Morning Preview: October 03, 2019

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Early Look

Thursday, October 3, 2019

Futures

Up/Down

%

Last

DJ Industrials

74.00

0.28%

26,058

S&P 500

9.50

0.32%

2,889

Nasdaq

30.50

0.40%

7,576

 

 

U.S. stocks are bouncing after two days of intense selling pressure, as markets brace for several Fed speakers today as well as economic data which includes Markit services PMI, durable goods orders, jobless claims, while PepsiCo and Costco report earnings. In trade news overnight, the Trump administration plans to impose tariffs on $7.5 billion worth of European imports (from aircraft to foods) beginning Oct. 18 to retaliate against illegal European Union subsidies for aviation giant Airbus. The administration received a green light for its latest import taxes Wednesday from the WTO, which ruled that the United States could impose the tariffs as retaliation for illegal aid that the 28-country EU gave to Airbus in its competition with its Boeing. In Asian markets, The Nikkei Index plunged -436 points to 21,341, the Shanghai Index remained closed and the Hang Seng Index rose 67 points to settle at 26,110. In Europe, the German DAX was closed, while the FTSE 100 is down about -30 points under 7,100.

 

U.S. stocks plunged for a second consecutive session on Wednesday, with investors finding it difficult to find any place to hide, as major averages posted the worst start to a quarter since 2008, as economic data showed slower job creation (in the form of private ADP payrolls) adding to concerns about a weakening manufacturing sector (after a decade low ISM reading on Tuesday) as President’s Trump’s trade policies take their toll. Transports led the declines, along with weakness in auto manufacturers after quarterly sales reports from Ford and General Motors added to concern over profit margins in the industry. All 11 S&P 500 sectors were lower with industries sensitive to economic growth falling the most. News wires noted the last time all 11 sectors fell for two straight days was December 24, 2018. The Dow Industrial Average posted a -3.1% decline the last two days (falling over 800 points), wiping out the 1.2% gain last quarter, but remains up 11.8% for the year.

Market Closing Prices Yesterday

·     The S&P 500 Index dropped -52.64 points, or 1.79%, to 2,887.61

·     The Dow Jones Industrial Average fell -494.42 points, or 1.86%, to 26,078.62

·     The Nasdaq Composite plunged -123.44 points, or 1.56%, to 7,785.25

·     The Russell 2000 Index declined -13.80 points, or 0.92% to 1,479.63

 

Events Calendar for Today

·     2:45 AM EST      Fed’s Evans at Central Banking Conference in Madrid

·     8:30 AM EST      Weekly Jobless Claims…est. 215K

·     8:30 AM EST      Continuing Claims…est. 1.654M

·     9:45 AM EST      Markit US Services PMI, Sept-F…est. 50.9

·     9:45 AM EST      Markit US Composite PMI, Sept-F…prior 51.0

·     10:00 AM EST    Factory Orders for August…est. (-0.2%)

·     10:00 AM EST    Durable Goods Orders, Aug-F

·     10:00 AM EST    ISM Non-Manufacturing Index for September…est. 55.1

·     10:30 AM EST    Weekly EIA Natural Gas Inventory Data

·     12:10 PM EST    Fed’s Mester speaks on inflation

 

Earnings Calendar:

·     Earnings Before the Open: ANGO, PEP, STZ

·     Earnings After the Close: AEHR, ASNA, COST, IDT, SGH

 

Other Key Events:

·     Bernstein Quantitative Finance Conference, 10/2-10/3, in New York

·     Cantor Global Healthcare Conference, 10/2-10/4, in New York

·     Wolfe Research Utilities & Energy Conference, 10/2-10/3, in New York

 

 

Macro

Up/Down

Last

WTI Crude

-0.19

52.45

Brent

-0.22

57.47

Gold

0.01

1,508.00

EUR/USD

-0.0007

1.0952

JPY/USD

-0.08

107.10

10-Year Note

-0.02

1.578%

 

 

World News

·     Chicago Fed President Charles Evans said he was concerned about the inflation outlook. He said he will go into the Federal Open Market Committee meeting ending on Oct. 30 asking whether still more accommodative policy is needed after two straight rate cuts.

·     Months of protests have hit nearly every aspect of the Hong Kong economy, weighing on tourism, consumer spending, stocks and economic growth, as the value of retail sales fell 23% in August from a year ago, the worst monthly decline on record, according to the Hong Kong Census and Statistics Department. Department-store sales dropped 30% from a year ago.

 

Sector News Breakdown

Consumer

·     Tesla (TSLA) shares -4%; said Q3 deliveries 97K, up 1.9% QoQ (slightly below top end of views); said achieved record net orders in Q3 and are entering Q4 with an increase in our order backlog; for Q3, Model 3 deliveries of 79,600 (up 2.6% QoQ), Model s/x deliveries of 17,400 (-1.4% QoQ), Model 3 production of 79,837 (up 10% QoQ) and Model s/x production of 16,318 (up 12% QoQ)

·     Bed Bath & Beyond (BBBY) shares down -5%; Q2 EPS adjusted 34c/$2.72B vs. est. 27c/$2.75B; reports Q2 comp sales fell -6.7% vs. est. down -5.3%; sees FY net sales $11.4B, at the lower end of previous guidance of $11.4B-$11.7B; sees adjusted year EPS $2.08-$2.13

·     PepsiCo (PEP) Q3 adjusted EPS $1.56/$17.19B vs. est. $1.50/$16.93B; said while adverse foreign exchange translation negatively impacted reported net revenue performance, organic revenue growth was 4.3% in the quarter; now expects to meet or exceed its full-year organic revenue growth target of 4% and reaffirmed its FY19 core EPS view $5.50 (est. $5.52)

·     Grocery Outlet Holding (GO) said it sees 3Q preliminary net sales growth of 13.1% to $652.5M, primarily attributable to 30 net new stores opened over the last 12 months and an increase in comparable store sales; sees 3Q comp sales up 5.8% and net income between $8.9M-$9.6M

·     Resources Connection (RECN) Q1 EPS 16c/$172.2M vs. est. 15c/$173M; gross margin percentage of 39.2%, an improvement of 100 bps YoY; SG&A as a percent of revenue up 150 bps from prior year quarter due to $2.3M of one-time expenses

 

Energy, Industrials & Materials

·     Raytheon (RTN) upgraded to Outperform from Neutral at Credit Suisse

·     Holly Energy Partners (HEP) and Plains All American Pipeline (PAA) formed a 50/50 joint venture to develop a new 160,000 barrel per day common carrier crude oil pipeline to connect the Cushing, Oklahoma crude oil hub to the Tulsa, Oklahoma refining complex

·     Mercury Systems (MRCY) will replace Versum Materials (VSM) in the S&P MidCap 400, and Cleveland-Cliffs (CLF) will replace Mercury Systems in the S&P SmallCap 600 effective prior to the open of trading on Tuesday, October 8

 

Financials

·     E*TRADE (ETFC) announced it will eliminate retail commissions for online US listed stock, ETF, and options trades. It will also reduce the options contract charge to $0.65 per contract for all traders while maintaining its active trader pricing at $0.50 per contract. These changes will take effect on October 7, 2019. The company estimates that the revenue impact of the commission changes on Q2 2019 operating results would have been approximately $75M

·     Verisk (VRSK), agreed to acquire BuildFax, a provider of property condition and history data, from its shareholders. BuildFax will become part of ISO, a Verisk business, and will enhance ISO’s existing property data and analytics

·     MKTX MarketAxess Holdings Inc. (MKTX) announced total monthly trading volume for September 2019 of $176.1 billion, consisting of $88.7 billion in U.S. high-grade volume, $83.9 billion in other credit volume, and $3.5 billion in liquid products volume

·     Essential Properties Realty Trust (EPRT) will replace Navigant Consulting (NCI) in the S&P SmallCap 600 effective prior to the open of trading on Friday, October 11

·     Metrocity Bankshares (MCBS) 1.94M share IPO price $13.50

 

Healthcare

·     AngioDynamics (ANGO) Q1 adjusted EPS 8c/$66M vs. est. 4c/$67.52M; cuts FY20 adj. EPS view to 10c-15c, from 25c-30c while backs its FY20 revenue view of $280M-$286M

·     Aprea Therapeutics (APRE) 5.67M share IPO priced at $15.00

·     Frequency Therapeutics (FREQ) 6M share IPO priced at $14.00

·     Viela Bio (VIE) 7.9M share IPO priced at $18.00

·     Puma Biotechnology, Inc. (PBYI) announced that the U.S. FDA has approved a labeling supplement for NERLYNX® neratinib for the extended adjuvant treatment of HER2-positive early stage breast cancer

·     ADC Therapeutics (ADCT) withdraws of U.S. IPO due to adverse market conditions

 

Technology, Media & Telecom

·     GoPro (GPRO) shares fell -16%; lowers 2H19 adjusted EPS view to 33c-39c from 37c-49c and lowers 2H19 revenue view to $680M-$715M, representing 6%-9% annual growth, which is below the company’s previous estimated growth of between 9%-12%; lowers FY19 adjusted EPS view to 30c-35c from 35c-45c, and lowers FY19 revenue view to $1.215B-$1.25B from $1.25B-$1.28B; said HERO8 Black shipments will shift from Q3 to Q4 due to production delay

·     AXT (AXTI) cuts 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, particularly in data center connectivity and LED applications. In addition, raw material revenue was also lower than forecasted.

·     Arista Networks (ANET) downgraded to neutral from buy at Nomura/Instinet and cut tgt to $230 from $290

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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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