Mid-Morning Look: February 14, 2019

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Mid-Morning Look

Thursday, February 14, 2019

Index

Up/Down

%

Last

 

DJ Industrials

-90.74

0.36%

5,450

S&P 500

-6.80

0.25%

2,746

Nasdaq

2.87

0.04%

7,423

Russell 2000

-1.25

0.08%

1,541

 

 

U.S. equities fall sharply, the first decline in five days for the S&P and Nasdaq Comp as recession fears rise following a soft December retail sales data point weighs on stocks early, overshadowing the bullish sentiment in markets this week. Stocks have risen on trade hopes with China and an apparent resolution in Washington on the spending bill which will likely avert another government shutdown. The retail space among the hardest hit after a monthly retail sales report fell over 1% for its biggest drop in over a decade as TGT, WMT, KSS, M, JWN, and NKE among the decliners. 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%). With the pullback in stocks early, the S&P 500 index dropped back below its 200-day MA support (which is 2,744). Stocks did manage a bounce off the lows after Bloomberg reported White House National Economic Director Larry Kudlow said there are glitches in the retail sales number and says hopefully the Fed will step aside (related to rates) – says the data was affected by the govt’ shutdown. Note upcoming trade talks between Treasury Secretary Steven Mnuchin and top trade negotiator Robert Lighthizer with China delegates expected today into tomorrow. Dow component KO slumps after in-line results but weak case volume, while CSCO rises on a solid quarterly report.

 

Treasuries, Currencies and Commodities

·     In currency markets, the dollar index (DXY) faded vs. most rival currencies (Yen, Pound, Euro) after weaker retail sales economic data, as the DXY pulls back from 2019 highs earlier on positive headlines pertaining to the ongoing trade talks between the US and China. However, the dollar rallied to 3-week highs above 1.333 vs. the Canadian dollar as oil prices slumped on recession fears. Treasury market’s rally as stocks roll following the weak economic data, bonds have rallied as the 10-year below 2.65% (traded above 2.7% yesterday), while the 2-yr under 2.49%. Commodity prices are lower, led by broad declines in metals and grains (energy mixed) as the weak retail sales report raises concerns about a possible recession for the U.S., which would dent market sentiment. Oil prices tumble early while gold prices also slump.

 

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; 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

 

 

Macro

Up/Down

Last

 

WTI Crude

-0.73

53.18

Brent

-0.19

63.42

Gold

-3.10

1,312.00

EUR/USD

0.0026

1.1287

JPY/USD

-0.25

110.76

10-Year Note

-0.05

2.654%

 

 

Sector Movers Today

·     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); 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 but 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

·     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.

·     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)

·     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

 

Stock GAINERS

·     AZN +7%; on earnings saying it had extended its sales rebound in the final quarter of the year, driven by its cancer medicines division and a resurgence in China

·     BLMN +5%; 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

·     CSCO +3%; 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)

·     CYBR +15%; reported record earnings and customer growth as revs jumped more than 30% YoY and guided 2019 above views

·     IVC +50%; posted smaller than expected quarterly loss (16c vs. 38c) on better Q4 sales $244.6M

·     MRO +7%; 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

·     SNBR +16%; reported a better quarter than expected with 10% comps driven by a strong start to 4Q and a $24M shift from 3Q as well as stronger than anticipated gross margins

·     VMC +6%; after 10c EPS beat and says double-digit earnings growth expected

·     YELP +3%; 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)

 

Stock LAGGARDS

·     AIG -8%; 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

·     BKD -16%; shares fall after guiding for full-year 2019 adj. Ebitda of $400M-$425M well below the est of around $500M

·     CTL -8%; 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

·     FOSL -17%; 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%

·     KO -6%; 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

·     NTAP -6%; after its lower than expected Q3 revenues and disappointing Q4 guidance, reflecting more cautionary spending from large, global customers in January

·     SIX -15%; reported mixed Q4 and full-year results (EPS beat while revs missed) as revenue was driven by a 6% increase in guest spending but citied a challenging macro environment in China

 

Syndicate

·     Avedro (AVDR) 5M share IPO priced at $14.00

·     HubSpot (HUBS) 1.9M share Block Trade priced at $165.00

·     MyoKardia (MYOK) 4.2M share Block Trade priced at $39.00

·     TCR2 Therapeutics (TCRR) 5M share Block Trade priced at $15.00

·     Xeris Pharmaceuticals (XERS) 5.88M share Secondary priced at $10.00

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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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