Market Review: January 22, 2019

Scott GreenDaily Market Report

Closing Recap

Tuesday, January 22, 19

Index

Up/Down

%

Last

DJ Industrials

-301.06

1.22%

24,405

S&P 500

-37.61

1.41%

2,633

Nasdaq

-136.87

1.91%

7,020

Russell 2000

-25.01

1.69%

1,457


 

Equity Market Recap

·     U.S. stocks fell hard, erasing the 4-day market win streak for major averages amid a confluence of factors today including: 1) the International Monetary Fund lowering its global growth forecast over the weekend, 2) China reported downbeat economic GDP data which pressured industrial, materials and tech stocks, 3) and lastly, which took stocks down to fresh lows early afternoon, headlines that the US turned down China offer of preparatory trade talks, according to the Financial Times. CNBC also noted the U.S. cancels trade planning meeting with the Chinese as U.S. asks China to sweeten offer and amid stalled progress over IP enforcement (which White House economic advisor Kudlow later said was not true on cancellation of meeting, helping pare market losses). The headlines coupled with caution ahead of a busy week of earnings sent the Dow Industrial average down over 450-points, while the Nasdaq Comp underperformed, falling as much as 2.5%. Industrials and Materials were a drag on the Dow following a weaker outlook from SWK as well as mixed commentary from others ahead of a busy week of earnings. Financials slip for the first time in over two weeks, while energy slides on HAL earnings and amid a tumble in oil prices. The partial U.S. government shutdown rolled into its 32nd day with no agreement on the horizon. Sales of previously owned homes in the US fell to their lowest level in more than three years and declined for the first time in three months, data on Tuesday showed.

·     The International Monetary Fund (IMF) cut its forecast for world economic growth this year, citing heightened trade tensions and rising U.S. interest rates. The IMF said that it expects global growth this year of 3.5%, down from 3.7% in 2018 and from the 3.7% it had forecast for 2019 back in October. Meanwhile, China’s posted its slowest pace of growth (GDP) in nearly three decades last year, amid a trade fight with the U.S. The 6.6% growth rate for 2018 reported Monday is the slowest annual pace that China has recorded since 1990.

Economic Data

·     Existing-Home Sales for December fell (-6.4%) to a 4.99M rate, below the Bloomberg est. of 5.24M while November was revised to 5.33M from 5.32M; there was 3.7 months’ supply in Dec. vs. 3.9 in November and 4.3 months’ supply seasonally adjusted in Dec. vs. 4.0 in Nov. seasonally adjusted; inventory fell 10.9% to 1.55M homes; median home price rose 2.9% YoY to $253,600

 

Commodities

·     Energy prices were lower, as Feb WTI crude slipped -$1.23 or 2.3% to settle at $52.57 per barrel, but finished off earlier lows of $51.80 on expiration day, while the new March futures contract fell -$1.03 to settle at $53.01 per barrel. The rotation out of riskier assets given the renewed global growth concerns in China took a toll on commodity prices today. Gold prices end little changed, erasing earlier losses to post a modest gain of 80c and settling at $1,283.40 an ounce.

 

Currencies

·     The US dollar was down slightly, falling vs. the British Pound which rallied over 0.5% to highs of 1.2975 earlier (helped after economic data showed the U.K.’s unemployment rate dropped to 4%, beating expectations), while the greenback was little changed vs. the euro. The dollar sank vs. the safe-haven Japanese yen but posted modest gains vs. the Canadian dollar as oil prices were pressured throughout.

 

Treasuries

·     Treasury prices jumped as yields sunk (following last week’s gains when 10-yr rose 8 bps to 2.78%) as investors rotated back into defensive/safe-haven assets as stocks sunk on China growth fears and global growth fears in general (as IMF cut forecasts). The 10-year yield fell around 6 bps below 2.73%, the 30-yr dropped over 4 bps to 3.05% and the 2-yr fell over 4 bps as well to 2.57% as yields jumped.

 

 

Macro

Up/Down

Last

WTI Crude

-1.23

52.57

Brent

-1.24

61.50

Gold

0.80

1,283.40

EUR/USD

0.0001

1.1366

JPY/USD

-0.44

109.22

10-Year Note

-0.059

2.727%

 

 

Sector News Breakdown

Consumer

·     Retailers; several rating changes in retail space today as Goldman Sachs downgraded TIF to neutral (tgt to $104 from $136) citing increasing evidence of a toughening macro environment for luxury goods demand; also at Goldman, GPS was downgraded to sell on the belief that a more aggressive portfolio rationalization at Gap brand will prove to be insufficient to reinvigorate the business while upgraded UAA to conviction buy list citing positive margin trends. At Cowen, NKE was upgraded to outperform and raise tgt to $90 as views Nike’s gross margin improvement and speed initiatives as key catalysts to near-term and multiyear upside to margin while firm downgraded PVH to Market Perform and cut tgt to $119 saying it suffers from consensus long bias and multiyear growth estimates appear lofty; PETS shares fall as FQ3 results that missed consensus on both the top and bottom-line while mgmt called out the competitive landscape and continued aggressive and discounted pricing; BJ was upgraded to outperform at Wells Fargo

·     Consumer Staples; MO was downgraded to underweight at Morgan Stanley and tgt cut to street-low $45 from $54 based on view of accelerated cigarette industry volume declines, a deceleration in EPS growth to low-single digits and FDA risk; Dow component PG expected to report earnings tomorrow morning

·     Auto’s; KNDI announces that its JV with Geely Group led the efforts in organizing a five-year online ride-sharing service alliance in Hangzhou on January 13

·     Housing & Building Products; SWK shares dropped after Q4 EPS/revs narrowly beat consensus but forecast year profit of $8.45-$8.65, below the $8.80 estimate; homebuilders were active after monthly existing home sales data showed the lowest figures in around 3-years, falling (-6.4%) to a 4.99M rate, below the Bloomberg est. of 5.24M (shares of builders KBH, TOL, LEN as well as home improvement retail LOW, HD slipped early)

 

Energy

·     Oil services; HAL shares fell on mixed results/guidance; posted better than expected Q4 earnings, as North America revenue fell 2% Y/Y and 11% Q/Q to $3.3B primarily because of slower activity while international revenue rose 7% Q/Q to $2.6B/says Q4 completion and production revenue fell 8% Q/Q to $3.83B/said sees cutting cap-ex by 20% to $1.6B; SDRL and SDLP shares fell after cutting dividend distribution

·     E&P sector; NOG said Q4 production is expected to be in the upper half of prior guidance of 35,000 – 36,000 Boe/d, despite negative impact from curtailments and shut-ins while 4Q lease operating expenses were better than anticipated; EQT cuts 2019 capital expenditures spending to $1.9B-$2B from earlier forecast of $2 billion to $2.2 billion in October

·     MLPs/Pipelines; TGE and KMI announced an agreement to jointly develop a solution to increase existing crude oil takeaway capacity in the growing Powder River and Denver-Julesburg basins and to add incremental capacity to the Williston Basin and portions of Western Canada.

·     Utilities & Solar; PCG shares rose on news it has lined up $5.5B in debtor-in-possession financing from JPMorgan Chase, Bank of America, Barclays and Citigroup, according to an SEC filing; Dominion (D) was downgraded to neutral at JPMorgan and cut tgt to $73 from $79 as sees limited share upside near-term absent a favorable Atlantic Coast Pipeline ruling; overall, utilities held up well as investors rotated into defensive assets

 

Financials

·     Bank movers; the XLF ETF slips for first day in 12-days; UBS shares slipped after the Swiss bank’s Q4 EPS and revenue falls short of consensus estimates and the lender sees geopolitical tensions affecting Q1 client activity; FITB Q4 adjusted EPS of 69c beat by 5c and said remains on track for NorthStar targets on ROTCE, ROA, and efficiency ratio/Q4 net interest income of $1.09B rose 4% from $1.05B in Q3 and up 13% from the year-ago quarter; net interest margin of 3.29% improves from 3.23% in Q3; STT was downgraded to neutral at Goldman Sachs given accelerating pressures across STT’s core customer base and think risks to fee growth remain; other earnings results from FNB, MBFI, ONB – tonight expected from: AMTD, COF, CSFL, FBK, FMBI, GSBC, HBNC, HOPE, LTXB, NAVI, RNST, SFNC, TBK, TRST, UCBI, UCFC, WSFS, WTFC, ZION

·     Insurance; Dow component TRV Q4 core income per share of $2.13 misses consensus estimate by a penny and compares with $2.28 in the year-ago period while core income and core ROE were affected by high level of catastrophe losses from the wildfires and Hurricane Michael. TRV said Q4 net written premiums of $6.69B rose 4% from $6.42B a year ago; CB announced net catastrophe loss estimates for the fourth quarter of 2018 of approximately $585M pre-tax, or $505M after tax

·     Exchanges & Brokers; Citigroup upgraded ICE to buy, and place top pick CME for 30-day upside catalyst watch. Buy thesis for ICE is driven by: 1) favorable ’19 volume outlook given strong transactions platform/ecosystem, 2H18 Data momentum leading to upward bias to Consensus Data revenue estimates in ’19 and ’20 and, more attractive valuation after recent pullback.

·     Consumer finance and lending; MA was fined €570.6 million ($648.2M) by the European Union over charges it artificially raised the costs of card payments inside the bloc, continuing a European crackdown on U.S. credit-card companies over fees.

 

Healthcare

·     Pharma movers; JNJ Q4 EPS and sales topped consensus while predicted slower sales growth next year despite beating analysts’ expectations to close 2018; ALXN fell after the European Patent Office voted unfavorably on its recently filed formulation patents for Soliris, which Stifel said is an incremental negative for the stock; CYTK active after saying the FDA is on board with using the Six-Minute Walk Test (6MWT) as the primary endpoint in a registration program for reldesemtiv in spinal muscular atrophy (SMA) patients who are ambulatory; TLRY reports a definitive pact to buy Natura Naturals Holdings, the parent company of a licensed cultivator of cannabis paying C$35 million at closing; MDWD rises after reporting its NexoBrid Phase 3 study for eschar removal of severe thermal burns met primary and all secondary endpoints

·     Biotech movers; CRSP was downgraded to sell at Citigroup and slashed tgt to a Street low of $21 from $28 as believe CRSP’s near-term valuation driver and lead program in related blood disorders substantially lags more advanced competitors; EDIT falls as announces interim CEO after current President and CEO Bosley said will step down effective March 1st; TGTX active after receiving Breakthrough Therapy Designation for umbralisib for the treatment of adult patients with marginal zone lymphoma (MZL) who have received at least one prior anti-CD20 regimen; AUPH dropped after the company said its Phase 2 voclosporin ophthalmic solution study failed to meet the primary endpoint

 

Industrials & Materials

·     Industrial & Machinery; concerns about China growth after GDP came in at the slowest pace of growth in nearly three decades last year (6.6% growth rate for 2018 reported Monday) weighed heavily on US industrial and material stocks today (CAT, DWDP, UTX, MMM were among the biggest drags in the Dow Industrial Average

·     Aerospace & Defense; ARNC shares plunged after saying it is no longer pursuing a sale of the company as it did not receive a proposal for a transaction that would be in best interests of shareholders; Credit Suisse downgrades ERJ primarily on account of the less favorable outlook for bizjet and defense, as are more cautious on the long term prospects for RemainCo

·     Metals & Materials; BHP iron ore production guidance has been maintained following a weaker quarter (-5.8% QoQ) due to the train derailment event in November; ABX reported prelim FY 2018 gold production of 4.53M oz., in line with company guidance of 4.5M-5M oz., and full-year gold sales of 4.54M oz; BG issued a profit warning blaming problems in Brazil where its soybean and sugar businesses have been hit by falling prices

·     Steel sector; STLD Q4 EPS of $1.31 beat estimates by 10c on slight miss to revs and Ebitda;; in research, Jefferies downgraded US Steel (X) to hold saying poor Q4 earnings and Q1 guides will begin to reflect the extent of recent steel margin weakness; ATI dropped after 4Q EPS missed estimates and the company said it expected a negative impact in 2019 for both of its units due to retirement benefit expenses

 

Technology, Media & Telecom

·     Internet; EBAY shares jump after Elliott Management Corp., who owns more than 4% of shares, sent a letter to the board of EBay outlining steps it says are “urgently needed” to boost its value. Elliott recommends EBay accelerate its share repurchase plan to $5 billion this year/says if the recommendations outlined by the activist are followed, sees EBay’s shares valued at $55-$63; BIDU added to short-term negative catalyst watch list at Citigroup; CARS was upgraded to buy at BTIG saying with shares settling in at slightly under $25, they see 20% upside to their probability-weighted outcome of $30/share

·     Semiconductors; the Philly semi index (SOX) underperforms broader Nasdaq, down over 3.4%, amid growing signs of weakness in China’s economy adding to global growth worries; all 30-components in the SOX were lower ahead of earnings season

·     Software movers; PANW was upgraded to buy at UBS saying the company is trading a discount to large-cap peers despite having superior growth; BL downgraded to Market Perform at Raymond James following a solid multi-year run, with shares surging 175% vs. the 2016 IPO price and notably outperforming the NASDAQ (+37%) and the software index (+69%)

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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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