Market Review: February 14, 2019

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Closing Recap

Thursday, February 14, 2019

Index

Up/Down

%

Last

DJ Industrials

-104.69

0.41%

25,438

S&P 500

-7.35

0.27%

2,745

Nasdaq

6.58

0.09%

7,426

Russell 2000

2.15

0.14%

1,545


 

Equity Market Recap

·     U.S. stocks were active as weak monthly retail sales data partially offset news of a spending compromise in Washington and positive China/US trade news (detailed info below). The Nasdaq Composite advanced for a 6th straight session while the S&P and Dow slipped. Retail stocks led today’s declines, along with weakness in financials (on lower rates) as retail sales for December fell (-1.2%), well below the estimated gain of 0.1% (and the biggest drop since 2009), while retail sales less autos fell (-1.8%). The S&P 500 touched intraday lows of 2,731.23 before bouncing and reclaiming its 200-day moving average level of 2,744. Also late day, President Donald Trump is ready to sign compromise spending legislation that would avert another government shutdown and will declare a national emergency to get additional funds for a border wall, Senate Majority Leader Mitch McConnell said. Dow component KO slumped over 7% after in-line results but weak case volume data, while CSCO rises on a solid quarterly report. However there were lots of the intraday headlines regarding the US/China trade saga that impacted markets. The Dow Industrials finished lower, but fell off its lows down as much as -235 points.

·     Big swings today in U.S. markets on several headlines on trade/China:

·     1) overnight, futures rallied on a Bloomberg report that President Donald Trump may extend the tariff truce with China by another 60 days if a trade deal appears close (Trump has said prior he would raise tariffs on more than $200 billion in Chinese goods from 10% to 25% starting March 2 if a trade deal is not reached);

·     2) Treasury Secretary Steven Mnuchin and top trade negotiator Robert Lighthizer meet with China delegates expected today into tomorrow;

·     3) Semiconductor stocks outperformed (SOX) after the WSJ reported China will promise to make large purchases of U.S. semiconductors and other goods during this week’s trade talks. China’s economic-planning agency proposes increasing semiconductor purchases to $200B over six years, a fivefold increase over current exports;

·     4) U.S. stock markets pared gains after Bloomberg noted the U.S. and China have made little progress so far during trade talks in Beijing, saying the sides have failed to narrow the gap around structural reforms to China’s economy that the U.S. has requested, even as both seek to avoid an increase in tariffs after March 1, according to three U.S. and Chinese officials

 

Economic Data

·     Retail sales for December fell (-1.2%), well below the estimated gain of 0.1% (the biggest drop since 2009), while retail sales less autos fell (-1.8%) in December missing the mark of unchanged. Sales fell in every retail category except auto dealers and home centers. Auto sales rose 1% and home-center sales edged up 0.3%.

·     Weekly Jobless Claims rose 4K to 239K, above the estimate of 225K while the 4-week moving avg. was 231.75K in the week ending Feb. 9 (a 52-week high); prior week claims revised up to 235K from 234K; continuing claims rose 37k to 1.773m in the week ending Feb. 2

·     Business Inventories for November fell (-0.1%) MoM below the +0.2% estimate while business sales fell (-0.3%) in Nov. after rising 0.1% the prior month; Wholesalers inventories rose 0.3% m/m in Nov. after rising 0.9% prior month

 

Commodities

·     Crude-oil futures rise 51c, or 0.9% to settle at $54.41 per barrel (not far off intraday high $54.68 but well off the intraday lows of $53.08), erasing earlier losses and rising for a third consecutive day, longest streak in about a month, amid hopes of a trade resolution between the US and China. Inventory data was mostly bearish this week, but prices have risen anyway on recent reports that OPEC production fell by nearly 800K bbl/day in January to 30.8M bbl/day, and Saudi Arabia pledges to cut output by at least 500K bbl/day. Gold futures prices slipped -$1.20 to settle at $1,313.90 an ounce as commodity prices struggled with recession fears given the weaker than expected retail sales figure this morning (biggest drop in 10-years).

 

Currencies

·     The U.S. dollar index (DXY) pulled back from earlier gains, falling off its intraday best of 97.28 as investors feared the weaker retail sales data report. The greenback has risen back to 2019 highs amid cautious optimism over U.S.-China trade talks and while European currency markets remain pressured on weaker economic data points/slowing growth and continued Brexit drama (with lots of headlines today as the House of Commons voted by 303 to 258 against a motion endorsing the prime minister’s approach to resolving the Brexit deadlock). Slightly better-than-expected Chinese trade data eased worries over its economic health as China’s exports rose 9.1% year-over-year in January, while imports contracted 1.5% (both better). The Euro rose back near the 1.13 level, while the British Pound slipped -0.4% to under 1.28 late day vs. the buck.

 

Bond Market

·     Bond markets gained as yields declined following the weaker than expected retail sales report, weighing on sentiment about the US economy and giving the Fed another reason to keep rates steady going forward (instead of hiking rates). The 10-year yield fell a few basis points to 2.655% while the 2-year yield dipped below the 2.50% level and the 30-yr at the 3% mark.

 

 

Macro

Up/Down

Last

WTI Crude

0.51

54.41

Brent

0.96

64.57

Gold

-1.20

1,313.90

EUR/USD

0.0039

1.1300

JPY/USD

-0.50

110.51

10-Year Note

-0.046

2.659%

 

 

Sector News Breakdown

Consumer

·     Retailers; sector among the most hard hit after monthly retail sales report falls over 1% for its biggest drop in over a decade (crushing the retail sector); The National Retail Federation said holiday retail sales during 2018 rose at a lower-than-expected 2.9% to $707.B; FOSL shares fell on top and bottom line miss (Q4 EPS $1.01/$787M vs. est. $1.21/$806.67M) while comp sales fell (-7%) vs. est. (-6%) and issued weak FY19 revenue to down 12%-7%; GOOS Q3 results for sales, EPS and EBITDA topped estimates while sees 2019 revenue growth at a mid-to-high thirties rate and EPS growth at a mid-to-high forties rate; in mattresses; SNBR shares rose on strong Q4 beat (Q4 EPS 81c/$411.8M vs. est. 73c/$409.9M) and guidance (FY EPS $2.25-$2.75 vs. est. $2.38) as Q4 comps jump 10%; TPX posted a 7c EPS miss while revs beat and Ebitda guidance soft ($425M-$475M vs. est. $478.8M)

·     Consumer Staples; Dow component KO posted in-line Q4 results (43c/$7.1B) but North case volumes fell 1% and sees FY comparable EPS -1% to +1% while said currency will be 6%-7% profit headwind in 2019; NUS guided Q1 midpoint of guidance for EPS and revs below consensus (70c-77c on revs $2.76B- $2.82B vs. 75c/$2.77B consensus); AVP shares fell after results (note stock had risen 4-straight days into results) as misses on revenue amid soft sales in Latin America; IFF shares dropped after Q4 sales of $1.22B missed the $1.24B est on weaker adjusted EPS

·     Restaurants; BLMN Q4 EPS and sales beat as U.S. company-owned comp sales rose 1.6% in Q4 to beat the consensus mark of +0.9% and adjusted restaurant-level operating margin increased 20 bps to 14.7%; Stifel noted several restaurant stocks will be reporting earnings next week (TXRH, JACK, WEN, DPZ and BJRI) and says based on the MBGR data, they believe many casual dining companies, including TXRH and BJRI, may report better than expected 4Q SRS performance.

·     Housing & Building Products; PHM and DHI both downgraded to market perform at Raymond James saying while they still believe there are encouraging signs favoring a healthy spring selling season over the coming weeks, historically speaking, the odds of stock outperformance through Memorial Day effectively drops to a 50/50 proposition; in building materials, VMC leads group after 10c EPS beat and says double-digit earnings growth expected

·     Autos; BWA announced new business backlog within a range of $430M to $580M in 2019, $750M to $875M in 2020 and $800M to $950M in 2021/expects its new business backlog to drive organic growth over the company’s estimated light vehicle market exposure to 6.0%

·     Leisure; amusement parks pressured after SIX reported mixed Q4 and full-year results (EPS beat while revs missed) as revenue was driven by a 6% increase in guest spending per capita and 3% rise in attendance, but citied a challenging macroeconomic environment in China (share of FUN and SEAS active in sympathy); casino stocks fell after MGM posted better-than-expected Q4 EBITDA and revenue but commentary on demand in Macau in 2019 weighs on industry

 

Energy

·     Major oil; MRO shares rallied after Q4 EPS beat by 1c on revs as well and said it sees 2019 total oil production growth of 10% while keeps spending nearly flat; XOM was upgraded to outperform at Macquarie; in MLP sector, shares of WMB posted Q4 loss

·     Utilities & Solar; DUK Q4 earnings missed estimates and also below the year-ago result, citing higher depreciation and amortization expense on a growing asset base, higher storm-related costs and a lower tax shield; in solar SPWR shares rise despite weaker revs for the quarter as Ebitda beat amid restructuring progress

·     Equipment and E&P sector; PXD 2019 capex was 13% below consensus while guides year production down -6% and raised its dividend by 4x and bought back $328M of stock; CLR 2019 guidance showed capex is 10% below consensus and oil production is 3% below consensus; LPI shares active after Q4 top and bottom line results missed estimates; PDS posted better than expected Q4 earnings and a 23% Y/Y rise in revenues, primarily the result of higher activity and higher average dayrates; OII rises as posts unexpected Q4 profit

 

Financials

·     Top financial movers; SCHW reported net new client assets for the January of $15.1 billion vs. $18.7 billion y/y as January total client assets -1% vs. +23% y/y; CME Q4 EPS beat helped by market volatility in December as Q4 average daily volume of 20.8M contracts, its second-highest quarterly ADV on record, rose 31% from 15.9M in Q4 2017; AB reported adj. EPS of 64c, in line with consensus driven by better than expected expenses

·     Insurance; AIG falls as swings to a big Q4 loss, hit by catastrophes and volatile markets/a reserve charge of $365 million contributed to an adjusted loss of 63 cents a share/market weakness weighed on investments as portfolio income fell by more than 18% to $2.8 billion

·     Consumer finance and lending; SYF was upgraded to buy at Goldman Sachs citing contract renewals with four of its largest partners, which should remove an overhang on shares/says robust capital return could drive $5b of repurchases in the next six quarters

·     REITs; ARE, AVB and HCP; TCO Q4 FFO was 91c, in-line with ests, and initial 2019 FFO guidance was in line with consensus at the midpoint; EQIX 4Q18 report was largely consistent with expectations with softer guidance; FR posted a 1c beat for both 4Q18 FFO and initial 2019 FFO guidance and said portfolio occupancy reached 98.5% at year-end; SKT reported a 2c EPS beat in 4Q, but management’s initial 2019 FFO guidance missed consensus by 1.7% at the midpoint

 

Healthcare

·     Biotech and Pharma movers; AZN rises on results lifting the Pharma group as sees shares rise despite profits fall as signs grow of recovery/said it had extended its sales rebound in the final quarter of the year, driven by its cancer medicines division and a resurgence in China; ZTS jumps on Q4 EPS and sales beat while guidance of $3.42-$3.52 for EPS tops the $3.43 est. SRPT said the FDA Division of Neurology has accepted its New Drug Application (NDA) seeking accelerated approval for golodirsen (SRP-4053) and provided a regulatory action date of August 19, 2019

·     Medical equipment and devices; QDEL reported Q4 revs $132.5M topping the Street as one analyst said positive flu commentary indicates it is tracking to ~$40M in 1Q, in line with expectations; CRY shares dropped after Q4 EPS missed by 6c; ALGN was downgraded at UBS; DVA Q4 EPS in-line while revs missed estimates as faces reimbursement pressure/slower growth

·     Healthcare services and providers; IVC shares surge as posted smaller than expected quarterly loss (16c vs. 38c) on better Q4 sales $244.6M; BKD shares dropped after guiding for full-year 2019 adj. Ebitda of $400M-$425M well below the est of around $500M

 

Industrials & Materials

·     Aerospace & Defense; EADSY pulled the plug on its A380 superjumbo jet even as it reported a record profit and said it would increase production to take advantage of a boom in global air travel; AYR was downgraded to underperform at Bank America as expect AYR to continue to trade below its book value due to operational risks

·     Metals & Materials; CF reported 4Q18 adj. EBITDA of $341M vs. est. of $415M as the miss was driven by slightly lower sales volumes and weaker pricing for Ammonia and UAN vs. expectations while announced a $1B share buyback; in gold miners, KGC posted slightly better than expected Q4 earnings and revenues on lower costs than the year-earlier

 

Technology, Media & Telecom

·     Networking sector strong early after Dow component CSCO posted better than expected results and outlook with a clean beat on sales & EPS with margin improvement (sales of $12.45b above consensus of $12.42B and EPS beating) – shares of ANET, JNPR, EXTR, NTGR moved in reaction

·     Internet; YELP Q4 results topped views though guided revenue growth of 8% to 10% compared to the 10.5% consensus, prompting a downgrade at Citigroup (YELP also targets 30% to 35% Ebitda margin by 2023, sets $250M buyback); AMZN said in a blog post: "After much thought and deliberation, we’ve decided not to move forward with our plans to build a headquarters for Amazon in Long Island City, Queens”

·     Semiconductors; the sector bounced as Philly semi index (SOX) outperforms after the WSJ reported China will promise to make large purchases of U.S. semiconductors and other goods during this week’s trade talks. China’s economic-planning agency proposes increasing semiconductor purchases to $200B over six years, a fivefold increase over current exports, to help ease the trade tensions (the news lifted a handful of semi stocks)

·     Software movers; internet security stocks get strong results from CYBR after reported record earnings and customer growth as revs jumped more than 30% YoY and guided 2019 above views (follows weak results from QLYS yesterday that weighed on the sector); HUBS 1.9M share Block Trade priced at $165.00; VMW was removed from best ideas list at Wedbush; SVMK shares dropped following its profit miss as dropped below its Sept 2018 IPO pricing of $12 today

·     Media & Telecom movers; CTL announced soft C4Q results, while cutting the annual dividend by 54% to $1.00, guiding to 2019 EBITDA that brackets consensus, and increasing guidance for capital spending; CBB posted a worse than expected Q4 loss amid higher income tax expense, while revs , EBITDA and operating income all increased QoQ

·     Hardware & Component news; CASA was downgraded to hold at Needham saying 2019 looks like another challenging year and incrementally negative capex announcement from largest customer CHTR; NTAP shares dropped after its lower than expected Q3 revenues and disappointing Q4 guidance, reflecting more cautionary spending from large, global customers in January

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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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