Market Review: February 21, 2019

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Closing Recap

Thursday, February 21, 2019

Index

Up/Down

%

Last

DJ Industrials

-103.03

0.40%

25,851

S&P 500

-9.65

0.35%

2,775

Nasdaq

-29.36

0.39%

7,459

Russell 2000

-6.11

0.39%

1,575


 

Equity Market Recap

·     U.S. stocks tumbled on Thursday as the Nasdaq Composite and SmallCap Russell 2000 index each snapped their respective 8-day win streaks, the longest since August and October respectively. Meanwhile the Dow snapped its 3-day losing streak as weak U.S. economic data overshadowed the China/US trade-talk optimism that has buoyed markets over the last few weeks. The U.S. dollar gained broadly vs. major currencies, rising the most vs. the Aussie dollar (trade concerns) and the Canadian dollar. Commodity prices slipped with the dollar advance, as gold fell from 10-month highs and posted its biggest one day decline since last year. Economic data disappointed following weaker existing home sales (3-year lows), Philadelphia business conditions (turned negative) and PMI manufacturing, while signs of strength were seen in PMI services and weekly jobless claims. Prior to the data, stocks were modestly higher after reports overnight said that agreements in principle are being drawn between the US and China on trade in six key areas: forced technology transfer and cyber theft, intellectual property rights, services, currency, agriculture and non-tariff barriers to trade. The report suggested the outline is the most significant progress made so far. Bloomberg also reported that China is proposing that it could buy an additional $30 billion a year of U.S. agricultural products including soybeans, corn and wheat as part of a possible trade deal being negotiated by the two countries. It was a busy day of earnings with more to come tonight as healthcare, energy and tech slipped while consumers rise.

Economic Data

·     Philadelphia Fed Index for February falls to -4.1, well below the expected rise reading of 14.0; general business conditions were 17 in the prior month; prices paid fell to 21.8 vs 32.7 while new orders fell to -2.4 (lowest reading since May 2016) vs 21.3, while employment rose to 14.5 vs 9.6; shipments fell to -5.3 vs 11.4 and inventories rose to 3.3 vs -7.6

·     Durable Goods Orders rise 1.2% vs. est. 1.7%; durable goods new orders revised up to 1% gain for Nov. from 0.7% gain; new orders ex-trans. rose 0.1% in Dec. after 0.2% fall; new orders ex-defense rose 1.8% in Dec. after being unchanged

·     Weekly Jobless Claims fell 23K to 216K, below the 228K estimate while the prior week claims week unrevised at 239K; the four-week jobless claims average rises 4,000 to 235,750; continuing claims fell 55k to 1.725m in the week ending Feb. 9

·     Existing-Home Sales fell (-1.2%) to 4.94M rate vs. est. of 5M; existing-home sales fell 1.2% after falling 4% prior month; 3.9 month’s supply in Jan. vs. 3.7 in December; 4.4 months’ supply seasonally adjusted in Jan. vs. 4.3 in Dec. seasonally adjusted; Inventory rose 3.9% to 1.59M

·     U.S. leading index (LEI) dipped -0.1% to 111.3 in January after an unchanged reading of 111.4 in December (revised from 111.7). However, the index was at 107.5 last January, and was at an all-time high of 111.9 in September.

 

Commodities

·     Oil prices fell, as WTI crude slipped 20c to $56.96 per barrel following weekly inventory data that showed domestic supplies climb for a fifth straight week as production jumped to a record level. The pullback comes a day after WTI and Brent each posted their highest settlements since November on signs of tighter global crude inventories. Earlier, the EIA said domestic crude supplies rose a fifth straight week, up 3.7 million barrels for the week ended Feb. 15th.

·     Gold prices fell, giving back a chunk of its previous week gains, falling -$20.80, or 1.5% to settle at $1,327.80 an ounce and dropping from recent 10-month highs; posting its biggest one-day loss since August. Commodity prices slipped in a bout of profit taking, a rebound off lows for US stocks and a spike in the dollar after days of weakness (despite weaker economic data).

 

Currencies & Treasuries

·     The U.S. dollar gained despite a round of weaker than expected economic data points in the U.S. as the Philly Fed Business Outlook turned unexpectedly negative, existing home sales fell to three-year lows and the LEI was reported negative (several factors that led economists to lower its GDP projections going forward). Still, the dollar managed small gains after the Fed minutes from yesterday showed members were split on interest rate hikes this year. Brexit concerns in UK also playing a part in movement between the Pound/dollar. The Aussie dollar among biggest decliners amid China trade worries. Treasury yields jumped early as the 10-year topped 2.68% (up over 3 bps) while the 2-year neared 2.53% and the 20-year around 3.05%, holding those levels throughout the session.

 

 

Macro

Up/Down

Last

WTI Crude

-0.20

56.96

Brent

-0.01

67.07

Gold

-20.10

1,327.80

EUR/USD

-0.0007

1.133

JPY/USD

-0.10

110.76

10-Year Note

0.034

2.688%

 

 

Sector News Breakdown

Consumer

·     Consumer Staples; in tobacco, Wells Fargo said MO raised wholesale list prices increase on all its cigarette brands that was about 1 cent per pack more than expected and a month earlier,; in beverages, SAM 4Q EPS of $1.84 beat as better margins and tax benefit offset higher operating expenses (follows cautious guidance yesterday from STZ that sunk spirit makers); BG drops after grains merchant’s quarterly profit misses estimates due to declining soybean prices in Brazil and also missed Q4 profit estimates; HRL missed Q1 estimates and reaffirms FY2019 guidance; SPTN misses Q4 EPS by 6c/rev miss and guides year EPS $1.70-$1.80, below the consensus of $1.90; KO raised its dividend and announces 150M new buyback plan

·     Restaurants; busy sector today after earnings: DPZ shares fall as 4Q adjusted EPS and comp sales missed estimate (comps 5.6% vs. est. 7.2%); JACK rises after its Q4 EPS and sales topped consensus; CAKE with a mixed Q4 report as EPS slightly below street, restaurant margins inline and comp. sales above estimates and expects comp. sales growth of 1%-2% at The Cheesecake Factory restaurants, in line with co.’s long-term target; DIN 4Q adjusted EPS and sales beat; mid-point of year adj. EPS view also topped views (mixed comp sales as Applebee’s comps miss while iHop better); WEN Q4 sales and comp. sales trailed estimates (4Q North America comp. sales rose 0.2% vs est. +0.6%)

·     Housing & Building Products; Wedbush downgraded homebuilders LEN and DHI to neutral from outperform as the stock prices are within 5% of their tgt saying the recent pullback in mortgage rates has been a positive stock price catalyst for them and competitors; flooring company FND gained as Q4 EPS beat and guided Q1 profit above views as well

·     Casino & Leisure movers; cruise industry active after NCLH Q4 results mixed (EPS beat, revs small miss) but issues a confident outlook for Q1 and 2019; education stocks were big winners as LOPE Q4 EPS beat on better revs and Q1 guidance $1.49 beat the $1.40 view; CECO another education name higher after its Q4 results topped views on better guidance (BPI, STRA higher); TSLA shares fell after Consumer Reports said it can no longer recommend the newest Tesla—the Model 3 electric sedan—because members say they’ve identified a number of problems with their cars, including issues with its body hardware, as well as paint and trim

 

Energy

·     Energy stocks slip with broader markets and mixed inventory data: overnight, the API reported that U.S. crude supplies rose by 1.3M barrels for the week ended Feb. 15, showed that gasoline stockpiles fell by -1.6M barrels, while distillate inventories declined by -758,000 barrels. This morning, the EIA said weekly crude stockpiles rose 3.672M barrels, slightly more than the 3M estimate while gasoline inventories fell a greater -1,454M vs. est. -500K

·     E&P sector; SRCI Q4 results topped estimates and progress with Colorado’s new legislative leadership/sales increased 36% primarily due to higher sales volumes and average realized oil price; SM shares pressured as the midpoint of the FY19 oil guide 11% below consensus and capex guidance only 2% lower than the Street; CRK Q4 beat, produced 30.9B cubic feet of natural gas and 843,000 bbl of oil or 35.9 Bcfe in Q4; WPX CFPS was 6% below consensus on weaker oil & gas price realizations and higher cash costs/Q4 production was 6% above consensus, and 4Q18 oil production was 2% above consensus, while 4Q18 CapEx was 35% above consensus

·     Equipment and drillers; FTI shares fell after posted two unexpected charges ($280M provision for the corruption probe by Brazil, US and French authorities, and $1.9B of goodwill and other charges) as well as a sales and EBITDA margin miss on Q4, and the sixth consecutive quarter of free cash flow materially below distributions; driller NE advanced after reporting in-line adjusted Q4 earnings, and set a second consecutive annual record for operational performance, registering 97.3% uptime across the fleet

·     Utilities; sector moving higher as the UTY tops the 721 level up over 0.5% after touching all-time highs of 723.50 earlier; group led by gains in PCG which rises over 5% along with gains in AWK, EE, XEL in what was broad gains in the space

 

Financials

·     Consumer finance and lending; AAPL and Goldman Sachs have teamed up to issue credit cards that will be paired with iPhones and will help users manage their money, the Wall Street Journal reported on Wednesday; NAVI shares active after Canyon Capital Advisors withdraws its initial expression of interest to buy NAVI saying it doesn’t plan to take part in any acquisition process "at this time." https://on.wsj.com/2BLmkam ; GDOT slides as slowing growth in its active card users disappointed offsetting the Q4 results; SLM was added to Wedbush best ideas list

·     REITs; CONE results fell short of expectations and consensus on revenue and EBITDA for C4Q, while bookings were light in aggregate with mixed takeaways; CLI reported 4Q18 core FFO of $0.45, in line with our estimate and the Street and reiterated 2019 FFO guidance; EXR reported in-line 4Q18 results, though initial 2019 FFO guidance fell nearly 3% below consensus; SITC 4Q18 beat, driven by steady 2.1% SSNOI growth in the quarter

 

Healthcare

·     Pharma movers; JNJ said it has received subpoenas and inquiries on its talc baby-powder products from federal prosecutors and securities regulators. The requests for documents have come from the U.S. Justice Department, the SEC and the top Democrat on the Senate Committee on Health, Education, Labor and Pensions; Seaport Global initiated the cannabis sector with buy ratings on APHA, HEXO, TGODF, KSHB, MMNFF, GTBIF, ACRGF, ITHUF, and CURLF, Neutral ratings on CGC, TLRY, and ACB and top picks are HEXO, APHA, ACRGF and TGODF; MRK agrees to acquire IMDZ for $5.85 per share https://yhoo.it/2DZSP55 ; ZSAN shares jumped after reporting migraine safety study and BTIG raised tgt to $19

·     Biotech movers; BIIB was downgraded to hold at Stifel saying the stock has been remarkably resilient in the wake of two recent events – Roche crenezumab futility, Tecfidera IPR institution which elevate risk to the long-term bull case

·     Services, medical equipment and devices; GHDX delivered +22% revenue growth in Q4 (another quarterly beat), far surpassed its EBITDA target for 2018 (a 40%+ beat) and guided 2019 above views (analysts raise tgt price); hospital stocks rising behind CYH results up 18% (THC, UHS HCA shares also active)/posted a smaller than expected Q4 EPS loss on better operating revs; other movers on earnings CUTR, NUVA, A, IART

 

Industrials & Materials

·     Industrial; MIC downgraded at RBC Capital after 4Q Ebitda missed estimates citing that 2019 guidance implies further deterioration in International-Matex Tank Terminals; AP Moller-Maersk , the world’s biggest container shipping line, plunged after it warned the US-China trade war would hit its earnings; VMI shares slipped early as top and bottom line results missed estimates on lower midpoint of year EPS guidance; other movers on earnings PWR, FLS, EME, NDSN

·     Transports; index gets a boost from car rental results out of CAR as delivered a modest beat in 4Q but was driven by stronger U.S. pricing (giving a boost to HTZ as well); outside of the outperformance in CAR leading the index higher, stocks were mixed as airlines partially recovered from the recent decline (on lower LUV guidance), while rails and truckers were mixed

·     Metals & Materials; Copper prices slipped from seven-month highs on profit taking and as the dollar firmed (3-month copper on the LME touched highest since July 10 at $6,426.50 yesterday); gold miner NEM beat Q4 earnings and revenue expectations, helped by higher gold production in its Colorado and Ghana mines and lower costs/says its Q4 gold production rose nearly 8%; X was upgraded to buy at Berenberg saying steel prices are poised to recover just when consensus has become overly bearish on the sector; ALB rises as overall, quarterly sales guidance exceeds consensus, while EPS and EBITDA numbers bracket consensus

 

Technology, Media & Telecom

·     Internet; sector was mostly lower with the Nasdaq Comp slipping for the first time in 8-days; GDDY reported solid 4Q results slightly ahead estimates on the top line with healthy guidance for revenue and uFCF that was largely in line with expectations; VIPS declined after softer-than-hoped 1Q guidance and 4Q revenue underwhelmed analysts

·     Software movers; ATTU +16%; to be acquired by Qlik for $23.50 per share in deal valued at about $650M https://yhoo.it/2Nh3tIE ; CBLK shares plunged after a weak quarter and lower guidance prompting an analyst downgrade at JPMorgan; INOV reported a somewhat soft 4Q18, some of which seemed to relate to the timing of client implementations and ASC 606 revenue recognition according to KeyBanc; SNPS reported a strong Q1 revenue and EPS beat, guided Q2 higher, though reiterated its FY19 guidance

·     Media & Telecom movers; a tweet by President Trump that he “want 5G, and even 6G, technology in the United States as soon as possible. It is far more powerful, faster, and smarter than the current standard” kept telco (VZ, T, TMUS, S), towers (AMT, CCI, SBAC), as well as equipment stocks; other movers on earnings included CCOI

·     Hardware & Component news; AAPL is stepping up efforts again after recent layoffs to develop a vehicle, but struggles to meet margin goals due to 10% cost disadvantage in production compared to rivals, Manager Magazin reports; NTDOY shares outperformed on the day in the video game sector; other moves on earnings TYL, PLAB, MANT

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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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