Market Review: February 05, 2019

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Closing Recap

Tuesday, February 05, 2019

Index

Up/Down

%

Last

DJ Industrials

170.80

0.67%

25,410

S&P 500

12.65

0.46%

2,737

Nasdaq

54.55

0.74%

7,402

Russell 2000

2.69

0.18%

1,520


 

Equity Market Recap

·     U.S. stocks remain strong, with late day buying activity pushing stocks near their best levels of the day and closing higher for a 5th straight session. The extended bounce follows dovish commentary from the Fed last Wednesday when they kept rates on hold and said they would remain “patient” regarding future interest rate moves. With the Fed back in the corner of investors, it appears the green light to buy stocks is on again, with major averages pushing higher coupled with better-than-expected overall corporate earnings this quarter thus far. Today’s gains were led by tech, while healthcare stocks were among the top laggards. WTI oil futures slumped as weaker-than-expected ISM service-sector orders spurred worries about the broader economy. The dollar bounced for a second session, erasing last week’s losses ahead of the State of the Union address from President Trump later this evening which is likely to touch on various topics including: China/trade, the border wall, healthcare pricing, the gov’t shutdown among others. The S&P 500 index traded just shy of its 200-day moving average (2,741.75), for the first time since early December, while the Dow Industrial gains were paced by Boeing (trading to record highs) while the Nasdaq Comp topped the 7,400 level for the first time since early December.

Economic Data

·     ISM Non-Manufacturing index for January fell to 56.7 (lowest reading since July) from 58 in the prior month and below the 57.1 estimate; Business activity fell to 59.7 vs 61.2 prior month while new orders fell to 57.7 vs 62.7 (largest decline since Aug. 2016), while employment rose to 57.8 vs 56.6; prices paid rose to 59.4 vs 58.0

·     U.S. IBD/TIPP Feb. Economic Optimism fell 2 points to 50.3 from a month earlier, marking the lowest reading since Oct. 2017; the six-month economic outlook fell to 44.5 vs 46.8 last month; personal finance fell to 60 vs 61.0 prior

 

Commodities

·     Commodity prices fell, led by a 90c drop or 1.7% move for WTI crude to $53.66 per barrel (recall had touched 2019 highs of $55.75 yesterday) ahead of weekly inventory data tonight and tomorrow, falling to its lowest levels in a week. Gold futures slipped a dime to settle at $1,319.20 an ounce, posting its 3rd straight session loss (though only modest despite the dollar bounce). Gold actually held in well despite the dollar rally and stock market surge late day.

 

Currencies

·     The U.S. dollar extended yesterday gains, erasing all of last week’s declines following the FOMC dovish stance, as the dollar index (DXY) rises to its best levels since late January. The British Pound fell to 2-week lows of $1.2925, while the euro dropped back near the $1.14 level. The economic data today was weaker as the ISM services index fell to multi-month lows, but it didn’t matter as the “risk-on” trade lifted stocks and the greenback. The dollar gained vs. the Japanese yen back to the 110 level while also rising vs. the Canadian dollar.

 

Bond Market

·     Treasury prices rebound as yields fall with the 10-year yield down at 2.70% (off earlier lows of 2.68%) despite a weaker ISM services report today. Markets seemed in “wait and see” mode ahead of President Donald Trump’s State of the Union address tonight which could touch upon various topics, including the fears that the White House is willing to shut down the government again if his demands for funding for a southern border wall are not met. The US Treasury sold $38B in 3-year notes at a yield of 2.502% vs. 2.505% when-issued prior to auction, with a bid-to-cover (demand) at 2.55 vs. 2.44 prior auction and indirects bidders awarded 45.7% of auction and 35.9% to primary dealers

 

 

Macro

Up/Down

Last

WTI Crude

-0.90

53.66

Brent

-0.53

61.98

Gold

-0.10

1,319.20

EUR/USD

-0.0029

1.1408

JPY/USD

0.07

109.96

10-Year Note

-0.017

2.707%

 

 

Sector News Breakdown

Consumer

·     Retailers; RL shares helped boost luxury retail after topping Q3 estimates as sales were up 6.3% during the quarter on a constant currency basis, led by a 13% jump in Europe, reports GM at 61.6% of sales vs. 60.7% a year ago and boosts FY19 rev view above prior guidance; the better RL results helped boost other luxury names early (PVH); The National Retail Federation forecast 2019 U.S. retail sales will increase 3.8% to 4.4%, despite threats from an ongoing trade war, volatile stock market and the effects of the government shutdown; LEG jumped on earnings

·     Consumer Staples; EL shares jumped after Q2 adjusted EPS handily beat the most bullish estimates and after the company boosted its full-year profit outlook on booming sales in Asia; KHC was downgraded to hold at Deutsche Bank citing cloudy profit visibility and in particular sees margin pressure due to heightened promotional activity; ARMK raised its outlook and beat on the top and bottom line, following SYY’s beat of expectations Monday; CHD Q4 results were mostly in-line with consensus but guides year EPS $2.43-$2.47 below the $2.48 analyst estimate; CVCO shares dropped after missing on the top and bottom line

 

Energy

·     Energy stocks get a boost on earnings as BP Q4 earnings easily topped analyst expectations amid a strong operating performance across all its business segments/for the full year, BP’s replacement-cost profit totaled $9.9B vs. $2.8 billion in 2017 (overall it’s been a good earnings season for major oils with BP, RDSA, XOM and CVX all topping consensus)

·     E&P sector; CBT shares drop after Q1 EPS missed by 6c on better revs and lowers outlook saying faced softer auto demand, inventory destocking; APC another SPA for Mozambique LNG this one with Shell and is for 2 Mtpa of LNG from Area-1; SM said production was affected by significant storms and third-party gas plant force majeure events that were originally estimated to reduce Q4 production by approximately 0.6 MMBoe

 

Financials

·     Insurance; HIG posted Q4 core EPS of 78 cents blows past the average analyst estimate of 57c and announced a $1B stock buyback plan; PFG was downgraded to sell from neutral at UBS citing caution on revenues and margins driven by market pressures in the nearer term and competitive dynamics over the longer term; earnings tonight from ALL, CB, UNM, VOYA

·     Consumer finance and lending; SYF positive mention at Nomura saying they believe it’s time for those on the sidelines to rethink their cautiousness – with over $4B to spend and a laser focus on mitigating the loss of WMT, we view SYF as a deep pocketed incremental buyer

·     Payments sector; FDC downgraded at Raymond James given the stock’s recent run to our prior target price/fair value estimate of $25 following the announcement of the combination with FISV; Nomura said SQ’s Cash App broadened its spread from its PYPL Venmo in January to an all-time high of 4.2M with 45.3M cumulative downloads compared to Venmo’s 41.2M

·     Asset managers and advisors; LM was upgraded to buy at Citigroup despite its Q3 miss, as analyst positive on LM’s plan to invest in a global operating platform expected to save about $100 million annually; LAZ Q4 net revenue rose 10% Q/Q and 2% Y/Y as financial advisory revenue more than offset a decline in asset management revenue/Q4 total revenue of $704.3M beat and financial advisory revenue of $398.6M jumped 31% from Q3 and increased 19% from Q4 2017; IVZ prices common stock offering of 14M shares at $15.73/share for gross proceeds of $220.2M; APAM reported in-line Q4 earnings and revenue; JHG profit misses estimates on higher net outflows; brokers slipped (AMTD, SCHW, ETFC) during SCHW business update

·     REITs; earnings results out of a few REITs overnight moving shares (ARE, AVB, KRC)

 

Healthcare

·     Pharma movers; LLY active after two Phase 3 clinical trials, BREEZE-AD1 and BREEZE-AD2, evaluating its baricitinib in adult patients with moderate-to-severe atopic dermatitis (AD) met the primary endpoints; MNK said open-label phase completed and primary end point results are consistent with prior reports, in update on Phase 4 Data H.P. Acthar Gel clinical trial in patients with rheumatoid arthritis; MRK was added to Bank America US 1 list while removed AGN; PTIE shares slipped after saying it doesn’t believe it’s closer today to an FDA approval for its pipeline’s lead candidate, Remoxy, than it was more than a year ago; in managed care, CNC and WCG both rallied early following results and guidance

·     Cannabis sector; AMRS rises after announcing plans to develop, license and commercialize cannabis compounds with a confidential partner/valued at up to $255M plus royalties; GMP Securities downgraded CRON downgraded to hold as shares reached an all-time high of $32.95 yesterday on strong volume and have surged ~110% year-to-date on no material news and have outperformed the HMMJ cannabis index by a factor of 2; Piper said some emerging US brands appear to have early consumer traction, but the US market is highly fragmented, leaving room for Canadian operators like CGC and TLRY to enter post-prohibition

·     Biotech movers; GILD Q4 revenue beat from HIV and Letairis but non-GAAP EPS of $1.44 missed consensus of $1.70 after an $820M write-down to R&D in Q4, largely related to its anti-BCMA CAR-T being developed by its Kite Pharma unit

·     Medical equipment and devices; group pressured on earnings as HAE shares slump on mixed Q3 results as EPS beats but revs miss while backs year outlook; LMNX 4Q18 revenues and initial 2019 revenue guidance were consistent with the January 7 preannouncement, but shares fell; ABMD defended by analysts after falling yesterday nearly 6% yesterday FDA issued a Dear Doctor letter notifying cardiologists, cardiothoracic surgeons and transplant surgeons of higher mortality rates in the Impella RP system’s post-approval study

 

Industrials & Materials

·     Industrial & Machinery; ITW was downgraded to underperform at Bank America/Merrill as believe ITW is an extremely well run, return-focused, highly defensive stock, but we see shares lagging as ITW struggles on organic growth; AGCO posted Q4 EPS and sales beat nut reaffirmed guidance for the year fell short of consensus views ($4.60/$9.6B vs. est. $4.63/$9.63B); RBC shares jumped after its earnings beat; Dow component BA shares up more than 38% from its December lows below $300 per share, as it trades to all-time highs today

·     Chemicals and Materials; CDXS shares rallied after saying it signed a new agreement with MRK to upgrade its protein-engineering technology platform; in lithium space, ALB was downgraded to neutral at Citigroup and recommend LTHM for investors seeking Li exposure based on slower industrial activity and weak refining margins increases downside risks to ALB’s Bromine & Catalysts divisions; VSM reports lighter than expected FQ1 earnings and reduces FY 2019 EBITDA and revenue guidance; ADM Q4 revenue was down 0.8% Y/Y during the quarter while operating profit in the origination, nutrition segments all trailed the consensus estimate

 

Technology, Media & Telecom

·     Internet; GOOGL shares slipped initially after reported Q4 revenue that beat expectations, but an increase in spending to expand its cloud and YouTube businesses resulted in thinner profit margins which weighed on sentiment; BKNG was upgraded to buy at Deutsche Bank as sees room night growth accelerating to 14% or better in 4Q vs average estimate of 12.8%, with further acceleration likely in 1Q; overall Internet space has been bouncing nicely off December lows (NFLX, AMZN, GRUB, BABA, FB)

·     Semiconductors; AMD 34.9M share Spot Secondary priced at $23.65; chipmakers overseas offer weaker outlooks as Infineon Technologies AG said Q1 net income rose year-on-year, but that it now expects its fiscal 2019 revenue growth to come in at the lower end of its forecast; AMS said Q4 adjusted net profit fell sharply as it expects unfavorable market conditions to weigh on its future revenues; INTC shares moved to best levels since July – topping the $50 per share level – after recently sliding on earnings and new CEO news

·     Software movers; GLUU shares fell as reported strong Q4 results with bookings and adj. EBITDA both ahead of Street expectations while Q1 guidance is below consensus, primarily due to Tap Sports Baseball seasonality/FY19 bookings and adj. EBITDA guidance were below consensus; other video game related names report tonight EA and tomorrow TTWO; DATA trades to record highs in software space ahead of earnings tonight

·     Media & Telecom movers; Dow component and media giant DIS to report earnings after the close tonight; VIAB Q1 results beat EPS estimates but missed on revenue on weaker film revs of $621M and Consumer Products and Live Events, $99M (-12% Y/Y), while worldwide advertising dropped 6% in-line with consensus while affiliate grew 3%; in telco, CTL was downgraded to sell at Citigroup as they see headwinds on revenue and cash flow, a possible dividend cut, and the likelihood for capex upgrades to lead to further multiple contraction; CNBC reported that LBTYA joins the bidding for the regional sports networks being sold by Disney to complete its Fox deal

·     Hardware & Component news; BOX was initiated with a buy and $31 tgt at Goldman Sachs calling it one of the best-positioned vendors in cloud content management; HLIT Q4 results, where it beat EPS expectations but provided light guidance for the current quarter’s revenues; CTRL falls as Q4 results that beat on EPS but missed on revenue despite a 7% Y/Y revenue growth while Q1 rev guidance of $61M-$63M missed the $63.9M est.; STX slipped early on weaker guidance

·     Optical sector; FN shares fell after Q2 top/bottom line beat and guidance also mostly better but was overshadowed by softer margins and as the ongoing component shortage continued to serve as a headwind; meanwhile, LITE dropped after Q2 results miss EPS estimates by 2c on rev beat despite an 8% Y/Y drop to $373.7M (in-line guidance) – shares of AAOI, NPTN, CIEN lower

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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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