Mid-Morning Look: April 17, 2019

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Mid-Morning Look

Wednesday, April 17, 2019

Index

Up/Down

%

Last

 

DJ Industrials

-9.89

0.04%

26,442

S&P 500

-0.84

0.03%

2,906

Nasdaq

7.78

0.10%

8,008

Russell 2000

-12.45

0.79%

1,570

 

 

U.S. equities open higher yet again (before slipping), with the S&P 500 index rising to the highest since early October after data showed China’s economic growth, industrial production and retail sales came in better than expected, helping boost metals/materials early. Tech the other leader as the Nasdaq 100 traded to a fresh all-time intraday record high, paced by gains in the semiconductor sector (another record high for the Philly semi index – SOX), boosted by strength in QCOM after its settlement with AAPL yesterday. However, given the historic run from the December lows for major averages (global) investors are taking profits, especially in the uncertain healthcare industry (managed care, hospitals, pharma pummeled again). Financials are mixed after more earnings results this morning (BK, MS, SBNY). Note many global stock markets have surged with 52-week highs for the China Shanghai index, Russia index 52-week highs, and the Bombay index historic highs as investor continue to pile money into stocks. In positive news overnight, China’s economy (GDP) grew 6.4% year over year in the first three months of 2019, according to government data, matching the pace of growth in the final quarter of 2018 and coming in slightly above expectations for an expansion of 6.3%.

 

Treasuries, Currencies and Commodities

·     In currency markets, the dollar index (DXY) holding around the 97 levels the bulk of the week, posting small gains vs. the Pound, but modest losses vs. the euro and the Japanese yen remaining around the 112 level for a third day on mixed global economic data. Commodity prices are moving sideways as well with the dollar action, as gold holds near its lowest levels of 2019 after sliding yesterday, while gold prices remain up around 5-month highs after inventory data. Treasury markets erase earlier losses, as the 10-year yield moves back to 2.58%.

 

Economic Data

·     U.S. trade deficit shrinks again in February to lowest level in eight months, sliding 3.4% in February to (-$49.4 billion) from a revised (-$51.1 billion) in January, due to higher exports of autos and airplanes (ests were for deficit of -$53.4B). The trade deficit was 7.6% smaller in the first two months of the year, compared with the same period in 2018

·     Wholesale Inventories for February rose 0.2%, slightly below the 0.3% estimate to $668.9B from $667.5B in the prior month; Wholesale inventories rose an unrevised 1.2% in January; wholesales sales rose 0.3% m/m in Feb, following 0.5% the prior month

 

 

Macro

Up/Down

Last

 

WTI Crude

0.06

64.11

Brent

-0.00

71.72

Gold

-0.40

1,276.70

EUR/USD

0.0013

1.1295

JPY/USD

-0.04

111.96

10-Year Note

0.002

2.587%

 

 

Sector Movers Today

·     Managed care and hospitals down again after being absolutely crushed yesterday, led lower after UNH raised its profit guidance for the year on revenue growth across all its businesses but CEO David Wichmann warned the “Medicare for All” legislation proposed by House Democrats threatened to “destabilize the nation’s health system.” Also hurting the group, comments by JNJ on its c/c saying that preliminary estimates indicate a slight declining trend in both hospital admissions and lab procedures, with growth of 0.5% and flat respectively – early declines yet again for managed care and the like (ANTM, CI, HUM, CNC, WCG)

·     5G semi chip news; QCOM advances further after yesterday’s 23% gain, as analysts very “bulled up” on its news with AAPL, agreeing to settle all outstanding royalty, licensing and patent disputes between the companies – QCOM guided to an incremental EPS of ~$2.00 from both the patent agreement as well as the chipset supply agreement (several analysts upgraded and upped tgts for QCOM). In reaction, INTC said it will get out of the business for 5G modem chips, in which it was trying to compete with QQCOM – Intel has had trouble getting up to speed in making the chips, and had said that they would not be available until 2020

·     Semiconductors; SWKS downgraded to neutral at Macquarie citing yesterday’s Apple-Qualcomm settlement that could put pricing pressure on RF vendors SWKS, AVGO, and QRVO; Citigroup raised MRVL tgt to $28 to reflect improving storage fundamentals, increasing confidence in 5G momentum, and growing M&A appeal; XLNX positive mention at Citigroup as well as expect Xilinx to post upside to Consensus estimates and opened up a positive catalyst watch on Xilinx; ASML sees 2Q net sales EU2.5 billion to EU2.6 billion vs. estimate EU2.55B and sees 2Q gross margin 41% to 42%; Q1 net sales EU2.23 billion, vs. estimate EU2.11 billion; Longbow downgraded DIOD, ON, LFUS and TXN to Neutral from Buy to reflect a more conservative view of Q2 and second half sales growth relative to consensus expectations

·     Transports; CSX leads rails higher after posting a quarterly record operating ratio of 59.5%, a mark that smashed the 63.7% recorded a year ago while EPS beat by 11c on in-line revs of $3.01B as merchandise volume growth and broad-based pricing gains helped rev growth; airlines active as UAL Q1 EPS beat by 20c while backing its year outlook and for Q2 expects capacity to grow 4% and unit revenue to expand 1.5% at the midpoint; KSU in rails backs FY19 revenue growth guidance to 5%-7% and lowers FY19 volume growth guidance to 2%-3% YoY after earnings

·     Restaurants; lots of analyst calls as CMG was downgraded at Morgan Stanley as shares approach their bull case valuation (and reaped 54% gains YTD) – now raises bull case view to $785 from $727 and overall tgt raised to $658 (from $617); Morgan upgraded DPZ to overweight and raised tgt to $283, taking advantage of what they believe is a price dislocation based on concerns over near term trends; SHAK was downgraded to neutral at Longbow citing valuation as shares have risen 25% since November off modest Q4 comp sales beat

·     Metals & Materials; Miners outperform as metals rose on Chinese GDP, which exceeded estimates; also, aluminum and steel output reached records as the Chinese economy holds up; iron ore names (CLF, BHP) were among worst performers as VALE sees restart of major mine; BHP cuts its annual iron ore production forecast by ~3.5% to 265M-270M mt from 273M-283M mt previously, and faces higher costs following disruptions caused by Cyclone Veronica, a day after RIO dialed down its full-year outlook for the same reason.

 

Stock GAINERS

·     CSX +5%; reported a 12.6% headline EPS beat – ex help from one timers (contract settlements, land sales, tax credits above and below the line) earnings beat consensus

·     HOLI +11%; as announced that it has decided to withdraw its previously announced public offering of 7.8M of its ordinary shares due to market conditions

·     MS +2%; EPS topped analysts’ estimates while FICC sales and trading revenue beat too, while equities trailed (similar to GS, BAC, C results)

·     PEP +3%; Q1 EPS of 97c beat by 6c on better revs of $12.88N while also reaffirmed its financial targets for 2019 saying it continues to see full-year organic revenue growth of 4%.

·     QCOM +13%; advances further after yesterday’s 23% gain, as analysts very “bulled up” on its news with AAPL, agreeing to settle all outstanding royalty, licensing and patent disputes between the companies – QCOM guided to an incremental EPS of ~$2.00 from both the patent agreement as well as the chipset supply agreement (several analysts upgraded and upped tgts for QCOM)

·     SFS +19%; agreed to be acquired by private-equity firm Apollo Global Management LLC for $6.50 a share in cash; at $6.50, has market cap of about $500 million https://on.mktw.net/2v8Ei31

·     TXT +7%; as earnings handily beat as strength in core aviation segment boosts Q1 bottom line; said Aviation Q1 jet deliveries jump 18%

·     UAL +4%; Q1 EPS beat by 20c while backing its year outlook and for Q2 expects capacity to grow 4% and unit revenue to expand 1.5% at the midpoint

 

Stock LAGGARDS

·     BK -7% – trust banks lower (STT, NTRS) after BK earnings drop on weaker revenue from interest income and investment management-related activities

·     IBM -2%; reported a decline in revenue, including in such widely followed businesses as cloud computing and artificial intelligence/also guided below consensus revenues and EPS for Q2, pointing to a back-ended loaded year

·     NFLX -1%; All-time quarterly record of 9.6M paid adds beat guidance and expectations (each at 8.9M) while Q2 net adds guidance is slightly below consensus (as well as revs and EPS)

·     S -3%; and TMUS shares slipped after the WSJ reported that Justice Department staffers have told the companies their planned merger is unlikely to be approved as currently structured https://on.mktw.net/2V09ccn

·     SBNY -4%; Q1 EPS missed by 11c reflected by a weak core NIM down -7bps vs. Stephens -2bps estimate (guidance was -2-4bps) and higher expense growth

·     UNH -2%; extends yesterday losses – CEO David Wichmann warned the “Medicare for All” legislation proposed by House Democrats threatened to “destabilize the nation’s health system.”

 

Syndicate

·     Americold Realty Trust (COLD) 43.8M share Secondary priced at $29.75

·     Arconic (ARNC) 8.7M share Block Trade priced at $20.25

·     Brainsway (BWAY) 2.5M share IPO priced at $11.00

·     Palomar (PLMR) 5.625M share IPO priced at $15.00

·     Turning Point Therapeutics (TPTX) 9.25M share IPO priced at $18.00

_________________________________________________________________

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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