Mid-Morning Look: September 30, 2019

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Mid-Morning Look

Monday, September 30, 2019

Index

Up/Down

%

Last

 

DJ Industrials

85.39

0.32%

26,905

S&P 500

10.93

0.37%

2,972

Nasdaq

33.16

0.42%

7,972

Russell 2000

2.94

0.20%

1,523

 

 

U.S. equities with a nice rebound to start the week, as strong gains in tech and defensive sectors (utilities) help propel stocks higher as investors dismiss last Friday’s reports that the Trump administration was considering delisting Chinese companies (refuted by White House trade adviser Peter Navarro this morning on CNBC calling the reports “fake news”). Asked in particular about a Bloomberg report on the matter, Navarro said told CNBC, “Over half of it was highly inaccurate or flat out false.” Lower oil prices continue to hamper energy related stocks while other sectors are mostly higher, and Treasury prices rise (sending yields off earlier highs) on weaker manufacturing data. A handful of pharma, biotech stocks active given results from the European Society for Medical Oncology (ESMO) Congress in Barcelona, Spain this weekend (GTHX, SGEN, CALA, IMMU, MRTX, and AMGN). Major averages are looking to rebound for September (final trading day of the month) after plunging in August as macro factors still leading markets (China trade, Ukraine/Biden story, political drama in the UK and Washington, ongoing Hong Kong protests and oil retreat/Iran).

 

Treasuries, Currencies and Commodities

·     In currency markets, the U.S. dollar index (DXY) touched a fresh 2019 high (99.45)– and its best levels since May 2017 – gaining against most currencies (euro falls to lows below 1.09, while the greenback up at 108 vs. the yen). Commodity prices mixed as gold prices are lower by roughly over 1% to $1,491 an ounce early as stocks rally, while oil prices extend recent declines. Palladium prices trade to fresh record highs. Treasury market’s rally on weaker US economic data, sending yields off their highs (10-year around 1.68%).

 

Economic Data

·     Chicago PMI for Sept reported at 47.1 (contraction) vs. est. 50.0 (prior month was 50.4); and new orders contracted as well, while Employment fell at a slower pace, signaling contraction and inventories fell at a faster pace, signaling contraction; Production fell at a faster pace, signaling contraction and order backlogs reversed direction showing a decline

 

 

Macro

Up/Down

Last

 

WTI Crude

-0.48

55.43

Brent

-0.80

61.11

Gold

-15.20

1,491.20

EUR/USD

-0.0028

1.0912

JPY/USD

0.09

108.00

10-Year Note

0.01

1.69%

 

 

Sector Movers Today

·     Industrial & Machinery; EMR was upgraded to outperform at RBC Capital as sum-of-the- parts implies attractive +16% upside, relative P/E is at the bottom of its historical range, and have bias to add some quality cyclical exposure paired with ongoing 75% defensive sector weighting; ROK was downgraded to Market Perform at Wells Fargo

·     Healthcare services and providers; managed care stocks active after BMO Capital upgraded CI to outperform (on valuation) but downgraded UNH and HUM to market perform related to uncertainty regarding November 2020 election outcomes saying the two are more heavily tied to Medicare Advantage, and while he sees continued bipartisan support for the program regardless of who wins the election

·     Casino & Leisure movers; in towables, THO Q4 sales rose 23.3% to $2.31B as the inclusion of the European RV segment was partially offset by a 17.6% drop in North American Towable RV sales and an 8.1% decrease in North American Motorized RV sales/gross margin improved 140 bps; HOG active as KeyBanc said while they expected an August deceleration given tough compares, the rate came in slightly better than our forecast, and July was revised slightly higher following the inclusion of France

·     Paper & Materials; KeyBanc noted Fastmarkets RISI’s Pulp & Paper Week reported over the weekend that U.S. uncoated freesheet prices declined another $10/ton (1%) in September, with the firm saying the N.A. coated freesheet market is in even worse shape, with demand “extremely weak”. And U.S. pulp prices fell another $35-$40/tonne in September, continuing their steep declines over the past year (IP, PKG, UFS, GPK)

 

Stock GAINERS

·     BBBY +7%; upgraded to outperform at Wedbush with $16 tgt as see a good chance of stabilization—if not growth—in earnings over the next two years as sweeping changes take hold

·     DOVA +37%; to be acquired by Swedish Orphan Biovitrum AB for a deal worth as much as $915M, agreeing to pay $27.50 per share in cash, along with a conditional payment worth a further $1.50 a share upon regulatory approval of a Dova drug in the pipeline. https://yhoo.it/2mljmFa

·     NWL +6%; upgraded to buy at SunTrust as believe the business trends have bottomed out, the turnaround efforts are gaining traction, and the stock’s valuation is too cheap (raise tgt to $25)

·     THO +16%; Q4 sales rose 23.3% to $2.31B as the inclusion of the European RV segment was partially offset by a 17.6% drop in North American Towable RV sales and an 8.1% decrease in North American Motorized RV sales/gross margin improved 140 bps

 

Stock LAGGARDS

·     CALM -11%; larger than expected Q1 EPS loss of (94c) vs. est. (85c) on weaker sales of $241.2M as 1Q dozen eggs sold 254.4M up 1.7% YoY while Q1 net average selling price/dozen 91.5c, -30% YoY

·     GTHX -20%; declines following data presented at ESMO conference this weekend

·     NOV -2%; weakness again in energy related stocks on weaker oil prices (shares of BHGE, HP, OXY, EOG, DVN among top energy decliners in the S&P 500)

·     NTAP -2%; after Morgan Stanley said early channel checks suggest broad demand for storage was weaker Q/Q and caution in IT budgets was slightly higher

 

Highlights from European Society for Medical Oncology (ESMO) Congress:

·     AMGN’s Experimental drug (AMG510 daily) that targets a specific genetic mutation shrank tumors in just one of 12 patients with advanced colorectal cancer who were given the highest dose in a small, early-stage trial, the company said on Saturday. Shares of MRTX fall in sympathy after the AMGN data (Mirati makes a similar molecule to AMG510, known as MRTX849)

·     CALA presented new data from the investigational oral arginase inhibitor INCB001158 as a monotherapy and in combination with the checkpoint inhibitor pembrolizumab in microsatellite stable colorectal carcinoma patients

·     GTHX during the ESMO 2019 conference, presented a first look at G1T48 (oral SERD), which is in development for the treatment of ER+ advanced breast cancer patients

·     IMMU presented interim data from the 100-patient cohort of cisplatin-eligible patients of the company’s TROPHY-U-01 open-label Phase 2 study

·     SGEN presented impressive initial data from both enfortumab vedotin (EV) and tucatinib (Goldman said impressive initial data from enfortumab vedotin (EV) reinforces confidence that EV will be the first-to-market in metastatic urothelial cancer w/potentially best-in-class profile

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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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