Mid-Morning Look: July 11, 2019

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Mid-Morning Look

Thursday, July 11, 2019

Index

Up/Down

%

Last

 

DJ Industrials

101.89

0.38%

26,962

S&P 500

0.83

0.03%

2,993

Nasdaq

-10.91

0.13%

8,191

Russell 2000

-9.25

0.59%

1,555

 

 

U.S. equities surging initially, with major benchmarks hitting nice round numbers as the Dow Industrial Average topped 27,000 for the first time ever a day after the S&P 500 index topped the 3,000 mark with big gains in the healthcare industry giving averages a boost. Futures were stronger overnight, continuing yesterday’s rally ahead of a busy day of Fed speakers including further testimony on Capitol Hill from Fed Chair Powell in addition to others speaking. However, stocks have since turned mixed, amid a double dose of sour news as President Trump said in a tweet that “Mexico is doing great at the Border, but China is letting us down in that they have not been buying the agricultural products from our great Farmers that they said they would. Hopefully they will start soon!” Raises trade concerns again. While the “hotter” CPI inflation data (rising more than expected MoM for June) eases expectations the Fed can be aggressive in cutting rates, which pushed the dollar, Treasury yields higher and both stocks and gold lower. The Healthcare industry (managed care, PBMs, services) surging after reports the Trump administration is dropping a plan to curb billions of dollars in annual rebates that drugmakers give middlemen in Medicare, a proposal it had said would drive down the prices consumers pay for prescription drugs (CVS, UNH, CI, MCK among those rising, but news sinking shares of pharma LLY, PFE, MRK and biotech (REGN, AMGN). Fed Chairman Powell testifying for a second day on monetary policy and the economy, speaking to the Senate Banking Committee currently, but markets may soon turn attention to earnings, with quarterly results starting next week.

 

Economic Data

·     Weekly Jobless Claims fell 13K to 209K vs. est. 221K (prior week revised to 222K from 221K), while continuing Claims at 1.723M vs. est. 1.683M; the 4-week moving average stood at 219.25K

·     Consumer Price Index (CPI) MoM for June rises 0.1% vs. est. 0.0% while CPI Ex: Food & Energy MoM for June rises 0.3% vs. est. 0.2%; on a YoY basis, CPI YoY for June in-line with estimates at up 1.6% and CPI Core Ex: Food & Energy YoY for June rises 2.1% above the est. 2.0%

 

 

Macro

Up/Down

Last

 

WTI Crude

0.10

60.53

Brent

0.29

67.04

Gold

-4.30

1,414.70

EUR/USD

0.0003

1.1254

JPY/USD

-0.20

108.26

10-Year Note

0.015

2.076%

 

 

Sector Movers Today

·     Managed care, distributor stocks getting a big boost (CI, HUM, UNH, CVS, ANTM, ABC), while large cap pharma slides (LLY, MRK, PFE) after reports the Trump Administration is dropping a plan to curb billions of dollars in annual rebates that drugmakers give middlemen in Medicare, a proposal it had said would drive down the prices consumers pay for prescription drugs. The plan had been to curtail the rebates worked out between drugmakers and third parties that manage benefits for Medicare as well as Medicaid managed care, where states contract with insurers to deliver benefits https://bit.ly/32nE7jt – Axios had reported overnight

·     Industrial & Machinery; FAST shares fell after Q2 results miss estimates as Q2 EPS/revs just fall short of consensus while said saw slowing in Q2 relative to activity levels in Q1 (follows weaker results from MSM the day prior – shares of GWW, WSO, WCC also active); PH was downgraded to market perform at Wells Fargo and cut tgt to $175 as future potential appears to be increasingly complicated; CIR’s board unanimously decided to reject the latest buyout bid by CR saying it “substantially undervalues the company” (had recently upped price to $48 from $45

·     Truckers; group active following ratings changes at Credit Suisse, as the firm downgraded JBHT (ahead of earnings on Monday), ODFL and SNDR to neutral and WERN to underperform saying with a weakening demand backdrop, contract TL rates that are turning negative, and anecdotal evidence that suggests capacity remains relatively loose, they see fairly meaningful risk to 2H19 and 2020 EPS for the asset based truckers and cut estimates

·     Asset managers out with monthly AUM data: 1) LM prelim assets under management (AUM) of $780B as of June 30, 2019 included long-term net inflows of $0.5B; 2) WDR preliminary AUM of $71.9B at June 30, 2019 rose 4.7% from $68.6B at May 31, 2019/market gains of $3.8B more than offset net outflows of $612M; 3) LAZ prelim AUM as of June 30, 2019 totaled approximately $237.5B, included market appreciation of $9.0B; 4) APAM AUM as of June 30, 2019 totaled $113.8B; 5); TROW AUM for June was $1.13 trillion, up 8.7% YoY; 6) IVZ AUM of $1,197.8B was an increase of 3.3%; driven by favorable market returns, foreign exchange, non-management fee earning AUM inflows, and reinvested distributions

·     Retailers; retailers DDS and ANF were both upgraded to neutral at Wedbush saying promotional levels stabilize, according to Search Trends & our Promo Tracker, and valuation strikes us as reasonable; GME announces that it expects to accept 12M shares for payment at a purchase price of $5.20 in its modified Dutch auction; VOXX Q1 sales drop 7.3% to $93.5M due to falling automotive car sales and timing of various programs and loss widens to (5c); AEO announced a 30M share buyback plan and said to sell CBD-infused products in stores/online; COST new all-time highs as June US comp sales rose 5.4% vs. est. 5.3%; PSMT shares slumped after Q3 revenue miss; SKX was upgraded to positive at OTR Global; ZBRA shares fell after Northcoast said they think 2Q19 sales could be in-line to slightly lower than expectations as ZBRA’s run rate business appeared to soften during the quarter

 

Stock GAINERS

·     AIR +11%; after earnings; Q4 adjusted EPS 64c/$563M vs. est. 62c/$529.13M; sees 2020 sales $2.1B-$2.2B vs. est. $2.13B

·     ANF +1%; DDS and ANF were both upgraded to neutral at Wedbush saying promotional levels stabilize, according to Search Trends & our Promo Tracker, and valuation reasonable

·     DAL +1%; first with earnings in the airline sector as Q2 results in-line while boosted its dividend and guided Q3 above views ($2.10-$2.40 vs. est. $2.18)

·     FCX +1%; Deutsche Bank said copper and gold are preferred commodities in the short-term and iron ore is expected to stay higher-for-longer as they upgraded FCX to buy (cut AA to hold)

·     CI +12%, CVS +5%; among top winners in healthcare space after the White House dropped its plan to curb billions of dollars in annual rebates that drugmakers give middlemen in Medicare

·     WW +6%; was upgraded to neutral from underweight at JPMorgan and up tgt to $22 after seeing stabilizing subscriber trends at the company

 

Stock LAGGARDS

·     BBBY -8%; after mixed Q1 results (EPS beat/sales miss) and weaker comp sales of (-6.6%) vs. est. (-5.6%) and guided FY net sales, EPS at low end of ranges

·     CIR -9%; as its board unanimously decided to reject the latest buyout bid by CR saying it “substantially undervalues the company” (had recently upped price to $48 from $45)

·     FAST -4%; after Q2 results miss estimates as Q2 EPS/revs just fall short of consensus while said saw slowing in Q2 relative to activity levels in Q1

·     GRUB -3%; NY Post reports the NY State Liquor Authority is developing new rules that will significantly curb the stiff fees that can be charged by food-ordering companies like Grubhub, Uber Eats, DoorDash and Postmates, https://nyp.st/2G7ZLil

·     LLY -4%; as large cap Pharma and Biotech shares slide

·     ODFL -1%; downgraded alongside truckers SNDR, JBHT and WERN at Credit Suisse as see fairly meaningful risk to 2H19 and 2020 EPS for the asset based truckers and cut estimates

·     OMCL -5%; shares fell after GlassHouse Research publishes report with $35.50 tgt (59% downside target)

·     VSH -5% after cuts Q2 revenue view to $682M-$688M from $700M-$740M (below est. $715.2M) and cuts Q2 gross margin view to 25.2%-25.8% from 26%-27% citing the result of weaker than expected demand mainly from distribution (AVT, APH also moved in reaction)

·     ZBRA -7%; after Northcoast said they think 2Q19 sales could be in-line to slightly lower than expectations as ZBRA’s run rate business appeared to soften during the quarter.

 

Syndicate

·     AquaVenture (WAAS) 4.1M share Secondary priced at $16.88

·     Eyenovia (EYEN) 4.39M share secondary priced at $2.78

·     Inuvo (INUV) 13.75M share Spot Secondary priced at 30c

·     Sunesis (SNSS) 33.3M share Spot Secondary priced at 60c

_________________________________________________________________

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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