Friday, January 25, 2019
Equity Market Recap
· U.S. stocks were strong throughout the trading session, rallying as President Donald Trump announced a deal to reopen the government for three weeks with no wall money (ending the 35-day shutdown). President Trump did say the U.S. government would shut down again in three weeks (Feb 15th) if Congress fails to his demand to fund a border wall. Stocks held gains as markets had rallied overnight on expectations the two sides were working on a deal. Also lifting sentiment was speculation U.S.-China talks in Washington next week may help pave the way for a trade deal and eliminate another market overhang. Outside of that, earnings was a big driver of stocks again today with tech outperforming for a 2nd straight session despite weaker Q1 outlook from semi-chip giant Intel overnight (as shares fell), while Internet and other chip, hardware names jumped. Treasury yields rose and the dollar weakened sharply vs. most rival currencies, helping boost gold prices above $1,300 an ounce (highest levels since June). Industrials (DWDP, CAT, MMM) helped pace the gains in the Dow while transports pushed higher for a second day and erased Tuesday’s losses paced by declines in FDX and UPS (strong earnings in airlines and rails this week helped). Also helping sentiment was a report in today’s WSJ suggesting that the Fed may end its balance sheet unwind sooner than expected. At session highs, the Dow rose 307 points, the S&P gained as much as 30 points, while the NASDAQ advanced 101 points, at its peak.
· Gold prices surged on Friday, rising $18.30 or 1.4% to settle at $1,304.20 an ounce (best finish since June), posting a weekly gain of more than 1% amid a sharp pullback in the U.S. dollar today. Geopolitical uncertainty/risk remains, also providing a boost to safe-haven assets amid political issues in Venezuela and the UK (Brexit) as well as trade concerns with China. Crude oil prices end the day higher, boosted by supply concerns tied to Venezuela, but a hefty weekly rise in U.S. crude supplies helped to keep prices lower for the week. The move higher came despite bearish inventory data yesterday, as stockpiles of U.S. crude hit a 2-month high of 445 million barrels last week while stockpiles for the week were well above estimates. WTI crude ended higher by 55c to settle at $$53.69 per barrel (but fell -0.7% for the week).
Currencies & Treasuries
· In currency markets, the U.S. dollar dropped, with the dollar index (DXY) falling over (-0.75%), falling back below the 96 level as the British Pound jumped around 1.32, its best levels since early November and up over 2.5% on the week (best week in over a year) ahead of another crucial vote as the City upped its bets on MPs avoiding the no deal Brexit precipice. The main broad driver behind dollar weakness appears to be Federal Reserve policy expectations after a report in the WSJ mentioned the Fed is planning to end the balance sheet reduction program earlier than estimated. The euro moved above the 1.14 level vs. the dollar as the greenback fell vs. most other counterparts (CAD, UAD, CHF) but rallied vs. the Japanese yen.Treasury market’s slide as yields inch higher given the rally in stocks (10-yr 2.74%, 2-yr 2.60% and 30-yr 3.05%). No major economic data today due to the government shutdown affected markets.
Sector News Breakdown
· Consumer Staples; CL guided to a mid-single-digit decline in adjusted EPS for 2019 vs consensus estimate for a 3% increase (CHD, CLX shares active in sympathy); ELF shares rally after activist letter Marathon Partners Equity Management LLC asks for re-evaluation at the stockholders agreement; DFshares dropped after Goldman Sachs said an amendment to Dean Foods’ existing receivable purchase agreement announced in a filing may bode poorly upcoming earnings
· Restaurants; SBUX posted better earnings (10c beat) as comp sales rose 4% in the Americas (topping the 3.3% est.) and overall comps also up 4% while China comps rise 1%; DPZ positive mention at Longbow saying following checks with U.S. Domino’s franchisees, they believe domestic franchised same-store sales were up 7.5-8.0% in 4Q18, above consensus at up 7.2% for 4Q and our prior 6.5% comp growth forecast; DNKNdowngraded to mixed by OTR Global
· Housing & Building Products; DHI shares fall after its Q1 EPS miss (76c vs. 78c est.) and order growth of 3% missing the 6.5% Bloomberg est.; NVRshares rise after Q4 EPS topped consensus estimate, fueled partly by a tax rate that sank to 16.3% from 52.3% in the year-ago quarter; Bloomberg noted the S&P Super composite Homebuilding Index has gained over 9% this year, its best start since 2013, while the broader S&P 500 is up just 5.4%
· Casino & Leisure movers; cruise lines active (RCL, CCL, NCLH) as SunTrust said latest intelligence on forward pricing and booking volumes came in positive with a few CCL specific exceptions and because of strength now believe NCLH and RCL may have upside to raise yield guidance’s
· Retailers; TPR was upgraded to outperform at Wolfe Research; FL tgt raised to $67 at Jefferies citing a Nike resurgence in N. America, rising heat around basketball/Jordan, a healthy innovation pipeline, and controlled promos
· Energy stocks rallied with markets and oil prices as we soon head into the crux of earnings for the energy sector (some key services have reported already – HAL, SLB). Baker Hughes weekly rig count data showed that the total rig count rose 9 to 1,059 rigs, with oil rigs up 10 to 852 and gas rigs down -1 to 197. In utilities, PCG falls, paring gains after surging over 70% yesterday after being cleared of responsibility for the deadly 2017 Tubbs fire, as analysts still feel a bankruptcy is possible. Also later in the day, the California Public Utilities Commission issues proposed decision that would allow PG&E to use debtor-in-possession financing if it files for bankruptcy as planned.
· Bank movers; another group rallying with broader markets, with rising yields helping sentiment in the group (helping lending margins); most of the big bank earnings behind use as life insurance names start up next week; in research, Deutsche Bank downgraded BBT & PNC to hold as the firm becomes more selective on large regional banks; in lending, SLM was upgraded to outperform at BMO Capital following yesterday’s strong print suggesting there’s still another 50% upside in the name driven by multiple expansion, dependable op leverage and their dominant mkt position
· Pharma & biotech movers; ABBV falls following its Q4 miss while company guided only a modest ~1% rise in revenues and said it expects Humira sales to grow 7% domestically but drop 30% internationally as biosimilar competition continues to heat up/Q1 guide for revs of $7.7B vs. $8.0B est.; CRBP 5.38M share Spot Secondary priced at $6.50, CGC shares strong early after Piper raised its tgt to $60 from $40 as continues to estimate a $250B-$500B potential long-term global cannabis market, with a $15B-$50B near-term opportunity; NCNA rises after saying it was withdrawing its proposed offering of American Depositary Shares (ADS) after shares plunged initially following announcement; CORT shares fell after SIRF criticizes the company for alleged practices including price gouging, abusing loopholes, among other things; AMGN fell after Reuters reported CVS is excluding Aimovig migraine drug from list of covered medicines, while TEVA and LLY new migraine drugs are on the list of covered medicines
· Medical equipment and devices; ISRG shares active as posted a Q4 EPS miss, delivered 19% procedure growth for 4Q18, and reiterated its procedure growth guidance (13-17%), but plans to increase operating expenses by 20-28% in 2019; the FDA grants 510(k) clearance for ZBH ROSA Knee System for robotically-assisted total knee replacement surgeries; ILMN was downgraded to hold at Deutsche Bank saying forward revenue expectations lack upside
· Healthcare services and providers; RMD falls after being downgraded at JPMorgan, Goldman after its Q2 revenue and EPS miss and also noting pricing headwinds in sleep products and software services; ICLR was upgraded at Mizuho to buy and positive on healthcare services sector as viewed as defensive, have good earnings outlook, limited international exposure
Industrials & Materials
· Industrial & Machinery; WBC shareholders to own 50.8% of Wabtec after GE Transportation merger vs. 49.9% under previous terms; HDS was upgraded to outperform at Baird citing renewed confidence the FM business has returned to profitable growth, and see a key overhang on the stock now removed; FLIR also upgraded at Baird as major defense awards are providing good visibility for Government growth and the reset in the FLIR stock (down 30% in last four months) creates an attractive risk/reward
· Transports; a day after rail strength following better results from UNP and CP, NSC shares downgraded to hold at Deutsche Bank after the company reported slightly weaker-than-expected 4Q results after adjusting for a significant non-cash gain ($145M) from a land sale; in airlines, HAdowngraded to hold at Deutsche Bank as well, the latest to warn on the impact of Southwest Airlines starting service to Hawaii; airlines were active (UAL, AAL, DAL) after FAA halting flights into LaGuardia Airport due to staff shortage
· Metals & Materials; in chemicals, APD Q1 results missed expectations and guided Q2 earnings below consensus while reaffirms its FY 2019 adjusted EPS forecast of $8.05-$8.30, in line with $8.16 analyst consensus, and continues to expect capital spending of $2.3B-$2.5B; metals and mining stocks rise after copper, gold and silver outperformed the metals group on weaker U.S. Dollar, as well as optimism for trade talks between U.S.-China
Technology, Media & Telecom
· Internet; FB CEO Zuckerberg plans to integrate the social network’s messaging services — WhatsApp, Instagram and Facebook Messenger — asserting his control over the company’s sprawling divisions at a time when its business has been battered by scandals, NYT reports; NFLX shares outperformed, rising above its 200-day moving average of $335
· Semiconductors; just a day removed from semiconductor stocks surging on better-than-feared results out of LRCX, XLNX, and TXN, Dow component INTC disappointed last night as delivered softer-than-expected 4Q results and issued Q1 guidance well below estimates/sees 1Q revenue about $16B, below the $17.34B est. and EPS about 87c vs. $1.02 est; WDC shares jump as quarterly results missed, but wasn’t as bad as feared, lifting memory and HDD stocks
· Hardware & Component news; CAMP was upgraded to Overweight at JPMorgan on valuation, taking the view that the firm’s recent supply-chain issues will be resolved by mid CY19; AAPL shares active after Rosenblatt Securities said price cuts and Chinese New Year sales are helping sales of the iPhone XR in China; AVYA was upgraded at Barclay’s noting upside in Avaya’s current multiple vs. its rivals’ legacy multiples; shares of NOK and ERICactive after earnings results; DISH was downgraded at HSBC as sees continuing shrinkage from its core cash generator, pay TV, even as Dish pursues spectrum monetization
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.