Morning Preview: May 16, 2018

Scott GreenDaily Market Insights

Early Look

Wednesday, May 16, 2018

 U.S. stock futures are mixed to little changed, holding steady along with European markets following yesterday’s market downdraft. It was a rough day on Wall Street Tuesday, as U.S. stocks fell amid concern that higher borrowing costs (10-year yield hit 3.08%, highest level since 2011) and a stronger dollar could hurt corporate profits as shares of tech stocks and high dividend paying sectors/interest rate sensitive names (homebuilders, REITs, utilities and telecom) were the biggest losers. Once again, small-cap stocks proved to be resilient, with the Russell 2000 ending little changed. Meanwhile, the Dow Jones Industrial Average snapped an eight-session streak of gains with a triple-digit decline, while the S&P 500 fell for the first time in five days. Gold prices sunk over 2%, its worst one-day drop since December 2016, and falling to the lowest level for a most-active contract since December. Stocks dropped back near lows late day after reports North Korea was said to be suspending high-level talks with South Korea and threatened to withdraw from a summit with the U.S. over the allies’ ongoing military exercises, Yonhap reported. Overnight in Asian markets, The Nikkei Index fell -100 points to settle at 22,717, the Shanghai Index dropped -22 points to end at 3,169 and the Hang Seng Index dipped -43 points to settle at 31,110. In Europe, the German DAX is up around 20 points trading around the 13,000 level, while the FTSE 100 is up a few points at 7,725.

Market Closing Prices Yesterday

· The S&P 500 Index dropped -18.68 points, or 0.68%, to 2,711.45

· The Dow Jones Industrial Average fell -193.00 points, or 0.78%, to 24,706.41

· The Nasdaq Composite dropped -59.69 points, or 0.81%, to 7,351.63

· The Russell 2000 Index was unchanged, or 0.00% to 1,600.34

Events Calendar for Today

· 7:00 AM EST MBA Mortgage Applications Data

· 8:30 AM EST Housing Starts MoM for April…est. down (-0.7%) to 1.31M

· 8:30 AM EST Building Permits MoM for April…est. down (-2.1%) to 1.35M

· 8:30 AM EST Fed’s Bostic to give economic update

· 9:15 AM EST Industrial Production MoM for April…est. 0.6%

· 9:15 AM EST Capacity Utilization for April…est. 78.4%

· 10:30 AM EST Weekly DOE Inventory Data

· 5:30 PM EST Fed’s Bullard speaks to media

Other Key Events:

· Piper Financial Services Conference, 5/14-5/16, in Palm Beach, FL

· Goldman Basic Materials Conference, 5/15-5/16, in New York

· Bank America Healthcare Conference, 5/15-5/17, in Las Vegas

· JPMorgan Technology, Media and Communications Conference, 5/15-5/17, in Boston

World News

· U.S. net long-term portfolio securities inflows (TIC) at $61.8B in March as China holds $4.05T of U.S. Treasuries, an increase of $19.5B from last month, while Japan holds $1.04T, a decrease of $16B from last month; Foreign net selling of Treasuries at $4.92B and foreign net selling of equities at $24.2B; Foreign net buying of corporate debt at $22.4B

· Japan’s economy contracted in the first three months of 2018 as it shrank at an annualized pace of 0.6% in the January-March period, following revised 0.6% growth in the final quarter of 2017. The contraction was the first since the final quarter of 2015

· China’s new home prices rose 0.5% in April from a month earlier, compared with an increase of 0.4% in March. Compared with a year earlier, average new home prices in China’s 70 major cities increased 4.7%, slowing from a 4.9% gain in March.

· Eurozone April inflation confirmed at 1.2%, down from 1.3% in March

Sector News Breakdown

Consumer

· Boot Barn (BOOT) Q4 EPS 12c/$170.8M vs. est. 16c/$163.65M; Q4 comp sales rose 12.1% vs. est. 5.3%; sees Q3 EPS 10c-12c vs. est. 7c; sees Q3 comp sales up 10%

· Limbach Holding (LMB) raises FY18 revenue view to $520M-$540M from $510M-$530M (est. $520.67M); backs FY18 adjusted EBITDA view $20M-$24M

· PetIQ (PETQ) Q1 EPS loss (14c)/$115.1M vs. est. 4c/$108.58M; Q1 adjusted EBITDA was $5.4M compared to $5M guidance provided in early April; Q1 adjusted EBITDA margin was 4.7%; sees FY18 revenue $450M-$500M vs. est. $476.42M

· Party City (PRTY) files to sell 12M shares of common stock for holders

Energy

· The American Petroleum Institute (API) reported that U.S. crude supplies rose by nearly 4.9M barrels for the week ended May 11; showed a decline of -3.4M barrels in gasoline stockpiles, while inventories of distillates edged down by -768,000 barrels

· Canadian Solar (CSIQ) Q1 EPS 72c/$1.42B vs. est. 47c/$1.39B; Q1 total solar module shipments were 1,374 MW, compared to 1,831 MW in Q4 2017, and Q1 guidance in the range of 1.30 GW to 1.35 GW; sees Q2 revs $690M-$730M and 2Q solar module shipments 1.50 to 1.60 gw

· Sunworks (SUNW) Q1 EPS loss (7c)/$13.45M; expects $72M of revenue in the remaining quarters vs. FY consensus $88.6M; expects the company to generate positive earnings before interest, taxes, depreciation, amortization and stock compensation expense, Adjusted EBITDA, for FY18; expects to generate positive cash flow for the remainder of 2018

· Nearly 600,000 customers in New York, New Jersey, Connecticut, Pennsylvania and Virginia were without power as of the late Tuesday according to Reuters as powerful storms packing high winds, torrential rain and hail slammed heavily populated parts of the U.S. Northeast

Financials

· Alternative asset managers at Citigroup: KKR upgraded to buy and up tgt to $27 – believe KKR’s C-Corp conversion will: 1) increase relevance of the sector and drive further positive revaluation among Alternatives; 2) raise absolute upside for KKR; and, 3) cause other Alts’ Boards of Directors to re-evaluate corporate structures; Remain overweight the sector; KKR, OZM and CG top picks

· Federal officials are reviewing regulations that may erode the anonymity and unregulated status of cryptocurrencies amid concerns that digital currency is funding terrorism and money laundering, the New York Post reports

· Prospect Capital (PSEC) to offer $225M of convertible senior notes due 2022

Healthcare

· AstraZeneca Plc (AZN) is considering a sale of the U.S. rights for its popular cholesterol treatment Crestor as the U.K. drugmaker continues to raise cash by divesting lower-growth products with expired patents – Bloomberg

· Teva Pharmaceutical Industries Ltd. (TEVA) shares rose 5% after 13F filing showed Warren Buffett’s Berkshire Hathaway roughly doubled its Teva holdings to about $700 million

· Verastem (VSTM) announces offering of $35M of common stock

· Sanofi SA (SNY) said that a phase 3 trial evaluating its drug Dupixent to treat moderate to severe atopic dermatitis in adolescents met its primary and key secondary endpoints.

Industrials & Materials

· 3M (MMM) downgraded to Hold from Buy at Jefferies

· Money managers increased their position in Cliffs (CLF) by 13.9 million shares in Q1, taking their combined stake in the company to about 160 million shares, according to data on over 4,000 regulatory filings compiled by Bloomberg https://bloom.bg/2IqJCDP

Technology, Media & Telecom

· F5 Networks (FFIV) downgraded to Neutral from Buy at DA Davidson

· CenturyLink (CTL) downgraded to Underperform from Neutral at Macquarie

· TripAdvisor (TRIP) upgraded to Outperform from Neutral at Macquarie

· TripAdvisor (TRIP) downgraded to Sell from Neutral at Guggenheim

· The FBI and the U.S. Justice Department are investigating Cambridge Analytica’s business practices, the New York Times reported late Tuesday

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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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