Mid-Morning Look: January 18, 2019

Scott GreenDaily Market Report

Mid-Morning Look

Friday, January 18, 19

Index

Up/Down

%

Last

 

DJ Industrials

158.40

0.65%

24,528

S&P 500

20.21

0.77%

2,656

Nasdaq

47.12

0.66%

7,131

Russell 2000

5.67

0.39%

1,472

 

 

U.S. equities spiking early and adding to weekly gains, on track to post 2% advances during the 5-day stretch amid trade hopes and better earnings, while the ongoing government shutdown remains a concern now into its 4th week. Stock futures were higher overnight, but got a further boost after Bloomberg reported China has offered to go on a six-year buying spree to ramp up imports from the U.S., in a move to fix the trade imbalance. By increasing annual goods imports from the U.S. by a combined value of more than $1 trillion, China would seek to reduce its trade surplus — which last year stood at $323 billion — to zero by 2024. The offer, made during talks in Beijing earlier this month, was met with skepticism by U.S. negotiators, Bloomberg reported. The news lifted stocks, the dollar and Treasury yields. The US government shutdown is an emerging headwind to growth, New York Federal Reserve President John Williams said on Friday.

 

Economic data was mixed today as industrial production and capacity utilization data came in better than expected, but the University of Michigan confidence report came in well below consensus at the lowest levels in over 2-years given the government shutdown (into day 28) and trade issues. Top movers include TSLA falling on lower guidance and job cuts, NFLX falls on weaker guidance but strong subs, transports get a boost behind JBHT, KSU earning while financials mixed on earnings (AXP, FHN, RF fall while STI, STT, CFG rise). Retailers get good results from VFC as shares rise. Industrials like UPS, BA and CAT active after the tariff report late yesterday.

 

Treasuries, Currencies and Commodities

·     In currency markets, the dollar index rises early as the euro falls to lowest levels in above two-weeks around 1.1375 and rises vs. other rivals to end the week (despite mixed data). Commodity prices mixed as oil prices look to add to weekly gains, rising over 1.5% while gold prices fall on stock rally and dollar bounce. Treasury market’s steady early as yields pared gains following the weaker UoM sentiment report earlier, with the 10-yr holding above 2.75% – but yields jumped following Bloomberg report that China said to offer path to eliminate US trade imbalance, which also helped the dollar rise further.

 

Economic Data

·     Industrial Production for December rose 0.3%, topping the 0.2% estimate after rising 0.4% in November (IP was revised down to 0.4% from 0.6% in Nov). Capacity utilization rose to 78.7% from 78.6% in Nov., revised up from 78.5%. Factory production rose 1.1% in Dec. after rising 0.1% in November

·     Preliminary Jan. Michigan Sentiment fell to 90.7 (lowest since Oct 2016) from 98.3 in prior month and below the est. for 96.8; the current economic conditions index fell to 110.0 vs. 116.1 last month; the expectations index fell to 78.3 vs. 87.0 last month

 

 

Macro

Up/Down

Last

 

WTI Crude

1.42

53.49

Brent

1.17

62.35

Gold

-8.90

1,283.40

EUR/USD

-0.0027

1.1362

JPY/USD

0.39

109.65

10-Year Note

0.015

2.77%

 

 

Sector Movers Today

·     Bank movers; regional banks with earnings today as large cap banks were mixed this week; STI Q4 adjusted EPS of $1.50 beat by 13c while Q4 net interest margin-FTE of 3.27% was stable vs. Q3 and Q4 net interest income of $1.55B rose from $1.51B in Q3 and $1.43B in Q4 2017; CFG Q4 EPS of 98c beat estimates by 4c as underlying return on tangible common equity improved to 14.1% in Q4 from 13.5% in Q3 and 10.4% in the year-ago period; RF Q4 EPS of 38c was in-line with estimates and said it sees 2019 adjusted average loans growth low single digit, consistent with forecast GDP growth; KEY was downgraded at BMO Capital and CBSH upgraded at Raymond James; other movers on earnings today included: OZK, FHN, PBCT; trust bank STT reported Q4 EPS that beat analysts’ estimates and is laying off 1,500 staff as part of a plan to reduce costs

·     Refiners; Citigroup said sector earnings could get sold on a weaker 1H 2019 set-up, as remains cautious for 1H19/sees earnings beats driven by crude cost advantages at PSX, MPC and VLO. Citigroup opens a 90-day negative catalyst watch on VLO, 30-day positive watch on PSX and downgrades DK to neutral vs buy given lack of near-term catalyst. Cowen said they expect PSX, PARR, and CLMT to beat consensus estimates on benefits from 4Q18 oil price drop but the firm overall remains cautious on the sector

·     Transports; in rails, KSU topped estimates on both lines of its Q4 report as the company reports an operating ratio of 64.3% in Q4 vs. 64.0% a year ago and 63.9% consensus (report comes a day after mixed results from CSX); in airlines, RYAAY lowered its full-year profit guidance citing lower winter fares, and said further cuts could be on the way depending on how Brexit develops; in truckers, JBHT rises early on earnings, adding to the strength in the trucking space after KNX boosted guidance yesterday

·     Software movers; TEAM shares traded to record highs following positive mentions by several analysts after quarterly results after beating revenues and billings, partially driven by pull-forwards in server products following price increases and better Q3 rev guidance (shares of SPLK, WDAY, ZEN among those active after results); PRGS reported top and bottom line Q4 beat but Q1 guidance fell short of consensus

·     Healthcare services and providers; CVS said WMT will allow its stores to continue to participate in CVS’s pharmacy networks to provide prescription drugs to patients through commercial and managed Medicaid programs; IQV was upgraded to buy at Jefferies saying the key drivers of their change in view are improving positive CRO feedback both in this survey and our channel checks; MDRX upgraded to overweight at KeyBanc following the company’s divestiture of Netsmart; EW was upgraded to buy at Bank America with $190 tgt saying pipeline trumps the competition and will likely become investors’ primary focus after the company settled litigation disputes w BSX

 

Stock GAINERS

·     CVS +2%; said WMT will allow its stores to continue to participate in CVS’s pharmacy networks to provide prescription drugs to patients through commercial and managed Medicaid programs

·     GME +1%; as reported an increase in holiday-period same-store sales and affirmed its full-year profit outlook/net sales for the nine-weeks ended Jan. 5 fell 5% from the same period a year ago

·     JBHT +6%; after earnings, adding to the strength in the trucking space after KNX boosted guidance yesterday

·     KSU +6%; topped estimates on both lines of its Q4 report as the company reports an operating ratio of 64.3% in Q4 vs. 64.0% a year ago and 63.9% consensus

·     SAFM +4%; protein stocks (SAFM, PPC, TSN) all higher after the WSJ reported U.S. and Chinese trade officials are in talks to reopen China’s market to U.S. chicken exports

·     SLB 6%; reported Q4 EPS in-line on slightly better revs of $8.2B while saying it Cap-ex spending will be slashed by as much as 32% to $1.5 billion in 2019 amid a decrease in activity from North American shale producers

·     TEAM +1%; positive mentions by several analysts after quarterly results after beating revenues and billings, partially driven by pull-forwards in server products following price increases

·     VFC +10%; following stronger-than-expected 3Q results as EPS from continuing operations of $1.31 beat the $1.09 estimate on better revs of $3.94B

 

Stock LAGGARDS

·     AXP -2%; posted Q4 EPS of $1.74, below consensus of $1.79 (GAAP results of $2.32 p/s included a one-time tax item of $0.58) as results were hindered by higher than modeled expenses, while loan loss provision came in well-above estimates said RBC

·     IMMU -28%; as announced that it has received a complete response letter (CRL) from the FDA for its Biologics License Application (BLA) of sacituzumab for the treatment of patients with metastatic triple-negative breast cancer due to outstanding manufacturing issues

·     LLY -2%; said Phase III soft tissue study of Lartruvo did not meet primary endpoints of overall survival (OS) in the full study population or in the leiomyosarcoma sub-population.

·     LXRX -28%; and SNY received a split FDA advisory committee vote of 8 – 8 that the benefits of their Sotagliflozin outweigh the risks

·     NFLX -1%; with mixed quarterly results as Q4 EPS beat by 6c but sales of $4.19B missed the $4.21B estimate and guided Q1 EPS 56c on revs $4.49B below est. 94c/$4.60B

·     NLS -39%; 4Q pre-released results were well below our expectations, as both segments came up short of estimates/guides Q4 EPS 4c-5c on revs $114M-$116M below est. 56c/$150.5M

·     TSLA -9%; said will cut “approximately” 7% of its full-time workforce, and will post a Q4 GAAP profit , but cautioned that number will be less than the $312M it posted Q3

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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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