Market Review: January 29, 2019

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Closing Recap

Tuesday, January 29, 2019

Index

Up/Down

%

Last

DJ Industrials

51.74

0.21%

24,579

S&P 500

-3.88

0.14%

2,639

Nasdaq

-57.40

0.81%

7,028

Russell 2000

-2.13

0.15%

1,471


 

Equity Market Recap

·     U.S. stocks end the day mixed, with technology shares falling the most ahead of key earnings from AAPL, AMD and EBAY after the close while industrial stocks advanced behind earnings results earlier today (MMM, ROK, LLL). Energy stocks got a lift as WTI crude rebounded from yesterday’s losses, rising over 2.5% following Venezuela penalties and signs of further Saudi production cuts. Treasury yields slipped as the dollar was steady. While earnings remain the key driver this week for stocks (113 &P companies reporting this week), markets are keeping a close eye on the Federal Reserve rate decision (tomorrow afternoon) and U.S.-China trade talks which get underway tomorrow (Chinese reps, Mnuchin and Lighthizer). Trade tensions remain high following the US filing charges against Huawei and its executive Meng Wanzhou with wire fraud, breaking Iran sanctions and IP theft ahead of the trade talks with China. The British Pound fell as U.K. lawmakers rejected the Cooper-Boles amendment which sought to defer the Article 50 deadline. Consumer confidence tumbles again in January due to government shutdown, while markets prepare for the onslaught of economic data in next week or so, playing catchup after the postponement of data points due to the 35-day government shutdown which ended Friday.

Commodities

·     Crude oil prices rebound from yesterday’s steep losses, with WTI crude rising $1.32 or 2.5% to settle at $53.31 per barrel, getting a boost on supply fears after the U.S. imposed sanctions on Venezuelan state-owned oil firm PDVSA; inventory data on tap with the API out tonight and the EIA with its weekly report tomorrow morning

·     Gold futures jumped to 8-month highs, rallying for a third straight session as April futures end higher by $5.90, or 0.5% to settle at $1,315.20 an ounce. Gold prices rose as haven support from geopolitical risks coupled with expected dovish commentary from the Fed lifted prices. The FOMC is likely to dial back a seemingly aggressive path of rate increases.

 

Currencies & Treasuries

·     Treasury priced rose as yields dropped ahead of the 2-day FOMC meeting (started today – results tomorrow) with expectations that the Fed will remain cautious on the pace of rate hikes. The 10-year yield slipped nearly 3 bps to 2.715% while the 2-year yield dipped to 2.575% and the 30-yr under 3.05%. Tomorrows FOMC decision and press conference will be the first of 2019, where expectations are for the central bank to pause its rate-increase cycle. The U.S. dollar was mixed as the index finished little changed (euro and yen steady), while the British Pound dropped below $1.31 vs. the dollar as the British Parliament votes against amendment that would have postponed Brexit if no deal was agreed by Feb. 26th

 

Economic Data

·     Consumer Confidence for January fell to 120.2 from 126.6 last month and est. 124.0; the present situation confidence fell to 169.6 vs 169.9 last month and consumer confidence expectations fell to 87.3 vs 97.7 last month

·     US home prices continued to ease in November with 20 major markets recording their slowest ascent in nearly four years, according to the latest S&P CoreLogic Case-Shiller report

 

 

Macro

Up/Down

Last

WTI Crude

1.32

53.31

Brent

1.39

61.32

Gold

5.90

1,315.20

EUR/USD

0.0006

1.1434

JPY/USD

0.02

109.37

10-Year Note

-0.029

2.715%

 

 

Sector News Breakdown

Consumer

·     Retailers; GME shares dropped over 20% after it terminated efforts to pursue a sale of the company, given "the lack of available financing on terms that would be commercially acceptable to a prospective acquirer;" high-end retailers pared losses after LVMH results came in better than expected (TPR, TIF, CPRI)

·     Consumer Staples; BTI upgraded to overweight at Piper as consider valuation attractive at current levels and feel modestly more comfortable with glo’s risk from patent litigation in Japan, especially at current valuation; in restaurants, EAT in-line Q2 EPS view on better sales and guidance – said revs guidance primarily driven by comparable restaurant sales for fiscal 2019 that are now are estimated to be up 1.75% to 2.5% (fell on weak margins); JJSF up on earnings

·     Housing & Building Products; WHR with mixed Q4 results as EPS beat and revs missed while guided FY19 adjusted EPS $14.00-$15.00 well below the consensus $15.92/said margins took 200bps hit in year (stocks rebounded off initial losses); furniture maker ETH reported in-line Q2 EPS of 46c while sales of $197.2M missed estimates as operating income falls; in housing, PHM reported in-line Q4 earnings but posted an 11% drop in orders (below ests. between 3%-5%) and said it is not giving 2019 guidance because of housing uncertainty

·     Casino & Leisure movers; in leisure space, HOG shares fell as reported 4Q EPS and sales that trailed estimates and 4Q motorcycle shipments of 43,489, which fell short of its forecast given in Oct. for total shipments of 45,800-50,800; PII posted Q4 EPS beat and in-line revs but year guidance of $6.00-$6.25 trailed street estimate $6.95; in lodging, MGP 17M share Spot Secondary priced at $29.25; in guns (AOBC, RGR), the FBI NICS background check data showed a decline of 7.8% for December, slightly better than the declines of 10-11% in the previous three months

 

Energy

·     Energy stocks recover along with oil prices ahead of inventory data tonight (API) and tomorrow morning (EIA) and after the U.S. Treasury sanctioned Venezuela’s oil firm PdVSA, raising the risk of disruptions to oil supply; CLR fell after providing update on its Scoop play Project SpringBoard that detailed expectations for oil growth that was below expectations; AXAS reduced this year’s budget to $95M-$108M due to the recent decline in oil prices; TRGP and RES were both upgraded to buy at Seaport Global; GPOR was downgrade to neutral at Guggenheim, in utilities news, PCG filed for Chapter 11 bankruptcy protection with more than $50 billion in debt Tuesday

·     Refiners (PBF, VLO, PSX) active after Cowen noted announced US sanctions against PDVSA threaten to remove 0.5MM bpd of mostly heavy crude from the US market, assuming Maduro continues to exert significant control over PDVSA. They expect the most likely outcome from a reduction in Venezuelan supply would be an increase in heavy and medium crude pricing, most negatively impacting PBF and VLO, with smaller impacts to MPC and PSX. They do not expect a material impact to our IOC coverage though note CVX and TOT have Venezuelan operations

 

Financials

·     Bank movers; earnings move into payment space and discount brokers with large cap banks behind us; in research, ABCB upgraded to buy at SunTrust as expect the LION acquisition, while a large transaction, to give it a significant deposit platform in economically vibrant Atlanta, reduce its cost of funds and further improve efficiency; REITs making 52-week highs (AMT, ESS, UDR, AIV, HCP); TCF was upgraded to outperform at BMO Capital following deal with CHFC; Morgan Stanley raised 2020 top-line estimates across the group (SCHW, AMTD, ETFC), citing expectations for higher net interest margins and higher cash balances

·     Consumer finance and lending; SQ was downgraded to underperform at Raymond James saying its organic growth likely peaked in Q3, while growth in the “all-important subs and services line" is set to slow as the payments company absorbs its Weebly and Zesty acquisitions; PYPL to report earnings after the close on Wednesday 1/30;

·     Asset managers and brokers; Jefferies upgraded BLK to buy citing benefits from structural shifts in investor behavior and secular trends in global investing/iShares saw record inflows in 4Q, while the firm downgraded AMG to hold as headwinds at AQR, the firm’s largest affiliate, appear to be in the early stages of accelerating to the negative as performance challenges persist

 

Healthcare

·     Pharma movers; Dow component PFE reported a slight beat for Q4 EPS and revs while year guidance fell short of consensus ($2.82-$2.92 vs. est. $3.04) as it booked billions in charges for layoffs and losses related to the acquisition of a trouble-plagued business that makes sterile injectable medicines; AGN shares tumbled after posting larger loss for quarter; PFE announce positive topline results from a second Phase 3 clinical trial evaluating tanezumab in patients with moderate-to-severe osteoarthritis (OA) pain. The study met all three co-primary endpoints at week 24, demonstrating statistically valid improvements in pain, physical function and patient-reported overall assessment of their OA compared to placebo; PRGO said it expects to get a $250M milestone payment from Royalty Pharma affiliate RPI Finance Trust on Tysabri contingent payments

·     Biotech movers; BIIB active after mixed quarterly results as Spinraza sales miss estimates which weighed on IONS shares early; VYGR shares spike in reaction to its out-licensing deal with NBIX under which the latter will own development and commercialization rights to gene therapy programs for Parkinson’s disease, Friedreich’s ataxia (FA) and two yet-to-be-named others

·     Services, Medical equipment and devices; TMO signed a definitive agreement to sell its Anatomical Pathology business to PHC Holdings Corporation; HCA rises after a ’clean beat’ in 4Q, driven by both strong admissions and revenue/equivalent admissions; TVTY slipped on softer outlook while DHR Q1 EPS mid-point missed estimates

 

Industrials & Materials

·     Industrial & Machinery; MMM posted Q4 EPS and revenue above consensus views ($2.31/$7.95B vs. est. $2.28/$7.86B) though did lower its year EPS outlook to $10.45-$10.90 from prior view $10.60-$11.05/broadened its organic local-currency sales growth forecast to a range of 1%-4% vs 2%-4% previously; ROK rises as posted Q2 EPS/rev beat and reaffirmed year outlook; heavy duty trucker PCAR with record revenue of $6.28B in Q4 on the back of the delivery of 50.4K trucks saying it earned parts pretax income of $194M during the quarter for a 20% return

·     Metals & Materials; Metals are outperforming today led by nickel and copper as traders await the outcome of talks later this week between the U.S. and China; AKS was downgraded at Macquarie to neutral after earnings saying margin improvements from contract renewals came in less than we expected and believe earnings could face further downside risks as the current steel pricing environment stays weak and costs rise; NUE Q4 EPS beat on in-line sales

·     Aerospace & Defense; LLL shares rose after Q4 EPS and sales topped consensus; LMT Q4 EPS mostly in-line on better sales of $14.41B while mid-point of year EPS guidance ($19.15-$19.45) misses the $19.35 estimate; HRS Q2 EPS/sales beat and boosted its views for revenue, adjusted EPS and free cash flow outlooks; WWD jumps as 1Q topped analyst estimates and FY 2019 guidance met what the Street was expecting; earnings tomorrow from BA, GD

·     Materials; CE shares slipped after saying it expects weak Q4 demand in Asia to continue through the first half of this year, joining a growing chorus of U.S. companies that see Chinese demand slowing; POL Q4 EPS/sales topped estimates while said saw softening conditions in certain end markets and geographies; LPX estimates lowered at Longbow given the continued downward pressure on OSB prices in 4Q and weaker housing demand.

 

Technology, Media & Telecom

·     Hardware sector; AAPL set to report earnings tonight after lowering its revenue forecast last week on slower demand for products; XRX among top S&P performers early after mixed Q4 results (EPS beat/revs miss) and guidance tops estimates ($3.70-$3.80 vs. $3.53 est.) as businesses continue to cut spending on printers and photocopiers; GLW core Q4 EPS and sales topped consensus as guides FY19 display glass market volume up by mid-single digit percentage

·     Semiconductors; semi-equipment stocks AMAT and LRCX were upgraded to outperform at RBC Capital as think expectations are now reset after the Lam Research conference call combined with Apple’s pre-announcement; NVDA was upgraded to buy at UBS as believe the ~20% miss to FQ4:19 (Jan ’19) revenue and -15% stock move finally sets the stage for a new positive revision cycle starting this summer, while Needham and Morgan Stanley downgraded shares; CREE was downgraded at JMP Securities; IDTI and RMBS also active on earnings, with AMD tonight

·     Software movers; German software giant SAP shares fell after earnings and outlook and plans restructuring after signs of weakness emerge; Raymond James upgraded positive on software as maintain Strong Buy ratings on MSFT and NOW, large cap secular winners in Cloud and infrastructure SaaS and upgrade underappreciated small cap growth stories RPD and CBLK to Strong Buy while downgrade analytics vendor AYX on valuation/upgrade CDN vendor LLNW to Market Perform; ATVI was downgraded to Perform at Oppenheimer due to lack of confidence in consecutive year over year sales growth in 2019-2020, management and studio transitions take time, near-term headwinds

·     Media & Telecom movers; Dow component VZ Q4 results beat EPS estimates but missed on revenue (55c vs. est. 47c) while postpaid wireless additions, 1.2M; Postpaid churn, 1.08%; Wireless revenue, $24.3B (+2% Y/Y); Wireline additions, 54K; FIOS video net change, -46K; Wireline revenue, $7.37B/FY19 guidance expects low single-digit percentage revenue growth; ADTN downgraded at Needham saying now have little confidence that once potentially significant T & VZ oppty’s will ramp substantially over the near to mid-term

·     3D sector, SSYS and DDD upgraded to overweight at Piper – for DDD, believe the company’s direct sales team had a solid Q4 and the overall 3D printing industry appears to be improving while for SSYS, believe Stratasys had exceptionally strong system demand in Q4 and likely exceeded expectations

·     Tech services; Electronics manufacturing stocks (EMS) stocks active after peer SANM reported Q1 earnings and sales that exceeded the most optimistic of analyst estimates while guidance for the following quarter also topped views (FLEX, JBL, BHE, CLS, PLXS active). Sanmina said "solid momentum across all of our end-markets" contributed to the earnings beat and better forecast

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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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