Mid-Morning Look: August 27, 2019

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Mid-Morning Look

Tuesday, August 27, 2019

Index

Up/Down

%

Last

 

DJ Industrials

69.54

0.27%

25,968

S&P 500

9.31

0.32%

2,887

Nasdaq

33.41

0.43%

7,887

Russell 2000

4.87

0.33%

1,480

 

 

U.S. equities bouncing for a second straight session (though have been paring gains off morning highs), following both Asian and European markets higher amid improved optimism over trade negotiations between the U.S. and China after President Trump said yesterday that China reached out about the desire to reach a trade deal. Stocks are moving higher despite a further inversion of the yield curve as the 2-year yield tops the 10-year by over 4 bps while the spread between the 3-month/10-yr widens to nearly 50 bps. In corporate news, JNJ shares bounce after losing a $527M opioid verdict, but came in well below the $17B sought, while in the tobacco sector, PM confirms it is in merger talks with MO. Also of note a slew of earnings results in the tech sector this week, specifically in software with ADSK, VEEV tonight. Economic data was mixed as consumer confidence remains very high while housing data shows continued signs of deceleration. New flow outside a handful of earnings results relatively quiet in this final trading week of the summer, with the Fed quiet after its symposium last week and no tweets or comments from either Trump or China today.

 

Treasuries, Currencies and Commodities

·     The US dollar pares some of yesterday’s strong gains amid mixed economic data; Britain’s pound rose as the opposition Labour party stepped up efforts to stave off a no-deal Brexit. Commodity prices rise, led by gains in oil after sliding 4.8% in the previous four sessions, while gold prices inch back to 6-year highs. Treasury market are mixed as shorter term yields inch higher while long end falls and yield curve inverted again; the 2-yr yield up at 1.54% while the 10-yr down at 1.50% – the 3-month bill at 1.97% – inverted yield curve recessionary indicator).

 

Economic Data

·     Housing data: The June FHFA Home Price Index rises 0.2%, in-line with estimates as home prices rose 4.8% YoY. S&P CoreLogic Case-Shiller 20-City Index rises 2.13% YoY vs. est 2.30%; Home-price gains in 20 U.S. cities decelerated for a 15th straight month and were weaker than expected; the 20-city SA index rose 0.04% MoM in June after rising 0.13% the prior month

·     Consumer Confidence for August strong at 135.1, well above the 129.0 estimate (prior reading revised to 135.8 from 135.7); the consumer present situation index 177.2 in Aug vs. 170.9 in July and the consumer expectations index 107.0 in Aug vs July revised 112.4; the 1-year consumer inflation rate expectations 5.0% in Aug

·     Richmond Fed index for August reported at +1 vs. est. down -4 and last month -12

 

 

Macro

Up/Down

Last

 

WTI Crude

0.71

54.35

Brent

0.62

59.32

Gold

3.30

1,540.50

EUR/USD

-0.0006

1.096

JPY/USD

-0.111

106.02

10-Year Note

-0.025

1.509%

 

 

Sector Movers Today

·     Pharma movers; JNJ shares volatile following a highly-publicized opioid-addiction trial ruling, as an Oklahoma judge ruled against JNJ, ordering the company to pay $572M (vs. $17B sought by the State) which is targeted at remediating the Oklahoma opioid crisis (shares of pharma companies with exposure to opioid litigation including ENDP, MNK, MYL, TEVA active); the FDA designates AZN’s Farxiga (dapagliflozin) for Fast Track review to delay the progression of renal failure and prevent cardiovascular and renal death in patients with chronic kidney disease

·     Restaurants; CMG tgt raised to $900 from $815 at SunTrust as believe that Chipotle will roll out Carne Asada nationally in mid-September, contributing to both check and traffic growth; PZZA appoints Rob Lynch as president and chief executive officer, effective immediately (former marketing exec at YUM’s taco Bell and PG while company reaffirms most recent guidance; Panera Bread is striking deals with major third-party delivery companies DoorDash, Grubhub and Uber Eat’s that will market its products but still use the company’s own couriers; RRGB was downgraded at Bank America to underperform as believe the company’s earnings growth will materially miss consensus next year.

·     Retailers; in footwear, CAL shares advanced following better-than-expected quarterly results topping views, while markets rallied by the company’s maintained year forecast, which now incorporates the tariff schedule as of last week; FTCH said it wasn’t buying Barneys New York, following a New York Post story that said it was in advanced talks to do so. “The story is incorrect — Farfetch is not acquiring Barneys New York,” the report said https://on.mktw.net/2MFgIp7 ; JILL tops Q2 sales, EBITDA and EPS estimates saying it saw improved full price selling during the summer months and maintained positive traffic for the quarter; COST mentioned positively at Morgan Stanley saying they think China could usher in another phase of unit growth after the company has been successful in Japan, Taiwan, and South Korea

·     Software movers; PLAN slipped initially despite a beat and raise quarter as the high flying software company pulls back from record highs as raised FY20 revs guidance $339M-$343M from $326M-$331M (est. $329.8M) after smaller Q2 EPS loss and better revs of $84.5M; ATVI rises as World of Warcraft Classic launched last night in the Americas, globally today, with one firm noting viewership is strong at 500-600k concurrent viewers; ZNGA was added to the Wedbush Best Ideas List as think that key titles Empires & Puzzles and Merge Dragons along with three new releases later this year have the potential to drive significant upside to the Street’s expectations; earnings expected in software today from ADSK and VEEV; MDB was upgraded to buy at Citigroup citing the potential for its Atlas product

 

Stock GAINERS

·     ATVI +5%; as World of Warcraft Classic launched last night in the Americas, globally today, with one firm noting viewership is strong at 500-600k concurrent viewers

·     CAL +25%; following better-than-expected quarterly results topping views, while markets rallied by the company’s maintained year forecast

·     JNJ +2%; following a highly-publicized opioid-addiction trial ruling, as an Oklahoma judge ruled against JNJ, ordering the company to pay $572M (but less than the $17B sought by the State)

·     MDCO +7%; now rises over 21% last 2-days on positive ORION-11 study results as they met all primary and secondary endpoints

·     MO +9%; as PM confirmed that it is in talks with MO for an all-stock merger though said there can be no assurance any agreement or transaction will result https://on.mktw.net/2Zr5TZW

·     NVTR +19%; announced after the close that the company will engage with an investment bank to seek strategic alternatives, including a potential sale or merger

·     PZZA +6%; appoints Rob Lynch as president and chief executive officer, effective immediately (former marketing exec at YUM’s taco Bell and PG while company reaffirms most recent guidance

·     WW +2%; upgraded to buy from hold at Craig-Hallum driven by improving trends, a mostly positive member response to new free app called Kurbo by WW, and the potential for upside to estimates stemming from an upcoming new diet program launch

 

Stock LAGGARDS

·     GTT -8%; as its CFO accepted a more senior role with data center and cloud solutions provider

·     MNK -7%; loses appeals court ruling in favor of LIN that the latter’s inhaled nitric oxide, branded as Noxivent, does not infringe on MNK’s INOMAX

·     PLAN -5%; slipped initially despite a beat and raise quarter as the high flying software company pulls back from record highs; raised FY20 revs guidance $339M-$343M from $326M-$331M

·     SJM -9%; reported soft Q1 EPS and sales ($1.58/$1.78B vs. est. $1.74/$1.87B) while cuts year EPS and sales view to $8.35-$8.55 from $8.45-$8.65 and sales growth to (1%) – 0% from 1% – 2%

·     TECD -2%; added to negative catalyst watch at Citi ahead of 2Q EPS as think top vendor softness, high European exposure and heavy back half loaded operating income guidance are key risks

·     TME -3%; on reports they are under investigation by China’s antitrust authority in a review that could end exclusive licensing deals it forged with the world’s biggest record labels

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Content is provided by Hammerstone Inc., which has no affiliation with Regal Securities, Inc. (“Regal”) This commentary is provided for information purposes only, and is not a recommendation, offer or solicitation by Regal to buy or sell securities or to adopt any investment strategy. Regal has not participated in the creation of the Hammerstone content and does not directly or indirectly endorse the content. Any reliance on this material is at the sole discretion of the reader.

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