Mid-Morning Look: November 16, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Friday, November 16, 2018

Equities start the day lower, but have quickly bounced led by gains in energy and utilities, while technology and consumer discretionary were among the biggest drags after softer guidance from semi names (AMAT, NVDA) and disappointing results in retail (JWN, WSM). Still so many factors affecting markets as investors weigh whether China and the U.S. will ratchet down their trade dispute at an upcoming G-20 meeting (where Trump and Xi are expected to talk). There were mixed reports on trade yesterday from various media and Washington members that moved markets. The dollar under pressure this morning, while Treasury yields slipped after Federal Reserve Vice Chairman Richard Clarida said he sees ‘signs of slowing growth’ and that sluggish expansion in the globe will be factored in the central bank’s calculus as it attempts to normalize interest-rate policy. Clarida said during an interview on CNBC that “we have to factor in to the global economy and there is some evidence of global slowing.” The comments are being construed as a potentially less aggressive Fed going into 2019. Oil prices extend recent rebound out of bear market territory, while markets also keeping close eye related to news in the UK regarding Brexit – no new cabinet members left Parliament overnight after four departures the day prior, helping lift the Pound overnight. FB new 52-week lows while AAPL rallies from latest decline.

Treasuries, Currencies and Commodities

· In currency markets, the US dollar fell to a weekly low below 113 vs. the Japanese yen, while dropping sharply vs. other major counterparts euro, pound and emerging markets following the more “dovish” commentary from Fed official Clarida today

· Precious metals making it a third straight day of gains, bouncing off more than 1-month lows around the $1,200 an ounce level and rising around $25 points during this 3-day stretch, buoyed today on a “softer” Fed outlook following Clarida comments, which sunk the US dollar

· Energy futures extend their recent bounce off 1-year lows, despite another round of bearish inventory data this week from the API and EIA that pared yesterday’s gains; a decline in the dollar and investors looking to buy after a more than 20% drop from its October highs lifting prices

· Treasury market’s rise as yields give back yesterday’s gains, with the 10-year yield dropping a few basis points to under 3.09% after Federal Reserve official Clarida voiced concerns over softer global growth, potentially opening the door to less rate hikes than expected next year. Meanwhile, Industrial production rose 0.1% in October, missing estimates.

Economic Data

· Industrial production for Oct rose 0.1% MoM missing the 0.2% estimate and down from last month’s 0.2% rise; industrial production was revised down to 0.2% gain from 0.3% in Sept. Capacity utilization fell to 78.4% from 78.5% in Sept., revised up from 78.1%. Hurricanes reduced the level of industrial output in both September and October the Fed noted

Sector Movers Today

· Semiconductor stocks fell after worse-than-expected sales forecasts from chip maker NVDA and equipment maker AMAT, renewing concerns about waning demand; on a positive note, INTC announced a $15B stock repurchase program (AMD shares active on the NVDA guidance and KLAC, LRCX on the AMAT warning); QCOM was upgraded at Morgan Stanley as see a balanced risk/reward as the market now has more realistic assumptions around Apple, chip margin improvements and handset demand

· Retailers; sector has been under pressure all week, same for today as JWN shares fall on mixed Q3 results as EPS beat, while sales and comps just below estimates as a higher mix of off-price sales appears to have hit Nordstrom’s margins as the gross margin rate fell; KORS was downgraded at Oppenheimer citing concern that ongoing challenges with and softness within fashion watches will weigh on top-line trends and potentially margins; SCVL rises as Q3 beat across all lines and again raising the FY18 guide, posted better than planned results from higher margin boots, which comped up over +20% in women’s; DSW was upgraded to neutral from negative at Susquehanna; JCP was downgraded to sell at Argus

· Housing & Building Products; HD was downgraded to neutral at Bank America as believe that 2018 was the peak in earnings growth and 2017 was likely the peak in comps; ENR was downgraded to underperform at Bank America as now see risk-reward less compelling with the deal for SPB battery now ex: Varta Europe and ENR planning to acquire SPB Global Auto Care; in home furnishing, WSM falls as reported 3Q results that fell a bit short of consensus expectations on comps and operating margins, but slightly beat consensus on EPS due to a lower tax rate

· Energy stocks among the top sector performers early, helped by continued rebound in oil prices after touching 52-week lows earlier this week; positive update from APC overnight, stronger earnings from land driller HP and positive analyst research helping the group today

        Stock GAINERS

· AAPL +2%; outperformance as shares moves back above its 200-day moving average of $193.74 after falling to recent lows around $186 this week

· EIX +13%; upgraded to buy at Citigroup and moving higher in sympathy with PCG

· EMCI +25%; as Employers Mutual Casualty Company proposed to acquire the rest of shares it does not already own for $30 per share in cash https://yhoo.it/2BbZZ5V

· EOG +3%; rises with energy in general and as Credit Suisse upgrading shares to outperform

· HP +3%; adjusted EPS in line with consensus, and $187MM EBITDA, above consensus of $175MM, but it reported significantly higher capex guidance for next year

· PCG +30%; after a California Public Utilities Commission official told investors on a conference call that the agency doesn’t want PG&E to go into bankruptcy

· SCVL +12%; as Q3 beat across all lines and again raising the FY18 guide, posted better than planned results from higher margin boots, which comped up over +20% in women’s

· SONO +18%; posted stronger better than expected results and offered guidance above views

Stock LAGGARDS

· AMAT -4%; posted in-line F4Q results but offered soft F1Q guidance as all segments will likely decline sequentially/AMAT now expects WFE to be down in 2019 vs. 2018 levels (vs. flat prior)

· AZN -3%; as its Mystic experiment that combined two of its drugs in lung cancer treatment (Imfinzi and Tremelimumab) failed to meet its main goal as results didn’t meet statistical significance

· FB -2%; shares trade to 52-week lows below $139 (record high was $218.62 on 7/25) – follows recent NYT article that Facebook COO Sandberg hid info about Russian interference/ faces renewed criticism from Washington

· JWN -11%; mixed Q3 results as EPS beat, while sales and comps just below estimates as a higher mix of off-price sales appears to have hit Nordstrom’s margins as the gross margin rate fell 137 bps Y/Y to 33.3% of sales vs. 34.2% (also raised year rev outlook and narrowed EPS)

· NVDA -18%; after missing Oct-Q sales by 2% and guiding Jan-Q sales 21% below Street as slower than expected inventory in the channel and company not shipping mid-range Pascal desktop GPUs drove 30% Q/Q gaming correction

· WAIR -15: as reported Q4 EPS miss though sales beat while sees 2019 net sales to increase at a mid-single-digit percentage rate compared to fiscal 2018

· WSM -12% as reported 3Q results that fell a bit short of consensus expectations on comps and operating margins, but slightly beat consensus on EPS due to a lower tax rate. WSM indicated that port delays in China led to a delay in fulfilling orders, leading sales comps of 3.1% (vs. consensus 3.9%) to a marked 150 bps below “demand” comps of 4.6%.

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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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