Mid-Morning Look: January 16, 2020

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Mid-Morning Look

Thursday, January 16, 2020

Index

Up/Down

%

Last

 

DJ Industrials

171.71

0.59%

29,201

S&P 500

17.75

0.54%

3,307

Nasdaq

68.89

0.74%

9,327

Russell 2000

18.78

1.12%

1,701

 

 

U.S. stocks are firmly higher and setting new record highs for major averages, building on momentum after the signing of the “phase-one” trade deal between the U.S. and China yesterday amid the pledge by Beijing to purchase at least an additional $200 billion worth of U.S. farm products and other goods and services over two years. Overall, the S&P 500 crossed 3,300 for the first time and the Dow and the NASDAQ opened at new highs. Financials and banking stocks bouncing after yesterday losses after Morgan Stanley results boost sentiment, while semiconductors rise after strong guidance from AAPL chip supplier TSM. It’s a full-blown rally though defensive asset classes are underperforming, with gold prices and Treasuries edging lower and the dollar rising. Economic data came in stronger with a big bounce in manufacturing in the Northeast (Philly Fed), along with in-line retail sales data. Earnings moves into high gear next week, with results this week mixed to better. Smallcaps outperform as the Russell 2000 tops the 1,700 level, up over 1.1% to its best level since Sept 2018 (all-time high stands at 1,742 on 8/31/18).

 

Economic Data

·     Weekly Jobless Claims fell 10K to 204K, better than the 218K estimate while prior week unrevised at 214K); the 4-week moving avg. fell to 216.25k in the week ending Jan. 11 from 224K; continuing claims fell 37K to 1.767M in the week ending Jan. 4

·     Retail Sales for December rose 0.3%, in-line with expectations as retail sales less autos rose 0.7% in December, topping the 0.5% estimate; overall, retail sales rose to $529.606B in Dec. vs $527.841B in Nov.; auto dealer YoY sales rose $3.9B in Dec. to $98.5B

·     Import prices for December rose 0.3% MoM, in-line with consensus and after rising 0.1% the prior month, while prices rose 0.5% YoY in December; capital goods prices rose 0.1% MoM after falling 0.3% in November; export prices fell (-0.2%) MoM after rising 0.2% in November

·     Philly Fed Business Outlook for January jumps to +17 vs. +3.8 consensus and +2.4 prior (was a 6-month low), posting the strongest level since May, and together with the Empire State Index, suggests conditions in the mid-Atlantic/Northeast are a good deal stronger; the new orders index 18.2 in Jan vs. 11.1 in Dec, prices paid index 22.1 in Jan vs. 15.9 in Dec, the employment index 19.3 in Jan vs 16.8 in Dec and 6-month business conditions index 38.4 in Jan vs 34.8 MoM

·     Business Inventories for November fall an in-line (-0.2%) vs. est. down (-0.2%); retailers sales rose 0.4% MoM in November after rising 0.4% prior month

·     The NAHB Housing market index reported at 75 vs. est for reading of 74 (prior month was 76); Present single family sales falls to 81 vs 84 last month, future single family sales unchanged at 79 vs 79 last month and prospective buyers traffic rises to 58 vs 57 last month

 

Treasuries, Currencies and Commodities

·     In currency markets, the US dollar erases modest overnight losses, getting a boost on stronger economic data and positive market sentiment following the trade deal signing yesterday between the US-China; Treasury prices dip given the ongoing rally in U.S. stocks, with the 10-year yield up modestly around 1.80%; gold prices dip on the rotation out of defensive assets while oil prices rebound following its recent pullback

 

 

Macro

Up/Down

Last

 

WTI Crude

0.61

58.42

Brent

0.63

64.63

Gold

-2.20

1,551.80

EUR/USD

-0.0014

1.1136

JPY/USD

0.16

110.06

10-Year Note

0.015

1.798%

 

 

Sector Movers Today

·     Semiconductors; sector active after TSM forecasts up to 45% rise in its Q1 revs as it bets on robust demand for 5G smartphones (guides revs $10.2B-$10.3B above the $10.09B est and compared to $7.1B a year ago); equipment names were higher AMAT, KLAC, LRCX; Argus raised its tgt on LRCX to $340; WDC tgt raised to $80 from $65 at Deutsche Bank, becoming more bullish on gross margin expansion opportunities in 2020 and 2021; Mizuho upgraded SYNA to buy while downgraded XLNX to neutral and says top picks for 2020: AMD, AVGO, MU, NVDA, NXPI, ON, QCOM and WDC, and key trends in 2020 that should drive upside even if there were to be an economic slowdown.

·     Transports; XPO shares jumped after announcing plans to explore its strategic alternatives, including the possible sale or spin-off of one or more of XPO’s business units; in airlines, SAVE rises as company said it now expects Q4 total revenue per available seat mile to be down 3.6% vs. prior outlook of down between 4.5% and 6.5% and marginally lowered op expenses; LUV said it is proactively removing max from its flight schedule through June 6, 2020 which will proactively remove roughly 330 weekday flights from schedule

·     Software movers; Wells Fargo raised its tgt on ADSK to $240 from $200, MSFT to $185 from $180, CRM to $215 from $185 and ADBE to $345 from $315 as anticipates continued healthy growth in software spending in 2020 and expects software stocks as a whole to relatively outperform the market; in video games, Piper said Q4’19 “TwitchAdviser,” analysis of video game viewing data, is most favorable for EA with viewership up 48% q/q while ATVI and TTWO viewing fell q/q, but this was expected due to tough sequential compares vs. Sept quarter

·     Metals & Materials; AA falls as posted a larger than expected Q4 loss as sales fell 27%, but the company expects global demand for the metal to rise as much as 2.4% this year (shares of CENX fell in sympathy); PAAS was downgraded to underperform at Bank America as share price appreciated by 62%, far exceeding their expectations; in gold miners, Credit Suisse downgraded shares of AGI, EGO, and CAGDF while upgraded GOLD to outperform and keeps AEM, NEM and EDV as top picks as these companies are poised to generate significant FCF in 2020 and return capital to shareholders; copper prices extended its month-long run of gains after China and the U.S. clinched an interim trade deal; KeyBanc downgraded USAP to sector weight citing onset of distributor destocking and aero pushouts weigh on 4Q19-2021 EBITDA vs. prior view; while lowers ATI ests on MAX halt

·     Retailers; SIG shares soared after said comps sales were up 1.6% for the two-month holiday period, while same-store sales for the North America business were up 2.0% and E-commerce sales rose 13.5% during the holiday period – raises FY20 adj. EPS view to $3.61-$3.69 from $3.11-$3.29 and ups comp sales; COLM removed from the Best Ideas List at Wedbush as the combination of unseasonable weather and higher off-price inventory levels entering the holiday may temper the FY20 outlook; MIK was downgraded to neutral at Goldman Sachs on concerns over valuation on the retailer; IRBT upgraded to Market Perform at Raymond James while lowering EPS estimates to reflect no tariff relief in 2020 and limited expense leverage (reflects view that estimates are washed out, potential upside catalysts exist); AOBC replaced its chief executive, citing unspecified “nonfinancial” behavior that broke company rules

 

Stock GAINERS

·     CTL +4%; said it won a task order, worth up to $1.6 billion, to provide secure network services and IT modernization solutions to the U.S. Department of the Interior (DOI)

·     MGI +14%; as reports 2% YoY rise in transactions in December, powered by strength in its global consumer direct digital business and international walk-in business

·     MNI +330%; as it reaches a pension deal that buys more time for restructuring the company.

·     MS +6%; after earnings as EPS beat by 18c on strong revs $10.86B as FICC sales & trading revenue for Q4 that topped estimates

·     NTGN +61%; to be acquired by BNTX for around $2.18 per share in deal valued at about $67M in all-stock deal to strengthen its T-cell cancer therapy pipeline

·     SCHW +2%; shares rise as the company’s plan to eliminate trading commissions boosted its client assets to a new record, topping the $4 trillion level (quarterly profit fell amid a decrease in revs)

·     SIG +37%; after said comps sales were up 1.6% for the two-month holiday period, E-commerce sales rose 13.5% during the holiday period – raises FY20 adj. EPS view to $3.61-$3.69 from $3.11-$3.29 and ups comp sales view

·     TSM +1%; forecasts up to 45% rise in its Q1 revs as it bets on robust demand for 5G smartphones (guides revs $10.2B-$10.3B above the $10.09B est and compared to $7.1B a year ago)

·     XPO +12%; after announcing plans to explore its strategic alternatives, including the possible sale or spin-off of one or more of XPO’s business units

 

Stock LAGGARDS

·     AA -9%; posted a larger than expected Q4 loss as sales fell 27%, but the company expects global demand for the metal to rise as much as 2.4% this year

·     BK -7%; Q4 adjusted EPS matched analysts’ estimates while interim CEO said the bank continues to be negatively impacted by lower rates, a flat yield curve and low foreign exchange volatility

·     OPRA -14%; after Hindenburg Research sees a 70% downside for shares, claiming the company’s browser market share is “rapidly” declining

·     PPG -3%; Q4 adjusted EPS of $1.31 missed by 3c while sales of $3.7B were in-line and issued lower Q1 EPS view of $1.32-$1.42, below the $1.53 estimate and said in 2020, expects segment sales to be impacted by lower production rates by an aerospace customer

·     PSO 8%; after saying profits would fall in 2020 while U.S. university sales continue to decline; also noted CFO Williams announced his departure

·     QD -16%; withdrew its guidance for fiscal 2019 because of regulatory uncertainty (had previously guided for total adjusted net income for 2019 of CNY4 billion)

·     TSLA -3%; as Morgan Stanley lowered its rating to underperform and said it thinks investors will be presented with a better chance to buy the stock in the future at a lower price (raised tgt to $360 from $250 to account for the rally in the stock

_________________________________________________________________

Market commentary provided by Hammerstone Markets, a division The Hammerstone Group, a firm separate from and not affiliated with Regal Securities L.P. Regal Securities L.P. has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.

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