Market Review: December 17, 2018

Terrie AmengualDaily Market Report

Closing Recap

Monday, December 17, 2018

Equity Market Recap

· U.S. stock market action remains abysmal, with stocks routed again adding to last week’s declines as major averages tumble to their lowest levels since February. It was a round trip for equities as they opened the day weak, only to rebound late morning into early afternoon, but erased all of the gains (and then some) moving to fresh session lows late afternoon in what has been a month to forget for global stocks. The NASDAQ failed to hold the 6,800 level, falling as much as 2.9% to its worst levels since February while the Dow Industrial Average fell more than 600-points. The Russell 2000 SmallCap index now more than 20% from highs of year, down over 2.4% below the 1,400 level. The S&P 500 index dropped over 2% (Oct ’17 lows) and is on track to post its worst December since 1931 according to Bloomberg amid trade fears, a looing government shutdown, slowing growth concerns, European issues (Brexit/Italy debt fears), tumbling energy prices and concerns over the pace of rate hikes from the Fed. Defensive/safe-haven assets once again rallied amid the stock tumble, with gold and Treasury prices rising. Lots for investors to deal with ahead of the holiday shortened week. Data in the U.S. disappointed as Empire State manufacturing index missed estimates, slumping in December to 19-month lows, ahead of FOMC rate meeting this week.

· There were also negative headlines for several Dow components the last 2-days as: JNJ extends its losses from Friday despite the company adamantly refuted allegations that it knew a popular baby powder product was contaminated. Today, managed care giant UNH falls after a U.S. federal district court ruled that the Patient Protection and Affordable Care Act (PPACA) of 2010 was unconstitutional (hitting HMO’s and hospitals) and GS shares slide after Malaysian authorities filed criminal charges against the company and a former partner of the bank in connection with the 1MDB financial scandal. Busy week upcoming for global markets with rate decisions in the U.S, England and Japan and as the U.S. remains on course for a partial government shutdown later this week.

· Earlier today, DoubleLine Capital founder Jeff Gundlach said he believed that the current set up on Wall Street has all the hallmarks of a bear market. That is despite the fact that the widely accepted definition of a bear market, a drop of at least 20% from a recent peak, hasn’t taken hold in the three main stock indexes. Gundlach said the Fed shouldn’t raise rates in its final meeting of the year. “The economy is definitely slowing down,” Gundlach said.

· Peter Navarro, the director of the White House National Trade Council said on CNBC earlier today that the main factor behind the stock-market decline since October is Federal Reserve policy, calling the rate hikes in combination with quantitative tightening a “pincer movement,” which he said the White House views as “perplexing.”

Economic Data

· New York Fed Empire Index dropped to 10.9, well below last month’s 23.3 reading and below the estimate reading of 20, falling to the lowest since May 2017; breakdown showed Prices paid fell to 39.7 vs 44.5 last month while new orders fell to 14.5 vs 20.4; the number of employees rose to 26.1 vs 14.1 though work hours fell to 8 vs 9.2; six-month general business conditions fell to 30.6 vs 33.6; December shipments fell 7 points to 21

· U.S. Home Builders’ Confidence index (NAHB) in December falls to 56 vs 60 last month (down from 74 a year ago), touching the lowest levels since May 2015; the present single family sales falls to 61 vs 67 last month and the future single family sales falls to 61 vs 65 last month

Commodities

· Oil prices end near the lows, settling below the $50 per barrel level for the first time since October 2017 as the “risk-off” market attitude flowed into commodity prices as well as stocks. WTI crude fell -$1.32 or 2.6% to settle at $49.88 per barrel, extending last week’s slide. Natural gas prices fell further, down over 7%, this after January natural gas dropped 29.7c, or 7.2%, to settle at $3.827/mln Btu’s Friday, down roughly 15% for the week. Data from Genscape reportedly revealed a jump in crude stocks at the U.S. storage hub last week.

· Gold prices climb, rising $10.40 or 0.8% to settle at $1,251.80 an ounce, trading back at 1-week highs and just shy of 5-month best levels. Gold got a boost as investors rotated back into “safe-haven” commodities given the midday swoon for US stocks. Commodity markets, just like stock and currency markets also on edge ahead of key central-bank policy decisions this week and uncertainty around concrete trade developments between the U.S. and China.

Currencies & Treasuries

· The U.S. dollar slipped throughout the session, as worries about the health of the U.S. economy grows following another weaker than-expected economic data point (today manufacturing in NY). Given the recent weak data points, odds for future rate hikes by the Fed has dwindled, sending the dollar off recent 2018 highs vs. other currencies. The dollar sunk vs. the safe-haven Japanese yen, down -0.6% to lows 112.71 vs. off overnight highs 113.52. Bitcoin prices rebound from its recent plunge, rising as much as 13% or over $400 to above $3,550. Treasury market’s rallied as stocks tumbled, with investors rotating into safety yields still sliding as the 10-year down at 2.86%, 2-yr under 2.7% and the 30-yr down at 3.12%.

Sector News Breakdown

Consumer

· Retailers; European retailers fell after online retailing giant ASOS PLC cut its full-year outlook, sending its rivals into the red; BBY was downgraded to underperform at Bank America amid concerns on sales of TVs, gaming products and the Apple business/thinks slowing industry growth, tough compares in key products and cost inflation hurts the upside case on BBY; Stifel upgraded shares of both LULU and GIII to buy from hold; European Union regulators fine GES €$40M for creating higher consumer prices by blocking cross-border sales in Europe through its actions; BKS was upgraded to buy and $10 tgt at Craig Hallum noting several data points indicating an improved holiday season; CAL announced share repurchase program

· Consumer Staples & Restaurants; JACK said it is exploring strategic and financing alternatives, which could include a sale of the company or executing on previously announced plans to increase its leverage; DRI expected to report earnings tomorrow morning

· Housing & Building Products; homebuilders weaker initially after the NAHB Housing market data was reported at 56 vs. est. 60 and lowest since May 2015 (MTH, TOL, KBH, PHM, LEN) were among the movers – however the group recovered off lows as broader markets rebounded as well; in research, SWK was upgraded to buy at Deutsche Bank

· Casino & Leisure movers; in gaming (WYNN, MLCO, LVS) Bernstein hikes its forecast for Macau gross gaming revenue in December to +12% to +15 from a prior forecast of +8% to +10% citing strong channel checks in the mass market segment: Macau GGR rose 8.5% in November and was up 13.7% YTD through November 30.

Energy

· Energy stocks were mixed, falling early with weakness in oil prices which extend las weeks declines; Qatar Petroleum is looking to invest at least $20B in the U.S. over the coming few years, its chief executive told Reuters, after the Gulf Arab state unexpectedly quit OPEC this month. Reuters; other movers on news; WFT agrees to sell its surface data logging business to Excellence Logging for $50M/says it made the sale to help refocus its portfolio on the businesses most closely aligned with its long-term strategy; TRP agrees to sell its Coolidge Generating Station, a 575 MW natural gas-fired power facility, to Southwest Generation Operating Co. for $465M

· Utilities & Solar; PCG shares pressured again, already under scrutiny for a deadly California wildfire last month, now faces potential penalties for allegedly breaking natural gas pipeline safety rules and falsifying records from 2012-2017, state regulators said; ARLP agrees to acquire oil and gas mineral interests from AllDale Minerals LP and AllDale Minerals II LP for $176M; SCG was downgraded to neutral at Guggenheim following rally in shares after the Public Service Commission of South Carolina voted to approve the merger between it and Dominion Energy (D)

· MLP Sector; Goldman Sachs upgraded CEQP to Buy from Neutral with a $43 price target citing improving fundamentals and an attractive valuation for the upgrade while downgraded EQM to Neutral from Buy and cut tgt to $49 from $59 saying the risk/reward is less attractive at current levels after factoring in the corporate simplification transaction announced on November 30

Financials

· Bank movers; GS shares active after Malaysian authorities filed criminal charges against the company and a former partner of the bank in connection with the 1MDB financial scandal, the country’s attorney general said; financials among the top gainers in the S&P 500 index early after underperformance by large cap, regional and trust banks on lower yields, slowing growth fears; group trying to get a lift, but has fallen to fresh 2018 lows in recent weeks

· Credit card sector; monthly credit card data out as: 1) SYF November net charge-off rate 4.64% vs. 4.85% last month and 30-plus day delinquencies 2.91% vs,. 2.95% last month; 2) ADS Net charge-offs fall to 5.5% of average receivables in November from 5.7% in October and card services delinquency rate improves slightly to 5.7% from 5.8% in October; 3) JPM Nov. Credit-Card Charge-Offs 2.26% vs. 2.19% MoM while delinquencies 1.19%, vs. 1.18% in October; 4) COF November net charge-offs 4.72% vs. 4.25% last month and 30-plus day performing delinquencies 4.08% vs. 3.99% last month/auto credit card charge-offs 1.88% vs. 2.04%; 5) AXP November net write-off rate 2.0% vs. 2.0% last month and 30 days past due loans 1.4% vs. 1.4% last month

Healthcare

· Hospitals and Managed care industry under pressure after a U.S. federal district court ruled that the Patient Protection and Affordable Care Act (PPACA) of 2010 was unconstitutional. Seventeen Democrat-led states have intervened and will lead a coalition appealing Judge Reed O’Connor’s decision to the 5th U.S. Circuit Court of Appeals. O’Connor didn’t issue an injunction, so there’s thus no immediate effect on the ACA for 2019 (shares of HMO’s UNH, WCG, MOC, CNC, CI, HUM were active as well as hospital providers THC, UHS, CYH)

· Pharma movers; JNJ took out Friday’s low of around $130, extending last Friday concerns that J&J knew for decades that asbestos had been found in its talc products, that from at least 1971 to the early 2000s; LLY met the primary and all major secondary endpoints in the Phase 3b/4 SPIRIT-H2H study which evaluated the treatment’s efficacy compared to Humira in patients with active psoriatic arthritis; the European Medicines Agency grants PRIME status for RHHBY risdiplam for the treatment of spinal muscular atrophy (SMA); ALKS filed an NDA with the FDA seeking approval for VUMERITY for the treatment of relapsing forms of multiple sclerosis

· Biotech movers; AXON was upgraded to buy at Jefferies with a $3 tgt saying with shares at $1 now yet lots of actual data coming over next 3-12 months, the stock could return a meaningful percentage for small cap investors; IONS tgt raised to $82 at Needham calling a top pick for 2019; VRTX disclosed that on Dec. 13, CFO Thomas Graney gave noticed of his resignation effective immediately; ATRA falls after an update at a medical conference showed one patient who had been responding to its off-the-shelf T-cell therapy, then progressed after being switched to a different cell line.

· Healthcare services and providers; TDOC shares pressured early after Teladoc’s COO and CFO Hirschhorn resign while the company reaffirms guidance;ACHC shares fell after the company replaced CEO Jacobs with Debbie Osteen, former President of the Behavioral Health Division of Universal Health Services, Inc.

Industrials & Materials

· Chemicals; SMG upgraded to outperform at Raymond James based on our view that the stock’s recent pullback is not indicative of any material deterioration in fundamentals and thus provides an improved risk/reward profile; SHW was upgraded to overweight at JPMorgan and up tgt to $415 saying raw material prices for paint and coatings companies should be lower in 2019 than in 2018; LYB was upgraded to buy at Deutsche Bank as expects the ethylene cycle downturn to be short and shallow as LYB is trading at the low end of the peak earnings range for sector

· Industrial & Machinery; EMR was downgraded at Barclays saying that the company’s top-line growth will decelerate and the cyclical backdrop is deteriorating/separately, EMR said trailing three-month orders increased 5% and underlying orders remained in the 5%-10% range; ABB agreed to sell an 80.1% stake in its power grids division to Hitachi, generating net cash proceeds of between $7.6 billion and $7.8 billion; https://on.mktw.net/2rEbUE1; ITWwas downgraded to hold from buy at Deutsche Bank saying it sees its “self-help” status as over

· Aerospace & Defense; ERJ finalized the terms of a proposed deal to sell 80% of its commercial aviation business to BA for $4.2B, though the transaction still needs approval from the Brazilian government, as well as shareholders and regulators; TGI was upgraded to buy at UBS saying the company is on a path to improved performance in margins and cash flow

· Packaging Stocks dropped (IP, PKG, WRK) after monthly industry data signaled the industry faces continued headwinds even as the busy holiday season approaches. Bloomberg noted two sets of November data released this morning “failed to show a discernible pickup in Christmas season order flow” and also signaled a “larger-than-normal inventory increase”

· Transports; Dow Transports pared losses after falling more than 125 points earlier to lows of 9,374.40, moving back above the 9,500 level as rails weak (CSX, UNP, NSC), while truckers were higher (JBHT, LSTR, CHRW); FDX expected to report earnings Tuesday after the close – but sector fell mid-afternoon as the broader stock rally fizzled out; YRCX rebounds after falling 28% Friday as the co defends itself against the government’s complaint on extra shipping charges from its freight subsidiary that dated back to 2013

Technology, Media & Telecom

· Internet & Semiconductors; two of the most volatile sectors in tech were mixed as semiconductors were among the stand out gainers early on, even when broader stock sectors were lower while Internet names were mostly lower; TWTR shares fell after discloses issue related to support forms but was previously fixed

· Software movers; ORCL and RHT report earnings tonight in software sector (weakness in software ahead of results); FNJN slips early after saying that a jury found that Juniper Network’s SRX Gateway network didn’t infringe Claim 10 of Finjan’s U.S. patent 8,677,494

· Media & Telecom movers; MSG shares rallied early after ESPN reported New York Knicks owner James Dolan, who has put the New York Liberty up for sale, said he couldn’t rule out selling the Knicks if the right offer came along https://es.pn/2UUrzwa . Later in the afternoon, MSG issued the following statement from James L. Dolan, “As we have previously stated, there are no plans to sell the Knicks.”

· Hardware & Component news; IBM tgt cut to $167 at RBC Capital from $175 and is lowering its CY19 and CY20 revenue and EPS estimates to reflect software asset sales and FX headwinds

 

_______________________________________________________
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.

Live Trading

Open an Account

Paper Trading

Register