Market Review: February 20, 2019

Auto PostDaily Market Report

Closing Recap

Wednesday, February 20, 2019

Index

Up/Down

%

Last

DJ Industrials

64.41

0.25%

25,956

S&P 500

5.07

0.19%

2,784

Nasdaq

2.30

0.03%

7,489

Russell 2000

7.25

0.46%

1,581


 

Equity Market Recap

·     U.S. stocks struggled for direction throughout the session, trading between gains and losses as investors digest commentary from the minutes of the January FOMC meeting and await more “color” regarding the ongoing trade talks between the U.S. and China in Washington. Stocks are looking to extend gains with the Dow Industrials and Nasdaq Comp riding 8-week winning streaks amid trade hopes and a dovish Fed. Regarding the EU and trade, President Donald Trump said today he would impose tariffs on cars imported from the European Union if U.S. talks with the bloc don’t yield a new trade deal. Trump told reporters at the White House Wednesday that talks are ongoing and EU representatives are tough negotiators. The dollar bounced off lows (after falling the last 5-trading sessions) while commodity prices (gold, oil) extended gains and Treasury yields inched higher. Banking stocks rallied after the Federal Reserve released the minutes of its most recent meeting, while interest rate sensitive stocks slipped. Transports fell on airline weakness, healthcare service stocks dipped after CVS guidance. A busy day upcoming for economic data in the U.S., with weekly jobless claims, durable goods orders, manufacturing data and existing home sales all on the calendar Thursday.

·     Minutes from the FOMC January meeting were released today as officials were mixed about future interest-rate hikes as “several” officials argued that rate increases might be needed only if inflation outcomes were higher than their baseline forecast. Meanwhile “several” other officials thought it would be appropriate to raise the federal funds rate later this year if the economy evolved as they expected. The minutes noted that financial conditions had tightened since September despite some easing in the first few weeks of the year. In addition, the global economy was slowing and U.S. consumer and business sentiment had deteriorated. Government policy, from the partial shutdown to trade negotiations, was another factor.

 

Commodities

·     Oil prices rose for a 6th straight session, climbing 83c to settle at $56.92 per barrel moving to fresh 3-month highs (and well of the $55.48 lows). A combination of growing concerns about Venezuelan supplies a weaker dollar and momentum have led to the rally in oil prices. Bloomberg noted the OPEC+ Joint Technical Committee assessed compliance with the group’s production curbs at 83% in January, the first month of the deal, while Saudi Arabia and Russia have signaled they’ll step up their cuts. U.S. oil futures shook off earlier weakness Wednesday ahead of API weekly inventory data tonight and the EIA tomorrow morning. Gold prices quietly held 10-month highs, rising another $3.10 to settle at $1,347.90 an ounce, having gotten a boost over the last few days from the declining dollar.

 

Currencies & Treasuries

·     Bonds were higher as yields slipped; note the 10-year yield still down 4 bps for the year at 2.64% (down 1 bps on the day), while the 2-year yield fell 1 bps to 2.48% today. Overall, fairly muted reaction in currency and Treasuries following the release of the Fed minutes. The U.S. dollar generally bounced off lows after falling the last five trading sessions. Canadian dollar posts two-week high as trade optimism boosts stocks while the buck was flat vs. the euro and Pound. Meanwhile, market participants are watching developments in the U.S.-China trade relationship.

 

 

Macro

Up/Down

Last

WTI Crude

0.83

56.92

Brent

0.63

67.08

Gold

3.10

1,347.90

EUR/USD

-0.0000

1.341

JPY/USD

0.19

110.82

10-Year Note

-0.012

2.65%

 

 

Sector News Breakdown

Consumer

·     Retailers; footwear stocks were weaker after WWW (which makes Merrell, Sperry, Keds and Wolverine) reported quarterly sales that missed estimates ($579.6M vs. est. $582M) and the midpoint of both the year EPS and sales forecast range also missed consensus; GRMN Q4 beats with 4% Y/Y revenue growth and issued upside FY19 guidance at about $3.5B (topping the estimate $3.43B) and EPS at $3.70 above the $3.52 estimate/auto was the only segment that didn’t beat consensus, reporting $147.6M (-28%) versus the $165.5M estimate; WMT’s slide follows 6-days of gains, capped by the 2.2% advance yesterday on better EPS and comps

·     Housing & Building Products; HVT reported 4Q EPS ahead of expectations, driven by better than expected SG&A leverage/sales and comps were in line with the pre-announcement; LZB 3Q results that were above expectations and its acquisitions of stores and Joybird position LZB for accelerating growth

·     Auto’s; TSLA active today on two stories: 1) last night, CEO Elon Musk tweeted overnight, "Tesla made 0 cars in 2011, but will make around 500k in 2019…Meant to say annualized production rate at end of 2019 probably around 500k, ie 10k cars/week. Deliveries for year still estimated to be about 400k; 2) this morning, TSLA said general counsel Dan Butswinkas was leaving after just two months on the jobs and is returning to trial practice at a firm in Washington, D.C.; KAR 4Q:18 adj. EBITDA of $206.6M beat est. $$205.3M while revs light but gross margin was stronger; CNDT Q4 results with in-line EPS and a revenue beat despite a 14% Y/Y revenue drop/upside FY19 view; KNDI rises as announces that its Model EX3 and Model K22 have been approved by the NHTSA to be imported and registered in the U.S.

 

Energy

·     E&P sector; very busy space with lots of earnings as DVN shares jump after its announcement to seek a monetization of the company’s Canadian Oil Sands and Barnett assets and on earnings; FANG Q4 CFPS was 13.6% below consensus on much weaker oil & gas price realizations while 4Q18 production was 6% above consensus as was 4Q18 oil production, while 4Q18 capex was 8% below consensus (also reduced cap-ex by 1.7%); CXO Q4 CFPS was 8% below consensus and capex was 6.5% above consensus while reduced its 2019 capex and production guidance (new capex guidance was 13% below consensus and new 2019 production guidance was 6% lower);

·     Equipment and Oil drillers; DO, RIG, OII were upgraded to overweight at Barclay’s and downgraded DRQ to equal-weight saying after almost 5 years of a downturn, a transformed offshore industry is starting to emerge and along with it, a number of opportunities in OFS; sees 2019 to be a transition year, and 2020 beginning of a multi-year growth trajectory

·     Utilities & Solar; FE reported ongoing 4Q18 EPS of 50c missing the 58c estimate as results were driven by a lower tax shield on corporate losses/2019 guidance was reaffirmed; ETR Q4 EPS of 60c beat by 16c helping lift shares early; AWK with in-line Q4 EPS of 69c while revs missed estimates and reaffirmed its 2019 guidance

 

Financials

·     Bank movers; UBS shares fell after the bank was ordered to pay more than 4.5B euros ($5.1B) by a court in a French tax case; LYG shares advanced as made a pretax profit of 5.96 billion pounds ($7.73 billion), up from GBP5.28 billion in 2017 though missed expectations and announced a stock buyback of $2.3 billion; online brokers ETFC and SCHW declined after UBS downgraded – SCHW cut to sell saying the company is facing headwinds to B/S growth from yield sensitive customers, an increasing regulatory burden, and limited rate upside (ETFC cut to neutral)

·     Consumer finance and lending; LC shares fell after Q4 EBITDA beat for the quarter, but offered FY19 guidance for revenue and adjusted EBITDA that was light versus the Street consensus for each metric/analyst flagged credit concerns and tighter lending standards

 

Healthcare

·     Pharma movers; TEVA was downgraded to neutral at Mizuho and lowered tgt to $18 from $25 saying the investment thesis is "broken" after Teva’s "disappointing 2019 guidance and cautious longer-term outlook; TLRY signed a deal to acquire Hemp Hearts-maker Manitoba Harvest for up to $419 million in cash and stock as the two companies look to launch CBD-infused products; BHC shares fell as Q4 revs and Ebitda topped views but the midpoint of year rev guidance ($8.3B-$8.5B missed the $8.45B est.); generic and specialty stocks lower; ICPT shares fell as much as 15% after Phase 3 NASH trial REGENERATE data led many analysts to raise tgts but Wells Fargo lowered its tgt to $113 from $127 saying its call with a prominent NASH expert described the benefit of OCA in NASH as underwhelming, well below that seen in the earlier FLINT study, and not sufficient to change practice, particularly given high pruritus rates"

·     Healthcare services and providers; CVS shares plunged after guiding Q1 EPS $1.49-$1.53, below the $1.64 estimate (Q1 revs better) and said sees 2019 as a "year of transition" as it integrates Aetna and focuses on the key pillars of its growth strategy; TVTY reported Q4 EPS well-above estimates on in-line revs but issued lower-than-expected preliminary 2019 guidance, which reflects a greater-than-expected impact from the loss of UNH; in the dental sector; HSIC reported Q4 sales that missed expectations, with dental consumables growth in North America being impacted by “a soft end market in Nov/Dec (PDCO, XRAY shares also active); OMI pared earnings related losses after Reuters reported midday that the is working with investment banks to explore a sale following a string of disappointing earnings reports https://reut.rs/2IrdIvq ; MGLN shares also showed after a Reuters report that it is exploring a sale of the company amid pressure from activist Starboard Value https://reut.rs/2U0HyrM

·     Medical devices; a handful of medical device makers reacted favorably to earnings and guidance, as LMAT shares jumped over 25% after its results while AXDX reported A4 results after having pre-announced top-liner results in early; Agilent (A) reports tonight

 

Industrials & Materials

·     Transports; LUV shares dropped, leading airlines lower after it cuts forecasts as sees 1Q RASM up 3%-4% (down from prior view of up 4%-5%) as sees negative effect from government shutdown $60M in 1Q; saw negative effect $10M-$15M prior; strength in rails KSU, CSX helped offset weakness in airlines after LUV lowered guidance

·     Metals & Materials; metals have outperformed the last few weeks on hopes of a trade deal between the US and China; Cowen boosted its ’19 rebar metal spread forecasts and ’19 EBITDA for most rebar exposed names including NUE, STLD and SCHN following recent conversations with independent rebar fabricators along with signs of deteriorating U.S. Turkey relations; Nickel and copper prices were among the best performers in the group, helping miners exposed to these commodities as the dollar faded

 

Technology, Media & Telecom

·     Internet; YELP was downgraded to neutral at Citigroup and remove from the “Value Creators” SMID Focus List while adding CVNA to the “Value Creators” SMID Focus List saying it is a play on the disruptive evolution of used vehicle transactions via internet based applications; WIX reported revenue slightly higher than expected, with collections at the low end of guidance/FY19 guidance with revenue from $755M to $761M (vs. est. $761.8M) with FCF of $135M to $140M below the $146M est; HSTM reported 4Q18 results that were slightly better than expected as 2019 revenue guidance was above consensus, but operating income guidance was below; TTD was downgraded at Stifel

·     Software movers; INST solid F4Q results with revenue and adjusted operating income ahead of Street/CS expectations while FY19 guidance missed expectations (was downgraded at Morgan Stanley after guidance); CDNS rises as reported F4Q and guided F1Q above consensus, with F4Q benefitting from hardware shipment pull-ins from F1Q19 into F4Q; OSPN 4Q results beat on revenue ($64.8M vs. $59.9M est.) and (adj. EBITDA $9.1M vs $3.9M est.); FIVN Q4 results showed $5.8M of revenue upside on the third consecutive quarter of accelerating growth, which improved to 30.6% y/y vs. 30.4% y/y last quarter, driven by record enterprise bookings; EVBG shares jumped after its Q4 results and a 2019 revenue outlook that was 5% above the street

·     Hardware & Component news; PSTG was downgraded to market perform at Raymond James on worries that NVDAs slowing data center segment may mean bad news for PSTG’s FlashBlade and concerns that competition will heat up in memory storage; IIN shares fell after modest 4Q18 revenue upside was offset by weaker than expected GM, which led to the EPS shortfall; Samsung officially unveils its Galaxy Fold, the long-rumored and teased foldable mobile device. The device shrinks from a 7.3-inch display to a 4.6-inch display once folded

·     Semiconductors; ADI posted a Q1 beat with in-line Q2 guidance with revenue from $1.45B-$1.55B (vs. est. $1.51B) and EPS from $1.23-$1.37 (est. $1.30); HIMX reported a Q4 EPS beat on in-line revs but guided Q1 EPS to a surprise loss on and revs down 14%-19% sequentially

_________________________________________________________________

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.

Live Trading

Open an Account

Paper Trading

Register