Mid-Morning Look: October 04, 2019

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Mid-Morning Look

Friday, October 04, 2019






DJ Industrials




S&P 500








Russell 2000






U.S. equities adding to yesterday’s rally, getting a boost from a monthly jobs report that showed a miss on topline reading, but underlying parts of the report provided solid signs for the stock market. The report provided decent footing for jobs as unemployment fell to 3.5% (50-year lows), while prior month payroll revisions were to the upside. The wage component was unchanged, below the expected 0.2% increase as it provides the Fed some room for cover to cut rates. Shares of Dow component Apple helping tech after reports of improved demand for its newest iPhone, also helping semiconductor names on reports the company asked its suppliers to increase iPhone production by 10%. With today’s gains, the Dow Industrials rose over 200-points, while the S&P cash (SPX) trades above its 100-day MA of around 2,927 and the Nasdaq erases weekly losses with its gains. Markets overlooking the macro concerns that fail to go away (Brexit, China/US trade talks, Iran sanctions, increased protests break out across Hong Kong after the government banned face masks in demonstrations, slowing global growth after softer economic data this week). Next up for global markets, U.S./China trade talks next week which could show progress on opening Chinese financial services market along with other key items.


Treasuries, Currencies and Commodities

·     In currency markets, the dollar looking to snap its 3-day losing streak (off recent 2019 highs in the week), but the mixed jobs report failing to meaningfully move the dollar vs. other rivals; commodity prices mixed with gold slipping after yesterday’s spike while oil prices pare weekly losses, but still remain under pressure on growth fears, trade concerns. Treasury markets gain, with yields down on the week (10-yr around 1.53% off weekly highs above 1.75% after the neg economic data this week).


Economic Data

·     Nonfarm payroll data mixed; Headline jobs figure were weak as prior month revised up, unemployment rate falls to 3.5%, while hourly wages flat vs. expected rise. The change in Nonfarm Payrolls for Sept 136K vs. est. 145K (prior month revised to 168K from 130K); change in Private Payrolls for Sept 114K vs. est. 130K (prior month revised to 122K from 96K) and change in Manufacturing Payrolls for Sept fell -2K vs. est. 3K; the Unemployment Rate for Sept drops to 3.5% vs. est. 3.7% (50-year lows) and average hourly earnings for Sept unchanged vs. est. 0.2%







WTI Crude















10-Year Note





Sector Movers Today

·     Media & Telecom movers; CHTR was upgraded to Overweight at KeyBanc with $515 tgt as think estimates are very conservative in 2020 given CHTR’s price increase/with industry leading Total revenue growth, EBITDA growth, and strong FCF growth, they recommend owning shares (also positive on cables CMCSA, ATUS, CABO); Citigroup downgraded SATS to neutral citing limitations to potential for multiple expansion given the lack of free cash flow and “limited visibility” on future growth prospects, while recommended buying shares of DISH

·     E&P sector; RRC, CLR downgraded to neutral and WLL to underperform (tgt cut to $5) at Credit Suisse reflecting the impact of firms lower oil and NGL price forecasts, underscoring structural challenges to B/S and FCF generation/notes the E&P sector remains out of favor; XOG announced the start-up of Elevation Midstream’s Badger Central Gathering system and provided 2020 capex guidance for Elevation Midstream of $30M-$40M, which is significantly less than 2019’s capex budget of up to $250M.

·     Semiconductors; shares of Apple Inc. suppliers (SWKS, QRVO, CRUS) rise early after reports in Asia that Apple Inc. to ask suppliers to ramp up production for its iPhone 11 models; AMAT positive move after Citigroup added a “Positive Catalyst Watch” heading into earnings season as he expects the stock to outperform the group on a relative basis; MRVL shares rose after Stifel resumed with a buy and $29 tgt as believe Marvell’s storage segment will continue to provide steady cash flow that can be utilized to fund development of technology for higher growth markets; SGH rebounds from steep overnight losses after Q4 EPS 50c/$278.4M misses the est. 67c/$286M; Q4 adj Ebitda misses as well at $25.2M vs. est. $30.7M

·     REITs; sector strong this year due to plunging interest rates and Treasury yields (helping the high dividend paying sector) but Moody’s noted that vacancies in U.S. shopping malls hit an eight-year high, though some regions are faring better with retail upheaval than others. The data, which tracks 77 metro areas, show 9.4% of units were unoccupied in Q3, equaling a post-financial crisis high reached in 2011 (mall REITs: SPG, SKT, PEI, MAC); CONE was downgraded to market perform at Cowen; EQIX is moving into Mexico, acquiring three data centers for $175M in cash

·     Transports; JPMorgan with a few changes in transportation sector as they downgraded CSX and ECHO to neutral from overweight while upgraded HUBG to overweight; CSX was cut at JPM as expect increasing export coal headwinds and fading demurrage revenue to put downward pressure on earnings; Dow Transports continue to underperform major averages, and still failing to top the 10K level (down over 3% on the week on slowing global growth fears)



·     AAPL +2%; after the Nikkei Asian Review reported overnight that better-than-expected demand for its latest handset has reportedly prompted Apple Inc. to ask suppliers to ramp up production for its iPhone 11 models

·     AVYA +25%; shares surge after announcing a strategic partnership with RNG which will include the launch of Cloud Office by RingCentral, which will contribute $500M to the partnership with Avaya and pay an advance of $375M primarily in stock for future payments and licensing rights

·     HESM +4%; said it is buying Hess Infrastructure Partners — a midstream energy joint venture that has a sizable interest in Hess Midstream’s oil and gas midstream assets — in a deal the companies value at $6.2 billion

·     SNAP +4%; Morgan Stanley upgraded to equal-weight as believe SNAP’s improving ad product/go-to-market is driving faster ad revenue growth and also believe SNAP’s opex discipline is improving

·     SRPT +5%; on positive data from SRP-9003 trial as announced nine-month functional results from three Limb-girdle muscular dystrophy Type 2E (LGMD2E) clinical trial participants who received SRP-9003, an investigational gene therapy intended to transduce skeletal and cardiac muscle

·     XRAY +2%; rises as Goldman Sachs positive noting the company’s announced at its DS World customer trade show a new consumables loyalty program called One DS and a trade-in offer



·     APA -4%; underperforms broader markets, as energy stocks turn lower with losses across the E&P, equipment and services sector (Baker Hughes rig data later today)

·     AVT -11%; after reporting TXN plans to end its distribution relationship with the company by Dec. 31, 2020 (note TXN products accounted for approximately 10% of the Avnet’s sales during FY19)

·     COST -1%; delivered double digit EPS growth and ~10% y/y adjusted operating income growth, as comps beat, but both the top and bottom line results just missed expectations

·     FUN -5%; pare recent gains as Wells Fargo said after speaking to mgmt, there was no specific comment make regarding Reuters article of SIX making a bid for FUN, but mgmt. did state that the company is NOT looking to be sold

·     GE -1%; shares mentioned cautiously at JPMorgan again, this time on its Aviation unit, which he says offers materially less growth with greater risk, and therefore less value support, than consensus assumes

·     HPQ -9%; after saying it will cut workforce by up to 16%, which is expected to reduce costs by about $1B by 2022/Loop Capital downgraded shares on move


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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