Mid-Morning Look: June 07, 2019

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Mid-Morning Look

Friday, June 07, 2019






DJ Industrials




S&P 500








Russell 2000






U.S. equities ending the week on high note, with stocks on track for a 4th straight day of gains, once again supported by increased expectations for the Fed to cut rates (as early as this summer) following another weak jobs report. Non-farm payrolls rose by a lower than expected 75K in May, marking the second straight month of monthly jobs growth below 100K and well below the 175K estimate, which followed the lowest reading for private payroll jobs this Wednesday from ADP in 9-years. Also helping boost stocks, immigration talks with Mexico are scheduled to resume today in Washington with tariffs still set to go into effect on Monday, although reports say progress has been made. Regarding China, headlines that the U.S. gives some China products more time to avoid tariff hike/U.S. said tariffs won’t go up for some Chinese goods until June 15th. Currently all eleven S&P sectors are higher, with the Dow up over 200 points and stocks on track for best week of the year (major averages above key technical levels). U.S. Treasury yields have dropped after the weak jobs report, with the two-year yield tumbling 8 bps to 1.81% and the 10-year yield slumping 5 bps to 2.07% while the dollar also has weakened. Even financial stocks (banks) finding support early despite the drop in Treasury yields.


Bottom line is the S&P 500 index is poised for its best weekly performance of the year thus far (since November), which follows the worst five-day return of 2019 to date, with markets boosted by dovish commentary this week from Federal Reserve Chairman Jerome Powell as well as other Fed members, and weaker economic data (ADP jobs mid-week and Nonfarm payrolls today) which has drastically boosted expectations for a near-term U.S. interest rate cut by the Fed. After today’s jobs data miss, fed fund futures rose to a 36% chance for a June rate hike and over 75% chance for a cut in July.


Treasuries, Currencies and Commodities

·     In currency markets, the U.S. dollar index (XY) plummeted on Friday to its lowest since late March after a report from the Labor Department showed that job growth slowed sharply in May and wages rose less than expected. The weak report suggests that the loss of momentum in economic activity has spread to the labor market, which could increase expectations that the Federal Reserve will cut interest rates this year. The dollar falls across the board vs. euro, yen, peso, etc.

·     Commodity prices mixed as gold prices remain on track for its best weekly return in roughly six-months, getting a boost from rising expectations of Fed rate cuts this year on weak economic data and potential negative implications from trade tensions with China on the economy

·     Treasury market’s rally in a big way after the US jobs market stalled in May, sharpening expectations that the Federal Reserve will have to cut interest rates this year. The 2-yr yield falls to 1.81% from 1.88% prior to the jobs report; the 10-year Treasury yield falls to lows around 2.053% (from 2.105% before the jobs report) and down from 2.12% late yesterday, while the yield on the 5-year Treasury dropped below 1.80%, both at their lowest since September 2017. Global yields falling as well with German 20-yr yield to all-time lows of 0.126% while Italian 10-year yield hits one-year lows


Economic Data

·     Jobs report weak; payroll report showed slowing job growth as the change in nonfarm payrolls rose a modest 75K, below the 175K estimate while private payrolls added 90K jobs vs. est. 174K and manufacturing payrolls in-line at 3K; the unemployment rate steady at 3.67% while average hourly earnings rose a lower 0.2% vs. est. 0.3%; the labor force participation rate steady at 62.8%







WTI Crude






Spot Gold









10-Year Note





Sector Movers Today

·     Retailers; WMT said starting this fall, about 1 million people in Pittsburgh, Kansas City, and Florida, will have employees (with wearable cameras) arrive in company-owned cars and unpack the food in customers’ kitchens; BKS agreed to be acquired by funds advised by Elliott Advisors for $6.50 per share in cash, in deal at approximately $683M https://on.mktw.net/2MuJdXk ; RVLV 11.8M share IPO priced at $18.00; ZUMZ shares jumped after better Q1 results; GES reported a narrower than expected Q1 EPS loss on in-line revs while Q2 guidance of 27c-30c fell below the 38c estimate

·     Casino & Leisure movers; in gaming, the NY Post reported CZR dismissed a takeover bid from ERI as too low, though continued talks could soon lead to improved offer https://nyp.st/2Wt7kKv ; in leisure, MTN shares rise after earnings/strong season pass sales through for the upcoming 2019/2020 N.A ski season increased about 9% in units and 13% in sales dollars; in cruise lines, NCLH followed RCL commentary yesterday that the Trump administration’s sudden ban on cruises to Cuba would hit its 2019 profit (said would hit by 35c-45c per share); in camping, CWH was downgraded to Market Perform amid growing concerns that the RV industry may be taking longer than anticipated to right size and that channel inventory, especially Camping World’s, remain at higher-than-desired levels

·     E&P sector; JPMorgan with a few changes in the sector as they upgraded MTDR but downgraded CDEV to neutral and QEP to underweight – for CDEV’s outspend as a percentage of market cap is the highest on our coverage list in downside cases (15%-20%) while for QEP believe inventory is more limited than what most believe; TUSK said it stands by the “quality and reasonableness of its work” in Puerto Rico and welcomes an open inquiry into its performance (the commentary follows a recent article in the WSJ saying the FBI was looking into its work in Puerto Rico)

·     In oil service & equipment sector; SLB was upgraded to buy at Stifel with $50 tgt citing compelling risk/reward at current levels, solid free cash generation and belief that the $2.00 per share annual dividend is safe and investors are getting paid to wait and rising international activity; HLX was upgraded to strong buy at Raymond James as raising 2020 EBITDA estimates by ~5% to $222 million increasingly confident about Helix’s outlook and cash flow generation ability; HP was upgraded to overweight at Piper citing the company’s fortress balance sheet, history of returning capital to shareholders, and generous current dividend yield



·     BKS +10%; agreed to be acquired by funds advised by Elliott Advisors for $6.50 per share in cash, in deal at approximately $683M https://on.mktw.net/2MuJdXk

·     BYND +26%; in its first earnings report as a publicly traded company (IPO priced at $25 back on May 1st), as it beat on the top and bottom line and said it doesn’t see any obstacles in working with large fast-food chains in the future

·     CRSP +14%; as VRTX announced a build-out of its gene editing footprint via acquisition of privately held Exonics Therapeutics and expansion of the existing CRSP collaboration

·     CZR +5%; the NY Post reported CZR dismissed a takeover bid from ERI as too low, though continued talks could soon lead to improved offer https://nyp.st/2Wt7kKv

·     MNST +3%; as analysts overly positive following annual shareholder meeting yesterday as mgmt was upbeat about the Reign launch and cited faster growth in the unmeasured channels

·     ZM +20%; surge in first earnings report as public company as Q1 results easily topped views and provided guidance for F2Q20 and FY20 that exceeded current Street estimates



·     AEL -4%; after announced today that its Board of Directors is no longer in discussions regarding a potential transaction

·     ANET -7%; as several analysts weigh in fairly positively after analyst day yesterday – while KeyBanc noted revenue guidance was provided of mid- to high-teens revenue CAGR from CY18-CY21, implying CY21 revenue in the $3.2B-3.5B range (vs. a limited consensus CY21 estimate at $3.6B)

·     DOCU -12%; as reported mixed Q1 results with EPS and revs beating (7c/$214M) beating (6c/$208M) but billings of $214.9M, up 27%, just missed the consensus of $216.3M

·     DOMO -19%; with better-than-expected Q1 results, on billings growth of 22% y/y (vs. est. 20% YoY), and revenue growth of 28% YoY, but was a deceleration from 31% last quarter

·     GES -2%; reported a narrower than expected Q1 EPS loss on in-line revs while Q2 guidance of 27c-30c fell below the 38c estimate


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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