Market Review: November 26, 2018

Terrie AmengualDaily Market Report

Closing Recap

Monday, November 26, 2018

Equity Market Recap

· U.S. stocks surge to start the week as the Dow Industrial Average gained for the first time in five days (was up as much as 387 points at its best levels), while the tech heavy Nasdaq Composite outperformed, led by a rebound in Internet and software stocks. GM grabbed headlines in the auto space, as shares rallied behind the car maker’s massive restructuring plan, which includes over 15,000 job cuts and production cuts at several facilities, but drew disappointment from President Trump and Canada. Technology, financials and recently battered energy stocks (after oil posted its biggest one-day gain in nearly 7-weeks) led the stock market gains while defensive consumer staples, healthcare and REITs lagged. Retailers were mixed as updates continue to roll in on Black Friday and Cyber Monday sales data. The dollar erased early losses, rising vs. most currencies, while Treasury yields gained. Market hopes are high into the G20 meeting this week, where President Trump and Chinese leader XI are expected to meet and talk trade. With today’s market surge, the S&P 500 index moved back out of correction territory, the Nasdaq Comp moved firmly back above 7,000 and the Russell 200 topped 1,500. European shares climbed after EU leaders and U.K. Prime Minister Theresa May agreed on a framework deal for Brexit over the weekend, but lost some steam after investors weighed the next hurdle: approval by the British parliament. U.K. Government Chief Whip Julian Smith wrote to Conservative lawmakers confirming five days of debate on Brexit deal from Dec. 4 to Dec. 11. European markets also got a boost by comments from Italy’s populist leaders saying the government could revise a proposed budget deficit target, after rejecting spending cuts.


· Oil prices rebounded after sharp declines again last week, rising $1.21 or around 2.4% to settle at $51.63 per barrel, its biggest one-day gains since October 1st and rebounding off earlier lows of $50.10 per barrel. Helping prices late afternoon were comments from Ecuador oil minister Perez saying supports OPEC production cut at upcoming meeting. Gold prices erased earlier gains, falling 80c to settle at $1,222.40 an ounce. Gold had edged higher initially amid positive developments in Europe which weighed on the dollar. However, as the dollar rebounded off the lows, gold followed suit lower.


· The U.S. dollar traded lower overnight before reversing higher midday, rallying against the euro and moving to highs against the Japanese yen. The dollar index (DXY) rose to afternoon highs above 97.05 after sliding to lows of 96.65 overnight as currency markets await further updates on Brexit vote in 2-weeks. The Canadian dollar erased earlier gains as the dollar ended near its best levels (up at 1.3243 from earlier lows 1.3187). Bitcoin fell as low as $3,475 yesterday before recovering some of those losses to trade at $3,800 (down -10%). Mexico’s peso tumbled on the stronger dollar, as well as weekend of headlines adding nervousness about the new government. The currency didn’t react immediately to Trump’s threat to permanently close the border.

Bond Market

· Treasury prices slipped as yields edged higher with U.S. stock averages bouncing from last week declines and ahead of a busy week of several US gov’t debt auctions. The U.S. Treasury sold $39B in 2-year notes at a yield of 2.836% (vs. 2.837% when issued prior), with bid-to-cover (demand) at 2.65 vs. 2.67 prior auction and indirect bidders awarded 44.9% of auction and 19.5% to directs. Today marked first of $119 billion of bond auctions across short-dated maturities this week. The 10-year Treasury note yield rose over 1 bps to 3.06% while the 2-yr note yield rose over 1 bps as well to 2.835% bouncing after its latest slide. Factors likely to impact bond markets in upcoming days include several speeches from Federal Reserve officials for more clarity on recent remarks by Fed Chairman Jerome Powell and Richard Clarida ahead of the FOMC rate decision in 2-weeks.

Sector News Breakdown


· Retailers; Online sales rose more than 23%, crossing $6 billion on Black Friday, according to data from Adobe Analytics, which tracks transactions at 80 of the top 100 U.S. retailers. On Thanksgiving, it estimated sales grew 28% to $3.7 billion. Preliminary data from analytics firm RetailNext showed net sales at brick-and-mortar stores fell 4%-7% over the two days, while traffic fell 5%-9%; AEO was upgraded to buy at Deutsche Bank as they expect the apparel retailer’s third quarter results to beat guidance and satisfy elevated expectations; GME was upgraded to neutral at Bank America as the proposed sale of the spring mobile business gives the retailer a significant amount of new capital to deploy towards buybacks

· Autos; FCAU rises after Bloomberg reported the auto maker is considering options for its robotics arm Comau, including a potential sale at a value of 1.5B-2B euros ($1.7B-$2.3B USD); GM said it will reduce salaried and salaried contract staff by 15% in North America, including 25% fewer executives to streamline decision making/sees related pre-tax charges of $3B-$3.8B and also to reduce production at seven plants

· Consumer Staples; CPB announced that they have reached an agreement with respect to the election of directors at Campbell’s 2018 Annual Meeting of Shareholders and certain other matters/agreement with Third Point includes 2 board seats, input on CEO; consumer staples (defensive) names were lower as investors rotated out of tobacco (PM, MO) and food names (GIS, CAG) and into riskier assets; MO shares fell for an 11th straight session

· Casino & Leisure movers; casino and gaming stocks higher (WYNN, MLCO, LVS) after Bernstein boosted its Macau November gross gaming revenue (GGR) estimate to grow 7%-8% y/y to 24.5b-25b patacas vs prior view of up 2%-4% to 23.5b-24b patacas; in leisure, RV Industry Association (RVIA) reports that its Oct. survey of manufacturers found total RV shipments finished the month with 43,568 wholesale shipments, down 11% from the 48,926 units shipped in October 2017 (shares of CWH, THO, LCII, WGO among those leveraged to data)


· Energy stocks outperformed after plunging the last few weeks in conjunction with the sharp retrace in WTI crude oil prices on rising production and fears of slowing global demand; oil prices have fallen more than 25% from its October 4 ½ year highs, dropping from above $8o per barrel to lows around $50 per barrel late last week; overall oil names bounce today

· Utilities & Solar; SCG shares were higher early after agreeing to settle a class action lawsuit tied to a failed nuclear power project if its $7.9B merger with Dominion Energy (D) goes through (shares were upgraded to buy at Guggenheim); solar names outperform, led by gains of JKS after earnings earlier; shares of SPWR among those rising in sympathy


· Bank movers; financials led today’s gains, with large cap banks, regional banks (KRE) and payment and lending stocks all rebounding following the recent rout in shares (names like SQ, PYPL); in research, RF was upgraded to overweight at JPMorgan as the bank should benefit near term from good C&I loan growth and expansion in net interest margin (NIM), and medium term from low deposit betas relative to peers plus improving efficiency; SCHW was upgraded to neutral from sell at Citigroup based on a stress test against an increased volatility and a more decisive market downturn/reflects a more balanced risk/reward

· Consumer finance and lending; PAYX announced that it plans to purchase Oasis Outsourcing Acquisition Corp. for $1.2 billion; INTU was upgraded to outperform at RBC Capital on the back of a positive consumer tax survey, conviction on broader ARPU and unit driven growth; SQ tries to recover after recent pullback in shares/moves back above its 200-day MA of $65.20 (touched lows of$55.37 last Tuesday); a Wall Street Journal report that Venmo faced more fraudulent activity than it had expected earlier this year failed to hurt shares of PYPL today


· Pharma movers; LLY was downgraded to neutral at Citigroup saying 40% outperformance versus the sector over the last 10 months, the stock is now trading close to their NPV; AZN said the FDA has granted orphan drug destination status to Fasenra, which is aimed at treating EGPA, a rare autoimmune disease;NVS was upgraded to outperform at Cowen; in managed care, the AET/CVS deal should be completed in the next two days as NY Insurance Dept approves deal; MNK shares extended declines mid-afternoon after Citron Research (Andrew Left) said the company failed to disclose an unsuccessful clinical trial result on Acthar

· Biotech movers; ZFGN shares drop as the FDA placed a clinical hold on its investigational new drug application (IND) for its first U.S. clinical trial of its type 2 diabetes treatment, citing the possibility of cardiovascular safety risk; gene editing stocks (CRSP, NTLA, EDIT) that utilize Crispr technology active after a Chinese researcher claimed to have produced the world’s first genetically-edited babies using the technology ; BOLD initiated overweight and $35 tgt at JPMorgan saying risk/reward is attractive after the recent pullback; NVAX was upgraded to overweight at Piper and raised tgt to $4

· Medical equipment and devices; device makers such as MDT, EW, JNJ active after a report from the International Consortium of Investigative Journalists criticized regulations surrounding speedy approvals for medical devices and detailed injuries and deaths tied to some devices; MDT slipped after a Bloomberg report about a study conducted by a group of journalists showed a surprisingly high number of injuries and deaths from medical devices over the past 10 years

Industrials & Materials

· Transports; were mixed as airlines lost altitude mid-session (AAL, DAL, UAL) as broader market averages slipped, while car rental company CAR advanced, as well as gains in R, MATX and KEX; rails were mixed with UNP weaker and KSU moving higher; in rail cars, TRN was upgraded to buy with a $29 tgt at Seaport Global

· Metals & Materials; Chinese iron ore futures sank 6% overnight and steel prices fell to their lowest in nearly five months, extending a recent selloff on worries over weaker steel demand amid the U.S.-China trade war according to reports. Outside of the weakness in iron ore, metals got a lift early amid the pullback in the dollar (though the greenback rebounded)

Technology, Media & Telecom

· Semiconductors; rebound in semiconductors stocks though pared gains with broader markets; Credit Suisse initiated NVDA with an outperform rating and $225 tgt as see the reset and ~50% decline in shares an extremely compelling entry point; shares of MU and AMD underperformed in the Philly semi index (SOX) most of the session

· Hardware & Component news; AAPL new lows down at 7-month lows, falling below the $171 level; COMM was upgraded to buy at Jefferies citing near-trough valuations, terrible investor sentiment, and a pending de-leveraging story; CMCM shares fell over 10% after negative Buzzfeed report earlier; CTSHupgraded to buy at Goldman Sachs, while Cowen downgraded shares to market perform, more cautious about a near-term pickup in revenue growth that is implied in the 2019 consensus; several software/hardware earnings this week from CRM, NTNX, VEEV, AMBA, HPQ, PANW, SPLK, VMW, WDAY, ZUO


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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