Market Review: January 15, 2019

Scott GreenDaily Market Report

Closing Recap

Tuesday, January 15, 19

Index

Up/Down

%

Last

DJ Industrials

155.61

0.65%

24,065

S&P 500

27.69

1.07%

2,610

Nasdaq

117.92

1.71%

7,023

Russell 2000

12.36

0.86%

1,445


 

Equity Market Recap

·     U.S. stocks posted solid gains, rebounding from yesterday’s modest declines, led by outperformance in technology shares after China signaled plans to cut taxes on a larger scale to combat slowing growth and cut reserve requirements. The Nasdaq Composite pushed to highs of 7,025, topping its 50-day MA of 6,996, the first move above the 50-day since early December helped by gains in broad tech and NFLX (shares rose over 6% midday) after the company announced a price hike in its service. Energy stocks rallied behind a 3% spike in WTI crude oil prices ahead of inventory data late today. The 10-year Treasury yield rose to around 2.71%, while the dollar advanced the most in two weeks as the euro dropped after ECB President Mario Draghi said the economy is weaker than expected. The S&P 500 traded higher above the 2,600 level for the first time since December 17th though financials were mixed on earnings as JPM and WFC both slip after results following a good move yesterday in the sector.

·     In the UK, Prime Minister Theresa May’s Brexit deal was rejected by Parliament in a lopsided defeat as the House of Commons voted 432-202 against the EU divorce deal. The defeat leaves the future of her government uncertain, while May’s plan is all but dead. A margin of less than 60 was seen as possible grounds to hope that the deal was salvageable according to reports. The Pound, which fell as much as 1.45% after the news, rallied back to little changed late afternoon.

·     In Fed speakers, Dallas Fed President Robert Kaplan said government’s partial shutdown hurts economy, adds to uncertainties/sees a quarter or two of Fed patience, months not weeks. Kansas City Fed President Esther George, (known to be hawkish) said now “might be a good time to pause” in the rate-hike cycle to allow the Federal Reserve to get its bearings.

·     Economic data was mixed today as the Empire State manufacturing index fell 7.6 points to 3.9 in January, the lowest reading in more than a year, below the economist estimate of 10.0, but the Producer Price Index (PPI) core reading unexpectedly fell (-0.1%) vs. an expected 0.2% rise, reducing inflation fears and helping keep expectations on track for the FOMC to hold steady on not raising rates

Economic Data

·     Producer prices (PPI) posted the biggest decline in December in five months, falling (-0.2%) vs. est. (-0.1%) as the overall gauge declined more than forecast amid lower oil prices, signaling potential inflation pressures in the economy are contained. Excluding food and energy, core PPI fell an unexpected (-0.1%) vs. est. for a 0.2% rise. On an annual basis, core producer-price gains held steady at 2.7% — missing forecasts for 2.9% — while the broad gauge rose 2.5%, also unchanged from the prior reading.

·     The Dec Empire State manufacturing index fell 7.6 points to 3.9 in January, the lowest reading in more than a year, below the economist estimate of 10.0. The headline index has fallen a cumulative 18 points since November (last month was revised to 11.5 from 10.9)

 

Commodities

·     Oil prices rise as WTI crude settles at $52.11 per barrel, up $1.60, or 3.2% as investors piled into riskier assets and ahead of weekly inventory data tonight and tomorrow. Gold prices snapped its modest 2-day win streak, falling -$2.90 to settle at $1,288.40 an ounce and erasing earlier losses as the dollar advanced. Gold had risen early, supported by softer-than-expected PPI inflation data in the U.S., but still unable to breach $1,300-an-ounce. Also helping gold early, geopolitical uncertainty swirling about ahead of the UK Brexit vote. Lumber futures jumped limit up by $15 to seven-week highs.

 

Currencies & Treasuries

·     The dollar pushed higher, gaining broadly vs. rival counterpart currencies; the British Pound dropped after Parliament voted against UK Prime Minister May’s Brexit deal, as the Pound fell as much as 1.45% to around 1.2675 before paring losses (off overnight highs 1.2916). The dollar was also higher vs. the euro, and yen while the Canadian dollar rose on a jump in oil prices. Treasury yields were mixed with short end yields little changed to down slightly while longer term (30-yr) inched higher (4-week highs for the 30-year at 3.075). Markets awaited the Brexit vote late afternoon before moving, as the 10-year held around 2.71% most of the day.

 

 

Macro

Up/Down

Last

WTI Crude

1.60

52.11

Brent

1.65

60.64

Gold

-2.90

1,288.40

EUR/USD

-0.0073

1.1396

JPY/USD

0.28

108.44

10-Year Note

-0.001

2.709%

 

 

Sector News Breakdown

Consumer

·     Retailers; Online holiday sales increased 16.5% to over $126B this year, according to data from Adobe Analytics. The tally included the huge shopping days of Thanksgiving ($3.7B), Black Friday ($6.2B) and Cyber Monday ($7.9B). Overall sales for the 2018 U.S. holiday shopping season were up 5.1% to over $850B; BGFV sees FY18 EPS (10c)-(8c) vs. est. loss (10c) on revs $987.6M vs. est. 982.85M; same store sales decreased 2.7% for the fiscal 2018 full year; EXPR said Q4 to date performance tracking within guidance

·     Autos; AXL reports 2018 preliminary revenue of ~$7.25B to match its prior outlook and slide in just below the consensus mark of $7.26B and also anticipates a 2019 EBITDA margin of 16.25% of sales and adjusted free cash flow of ~$315M; Baird reiterated outperform on TSLA as expecting Model 3 demand to remain robust after hosting tours of the company’s West Coast factories; GT share dropped over 10% after saying Q4 tire unit volumes declined about 3% and sees 2018 operating income below prior $1.3B guidance (CTB shares fell as well)

·     Consumer Staples & Restaurants; APRN said it expects to be profitable on adjusted EBITDA basis; PLAY raises FY18 net income to $112M-$114M from $106M-$113M and raises FY19 revenue view to $1.259B-$1.263B from $1.243B-$1.255B (vs. est. $1.25B); raises FY18 EBITDA view to $276M-$278M from $268M-$277M; ENR shares slipped on lower as sales view disappoints

·     Casino’s; WYNN, MLCO, LVS, MGM active as Bernstein lowers its Macau gaming revenue forecast for Jan. to a decline of 8% to 12%, as last week’s casino revenue was weaker than expected given a visitation slowdown before Chinese New Year in early Feb. Macau gross gaming revenue through the first 13 days of Jan. was 10.1 billion patacas, 8% lower than last year

 

Energy

·     Energy stocks were mixed as oil prices jumped in the early going; in the equipment sector; Barclay’s said base case calling for 2019 US land E&P upstream spending to increase 6% this year with completion activity to slowly recover throughout the year to end up essentially flat y-y on average, and recommends opportunistically adding to positions in the highest quality names in the NAM-centric verticals: PUMP, WHD, and APY (firm upgraded PUMP to overweight while downgraded FTSI and RES)

·     Utilities & Solar; PCG plunges again (fell as much as 39%) as analysts throw in the towel, over five downgrades the last few days on recent news to file for bankruptcy following the $30B in liabilities from California wildfires; EIX was downgraded at Bank America to underperform as the expected PG&E bankruptcy filing highlights a continually challenging operating environment for California utilities

 

Financials

·     Bank movers; JPM Q4 EPS missed by over 20c on revs $26.8B vs. est. $26.9B while Q4 provisions for credit losses high at $1.55B/similar to Citi and Jefferies, FICC sales and trading weak at $1.86B below the $2.29B Bloomberg estimate; WFC Q4 EPS of $1.21 beats consensus estimate of $1.20 vs. $1.13 in Q3 and $1.16 in the year-ago quarter as reflects growth in loans and deposits; credit performance remained strong; effective income tax rate was lower vs. Q3; Charge-Offs jump from $680MM to $721, highest since Q1; SNV Q4 EPS missed by 1c on $13M in charge-offs; FRC shares rise early as earnings and revs beat despite higher charge-offs and provisions; upcoming earnings: 1/16: BAC, BK, BLK, CMA, GS, PNC, SCHW, USB; 1/17: BBT, KEY, MS, MTB

·     Monthly Master Trust credit card data: 1) JPM December net credit losses 2.35% vs. 2.26% last month while reports December delinquencies 1.17% vs. 1.19% last month; 2) SYF December charge-off rate 4.86% vs. 4.64% last month and the 30-plus day delinquencies 2.87% vs. 2.91% last month; 3) DFS charge-offs (NCOs) rise to 3.41% vs. 3.24% MoM while Dec delinquencies 2.43%, unchanged from November; 4) ADS December net charge offs 5.4% vs. 5.5% last month and Dec delinquency rate 5.7% vs. 5.7% last month; 5) AXP December net write-off rate 2.2% vs. 2.0% last month and 30-plus day delinquencies 1.4% vs. 1.4% last month

 

Healthcare

·     Biotech & Pharma movers; ARRY with positive late-stage data on triplet therapy for certain type of colorectal cancer/Piper said reports impressive BEACON Overall survival of 15.3 months at ASCO; INCY added to Americas Conviction List at Goldman Sachs and raise tgt to $111 saying at current level provides pipeline and M&A optionality in the context of a solid commercial franchise driven by Jakafi; ALNY 5M share Spot Secondary priced at $77.50; TLRY shares slide as its IPO lock up in shares expired today

·     Medical equipment and devices; EW rises as agreed to settle all outstanding patent disputes with BSX in all venues/Edwards made a one-time payment to Boston Scientific of $180M, no further royalties will be owed by either party; MDT was upgraded to buy at BTIG saying the recent sell-off in the stock presents an attractive entry point on a “compelling relative valuation

·     Healthcare services and providers; CVS shares slipped after WMT said to leave CVS Health Corp.’s network that administers drug benefits in a dispute over costs that could roil the business of filling prescriptions; Dow component UNH earnings beat and affirmed guidance for the year

 

Industrials & Materials

·     Industrial & Machinery; industrial and machinery stocks among the biggest declines in the S&P and Dow (MMM, CAT, DWDP, UTX) as well a sharp decline in building related product names early on as well (MLM, VMC, MAS, MHK); SunTrust downgraded companies focused on new-home construction (BLD, BLDR, BMCH, IBP), saying that housing weakness from last year will impact demand for supplies and drive earnings results below Wall Street estimates; NAV lowered guidance as now sees 2019 revs $10.5B-$11B vs. prior $10.75B-$11.25B (est. $10.8B) and now sees 2019 Ebitda $825M-$875M vs. $850M-$900M previously and vs. est. $865.1M

·     Transports; in airlines, DAL Q4 EPS beat by 2c and reaffirmed year but said unit revenue, a measure for airlines’ pricing power, is expected to be flat to up two percent, due to impacts from the timing of Easter, increasing FX-headwinds and govt; UAL expected to report after the close; CNI was upgraded to outperform at Credit Suisse in rail space saying it is now clear that 2018 was merely a blemish on CN’s otherwise impressive scorecard relative to its rail peers

·     Metals & Materials; most metals rose initially before paring gains/sliding as China pledged further tax cuts and loan issuance in the country beat expectations. China’s PBOC cut the Reserve Requirement Ratio (RRR) rate, and plans to monetary policy more forward-looking, flexible and targeted, Reuters reported (steels, aluminum, copper names edge higher)

·     Chemicals/Materials sector; lithium stocks ALB and LTHM downgraded to neutral from buy at Nomura as expect price data points to surprise negatively in coming months, although they see ALB’s and LTHM’s own ASP’s doing better than the overall market. These data points could drive ALB and LTHM trading multiples lower; coatings space active after SHW guided FY prelim. EPS about $18.53 below prior guidance of $19.05-$19.25 and est. $19.11 while prelim consolidated net sales were up about 2% y/y vs. prior guidance of mid-single digit increase

 

Technology, Media & Telecom

·     Internet; CVNA cautious call for a second day as Baird lowers Q4 unit sales estimate toward the low end of the guidance range, given mixed traffic/search trends from Google/Alexa and the broader industry headwinds from macro uncertainty and increasing rates; NFLX is raising its U.S. prices by 13%-18%, as the price of the most popular plan will be increased to $13 per month from $11 per month; FB could begin to see a recovery in its share price as the company’s narrative “shifts from damage control back to growth initiatives, Barclay’s said

·     Semiconductors; TTMI lowers Q4 revenue guidance to $705M-$715M from $720M-$760M (est. $736.95M); raises lower end of Q4 EPS guidance to 46c-50c from 44c-50c; Cowen lowering estimates and Tgts on WDC ($38 from $50), STX ($40 from $50), UCTT ($16 from $22), and ICHR ($24 from $28), and SIMO as investor sentiment on the group is cautious and guide downs are expected; a German court ruled that AAPL phones don’t infringe QCOM patents granted for technology to improve the performance of devices by switching electronic signals on and off multiple times each second

·     Software movers; TTWO will pay the National Basketball Association and its players’ union up to $1.1b over 7 years in a licensing deal, WSJ reports https://on.wsj.com/2SXI6hQ ; Morgan Stanley with several rating changes in the software space as they upgraded AKAM, NEWR, DOCU, FIVN and TENB to overweight while downgraded VMW, ORCL, ADSK and NUAN to equal-weight and cut TEAM, ZS and YEXT to underweight.

·     Media & Telecom movers; Pivotal updated models for media space while raising the rating on VIAB to buy from hold – said price targets are generally higher because of the new valuation dates, and with a >15% gap on VIAB price target vs. current trading levels/maintain a Sell rating on DIS along with Hold ratings on CBS and DISCA; CDLX rises after Bank America upgraded to buy

·     Hardware & Component news; NPTN preannounced 4Q results, with sales/GM near the high end of prior guidance, and EPS above the prior range; VHC won an appeals court ruling that could mean hundreds of millions of dollars in patent royalties after a years-long battle with AAPL over secure communications; Genpact (G) upgraded to Overweight at Morgan Stanley; PT $33

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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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