Mid-Morning Look: July 29, 2019

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Mid-Morning Look

Monday, July 29, 2019






DJ Industrials




S&P 500








Russell 2000






U.S. equities are mixed, with the Dow rising after underperformance last week, though the S&P 500 and Nasdaq pullback from record highs, led by sharp declines in software stocks (valuation concerns) and energy stocks (service names drop) as oil reverses lower. While it is a big week for earnings, macro stories including trade and interest rates will dominate mid-week. President Trump was on the attack again vs. Fed Chairman Powell and company saying in several tweets this morning that “the Fed has made all of the wrong moves. A small rate cut is not enough, but we will win anyway!” The commentary comes ahead of the 2-day FOMC policy meeting this week (results Wednesday) where a 25-bps cut is factored into markets, but a 50-bps cut still remains a possibility. Last Thursday, the ECB held its key interest rate steady last Thursday, but it made clear that more stimulus is on the way. Regarding trade, talks between China and the U.S. will resume as negotiators between the two countries will meet again in Shanghai in yet another attempt to piece together a trade accord. There were a couple of M&A stories in the healthcare space driving those shares today, but overall stock news relatively quiet heading into major market catalysts. Oil prices dip, with gold steady and Treasury yields little changed; the dollar steady outside of outperformance against the Pound.


Treasuries, Currencies and Commodities

·     In currency markets, The U.S. dollar was little changed against most major currencies heading into the FOMC rate decision later this week, though the British Pound fell to 29-month lows vs. the greenback to around 1.2250 as Prime Minister Boris Johnson’s new government signaled the rising likelihood of a no-deal Brexit. Former Brexit chief, Dominic Raab, also told the European Union it needed to change its “stubborn” position to avoid a no-deal crunch in October. Gold prices were little changed as well around the $1,420 an ounce level ahead of what should be a dovish policy meeting by the Fed Wednesday (gold prices have rallied the last few weeks to multi-year highs on lower rate expectations). Treasury market’s rally as yields inch slightly lower – again markets awaiting the direction from the Fed this week. Oil prices edge lower.







WTI Crude















10-Year Note





Sector Movers Today

·     Restaurants; CMG tgt was raised to $1,000 at Goldman Sachs saying with food safety concerns behind them they believe management will now be able to shift focus towards innovation and reinvigorating; Goldman also initiated other restaurants (buys on: CMG, MCD, SBUX, SHAK, WING and sells on JACK and WEN); SBUX downgraded at JPMorgan saying after reporting a 7% US comp, firm sees comps going back to the 3-4% range with ticket being driven by modest price as well as Nitro which will complete its US company store rollout by the end of September 2019

·     Medical equipment and devices; diagnostic stocks active given a tie-up in the sector as EXAS acquired GHDX in a $2.8B deal, with EXAS holders to receive $72 per share in cash and stock, which is expected to generate revenue of ~$1.6B and gross profit of ~$1.2B in 2020. Separately, GHDX reported qtrly results and lifted its FY profit and revenue outlook (shares of GH, MYGN, NTRA, NSTG, VCYT were among movers); NVCR upgraded to buy at SunTrust saying enhanced model includes prob-adj sales for indications in Phase 3, and still includes some areas of potential conservatism; MYGN was downgraded to hold from strong buy at Needham saying revenue growth in F20 will be a challenge given flat Hereditary Cancer Testing revs, leaving GeneSight & Prenatal as the main drivers of NT rev growth, but expanded payor coverage remains uncertain

·     Industrial & Machinery; EMR said trailing three-month orders were flat with underlying orders up 2%, excluding a 2% unfavorable currency impact. June underlying orders growth was below the 5%-7% expected range prior; PH agreed to acquire Exotic Metals Forming Company, a company that makes specialty parts used in the aerospace industry for $1.73B

·     Transports; airlines AAL, SAVE, HA, ALK all downgraded to neutral from outperform at Macquarie as part of a broader industry note, saying the competitive environment for these airlines should become choppy in the fall of 2019 and in 2020 as LUV attempts to win back market share; also in airlines, RYAAY posted a 21% drop in quarterly profit but kept its full-year profit target of €750M to €950M in place



·     BAH +4% as Q1 revenue, profit above Street estimates, driven by strength in client demand

·     CMG +2%; tgt was raised to $1,000 at Goldman Sachs saying with food safety concerns behind them they believe management will now be able to shift focus towards innovation

·     GHDX +2% as EXAS acquired the diagnostics company in a $2.8B deal, with EXAS holders to receive $72 per share in cash and stock https://on.mktw.net/2Ka8xxB

·     GRUB +5%; after European food delivery companies Takeaway.com and Just Eats announce they’re in the “advanced stages” of a $10B merger

·     MYL +14%; PFE to separate its “Upjohn” off-patent drugs business and merge it with MYL as Pfizer shareholders would own 57% of the combined new company and Mylan shareholders would own 43% https://on.mktw.net/2YpzZk5



·     CTB -9%; Q2 profit missed the lowest estimates saying its int’l segment was challenged and no longer expects full year unit volume growth compared to 2018 and an operating margin of 5.9%

·     DOW -1%; downgraded at Citigroup to neutral citing weakness in all three of Dow’s major supply chains (ethylene markets, siloxanes and urethanes), while Susquehanna also downgraded shares

·     EMR -1%; said Q3 earnings from operations were lower than expected on slower sales growth, but Q3 EPS slightly exceeded prior forecast due to a tax benefit/says June total EMR trailing three-month orders were flat, with underlying orders up 2%, ex: 2% unfavorable currency impact

·     LXRX -64%; announced late Friday that SNY terminates its partnership to develop diabetes drugs citing mixed results from Phase III trials on Zynquista

·     NSP -14%; falling from all-time highs after in-line Q2 results and narrows year EPS views – said net gains in clients were lower than expected due to less hiring of full-time/seasonal

·     OIS -11%; as posted a wider-than-expected Q2 EPS loss

·     OKTA -4%; as well as NOW, WDAY shares pressured early following Barron’s cautious this weekend saying analysts are starting to see bubbles in cloud software companies

·     ONDK -19%; Q2 EPS of 9c missed on in-line revs of $110.2M, though Q3 and year revs falls short of views (Q3 revs $108M-$112M vs. est. $112.3M and FY19 revs $438M-$448M vs. est. $449M) and JPM no longer intends to originate new small business loans through the company’s platform

·     PYPL -3%; cut to sell at Guggenheim as sees meaningful headwinds including the eBay separation, Brexit – which is expected to constrain growth in revenue and cause earnings growth to slow


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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