Mid-Morning Look: October 03, 2019

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Mid-Morning Look

Thursday, October 03, 2019

Index

Up/Down

%

Last

 

DJ Industrials

-97.44

0.37%

25,981

S&P 500

-6.28

0.22%

2,881

Nasdaq

-17.41

0.22%

7,767

Russell 2000

-13.57

0.92%

1,466

 

 

U.S. equities erase overnight gains, falling on the open and extending losses as fears about the U.S. economy slowing intensified following a weak services report. The softer ISM data added to a week of disappointing results already as manufacturing and private payroll results the last two sessions sunk stock markets (and comes ahead of the monthly jobs report tomorrow). Treasury prices rise for a sixth day as yields plunge further and the S&P 500 is on track for a third day of declines after suffering the biggest two-day drop since August and worst start to Q4 sin over a decade. The dollar drops for a 3rd straight day (from 2019 highs) while gold surges during that stretch, but oil prices remain depressed. European markets add to yesterday losses as data from the euro area this weak raises growth fears as well. The tech heavy Nasdaq falls to 7,700 as breaks below its 200-day MA support of 7,712 – last time below the 200-day was early June but has since surged well off its lows along with broader averages.

 

Treasuries, Currencies and Commodities

·     In currency markets, after setting 2019 highs just a few days ago, the U.S. dollar index falls for a 3rd straight session following another weak economic data point as the ISM Services index fell to a 3-year low; the dollar falls the 3-week lows against the safe-haven Japanese yen

·     Commodity prices mixed as oil extends declines on slowing economic growth fears, trade impact on demand between the U.S. and China, and reports this week that Saudi Arabia fully restored its production after its facilities were disrupted – all continue to weigh on prices.

·     Gold prices rebounded following another weak economic data point in the U.S., as the service index (ISM) gauge falls to a three-year low

·     Treasury market’s rally for a sixth day after key data confirmed concerns that the world’s largest economy may be struggling; the 10-year yield sinks to 1.52%, down about 8 bps as prices rise and stocks fall

 

Economic Data

·     Weekly jobless claims rose 4K to 219K, above the 215K estimate (prior week revised to 215K from 213K), while the 4-week moving average stood at 212.5K; Continuing claims fell 5K to 1.651M in the week ending Sept. 21

·     U.S. Markit services index edged up to 50.9 in the final September reading (50.9 flash) from 50.7 in August. It was at 53.5 a year ago. The employment index, however, dropped to 48.6 from 50.4 previously and is the lowest since December 2009.

·     Factory Orders for August falls (-0.1%) vs. est. (-0.2%); New orders ex-trans unchanged in Aug. after rising 0.2% the prior month; and new orders ex-defense for Aug. fall 0.5% after rising 1.0% in July; Capital goods non-defense ex aircraft new orders for Aug. fall 0.4% after no change in July

·     Durables orders for August rises 0.2% after rising 2.1% in July; up three consecutive months. Consumer goods shipments for Aug. fall 0.7% after rising 1% in July

·     ISM Non-Manufacturing Index for September dips to 52.6 from 56.4 prior month and below the est. 55.1 as services index misses estimates; New orders fell to 53.7 vs 60.3 last month while employment fell to 50.4 vs 53.1 last month (lowest since Feb. 2014)

 

 

Macro

Up/Down

Last

 

WTI Crude

-1.30

51.34

Brent

-1.10

56.59

Gold

12.40

1,520.30

EUR/USD

0.0027

1.0986

JPY/USD

-0.50

106.68

10-Year Note

-0.078

1.52%

 

 

Sector Movers Today

·     Transports; recession fears weighing on transportation stocks for a third straight day; Citigroup lowered estimates for rails (UNP, CSX, NSC, KSU) saying 3Q volumes have fallen well below their expectations/September carloads were particularly weak and raise the likelihood for 3Q misses and support a more cautious starting point for 2020 revenues; DAL was downgraded at Buckingham saying with or without a recession, shares are likely to re-rate lower for longer on 4Q cost pressures annualizing into 2020

·     Chemicals; BMO Capital lowered estimates for potash and phosphate stocks due to weaker price and lower volume in second half of this year, but raised estimates for nitrogen exposed stocks, as the fertilizer remains remarkably stable – says continues to prefer CF and Yara among the fertilizer peers; FMC and CTVA preferred among Ag-chem companies/says MEOH likely to be only clear 3Q, while fert weakness to be more evident during 4Q results for MOS, NTR and K

·     Industrial & Machinery; heavy duty truckers active (CMI, PCAR, NAV) on the Class 8 orders after Baird says Sept Class 8 orders fall 71% Y/Y – note Well Fargo estimated monthly Class 8 truck data expected to show between 10K-13K in orders, the Midpoint 11,500 implies 73% drop yr/yr but up about 3% from August’s 11,119

·     Consumer Staples; PEP Q3 EPS and sales topped consensus and reports organic revenue growth of 4.3% in Q3 while foreign exchange impact on revenue was -1% with core gross margin rate improved 90 bps to 55.4% and reaffirmed year outlook; STZ reports beer sales of $1.64B in Q2 on 5.3% shipments growth and wine/spirits sales of $704M on a shipments drop of 10% as EPS beat and sales were in-line and raises full-year EPS of $9.00-$9.20 from $8.65-$8.95/expects Wine and Spirits FY20 net sales to decline 15%-20%

 

Stock GAINERS

·     ATVI +3%; rebounds after recent decline as analyst got cautious – Bernstein downgraded to underperform yesterday with $43 tgt saying the ATVI Bull case has been “hope”

·     CLF +4%; on news it would be added replace Mercury Systems in the S&P SmallCap 600 effective prior to the open of trading on Tuesday, October 8

·     GO +4%; as reports better than expected prelim Q3 revs of $652.5M

·     MKTX +4%; posted strong 3Q19 trading volumes as each of the company’s major product categories were meaningfully higher vs. the year ago period said Raymond James

·     NEM +1%; was upgraded to buy and $45 tgt at Deutsche Bank citing reduced headwinds, along with a big bounce in gold prices today

·     PBYI %; after the FDA approved a labeling supplement for NERLYNX to the extended adjuvant treatment of HER2-positive early stage breast cancer

·     PEP +2%; Q3 EPS and sales topped est and reports organic revenue growth of 4.3% in Q3 while core gross margin rate improved 90 bps to 55.4% and affirmed year outlook

 

Stock LAGGARDS

·     ANET -5%; shares fall for a 5th consecutive session after being downgraded to neutral from buy at Nomura and cut tgt to $230 from $290

·     ANGO -14%; shares fell after mixed Q1 results as EPS beat and revenue missed while cut its FY20 adjusted EPS view to 10c-15c, from 25c-30c while backs FY20 revenue view $280M-$286M

·     AXTI -13%; lowered its Q3 revenue view to $19.6M-$20.0M from $24.5M-$26.0M and below consensus of $25.4M citing a weaker than expected demand environment

·     DAL -4%; downgraded at Buckingham saying with or without a recession, shares are likely to re-rate lower for longer on 4Q cost pressures annualizing into 2020 – recession fears weighing on transportation stocks for a second straight day

·     GPRO -16%; cuts FY19 EPS view to 30c-35c from 35c-45c, lowers FY19 revs to $1.215B-$1.25B from $1.25B-$1.28B/said HERO8 Black shipments will shift from Q3 to Q4 due to production delay

·     MOS -3%; BMO Capital lowered estimates for potash and phosphate stocks due to weaker price and lower volume in second half of this year, but raised estimates for nitrogen exposed stocks

·     RECN -17%; shares plunged after Q1 revenue fell -3.5% YoY and missed estimates and Ebitda fell -10% YoY as well

·     SCHW -4%; as follow through weakness in online brokers continues after moves by SCHW, ATMD and ETFC announcing zero commission trades online – also weighing on some asset managers

·     TSLA -5%; after 3Q production and deliveries come in lighter than expected with Q3 deliveries reported at 97k (expectations pointed to 99k) – and now Q4 guidance being questioned

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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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