Mid-Morning Look: August 22, 2019

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Mid-Morning Look

Thursday, August 22, 2019

Index

Up/Down

%

Last

 

DJ Industrials

-76.13

0.29%

26,126

S&P 500

-16.32

0.56%

2,908

Nasdaq

-69.06

0.86%

7,951

Russell 2000

-5.85

0.38%

1,504

 

 

U.S. equities erase gains, as stocks turn negative following a couple of hawkish Fed speaker comments (George, Harker), erasing a near 190 point gain from the Dow Industrials to start the day. Stocks initially opened higher, getting another boost from retailer earnings (BJ, JWN, DKS shares rise after better results from TGT, LOW yesterday – while LB falls on weak guidance) while markets look ahead to Fed Chief Powell’s Jackson Hole speech tomorrow for more clues on future interest rate moves. The Jackson Hole symposium kicked off today with central bank leaders from across the globe meeting to discuss issues facing world economies, as a handful of Fed members has already weighed in (George, Harker). KC Fed President George told CNBC that the Fed should not have cut interest rates last month, which caused U.S. Treasury yields to tick higher, while the Fed’s Harker also downplays more aggressive actions from Fed – the comments have taken some of the “wind out of the sails” for stocks, with major averages having fallen since. Financials among the early sector gainers despite another downdraft in Treasury yields following weaker than expected PMI manufacturing data, while defensive sectors lag. Treasury prices slip, along with gold prices, with the 10-year yield slide.

 

Treasuries, Currencies and Commodities

·     In currency markets, the US dollar slips following the weaker manufacturing data, but gets a bounce as Fed speakers at Jackson Hole meeting sound less aggressive about future stimulus/rate cuts; the British Pound spiked on hopes that a Brexit deal could still be within reach following Boris Johnson’s meetings in Paris and Berlin (GBP/USD rises to 3-week high). Commodity prices mixed as gold prices pare losses early following the weaker PMI data, while oil prices also weak

·     Treasury yields slide following the softer PMI data – 10-yr slides below 1.57% (earlier highs above 1.62%) – IHS Markit US manufacturing sector flash PMI for August 49.9 (vs. est. 50.5) and final July 50.4 (first time below 50 since September 2009) – Treasury yields had risen earlier but concerns over the economy once again sent investors back into safety of Treasuries

 

Economic Data

·     Weekly Jobless claims fell 12K to 209K, below the 216K estimate while the prior week was revised to 221K from 220K; 4-week moving avg. at 214.5k in the latest week; Continuing claims fell 54K to 1.674M in the week ending Aug. 10 which represents the lowest level since early June

·     IHS Markit US manufacturing sector flash PMI for August 49.9 (vs. est. 50.5) and final July 50.4 (first time below 50 since September 2009); Manufacturing flash new orders index for august 49.5 vs final July 51.7 (lowest since Aug 2009); services sector flash PMI for August at 50.9 (consensus 52.8) vs final July 53.0; flash composite PMI for August at 50.9 vs final July 52.6

·     Leading Index for July 0.5% tops the 03% est. (prior month revised up to -0.1% from -0.3%)

 

 

Macro

Up/Down

Last

 

WTI Crude

-0.41

55.27

Brent

-0.45

59.85

Gold

-7.80

1,507.90

EUR/USD

-0.0011

1.1074

JPY/USD

-0.18

106.45

10-Year Note

-0.003

1.585%

 

 

Sector Movers Today

·     Retailers; JWN rises after beating profit expectations even as sales slid, helped by cost cuts and inventory clearance/posted disappointing revenue, and cut its top-end of full-year EPS outlook; LB shares tumbled early after comp sales fell 1% during the quarter to miss the consensus mark of +1% as Victoria Secret comps plunged -8%/operating margin was 6.0% of sales vs. 5.8% consensus and 7.6% a year ago and guidance for Q3 and year fell below consensus; after rising 20% yesterday on earnings, TGT was upgraded to buy at Citigroup and tgts raised by several analysts after the positive quarterly results; SSI quarterly comparable sales rise for first time in 6 quarters while also raises FY EBITDA forecast to $20M-$25M from $10M-$15M prior

·     Consumer Staples; HRL mixed results as Q3 EPS beat slightly on a small sales miss while reaffirmed its year outlook; SMPL announced a large-scale acquisition of Quest Nutrition – a $1B acquisition of a $350M brand that will be modestly dilutive to earnings immediately; in tobacco (PM, MO, BTI), four dominant e-cigarette manufacturers are facing a probe from the U.S. House Energy and Commerce Committee. Chairman Frank Pallone has contacted the CEOs of Juul Labs, Fontem Ventures, Japan Tobacco and Reynolds American requesting information by Sept. 20 about the health impact of their vaping products, as well as their marketing practices

·     Financials among the early sector gainers despite another downdraft in Treasury yields following weaker than expected PMI manufacturing data; BK shares active on reports from Dow Jones that it has lost Van Eck Associates as a client of its servicing business for exchange-traded funds/Van Eck will move its ETF business to STT saying it is unclear how much of its assets will shift to State Street; in insurance; AFL said it sees sales in its Japan Post Group channel declining by as much as 50% vs. a very strong 2018 given its refreshed cancer product, and based on continuation of trends to date for the rest of the year; in consumer finance and lending; FLY shares rallied after its earnings results beat

·     Software movers; CRM reports after the close tonight; SPLK shares fell despite reporting Q2 EPS and revenue above expectations as they trimmed full-year cash flow forecast and announced to acquire privately held SignalFx, which makes cloud software, in a cash-and-stock deal for ~$1.05B; SNPS beat for 3Q FY19 and above-consensus guide for 4Q FY19 (despite geopolitical environment including shipment ban to Huawei)

 

Stock GAINERS

·     BJ +15%; after better-than-expected Q2 earnings results, though comp same-store sales of 1.6% slightly below the 1.9% estimate and sales of $3.35B just missing the $3.4B est and reaffirms year

·     DKS +3%; reported positive quarterly same-store sales growth for the first time since Q2’17, saying they rose 3.2% vs. est. 1.1% on better EPS and sales as well while raises year EPS view to $3.30-$3.45 from prior $3.20-$3.40 view and above the $3.31 estimate

·     ENR +2%; was upgraded to buy at UBS as believe Street EPS revisions have bottomed post F3Q and says Spectrum auto care issues are misunderstood and fixable

·     FLR +2%; was upgraded to buy at Canaccord with $25 tgt following the more than 40% pullback since earnings

·     GME +7%; after disclosure that Michael Burry’s (the “Big Short” guy) holds about 3M shares through his firm after saying in Barron’s interview that next year’s new consoles will still use optical disk drives in a development that will extend GameStop’s life significantly

·     JWN +12%; after beating profit expectations even as sales slid, helped by cost cuts and inventory clearance/posted disappointing revenue, and cut its top-end of full-year EPS outlook

·     PSTG +14%; reversed overnight declines as analysts/investors focused on the revenue beat for quarter vs. the weaker guidance for Q3 to $434M-$446M vs. est. $466.3M and lowers its year sales view as well

·     SNPS +4%; beat for 3Q FY19 and above-consensus guide for 4Q FY19 (despite geopolitical environment including shipment ban to Huawei)

 

Stock LAGGARDS

·     GRPN -2%; as Michael Randolfi announced his decision to resign as CFO, effective Aug. 23, in order to pursue another opportunity

·     LB -11%; after comp sales fell 1% during the quarter to miss the consensus mark of +1% as Victoria Secret comps plunged -8%/operating margin was 6.0% of sales vs. 5.8% consensus and 7.6% a year ago and guidance for Q3 and year fell below consensus

·     RTRX -26%; after a Phase III clinical trial for FORT, evaluating Retrophin’s fosmetpantotenate in patients with pantothenate kinase-associated neurodegeneration (PKAN) failed to demonstrate a treatment effect versus placebo

·     SEDG -8% after CEO takes leave of absence effective immediately saying Guy Sella, who is also the founder of SEDG, has declined significantly, and he has taken a leave of absence to address his health issues (downgraded at UBS on news)

·     SQM -4%; downgraded to underweight at JPM after reporting weaker than expected Q2 earnings and a 22% Y/Y drop in revenues, as lower lithium prices more than offset higher sales volumes

·     SPLK -7%; despite reporting Q2 EPS and revenue above expectations as they trimmed full-year cash flow forecast and announced to acquire privately held SignalFx, which makes cloud software, in a cash-and-stock deal for ~$1.05B

_________________________________________________________________

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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