Market Review: January 30, 2019

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Closing Recap

Wednesday, January 30, 2019

Index

Up/Down

%

Last

DJ Industrials

434.63

1.77%

25,014

S&P 500

41.10

1.57%

2,681

Nasdaq

154.79

2.20%

7,183

Russell 2000

15.45

1.05%

1,486


 

Equity Market Recap

·     U.S. stocks jumped to fresh highs late afternoon as the use of the word “patience” in the Fed policy statement was the focus of investors as the FOMC kept rates steady as was widely expected. Prior to the Fed holding rates steady, stocks had been enjoying strong gains, paced by technology shares after AAPL and AMD results came in better than feared while the Dow Industrial Average was led by record earnings and upbeat guidance from Boeing. The onslaught of earnings this week continues (with earnings coming up tonight from MSFT, FB, PYPL, QCOM, MDLZ, Visa (V), WYNN and US Steel), but attention turned to rates and the Fed late afternoon as the central bank signaled it will be “patient” about further interest-rate moves and added that policymakers were open to slowing the pace of the runoff of its balance sheet if needed. They also backed away from any forward guidance about monetary policy, suggesting the next move could be to raise or lower interest rates. That was enough to take stocks higher. Trade talks also resumed today between the U.S. and China with reps from Beijing as well as Mnuchin and Lighthizer meet, but headlines were sparse. The combination of a dovish Fed, bullish earnings and trade deal hopes helped push the Dow Industrial Average above 25,000 for the first time in 2-months (jumping over 500 points late day). The dollar erased its earlier advance while front-end Treasuries rallied, steepening the curve and precious metals soared on the dovish Fed.

·     The results of the FOMC policy meeting was in-line with forecasts for the most part, keeping the federal funds rate at 2.25%-2.50 after the two-day meeting in Washington…but the Fed commentary looking forward was more dovish than some had expected. The Fed said “in light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes," it said. The Fed removes reference to further gradual rate increases and says it’s prepared to adjust balance-sheet normalization. Last year, the Fed increased the federal funds rate four times, with the last 25-bps hike bringing the rate to 2.25%-2.50% in December. It’s raised interest rates nine times in all since late 2015.

Economic Data

·     Private payrolls rose 213K jobs in January according to ADP Research, topping the 181K estimate, while ADP trimmed its original estimate of new jobs in December to 263,000 from 271,000. Big companies added 66,000 new jobs in January, mid-sized firms filled 84,000 jobs and small businesses increased employment by 63,000. Data comes ahead of Friday payroll report

·     Pending home sales for December fell (-2.2% MoM) vs. est. up 0.5%; Northeast fell 2%; Nov. rose 2.7%, Midwest fell 0.6%; Nov. fell 2.3%, South fell 5%; Nov. fell 2.9% and the West up 1.7%; Nov. rose 2.5%; unadjusted pending homes fell 9.5% y/y after falling 7.8% y/y in November

 

Commodities

·     Oil futures rose, with WTI crude up 92c or 1.7% to settle at $54.23 per barrel, helped by somewhat bullish weekly inventory data and a “risk-on” attitude on the day. Weekly domestic crude supplies rose less than expected and U.S. sanctions on Venezuela’s state-run oil company helped lift U.S. benchmark prices toward their highest finish in over two months. Yesterday prices rose as the U.S. sanctioned Venezuela’s PdVSA, raising the risk of disruptions to global oil supply from the OPEC member. April gold futures edged higher 30c to $1,315.50 an ounce having held steady ahead of the FOMC policy meeting (futures closed before the FOMC statement). Prices jumped further in futures trading after the dovish til by the Fed.

 

Currencies

·     The U.S. dollar turned lower after the Federal Reserve said it will be ‘patient’ on further interest rate increases during its first policy update of the year. The Fed also dropped language suggesting ‘further gradual’ rate increases. The central bank left rates unchanged at a range 2.25%-2.50% and said its dovish shift was tied to muted inflation, the global economy and financial developments. Meanwhile, Treasury yields slipped (10-year below 2.70%) following the comments as well, with stocks surging along with Treasury prices.

 

 

Macro

Up/Down

Last

WTI Crude

0.92

54.23

Brent

0.33

61.65

Gold

0.30

1,315.50

EUR/USD

0.0061

1.1494

JPY/USD

-0.57

108.82

10-Year Note

-0.017

2.695%

 

 

Sector News Breakdown

Consumer

·     Retailers; TUP shares drop sharply after issues disappointing guidance and lowers its dividend payout rate/sees Q1 EPS 90c-95c and year $4.06-$4.21 below 95c/$4.48 consensus and plans to redeploy $80M in annual dividend payments towards transformation initiatives and buybacks; WMT shares were among the top decliners in the Dow

·     Restaurants; Dow component MCD mixed Q4 results as EPS beat ($1.97 vs. $1.89) on slight miss to revs $5.16B vs. $5.17B) and U.S. comp sales +2.3% vs. estimate +2.4% while overall comp sales +4.4% beat the estimate +4% (int’l comps missed at 4.4% vs. 4.7%) – shares slid after saying FX, commodity costs and labor hurting 2019 EPS

·     Housing & Building Products; WHR was downgraded by two firms (RBC , Raymond James) after the stock rallied 10% on disappointing 4Q results and soft FY’19 guidance for both EPS and Ebit; MIK said it sees Q4 same-store sales and EPS at the low end of prior guidance; homebuilders pulled back after yesterday bounce despite weak order growth from PHM

·     Casino & Leisure movers; cruise lines higher after RCL Q4 EPS, sales beat and issued better Q1 EPS and net yield change in constant currency +7.5% to +8% (vs. estimate +6.75%) – shares of CCL, NCLH were also active on results;

·     Auto sector; GNTX shares drop after earnings miss as automotive net sales down 2% to $442.8M in Q4, while gross margin rate fell 130 bps to 37.9% and operating margin rate declined 150 bps to 27.7%; CARS rises after NY Post article overnight that CDK is expected to make a takeover offer for CARS with final round bids next week https://nyp.st/2GaHcLh

 

Energy

·     Energy stocks were mostly higher on oil gains following better weekly inventory data as the EIA said weekly crude stockpiles rose a less than expected +919K barrels vs. est. +3,150M barrels, while gasoline data was bearish with inventories falling -2,235M vs. est. +2,800M. Overnight, the API reported that U.S. crude supplies rose by 2.1M barrels for the week ended Jan. 25, showed that gasoline stockpiles climbed by 2.2M barrels, while distillate inventories edged up by 211K bls

·     E&P sector; HP posted a "net positive" update according to Wells Fargo with slight Ebitda miss on higher SG&A and HP Technologies/Other Costs, which was offset by solid 2Q19 guidance and a 20% cut to capex view (sees FY cap-ex $500M-$530M vs. prior $650M-$680M view); PXD says it expects a $576M non-cash gain on oil and gas hedging contracts for Q4, according to an SEC filing; HES posted narrower Q4 EPS loss on capex about $2.9B; MUR reports after the close

·     Utilities & Solar; sector was little changed on the day ahead of earnings for group next week; in research, Wells Fargo upgraded LNT to Outperform and downgraded PNW to MP noting LNT shares have languished vs. the S&P Utilities over the last year despite several positive developments; in alternative energy, HYGS was downgraded at Roth Capital on valuation, as believe the equity appropriately discounts upcoming catalysts, while upgraded PLUG to neutral on valuation saying both the WMT and AMZN warrant agreements have raised revenue visibility, but these agreements erode both the quality of revenue/margin/earnings

 

Financials

·     Consumer finance and lending; ALLY Q4 adjusted EPS of 92c topped views by 4c with retail deposit growth of $4.5B during the quarter and retail deposit customer base increased 16% Y/Y, totaling 1.65M customers at year-end; SYF was upgraded to buy at Bank America as recent favorable announcements remove some potential threats to the stock; Dow component Visa (V) and PYPL to report earnings tonight after the close

·     Asset managers/advisors weak; IVZ falls after Q4 adjusted EPS misses consensus estimate due to the market slump and a "challenging investment environment" at the end of last year, while Q4 average assets under management of $924.4B, down 6.2% from Q3-end; TROW posted lower top and bottom line miss and BEN Q1 EPS missed by 12c on weaker operating revs $1.41B vs. est. $1.45B and lower AUM of $649.9M vs. $652M Bloomberg est

·     Earnings due post-market: AFG, AGNC, AMP, AXS, BDN, BPFH, BRKL, CACC, CMO, DRE, FIBK, GHL, ISBC, PYPL, SEIC, STXB, THG, TSC, V

 

Healthcare

·     Pharma & Biotech movers; LLY, SNY, NVO CEO’s are getting questions from House Democrats on insulin prices, Bloomberg reported; AGN was downgraded by several analysts following disappointing earnings yesterday; AMGN strong Q4 beat is diminished somewhat by legacy products Sensipar and Neulasta driving the beat said RBC (combined $258M of AMGN’s $407M beat) and light FY:19 guidance for -3% to -8% revenue declines; BIIB slips after Roche’s decision to stop two late-stage studies evaluating beta-amyloid-targeting crenezumab in people with early-stage Alzheimer’s disease due to lack of efficacy (BIIB and Eisai are co-developing a beta-amyloid monoclonal antibody called BAN2401); ICPT was upgraded at JMP Securities citing favorable risk/reward headed into the REGENERATE readout; MYL received FDA approval of Wixela, the first generic version of GSK blockbuster inhaled respiratory drug Advair

·     Medical equipment and devices; SYK shares jumped after delivered an impressive 4Q performance, with organic sales growth rising to a 10-year high of 8.6% despite a challenging YOY comp and solid operating leverage driving an EPS beat; TMO Q4 beat while guidance missed views ($12.00-$12.20 vs. est. $12.25); ILMN shares dropped after Q4 EPS and margins missed, though reiterated its 2019 guidance

·     Healthcare services and providers; dental sector active after ALGN shares initially slid after reported for the second Q in a row, disappointing results, with the issue this time around margins (posted lower-than-expected 4Q18 growth ( -7.5% y/y and a sequential decline for third quarter in a row) – XRAY, PDCO, HSIC among movers on results (ALGN rebounded to trade much higher late afternoon); in HMO Space, ANTM rises after earnings beat and accelerated plans to launch its own pharmacy- benefits manager/forecast strong earnings for the coming year (guided EPS to top $19 per share vs. est. $17.61)

 

Industrials & Materials

·     Aerospace & Defense; Dow component BA posted strong Q4 results and full-year outlook significantly above estimates/sees FY core EPS $19.90-$20.10 on revs $109.5B-$111B well above the $18,44 and $107.13B estimates (helped supply chain SPR, TDG, ARNC, TGI); GD Q4 EPS and revenue top consensus with backlog of $67.87B (follows good results in defense yesterday) but guides year EPS $11.60-$11.70 vs. est. $12.00; NOC to report earnings tomorrow

·     Chemicals; Nomura/Instinet downgraded OLN and WLK to reduce from neutral on rising downside earnings risks and austic soda concerns see risks in epoxy earnings in 2019 following strong supply/demand fundamentals in 2018; AXTA active on earnings while Dow component DWDP to report tomorrow morning

·     Transports; CHRW reported 4Q EPS of $1.34 well above the $1.21 estimate on stronger than expected gross margin expansion (+127bps better than Bernstein estimate)/more balanced market and continued pricing momentum, especially in NAST; KNX reported 4Q profit above expectations amid improved efficiency at the Swift unit’s truckload business, as well as a strong freight market; RYAAY was upgraded at Raymond James with an $85 target price as the risk-reward at current levels is too compelling to ignore; HA shares dropped on earnings miss

·     Metals & Materials; VALE announced it would halt all operations around the upstream method dams and that these dams would be decommissioned. The announcement affects iron ore production of 40MM mtpa, including pellet feed for 11MM mtpa of pellets. This represents ~10% of Vale’s iron ore production and 17% of its pellet production capacity; AKS downgraded by several analysts following earnings results (X reports tonight); Metals were mostly rising today, led by iron ore, as Vale’s disaster has led to supply disruptions (CLF in iron ore); uranium stocks fell (CCJ) with Bloomberg noting Kazakhstan’s plans to boost uranium production this year to 22,742 tons in 2019 from 21,699 y/y (raises fears of hurting prices)

·     Packaging sector mixed; PKG mixed results as EPS beat by 3c while sales of $1.75B missed the $1.78B est. while KeyBanc said it missed operationally in 4Q (beat on adj. EPS on lower taxes and interest), with the miss relative to estimate coming in its containerboard business, while its uncoated freesheet business posted much better results; SLGN posted top and bottom line Q4 beat gut guidance of $2.10-$2.20 missed the $2.23 estimate (BMS, BERY, IP active)

 

Technology, Media & Telecom

·     Apple: AAPL rallied on better-than-feared results and F2Q19 (March) guide: AAPL expects continued iPhone weakness in F2Q19, driven by ongoing impacts from FX (-$1.3B y/y rev. impact), slowing upgrades/lack of carrier subsidies, and battery replacement program

·     Internet; BABA Q3 results beat EPS estimates but missed on revenue despite a 43% Y/Y growth as core commerce revs, $14.95B (+40% Y/Y); Cloud computing, $962M (+84%); Digital media and entertainment, $944M (+20%); Innovation initiatives and others, $193M (+73%); FB is expected to report earnings tonight after the close; EBAY reported largely in-line 4Q results though a softer 2019 revenue/GMV outlook, as eBay slows the new experience roll out (US GMV decelerated 400bps and Int’l GMV decelerated 200 bps) – for 2019, revenues guidance was lowered to 2% growth from mid-single digits 

·     Semiconductors; AMD posted in-line 4Q results and offered soft 1Q guidance amid a graphics slowdown and softening industry dynamics…but projects a sharp rebound in 2H led by new 7 nm products and share gains; in the semi-equipment space, KLAC posted a strong F2Q beat as it pulled in shipments from March while F3Q guidance is soft/seeing business shift to foundry/logic; MKSI posted 4Q revenue above consensus and EPS above consensus and within its guidance range while offered 1Q guidance below consensus; COHR falls after being downgraded to hold from buy at Needham after the "much weaker" Q2 outlook and the company’s decision to pull FY guidance; MLNX rises early on reports INTC has bid $5.5-$6 billion in cash and stock to buy the Israeli company, Israeli media reported on Wednesday https://reut.rs/2sVG5Hi; MXIM shares active after mixed Q2 results and lower rev guidance ($520M-$560M vs. est. $595M); earnings expected tonight from QCOM, CRUS, CREE

·     Networking and equipment; JNPR shared fell after mixed 4Q results and provided disappointing 1Q19 guidance as cloud and service provider performance remained a drag on the top line/Bank America downgraded saying results/guidance weak as router demand is not growing fast enough to offset price erosion; CIEN was downgraded to neutral at Bank America amid concerns about the stock’s valuation as shares climbed more than 80% since the start of 2018

·     Media & Telecom movers; AT posted in-line Q4 EPS (86c) on slight miss to revs with Q4 Wireless net adds 3.8 million/declines in legacy wireline services, wireless equipment, domestic video and Vrio were more than offset by WarnerMedia and growth in domestic wireless services/AT &T’s pay-television business lost more than 650,000 customers in the fourth quarter (shares of DISCA, AMCX fell in sympathy); EGHT shares slumped with one analyst saying despite exceeding expectations and the continued decision to accelerate sales and marketing spend, the outlook for top-line acceleration was bleak as difficulty to ramp new partners in the channel negatively affected the mid-market segment; Guggenheim continue to see headwinds for each company, particularly in their legacy businesses. Additionally, we expect long-term systemic pressures, and pricing headwinds to continue (lowers tgts for CCOI, GTT, FTR, WIN)

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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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