Thursday, January 10, 2019
U.S. equities start the day lower, threatening to snap its 4-day winning streak as major averages were pressured amid a handful of lower forecasts and weak guidance in both the transport (AAL lowered year outlook) and retail sectors today (weaker guidance from M, KSS, BKS, and LB), which are weighing on markets early. Technology stocks have bounced nicely from initial lows (Nasdaq Comp fell more than 1% to start), led by a rebound in semiconductor stocks. Oil prices slip early, down for the first time in nine sessions, while the dollar bounces. Busy day of Fed speakers with upcoming speeches from Bullard, Powell, Evans, Kashkari and Clarida today (in that order starting at 12:40 PM EST). Markets coming off strong stretch of gains (Bloomberg notes market on track to end its strongest 10-day streak in a decade) on signs of improved trade talks with China three-days this week, though the ongoing partial government shutdown (into day-20 today) remains a market distraction. Also upcoming, market attention likely to turn to fundamentals as earnings season kicks off next week.
Treasuries, Currencies and Commodities
· In currency markets, the dollar rebounds after yesterday’s decline, while Treasury prices slip and yields rise (10-year up at 2.71% and 2-yr 2.545% – 30-yr at 3.02%). Oil prices take a breather after surging over 5% yesterday on bullish Saudi comments on production cuts (oil comes into the day with an 8-day win streak). Gold prices are little changed, holding near 7-month highs.
· Weekly Jobless Claims fell 17K to 216K, below the 226K est. while prior week claims revised up to 233K from 231K; the 4-week moving average edged up by 2,500 to 221,750; continuing claims fell 28k to 1.722m in the week ending Dec. 29; claims fell below the 2 million mark last spring for the first time since 2000 and have hovered near a 45-year low for months
· The 30-year fixed mortgage rate for week ended today fell to 4.45% from 4.51%, Freddie Mac said; 30-year fixed-rate mortgage at its lowest level since April 2018; 15-year rate avg 3.89%, down from 3.99% a week earlier
Sector Movers Today
· Retailers; department stores a big drag on markets today as Macy’s (M) cuts its 2018 guidance, saying the company will continue to take necessary steps in January to ensure a clean inventory position (lowered year EPS to $3.95 to $4.00, saw $4.10 to $4.30)/said Nov and Dec owned comp sales are up 0.7%; Owned plus licensed comp sales up 1.1%; KSS reported Nov. and Dec. holiday-period comp sales rose 1.2% on a shifted basis, much lower than its prior year holiday sales growth of 6.9% (shares of JWN fell in sympathy); LB comparable sales for the December vs. +1% y/y that missed the average analyst estimate of 3.4%; in research, UAA upgraded to mixed at OTR Global while Needham upgraded shares of COLM, RL and NKE to buy
· Airlines hit hard today after AAL lowers its full-year EPS guidance to a range of $4.40 to $4.60 vs. $4.50 to $5.00 prior and $4.62 consensus citing lower than anticipated improvement in the domestic market during Q4/outlook for Q3 cost per available seat mile reaffirmed at -1% to +1%; in research, UALwas upgraded to overweight from neutral at JPMorgan and upgrade ALK to neutral from underweight citing stronger 2020 forecasts and cheaper fuel prices; raised 2019 earnings estimates for the group by roughly 20% (firm downgraded JBLU). Cowen upgraded SAVE in low-cost airline carriers to outperform and downgraded LUV to market perform as continue to have a favorable bias toward the group as we believe the environment in 2019 will be similar
· Bank movers; more rating shuffling by analysts as Bank America/Merrill latest to weigh in, downgrading banks BKU, BY, ASB, CFR, TCF, BBT, PNC, UMBFahead of earnings kicking off for the group next week; Barclay’s upgraded SNV, TCBI to Overweight and OZK, PBCT to Equal Weight while lower PB to Equal Weight and NYCB to Underweight saying EPS estimates and price targets fall at most banks to reflect the impact of the flatter yield curve and our increased provision projections/FRC remains their Top Pick.
· Consumer Staples; Wells Fargo is more cautious on Staples for 2019 based on macro-uncertainty, margin pressures, and the lapping of tax reform; after the recent flight to quality, XLP is at a 19% premium to SPX (vs 17-18% historical avg) despite weaker fundamentals – firm downgraded ELF and EL in the cosmetics sector) and see the beaten down Tobacco sector as a pocket of opportunity (top stock picks are PM, STZ, KO and MO); BGS downgraded to Market Perform at BMO reflecting case for aggressively investing in BGS is less persuasive at current valuations and the absence of debate on the health of its dividend
· Tankers/shipping; Wells Fargo downgraded KEX, FRO, DHT, NVGS, TNK, CPLP, & TOO to Market Perform as macro headwinds, commodity/equity vol push us to the sidelines in 2019 – firm cut ratings on any remaining OP names with specific leverage to US production, (KEX, NVGS), less-liquid – or expensive Tanker exposures (DHT, TNK, FRO), and two special-sit names with either crude/offshore exposure (TOO) or changing dynamics (CPLP)
· Housing & Building Products; homebuilders active for a second day after KBH earnings overnight were small beat on EPS and revs, but said Q4 net orders down 12% at 2,013; results follow mixed results from LEN yesterday, though group rebounded on positive outlook from LEN; MTH was downgraded neutral at Wedbush because of a lack of upcoming catalysts following the recent boost from falling mortgage rates; DA Davidson downgraded BLDR and BMCH to neutral from buy noting that the summer slowdown in housing has morphed from a speed bump to something that looks to have begun impacting the starts rate for builders
· BBBY +8%; jumped more than 20% overnight on a rosy 2020 outlook, while quarterly results were mixed to slightly lower (comp sales of -1.8%), and several analysts skeptical on outlook
· PCG +6%; on rebound after falling over 25% last few days on bankruptcy fears and credit rating downgrade
· STZ +5%; rebound after falling yesterday post weaker guidance; was upgraded to buy at Guggenheim after the sell-off
· TWTR +3%; double upgraded to buy from underperform at Bank America and raises the target from $31 to $39 citing its survey showing improving metrics in the 18-29 demographic
· VERI +19%; raises Q4 revs view to $10.7M-$10.9M from prior $9.3M-$9.7M and vs. est. $9.49M citing strong demand for its aiWARE operating system
· WRK +2%; strength in paper, packaging and containerboard sector early (IP, PKG)
· AAL -9%; after the company lowers its full-year EPS guidance to a range of $4.40 to $4.60 vs. $4.50 to $5.00 prior and $4.62 consensus citing lower than anticipated improvement in the domestic market during Q4/outlook for Q3 cost per available seat mile reaffirmed at -1% to +1%
· BKS -14%; after saying it may cut earnings guidance by as much as 10%, due to increased advertising expense and promotional activity
· CRAY -7%; Craig Hallum noted co speaks at Needham conference next week and believes sizeable new system orders from customer in 2019 could wait for the new product
· ELF -14%; downgraded along with EL at Wells Fargo as firm is more cautious on Staples for 2019 based on macro-uncertainty, margin pressures, and the lapping of tax reform
· FRAC -4%; downgraded to hold at Jefferies along with SPN saying both are vulnerable to more earnings erosion
· KSS -9%; reported Nov. and Dec. holiday-period comp sales rose 1.2% on a shifted basis, much lower than its prior year holiday sales growth of 6.9%
· M -19%; cuts its 2018 guidance, saying it will continue to take necessary steps in January to ensure a clean inventory position (lowered year EPS to $3.95 to $4.00, saw $4.10 to $4.30)
· MDB -8%; as AMZN unveiled a new cloud database called DocumentDB that emulates API functionality similar to MongoDB
· YELP -7%; downgraded to underweight at Morgan Stanley as see YELP’s more flexible ad product, still-high pricing vs GOOGL/FB, and falling reach driving lower than expected revenue per account
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.