net losses of 82,000

·     COG -8%; after lowering production outlook to a range of 16%-18% from its earlier forecast of 20% while raising its 2019 capital budget by $20 mln to a range of $800M-$820M to reflect the incremental drilling and completion activity

·     EMN -6%; Q2 EPS and revs fell short of views (EPS $1.99/$2.36B vs. est. $2.09/$2.55B) and guides year lower (EPS $7.50-$8.00 vs. est. $8.42) citing trade issues

·     GT -14%; after Q2 EPS miss (by 9c) and revenue as sales down 5% in Q2, driven by unfavorable currency translation and lower volume/tire unit volume dropped 4% to 37.4M for the quarter

·     ITW -3%; as Q2 EPS of $1.91 missed by 7c and lowered its year outlook view to $7.55-$.7.85 from $7.90-$.8.20 (est. $7.89) and cuts organic revenue growth down (-1%-3%) form prior view of up 0.5%-2.5% as saw a deceleration in demand across its portfolio on a challenging environment.

·     MHK -12%; 2Q Operating EPS was roughly in-line with the Street but shares fell as 3Q guidance of $2.58-2.68 was well below the Street’s $3.05 due to softer end markets and a more intense competitive environment

·     MMSI -25%; downgraded by two analysts (Needham/Wells Fargo) following Q2 miss given product mix dynamics, and some incremental headwinds from currency, China tariffs

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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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