Market Review: February 07, 2019

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Closing Recap

Thursday, February 07, 2019

Index

Up/Down

%

Last

DJ Industrials

-218.26

0.86%

25,171

S&P 500

-25.52

0.93%

2,706

Nasdaq

-86.93

1.18%

7,288

Russell 2000

-12.41

0.82%

1,505


 

Equity Market Recap

·     U.S. stocks were broadly lower, falling on renewed trade and global growth concerns, while softer results in the tech space also pushed shares lower. The weakness started early after White House economic advisor Larry Kudlow said in Fox business interview that “there is a pretty sizeable distance to go in US/China trade talks.” Stocks extended losses late morning after CNBC reported President Trump is highly unlikely to meet Chinese President Xi before March 1st, the current deadline the two countries set for reaching a trade deal, according to a senior administration official. The CNBC report did note that the situation was fluid and that the status of the meeting could change after a trade delegation travels to Beijing next week. The renewed concerns of trade took a particular toll on technology and industrial shares. President Trump later confirmed he won’t meet Xi before the tariff deadline but says may meet with him later. The global growth concerns came overnight as the European Commission cut its euro-area growth forecast to 1.3% for 2019 from 1.9%, warning Brexit and China may worsen the outlook, which is spilling into US markets. Treasuries extended gains as yields fell amid the rotation back into safe haven instruments though gold prices slipped a fifth day while oil tumbled as well. Tech stocks fell following pullbacks in TWTR, GRUB, and MRVL amid lower outlooks, while biotech dropped as negative news/trials for SLDB, SGMO, BIIB sunk stocks while autos were among the top sector decliners on weaker outlooks from FCAU and supplier ADNT. Banks a focus today after regional banks STI and BBT announce a $66B merger (now 6th largest bank). Markets also remain concerns regarding the February 15 deadline for Congress to reach a border-security agreement and the previously mentioned expiration of the US/China trade truce (March 1).

Commodities

·     WTI crude oil prices fell $1.37 or 2.5% to settle at $52.64 per barrel, pushing shares of energy stocks lower on global growth concerns and another bounce in the dollar. After White House economic advisor Kudlow noted a "sizable" distance between the U.S. and China on trade talks, stocks and commodity prices took a turn lower. Prices had already been weak after the European Commission slashed growth forecasts for the Eurozone and its major economies sharply for 2019 and 2020. The data renewed current slowing global growth fears (market already concerns about slowing China economy following recent GDP and trade figures)

·     Gold prices slipped 20c, but the decline was enough to extend the losing streak to a fifth day (longest since June 2017), settling at $1,314.20 an ounce as the dollar rises for a 6th day of gains. Despite the safe-haven buying in Treasuries as stocks sold off, the outperformance of the dollar was enough to keep commodity prices lower in addition to slowing global growth concerns.

 

Currencies & Treasuries

·     The U.S. dollar posted modest gains, rising for a 6th straight session amid weakness in the euro after the European Commission cut its growth expectations citing Brexit and China fears. The dollar also posted gains vs. the Canadian dollar as oil prices sunk to one-week lows, while the greenback slipped vs. the Japanese yen. The British pound dropped initially before rebounding after the Bank of England warned that Brexit-related uncertainties and softer activity abroad could lead to "greater-than-usual short-term volatility" in U.K. data, making the medium-term outlook difficult to read. Treasury yields fell across the board with the 2-year falling to 2.45%, the 10-year to 2.65% and the 30-year back to 3%. The U.S. Treasury sold $19B in 30-year notes at a yield of 3.022%, in-line with the when issued prior as the bid-to-cover (demand) was at 2.27 vs. 2.19 in prior auction and indirect bidders awarded 56.4%.

 

Economic Data

·     Weekly Jobless Claims fell 19K to 234K, but was above the 221K estimate with prior week claims unrevised at 253K; the 4-week moving avg. rises 4,500 to 224.75K; continuing claims fell 42k to 1.736m in the week ending Jan. 26; unadjusted initial claims filed by federal employees fell 8,070 to 6,669 in the week ending Jan. 26

 

 

Macro

Up/Down

Last

WTI Crude

-1.37

52.64

Brent

-1.06

61.63

Gold

-0.20

1,314.20

EUR/USD

-0.0017

1.1345

JPY/USD

-0.20

109.78

10-Year Note

-0.048

2.650%

 

 

Sector News Breakdown

Consumer

·     Retailers; TPR shares fall after a rare miss in the luxury retail space of late (CPRI, RL recent beats) as Q2 EPS missed and issues weaker year guidance for FY19 revenue growth at a low to mid-single-digit pace and FY19 EPS of $2.55 to $2.60 vs. $2.78 consensus (also soft comps with Coach +1% vs. 1.8% est. and Kate Spade -11%); LB posted a smaller-than-expected Jan comp sales lows of down (1%) vs. est. (-2.7%), but also cut its dividend in half to 30c from 60c (January Victoria’s Secret comp sales -1% vs. +4% YoY but vs. estimate -6.5%); HBI posted Q4 beat with organic sales growth of 6% in constant currency during while guides both Q1 and year revs above consensus; GES was upgraded to buy at Jefferies citing the recent pullback in shares putting multiples below history/peers presents an opportunity to own; ZUMZ reported January comp sales of 3.5% increase, better than the -2% that was implied by the company’s 4Q comp guidance of +3%; COST total comp sales for January fell short of views (5.2% vs. 5.7% est.)

·     Consumer Staples; HAIN plunges after Q2 missed estimates and offered guidance that was below consensus; guides q2 EPS 60c-70c and Ebitda $44.9M below the $1.13 and $60.4M estimate; Kellogg (K) posted a slight Q4 profit beat and favorable guidance as sees full-year revenue growth of 3% to 4% and currency-neutral EPS growth of -5% to -7%; TSN falls as posts mixed results and guidance as sales fell (-0.4%) and operating income fell 12% to $807M on weaker margins (operating margin fell to 8.3% vs. 9.2% a year ago) – but better sales view for year; PM Q4 EPS and sales top consensus though 4Q cigarette shipment volume -3.1%; in cosmetics, L’Oreal posted beat on Q4 comp and overall sales, helping shares of EL

·     Electronic retail; HEAR rises after better prelim Q4 guidance as sees sales $109M-$111M vs. est. $94.2M and better margins; IRBT shares jumped as Q4 GAAP EPS 88c/$384.7M topped the est. 52c/$379.7M and gave an upbeat outlook; SONO fell after the audio products company said reduced sell-through velocity towards the end of the first quarter created higher channel inventory levels and will impact 2Q revenue

·     Restaurants; CMG shares surge as Q4 topped consensus EBITDA and EPS estimates as the December Free delivery event accelerated comp sales, holding 2-year traffic flat q/q, and expanding margin/solid +6.1% comp result and a 17% store-level margin; YUM Q4 profit and revenues miss as Pizza Hut promotions weigh but Taco Bell better; DNKN posted better Q4 profit but lower-than-expected revenue and weaker same-store sales (revs $319.6M vs. est. $330M and comp flat vs. est. up 1.6%)

·     Casino & Leisure movers; ELY EPS met estimates, as lower gross margin offset better-than-expected revenue due to growth in balls and continued strength for TravisMathew according to Roth Capital while guidance generally fell short

·     Autos; outside of a few positive results (recently GM) automakers have generally seen weaker quarters and guidance, followed by FCAU today as its 2019 outlook missed expectations as said it expects to earn €6.7 billion ($7.6 billion) in 2019 vs. consensus of €7.3 billion ($8.3 billion) – which overshadowed a Q4 beat; results follow recent mixed or weak results from Ford, TM, and Daimler; shares of auto suppliers (BWA, LEA, VC, DLPH, MGA) active once again; in auto retail, ORLY reported mixed 4Q results, with revenues beating, but some comp and EPS softness; in parts, ADNT shares dropped as much as 20% after Q1 profit and full-year outlook missed recently-lowered expectations

 

Energy

·     E&P sector; SRCI FY19 production guidance came in 3% below consensus (oil volumes -6%) on a -13% lower capital budget; CRZO slashed its capital expenditure plans for 2019 by a third as the shale producer planned to generate positive cash flow by the third quarter of the year

·     Oil equipment and services; NOV Q4 earnings missed estimates but revenues rise 22% Y/Y to a higher than expected $2.4B while the company said it expects each of its three segments to see a sequential decline in revenue in Q1:19; MTRX Q2 Gross margin declined by 125 bps to 8.2%, and operating margin declined by 21 bps to 1.6% though raises year revenue guidance view

 

Financials

·     Bank movers; huge M&A deal in the regional bank sector as BBT and STI will combine in an all-stock merger of equals valued at approximately $66 billion, creating the sixth-largest U.S. bank based on assets and deposits, with approximately $442 billion in assets, $301 billion in loans and $324 billion in deposits. https://on.mktw.net/2HY5x9G (shares of other regional banks rose in sympathy including KEY, CMA, RF, HBAN)

·     Insurance; sector busy again given earnings as MET posted mixed results with 6c EPS beat but sales fell short of consensus; PRU Q4 EPS of $2.44 missed the $2.81 estimate while assets under management slipped YoY to $1.38T; LNC Q4 EPS and sales topped consensus

·     Consumer finance and lending; FLT shares active following Q4 beat and strong C19 rev growth guidance while growth in the core Fuel Cards business is re-accelerating; ADS shares fall on mixed Q4 results as EPS beat while revs of $2.06B missed the $2.12B estimate and guides year core EPS $22, well below the $24.35 estimate

·     REITs; group has been strong as yields have slumped over the last few weeks, making the group more attractive; ESS was downgraded to hold at Jefferies after trading up 13% YTD; OHI downgraded to a neutral rating at Stifel on valuation; COR Q4 revenue misses and guidance for 2019 shows that FFO per share may trail the consensus estimate; 52-week highs include several REITs again: O, PLD, EQR, ESS, AVB, UDR

 

Healthcare

·     Biotech movers; Crisper stocks fell (CRSP, EDIT, declining NTLA) after SGMO said it plans swift upgrade to second-gen gene editing approach as pioneering readouts miss on clinical benefit – SGMO CEO said “It’s working and it’s not sufficient for a clinical benefit.” INCY Pdufa target action date for its supplemental New Drug Application for ruxolitinib has been extended to May 24, 2019 to allow time for the FDA to review additional data submitted by the company following requests for information; SLDB shares plunge in reaction to preliminary data from a Phase 1/2 ascending-dose clinical trial, IGNITE-DMD, evaluating lead gene therapy candidate SGT-001 for the treatment of Duchenne muscular dystrophy (DMD); BIIB shares slipped in response to a decision from the USPTO’s Patent Trial and Appeal Board allowing an inter partes review of certain patents covering top seller Tecfidera requested by MYL

·     Healthcare services and providers; OSUR shares fall as Q4 EPS beat but Q1 revenue of $29.0M-$30.5M was well below the $44.4M est. (but sees second half 2019 revenues ‘materially greater’ than 1H); LH reported in-line Q4 results with revenue of $2,788B and adjusted EPS of $2.52 and FY19 guidance bracketed consensus; LCI Q2 revs $193.7M beat the $160.8M est and big EPS beat with strength was driven entirely by sales of Levothyroxine Sodium; HQY was upgraded to buy at SunTrust after upbeat 2020 forecasts and preliminary 2019 numbers; CAH beat and raise

·     Pharma movers; all seven major pharmaceutical companies invited by Senate Finance Committee Chairman Chuck Grassley will testify in the February 26 Senate hearing on drug pricing, with AZN, ABBV the latest to confirm, joining JNJ, BMY, MRK, SNY and PFE

 

Industrials & Materials

·     Transports; JPM noted sentiment on NSC ahead of the February 11 investor day appears to be increasingly negative based on the uncertainty around Norfolk’s long-term OR guidance; in trucking and logistics, ECHO shares dropped after beating on Q4 EPS but missing on revs while WERN reported another quarterly upside surprise driven by a 13% revenue increase reflective of strong pricing and good cost controls

·     Metals & Materials; group pressured on slowing growth fears/trade concerns; Jefferies revisits ’19E estimates for Aluminum names and maintain their constructive view on positive cyclical/secular trends in aero and autos (top picks CSTM, KALU and ARNC); NTR missed its 2019 EPS guidance and releasing Q4 results; RGLD posted better Q2 EPS but shares slid early amid a 14% Y/Y decline in revenues and a 22% drop in operating cash flow to $58.8M as production fell 11.3%; VVV fell over 20% after Q1 miss and plans restructuring to shore up North America

 

Technology, Media & Telecom

·     Internet; TWTR shares fell after it reports Q4 beats with downside sales guidance and announces plans to stop disclosing MAUs/Q1 revs seen $715M-$775M (below est. $766.1M) while Q4 MAUs totaled 321M (vs. est. 323.8M) with 255M International and 66M U.S. users; GRUB shares drop after results and guidance miss, with Q4 results falling short on both the top and bottom line/ FY adjusted EBITDA from $235M to $265M, below the $302.4M consensus

·     Semiconductors; MRVL lowered Q4 revenue view to $735M-$745M from $790M-$830M (est. $810.41M) saying the majority of the shortfall was due to a weaker than expected storage controller business; NXPI DecQ Rev and GM were materially inline, OpEx were 3.8% below consensus and non-GAAP EPS of $2.15 were $0.07 above consensus. NXPI guided for MarQ revenues to be 7% below consensus; overall semi space falls on trade fears renewed

·     Software; ZNGA posted a better-than-expected Q4 but also guided low on 2019 revenues and expected gross margin pressures in the coming year/revenue rose 7% and topped company guidance and bookings were up 19% to $267M, also above guidance; PCTY 2Q revenue/adj EBITDA nicely above guidance and consensus/FY guidance taken up by more than this Q’s beat; NEWR delivered solid quarter according to analysts but shares slipped on disappointment with the billings guide and several operational metrics "stalling”, according to one analyst

·     Security stocks were mixed; FEYE shares fell after Q4 results that beat EPS and revenue estimates but included downside guidance (FY19 guidance has downside revenue of $880M to $890M below est. $890.32M); FTNT also with results as EPS and revs beat for Q1 on 22% billings growth on better guidance

·     Media & Telecom movers; MTCH shares rise as topped guidance, and guided above-Street on 2019 EBITDA as delivered an ARPU-driven revenue beat and topped the EBITDA guide despite a marketing ramp though 1Q revenue/EBITDA guide was soft vs. consensus; in telco, TMUS reports Q4 results with in-line revenue of $11.45B and upside EPS with FY guidance sees adjusted EBITDA of $12.7B to $13.2B (vs. est. $13.05B) with branded postpaid adds of 2.6M to 3.6M; WWE slipped despite solid beat and announced a buyback

·     Hardware & Components; TRMB mixed December results with March guidance below Street estimates and lowered their FY2019 total revenue growth expectations to 6-10% from 9-12% on the back of a weaker China, weaker EU due to Brexit, lower OEM orders;

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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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