Morning Preview: October 29, 2018

Terrie AmengualDaily Market Report

Early Look

Monday, October 29, 2018

Stock futures are pointing to a higher open, looking to rebound after sharp declines in stocks last week that saw the S&P 500 and the Dow Jones Industrial Average erasing there year to date gains as corporate earnings from tech giants Amazon and Google disappointed investors on Friday. Tech getting a bounce this morning after a major M&A deal in the software space, as IBM agreed to buy cloud company RedHat (RHT) for $190 per share, a 50% premium from Friday’s close in a deal valued at over $33B. Back to Friday, after falling more than 500 points, the Dow Jones Industrial Average pared losses to around -300 points, while the Nasdaq Composite Index dropped over 2.1%, to 7,167.21. For the week, the Dow was off 3%, the S&P 500 3.9% and the Nasdaq is down 3.8% while for the month of October so far, the S&P has lost 8.8%, the Dow is down 6.7%, and the Nasdaq has shed 11% (correction territory). Strong demand for US government bonds pushed yield on the benchmark 10-year note to a three-week low below 3.08%. In Asian markets, The Nikkei Index fell -34 point to 21,149, though the Shanghai Index fell -56 points (2.18%) to settle at 2,542 (more trade relations concerns with the U.S.) and the Hang Seng Index rose 94 points to end at 24,812. In Europe, the German DAX jumps over 150 points to 11,350, while the FTSE 100is up around 80 points, moving back above the 7,000 level. On the calendar today, monthly readings for personal income and spending along with inflation data in the form of PCE. Another very busy week of earnings is also on tap,

Market Closing Prices Yesterday

· The S&P 500 Index dropped -46.88 points, or 1.73%, to 2,658.69

· The Dow Jones Industrial Average fell -296.24 points, or 1.19%, to 24,688.31

· The Nasdaq Composite plunged -151.12 points, or 2.06%, to 7,167.21

· The Russell 2000 Index declined -16.58 points, or 1.10% to 1,483.82

Events Calendar for Today

· 8:30 AM EST Personal Income for September…est. 0.4%

· 8:30 AM EST Personal Spending for Sept…est. 0.4%

· 8:30 AM EST Personal Deflator MoM for Sept…est. 0.1%

· 8:30 AM EST PCE Core MoM for Sept…est. 0.1%

· 8:30 AM EST PCE Core YoY for Sept…est. 2.0%

Earnings Calendar:

· Earnings Before the Open: BAH, BLMN, CTB, ESS, FDC, HSBC, MCY, ON, WFT, YNDX

· Earnings After the Close: AEIS, AKAM, ALSN, AMKR, APPF, AVB, BLKB, CBL, CGNX, CHGG, CLR, CYH, EFII, EGHT, KLAC, MDLZ, PI, QTS, RE, RIG, RMBS, SANM, TKR, TNET, UDR, VNO, VRNS, WCN, WING

World News

· Far-right lawmaker Jair Bolsonaro won Brazil’s presidential election on Sunday, promising to clean up politics, shrink the state and crack down on crime – Reuters.

· Italy escaped another rating downgrade after S&P Global Ratings on Friday affirmed its credit rating but lowered its outlook to “negative” from “stable

· The U.S. House of Representatives’ leading lawmaker on taxes suggested that a new tax cut plan touted by President Trump was unlikely to see action in Congress before 2019, and then only if Republicans keep their majority in November 6 elections – Reuters

· Japan’s retail sales rose for an 11th consecutive month in September from a year earlier but the pace of gains slowed from the prior month; September’s 2.1% annual increase in retail sales beat the estimate forecast for 1.6%

· German Chancellor Angela Merkel plans to step down as the head of Germany’s Christian Democratic Union party after heavy state-election losses, according to media reports on Monday. Merkel told a meeting of the party’s executive committee that she would like to stay on as Chancellor, according to Die Welt,

Sector News Breakdown

Consumer

· Autos moving higher (FCAU, GM, F); According to Bloomberg, China’s top economic planning body is proposing cutting the tax levied on car purchases by half. The National Development and Reform Commission submitted a plan to a group of key policy makers to cut the purchase tax to 5%-10% for passenger vehicles with engines no bigger than 1.6 liters

· Ford (F) was upgraded to buy from hold at Goldman Sachs and raised tgt to $12 from $9

· Yum China (YUMC) mentioned favorably in Barron’s saying money managers surveying China are largely avoiding debt-laden stocks, instead favoring high-quality companies that generate plenty of cash flow and possess strong brands and competitive positions that can help them weather slowing growth like Yum China

· At Home (HOME) shares sell-off provided a buying opportunity according to Barron’s saying it offers a second chance to get in on the bottom floor of a compelling growth story

Energy

· Denbury Resources Inc. (DNR) to acquire Penn Virginia Corporation (PVAC) in a transaction valued at approximately $1.7 billion, including the assumption of debt in cash and stock https://yhoo.it/2z8Sniv

· Oil stocks look attractive according to Barron’s in the face of U.S. sanctions on Iran that will take effect Nov. 4. Traders are probably underestimating the amount of oil that will be pulled from the market when they hit, says the senior energy policy analyst at Hedgeye Risk Management. Brent crude could climb to $85 a barrel from $77. Major European producers including BP (BP) Royal Dutch Shell (RDSA) and Total (TOT) are likely to benefit from rising oil prices

· Core Laboratories (CLB) upgraded to buy from hold at Stifel, but cut tgt to $110 from $117

Financials

· Bank of America (BAC) positive mention in Barron’s noting it and other bank giants have been clobbered lately in the market as investors worry that the current economic expansion will not last for long, but says given their searing experience with them during the financial crisis, Bank of America has some very good businesses valued cheaply

· HSBC Holdings PLC (HBC) said it reined in costs and beat analysts profit estimates for Q3, sending its shares sharply higher. The bank reported pretax profit growth in its three main businesses — retail banking and wealth management, commercial banking and global banking and markets — to post a quarterly profit of $3.9 billion, 32% higher than last year’s $2.96 billion in the period

Healthcare

· Eli Lilly and Co (LLY) is spending $100 million for a stake in Dicerna Pharmaceuticals Inc. (DRNA) as part of a licensing deal, companies expect to collaborate on developing more than 10 experimental drugs to treat pain, neuro-degenerative diseases and cardio-metabolic disorders

· Esperion Therapeutics Inc.’s (ESPR) heart medicine met its main goal in a study, which may help shares of the small-cap biotechnology company to recover some of their yearly losses. Esperion’s bempedoic acid lowered bad cholesterol by 18% more than a placebo

· Johnson & Johnson (JNJ) announced that the United States District Court, District of New Jersey has issued a ruling invalidating all asserted claims of U.S. Patent for Zytiga; reaffirmed its guidance for operational sales growth of 5.5%-6.0% and its EPS view of $8.13-$8.18 for FY18

· Novartis AG (NVS) said its experimental eye drug brolucizumab (RTH258) remained as effective at maintaining patients’ vision as Regeneron and Bayer’s blockbuster Eylea (aflibercept) after two years of follow-up in a pair of clinical trials.

Industrials & Materials

· A Lion Air jetliner carrying 188 people crashed shortly after takeoff Monday morning from Jakarta in what was the first major accident involving a new variant of the popular Boeing 737 (BA)

· Potlatch (PCH) Q3 EPS 87c/$289.2M vs. est. 84c/$292M

· Barron’s said more infrastructure spending could emerge from a split Congress at mid-term elections and defense stocks will be somewhat immune from looming tariff increases. Construction, engineering and materials companies could benefit from the one budget issue that both Democrats and Republicans traditionally support. Markets may be beginning to price in steeper tariffs that already triggered a sell-off in names such as Caterpillar (CAT)

Technology, Media & Telecom

· IBM (IBM) to acquire Red Hat (RHT) for $190 per share in cash, representing a total enterprise value of approximately $34B in the biggest-ever acquisition for the computer-services company https://bloom.bg/2yFowi7

· ON Semiconductor (ON) Q3 EPS 57c/$1.54B vs. est. 51c/$1.51B; sees Q4 revenue $1.48B-$1.53B vs. est. $1.47B; sees Q4 adjusted gross margin 37.1%-38.1%

· Sensata Technologies (ST) positive mention in Barron’s saying mounting worries about the health of the global auto market have dented shares but says it could be an opportunity for patient investors to buy into a business whose products likely will be increasingly in use

· NXP Semiconductors N.V. (NXPI) to replace CA Inc. in Nasdaq-100 Index prior to market open on Nov. 5

· TowerJazz (TSEM) shares fall -13%; Q3 EPS 34c/$323M vs. est. 40c/$335.04M; sees Q4 revs about $340M vs. est. $364.6M

· Yandex (YNDX) shares rose 6%; Q3 EPS 23c/$496.6M vs. est. 27c/$470.6M

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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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