Market Review: January 31, 2019

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Closing Recap

Thursday, January 31, 2019





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     U.S. stocks finished mixed as the tech heavy Nasdaq Composite posted gains of around 1% following strength in Facebook earnings while the Federal Reserve’s dovish turn late yesterday lifted investor sentiment for a second day. The S&P 500 posted its best month since October 2015 after Wednesday’s statement from the Fed helped ease fears that the central bank would continue with plans to tighten policy. Dow components MSFT, V and DWDP lagged following weaker outlooks and commentary which prevented the index from posting big gains. European markets closed mixed, while Asia markets rose and emerging markets gained. The dollar rebounded from yesterday’s losses, lifting gold prices while oil reversed to settle the day lower (but still posted an 18% jump in prices for January). Treasury yields extended recent declines the 10-year yield dropped to 2.62% and the 2-year down to 2.45%). In stock news, financials/banks dropped amid the decline in yields, software stocks jump behind NOW results while payment companies mixed after earnings from Visa, MA and PYPL. Industrials get a boost from GE after revenue beat while defense companies (NOC, RTN) slipped after weaker outlooks. Midday, President Trump said he may soon meet with China’s Xi Jinping to finalize details of a possible trade deal as he declared negotiations in Washington were making progress.

Economic Data

·     Weekly Jobless Claims rose 53k to 253K, topping the 215K estimate which marks the highest level for initial claims since Sept. 2017, when it was 254K (prior week revised to 200K from 199K); the 4-week moving avg. rises 5K to 220.25K in the week ending Jan. 26; actual, unadjusted, initial claims at 250.19K from 269.76K in prior week; continuing claims rose 69K to 1.782M

·     Employment Cost Index (ECI) for Q4 rose 0.7% vs est. up 0.8% while prior quarter ECI unrevised at 0.8%; ECI rose 2.9% y/y, most since Sept. 2008; Wages rose 0.6% q/q; up 3.1% y/y

·     New Home Sales for November jumped to 657K reading (highest level in 8-months), up 16.9% MoM and handily topping the 570K estimate (prior month revised to 562K from 544K);

·     Chicago PMI report falls to 56.7 from 63.8 prior month and below the est. 61.5 as the Business barometer rose at a slower pace, signaling expansion while Prices paid unchanged, new orders rose at a slower pace, and employment rose at a faster pace

·     The 30-year fixed mortgage rate for week ended today rose to 4.46% from 4.45%, Freddie Mac said; 15-year rate avg 3.89%, up from 3.88% a week earlier



·     U.S. oil futures slipped late day as WTI crude fell 44c, or 0.8% to settle at $53.79 per barrel (off earlier highs of $55.37), but still posted gains of roughly 18% for the month (best monthly return in about 3-years). President Trump said late day that he wants a big trade deal with China or he would "postpone it." Those headlines took a little wind out of the sails of oil prices. Until then it has been smooth sailing for crude, getting a boost yesterday on bullish inventory data, the recent pullback in the dollar given the dovish Fed, OPEC production cuts are kicking in, and U.S. sanctions against Venezuelan’s state-owned oil company PdVSA, and Saudi Arabia has cut exports to the U.S., dropping them to the lowest since October 2017.

·     Gold futures traded above $1,330 an ounce before paring gains, as April gold futures rose $9.70 or 0.7% to settle at $1,325.20 an ounce, ending the month higher by 3%. The rally in gold started a few weeks back as the Fed became more dovish on its rate hike cycle, which was confirmed yesterday after keeping rates unchanged and 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. The policy update marked a decidedly dovish shift for the Fed, which also weighed on the dollar.



·     The U.S. dollar dropped sharply yesterday after the dovish FOMC commentary, but bounced today as the dollar index rose 0.25% to around 95.60 (well off December highs 97.71 after the Fed last hiked rates). The British pound moved to afternoon lows below 1.31 after recently trading to 2-month highs of 1.3217 last week during Brexit talks, while the euro dipped around -0.3% of 1.441 after overnight highs of 1.1514 (best levels in 2-weeks). The dollar fell vs. the yen while was little changed vs. the Canadian dollar. Fed Chairman Jerome Powell yesterday dropped the pledge of ‘further gradual’ rate hikes (and said would remain patient), as well as mentioned the global economy, Brexit, muted inflation and financial developments for dovish outlook. In economic data, jobless claims for the week ended Jan. 26 came at a 16-month high of 253,000, while the employment cost index for the fourth quarter of 2018 slipped to 0.7%.


Bond Market

·     Treasury prices gained as yields extended their recent declines, with the 10-year yield falling around 5 bps today to 2.625% and as the 2-year yield slumped to 2.46% amid a combination of strength in stocks and as the Fed gets softer on its interest rate hike outlook. The Fed is once again causing a rotation into riskier assets with their recent stance on rates.






WTI Crude















10-Year Note





Sector News Breakdown


·     Retailers; TSCO posted record revenue for Q4 off a 5.7% jump in comparable store sales, while year guidance for full-year revenue of $8.31B to $8.46B and EPS of $4.60-$4.75 missed the mi-point of $8.42B/$4.71 consensus; TIF upgraded to buy at Atlantic after significant valuation pullback; retailers were generally higher with broader markets

·     Auto’s; TSLA CFO departs/came in with mixed results as revenues beat street expectations, while the bottom line came in a bit short/automotive gross margins on a non-GAAP basis dipped by about 80 basis points sequentially, while GAAP margins fell more thanks to almost no ZEV credit sales/guided for 2019 deliveries of 360,000 – 400,000 cars, midpoint of which is below consensus; in auto retail, MNRO posted a Q3 comp sales miss citing mild weather in December

·     Consumer Staples; AVP shares spiked after portfolio manager Bill Miller tells CNBC that the stock is one of the most interesting that he’s seen lately; in food, MDLZ reported largely in line results for Q4 as sales of $6,773B were in line with consensus, adj. gross margin of 40.0% was up +90 bps YoY; HSY Q4 EPS just missed consensus along with rev and margin shortfalls; in tobacco, MO said it expects full-year domestic cigarette industry volume to fall at a rate of 3.5% to 5% and sees full-year EPS of $4.15-$4.27 vs. est. $4.24

·     Housing & Building Products; housing stocks (KBH, LEN, TOL) and home improvement stocks (HD, LOW) rally initially after strong monthly New Home Sales data which rose 16.9% MoM to 657K reading for November; USCR downgraded to hold at SunTrust saying while management has built a best-in-class business, and valuation looks compelling after a challenging year, we see more headwinds on the horizon as new bookings will likely be lower margin as mix shifts; CBPX announced that its Buchanan, NY plant will be shut down throughout February due to equipment failure which Deutsche Bank estimate this will impact volume growth negatively by ~6.5%



·     Energy stocks active on rising oil and earnings; COP Q4 results topped estimates for both Q4 earnings and revenues, helped by higher production and realized crude oil prices as it produced 1.31M boe/day excluding Libya during Q4, up 7.7% Y/Y and achieving the high end of company guidance/expects full-year capital spending of $6.1B; RDSA rises as Q4 quarter earnings boosted 2018 profits by 36% from the year before as it reaped the cash rewards of higher prices; shares of Dow components XOM and CVX are to report tomorrow morning

·     Services and E&P sector; BCEI reports preliminary proved reserves of 116.8M boe as of year-end 2018, a 29% Y/Y increase, and says Wattenberg sales volumes increased 48% Y/Y to 17.75K boe/day in Q4, within the range of guidance; Services; BHGE Q4 beat on revenue, operating income and showed strong orders; CRR posted wider than expected Q4 EPS loss; HP was upgraded to buy at Bank America with $68 tgt

·     Refiners; VLO shares rise as reported better-than-expected Q4 earnings thanks to pipeline projects that tapped some of the cheapest oil sources in North America; MUSA shares dropped after Q4 results missed lowest estimates, sending shares of comp CASY lower



·     Consumer finance and lending; Dow component Visa (V) reported solid headline numbers with revenues and EPS ahead of expectations but mkt focus was the slowdown in the closely-watched cross-border growth rate and the rate of credit volume growth which fell/Visa warned consumer spending could be crimped in the first three months of the year; PYPL shares fell after outlook miss, but CEO says Venmo has hit a ‘significant transition point; MA rises after Q4 adjusted EPS of $1.55 beats by 3c and Q4 net revenue of $3.8B, up 15% Y/Y, in line with consensus/Q4 adjusted operating margin 52.3% vs. 51.0% a year ago; CACC downgraded at Oppenheimer after earnings

·     Brokerage and Services; HRB was downgraded to sell at Goldman Sachs and cut tgt to $22 as believe U.S. tax reform structurally alters the tax preparation landscape, giving rise to headwinds to HRB’s core assisted tax preparation business due to doubling of the standard deduction; SCHW announces $4B share buyback and dividend boost; GHL falls as Q4 revs missed and was downgrade to neutral at Sandler O’Neil; FICO Q1 EPS beat and backed year outlook; asset manager IVZ was downgraded at Barclays after miss yesterday while TROW upgraded at ISI

·     REITs; Data center REITs at Guggenheim saying although checks indicate that 4Q was not a robust hyperscale leasing quarter, they believe 2019 will play out more favorably than what is implied by current market valuations. While our ratings remain unchanged, they have reduced our PT on DLR to $125 (from $130), COR to $100 (from $108), and are adding INXN to the Best Ideas list given its high growth profile and fully funded expansion plan; 52-week highs today for several REITs including AMT, PLD, HCP, ARE, O, UDR, DRE

·     Other movers on earnings; banks were under pressure as yields prices fall across the board – the 10-year yield falling around 5 bps today to 2.625% and the 2-year yield slumped to 2.46% as the Fed gets more dovish; GS, BAC, WFC fall over 2%; ISBC rises after Q4 EPS beat by 4c; AMP a beat on both the top and bottom line lifted shares; MMC mixed as EPS beat but revs missed



·     Pharma & Biotech movers; PFE was upgraded by two analysts, raised to outperform at Credit Suisse saying new product story with multiple marketed and pipeline assets may be underappreciated by the Street, while Argus raised its rating to a buy; REGN shares trade to fresh 52-week highs

·     Medical equipment and devices; HOLX FQ1 results (pre-announced) were largely encouraging: key growth drivers of MDx and Breast Health exceeded expectations and EPS was a bit ahead. However Cynosure continued to be challenged according to Cowen; DGX was downgraded to hold from buy at Argus ahead of the company’s fourth-quarter result as the company is facing pressure from lower Medicaid payment rates for clinical laboratory tests

·     Healthcare services and providers; ABC shares rise after Q1 EPS was better than feared as core distribution revenue strength drove an across-the-board beat, with margins matching estimates


Industrials & Materials

·     Industrial & Machinery; GE shares surge as Q4 revenue topped estimates, rising 5.4% Y/Y to $33.3B (beating estimates by $1.07B) and announced a settlement of $1.5 billion with the Department of Justice, related to its old subprime mortgage business; ETN shares rose over 4% after earnings beat and positive guidance

·     Transports; UPS posted mixed Q4 results as Q4 Eps beat by 4c on in-line revs of $19.96B while the midpoint of its profit guidance range is below estimates (sees FY19 EPS of $7.45 to $7.75 vs. $7.71 consensus)/said Q4 revenue was up 6.3% for the U.S. domestic segment and 2.9% for the international segment (+5.4% constant currency); ALGT shares soar on earnings; in truckers, LSTR mixed Q4 as EPS beat but revs fall short while announces 1M share buyback; KEX among top gainers in the transport index after EPS beat

·     Metals & Materials; US Steel (X) reported a big Q4 EBITDA miss and provided Q1:19 EBITDA guidance well below consensus/on a QoQ basis, EBITDA is guided 58% lower to $225MM; EGO rises as suspending Kisladag mill project eases balance sheet concerns for investors

·     Packaging; BERY is considering a cash offer for British packager RPC Group in a challenge to a 3.3 billion pound ($4.33 billion) bid from the U.S. Company’s former parent, Apollo Global. ; PKG delivered a modest Q4 beat and its Q1 guide was ahead of consensus as well; BLL Q4 results mixed as EPS missed by 1c on better sales of $2.8B while reaffirmed its 2019 Ebitda and FCF views

·     Aerospace & Defense; the group was mixed yesterday, getting a jump from record numbers out of BA while GD shares fell on weak guidance; today, RTN Q4 EPS beat primarily driven by operational improvements and lower taxes primarily associated with tax reform and backlog at the end of Q4 was a record $42.4B while guided 2019 EPS $11.40-$11.60, missing analyst estimates of $11.72 and sales forecast $28.6B-to $29.1B missed $29B view; NOC also with weaker guidance for the year as forecast 2019 Mark-to-Market adjusted EPS forecast $18.50-$19, trailing estimate of $19.37 while its sales forecast of ~$34B was in-line; OSK was upgraded to buy at Bank America as the company’s higher EPS outlook bakes in excessively conservative assumptions, in their view as they raise estimates

·     Chemicals & Materials; Dow component DWDP reported Q4 revenues flat, hurt by lower customer demand for its appliances and automotive products as well as the drop in oil prices while warned that it expects operating earnings in 2019 will be “slightly down” and sales will be  “about flat;” MEOH reported 4Q earnings with a major miss (EPS of $1.15 vs. est. $1.88) due to lower realized price, higher costs, and lower produced methanol volumes; SHW Q4 gross margin came in at 41.4% of sales vs. 43.7% a year ago and guides year EPS $20.40-$21.40 is anticipated vs. $21.39 consensus


Technology, Media & Telecom

·     Internet; FB boosts the Internet sector (ahead of AMZN earnings tonight) as reported revenue & EPS that were 3% and 9% above consensus & guided 2019 revenue growth above consensus while MAUs/DAUs were essentially in line

·     Semiconductors; QCOM better December profitability and guided March roughly in line with consensus as handset unit softness is offset by higher ASPs/GMs/guide is better than the low expectations given the well-known handset and macro weakness; CRUS the latest in the Apple supply chain to issue weak guidance as Q4 sales were guided to $220M, well below consensus est of $275M; INTC named Robert Swan as CEO (Swan has been acting as interim chief executive for the past seven months); CREE trades to 52-week highs after earnings/guidance

·     Software movers; Dow component MSFT reported in-line results and unchanged FY19 guidance, though showed some cloud weakness; NOW rises after 4Q beat with solid performance across the platform; subscription revenue and subscription billings beat on a CC basis by 1% and 6%, respectively, with subscription revenue up 33% y/y (35% CC) and subscription billings up 38% y/y (40% CC), accelerating from 35% Qoq; WDAY rises after William Blair said recent channel work leads him to believe that Workday recently closed a core human resources deal with ACN/if correct, this would likely be a top 5 customer measured by headcount

·     Media & Telecom movers; a day after the sector got crushed on weak AT results/subscriber losses, CHTR helps alleviate some concerns as EBTIDA beat ($4.16B vs cons $4.1B), and Net Adds broadly in-line. Internet beat at 289k residential vs cons 257k and Video essentially in-line with residential (36k) vs cons (33k); Sprint (S) metrics were mixed, as prepaid net adds missed ((173k) vs cons (43k)), while postpaid phone was slightly better ((26k) vs cons (32k)). Postpaid churn a touch better at 1.85% vs cons 1.9%. ARPU worse; CNBC reported DISCA is interested in selling to CBS or a combined CBS, citing two unidentified people familiar with the matter, though notes no talks have taken place between CBS and Discovery

·     Hardware & Component news; LFUS upgraded to buy with $200 tgt at Longbow saying the sell-off post the EPS miss off a stale consensus creates an opportunity; Electronics manufacturing stocks (SANM, BHE, FN, PLXS) bounce after FLEX results beat the highest estimate – group already higher this week after better results/guidance from SANM

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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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