Market Review: January 24, 2019

Scott GreenDaily Market Report

Closing Recap

Thursday, January 24, 19

Index

Up/Down

%

Last

DJ Industrials

-22.24

0.09%

24,554

S&P 500

3.61

0.14%

2,642

Nasdaq

47.69

0.68%

7,073

Russell 2000

10.10

0.69%

1,464


 

Equity Market Recap

·     U.S. stocks were mixed today, with technology leading markets higher amid positive outperformance in the semi-chip sector after investors applauded earnings results from XLNX, LRCX and TXN – ahead of results tonight from Dow component INTC. Transports also outperform following strong earnings in the airline sector (AAL, JBLU, LUV) and rails (UNP, CP). The Dow Industrial Average, which rallied yesterday on earnings from IBM, PG and UTX, slipped while the S&P was little changed. Stocks pulled back from overnight highs this morning after Commerce Secretary Wilbur Ross on CNBC said the U.S. and China are “miles and miles away” from a trade resolution. “Yellow flags” by ECB President Draghi who said in his press conference (after the ECB kept rates steady) that the risks to growth “have moved to the downside” weighed on sentiment and the euro. That was a significant change from six weeks ago, when he described the risks as “broadly balanced” and capped massive monetary support. The partial government shutdown moved into day-34, as the Senate rejected President Trump’s plan to open government by a vote of 51-47 (needed 60 votes to pass) as the two sides fail to compromise yet again. Economic data was positive as the number of Americans filing claims for jobless benefits fell to the lowest level since 1969 last week, dropping below the 200K level. In a big story late day, PCG shares spiked more than 70% after California investigators have determined that “a private electrical system” — not equipment owned by PG&E Corp. — caused the second-most destructive wildfire in state history, which broke out in wine country in 2017 (the news not related to 2018 wildfires).

Economic Data

·     Weekly Jobless Claims fell 13Kk to 199K, well below the 218K estimate as initial claims at lowest level since Nov. 1969; the 4-week moving average slipped by 5,500 to 215,000; prior week claims revised down to 212K from 213K; continuing claims fell 24K to 1.713M

·     The leading economic index (LEI) fell 0.1% in December, as the index fell in two of the three final months in 2018

·     The 30-year fixed mortgage rate for week ended today was unchanged at 4.45% from 4.45%, Freddie Mac said; the 15-year rate avg 3.88%, unchanged from a week earlier.

 

Commodities

·     Commodity prices were mixed as WTI crude edges higher, rising 51c to settle at $53.13 (off earlier lows of $52.07), rallying back despite bearish inventory data for crude stockpile data out of both the DOE and API. Traders also keeping watch on the ongoing political situation in Venezuela and for any potential disruption to supply. The DOE and API both posted large weekly inventory builds as the DOE said weekly crude stockpiles rose an unexpected 7.97M barrels compared to the median est. of -750K barrel draw. Gold prices slipped on Thursday, falling -$4.30 or 0.3% to settle at $1,285.90 an ounce – now holding in a tight trading range of about $10 over the last 2-weeks. Prices dipped on the day given a bounce in the U.S. dollar.

 

Currencies & Treasuries

·     In currency markets, the euro dropped to lows below 1.13 (down -0.7%) following a cautious growth outlook from ECB President Mario Draghi earlier. The dollar extended gains late morning after White House economic adviser Larry Kudlow said in a Fox interview that the jobs report for January will be “up” and may show “significant” gains (based off today’s jobless claims data). The British Pound dips vs. the dollar after touching its best levels since mid-November yesterday. Treasury market’s rally (sending yields lower) given the weaker growth outlook from the ECB today by President Mario Draghi (though ECB kept rates unchanged). The 10-year Treasury yield fell 4.5 basis points to 2.71%, the 2-yr yield slid 3 bps to 2.560%, and 30-yr down 4 bps to 3.03%.

 

 

Macro

Up/Down

Last

WTI Crude

0.51

53.13

Brent

-0.05

61.09

Gold

-4.30

1,285.90

EUR/USD

-0.008

1.1301

JPY/USD

0.05

109.66

10-Year Note

-0.045

2.71%

 

 

Sector News Breakdown

Consumer

·     Retailers; GOOS was downgraded at Wells Fargo as feel the risk/reward is not as compelling as it once was; DLTH was upgraded to buy at Davidson as believe the stock’s pullback now largely discounts investors’ concerns about the rocky systems implementation along with the promotional Holiday season; in footwear, Morgan Stanley downgraded Adidas (ADDYY) to Underweight as believes the market is underestimating the cyclicality of its business model and stronger competition from peers, which could lead to top-line pressure/NKE likely gains most of ADS’ share loss, adding to their OW conviction; RH spiked on positive mention by Citron Research calling it the most compelling story in retail

·     Auto’s; Ford (F) mixed results as Europe and China losses dragged down reported 4Q18 Ebit below Street expectations, and North America Ebit margin of just 7.6% according to Deutsche Bank/meanwhile, Ford said believes a hard Brexit will cost the company $800M in 2019 due to WTO tariffs and a softening pound; DLPH announced a $200M share repurchase plan and dividend suspension; Longbow reduced earnings forecasts for light vehicle supplier coverage saying ALV and THRM face the most EPS downside vs. consensus; auto parts retailers such as AAP and AZO were under pressure early

·     Consumer Staples; Packaged Foods stocks down sharply today in sympathy with MKC results/guidance as Q4 EPS and revs missed ($1.67/$1.5B vs est. $1.70/$1.55) and guided years EPS view $5.17-$5.27 below the est. $5.39 and sales up 1%-3% (shares of BGS, CPB, LW among others were active on the report); MO traded to a fresh 52-week low; KMB was upgraded to overweight at Morgan Stanley after pullback post earnings; CL reports tomorrow morning

·     Restaurants; SBUX to report earnings tonight; QSR upgraded at BMO Capital citing positives from introducing an operator as CEO, stronger-than-expected SRS, and an increase in the dividend; CMG price tgt raised to $605 at BTIG based on his confidence in its strategy and his view of the strength of the company’s sales initiatives

·     Casino & Leisure movers; in gaming, LVS shares slipped after earnings results missed, as analysts expressed concerns about the company’s market share losses in Macau, particularly in the mass market, while results at the Marina Bay Sands casino in Singapore also disappointed; MGM said to evaluate real-estate portfolio for opportunities to enhance value; BID was downgraded to market perform at Cowen

 

Energy

·     Energy stocks were steadily higher with oil as markets watch political uncertainty in Venezuela. Inventory data came in markedly bearish for crude oil this week as the Department of Energy (DOE) said weekly crude stockpiles rose an unexpected 7.97M barrels compared to the median est. of -750K barrel draw and posted a bigger build in gasoline inventories of 4.05M barrels. Overnight, the API reported that U.S. crude supplies rose by about 6.6M barrels for the week, gasoline stockpiles climbed by 3.6M barrels, while distillate inventories added 2.6M barrels. Inutility space, PCG shares spiked after California investigators have determined that “a private electrical system” — not equipment owned by PG&E Corp. — caused the second-most destructive wildfire in state history, which broke out in wine country in 2017 (not the 2018 fires).

 

Financials

·     Bank movers; as the main banking earnings (large cap and regional) pass, the focus turns to small, midcap banks as well as insurance, cards and asset managers; shares of TCBI and HBAN declined after each reported earnings that missed estimates, including higher-than-expected provisions for loan losses; BANC another decliner post Q4 results; CACC shares slipped after BTIG initiated with a sell saying the company has materially increased the risk profile of its originations to maintain portfolio growth; in consumer finance and lending, SQ shares active after Nomura/Instinet said its new business debit card "taps the multi-trillion underpenetrated (B2B) commerce market, of which just 4% is carded and sees a $50B gross-payment-volume opportunity stemming from the new card; FNMA and FMCC shares spiked late day after Politico reports The White House will announce a plan by next month to end government control of Fannie Mae and Freddie Mac https://politi.co/2FMCMuy

 

Healthcare

·     Pharma movers; BMY shares active mixed results as EPS beat but revs just missed as its blockbuster cancer drug Opdivo didn’t sell as well as analysts had expected with Q4 sales of $1.8B vs. est. $1.84B and also withdrew an FDA application for another use of Opdivo in lung cancer; URGN 3.66M share Secondary priced at $41.00; IRWD was upgraded to neutral at JPMorgan while company also begins phase 1 trial of IW-6463

·     Biotech movers; INO announced a second sustained complete response in its Phase 1 clinical trial evaluating synthetic DNA vaccine INO-3112 in head and neck cancer patients; BLUE positive mention by Canaccord saying assuming that the BMY deal closes, they expect BMY will seek 100% control of bb2121 from BLUE, calling the treatment "too valuable" to share; INCY was upgraded to outperform at William Blair saying the company remains a “prime M&A candidate” within its pipeline “finally coming out of Epacadostat shadow”

·     Healthcare services and providers; HCA was added as a positive Fresh Pick at Baird ahead of the company’s 4Q report next Tuesday saying recent commentary from UNH and JNJ suggest 4Q patient volumes remain solid and we think this could translate into EBITDA upside for HCA; EHTH announced preliminary 4Q results with a big 26% beat driven by high Medicare applications and also priced 2.4M share Secondary priced at $48.50

 

Industrials & Materials

·     Industrial & Machinery; BGG shares drop as Q2 EPS was slightly below consensus (though revenue beat), but significantly cut F2019 guidance citing Sears bankruptcy and unfavorable weather internationally; NAV was downgraded to mixed by OTR Global; ATU has initiated a process to sell its Engineered Components and Systems segment as the company shifts to focus solely on its Industrial Tools & Services segment; GWW fell after full-year profit forecast disappointed, and as Q4 results were in contrast with good December sales numbers from peers.

·     Aerospace & Defense; TGI shares jumped as much as 30% on Thursday after the company said it would transfer its Global 7500 wing program to Bombardier; TXT rises after handily beating Q4 earnings expectations and issuing above consensus FY 2019 earnings guidance, seeing full-year EPS of $3.55-$3.75 vs. $3.50 analyst consensus estimate

·     Airlines a bright spot after better earnings results; 1) LUV Q4 results beat on top and bottom line while passenger revenue was up 8.6% to $5.32B and revenue per available seat miles increased 1.8% during the quarter/sees Q1 revenue per available seat mile growth of 4% to 5% despite a government shutdown impact; 2) JBLU Q4 results also beat as operating revs rose to $1.97B during the quarter vs. $1.96B consensus and revenue per available seat mile was up 2.4%/sees RASM growth of -2% to +1% for Q1 and cost per available seat mile to be +1.5% to +3.5%; 3) lastly AAL Q4 revs topped views at $10.94B and unit revenue was up 1.7% vs. +1.5%

·     Railroads mostly higher after earnings; UNP delivered strong Q4 results as it delivered 3% more freight and increased prices as earnings beat and revenue of $5.76B also edged out expectations and 6% higher than the previous year; CP shares jump as reported a big-beat 4Q and said sees strong volume and pricing in 2019 despite concerns of a slowing global economy; Canadian crude-by-rail loadings hit a record 356K bbl/day in the week ended Jan. 11, up from a daily average of 296K bbl/day last month, Bloomberg reports

·     Metals & Materials; FCX shares slumped early after quarterly profit and revenue fall short of estimates after as metal prices fell and costs to produce copper will be more than 60% higher this year they said; outside of FCX, metals space continues to trade along with trade talk with China and fears of slowing global growth after weaker GDP reading this week in China

 

Technology, Media & Telecom

·     Semiconductors; sector snaps back after 2-day slide following earnings results; semi-equipment stocks rally after LRCX Q2 results topped estimates and better-than-feared outlook (guided Mar Q revenue to a decline of -5% Q/Q) along with a $5 billion buyback (helped AMAT, KLAC, MTSI); XLNX the top gainer in space after its quarterly beat and raise quarter driven by early 5G builds and improved positioning vs Intel s PSG; in analog chip space, TXN was once again mixed ($3,717M/$1.27 vs consensus $3,743M/$1.23), with a ~30 bps GM and with a sizeable ($2B) buyback that significantly reduced share count; STM said Q4 profit and revenue both rose, but that it expects revenue will decline in the Q1 of this year; earnings tonight for INTC, WDC

·     Software movers; PANW receives its 2nd analyst upgrade this week as Wedbush raises rating to outperform with $265 tgt (UBS upped earlier in the week) saying checks give incremental confidence in growth story over the next 12-18 months; PTC shares slide as delivered a mixed quarter, with better-than-expected license strength and continued momentum with newer partnerships (Rockwell, Microsoft, ANSYS) offset by sales execution-related deal slippage and news that the CFO will retire; CTXS slips as after four consecutive quarters of 5%-7% total revs growth with in-line or better guide, Citrix posted a slightly disappointing quarter, highlighted by “only” in-line 4Q18 revs growth of 3%, a DR/billings miss and 1Q19 guidance that fell short

·     Optical related stocks strong today: Piper positive on names: 1) said believe FN will report upside to consensus estimates and guide above consensus for the March Q, 2) for LITE they reduced 3D sensing forecast for Lumentum, but we remain buyers of the stock, 3) and for ACIA said believe will meet or exceed Q4 consensus expectations and provide a favorable outlook for Q1 and beyond; strength also today for AAOI, IIVI, CIEN, FNSR, NPTN

·     Media & Telecom movers; CTL was downgraded to sell and price target lowered to Street-low $11 from $17 at Guggenheim saying the company is poorly positioned for the changing telecom landscape and doubts that the dividend is sustainable; ADTN shares rose after earnings

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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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