Tuesday, November 20, 2018
U.S. equities drop sharply for a second straight session, led by weakness in technology (again), with major indexes wiping out their gains for 2018 as the Nasdaq Composite dropped to a seven-month low (6,830.76) and now off roughly 15% since its record high at the end of August (8,133.29). Momentum to the downside accelerating over the last few days amid growing fears of slowing Apple iPhone demand which has sent the supply chain lower (also lower forecasts) while valuation concerns in software and Internet space also adding to selling pressure. Retailers provided a generally somber picture for latest quarter this morning (heading into holiday season), with shares of TGT, LOW, LB, KSS, ROST sinking on results/outlook. Goldman Sachs Group Inc. suggested that investors should dial back on risk saying that while equities have had a great run, it is time to increase cash holdings and move to more defensive stocks. Don’t forget about the impact of trading tensions with China and tariffs on stocks (ahead of upcoming Trump/XI meetings) as well as fears the Fed continuing its steady pace of rate hikes and its potential to slow the economy. Plunging energy prices, while positive for consumers and transports, has been sinking shares of energy related stocks in the E&P, drilling, integrated and services sectors lately. Financials extending weakness as well today, with 52-week lows for C, MS, TROW, GS, SYF, ALL). Markets also keeping an eye amid the Brexit developments in Europe as well as the debt issues in Italy.
Treasuries, Currencies and Commodities
· In currency markets, the dollar surging vs. other currencies, especially vs. emerging markets/or ones that are leveraged to oil for their economy (Canada), with the dollar index up 0.4%. Commodity prices falling again as WTI crude drops nearly 6% (ahead of inventory data tonight) while gold down only slightly, hurt by the US dollar bounce. Treasury market’s rally further, pushing the yield on the benchmark 10-year below 3.04%, while the 2-year steady at 2.78% after yields fell over 15 bps the last week or so – market expectations given the slowing housing data, weaker outlooks in stocks could cause the Fed to slow rate hikes in 2019.
· Housing Starts for Oct rise 1.5% to 1,228M (after falling -5.5% last month), in-line with estimates and above prior month reading of 1,210M; single family starts fell to 865K; Building permits fell (-0.6%) to 1,263M from 1,270M in Sept, but above the 1,260M est.
Sector Movers Today
· Retailers; bloodbath in retail after disappointing earnings results heading into the key holiday season: TGT shares fell more than 10% after it misses profit expectations and narrowly missed estimates for same-store sales; KSS quarterly results topped views but the bad news was weak full-year profit guidance, hitting shares that were up big YTD (over 75%); LB raised guidance for the first time in 18-months, announced the hiring John Mehas (President of Tory Burch) to run Victoria’s Secret, while Q3 results beat, but cut its annual dividend in half from $1.20 to $2.40; ROST Q3 results in-line with estimates for EPS/sales/comps with next quarter EPS just below views, but year slightly above while notes fiercely competitive holiday season; TJX slides as Q3 EPS missed by 7c, though sales of $9.83B beat as well as comps of 7% (est. 4.1%), though margins weak and guidance below estimates; URBN Q3 EPS/sales and comps (Q3 comp sales 8% vs. est. 6.3%) all top consensus views
· Housing & Building Products; home improvement retailer LOW posted mixed Q3 results as EPS/sales beat but comps of 1.5% missed the 2.9% est. and 2% U.S. comps are light and revised down its full-year guidance; in building products, BECN shares downgraded by a few analysts after reported Q4 results, with revenue, EBITDA, and EPS coming in shy of consensus estimates and provided FY19 guidance ranges for revenue, EBITDA, and EPS below expectations
· Semiconductors; weakness continues on lower AAPL iPhone demand fears; Bank America downgraded SWKS to underperform and tgt to $75 from $92 and TER to neutral from buy citing weak iPhone demand in 2019 noting recently heard multiple iPhone suppliers (LITE, AMS, QRVO, IQE, Japan Display) reduce their near-term outlook by 10-15M iPhone units. MU was downgraded to underperform at Baird saying continued deterioration in both DRAM and NAND pricing leads them to model eight consecutive quarters of gross margin and EPS contraction; ADI shares rally following better quarterly earnings results
· Aerospace & Defense; BA continues to be a drag on the Dow Industrial Average after the company cancelled a conference call with airlines this morning to discuss the 737 Max aircraft issues; WWD was upgraded to buy at SunTrust while highlighting CW, FLIR, and MOGA as compelling Buy ideas considering recent multiple compression
· In energy research, Raymond James upgraded BP to outperform saying among European Big Oils, BP shares have had the second-worst quarter-to-date performance, creating, in our view, an attractive entry point, while the firm downgraded XOM to underperform calling it one of the least appealing ways to play our bullish oil call, particularly after the painful but transitory oil price selloff over the past month; KEG downgraded to neutral at Piper citing its 3Q earnings miss, somber 4Q commentary and massive U.S. Well Service industry fragmentation
· A +6%; posted strong 4Q results, with 9% core growth and 7c upside as revs/margins beat
· BBY +3%; lifted its full-year outlook (to $5.09-$5.19 from prior $4.95-$51.0) and posted upbeat quarterly results boosted by a “favorable environment
· CPB +6%; Q4 EPS and sales topped consensus and reaffirmed FY2019 guidance, while organic sales fell 3% in Q1, driven primarily by higher promotional spending
· MDT +3%; Q2 EPS and sales topped views while boosts FY19 organic revenue growth guidance to up 5%-5.5% from prior view 4.5%-5%
· PCG +2%; after reports last night a bill that would help PG&E Corp. absorb liabilities from this year’s fatal wildfires in California is being drafted at the request of a state assemblyman (Chris Holden) who helped shepherd earlier legislation on the issue
· PSTG +1%; delivered another strong quarter, with revenue, gross margin and EPS all above consensus while product sales growth of 31% y/y was driven by both enterprise- and cloud-based customers
· AAPL -4%; tgt cut again at Goldman Sachs, down to $182 from $209 just after recently cutting from $222 level, saying they are likely to struggle amid signs of weak demand for its iPhones in China and other emerging markets
· ACHC -5%; after CNBC’s David Faber said that KKR is not in talks for a buyout of ACHC, but for a significant investment in the company
· BA -3%; continues to be a drag on the Dow Industrial Average after the company cancelled a conference call with airlines this morning to discuss the 737 Max aircraft issues
· BECN ; reverses early losses; was downgraded by a few analysts after reported Q4 results, with revenue, EBITDA, and EPS coming in shy of consensus estimates on lower guidance
· LB -15%; raised guidance, announced the hiring John Mehas (President of Tory Burch) to run Victoria’s Secret, while Q3 results beat, but cut its annual dividend in half from $1.20 to $2.40
· LIVN -19%; after CMS is proposing to extend coverage for VNS in treatment-resistant depression with the caveat that LIVN must conduct a double-blind, randomized, placebo-controlled trial with one year follow-up
· SAGE -5%; after U.S. regulators delayed a decision date for its postpartum depression therapy, Zulresso, by three months
· TGT -10%; after it misses profit expectations and narrowly missed estimates for same-store sales
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.