Mid-Morning Look: November 28, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Wednesday, November 28, 2018

U.S. equities are off to a strong start, getting a boost in tech following better-than expected results and guidance in the software sector (CRM), while markets rebound after sharp declines last week (though stocks have been paring gains since the open). Stocks have managed to rally this week despite renewed trade concerns with China and President Trump comments about tariffs heading into the G20 meeting this week in Buenos Aires. Items to watch later today, this week: Fed Chairman Powell to speak to the Economic Club of New York at 12:00 PM EST, while Vice Chairman Richard Clarida and Chicago’s Charles Evans yesterday restated support for continued hikes toward neutral. Note overnight, President Donald Trump reiterated his displeasure with the Fed and its interest-rate policy saying in an interview with the Washington Post, he is “not even a little bit happy” with his choice to lead the central bank. Economic Data today was in-line to mixed, as the second reading of Q3 GDP rose 3.5%, in-line with forecasts while inflation data mostly in-line for Core PCE. Markets also keeping a keen eye on the UK as the Pound remains active with investors watching if Parliament rejects the current Brexit deal. The Federal Reserve has flagged a hard Brexit and Italian sovereign debt sell-off as near-term risks to the US financial system.

Treasuries, Currencies and Commodities

· In currency markets, the dollar making another push at 52-week highs as GDP data in-line with forecasts on in-line inflation data points, but rising ahead of Fed Chair Powell comments later (12:00 PM EST). The dollar index (DXY) rises to around 97.50 (52-week high 97.69 on 11/12). Euro, Pound, Yen all sliding in early action; bitcoin with a big bounce after its recent tumble rising over 11% above $4,200 (off recent lows around $3,400); 10-yr yield steady at 3.06%.

· Commodity prices slip: gold slips on continued dollar strength while oil prices slide on mixed inventory data (another weekly build reported by the API overnight and the EIA today (both with weekly stockpile builds of over 3M barrels on the week). Also, the Financial Times reported Saudi Arabia’s energy minister said the kingdom would not cut its oil output alone, as ministers from producer countries prepare to gather in Vienna next week to discuss curbs

Economic Data

· The U.S. economy grew 3.5% in third quarter, pushes corporate profits to 6-year high, GDP data showed, and was in-line with consensus estimates (GDP rose 4.2% in prior quarter). Personal consumption rose 3.6% in 3Q after rising 3.8% prior quarter while GDP price index rose 1.7% in 3Q after rising 3.0% prior quarter; the core PCE q/q rose 1.5% in 3Q after rising 2.1% prior quarter. Business profits, meanwhile, surged to new heights as adjusted corporate earnings before taxes rose 3.4% in the third quarter

· Advanced Goods Trade Deficit for Oct was (-$77.2B), in-line with the economist estimates while widened from $76.3B in the prior month; imports rose 0.1% in Oct. to $217.764B from $217.554B in Sept. while exports fell 0.6% in Oct. to $140.517B from $141.303B in Sept.

· New home sales for Oct fell an unexpected (-8.9%) to 544K annual rate, below the 575K economist estimate, though the previous three months’ new home sales data revised up by 53K; median new home price fell 3.1% y/y to $309,700; average selling price at $395,000; 16% of new homes sold in Oct. cost more than $500,000, unchanged from 16% prior month

· Richmond Fed’s Nov. Manufacturing Survey stood at 14, slightly below the 15 est.; shipments rose to 12 after 7 the prior month while new order volume slowed to 17 after 20 the prior month; order backlogs rose to 15 after 13 the prior month

Sector Movers Today

· Retailers; TIF shares fall as Q3 comp sales trailed estimates in total (up 3%, missing the 5.6% Bloomberg estimate) and in all reported regions except Asia Pacific/noted lower-than-expected spending in Q3 to Chinese tourists in the U.S. and Hong Kong; CHS plunges after the retailer posts weak Q3 sales, falling 6% during the quarter, while comparable sales were off 6.8% vs. -2.1% consensus expectation and gross margin fell 130 bps to 36.2% during the quarter;Wayfair, Inc. (W) reported a 58% increase YoY in direct retail gross sales, defined as dollars of order intake, for the five-day peak shopping period of Thanksgiving Day through Cyber Monday; JILL rises after citing some sales momentum into the holiday quarter, saying comparable sales increased 1% during the quarter to top the consensus estimate for a 2.4% drop/total sales were up 7.5% to $174M; BURL rises following a quarterly beat and raise quarterly report (helping other discount peers TJX, ROST)/BURL’s adjusted EBIT increased 29% y/y to $115M

· Housing & Building Products; homebuilders fell (LEN, TOL, PHM, KBH) after weaker than expected monthly new home sales data; ZG said expects mortgage rates to continue to rise, putting a pinch on affordability, particularly in already expensive markets/some buyers may be pushed back toward the rental market, reversing the recent slowdown in rents; BECN was downgraded to neutral at Longbow as shares hit their tgt price of $34 though see more upside than downside to numbers

· Airlines; ALK raises Q4 RASM forecast, sees capacity up 1.1%; guided to Q4 revenue per ASM, or RASM, of 12.6c-12.8c, up from its prior view of 12.4c-12.6c;SAVE upgraded to overweight at JPMorgan saying they clearly misgauged the elasticity of Spirit’s passenger base, as evidenced by 4Q18’s TRASM surprise; Susquehanna initiated with Positive ratings on DAL and AAL, and Neutral ratings on UAL and LUV saying following the wave of mergers from 2005-2013, the industry today is exhibiting capacity discipline and growing its technology-driven merchandising efforts

· In rails, UNP was upgraded to buy at Deutsche Bank and up tgt to $175 saying it is now positioned for at least $3B in profit improvement; KSU disclosed that 4Q volumes are trending below expectations and revenue is expected to be down slightly sequentially in a presentation at the Credit Suisse Industrials Conference; CNI said at CSFB conference right in-line with Q4 guidance so far and operating metrics are better than year ago quarter

        Stock GAINERS

· CRM +4%; posted a very strong 3Q, with organic billings growth accelerating for the 3rd straight quarter and out-year guidance ahead of consensus

· DVA +2%; upgraded to outperform at Raymond James with $70 tgt

· HUM +3%; raises 2019 Medicare Advantage membership estimate to 350K-400K from 250K-300K and announces $750 mln accelerated stock buyback program

· NTNX +6%; posted better-than-expected revenue, opex, and FCF (along with in-line gross margin and billings) and better-than-expected F2Q19 top-line guidance

· ONDK +5%; upgraded to buy at UBS on improved outlook due to higher-than-previously estimated revenue and reduced concern about OnDeck’s ability to turn originations into asset growth

· OOMA +16%; upgraded at William Blair following Q3 results and guidance that were ahead of Street expectations across the board

· SINA +7%; Q3 results that beat EPS estimates but missed on revenue with a reported $557.2M (+26% Y/Y) and issued downside FY18 revenue guidance

· W +12%; reported a 58% increase YoY in direct retail gross sales, defined as dollars of order intake, for the five-day peak shopping period of Thanksgiving Day through Cyber Monday

 Stock LAGGARDS

· CHS -38%; posts weak Q3 sales, falling 6% during the quarter, while comparable sales were off 6.8% vs. -2.1% consensus expectation and gross margin fell 130 bps to 36.2% during the quarter

· LEN -2%; as homebuilders fall (LEN, TOL, PHM, KBH) after weaker than expected monthly new home sales data

· PZZA -7%; after Stifel said earlier assuming no M&A deal, then investors should brace for a pullback in the stock (low-$40s)

· SJM -5%; as Q2 EPS and sales fell short of consensus views and cut FY19 adjusted EPS view to $8.00-$8.20 from $8.40-$8.65

· TIF -10%; after Q3 comp sales trailed estimates in total and in all reported regions except Asia Pacific/noted “lower-than-expected spending in Q3

· WDC -5%; as hard disk drive names lower (STX as well) on analyst commentary, KeyBanc noted negative bias to F4Q for MRVL given recent cautious commentary from top storage customers WDC and STX

· WHR -2%; downgraded to neutral at Credit Suisse saying pricing captures valuation

Syndicate

· Acadia (ACAD) 16.175M share Secondary priced at $17.00

· Global Net Lease (GNL) 4M share Spot Secondary priced at $20.20

· Rocket Pharmaceuticals (RCKT) 3.55M share Secondary priced at $15.50

· Skyline (SKY) 4.5M share Spot Secondary priced at $22.05

· Southwest Gas (SWX) 3.1M share Secondary priced at $75.50

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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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