Market Review: February 04, 2019

Auto PostDaily Market Report

Closing Recap

Monday, February 04, 2019

Index

Up/Down

%

Last

DJ Industrials

175.68

0.70%

25,239

S&P 500

18.34

0.68%

2,724

Nasdaq

83.67

1.15%

7,347

Russell 2000

15.49

1.03%

1,517


 

Equity Market Recap

·     U.S. stocks advanced on Monday, with major averages extending their winning streak to four days, paced by gains in the tech space ahead of Google earnings tonight, while names like Apple and Nvidia rally further after falling the last month on lower outlooks. Stocks steadily climbed ahead of another busy week of quarterly earnings, while the U.S. dollar rose and commodity prices declined. Stocks extended their strong gains from January amid a dovish Fed, strong earnings, mixed economic data and trade hopes with China. Speaking of earnings, Marktwatch.com noted the earnings outlook for the first quarter has gotten more negative, as analysts trim estimates as S&P 500 companies continue to issue cautious guidance. With about 47% of the S&P 500 having reported fourth-quarter results, the blended earnings per share estimate for the December quarter–reported results and estimates of not-yet reported results–has increased to 12.5% from a year ago…but the outlook for the quarter ended March is now for a decline of 1.2%, compared with an increase of 1.9% at the start of earnings reporting season and growth of 6.6% as of Sept. 30. That would be the first YoY decline in nearly three years, if it holds. There were also a handful of M&A deal announcements this morning (more below on the deal news) that also boosted sentiment. Still a big week of earnings, economic data, Fed speakers and State of the Union by President Trump coming up.

 

Commodities

·     Commodity prices dropped led by a pullback in WTI crude futures which slipped 70c or 1.3% settling at $54.56 per barrel, taking a breather after a strong January (up 18%) and gains late last week. WTI futures hit the highest level since November this morning, with a barrel for March delivery rising as high as $55.75 before sliding, while prices also finished off the lows of $53.29. Oil prices have surged recently driven by political uncertainty (Venezuela), and OPEC cuts.

·     Gold prices slipped -$2.80 or 0.2% to settle at $1,319.30 an ounce, pulling back from recent 2019 highs as the dollar rebounded and investors locked in profits following the spike the last few weeks on lower rate hike expectations from the Fed. Gold futures tallied a second weekly climb in a row through last Friday after the Federal Reserve hinted at a pause in interest-rate hikes.

 

Currencies & Treasuries

·     The U.S. dollar gained vs. major currencies after having slipped last week given the softer tone from the FOMC regarding future rate hikes, though stronger economic data continues to support the greenback. The dollar was broadly higher vs. the euro, Pound, Canadian dollar and yen as well as emerging market currencies, with the dollar index (DXY) up about 0.25%. Treasury prices slumped as yields bounce, with the 10-year up more than 3 bps to 2.725% ahead of several speeches from senior Federal Reserve officials this week after the U.S. central bank recently signaled it would pursue a more patient path when deciding on further rate move; the 2-year yield was up at 2.52% while the 30-yr yield was around 3.06%. Cleveland Fed President Loretta Mester speaks tonight at 7:30 PM to discuss Economic Outlook and Monetary Policy in Cleveland.

 

Economic Data

·     Factory Goods Orders for November fall (-0.6%), below the expected rise of 0.3%, while Factory orders for Oct. unrevised at -2.1%; New orders ex-defense for Nov. fall 1.1% after falling 0.6% in Oct.; Capital goods non-defense ex aircraft new orders for Nov. fall 0.6% after rising 0.5% in Oct.

 

 

Macro

Up/Down

Last

WTI Crude

-0.70

54.56

Brent

-0.24

62.51

Gold

-2.80

1,319.30

EUR/USD

-0.0021

1.1436

JPY/USD

0.37

109.87

10-Year Note

0.029

2.72%

 

 

Sector News Breakdown

Consumer

·     Consumer Staples; household product makers strong early after CLX Q2 results beat, helped by better gross margins of 43.7% which topped the Bloomberg estimate of 42.2% and expanded 70bps from year ago level; NUS said it sees Q4 revenue ~$2.68B vs. $2.67B consensus; SYY posted better-than-expected profit for Q2 as sales rose to $14.8B from $14.4B, matching consensus while sales at the company’s U.S. foodservice operations rose 4.2% to $10.1B

·     Restaurants; PZZA shares active after the company said investment firm Starboard Value LP made a $200M investment, with an option to make an additional $50M investment. https://on.mktw.net/2S8gbz7 ; DFRG to terminate short-term shareholder rights plan adopted in December/Engaged Capital agrees to some standstill and voting commitments and will vote shares in favor of company’s nominees and other proposals

·     Housing & Building Products; ETH was downgraded to Market Perform following Ethan Allen’s F2Q19 earnings release and management conference call last week; homebuilders are generally lower with a bounce in yields and mortgage rates – TOL, LEN, PHM, KBH were lower

 

Energy

·     Energy stocks slipped as oil prices reverse from earlier gains (WTI crude touched best levels of year at $55.75 before sliding), pulling back amid some profit taking after a strong start to the year; COP was raised to buy from neutral at Goldman Sachs as raise COP’s 2019-2022 cash flow forecasts by an average of 8% following better Q4 results; CRK proved oil & natural gas reserves as of Dec. 31, estimated by an independent petroleum engineering firm, came to 23.6 million barrels of crude oil and 2,283 billion cubic feet of natural gas, or 2,424 billion cubic feet of natural gas equivalent (Bcfe); SM 4Q prelim production 122.8 Mboe/D Vs. 112.6 Y/Y; WPX reduced its capital spending from a prior midpoint estimate of $1,550M to $1,100Mm-$1,275M and sees 6% impact to original production guidance despite a 23% capital reduction

 

Financials

·     Bank movers; regional banks KEY and RF both downgraded at Wedbush based on valuation and ongoing inconsistency in earnings; says making it harder for KEY to close its valuation discount to peers despite above average profitability metrics while RF cut also based on valuation and some fading catalysts in consumer finance and lending, ELLI shares rose after Bloomberg reported a DealReporter story late Friday that Ellie Mae Inc. is said to have hired Morgan Stanley to explore a sale is triggering assessments of how much the mortgage software company may be worth

·     Banks expect that the performance of their existing loans will deteriorate somewhat this year on many different types of consumer and business loans, and as a result are tightening access to credit, according to a Federal Reserve survey of senior loan officers released on Monday. The quarterly survey found that banks are expecting to tighten standards for business loans as well as credit cards and jumbo mortgages this year. Banks were already starting to tighten standards on credit cards in the fourth quarter, according to the survey.

·     Services; INTU was upgraded at Morgan Stanley and raise tgt to $225 saying there are multiple catalysts ahead for the Consumer Tax and Small Business segments; WETF downgraded to sell at Citigroup noting the stock price dropped >10% on 2/1 following disappointing 4Q results and, more so, disappointing expense guidance

·     REITs; group has been rallying in recent weeks on the surprise pullback in Treasury yields as the Fed has gotten more dovish on their rate hike outlook; in research, Barclay’s upgrades multi-family subsector to Positive driven by long term secular trends – as upped CPT for exposure to 18 hour cities and downgrades AIV on slowing growth. Rates office subsector Neutral with a Positive tilt on healthy underlying fundamentals and attractive valuations (upgrades SLG, BDN and DEI). Firm selective on Retail subsector as prefers larger companies with better-quality assets, balance sheet flexibility, the ability to take share and grow earnings (upped REG and cut KRG)

 

Healthcare

·     Pharma movers; ALKS announced that it received a Complete Response Letter from the U.S. FDA regarding its New Drug Application for ALKS 5461 for the adjunctive treatment of major depressive disorder; ALXN Q4 EPS handily topped views ($2.14 vs. $1.82) on better revs of $1.13B while 2019 EPS view is well ahead of consensus though rev guidance short of views (sees FY19 adjusted EPS $9.10-$9.30 on revs $4.625B-$4.7B vs. est. $8.73/$4.75B); BMY shares active on Bloomberg reports that Starboard Value has taken a stake in the company though the size of the stake and any plans have not yet been learned https://bloom.bg/2G9Ungq (though CNBC later reported no Starboard stake in BMY yet)

·     Biotech movers; ICPT upgraded to Strong Buy at Raymond James and raising price target to $184 heading into Phase 3 REGENERATE data for Ocaliva in NASH (expected in February); HALO signs a global collaboration and license agreement with ARGX granting the latter non-exclusive rights to use its ENHANZE drug delivery technology to develop a range of product formulations for current and future offerings; BHVN advances migraine candidate BHV-3500; MGNX downgraded to sell at Citigroup ahead of upcoming Phase 3 data in 1Q19 (SOPHIA trial) for margetuximab in metastatic breast cancer

·     Medical devices, healthcare services and providers; ADUS upgraded to outperform at Baird as bullish on the fundamentals for the home care sector and continue to believe a confluence of secular drivers will support attractive SS growth for ADUS; Bloomberg reported that ANTM, CNC, UNH and WCG won contracts in North Carolina; ABMD shares tumbled late afternoon on a letter saying that the FDA is evaluating recent interim post-approval study (PAS) results which suggest a higher mortality rate for patients treated with the Abiomed Impella RP System than the rate previously observed in the premarket clinical studies

 

Industrials & Materials

·     Industrial & Machinery; group fairly quiet after a week of busy earnings last week – but more to come this week: TRTN was downgraded to Underperform at Bank America as challenges to global economy could negatively impact sentiment and box pricing in 2019/2020; sector has been prone to volatile moves on trade with China, which were absent today (CAT, DE)

·     Transports; DAL reports January traffic up 5.9%, capacity up 5.9% and load factor was flat at 79.7%; SNDR was double upgraded to buy at Bank America Merrill as shares have declined from 17x forward PE to 12x at present; keep PO at $25 based on 14.5x tgt multiple

·     Metals & Materials; Metals with good gains early led by copper producer FCX after Citi said expects the metal to rally by 10% over the next 3-6 months on expectations of a U.S. trade deal with China and increasing confidence in a global economic recovery; aluminum prices also rose early, with AA, CENX, CSTM shares rising in reaction

 

Technology, Media & Telecom

·     Internet; GOOGL the last of the FAANG stocks to report, with results due after the close tonight; TWTR positive mention at Baird ahead of earnings saying they are expecting revenues toward the high end of implied guidance and believe TWTR audience growth could surprise to the upside, boosted modestly by elections; ANGI reinstated buy at Goldman Sachs, also positive on YELP while more cautious on GRPN

·     Semiconductors; ON Q4 EPS beat by 5c while guides Q1 revs modestly below consensus views; XLNX was removed from Goldman Sach’s Conviction List while maintaining a Buy rating, noting that the stock is up 51% since it was added to the Conviction List on January 5, 2018; MXWL to be bought by TSLA for $4.75 per share, a 55% premium to Friday’s closing price in deal valued at about $217M https://on.mktw.net/2RAsdMx ; Yesterday, the SIA announced December monthly sales of $36.2 billion, a MoM decrease of 9%, below the average December MoM increase of 4% due to lower DRAM, Flash, and microprocessor sales

·     Software movers; ULTI agreed to be bought for $331.50 per share by an investor group led by Hellman & in an all cash deal in a deal that represents a value of about $11 billion https://on.mktw.net/2t4BmU3 ; OKTA was downgraded at KeyBanc following the run-up in shares and on valuation; SAP was downgraded to neutral at Bank America

·     Media & Telecom movers; GCI said its board has unanimously rejected MNG Enterprises Inc.’s hostile buyout bid for the newspaper publisher of $12 a share as it believes the bid is not credible, and not in the best interest of shareholders; LEXEA disclosed in a regulatory filing that a member of EXPE made a proposal in which Expedia would acquire Liberty Expedia on Feb. 1 in a stock swap; MTCH initiated sell and $45 tgt at Goldman Sachs saying although the long-term outlook is promising, we see MTCH’s valuation as high relative to its growth; SFLY reinstated sell and $40 tgt at Goldman Sachs

·     Hardware & Component news; DELL price target was raised to $65 from $60 at JPMorgan saying macro uncertainties were abating somewhat; SONO active after JPM earlier floated the maker of smart speakers as a good “strategic fit” for Apple. “Sonos would give Apple access to high income households to play catch up with Amazon and Google in the home,” they said. JPM also said AAPL could use its net cash to make large acquisitions, with NFLX, ATVI among candidates; ROKU jumped following a report that CMCSA doesn’t plan to develop an Apple TV app for its streaming customers, opting instead to focus on infrastructure based on Sky’s domestic subscription streaming service Now TV (ROKU prices pared gains late after CMCSA said reports of streaming app plans is inaccurate)

_________________________________________________________________

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.

Live Trading

Open an Account

Paper Trading

Register