Mid-Morning Look: January 4, 2019

Scott GreenDaily Market Report

Mid-Morning Look

Friday, January 4, 2019

Stocks rise! After a day of nothing but negative headlines and sentiment, Friday brings a day of positive headlines and upbeat developments. After stocks plunged on Thursday between 2%-3% on AAPL’s lower sales outlook, weaker manufacturing data in the U.S., softness in transports after DAL lower outlook, and no new details regarding the partial government shutdown, investors get upbeat data in the U.S. and China. First the US payroll data, with a very strong jobs print rising 312K vs. the est. 184K and prior month revised up to 176K from 155K while private payrolls up 301K vs. est. 185K on upward revision as well. Wages also strong as average hourly earnings rise 0.4% vs. est. 0.3% and YOY rises 3.2% vs. est. 3%. The data lifted recently beaten Treasury yields and the dollar while gold sunk from 6-month highs. Stocks futures were already rising prior, led by a gain in commodity stocks after trade talks between the U.S. and China were set to resume and Caixin China December PMI readings were better than expected. China’s surprise reserve ratio cut added to the positive sentiment. On the negative side, the partial government shutdown into 14th day, with no agreement in sight on border Wall funding. Markets also keeping a close eye on Fed speakers, as Fed Chairman Powell takes part in a panel discussion that started at 10:15 AM EST alongside predecessors Janet Yellen and Ben Bernanke at the annual meeting of the American Economic Association in Atlanta.

Treasuries, Currencies and Commodities

· Commodity prices mixed as gold prices fall from 6-month highs on a strong dollar and a rebound in stocks while WTI crude prices rise after China said it would hold trade talks with the U.S., also helped by signs of lower crude supply and strong economic data. Inventory data not having an impact on energy markets early; Natural gas data bearish after EIA posting smaller than expected weekly draw (-20 bcf vs. est. -45 bcf)

· Treasury market’s in full reversal from yesterday, moving lower after the strong jobs report and bouncing yields off lows. The 10-year yield around a 10 bps bounce to 2.65% after hitting its lowest since Jan. 16, 2018, and marked its biggest one-day decline since May. Meanwhile the 2-year yield also up about 10 bps to 2.5% after falling 11.1 bps yesterday to 2.391%, its lowest since May 29.

Economic Data

· Nonfarm Payrolls for December rose a stronger than expected 312K, topping the 184K economist estimate while private payrolls rose 301K vs. prior 173K and above the 185K estimate; the unemployment rate rose to 3.9% from 3.7% as the participation rate 63.1% vs prior 62.9%; nonfarm payrolls, net revisions, 58K from prior two months. Manufacturing payrolls rose 32k after rising 27k in the prior month. Wages strong as average hourly earnings rose 0.4% MoM topping the 0.3% estimate and prior 0.2% while YoY, wages jumped 3.2% topping the 3% estimate

Sector Movers Today

· Internet; sector with a relief rally; Goldman Sachs with a handful of changes today: NFLX was added to the conviction list as pullback presents attractive buying opportunity; ETSY upgraded to buy as expect reinvestment to drive upside to growth; EXPE upgraded to buy as opportunity to improve competitive position at an attractive valuation; EBAY downgraded to neutral – with few catalysts and growth uncertainty, we see better opportunities elsewhere; SNAP downgrade to Neutral from Buy on user-growth uncertainty; CRTO downgrade to Sell from Neutral on recent outperformance despite secular headwinds

· Housing & Building Products; building products MAS, AWI and FBHS upgraded at Bank America saying exposure to repair and remodeling should be attractive to investors concerned about a cyclical peak in homebuilding/favors MAS’s product mix, heavy exposure to the U.S. repair and remodel industry and its “options value” among smaller segments. In homebuilding, Bank America names DHI top pick while cuts tgt on LEN to $60 from $64

· Autos; UBS upgraded auto suppliers DAN to buy on compelling valuation and LEA to buy as sees less risk to the company’s 2019 guidance since it already provided segment margin guidance; auto supplier VC downgraded to Neutral from Outperform at Baird while the firm also cut ALV, VNE and ADNT to Underperform from Neutral

· Semiconductors; after plunging and closing near the lows yesterday with the Philly semi index (SOX) falling near 6% after AAPL’s sales outlook struck fear of slowing growth in the supply chain – group gets rebound today – though several analysts weigh in: Bank America upgrade INTC to buy while downgrading TXN, ADI and MXIM; SWKS was downgraded at Nomura/Instinet; ADI was downgraded to sector perform at RBC Capital

· Chemicals: Citigroup upgraded SHW to buy as raw material cost headwinds ease and they expect the repair & remodel business to remain strong, while also like APD as a late-cycle play and upgrade CC as trough TiO2 conditions may be priced in and Opteon adoption continues. Overall, Citi reduced FY19 estimates by ~4% on average, mainly in commodity chemicals (-6%) as declining oil-to-gas spreads are likely to pressure US profitability; RPM shares fell after Q2 earnings and quarterly sales missed consensus views

· Alternative Asset managers: Goldman Sachs shifts ratings on capital markets stocks to reflect a “barbell” shape, favoring alternative asset managers and exchanges, while warning that traditional asset managers face risk this year: upgraded CBOE, VIRT, ARES and CG to buy while adds CBOE, VIRT, ARES to conviction list; downgraded TROW to neutral; removes KKR and ICE from Americas Conviction List, (keeps both buy): other top buy ideas for 2019: APO, LPLA, NTRS. Keeps BEN, APAM, WETF, MKTX sell, and sees potential downside risks to neutral-rated BK, AMG

Stock GAINERS

· ANGO +7%; reported better than expected fiscal Q2 results

· CELG +5%; rises a second day after BMY $75B takeover offer announced yesterday

· EPZM +13%; said based on FDA feedback, it expects to file its U.S. marketing application for tazemetostat for EZH2 mutation-positive and wild-type relapsed/refractory follicular lymphoma (FL) in Q4

· GME +11%; after The Wall Street Journal reports a buyout deal could be announced by the middle part of February/Sycamore Partners and Apollo Global Management are two of the PE firms bidding for gaming retailer https://on.wsj.com/2GWQ5de

· INTC +4%; upgraded to buy at Bank America as well as rebound in semiconductor sector after the Philly semi index fell nearly 6% yesterday on AAPL lowered sales outlook

· MRKR +12%; after the company reported updates for its T-cell immunotherapy programs across five studies.

· RECN +19%; after quarterly earnings topped estimates

· VAR +6%; upgraded to buy with $129 tgt at Goldman Sachs on the combination of upside to consensus EPS estimates, guidance that appears conservative, and low expectations

Stock LAGGARDS

· FLXN -1%; reported preliminary 4Q18 revenue of approximately $9.5M, up 36% q/q, but slightly below consensus of $10.2M

· FTNT -2%; downgraded by two notches to sell from buy at Goldman Sachs and tgt cut to street low $59 from $95 citing an elevated valuation and heightened cyclical risk

· KSS -1%; Cleveland Research lowered Q4 comp estimates for M, KSS saying sales appeared to slow in December vs. November and were mixed vs. channel expectations due to weather-related headwinds

· MRSN -3%; updates investors on XMT-1536 and XMT-1522; said for XMT-1536, expects to select a dose for its Phase 1 expansion studies and to initiate patient enrollment and report data in H1, while terminates development of XMT-1522 with Takeda

· NEM -1%; as gold miners slide given the strength in the dollar on better jobs report and subsequent decline in gold prices off 6-month highs

· RPM -1%; shares fell after Q2 earnings and quarterly sales missed consensus views

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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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