Market Review: January 14, 2019

Scott GreenDaily Market Report

Closing Recap

Monday, January 14, 19

Index

Up/Down

%

Last

DJ Industrials

-87.40

0.36%

23,908

S&P 500

-13.89

0.54%

2,582

Nasdaq

-65.56

0.94%

6,905

Russell 2000

-14.68

1.02%

1,432


 

Equity Market Recap

·     U.S. stocks pull back after strong gains last week (though on light volumes), as a combination of weaker-than-expected trade data out of China, day 24 of the partial government shutdown today with still no resolution in sight between the two sides and Brexit fears into tomorrow’s vote in the UK sent stocks lower. Materials and metals stocks sunk overnight after Chinese monthly exports rose 7.1%, down from the 7.9% reported earlier for 2017, while import growth declined to 12.9% from the previous year’s 15.9%. Financials climbed despite mixed quarterly results from Citigroup today (unofficially kicking off earnings season) as earnings beat but trading revs for fixed income and equities missed the mark (ahead of JPM and WFC results tomorrow). Utility stocks dropped (biggest declining S&P sector), led by PCG as shares were cut in half after saying it plans to file for bankruptcy on or about Jan. 29th. Technology shares led underperformance on several negative analyst calls in the semi space (WDC, MU). Natural gas prices jumped over 15% amid colder weather forecasts. Brexit concerns rise as U.K. lawmakers get ready to vote on Prime Minister Theresa May’s exit deal with the European Union Tuesday. Overall there was a little market giveback after recent strong returns ahead of a busy bank earnings week.

 

Commodities

·     Oil prices slipped late session, with WTI crude falling -$1.08 to settle at $50.51 per barrel, near its lows of the day after touching intraday highs of $52.11 earlier. Oil tried to build on last week gains, reversing earlier losses of more than 1.5% overnight after prices for WTI crude rose over 7.5% last week, but between weaker China trade data and profit taking, oil prices slid. Natural gas prices spiked 16.9% to $3.591m btu’s on forecasts of colder weather forecasts showing a polar chill descending on most of the country later this month, soaring as much as 16% – a reversal after prices dropped for 5-straight weeks in December and early January as unusually temperate conditions kept prices subdued. Gold prices end higher $1.80 or 0.2% to settle at $1,219.30, trading in a very narrow trading range the whole day with the dollar in a tight range

 

Currencies & Treasuries

·     The dollar was mixed, little changed vs. the yen, Canadian dollar and euro most of the session, while the British Pound climbed around 0.35% to around 1.29 as U.K. lawmakers get ready to vote on Prime Minister Theresa May’s exit deal with the European Union Tuesday. After three months, Mexican peso moved back below 19 again, outperforming amid general dollar weakness. No major US data in the U.S. today to move currencies, while partial gov’t shutdown rolled into day 24. Fed speakers were also quiet today; bitcoin prices fell more than 3% before rallying to move higher.

·     Treasury prices were higher initially as stocks were under pressure to start the week…but as stocks rebound off lows, prices fell as Treasury yields inched higher with the 10-yr approaching 2.71%, the 30-yr up above 3.05% and 2-yr at 2.537% (though the short term 1-yr yield of 2.57% still above the 2, 3 and 5-years). No economic data to move the needle today for bonds.

 

 

Macro

Up/Down

Last

WTI Crude

-1.08

50.51

Brent

-1.49

58.99

Gold

1.80

1,291.30

EUR/USD

0.0003

1.1472

JPY/USD

-0.27

108.21

10-Year Note

-0.003

2.702%

 

 

Sector News Breakdown

Consumer

·     Retailers; several retailers, restaurant stocks issue guidance ahead of the 3-day ICR conference: SCVL said it expects FY2018 net sales to be ~$1.028B and expects comparable store sales to increase ~4% and EPS $2.41-$2.43; YETI raised guidance as 4Q results were strong, as the brand continues to gain credibility in non-core categories/territories and mix shifts favorably to DTC; LULU boosted guidance as sees total sales and adjusted profit coming in higher than its previous forecasts; BOOT guided Q3 adjusted EPS 66c on revs $254M vs. est. 61c/$251.07M and Q3 comp store sales increased 9.2%; ASNA sees Q2 EPS loss (23c-28c), worse than prior view of (15c-25c loss), sees 2Q comp sales in line with second quarter guide and holiday comp sales rose 3%; CROX raises revenue for FY18 up about 6%, as compared to its previous view of a 4%-5% increase and sees Q4 revs $211M-$214M vs. prior $195M-$205M; TLRD lowered its Q4 EPS loss

·     Restaurants; TACO says it’s taking actions to take the percentage of company ownership of stores to approximately 45% by the summer of 2020 from a current level of 55%; DENN said Q4 domestic system wide comp sales rose 1.4% and reiterates 2018 expectations for Adjusted EBITDA of $105M-$107M; WING said system-wide restaurant count increased 10.5% to 1,252 and domestic same store sales increased 6.0% for the quarter and 6.5% for the fiscal year.

·     Housing & Building Products; TMHC was downgraded at Wells Fargo as believe this has become a very late 2019 story/remain secular bulls on housing given the strong demographics, job growth and household formation; SHW was upgraded to outperform in paint space at Wells Fargo on valuation and with the company growing 2019 EPS an estimated +17% YoY; HOME reaffirmed it Q4 outlook while sees sales at high end of views

 

Energy

·     Energy stocks were mixed to lower, pressured on the weaker China Export/Import data that weighed heavily on materials and metals as well with oil falling 2%; overall, energy names have had a good run the last few weeks with oil prices bouncing off 18-month lows; QEP shares spiked after Bloomberg reported the company is working with Evercore Inc. to explore a sale

·     Utilities & Solar; PCG shares plunge as much as 55% after saying it plans to file for bankruptcy on or about Jan. 29, given the potential liabilities resulting the 2017 and 2018 Northern California wildfires. The utility said it didn’t expect the bankruptcy to affect its electric or natural gas customers, and expects its employees to continue to be paid, https://on.mktw.net/2SOuC7T ; PNM was downgraded to underperform at Mizuho saying the stock is “expensive,” trading at a 13% premium to group average multiple; Dominion (D) defended at UBS saying weakness in Dominion is a buying opportunity as recent guidance from the company suggests a recent headwinds bias, but still believes his thesis of it being an execution story remains intact; PPL downgraded to underperform at Bank America citing recent outperformance, which believes was unwarranted against what will likely be a challenging year end call

 

Financials

·     Bank movers; Citigroup (C) rallied – the first of major banks to report earnings as Q4 revenue fell to a two-year low, as a sharp drop in fixed-income sales and trading earnings took a heavy toll/Q4 revs of $17.1B missed the $17.6B estimate as fixed income markets sank 39% compared with last quarter to $1.94B while equity revs also missed views but EPS beat; STT was upgraded to strong buy at Raymond James citing the acquisition of Charles River Development and the company’s lower credit risk vs peers; big week of bank earnings coming up: 1/15: FRC, JPM, WFC; 1/16: BAC, BK, BLK, CMA, GS, PNC, SCHW, USB; 1/17: BBT, KEY, MS, MTB

·     Asset managers; Citigroup downgraded AMG to neutral and cut WDR, BEN, APAM, all to sell while a bit more constructive on LM (the ratings changes follows several recent analyst downgrades in the sector over the last week – and weaker monthly AUM data)

·     Consumer finance, lending; USAT shares active as it laid out a series of measures it plans to take to strengthen its corporate governance, after an audit committee investigation uncovered accounting issues; KBW Inc. upgraded NLY and AGNC to outperform from market perform saying it had a more positive outlook on the mortgage REITs “as the Fed’s rate tightening cycle appears to be coming to an end.”

 

Healthcare

·     Pharma movers; PBH lowers views as now sees FY19 revs $970M-$975M below prior view $985M-$995M (est. $988M) due to revised expected 3Q revenue and unfavorable foreign currency headwinds/also lowers year EPS view; LJPC upgraded to hold at Jefferies saying valuation reflects largely reset sales expectations after weak 2019 sales guidance pressured the stock to tumble 50% on Jan. 7; BMY positive mention in Barron’s this weekend; CGC rises after says to invest up to $150 million in New York hemp facility

·     Biotech movers; the biotech ETF (IBB) coming into today, has seen a 13% jump in 2019 posting a nine-day winning streak, the longest in five years and the best start to a year since the index was created in 1993, spurred by two M&A deals to start the year (LLY for LOXO and BMY for CELG); AMGN and UCB’s Evenity (romosozumab) as a proposed treatment for osteoporosis will face questions on its observational safety studies and the drug’s risk/benefit profile, FDA staff said

·     Healthcare services and providers; TDOC upgraded to outperform at Baird saying it remains one of the more compelling growth stories within Healthcare and multiple secular drivers should continue to push adoption/ utilization of virtual health solutions in the coming years

 

Industrials & Materials

·     Transports; DAL downgraded to neutral at Bank America to account for expectations of slower revenue and valuation in relation to peers; XPO downgraded to sector weight at KeyBanc on the likelihood that the big and bulky final mile (BBFM) is increasingly competitive in addition to ongoing uncertainty around European end markets

·     Metals & Materials; group remained weaker on softer China trade data; M&A deal in gold mining space as NEM agreed to buy rival Canadian gold producer GG in an all-stock transaction the companies valued at $10B/NEM to acquire each Goldcorp share for 0.3280 of their own stock https://on.mktw.net/2FtLrlw ; Goldman Sachs upgraded AA, TECK, CMC and downgrade SCHN, STLC saying a downturn in NA M&M stocks over 2H18 has left sentiment weak and multiples low, but across coverage they see fresh areas of opportunity; Morgan Stanley said they see an entry point emerging in AA post 4Q earnings, when the company will likely guide towards ~$2.0 bn in 2019 EBITDA vs. the Street at ~$2.6 bn, and reset expectations lower. On TECK and HCC, they are above the Street after MTM for higher met coal while lower 4Qe for FCX

·     Aerospace & Defense; Credit Suisse said they remain broadly Neutral, and selectively bullish on names with strong micro stories and supportive valuations. Overall, they now prefer defense hardware to Federal IT (reversing our previous view), as valuations are generally comparable and defense hardware offers superior. CSFB Top Picks are HRS and NOC which we upgrade to outperform; the SEC and the Commerce Department are investigating Boeing’s (BA) relationship with China-backed satellite startup Global IP, WSJ says, citing a letter from the SEC sent to Global IP https://on.wsj.com/2ALxHhZ ; ARNC was downgraded to neutral at JPMorgan saying sees high likelihood that buyout occurs, though absent a deal, the stock likely trades to mid-teens.

 

Technology, Media & Telecom

·     Internet; SNAP upgraded to neutral at Citigroup saying a growing number of advertisers are optimistic in the company’s ability to showcase media, and there are better profit expectations surrounding its upcoming Android app launch; NFLX shares up over 20% YTD heading into earnings later this week down for only the 2nd time in last 13 days; CVNA sides after Morgan Stanley initiated underweight and $23 tgt warning that the Carvana “disruption” factor is already baked into its share price

·     Semiconductors; Apple supplier Dialog Semiconductor (DLGNF) said its quarterly revenues will be at the bottom of the range it forecast in October in the latest sign of industry headwinds; AXTI lowers Q4 revenue view to $22M-$22.4M from $26.5M-$27.5M citing increasingly cautious climate; MU shares active after Morgan Stanley said shares still look risky despite falling more than 40% since May 2018; WDC falls on Evercore/ISI downgrade to underperform and cut tgt to $30 that while he maintains positive secular view for Semi demand long-term, believes the market is not fully appreciating the negative consequences to the company

·     Software movers; Piper said 4Q18 Security Reseller Survey points to strong results for PANW, OKTA, FTNT, PFPT , slightly better than Q3; Deutsche Bank said MSFT security products are “flying below the radar of most Street analysts” and are “central” to the company’s emerging ARPU growth story

·     Media & Telecom movers; VIAB is in talks to sell a majority stake in some of its China operations after running into difficulties trying to scale its business there, WSJ https://on.mktw.net/2THhy4a ; GCI responded to MNG Enterprises unsolicited bid to buy the company, but saying it will “carefully” review the proposal and determine what is in the best interest of shareholders. Earlier, MNG proposed to buy the company for $12 per share https://on.mktw.net/2FubTuy; in towers, Goldman Sachs downgraded CCI to Neutral and said believe broad underperformance in US telecom and cable stocks in 2018 has created select opportunities for investors to own high quality assets at attractive valuations

·     Hardware & Component news; ROKU price target was cut to $44 from $60 at Citigroup citing higher expense forecasts to account for international investments and the potential for heightened competition/also lowers the long-term active account forecasts to account for greater potential competition; CRAY backs forecast for ‘substantial’ loss in 2018, 2019

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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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