TheChek News Flow

Closing Stock Market Summary

The stock market wavered with modest losses on Wednesday, leaving the S&P 500 down 0.3%, amid persisting trade uncertainty. The prevalence, and volatile nature, of trade headlines that have no clear end-date helped curb some of yesterday's trade-related enthusiasm.

The Dow Jones Industrial Average lost 0.4%, the Nasdaq Composite lost 0.5%, and the Russell 2000 lost 0.9%.

Reports that the U.S. is considering blacklisting several other Chinese firms put a damper on Apple (AAPL 182.78, -3.82, -2.1%) and many of the stocks within the Philadelphia Semiconductor Index (-2.1%). Qualcomm (QCOM 69.31, -8.44, -10.9%) was further pressured by a federal judge ruling against the company in an antitrust case.

All of the S&P 500 cyclical sectors finished lower. The energy sector (-1.6%) led the decline amid lower oil prices ($61.40/bbl, -$1.67, -2.6%), which were pressured by the trade uncertainty and some bearish inventory data.

This uncertainty also fostered some defensive positioning in U.S. Treasuries and in the S&P 500 utilities (+0.8%), health care (+0.6%), consumer staples (+0.6%) and real estate (+0.4%) sectors.

The 2-yr yield declined two basis points to 2.22%, and the 10-yr yield declined three basis points to 2.39%. The U.S. Dollar Index finished little changed at 98.09.

Perhaps reassuring for the market was some assurance from the Fed that interest rates will remain low, at least according to the minutes from the Apr. 30-May 1 FOMC meeting. The minutes, however, didn't produce any meaningful effect on the market considering the meeting occurred three weeks ago.

In earnings news, shares of retailers Lowe's (LOW 97.94, -13.16, -11.9%), Nordstrom (JWN 34.35, -3.50, -9.3%), and Urban Outfitters (URBN 24.34, -2.66, -9.9%) dropped noticeably following their earnings and/or guidance. Target (TGT 77.56, +5.60), on the other hand, climbed 7.8% on its upbeat results and guidance.

Reviewing Wednesday's economic data, which included the FOMC Minutes and the weekly MBA Mortgage Applications Index:

• The Minutes from the May FOMC meeting showed that policymakers are comfortable with the current fed funds rate range while "a number of participants" saw a moderation in risk and uncertainties surrounding their outlooks for the year.
  • The key takeaway is that the stock market has a reasonable assurance to think policy rates are going to remain quite low on a real and nominal basis. Low rates are supportive for risk assets like stocks.
• The weekly MBA Mortgage Applications Index rebounded 2.4% following a 0.6% decline in the prior week.

Looking ahead, investors will receive the weekly Initial and Continuing Claims report and New Home Sales for April on Thursday.

• Nasdaq Composite +16.8% YTD
• S&P 500 +13.9% YTD
• Russell 2000 +13.6% YTD
• Dow Jones Industrial Average +10.5% YTD

Gapping down
In reaction to disappointing earnings/guidance:

• PSTG -18%, SSL -11.8% (updates guidance for Lake Charles Chemical Project following review process to assess the project costs and schedule) JWN -10.4%, LOW -7.9%, VFC -6.4%, URBN -5.6% (also announces launch of subscription rental apparel service Nuuly), TOL -5%, IPHI -2%, CNF -1.7%, ADI -1.4%, DEO -1% (expects to maintain organic net sales growth in the mid-single digit range and to grow organic operating profit ahead of net sales in the range of 5-7%)

Other news:

• TOCA -28.6% (Toca 5 Phase 3 clinical trial to continue without modification)
• EKSO -25.8% (announces proposed public offering of common stocks and warrants)
• ONCS -25% (to make public offering of common stocks and warrants)
• LIQT -13.8% (prices 1,931,035 shares of its common stock at $7.25/share)
• QCOM -11.4% (US District Judge Lucy Koh has ruled QCOM's practices violate antitrust regulations, according to WSJ)
• EXPR -4.3% (likely in sympathy with retail names URBN and JWN)
• G -1.8% (launches public offering of 10.0 mln shares by certain shareholders, consisting of entities affiliated with Bain Capital Investors and co-investor GIC Private Limited),
• INSM -1.6% (prices offering of 9,615,385 shares of its common stock at a price to the public of $26.00 per share)
• CDAY -1.5% (prices upsized public offering of 4.2 mln shares of its Class A common stock at a price to the public of $65.00 per share)

Analyst comments:

• ATVI -1.7% (downgraded to Equal-Weight from Overweight at Stephens)

Gapping up
In reaction to earnings/guidance:

• SE +17%, TGT +7.3%, PLAB +3.4%, CRMT +3%, AAP +2.3%, SKY +2%, HXL +1.8% (provides financial outlook through 2021 at Investor Day), OOMA +1.4%, .

M&A news:

• AVP +4.8% (close to agreement to sell itself to Natura Cosmeticos, according to WSJ)
• CVI +3.7% (to evaluate strategic alternatives; enters into sale agreement for Cushing crude oil terminal)
• CGC +0.5% (to acquire This Works for a purchase price of GBP 43 mln)

Other news:

• LGF.A +4.4% (continued chatter surrounding Starz selling interest)
• IMMR +3.2% (signs haptics license agreement with Panasonic Avionics)
• PVH +2.3% (signs new five-year employment agreement with CEO; appoints Stefan Larsson as President, PVH Group)
• LOVE +1.3% (prices 2.5 mln common stock offering, 1.75 mln of which offered by selling stockholders, at $36.00/share)

Analyst comments:

• FLIR +1.5% (upgraded to Outperform at Imperial Capital)
• ERIC +1.1% (upgraded to Buy from Neutral at BofA/Merrill)
• DO +0.8% (upgraded to Neutral from Underweight at Piper Jaffray)

Early premarket gappers

Gapping up:

• SE +21.7%, TGT +8.6%, LGF.A +4.4%, CVI +3.7%, IMMR +3.2%, PVH +3.2%, AAP +2.3%, SKY +2%, HXL +1.8%, CRMT +1.6%, OOMA +1.4%

Gapping down:

• TOCA -32%, EKSO -29%, ONCS -28.8%, PSTG -19.9%, SSL -13.7%, LIQT -12.5%, JWN -11.2%, LOW -9.5%, URBN -8.5%, EXPR -4.3%, TOL -3.4%, VFC -2.3%, G -2%, CDAY -1.8%, CNF -1.7%, PAA -0.9%