Mid-Morning Look: May 21, 2019

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Mid-Morning Look

Tuesday, May 21, 2019

Index

Up/Down

%

Last

 

DJ Industrials

151.41

0.59%

25,831

S&P 500

20.93

0.74%

2,861

Nasdaq

72.47

0.94%

7,774

Russell 2000

16.63

1.09%

1,541

 

 

U.S. equities bounce in early trading after U.S. officials said they would offer some temporary exceptions to an export blacklist against Huawei Technologies Co., which will offer some suppliers and customers of China’s telecom giant a 90-day reprieve from tough trade penalties. It has been a touch week of news regarding trade between the U.S./China given the combination of 25% tariffs on Chinese goods 2-weeks ago (and China retaliation) as well as the U.S. blacklisting Huawei Technologies Co., but stocks finding footing this morning. Weaker U.S. data not helping sentiment as existing home sales for April missed views. Dow component Home Depot (HD) quarterly results were better (though weaker comps) but in-line guidance for the year did not take into account the recent tariff hike, the company said on its conference call. Retailers generally weak after KSS lowered its profit forecast for the year. The dollar is higher early while Treasuries little changed and commodity prices lower. Despite the recent market pullback on China trade fears, the S&P 500 is still only 3% from its recent record highs.

 

Treasuries, Currencies and Commodities

·     In currency markets, The UK pound slipped below the $1.27 level for the first time since January, with strength in the US dollar and persistent concern over Brexit hitting sentiment; the U.S. dollar pared its gains vs. rival currencies after a weaker-than-expected existing home sales reading (lone piece of US data today) while Treasury yields edged lower as well on the data. Commodity prices are mostly lower, with WTI crude little changed around $63 per barrel, copper futures recently dropped to session lows, while precious metals also weak on China fears and a stronger dollar.

 

Economic Data

·     Existing-home sales for April fell -0.4% to 5.19M, below the est. of 5.35M after falling -4.9% in the prior month; March was unrevised from 5.21M; there was 4.2 months’ supply in April vs. 3.8 in March while inventory rose 9.6% to 1.83M homes; the median home price rose 3.6% from last year to $267,300

 

 

Macro

Up/Down

Last

 

WTI Crude

-0.03

63.07

Brent

0.23

72.20

Spot Gold

-5.55

1,272.25

EUR/USD

-0.0015

1.1152

JPY/USD

0.46

110.53

10-Year Note

-0.002

2.419%

 

 

Sector Movers Today

·     Retailers; mixed bag for retail today as TJX Q1 comp sales topped views (5% vs. est. 3.5%) and gross margin beat, helped as customer traffic led to increases, helping to overcome margins dented by increased supply chain/freight costs; meanwhile KSS shares plunged after mixed Q1 (EPS missed by 6c on better sales of $4.09B) and cut its year forecast to $5.15-$5.45 from $5.80-$6.15 (below est. $6.04); DECK was upgraded to buy at Bank America and raising tgt to $180 as still see upside risk to consensus EPS and an attractive valuation; the WSJ reported URBN is introducing an $88 monthly service that allows consumers to borrow six items from brands such as Free People and Anthropologie; JCP drops on larger quarterly miss and weaker comp sales

·     Auto movers; TSLA shares weak again (fell to lowest levels since Dec ’16 yesterday) after Morgan Stanley slashed their worse-case scenario for the stock price to just $10 because of concerns the electric-car leader has saturated the market; Morgan also said Ford’s (F) global light vehicle volume is estimated to fall 5% this year, with a further 4.4% drop in volume by 2022; in auto retail, AZO Q1 EPS/sales beat and U.S. same-store sales increased 3.9%, topping the 3% estimate while gross profit improved 10 bps to 53.6% of sales; MNRO Q1 EPS missed and comp sales unexpectedly fell -5.7% vs. est. 2.4% and last year 10.3%

·     Semiconductors; MRVL to acquire the Avera Semiconductor chip-design unit from Globalfoundries Inc. for $650M in cash, adding the ability to produce more specialized semiconductors needed for 5G phone networks and cloud-data centers; QRVO lowers Q1 revs to $730M-$750M from prior $780M-$800M view citing Huawei impact; sees gross margin about 45.5% vs. prior view of 45%-45.5% and EPS $1.15 at midpoint of guidance vs. prior view $1.30; optical movers; Huawei suppliers (IPHI, NPTN, LITE, AAOI, ACIA) rebound after the U.S. granted temporary relief on restrictions related to purchases of Huawei products

·     Investment/PE movers; Credit Suisse upgraded APO to Outperform from Neutral as they are refocusing on the alts that will benefit from recent/future C-Corp conversions and generate stronger than expected FRE; the firm remains outperform rated on ARES and BX at Outperform while downgraded KKR to Neutral from Outperform due to a lower relative 12-month total return forecast (20-25% forecast slightly lower than 25-40% for our Outperforms); EV posted better-than-expected fiscal Q2 results fueled by strong market returns and continued net inflows as EPS of 89c beat by 13c with Q2 consolidated net inflows of $4.6B

 

Stock GAINERS

·     ARWR +17%; to be added to the S&P SmallCap 600 on Friday

·     BA +1%; shares rebound after the WSJ reported U.S. aviation authorities believe a bird strike most likely caused the troubles with the Boeing sensors that caused an Ethiopian Airlines jet to crash earlier this year, citing officials

·     CIR +41%; CR as submitted a proposal to acquire CIR for $45 per share in cash, as the total deal price is valued at about $1.7B (including debt) https://on.mktw.net/2VPdWCK

·     CLVS +4%; said recurrent ovarian cancer patients who received Rubraca had longer periods of quality-adjusted time without clinically relevant symptoms, according to Phase 3 ARIEL3 study

·     DY +14%; on better earnings as trades near its 100-day MA higher at $52.51 (hasn’t closed above 100-day MA over the last year)

·     QCOM +3%; among rebound in chip suppliers to Huawei after the U.S. granted temporary relief on restrictions related to purchases of Huawei products

·     SMRT +46%; announced that it is installing AMZN Hub Lockers in nearly 200 of its stores across 28 states

 

Stock LAGGARDS

·     BCRX -44%; oral drug for preventing hereditary angioedema attacks missed Street expectations with Phase 3 ApeX-2 trial of BCX7353 meeting its primary endpoints at both 110 mg and 150 mg doses (the 150 mg dose reduced the attack rate in HAE patients by 44%, vs. Piper est. 50%)

·     HD -1%; posted better Q1 EPS of $2.27 (est. $2.18) on in-line revs $26.38B and reaffirmed its year outlook, though Q1 comp sales of 2.5% missed the 4.3% estimate

·     KSS -12%; after mixed Q1 (EPS missed by 6c on better sales of $4.09B) and cut its year forecast to $5.15-$5.45 from $5.80-$6.15 (below est. $6.04)

·     MNK -26%; filed a lawsuit in federal court against the U.S. Dept. of HHS and CMS, challenging a regulatory move that would change the calculation of Medicaid drug rebates for Acthar Gel/suit seeks to hold unlawful a recent decision to require that Mallinckrodt change the base date average manufacturer price used to calculate the rebates

·     OCUL -18%; OTX-TP failed to meet its primary endpoint/reported the failure of OTX-TP in a Phase 3 study for the treatment of glaucoma

·     QRVO ; lowers Q1 revs to $730M-$750M from prior $780M-$800M view citing Huawei impact; sees gross margin about 45.5% vs. prior view of 45%-45.5% and EPS $1.15 at midpoint of guidance vs. prior view $1.30

·     TSLA -2% as Morgan Stanley slashed their worse-case scenario for the stock price to just $10 because of concerns the electric-car leader has saturated the market

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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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