Mid-Morning Look: July 31, 2019

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Mid-Morning Look

Wednesday, July 31, 2019

Index

Up/Down

%

Last

 

DJ Industrials

-16.52

0.06%

27,181

S&P 500

-3.08

0.10%

3,010

Nasdaq

5.83

0.07%

8,280

Russell 2000

2.99

0.19%

1,588

 

 

U.S. equities erase overnight gains to trade little changed heading into the afternoon (2:00 PM EST) FOMC meeting followed by Fed Chairman Powell’s conference. Markets are widely expected to see at least a 25-bps cut (would be first cut in nearly 11-years), though there still remains a small probability of a more aggressive 50-bps cut (no expectation to hold rates steady). Today’s dismal Chicago PMI report is a reminder of the softness US economy, while ADP jobs data was stronger (ahead of Friday’s payroll report). Dow component and tech giant AAPL rises on its earnings/revenue beat, but tech slides on weak guidance in the semiconductor sector from AMD, MXIM and MKSI. There was another barrage of earnings overnight and this morning (highlights of top movers below) but today’s action focuses on the Fed decision and outlook later this afternoon. No positive developments in trade either between the U.S. and China after Trump’s harsh words yesterday while trade reps remain in Shanghai this week.

 

Treasuries, Currencies and Commodities

·     In currency markets, the dollar remains strong heading into the FOMC meeting, with the dollar index up above the 98 level despite expectations of a 25 bps cut and in lieu of the weak data this morning. Treasury market’s rally following an abysmal Chicago manufacturing report, as it contracted for the 2nd straight month, reported at 44.4 which was well below the 51.0 estimate, raising concerns again about the US economy; the 10-year yield down at 2.04%

·     Commodity prices are mixed as oil prices on track for a 5th straight day of gains following bullish weekly inventory data. The EIA weekly energy inventory data showed bigger draws (bullish) as crude stockpiles fell -8.5M barrels vs. est. for draw of -2.75M barrels, while last night the API said U.S. oil inventories fell by -6.024M barrels last week, and saw gasoline stocks fall -3.135M barrels. Gold prices are little changed ahead of the FOMC rate decision this afternoon

 

Economic Data

·     Chicago PMI in contraction mode for a second straight month, falling to 44.4 from 49.7 last month and below the 51.0 estimates (marks lowest reading since Dec 2015);

·     Hiring by US private sector employers rebounded in July to the highest in three months, as ADP said it added 156K jobs in the month, slightly above the 150K estimate while the prior month was upwardly revised to 112K from 102K

·     Employment Cost Index for Q2 reported at 0.6% vs. est. 0.7%

 

 

Macro

Up/Down

Last

 

WTI Crude

0.70

58.75

Brent

0.62

65.34

Gold

-1.10

1,428.60

EUR/USD

-0.002

1.1135

JPY/USD

-0.08

108.53

10-Year Note

-0.015

2.042%

 

 

Sector Movers Today

·     Semiconductors; weak guidance from AMD, MXIM, MKSI offset any strength from AAPL earnings on semi supply chain; AMD Q2 results were better but shares slumped after guiding Q3 revs of about $1.8B below the $1.95B estimate and said it expects full-year revenue to grow in mid-single digits vs earlier forecast of high single-digits; MXIM shares dropped on lower revenue guidance (Q1 adjusted EPS 46c-52c on revs $510M-$550M well below consensus of 62c/$576.82M); semi-equipment maker MKSI guided Q3 EPS 69c-$1.02 on revs $415M-$465M well below the consensus est. $1.25/$501.4M; Samsung Electronics warned of growing uncertainties in its business environment amid fears that an escalating trade row between South Korea and Japan could disrupt production of chips and display; LSCC a bright spot after Q2 beat and upbeat rev guidance for $3 at $101M-$105M vs. est. $101.1M

·     Software movers; FEYE shares tumble in the Internet security space after posting an unexpected Q2 loss and forecasts Q3 revenue and profit below estimates as it continues to transition to a subscription-based model; video game maker EA posted better-than-expected Q1 revs ($743M vs. est. $719M) on the success of its battle royale game “Apex Legends” prompting an upgrade at Cowen; PAYC posted strong F2Q19 earnings, with results above expectations and management raising guidance by more than the beat; TENB delivered beat across revenue and EPS while widened its billings guidance for the year to $10 million instead of previously being a $4 million range, resulting in a midpoint that is less than 1% below its prior guidance; ZEN shares volatile after quarterly results and guidance

·     Auto sector; APTV a bright spot in weak auto earnings season, rising after strong Q2 EPS beat on in-line revs while raised its year view to $5.05-$5.15 from $4.90-$5.10 (above est. $4.98) and narrows FY19 revenue view to $14.53B-$14.73B; DAN Q2 EPS/sales both fell short of consensus and backed year profit view $2.95-$3.45 (mid-point shy of est. $3.31); in autos, FCAU Q2 adjusted Ebit met estimates and confirmed its guidance for the year; MTOR said sales rose 3% in Q2 to $1.17B after higher truck production, primarily in North America, partially offset the negative effect of a stronger U.S. dollar against most currencies.

·     Internet; AKAM Q2 EPS/revs beat amid strong demand for its cloud security services and growth in its traditional business of speeding up media content delivery through the web while raised its year outlook; SPOT shares slide after a bigger-than-expected quarterly losses and said it now has 108 million premium subscribers, up 30% YoY but slightly below the 108.5M est./; MEET guided Q3 revs $50.5M-$51M below the $53.5M estimate and said it expects video revenue to face pressure in the short-run due to updates to its apps; GRPN said sees gross profit, adjusted EBITDA to be lower in Q3 vs. Q2 – follows a miss on EPS/revs for Q2

·     Restaurants; BLMN posts Q2 EPS 36c on sales $1.02B vs. est. 35c/$1.04B while company owned comp sales up 0.6% was below est. 2.1% and reaffirms year guidance; DIN Q2 EPS of $1.71 missed the $1.84 estimate while comps for the Applebee’s chain fell -0.5% during the quarter, while IHOP saw a 2.0% increase. And guided year below views ($6.80-$7.05 vs. $7.16 est); YUMC Q2 mixed as EPS beat but sales missed consensus (2.12B vs. $2.16B) as comp sales for KFC better 15% and Pizza Hut 1%; DENN rises on earnings beat and raised guidance with comp sales +3.8%

 

Stock GAINERS

·     AAPL +4%; after Q3 profit and revenue estimates topped consensus citing improvement in greater China, though it wasn’t all great as IPhone sales fell 12% to $25.99B, which was slightly below views on a small miss in service revs as well (though Q4 rev view topped estimates)

·     ALL +6%; Q2 EPS of $2.18 handily exceeded consensus of $1.52 with Deutsche Bank saying beat almost entirely related to better-than-expected results in the company’s auto business, both in terms of current period underwriting results and net favorable reserve development

·     EA +7%; posted better-than-expected Q1 revs ($743M vs. est. $719M) on the success of its battle royale game “Apex Legends” prompting an upgrade at Cowen

·     ENPH +25%; after Q2 EPS beat by a nickel on sales of $134.1M vs. est. $120.4M citing demand for its microinverters

·     HES +3%; posted smaller quarterly loss/lowers capital spending view to about $2.8B from prior view $2.9B and boosts production view to 275K-280K boe/d from prior 270K-280K view

·     HUM +6%; Q2 results easily topped consensus and raises FY19 adjusted EPS view to about $17.60 from $17.25-$17.50

·     MOH +5%; posted Q2 profit ahead of estimates, said its medical loss ratio of 85.6% was better than the estimate of 86.2% and also guided year revenue of $16.7B above the $16.42B estimate

·     SMG +5%; trades to record highs after boosting its full-year sales and profit forecast following better-than-expected Q3 sales of $1.17B amid growth in U.S. consumer and Hawthorne segments (raises year sales view to 16-17% sales growth from 13%-14% prior)

·     UIS +18%; as Q2 adjusted EPS 87c on revs $753.8M – topping views as revenue growth grows at best rate in over 20-years

 

Stock LAGGARDS

·     AMD -8%; Q2 results were better but shares slumped after guiding Q3 revs of about $1.8B below the $1.95B estimate and said it expects full-year revenue to grow in mid-single digits vs earlier forecast of high single-digits

·     CHRW -3%; after warning on a soft freight environment through the rest of the year and missed Q2 revenue and operating income estimates/truckload volumes declined 2.5% in the quarter, driven lower by a 31% drop in intermodal volume

·     CSLT -42%; as posted 2Q miss, lowered 2019 guidance, and CEO change

·     FEYE -11%; after posting an unexpected Q2 loss and forecasts Q3 revenue and profit below estimates as it continues to transition to a subscription-based model

·     LOPE -11%; Baird said the U.S. Department of Education’s recent guidance that makes CA-based students ineligible for Title IV funds at out-of-state public and not-for-profit private universities could materially negatively impact LOPE’s revenue guidance

·     TAP -8%; after Q2 revenue and profit miss consensus estimates with EBITDA down -12.8% in constant currency/said worldwide brand volume was down -5.6% during the quarter

·     TWOU -54%; downgraded by at least five analysts after noting the company has revised its outlook lower for the 3rd time in last year citing additional pressures to both Graduate Programs and Short Courses/sees FY19 adjusted EPS ($1.25)-($1.16) vs. est. (32c)

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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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