Mid-Morning Look: September 26, 2019

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Mid-Morning Look

Thursday, September 26, 2019

Index

Up/Down

%

Last

 

DJ Industrials

-35.32

0.13%

26,935

S&P 500

-7.75

0.26%

2,977

Nasdaq

-41.07

0.51%

8,036

Russell 2000

-11.30

0.73%

1,539

 

 

U.S. equities fell, paring some of yesterday’s strong market gains, after officials released a whistle-blower complaint at the center of Donald Trump’s impeachment drama. The complaint alleges President Trump used his office to solicit Ukraine’s interference in the 2020 election to advance his personal political interests, risking U.S. national security. The acting director of National Intelligence, Joseph Maguire, is currently testifying before the House Intelligence Committee. Stock markets also got an in-line reading for Q2 GDP (second reading), though inflation data points showed an increase (PCE rises), while energy prices open lower again, adding to recent declines. The news out of Washington is drowning out all other stories the last two days including trade with China (high level talks begin in a few weeks), Brexit issues (lots of news surrounding UK PM Johnson) while the Fed remains quiet after cutting rates (as expected) last week.

 

Treasuries, Currencies and Commodities

·     In currency markets, the dollar pulls back after rising vs. nearly every major currency rival yesterday on solid economic data (GDP today also was strong), but political drama in Washington adds some near-term uncertainty. Commodity prices mixed as gold trading up slightly (after falling over 1.8% yesterday), while oil extends declines. Treasury market’s rise given the pullback in U.S. markets, with yields slipping following yesterday’s advance (10-yr down 4 bps to 1.69%).

 

Economic Data

·     Gross Domestic Product (GDP), Q2-T (2nd reading) was reported in-line at 2.0% with Personal Consumption for Q2 rising 4.6% vs. the est. 4.7%, while inflation data points showed GDP Price Index, Q2-T was in-line at 2.4% and Core PCE QoQ, for Q2 higher at 1.9% vs. est. 1.7%

·     Weekly Jobless Claims rose 3K to 213K vs. est. 212K and vs. upwardly revised figure of 210K from 208K; Continuing claims fell 15k to 1.650m in the week ending Sept. 14 and the 4-week moving average stood at 212K

·     Advanced Goods Trade Deficit for August widened to (-$72.8B) from (-$72.5B) the prior month, the Commerce Department said and compared to the estimate of (-$73.4B) as imports rose 0.3% in Aug. to $210.614B while exports rose 0.1% in Aug. to $137.787B

·     Pending Home Sales for August rose .1.6% MoM vs. est increase of 1% MoM

 

 

Macro

Up/Down

Last

 

WTI Crude

-0.55

55.94

Brent

-0.55

61.84

Gold

2.90

1,515.20

EUR/USD

0.0017

1.096

JPY/USD

-0.25

107.52

10-Year Note

-0.036

1.70%

 

 

Sector Movers Today

·     Consumer Staples; BYND shares jumped after MCD said it will trial a plant-based burger starting Sept. 30, as McDonald’s will sell what it will called the P.L.T. (Plant. Lettuce. Tomato) in 28 restaurants in Southwestern Ontario for 12-weeks; SAM was upgraded to outperform and tgt raised to $410 at BMO Capital saying it is one of the rare staples growth investments that doesn’t require a sizable multiple expansion to work; KDP will replace KHC as a provider of MCD McCafe packaged coffee packs in the U.S. under a long-term master licensing and distribution agreement; in earnings, packaged food maker CAG Q1 profit topped estimates (though sales missed $2.39B vs. $2.48B est.), boosted by its purchase of Pinnacle Foods, strong demand for its frozen food brands, while organic net sales in the segment gain 1.5% in Q1 and backs year

·     Housing & Building Products; homebuilder KBH reported a Q3 EPS beat and better net orders (rose 24% vs. est. 13% with net order value increasing 25% to $1.28B) while mgmt raised prices in over 90% of communities during the quarter; JPMorgan downgraded BECN to underweight saying a challenged set of price/cost and mix trends and its valuation was expensive, while upgraded WHR to overweight with $172 tgt citing valuation, stable expectations from industry shipments through 2019 and 2020 and improving probability in Europe; PIR shares plunged as Q2 comp sales fell -12.6% vs. -11.4% YoY with gross margin down at 16.7% vs. 26.3% YoY/Q2 adjusted Ebitda loss $80.9M and Q2 net sales $304.6M

·     Healthcare services and providers; Bank America with several rating changes today as they upgraded HOLX to buy and raised price target to $59 as sees the company being on steadier footing with organic growth upside in FY20, while downgraded MYGN to sell citing lingering uncertainty for GeneSight after Aug. 14 disclosure of an FDA review; BRKR was upgraded by the firm to buy on greater confidence in the company’s new product portfolio and margin expansion opportunity” while also upgraded PKI and PNSL to buy

·     Services; Education stocks were defended at BMO Capital saying midday on Wednesday, the US Department of Education (ED) publicly released data on cohort default rates (CDRs), a key indicator of regulatory compliance for higher education institutions. As a group, CDRs declined for all postsecondary institutions, specifically for the for-profit sector to near all-time lows – said the lowest CDR among coverage were at schools operated/serviced by ATGE, LOPE, STRA, LAUR

 

Stock GAINERS

·     BYND +10%; after MCD said it will trial a plant-based burger starting Sept. 30, as McDonald’s will sell what it will called the P.L.T. (Plant. Lettuce. Tomato) in 28 restaurants in Southwestern Ontario for 12-weeks

·     CAG +2%; on mixed results; Q1 profit topped estimates (though sales missed $2.39B vs. $2.48B est.), boosted by its purchase of Pinnacle Foods, strong demand for its frozen food brands, while organic net sales in the segment gain 1.5% in Q1 and backs year outlook

·     MRNS +24%; after saying its seizure drug, ganaxolone, meets main goal of mid-stage study as all patients who received the target dose, regardless of underlying cause of status

·     SMTC +5%; after Piper noted AMZN announced the launch of its Sidewalk network, which they believe is based on LoRa technology

·     SQ +4%; upgraded to outperform at Wells Fargo saying fundamentals of SQ are strong, and though gross payment volume (GPV) growth moderated more than expected in Q2, it was still stronger than peers

·     WHR +2%; upgraded to overweight at JPM with $172 tgt citing valuation, stable expectations from industry shipments through 2019 and 2020 and improving probability in Europe

 

Stock LAGGARDS

·     ATU -12%; as reported mixed Q4 (EPS beat/sales miss) while guides Q1 lower with EPS 8c-12c on sales $135M-$144M well below the 20c/$195.5M estimates while says continue taking strategic actions to exit low margin product lines

·     CCL -9%; Q3 results topped views but guided Q4 below views and cut its FY19 adjusted EPS view to $4.23-$4.27 from $4.25-$4.35 (est. $4.33) – weighed on shares of RCL, NCLH

·     ENTA -17%; as the company’s fatty liver disease drug met its main goal of reducing levels of elevated liver enzymes in mid-stage study, but tolerability leaves investors unimpressed, prompting a downgrade to underweight at JPMorgan

·     FB -1%; shares pressured early on reports the U.S. Justice Department will open an antitrust investigation against the company, as reported by Reuters

·     FDS -8%; as guides full-year adj EPS of $9.85-$10.15, below the $10.52 estimate and expects full-year revs of $1.49B-$1.5B below the $1.51B estimate

·     FUL -4%; after lowering guidance and weaker Q3 results (EPS 86c/$725M vs. est. 90c/$749.3M), while lowers FY EPS to $2.95-$3.05, down from prior view $3.10-$3.30

·     PIR -8%; plunged as Q2 comp sales fell -12.6% vs. -11.4% YoY with gross margin down at 16.7% vs. 26.3% YoY/Q2 adjusted Ebitda loss $80.9M and Q2 net sales $304.6M

·     PSO -15%; warned weak sales to US universities and students would weigh on profits this year, sending shares in the educational publisher lower/now expects revenue in its U.S. higher education courseware division to fall as much as 12% in 2019 vs original forecast of a 5% drop

·     SCHN -12%; in the steel sector after guiding Q4 EPS 38c-43c, below the 55c estimate saying markets for recycled metals weakened in 4Q

 

SYNDICATE

·     BioXcel Therapeutics (BTAI) 2.3M share Spot Secondary priced at $8.25

·     Forestar Group (FOR) 5.25M share Secondary priced at $17.50

·     Oportun Financial (OPRT) 6.25M share IPO priced at $15.00

·     Palomar (PLMR) 5.25M share Secondary priced at $36.50

·     Peloton (PTON) 40M share IPO priced at $29.00

·     Plymouth Industrial REIT (PLYM) 3M share Spot Secondary priced at $18.00

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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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