Wednesday, January 2, 2019
U.S. equities open 2019 to the downside, amid various factors early…but stock have recovered nicely off intraday lows as investors scoop beaten-up stocks. A combination of growth fears, a U.S. political impasse, nervousness over trade, health of the U.S. economy and the path of interest rates from the Federal Reserve drive cautious trading world-wide. Commodities also under pressure on weak China data, leading to a flight to safety for investors early with bonds and gold prices jumping. Factors driving today’s stock market weakness early included: China’s Caixin manufacturing purchasing managers index (PMI) fell to 49.7 in December, marking the weakest reading since 2017 and suggests the sector is contracting for the first time in 2½ years. The partial U.S. government shutdown moved into a 12th day with the hope of a breakthrough offered by both sides prepared to enter talks. President Donald Trump has invited Congressional leaders across parties to the White House later today. Also, US PMI data falls to 15-month lows in December as PMI Manufacturing Index 53.8 vs. 53.9 consensus and 55.3 prior. Investors looking to rebound after a late November/December selloff erased strong 2018 gains for major averages, with the Dow falling 5.6%, S&P 500 off 6.2%, and NASDAQ down 3.9% for the year. Financials, Energy and Telecom leading the bounce for stocks off the lows as oil spikes off lows.
Treasuries, Currencies and Commodities
· In currency markets, the US dollar starting the year off very strong, rising vs. most currencies after slipping Monday, but posted strong gains across the board in 2018. Sterling drops 1.2% as unease drags down European currencies, while the euro slips (The euro down -0.9% at 1.1363 (off overnight highs 1.1497). The Japanese yen adds to recent gains as the buck slides vs. the safe haven instrument, while Bitcoin prices rise over 2% above $3,800.
· Commodity prices broadly lower (outside of defensive/safe haven precious metals as gold at 6-month highs) following fears of an economic slowdown in China following another round of weaker manufacturing data from the country; oil prices start 2019 lower (after falling 25% in 2018) but have since rebounded sharply posting gains of more than 1%; cotton prices fell around 1% to 13-month lows around 71.55c according to Bloomberg while orange juice futures fall to 21-month low, down over 2%
· Treasury market’s rally as the 10-year yield slides to 1-year lows; this time last year, the 10-year Treasury yield was on a quick rise, eventually topping at about 3.25% in late September, but was down another 4 bps today at 2.64% (before bouncing back above 2.66%) amid a resumption in slumping equity markets; the 2-year yield down at 2.50%
Sector Movers Today
· Consumer Staples; CAG was removed from Goldman Sachs conviction buy list (though remains buy rated); Deutsche Bank said for STZ they see FY3Q19 results/guidance (on Wednesday, January 9th) as likely to reassure current/recently-lapsed owners of STZ, leading to a rapid re-rating higher as we progress into CY19; EL was upgraded to buy at Citigroup and raised tgt to $155 as sees upside to the company’s 2019 earnings forecast and believes its balance sheet is in terrific shape
· Casino & Leisure movers; WYNN, MLCO, MGM, LVS shares active after Macau gross gaming revenue increased 16.6% in December to 26.5B patacas, according to data from the Gaming Inspection and Coordination Bureau. The consensus estimate from analysts was for December gross gaming revenue growth of ~11%. Nomura noted that Macau gaming revenues accelerated for the second consecutive month to +16.6% YoY in Dec. from +8.5% in November;CZR was upgraded to neutral with $7 target at UBS; GOLF upgraded to buy at Compass Point
· Biotech movers; Raymond James downgraded BMRN, RARE and VRTX to market perform as the firm remains cautious on biotech heading into 2019 – as they see the overall biotech sector at a critical juncture as we enter 2019. Although the regulatory environment remains as favorable as ever, and valuations have never been lower, we see a more cautious setup; PRQR received Fast Track designation from the FDA for QR-421a, an investigational RNA-based oligonucleotide
· Medical equipment and devices; Citigroup upgraded ZBH and BAX to buy from neutral and downgraded MDT from Buy to Neutral, and cut ABT from Neutral to Sell in re-weighting in the equipment sector while remain buy rated but relatively more cautious on higher-growth ISRG and BSX and remain Sell rated on EW. Morgan Stanley also with a few changes, downgrading HOLX and GMED on high expectations while upgrading BAX to overweight
· Healthcare services and providers; Baird comments on the Dental industry, as they downgraded HSIC to neutral and trim estimates/price targets across most of the group saying the combination of dental’s secular overhangs, softer 4Q patient volume checks, and accelerating equipment pricing pressures makes it one of the few MedTech areas where we’re they’re cautious
· Insurance; JPMorgan reduced EPS estimates for several insurers to reflect the recent equity market drop saying estimates for most companies are below consensus and we feel that street forecasts for VOYA, PFG, and BHF are especially high. Also, despite the steady drop in the past two years, consensus EPS forecasts for AIG remain too optimistic; TMK was upgraded to overweight at JPMorgan saying fundamental outlook for TMK is relatively unchanged, although they are incrementally upbeat on direct response margins and sales
· EL ; upgraded to buy at Citigroup and raised tgt to $155 as sees upside to the company’s 2019 earnings forecast and believes its balance sheet is in terrific shape
· GE +4%; among the top gainers in the S&P 500 index after plunging last year
· KLAC +2%; strength in semi-equipment stocks early (AMAT also rising)
· WYNN +3.6%; amid a gain in gaming stocks after Nomura noted that Macau gaming revenues accelerated for the second consecutive month to +16.6% YoY in Dec. from +8.5% in November
· AKAM -4%; downgraded at Cowen saying 2019 growth set up more challenging and see risk guidance disappoints consensus ~8% revenue growth
· HOLX -6%; downgraded to underweight at Morgan Stanley and tgt cut to $39 saying the company’s 2018 underperformance was likely to continue and is less attractive than its peers
· NFLX -3%; tgt cut to $355 at SunTrust saying their Subscriber Tracker, through November, is pointing to 4Q sub adds slightly below consensus/guidance
· TSLA -9%; to cut price of Model S, Model X and Model 3 by $2,000 and said deliveries increased 8% from a year ago to 90,700, below the FactSet consensus of 92,000 and Model 3 deliveries rose 15% to 61,394, missing the FactSet consensus of 64,900
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.