Mid-Morning Look: November 05, 2019

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Mid-Morning Look

Tuesday, November 05, 2019






DJ Industrials




S&P 500








Russell 2000






U.S. equities have reversed earlier gains as investors book profits after major averages touch fresh record highs again today, getting a boost following bullish trade headlines overnight, as the U.S. reportedly is considering rolling back the 15% tariff rate imposed on $112B of Chinese imports in September, and China is said to have asked the U.S. to also lower the 25% tariff rate on $250B of goods. Stocks extended gains following a stronger-than-expected ISM services reading, rising to 54.7 reading and topping the est. 53.5 (prior month reading was 52.6) on better orders and employment. Following the data, major averages quickly spiked, with the Dow rising as much as 100-points to highs of 27,560 before major averages dropped just as quickly to turn negative on the day. Note the S&P 500 index touched a record high for the 16th time this year yesterday, with a strong earnings season so far helping along with the improved macro picture (as well as accommodative Fed). Details of top earnings results below, while the dollar and oil prices jump and defensive gold and Treasuries slide. 


Economic Data

·     ISM Non-manufacturing index for October rises to 54.7 topping the est. 53.5 (prior month reading was 52.6); the new orders segment at 55.6 vs. 53.7 in September and the employment index rises to 53.7 from 50.4 MoM and prices paid down at 56.6 from 60.0 last month

·     Trade data mostly in-line as the US international trade deficit narrowed to its lowest level in five months as trade with China shrank in September; the US trade deficit narrowed to (-$52.5B) in Sept., vs. est. (-$52.4B) and from (-$55B) in prior month. Trade deficit fell 4.7% in Sept. to five-month low; imports fell 1.7% in Sept. to $258.44B from $262.86B in Aug. and exports fell 0.9% in Sept. to $205.99B from $207.83B in Aug.

·     IHS Markit Economics said U.S. October composite purchasing managers’ index falls to 50.9 from 51 in Sept. (below year ago 54.9), while employment falls to 48.1 vs 49 in Sept. (lowest since Dec 2009) and new orders fall vs prior month to lowest reading since series began

·     U.S. JOLTS report showed job openings dropped 277k to 7,024k in September after rising 127k in August to a revised 7,305k (was 7,051k). The JOLTS rate fell to 4.4% from 4.6% (was 4.4%). Hiring’s were up 50k to 5,934k following the -94k decline to 5,884k


Treasuries, Currencies and Commodities

·     In currency markets, the dollar index (DXY) rising to session highs for a second straight day given the better economic data, as the dollar index rises nearly 80 bps from yesterday lows as approaches the 98 level. Commodity prices mixed as gold prices fall about 1.25% to around $1,490 an ounce (lows around $1,488) as stocks surge and investors exit safe-haven assets while oil prices rise about 1% on the day. Treasury market’s extend recent decline, as yields push higher with the 10-year above 1.85%, rising about 8 bps to its highest level since mid-September following stronger ISM data while the 2-yr yield up over 5 bps to 1.635%.







WTI Crude















10-Year Note





Sector Movers Today

·     Industrial & Machinery; Class 8 truck orders for October dropped 49% y/y to 22,100 units, citing ACT Research data where Buckingham expected to be in the “high-teen to low-twenty thousand” unit range for the month of October/marked the 12fth consecutive month of y/y declines (shares of PCAR, CMI, NAV leveraged to the data); MG shares drop as cuts year rev outlook to $740M-$750M from prior $765M-$785M and Ebitda view to $70M-$75M from $90M-$93M after weaker Q3 results; MDR CFO resigns and reports revenues for quarter well below consensus

·     Chemicals; MOS shares fall as Q2 EPS miss and cuts FY19 adj. EPS view to 50c-60c from $1.10-$1.50 (est. 98c) and also cuts FY19 adjusted EBITDA view to $1.4B-$1.5B from $1.8B-$2.0B which reflects the impact of historically low potash sales volumes; RYAM drops after 3Q sales missed the lowest estimate, and trade issues were expected to hurt 4Q results; WLK shares jump as Q3 EPS $1.22 tops the $1.03 estimate though sales of $2.07B miss views; CC Q3 EPS and sales come in just above consensus though cautious on outlook into 2020

·     Semiconductors; NXPI was upgraded to buy (with $130 tgt) at Mizuho as see improving auto trends (~45% of revs) in 2020-21 after declines of ~1.5%/7% y/y in 2018-19, and improving industrial trends (~20% of revs) supported by China PMI after almost a year of declines; INFN slipped after rescheduling its Q3 report from November 6 to pre-market on November 12 saying it needs the additional time to complete its quarter-end closing procedures; LRCX tgt raised to $330 from $282 at Citigroup as recent US memory supply chain discussions provide positive early assessment of 1H20 demand trends; DIOD slips initially after weaker Q4 rev outlook

·     Insurance; CB was upgraded to outperform at Credit Suisse with a price target of $165, up from $145 saying as some insurers dramatically retrench their capacity limits, other insurers like Chubb are in a good position to win over long-term accounts; PRU was downgraded at Wells Fargo after earnings noting the quarter beats but the forward outlook is weaker; HIG posted an EPS beat easily topping views on better revs

·     E&P sector; CHK reported a wider than expected Q3 loss and a 2.5% drop in revenues to $1.17B, hurt by a decline in production and lower natural gas prices as Q3 total production fell 11% Y/Y to 478K boe/day from 537K boe/day in the year-earlier quarter; XEC reported a miss on the quarter (adjusted EPS of 91c est 92c) on NGL prices (13%/5% lower than street) and production of 287.1 Mboe/d was 3%/4% higher than consensus largely driven by a 9% beat on natural gas volumes; PXD reported strong earnings results (beating consensus on EPS/EBITDA) for 3Q, driven largely by volumes coming in ~3% better than consensus and reported a significant beat on cap-ex (has been taken down another $150M, now down $250M); CDEV provided a mixed bag with a Q3 EBITDA miss that’s offset by a positive revision to FY19 guidance

·     Retailers; TPR posts Q3 EPS beat and slight sales miss while backing FY20 outlook/reports comparable sales rose 1.0% for the Coach brand in Q3 vs. +0.9% consensus and fell 16.0% for Kate Spade vs. -18.0% consensus/op margin fell 110 bps to 12.3% of sales, but topped the consensus expectation for a mark of 10.2%; ZBRA was downgraded at JPMorgan citing outperformance this year; REAL reported strong results in its second quarter as a public company. GMV and revenue accelerated sequentially and exceeded consensus forecasts, increasing 48% and 55% y/y, respectively



·     ADBE +4%; issued better outlook, prompting analysts’ to raise tgt as company guided 2020 revenue of about $13.15B (estimate: $13.14B), 2020 EPS of $9.75 (estimate: $9.69)

·     BYND +5%; upgraded to Outperform at Bernstein with an unchanged price target of $106 making a straight forward valuation call with the shares down 66% from their peak

·     CHGG +15%; after reported their 11th consecutive beat and raise Q and the EBITDA/revenue beat were larger than average

·     EVER +22%; posts first qtrly profit since its Jun 2018 IPO sending shares higher and raises FY rev guidance to $242-$244M, up from prior forecast of $215-$219M

·     FLGT +32%; after Q3 beat as reports ~84% rise in revenue to $10.35M, beating est. of $8.45M citing improved qtr to increased demand for its gene sequencing services

·     KR +8%; announced a new $1B share buyback plan, guided full-year identical sales growth of +2.25% vs. a prior range of +2.0% to +2.25% and upped its full-year EPS view

·     REGN +7%; after revs rose over 23% to $2.05B topping the $1.99B est helped by higher sales of eye drug Eylea; U.S. sales of drug rise 16% to $1.19B

·     RNG +7%; jumped after posting its largest-ever beat in what is typically a seasonally slower quarter according to Guggenheim, with subscription revenue accelerating to 33% growth

·     XRX +5%; agreed to sell its 25% stake in Fuji Xerox to Fujifilm for $2.2B, bringing an end to their 57-year-old joint venture



·     MG -21%; cuts year rev outlook to $740M-$750M from prior $765M-$785M and Ebitda view to $70M-$75M from $90M-$93M after weaker Q3 results

·     MOS -5%; as Q2 EPS miss and cuts FY19 adj. EPS view to 50c-60c from $1.10-$1.50 (est. 98c) and also cuts FY19 adjusted EBITDA view

·     MYGN -35%; after misses Q1 revenue and profit estimates, marking second consecutive quarterly miss and lowers 2020 revenue forecast to $800M-$810M from $865M-$875M

·     NEM -4%; slides after Q3 results and cutting its gold production view while sharp declines in gold prices on the day weighed on the mining sector

·     SHAK -16%; reported a disappointing quarter, with Q3 comp sales of 2% missing consensus’ 2.9% and restaurant margins of 23.1% below consensus’ 24.3%

·     SNCR -20%; after yesterday’s Q3 report missed on revenue and EPS

·     UBER -7%; said it expects to be EBITDA positive in FY21, but was overshadowed as the company missed underlying bookings and ridesharing metrics which was viewed mixed to negatively


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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