Market Review: February 19, 2019

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Closing Recap

Tuesday, February 19, 2019





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     U.S. stocks end higher (but well off their best levels), as investors continue to pile into US equities to start the year. The Nasdaq Composite traded to highs above 7,500 for the first time since early December as the index, along with the Dow Industrials, look to make it a 9th straight week of gains ahead of more key trade talks this week between the U.S. and China, while U.S. and EU trade tensions flared up with European officials threatening retaliation against any tariffs on car imports. The Dow also got a boost from retailing giant Wal-Mart after reporting better-than-expected quarterly earnings and comp sales, sending shares higher. The U.S. dollar fell against nearly every G-10 peer while the pound rose ahead of more Brexit negotiations. Oil and gold were among the top beneficiaries of the weaker dollar, while palladium trades to highs. Talks between China and the U.S. restarted in Washington today, with Vice Premier Liu He scheduled to meet U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin on Feb. 21-22. Stocks jumped to session highs late afternoon after President Trump said that March 1st is not a “magical date” regarding China trade decision. News of a possible American tariff on imported vehicles over the weekend weighed on market sentiment early before stocks rebounded. European shares retreated after two days of gains. Still this week, minutes from the most recent FOMC and ECB policy meetings, while investors look for headlines related to trade, Brexit and more earnings.



·     Oil prices rise, with WTI crude up 50c or 0.9% to settle at $56.09 per barrel, its best level in about 3-months (and up a 5th straight session), as commodities rise on a weaker dollar. Gold prices jumped $22.70 or 1.7% to settle at $1,344.80 an ounce, touching 10-month highs and adding more than 4% YTD to this point. A sharp pullback from overnight highs in the US dollar as well as uncertainty related to the China/US trade talks, fears that the U.S. equity market may be running out of steam and an ongoing dovish Fed related to rates (not raising rates so far in 2019) have all helped push gold prices higher. Meanwhile, palladium hits a record high to as much as $1,491 an ounce with wires citing a prolonged supply deficit.


Currencies & Treasuries

·     The U.S. dollar index (DXY) added to last week’s late decline, falling a 3rd straight day after rising back near 2019 highs in the early part of last week. The dollar index fell to lows around -0.4% under 96.50, well off earlier highs of 97.08. The British Pound rose to afternoon highs, up over 1% to 1.306 vs. the dollar ahead of UK Prime Minister May’s meeting with EUs Juncker in Brussels on Wednesday related to Brexit, while the euro rises to 1.135 vs. the dollar up 0.3%. Investors keeping a close eye on U.S.-China trade negotiations this week in Washington with reports both sides have reportedly tentatively agreed that a pledge of yuan stability will be part of the deal. With little economic data, US stocks holding steady and markets eagerly awaiting the extended trade discussions this week on trade, Treasury prices were up slightly as yields dipped.


Economic Data

·     U.S. Home Builders’ Confidence index (NAHB) in February rises to 62 vs 58 last month, and topping the 59.0 reading estimate; the present single family sales rise to 67 vs 64 last month; future single family sales rise to 68 vs 63 last month and prospective buyers traffic rises to 48 vs 44 last month






WTI Crude















10-Year Note





Sector News Breakdown


·     Retailers; WMT helped boost markets as the Dow component reiterated its fiscal 2020 forecasts and reported Q4 EPS and comparable sales that topped estimates/Q4 comparable sales rose 4.2% beating the +3.3% estimate while total revenue was up 3.1% to $140.5B on a constant currency basis, U.S. traffic was up 0.9% Y/Y; Nomura downgraded LULU and ULTA to neutral from buy on valuation noting ULTA shares have risen 25% so far this year, LULU shares are up 24%, both outperforming/continue to think more highly of brands that have already ‘shrunk to grow’ (CPRI, RL) & remain wary of those we believe are pushing beyond industry (& historical) revenue peaks (UAA, PVH); IRBT was downgraded to hold at Canaccord citing valuation

·     Auto sector; The U.S. Commerce Department sent a report to President Trump that could unleash steep tariffs on imported cars and auto parts, provoking a sharp backlash from the industry even before it is unveiled, the agency confirmed to Reuters; CTB Q4 profit topped consensus estimates as sales rose 1.8% during the quarter, despite a 1.8% decrease in tire unit volume/operating margin was 3.2% of sales vs. 7.4% a year ago; SAH said it sees Q4 preliminary EPS from continuing operations 74c-78c, below the 89c est. citing incentives and performance of its two largest brands — BMW and Honda; AAP said that it expects same-store sales to rise between 1% and 2.5% in 2019, the midpoint missing analysts’ estimates of 2% comp growth. In research, JPM initiated the US Auto Dealership sector with a balanced view on the industry but a more constructive view on the stocks (overweight on LAD, GPI)

·     Restaurants; MCD was upgraded at Stephens to overweight and raised tgt to $200 from $180 saying that the company’s core U.S. business is accelerating and set to show upside to consensus estimates in both the first quarter and 2019; PZZA was downgraded to sell at Stifel as see further downside to EPS estimates and believe the current valuation reflects an expectation for a faster than likely recovery of EBITDA and cash flows

·     Housing & Building Products; NCS was downgraded to underperform at DA Davidson saying that slowing demand could prevent the company from meeting forecasts; TTS shares dropped as reported slightly larger Q4 EPS loss and miss on revs though comps rose 5%; JELD shares jump after Q4 results as revs growth of 11.8% Y/Y to $1.09B, driven by a 14% contribution from acquisitions, and partially offset by a 2% forex headwind.

·     Consumer Staples; industry will be active this week with the Consumer Analyst Group of New York (CAGNY) Conference, being held this week, 2/18-2/22, in New York; food makers GIS and MDLZ both stuck to their full-year financial forecasts; FDP shares dropped on earnings as a 3% increase in banana prices wasn’t nearly enough to offset a 9% drop in banana volume in quarter

·     Casino, Services & Leisure movers; SCI shares fell after Q4 EPS and revenue missed estimates and year EPS guidance of $1.84-$2.02 missed the analysts midpoint of guidance ($1.99); gaming stocks outperformed behind MLCO earnings as EPS and revs topped views



·     E&P sector; CLR falls as Q4 EPS missed by 8c and Capex was 7% above Consensus/JPMorgan notes results “eerily reminiscent" of PXD last week which included a 4Q18 cash flow miss on weaker realizations, higher 4Q18 capex, though a much more capital efficient 2019 guidance; NBL in-line Q4 earnings and revenues and forecasting higher production on lower organic capex for 2019/sees capital spending in the $2.4B-$2.6B range, 17% lower at the midpoint compared to 2018, but it expects its sales volumes to rise by ~5%; earnings tonight from CXO, FANG, DVN; SLCA rises after results, helping frac sand names (HCLP, SND, EMES early)

·     MLP’s, Utilities & Solar; PCG shares rallied after being upgraded to buy at Citigroup with Street high $33 tgt saying pending California legislation to limit future wildfire risk would unlock "significant upside" and cap risk in the struggling utility company; the defensive, dividend paying sector also benefitted from another drop in Treasury yields; TRGP agreed to sell a 45% stake in certain assets in the Bakken shale play of North Dakota to funds managed by GSO Capital Partners and Blackstone for $1.6B; solar stocks jumped (JKS, SPWR, CSIQ, FSLR) after Bloomberg reported China indicated it may partially reverse a subsidy policy that undercut demand and depressed global pricing for materials.

·     Drilling and equipment movers; RIG posted a 4Q Ebitda beat, though better-than-expected performance in ultra-deepwater partially offset by weaker than expected results for the harsh environment segment according to one analyst; HLX guided 2019 revs $700M-$760M vs. est. $770.3M



·     Bank movers; group underperformed major averages after leading markets higher last week; in Europe, HSBC shares slide after Q4 results disappoint, hut by volatile markets, uncertainties over U.S.-China trade and Brexit; in consumer finance and lending, NAVI rejected a $3.2 billion takeover bid from two investors Reuters reported. Navient’s board voted on Monday to reject the $12.50 per share offer from hedge fund Canyon Capital Advisors LLC and private-equity firm Platinum Equity Advisors LLC, believing it undervalues the company, according to the source ; Crypto-related stocks got a bounce today as Bitcoin jumps to its highest levels in a month as approaches $4,000 (shares of RIOT, MARA, OSTK, GBTC among movers)



·     Pharma movers; MRK active as results from a Phase 3 clinical trial, KEYNOTE-426, evaluating its Keytruda (pembrolizumab), combined with PFE’s Inlyta (axitinib), in first-line renal cell carcinoma (RCC) showed the combo’s superiority to Pfizer’s Sutent (sunitinib); in cannabis space, CGC was downgraded at GMP Securities noting a combination of high investor expectations, but an unclear path to profitability; ABBV new drug application for Upadacitinib for treatment of adults with moderate to severe rheumatoid arthritis is anticipated to result in a regulatory decision in 3Q; Marijuana stocks (CGC, ITHUF, CURLF, MMNFF, ACRGF, GTBIF) active after Barron’s expressed caution on their levels of risk considering it remains illegal in the U.S.

·     Biotech movers; ICPT shares jump as its Obeticholic Acid Phase 3 study achieves the primary endpoint demonstrating statistically significant improvement in liver fibrosis without worsening of NASH at 18 months, in what is the first positive late-stage data for a treatment in fatty liver disease; SAGRE shares slipped after Q4 EPS missed analyst estimates and said it expects operating expenses to increase in FY19

·     Services, Medical equipment and devices; MDT Q3 EPS and sales beat and slightly raised its year EPS view to $5.14-$5.16, which is above consensus of $5.12 and raises low end of FY organic revs to 5.25%-5.5%


Industrials & Materials

·     Industrial & Machinery; TEX shares active after guiding year EPS to $2.71, topping the $2.66 estimate (said it delayed Q4 results to 2/26); in waste, ADSW downgraded to underperform at Bank America Merrill on valuation (is the best performing waste stock YTD and is above their tgt)

·     Transports; in rails, CSX was downgraded to sector perform at RBC Capital saying they have seen a significant reduction in O/R at CSX during its implementation of PSR; however, we believe that the low-hanging fruit has been picked and that further O/R improvements will be more incremental; AAWW shares jumped, topping its 200-day MA resistance of $59.18 (first time above 200-day since October) after earnings

·     Metals & Materials; Citigroup raised rating on copper producers (FCX and SCCO) citing a more constructive market backdrop noting that exchange inventory is at 10 year lows and Chinese weakness appear to be turning; chemicals slipped after WLK shares fell as posted a big earnings miss as 4Q Ebitda missed the lowest estimate; gold miners to the highs of the day with gains on AEM, GOLD, NEM and GG as gold prices jump to 10-month highs


Technology, Media & Telecom

·     Telecom; WIN and UNIT shares plunge court ruled against Windstream on February 15, 2019, that a federal judge of NY had ruled against WIN regarding the 2015 spinoff of certain telecommunications network assets into a REIT and its agreements with bondholders to UNIT. Raymond James downgraded shares of CNSL and FTR in sympathy saying they do not believe that there is any real connection with the results at Windstream or the court ruling, however in our experience the rural ILECs tend to trade as a group

·     Internet; NTES shares were active after a report in a China paper overnight said NetEase signed an agreement at end-2018 to buy Amazon’s cross-border shopping business in China; SFUN was downgraded to underperform at Bank America and cuts the target from $4.20 to $1.50 citing weakening business momentum; GRUB positive comments at Craig Hallum saying monthly restaurant checks indicating Grubhub’s restaurant network has grown at an accelerated pace over the past four months, growing 2.9% month/month from mid-January to mid-February, and 11.2% over the past four months

·     Semiconductors; MRVL upgraded to outperform at Macquarie saying estimates have bottomed, valuation is attractive, and they see both cyclical & secular drivers ahead/expect Storage to recover in 2H, and see strong 5G tailwinds in CY20; WDC, STX shares active after Digitimes is out saying NAND price declines could stop as early as Q2; TSEM said it expected its main business units to grow further this year, as it reported higher Q4 profit but cautioned the sector had entered 2019 facing macro-economic headwinds


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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