Mid-Morning Look: October 02, 2019

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Mid-Morning Look

Wednesday, October 02, 2019






DJ Industrials




S&P 500








Russell 2000






U.S. equities in meltdown mode for a second straight session with major averages trading below some key technical levels, as the S&P cash (SPX) fell below its 100-day MA of 2,925 (dropped below 2,900, while the 200-day MA is lower at 2,835). The culprit for the 2-day downdraft remains renewed slowing global growth fears after a round of softer manufacturing data points in the U.S., UK, and EuroZone the last few days. Overnight, the UK IHS Markit construction purchasing managers index fell to 43.3 in September from 45 in August—the second-worst reading in more than a decade. That followed a decade low reading for U.S. ISM manufacturing data yesterday which started the market pullback. Also in Europe, Germany’s leading economics research institutes (DIW, Ifo, IWH and RWI) jointly lowered their economic forecasts, now seeing 0.5% growth in Europe’s leading economy instead of a previous forecast for 0.8% growth and also cut their view for growth next year to 1.1% from 1.8%. Despite the sharp pullback in global stocks for a second straight day on weaker economic data (recession fears – slowing global growth) which is weighing on sentiment, note that the S&P closed up last quarter with a 21% YTD gain, its best 9-month rally to start a year since 1997. So add political fears in Washington, Brexit fears in the UK, China trade wars and collapsing oil prices and Treasury yields and we get stocks at their lowest levels in over a month, breaking below some key technical levels. The handful of earnings/guidance results reported this morning sinking several stocks (AYI, SFIX, and UNFI) though homebuilders get a solid report from builder LEN. Dow Transports sink below the 10,000 level, led by weakness in airlines (after DAL guidance) and FDX which touched a 52-week low.


Treasuries, Currencies and Commodities

·     In currency markets, the dollar index pulls back from overnight highs (99.41) back to the break-even level (around 99.13), as the British Pound remains volatile ahead of Brexit fears, while the yen is little changed and the euro up slightly; the Colombian peso fell to record low against the US dollar (3.50). Commodity prices trying to rebound, but oil prices soft to start on mixed inventory data while gold prices add to yesterday’s gains on macro concerns. Treasury market’s surprisingly only little changed, with yields only down modestly considering the broader stock pullback.


Economic Data

·     Monthly private payroll ADP data showed U.S. firms added 135K Jobs in September, mostly in-line with the 140K est. while August was downwardly revised by -38K to 157K. Small firms added 30k jobs in Sept, medium firms added 39k jobs and large firms over 500 employees added 67k







WTI Crude















10-Year Note





Sector Movers Today

·     Brokers; after massive declines in shares of ETFC, AMTD and SCHW yesterday after Schwab eliminated commissions for stocks, ETFs and options listed on U.S. or Canadian exchanges – AMTD followed suit last night as they too will eliminate commissions for its online exchange-listed stock, ETF, and option trades, moving from $6.95 to $0, effective Thursday Oct. 3, 2019 (firm also noted they expect this decision to have a revenue impact of approximately $220M-$240M per quarter, or approximately 15%-16% of net revenues) – analysts negative on the news with Barclay’s downgrading all three brokers to underweight on the commission declines

·     Transports; The Dow Transport Index falls below the 10,000 level for the first time in over a month, led by declining airlines after DAL results and rising fears of slowing global growth; DAL monthly metrics out saying Sept capacity rose 4.7%, traffic up 6.8% and load factor 85.3%/said prelim CASM-ex up about 2.5% vs. prior guide of 1%-2%; FDX fresh 52-week lows as breaks below the $140 level along with broader mkt weakness

·     Chemicals; RPM shares dip on mixed Q1 results as EPS beat (95c vs. 91c) but sales fell short of consensus ($1.47B vs. $1.49B), while guides Q2 sales to the low end of 2.5%-4% view; MEOH was upgraded at RBC saying the bearish investor sentiment on the stock is nearing a bottom, and the shares offer good upside; OLN and WLK cautious mention at Nomura saying caustic soda domestic contract index declined $10/ton m/m in Sept., vs. their est flat to down $5/ton

·     Auto sector; slowing global growth fears take a bite out of this industry as well, despite some better monthly auto sales today; FCAU said U.S. auto sales fell -0.1% vs. est. -1.6%; Ford (F) was mixed as shares dropped, reports total Q3 U.S. sales down 4.9%, with truck sales up 8.8%, Q3 SUV sales fell 10.5%, and car sales fell 29.5% YoY; GM said Q3 total deliveries rose 6.3% vs. est. 7.1% as end of Sept inventory was 759,633 units

·     Retailers; SFIX shares rolled following Q4 results, which were generally better on EPS but Q1/FY20 guidance was meaningfully below the Street on a like-for-like basis (guides Q1 revenue $438M-$442M (vs. est. $451.2M) and sees Q1 adjusted Ebitda loss ($6M-$9M); retailers led declines in the S&P 500 early (CPRI, KSS, M, BBY, LB); WMT said it is suspending the sale of all over the counter ranitidine products in stores, clubs and online, including Zantac, Equate and Member’s Mark brands; CAL set new financial targets which include low single-digit CAGR revenue growth through 2022, double-digit EPS growth through 2022 and return on invested capital of greater than 15% through 2022; WW extends declines after news yesterday that NVO partners with Noom around digital health solutions



·     AIMT +6%; Piper positive saying recent survey of 45 allergists, capturing over 21,000 peanut allergy patients, indicates massive upside to the estimates for Aimmune Therapeutics’ Palforzia

·     AXSM ; looking to snap 4-day losing streak (that saw shares fall over 37% during that stretch), after saying it is on track for NDA filings of AXS-05, AXS-07 targeted in the 2H of 2020

·     JNJ +2%; rose after agreeing to pay $20.4 million, including damages and legal costs, to Cuyahoga and Summit counties in Ohio, but admitted no culpability in opioid crisis

·     LEN +1%; a bright spot after Q3 EPS of $1.59 beat estimate of $1.32 as deliveries rose 7% to 13,522 homes and new orders increased 9% to 13,369 homes during the quarter

·     NEM +1%; as gold prices extend yesterday declines in weaker dollar



·     ATVI -4%; downgraded to underperform at Bernstein saying the market was paying too much for the hope surrounding a mobile version of Call of Duty and World of Warcraft Classic

·     AYI -10%; after Q4 top/bottom line miss and softer outlook as said expect market demand for lighting products to remain sluggish until there is more clarity regarding these global trade issues

·     GO -8%; after the co launches first stock offering since its Jun IPO; said certain shareholders, including private equity sponsor Hellman & Friedman, offering 13M shares

·     MNST -4%; downgraded to neutral at Guggenheim and cut tgt to $60 from $74 given view that the stock will be range bound for at least the next 6 to 9 months

·     LNTH -20%; agrees to acquire PGNX in an all-stock deal, (based on Tuesday’s stock closing price of $24.03 for Lantheus and $4.95 for Progenics, the deal would value Progenics shares at $6.01)

·     SFIX -9%; following Q4 results, which were generally better on EPS but Q1/FY20 guidance was meaningfully below the Street on a like-for-like basis (guides Q1 revenue $438M-$442M (vs. est. $451.2M) and sees Q1 adjusted Ebitda loss ($6M-$9M)

·     UNFI -26%; after Q4 profit, and its forecast disappoint driven by lower gross margins (Q4 gross margin 12.83% vs. 14.5% a year ago) due to a more competitive landscape and guided year EPS $1.22-$1.76 vs. est. $1.67 on weaker sales

·     WW -6%; extends declines after news yesterday that NVO partners with Noom around digital health solutions


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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