Mid-Morning Look: November 2, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Friday, November 2, 2018

Equities volatile to end the week, with weaker sales guidance and iPhone metrics from Dow component Apple in its latest quarter, a better than expected monthly jobs reading and trade news with China grabbing all the headlines this morning. U.S. equities rose in early trading following a better-than-expected jobs report (250K vs. est. 200K) and news that the Trump administration wants to reach an agreement on trade with China. But markets have reversed lower, led by a decline in technology shares (Dow futures were up more than 300 points) and after CNBC reported a White House official throws cold water on Trump-China trade deal progress. The Nasdaq Composite, after rising to highs of 7,466, have now fallen more than 100-points from those levels, down over 1%, while the Dow and S&P 500 have erased their early gains. Futures surged initially after a Bloomberg News report said President Donald Trump asked officials to start drafting a potential trade deal with China. The report comes after Trump said on Thursday that trade talks with China “are moving along nicely.” Trump’s comment pushed stocks higher on Thursday. It appears profit taking after the 3-day rally in major averages and the weakness in tech overshadowing the jobs report and trade hopes. Fears ahead of next week’s mid-term elections also likely playing a part in the market pullback.

Treasuries, Currencies and Commodities

· In currency markets, the dollar down vs. the euro and small bounce vs. the pound after falling sharply yesterday. The Turkish Lira jumped to 3-month highs after the U.S. lifted sanctions on some Turkish officials. The Canadian dollar slipped vs. the US dollar as Canada’s unemployment rate fell unexpectedly to 5.8% in October, but the number of jobs created came in below views

· Commodity markets are little changed, with oil steady and gold prices down slightly as the dollar index levels off following its sharp decline on Thursday vs. the pound and euro

· Treasury markets slip as yields jump following the better monthly jobs reading of 250K added jobs (topping the 200K estimate) and unemployment held at 3.7% while average hourly earnings rose 0.2%, raising the yearly pace to a 9-year high of 3.1%. Yields have pulled back some as investors move back into bonds after the stock market pullback from the open

Economic Data

· The U.S. economy added 250,000 new jobs in October, topping the consensus forecast of 200,000, while the unemployment rate was unchanged at a 48-year low of 3.7%. Average hourly earnings saw 12-month growth accelerate to 3.1% from 2.8% in September, while MoM, wages for 0.2%, in-line with consensus views. The Participation rate rose to 62.9% from prior 62.7%. Nonfarm private payrolls rose 246K vs. prior 121K and above the est. 195K

· The U.S. trade deficit widened to (-$54B) in Sept. from (-$53.3B) the prior month and compared to the est. (-$53.6B); Imports rose 1.5% in Sept. to $266.58B from $262.75B in Aug. while exports rose 1.5% in Sept. to $212.57B from $209.45B in Aug. It’s the second biggest monthly trade deficit since Donald Trump became president in January 2017.

· Factory Goods Orders for Sept rise 0.7%, topping the 0.5% estimate while factory orders for Aug. revised up to 2.6%; new orders ex-trans. for Sept. rise 0.4%; new orders ex-defense unchanged for Sept. after rising 1.5% in Aug.; capital goods non-defense ex aircraft new orders for Sept. fall 0.1% after falling 0.2% in Aug. Durables orders for Sept. rise 0.7% after rising 4.7% in Aug.

Sector Movers Today

· Dow components out with earnings as XOM solid beats for Q3 earnings and revenues, and $11.1B in cash flow from operating activities was the company’s highest total since Q3 2014/said Q3 production fell 2% Y/Y but rose 4% Q/Q to 3.78M boe/day; CVX Q3 earnings beat estimates and revenues rose 12% Y/Y to $44B, although analysts had forecast $47B/says worldwide net oil equivalent production rose 9% Y/Y to a quarterly record 2.96M boe/day from 2.72M YoY

· Restaurants; SBUX rises after delivered a strong F4Q18 print and solid ’19 guidance as the business in the two important segments (US and China) improved comps; JACK was upgraded to positive at OTR Global; SHAK tumbles to 6-month low after Q3 results saw a miss on comps, while the Q4 guidance implied continued pressure; LOCO to 52-week highs as Q3 EPS topped estimates on better-than-modeled comps momentum, and raised the midpoint of FY guidance

· Dow component and tech giant AAPL reported Sept. quarter revenue and EPS ahead of the Street (2% and 5%, respectively); IPhone units slightly missed, but iPhone ASP was materially above Street estimates; holiday revenue guidance for the Dec. quarter was below consensus; tech supply chain for Apple, including several semi chip makers, were weaker (among supply chain includes AVGO, SWKS, CRUS, QRVO)

· Software mover; security software maker SYMC rises as reported F2Q19 results that exceeded almost every consensus metric (revenue, op margin, EPS, cash flow, billings); BL reported 3Q revenue and profitability results ahead of consensus and raised guidance; CARB falls after a disappointing revenue forecast prompted a downgrade from Oppenheimer

· Hardware & Component news; HDD maker STX reported Q1 results that beat EPS and revenue estimates with a 14% Y/Y revenue growth as HDD revs were $2.8B/reports $2.3B share buyback;, but shares reversed lower after early gains; ANET reported strong quarterly results, topping revenue and EPS estimates, and provided a strong outlook for 4Q

        Stock GAINERS

· ABBV +4%; posted stronger-than-expected Q3 earnings and boosted its year EPS view as the company continues to ride Humira, its best-selling drug with revs up $5.12B

· KORS +2%; upgraded at both Piper and UBS on a valuation call calling it underappreciated and undervalued by investors

· NWL +14%; issued strong full-year profit guidance, despite falling short of estimates with Q3 sales and EPS/raises full-year EPS of $2.55 to $$2.75 vs. $2.45 to $$2.65 prior

· PACB +66%; to be acquired by ILMN at a price of $8.00 per share in cash with a total enterprise value of approximately $1.2B on a fully diluted basis https://on.mktw.net/2Qdw9mw

· SBUX +10%; delivered a strong F4Q18 print and solid ’19 guidance as the business in the two important segments (US and China) improved comps

· STX +2%; reported Q1 results that beat EPS and revenue estimates with a 14% Y/Y revenue growth as HDD revs were $2.8B/reports $2.3B share buyback

· SYMC +6%; as reported F2Q19 results that exceeded almost every consensus metric (revenue, op margin, EPS, cash flow, billings)

· VRSN +18%; upgraded by JPM and Baird after the company came to terms with the U.S. Department of Commerce on a new cooperative agreement

Stock LAGGARDS

· AAPL -6%; reported Sept. quarter revenue and EPS ahead of the Street (2% and 5%, respectively); IPhone units slightly missed, but iPhone ASP was materially above Street estimates; holiday revenue guidance for the Dec. quarter was below consensus

· ADVM -34%; reported it will discontinue the development of AAVrh10-based GT, ADMV-043, in A1AT deficiency due to a lack of efficacy and therapeutic protein expression in a phase I/II trial

· ALKS -7%; after an FDA advisory committee voted 20 to 3 that its ALKS 5461 didn’t show substantial evidence of effectiveness as a proposed adjunctive treatment for major depression

· AXL -14%; following its Q3 miss as it cut adjusted EBITDA margin guidance to a range of 16.25% to 16.50% while EBITDA fell to 15.1% of sales in Q3, compared to 17.3% a year ago

· CARB -19%; after a disappointing revenue forecast prompted a downgrade from Oppenheimer

· KHC -7%; missed 3Q EBITDA estimates by ~8% and withdrew its previous guidance for 2H18 EBITDA to be in line with 1H18 (downgraded at Susquehanna)

· MDRX -16%; after Q3 EPS and revenues both missed consensus/revenue was up 16% to $522.3M but almost 5% below consensus of $548.7M

· OLED -26%; plunges after cutting its full-year forecast to $240M-$250M from $280M-$310M (below est. $298.78M) and reported a wide Q3 revenue miss

· PBYI -50%; downgraded by several analysts and slashed their price targets after Q3 sales of its lone drug (Neratinib) showed sequential growth of just 3.5%

· SYF -8%; after WMT files a lawsuit stemming from a dispute over the value of the store’s credit-card portfolio that Synchrony had been servicing

· WTW -28%; subscriber count at the end of Q3 was up 24.9%, driven by growth in all major geographic market but Q3 revs of $365.8M missed the $379.3M estimate/raised year EPS view

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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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