Thursday, January 3, 2019
U.S. stock markets under significant pressure on the day (major averages down over 2.5%), as a revenue warning from Apple smashes the tech sector and drags down the Dow, while the partial government shutdown rolls into day 13 and slowing global growth fears remain as well. The tech sector crushed following the bombshell lower guidance for quarterly revs, EPS and margins out of Dow component AAPL, as many analysts re-adjust iPhone outlooks as the company cited weakness in China among the top reasons for the shortfall. The weakness carrying over to the AAPL supply chain, as many suppliers in the semi/optical space under pressure (CRUS, SWKS, AVGO, TSM, LITE, SYNA). Transports slammed following guidance and Dec metrics from DAL that disappointed investors (sending shares down over 10% and weighing on other airlines). Biotech space very active given the blockbuster M&A deal today, as BMY agreed to buy CELG in a deal valued at over $74B. Economic data in the U.S. was mixed, with a strong beat on private payroll data from ADP, adding 271K jobs for the month and topping the 180K estimate. However, ISM manufacturing data missed, falling to the lowest level since Nov. 2016, point drop largest since Oct. ’08. Right now, selling pressure in riskier assets as Treasuries, gold prices and the yen all producing strong gains in the morning.
Treasuries, Currencies and Commodities
· In currency markets, the dollar falling broadly on weaker manufacturing data out of the ISM, overshadowing the better private payroll report. The yen surges to best levels since March vs. the dollar and strong gains vs. other currencies (Aussie dollar, Turkish Lira) in flight to safety given the global stock market pullbacks; dollar falls vs. Pound and euro.
· Commodity prices are mixed to higher, led by gains in safe-haven gold prices, moving above he $1,290 an ounce level as the dollar slide. Meanwhile, oil prices holding up relatively well given the sell-off in riskier assets (oil had been flat, but sliding the last few minutes)
· Treasury market’s rally as yields plunge to multi-month lows; the 10-yr yield drops under 2.6% (after hitting peak of 3.25% just a few months ago), the 30-yr yield down at 2.93% and 2-yr yield down 2.445% (down over 50 bps from October highs)
· Payroll data strong as ADP Private-sector employment jumped in December with 271,000 jobs added, easily topping the estimate of 180K by economists (it is also the most job gains since February 2017). The report showed that small firms added 89,000 jobs in December, medium-sized businesses added 129,000 to large companies added 54,000.
· Weekly Jobless Claims rose 10K to 231K, above the 220K estimate while the prior week claims revised up to 221K from 216K; the 4-week moving avg. slips by 500 to 218,750; continuing claims rose 32k to 1.740m in the week ending Dec. 22
· ISM Manufacturing for Dec falls to 54.1 from 59.3 last month and below the est. of 57.5; ISM data falls to the lowest level since Nov. 2016, point drop largest since Oct. 2008 as new orders fell to 51.1 vs. 62.1, employment fell to 56.2 vs 58.4 and prices paid fell to 54.9 vs 60.7; backlog of orders fell to 50.0 vs 56.4; new export orders rose to 52.8 vs 52.2
Sector Movers Today
· Autos’ December monthly auto sales data was released: GM said new vehicle deliveries for the Q4 in the U.S. declined 2.7% year over year. Total deliveries for the quarter were 785,229. Deliveries for the full year were 2.9 million, down 1.6% from full-year 2017. Chevrolet, Cadillac and Buick brands all experienced declines for both periods; FCAU said U.S. auto sales rose 14%, missing the est. for an increase of 15% as Jeep brand sales rose 10% to 80,449 vehicles, Wrangler sales jumped 45% to 19,800 vehicles and Cherokee sales rose 7% to 20,800 vehicles; Ford (F) Dec. U.S. light-vehicles sales fell (-8.8%), vs. est. down (-6.2%) while Ford brand sales fell 9.6% to 209,248 vehicles, Focus sales dropped 67% to 3,661 vehicles, Mustang sales fell 43% to 4,392 vehicles and Lincoln brand sales rose 8.5% to 11,526 vehicles; HMC issues December US auto sales rose 3.9% vs. est. down (-2.8%); NSANY Dec US auto sales rose 7.6% vs. est. down (5.6%)
· Solar stocks FSLR and CSIQ both upgraded to buy from neutral at Goldman Sachs as their solar coverage view raised to neutral from cautious saying green shoots are emerging, with improving demand into 2019. Notes ASPs are stabilizing, and China is likely a positive catalyst regarding policy. Upgrades FSLRciting U.S. utility-scale momentum, expectations already reset; CSIQ raised to buy vs neutral; sees upside to consensus numbers
· Managed care; CI was upgraded to outperform at Raymond James as the combined Cigna/Express Scripts business is poised for above peer earnings growth yet trades at a substantial discount to both the peer group and the overall market; MOH has renewed its contract with CVS for pharmacy benefit management services through 2021, adding that the agreement is immediately accretive to earnings; Wolfe Research remain constructive but see risk/reward more balanced so downgrade our sector rating for Managed Care from Mkt Overweight to Mkt Weight (firm upgraded WCG to outperform but downgraded MOH)
· Biotech movers; GILD was upgraded to outperform at Oppenheimer calling it among the cheapest in large-cap biotech and positive 2019 catalysts include recently named CEO, sales growth, and important mid/late-stage clinical readouts for budding franchises; SESN falls on late-stage Vicinium data; Guggenheim updated its biotech coverage, with highest conviction BUY for 2019 remains ARRY, which they designate as “Best Idea” while upgrading INCY to BUY with an $84 PT and downgrading PBYI to neutral from buy
· Medical equipment and devices; Bank America comments on Life Sciences & Diagnostic Tools stocks noting a strong 2018, though macro doubts are likely to persist and organic revenue growth is likely to slow – the firm named Agilent (A) its top Tools pick for 2019 while upgraded WAT to neutral from underperform and cuts MTD to neutral from buy; remains bullish on EXAS in diagnostics group coverage while downgraded LH and DGX to underperform; UBS upgraded ILMN to buy, bullish on its revenue growth opportunity, with our prior survey work analysis pointing to an accelerating revenue growth outlook for 2019; Barclay’s named TMO its top pick in Life Science while upgraded BIO to overweight and lower tgts for MYGN and SYNH
· Multi-industry; Credit Suisse named 2019 top picks: HON, EMR and IR, replacing MMM, ALLE and XYL, which all remain rated Outperform. CSFB upgradedEMR to Outperform on expectations for an oil price recovery in early Q2, strong E&C backlogs, and attractive FCF generation. HON was also upgraded to Outperform as the company benefits from each of our core themes (e.g. digital, simplification and FCF generation).
· Apple Inc. suppliers tumbled in post-market trading after the iPhone maker cut its first-quarter revenue forecast with shares of SWKS, AVGO, CRUS, SYNA, STM, QRVO falling. Dow Jones noted over 80% of the Apple suppliers tracked by Barron’s are based in Asia. Opticals also fall, led by declines in LITE early (recall LITE already preannounced its Dec-18 quarter) – but fears of continued weakness in China may persist into this year is weighing on sector
· BTAI +36%; following its announcement of Phase 1 data on IV dexmedetomidine (Dex) for the treatment of agitation in patients with Senile Dementia of the Alzheimer’s Type
· CELG +25%; as BMY agreed to acquire CELG in a $74 billion cash-and-stock deal; Celgene shareholders will receive one Bristol-Myers Squibb share and $50 in cash for each Celgene share held, which would value Celgene at $102.43 a share https://bloom.bg/2SC2eFW
· GILD +5%; upgraded to outperform at Oppenheimer calling it among the cheapest in large-cap biotech and positive 2019 catalysts
· INCY +7%; after being upgraded to buy at Guggenheim in shift in biotech coverage
· AAPL –9%; after uncharacteristically negatively pre- announced Dec-qtr results, with revenues expected to be $84B ($7B below prior guide), gross-margins at 38% (prior 38-38.5%) and implied EPS at $4.15 (street at $4.66) citing challenges related to: 1) Greater China, 2) some developed countries saw weaker than expected iPhone upgrades happen and 3) GM’s are towards the low-end of guide and surprisingly OPEX remained at $8.7B
· BMY -14%; as investors sell on concern that they overpaid for CELG acquisition
· DAL -9%; following guidance and Dec metrics from DAL that disappointed investors
· LL -4%; downgraded to hold at Loop Capital warning on the impact of heightened promotional activity on Lumber Liquidators’ margins
· MLNX -12%; down with broader semi weakness as well as news the company named Doug Ahrens as new CFO (which Piper Jaffray said coupled with reports of a slowdown, “is a potential indicator that Mellanox is not selling itself.”)
· QRVO -8%; as the semiconductor index falls around 5% and all 30-components in the Philly semi index (SOX) trade lower after AAPL lowered revenue guidance, hurting supply chain
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.