Mid-Morning Look: September 20, 2019

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Mid-Morning Look

Friday, September 20, 2019

Index

Up/Down

%

Last

 

DJ Industrials

76.84

0.28%

27,171

S&P 500

7.42

0.25%

3,014

Nasdaq

9.62

0.11%

8,191

Russell 2000

4.71

0.30%

1,566

 

 

U.S. equities edging higher in the early going, looking to end the week on a strong note (on relatively quiet news) ahead of quadruple witching option expiration which takes place today, meaning that trading volume will be elevated. Sentiment got a boost overnight as U.S. and Chinese deputy trade negotiators resumed face-to-face talks for the first time in nearly two months on Thursday, ahead of higher-level talks in October. Stocks have overcome quite a bit just this week alone, as the S&P 500 still within a stone’s throw of record highs reached last in July. Some of this week concerns include markets shrugging off Iran geopolitical concerns (as U.S. confident it was them behind the attack on Saudi oil facilities last weekend) which prompted strong sanctions this morning, the subsequent surge in oil prices on those attacks (hitting transport stocks this week along with a profit warning and earnings miss from FDX), a spike in repo rates (liquidity crunch) that prompted the Fed to issues repo operations the last four sessions to bring rates lower (first repo operations in over a decade), ongoing Brexit impact concerns and weaker economic data out of China this week. The positives helping markets rally include the Fed cutting interest rates on Wednesday but another 25 bps (followed other central bank actions this week though the BOE and BOJ stayed the course), and stronger economic data in the U.S. this week (housing, confidence and manufacturing). All 11 S&P industry sectors started with modest gains early, led by health care as the S&P 500 targets the 3,025 all-time closing high and 3,027 intraday record high. The NY Fed injected tens of billions of dollars into the financial system for the fourth consecutive day, in an intervention that has steadied conditions in the US money market after a jolt higher earlier this week.

 

Treasuries, Currencies and Commodities

·     In currency markets, the U.S. dollar is stronger on the session, amid a decline in the British Pound off near 2-month highs yesterday as Ireland warned a Brexit deal is not close, calming a rally sparked by optimism from EC President Jean-Claude Juncker yesterday. The dollar is little changed vs. the yen and euro this morning, but dollar index up on the week.

·     Commodity prices are modestly higher, with crude getting a bounce (on track for gains of about 7% this week) on new Iran sanctions while gold edges higher. Treasury Secretary Mnuchin said US has now cut off all sources of funds to Iran. Treasury market’s little changed, with the benchmark 10-year note currently yielding 1.77%.

 

 

Macro

Up/Down

Last

 

WTI Crude

0.67

58.80

Brent

0.48

64.88

Gold

2.20

1,508.40

EUR/USD

-0.002

1.1015

JPY/USD

-0.02

108.00

10-Year Note

-0.012

1.771%

 

 

Sector Movers Today

·     Internet; ETSY was upgraded to outperform at RBC Capital and raise tgt to $68 after conducting a deep-dive analysis into Etsy’s key initiatives; BABA will host its annual Investor Day Monday and Tuesday, September 23rd and 24th in Hangzhou, China, followed by its Cloud Conference on the 25th; GRUB was defended at Davidson after the short call announced yesterday by Kynikos’ Jim Chanos at the CNBC delivering Alpha conference; YY was upgraded to buy at UBS saying the market was overly negative on the China-based company’s live-streaming businesses

·     Utilities & Solar; utilities touched a fresh all-time high before fading, with 52-week high reached today for AEP, AEE, ATO, ED, SO, ES, ETR and D today; PCG shares fell as bondholders battling with shareholders for control of the bankrupt utility have teamed up with wildfire victims to present a new $24B reorganization plan/that’s billions of dollars more than PG&E has offered to victims; FE downgraded to Neutral from Buy at Mizuho as believe the stock is fairly valued at these levels, pricing in much of the upside associated with successfully exiting the unregulated business, as well as removing any uncertainty related to rate case activity

·     Machinery; Goldman Sachs upgrade URI to Buy from Neutral and HRI to Buy from Sell as construction equipment supply has likely peaked, rental rates are likely to bottom in coming quarters, and as multiple expansion is likely for the Construction Rental group if OEM production cuts play out (URI tgt up to $165 and HRI to $60); ACM was upgraded to buy from hold with $44 tgt at Argus as expect growing demand for road and water projects to provide the company’s Design & Consulting Service unit a stable source of revenue, even in a slowing economy

·     Indian stocks jumped (INDA ETF rises) after India cuts its effective corporate tax to 25.17%, bringing its rate in line with Asian peers in an effort to attract investment. The new tax rate will be applicable from the current fiscal year which began on April 1

 

Stock GAINERS

·     CRC +19%; filed an 8-k this morning, saying “contrary to recent erroneous reporting, we are not considering restructuring or hiring advisors for this purpose. We regularly meet with investment banks and advisors on ideas to help us achieve our long-term goal of strengthening our balance sheet and reducing the absolute levels of our debt.”

·     MDR +63%; after saying its weighing the sale of its Lummus Technology business after getting approaches that valued the unit at more than $2.5B/also said it continues with efforts to sell the remaining part of its pipe fabrication business and its industrial storage tank business

·     PLAN +2%; after JMP Securities said the company may have won a multimillion dollar per year deal with AMZN w/opportunity to expand the account by multiple times the original contract

·     REGN +2%; European Medicines Agency’s advisory group CHMP has adopted a positive opinion recommending approval for it/and collaboration partner SNY’s Dupixent as add-on therapy

·     SCHL +5%; as Q1 results topped expectations, with revenue of $233M beating consensus of $217M driven by trade publishing sales

·     SCS +7%; Q2 EPS 50c/$998M vs. est. 43c/$980.87M; sees Q3 revs $920M-$945M vs. est. $940.7M

·     URI +3%; after being upgraded to buy along with HRI in the machinery sector at Goldman Sachs

 

Stock LAGGARDS

·     LBTYA -2%; downgraded to sell at Citigroup and cut tgt to $25 from $31 on longer term growth concerns and on lower forecasts/multiples

·     NFLX -3%; as Evercore/ISI said checks highlighted a slowdown in international download activity beginning last month which has continued into September

·     PCG -9%; as bondholders battling with shareholders for control of the bankrupt utility have teamed up with wildfire victims to present a new $24B reorganization plan/that’s billions of dollars more than PG&E has offered to victims

·     ROKU -10%; reiterated sell and $60 tgt at Pivotal as see dramatically more competition emerging that will likely drive the cost of OTT devices to zero and put material pressure on advertising revenue splits highlighted by Comcast’s recent moves with its free Xfinity Flex product

·     XLNX -5%; after announced CFO Lorenzo Flores is stepping down from his position to pursue another executive opportunity (prompted Bank America downgrade citing sudden departure)

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Content is provided by Hammerstone Inc., which has no affiliation with Regal Securities, Inc. (“Regal”) This commentary is provided for information purposes only, and is not a recommendation, offer or solicitation by Regal to buy or sell securities or to adopt any investment strategy. Regal has not participated in the creation of the Hammerstone content and does not directly or indirectly endorse the content. Any reliance on this material is at the sole discretion of the reader.

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