Market Review: February 11, 2019

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Closing Recap

Monday, February 11, 2019

Index

Up/Down

%

Last

DJ Industrials

-54.58

0.22%

25,051

S&P 500

1.84

0.06%

2,709

Nasdaq

9.71

0.13%

7,307

Russell 2000

12.58

0.84%

1,518


 

Equity Market Recap

·     U.S. stocks finished mixed on Monday, with the tech heavy Nasdaq Comp trading higher most of the session, though the Dow Industrials closed lower ahead of a potentially big week surrounding trade and politics (not to mention more earnings). Today’s trading was more focused on expectations rather than actual news, as markets await high-level trade talks between Chinese vice Premier Liu He, Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer in Beijing on Thursday. U.S. President Donald Trump said last week that he had no plans to meet with Chinese President Xi Jinping before a March 1 deadline to achieve a trade deal. Trump has vowed to increase U.S. tariffs on $200 billion worth of Chinese imports to 25% from 10% if the two sides cannot reach a deal. Separately this week, lawmakers continue to negotiate a spending bill to prevent another partial government shutdown as President Trump gave a Feb 15th timeframe for Congress to provide the new bill that includes spending for the border wall. The dollar a top story over the last week, rising for an 8th straight day today, sending commodity prices lower again (oil 2-week lows and gold slides again). Transports outperformed, led by rails, car rental and airline stocks while healthcare stocks weighed.

 

Commodities

·     Oil prices fall, adding to last week losses (fell around 5% last week) with WTI crude slipping 31c to settle at $52.41 (off earlier highs $52.78 and off lows of $51.23). With today’s decline, prices dropped near four-week lows due to a stronger dollar and continued concerns about U.S.-China trade talks. Gold prices fell $-6.60 to settle at $1,311.90 an ounce, pressured over the last 2-weeks as the dollar has regained its footing to trade to new 2019 highs, with the dollar index (DXY) topping the 97 level (highs around 97.10); the dollar posted

 

Currencies & Treasuries

·     The U.S. dollar added to its winning streak, as the U.S. dollar index (DXY) topped the 97.10 level for its best levels of 2019 and making it an 8th straight day of gains. Strengthening against rivals across the board, the dollar posted solid gains vs. the euro, Pound and Loonie amid weaker foreign data and lower oil prices which overshadowed the chance of the renewed partial government shutdown looming in the background and a dovish Fed. The British pound was also notably weaker following weaker economic data as UK GDP fell to 1.3% year-over-year. Treasury prices fell as yields advanced; the 10-year yield rose to 2.664% (after falling 5 bps to 2.63% last week), while the 30-year yield moved back above 3% and the 2-year yield held around 2.50% on a day of no major US economic data to influence trading.

 

 

Macro

Up/Down

Last

WTI Crude

-0.31

52.41

Brent

-0.59

61.51

Gold

-6.60

1,311.90

EUR/USD

-0.0052

1.127

JPY/USD

0.69

110.43

10-Year Note

0.022

2.655%

 

 

Sector News Breakdown

Consumer

·     Restaurants; QSR beats expectations for EPS while comp sales for Tim Horton’s and Burger King rise 1.9% and 1.7% respectively, coming after CMG’s blow out earnings last week; Raymond James said restaurant industry sales data for the month of January was released over the weekend reflecting continued positive comp growth (said firm top long idea remains DIN)

·     Housing & Building Products; BBBY was downgraded to sell from hold at Loop Capital while cutting target to $12 from $13 as believe recent stock price appreciation is unwarranted given the fact management’s much better-than-expected F2019 financial guidance is unrealistic; overall housing stocks were modestly lower

·     Auto sector; TSLA was upgraded to buy at Canaccord Genuity and tgt raised to $450 from $330 as believe the last two quarters and recent guidance for Q1 have removed significant concerns for both production capability and profitability of the critical Model 3; tire maker GT was downgraded by two analysts (Argus and Longbow) as believes a supply/demand imbalance in the Americas will continue to limit Goodyear’s pricing power over the next several years; MPAA reported a revenue beat ($119.6M vs. $116M street) and slight EPS miss 35c vs. 38c est.);

 

Energy

·     E&P sector; RRC says proved reserves rose 18% at year-end 2018; CHK on track for an 8th straight decline despite a bounce in nat gas prices today; KEG guided Q4 revenues between $115M-$120M vs. estimate of $125.8M, citing lower completion activity, primarily coiled tubing activity and rig completion activity in the Permian Basin and seasonal effects; In equipment and drillers; DO boosted spending even though it doesn’t expect deepwater-rig fees to recover until next year at the earliest; RIG added approximately $907M in contract backlog since its last report, bringing the company’s backlog to $12.2B

·     Utilities & Solar; solar stocks with a little boost as CSIQ was upgraded to neutral from sell at UBS and raise tgt to $23 from $14; GPRE reported Q4 results below estimates; ALE was downgraded to Underperform at Mizuho with tgt $72; Wells Fargo downgraded EIX and cut the tgt to $65 while maintain MP on PCG (and up tgt to $20 from $10) as still believe PCG’s bankruptcy filing could be the catalyst that prompts substantive change to IC; 52-week highs today for ETR, AWK, AES, AEE in the utility space

 

Financials

·     Bank movers; fairly quiet in the banking space today, but a few earnings results moving insurance names as CNA and Loews Corp (L) decline on results; CNA posts a surprise Q4 adj. loss due to lower investment income and higher catastrophe losses while Loews also reports a surprise Q4 adjusted loss, hit by CNA’s results; MCY reports an unexpected Q4 loss as catastrophe losses, net of reinsurance, more than double, mainly due to California wildfires

·     Other news; MS agreed to buy Solium Capital, which provides stock plan administration and workplace wealth solutions, for C$19.15 per share in cash, representing a total equity value of about C$1.1 billion https://on.wsj.com/2SNLwqi ; AMTD said January Avg Daily Trades 871,000 Vs. 980,000 YoY; WETF spiked midday after Bloomberg reported it had explored a sale late last year and held talks with JPMorgan Chase & Co. https://bloom.bg/2SJlfJM 

 

Healthcare

·     Biotech & Pharma movers; MRK said the U.S. FDA has accepted a new supplemental Biologics License Application (sBLA) for KEYTRUDA for the first-line treatment of patients with recurrent or metastatic head and neck squamous cell carcinoma; SNY and REGN said in early March will start selling cholesterol drug Praluent at a U.S. list price of $5,850 annually, down 60% from original price and out-of-pocket costs for most Medicare Part D patients are expected to fall to a range of $25 to $150 

·     Medical equipment and devices; NUVA shares jumped after the Financial Times reported late Friday that SNN has held talks to acquire NUVA in a deal that would be worth more than $3B. https://yhoo.it/2WRzlbv ; CAH, CVS, MDT and DGX positive mention in Barron’s saying they are four healthcare stocks that have decent yields and solid cash flow, with yields above 2%; medical device names trading to 52-week highs today in the S&P 500 index: BSX, SYX, MTD

 

Industrials & Materials

·     Transports; Dow Transports outperformed, led by shares of CAR after Goldman upgrade earlier – the Dow Transports jumped over 100 points early with rails also strong (NSC, CSX as NSC offered updated financial targets and said it will unveil a strategic plan focused on increased productivity, efficiency, and revenue growth during a presentation today at an analyst conference today; in car rental, CAR was upgraded to buy at Goldman Sachs and lifts its price target to $35 as sees Avis as a better investment at current levels than HTZ;

·     Metals & Materials; China iron ore futures jumped to fresh record highs as China markets re-opened for the first time in over a week following its Golden Week holiday amid ongoing concerns that supply from Brazil may decline after last month’s fatal tailings dam accident at VALE mine; overall metals were mixed on the day with steel producers higher

 

Technology, Media & Telecom

·     Semiconductors; NVDA was downgraded to market perform at Bernstein and lowers the price target from $250 to $175 citing headline risk likely to continue increasing after the company lowered its Q4 revenue outlook/says n-t cloud spending environment is unfavorable, driving near-term downside; ADI was upgraded to buy at Bank America and raises the target from $96 to the Street-high tgt $125 citing tailwinds from the growing 5G adoption

·     Software movers; CVLT was downgraded to neutral at Piper citing unachievable consensus estimates for FY20 which calls for 11.5% growth in software license revenue, though the market is only growing 4.7%; EA opened higher before fading after Friday’s 16% gains citing the surprise start to Apex Legends’ new Battle Royale (Fortnite competitor), upgraded at Bank America to buy with $110 tgt, while other analysts also raise tgt prices citing Apex strength (shares of TTWO and ATVI were pressured all day); AYX was downgraded at Wedbush saying valuation isn’t enticing after the recent rally put shares near the $72 price target; AVYA falls as Q1 revenue of $738M below guidance of $750M-$775M (-1.9% Y/Y) saying was impacted by a few discrete items versus its outlook including the federal government shutdown

·     Hardware & Component news; AAPL Chinese smartphone shipments fell 20% Y/Y in Q4, according to a new IDC report while the overall Chinese smartphone market dropped 9.7% in the quarter; Toshiba (TOSBF) is preparing to slash its operating profit forecast for the year through March to between $182M-$273M, about half the projection made in November, the Nikkei Asian Review’s reported over the weekend; VCRA adds to Friday weakness, in reaction to last week guidance (shares had fallen -18% after softer guidance last Friday)

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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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