Market Review: February 22, 2019

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Closing Recap

Friday, February 22, 2019

Index

Up/Down

%

Last

DJ Industrials

181.67

0.70%

26,032

S&P 500

17.77

0.64%

2,792

Nasdaq

67.84

0.91%

7,527

Russell 2000

14.55

0.92%

1,590


 

Equity Market Recap

·     U.S. stocks close out the day (and week) higher, extending major average weekly win streaks to nine, fueled recently on a trade hope resolution between the US and China following several high profile trade meetings in Beijing (last week) and the US (this week). The Dow Industrials pushed above the 26K level (first time since early November), while the Nasdaq Composite and Russell 2000 gained after having their 8-day win streaks snapped yesterday on weaker economic data. The S&P remains strong still as Bespoke noted there are more S&P 500 stocks up 25%+ YTD (55) than there are S&P 500 stocks down YTD (34).

·     Stocks were volatile late session after comments from President Trump, saying it’s more likely than not that the U.S. and China will reach an agreement on trade, while optimism that was also echoed by China’s top trade negotiator Liu He. Also, U.S. Treasury Secretary Mnuchin said that the United States and China have come to an agreement on currency issues. There were also several Fed speakers today discussing the Fed balance sheet (Quarles, Bullard, and Harker), but failed to really move markets that were focused on trade. Markets have been rebounding off the lows from December, and hope for a resolution of tariffs and a Federal Reserve that has said it would be patient with normalizing monetary policy have helped to support buying. CNBC also noted late day that China has committed to buying up to $1.2 trillion in U.S. goods, though the two sides remain far apart on issues concerning the forced transfer of intellectual property.

·     In stock news, consumer staples plunged, led by declines in food stocks after Kraft (KHC) missed earnings estimates, cut its quarterly dividend and disclosed an SEC subpoena surrounding its accounting practices (weighed on CPB, GIS, CAG, K). Meanwhile, healthcare stocks were among the top sector outperformers. Gold and oil prices closed the day and week higher while the dollar slipped along with Treasury yields. Earnings starting to slow up, with a handful of large cap retail and technology stocks out next week (HD, LOW, GPS, JWN, BBY, SQ, HPQ, ADSK, and VMW).

 

Commodities

·     Oil prices rose on Friday, climbing 30c or 0.5% to settle at $57.26 per barrel (at its best levels since mid-November), but finished off their intraday highs (of $57.81). For the week, priced tallied a 3% increase following a weaker dollar and hopes for a trade truce shortly between the US and top commodity consumer China. Prices were also supported by OPEC’s ongoing supply cuts, while bearish inventory data on Thursday capped the gains for the week. Gold rises $5.00, or 0.4%, to settle at $1,332.80 an ounce, ending the week with a gain of 0.8% as the dollar weakened. The bounces comes a day after gold prices registered their largest one-day drop since August after touching 10-month highs the day prior. Prices have jumped amid a dovish Fed, and apparent progress in talks between the U.S./China.

 

Currencies & Treasuries

·     The U.S. dollar slipped after early gains, falling on the week after softer economic data Thursday and as the Fed remains uncertain about the trajectory/timing of future rate moves; the dollar slides near lows while Sterling (GBP/USD) popped into positive territory at 1.3063 highs (off earlier lows 1.2968). A March deadline for fresh Chines tariffs to be raised to 25% from 10% looms, with President Donald Trump indicating that he may be flexible on hiking duties and could greatly impact currency and Treasury prices. The dollar ended mostly lower across the board today, falling for the first week in a month. The Canadian dollar strengthened vs. the US dollar, with the greenback falling to 2-week lows late day (-0.7%) around the 1.3135 level as oil prices climbed. Treasury prices advanced while yields finished well off intraday and yesterday highs (10-year 2.64% vs. 2.68% earlier). There were no major economic data points today to move bonds (though data disappointed yesterday.

 

 

Macro

Up/Down

Last

WTI Crude

0.30

57.26

Brent

0.05

67.12

Gold

5.00

1,332.80

EUR/USD

0.0002

1.3339

JPY/USD

-0.03

110.67

10-Year Note

-0.04

2.648%

 

 

Sector News Breakdown

Consumer

·     Retailers; JWN was downgraded to hold at Deutsche Bank and lowers price target to $51 from $62 off a set of lowered estimates; in a detailed retail note, JPMorgan downgraded FIVE to neutral; FIT was downgraded at Wedbush on valuation; retail earnings next week from: 2/26: AZO, HD…2/27: BBY, LOW, TJX, LB,…2/27: GPS, JWN

·     Consumer Staples; KHC the big story today, as shares fall over 25% as Q4 results miss and guided FY19 EBITDA 14% below Consensus (~$6.4B vs. $7.45B est., recorded a $15B impairment charge for cheese and deli brand assets, and cut its dividend by 36% – also says SEC probing procurement accounting policies (food stocks fell in reaction GIS, CPB, SJM, CAG, K)

·     Restaurants; BJRI posted Q4 EPS below consensus while revenue was better-than-expected, but this was offset by higher other operating costs; RUTH comparable sales fell (-0.1%) in Q4 along with a 2.5% increase in average check offset a drop in traffic during the quarter; NDLS was upgraded to buy at Jefferies

·     Housing & Building Products; Wayfair (W) reported a smaller than expected Q4 EPS loss as revs of $1.99B topped consensus and reports 15.2M active customers, up 37.9% year-over-year; in housing, ZG shares jumped as announces mgmt shakeup with former co-founder Barton returns as CEO as Rascoff steps down, overshadowing a mixed quarter and weaker guidance

·     Casino & Leisure movers; BYD 4Q and 2019 outlook were stronger than expected sending shares higher while CZR 4Q results with 18% y/y LV EBITDA growth offsetting Regionals, which were down 6% y/y; in gyms, PLNT was upgraded to buy at Jefferies with $75 tgt

·     Auto sector; AN shares dropped after the car dealer’s 4Q profit, sales and comparable sales all missed expectations with one analyst noting its business mix/growth/margins are similar to other traditional auto dealers, yet AN is one of the most expensive traditional auto dealers; Volkswagen predicts higher sales and margins despite falling car demand; Bank America lowering comp estimate for AZO following weaker than expected 4Q comps from AAP and ORLY

 

Energy

·     E&P sector; XOG shares jumped after big Q4 earnings, revenue beats/posts a 34% Y/Y increase in revenues; APC noted an attack on an Anadarko convoy in northern Mozambique was one of multiple raids that took place Thursday; COG reported Q4 EPS miss of 3c while beating on revs

·     Baker Hughes (BHGE) weekly rig report showed the total U.S. rig count fell -4 to 1,047 rigs, with oil rigs down 4 to 853 and gas rigs steady at 194

·     Equipment and service stocks; BOOM delivered better-than-expected 4Q EPS (46c vs. 36c est.) while revenue and operating income also beat projections in certain segments

·     Utilities & Solar; in solar, FSLR reports Q4 earnings and revenues miss, while maintaining FY 2019 guidance for EPS of $2.25-$2.75 and net sales of $3.25B-$3.45B; ES was downgraded to neutral at Guggenheim and SO was upgraded to in-lien at Evercore in research

 

 

Healthcare

·     Pharma movers; large cap pharma (LLY, MRK, PFE, BMY) and generic/specialty (BHC, ENDP, MNK) among top gainers today; VYGR shares rise in response to its collaboration and option agreement with ABBV aimed and developing and commercializing vectorized alpha-synuclein-targeting antibodies for the treatment of Parkinson’s disease; Britain’s Serious Fraud Office (SFO) has closed its investigation into GSK’s business practices saying there will be no prosecution in the case after looking into alleged bribery in China; CBM downgraded to hold at Jefferies

·     Biotech movers; OPTN said Phase 2 clinical trial evaluating OPNT001 did not meet the primary endpoint of reducing the number of binging days from baseline to week 8; BLUE reported 4Q18 with $18.4M in revenue ($52M for FY18) and a net loss of $149M ($556M for FY18)/operating expenses continue to increase due to advancing clinical programs; ACHV rises after announcing final data from their Phase I/II multi-dose, clinical study of cytisinicline in smokers; ICPT was initiated at underweight and $170 tgt at Leerink; BMRN, HALO also reported earnings; KPTI shares dropped following the release of briefing materials for next Tuesday’s FDA advisory committee meeting on selinexor tablets.

·     Medical equipment and devices; NVRO shares fell after BMO downgraded after its Q4 earnings miss and a lower than expected outlook for FY19 noting expected declines in revenues outside the U.S., driven by reimbursement changes in Australia; EXAS shares rise as quarter was in line with the January preannouncement, and above consensus FY19 revenue guidance; 52-week highs for WAT, DHR, SYK, ABT in Med-tech

·     Healthcare services and providers; MDRX shares dropped after Q4 top/bottom line missed and guides Q1 and year below views (sees Q1 revenue $430M-$440M vs. est. $513.95M); DPLO shares plunged as postponed its Q4 release because it may need to record an impairment charge related to its pharmacy benefit managers business

 

Industrials & Materials

·     Industrial & Machinery; CAT shares slipped after Bloomberg reported the EU is drafting a retaliatory tariff list to include CAT (and XRX if Trump imposes auto tariffs; in the waste sector, ADSW Q4 EPS in-line on slightly better revs while year guidance missed the mid-point of views; CWST mixed Q4 as EPS missed by 2c on better revs and was downgraded at Stifel; ITT shares jumped on mixed Q4 results (EPS beat, revs miss); in E&C, FLR Q4 earnings beat estimates, while new awards strong

·     Metals & Materials; metals posting a solid week, led by gains in copper stocks; NEM rises in gold miner space after Bloomberg reports GOLD has studied a bid for the company as it looks for ways to boost production (Barrick confirmed this morning it has reviewed bid) https://bloom.bg/2BLZlvG

·     Transports; the index fell, led by a decline in MATX despite a quarterly beat on the top and bottom line; airlines rebound further after its mid-week decline on lower RASM guidance; truckers slide led by JBHT, LSTR; rails outperform on NSC, CSX

 

Technology, Media & Telecom

·     Internet; STMP shares plunged over 50% after issuing full-year guidance well below the consensus estimates (’19 revs seen $540M to $570M vs. $689M consensus)/while 4Q results beat, STMP’s decision to discontinue its exclusive partnership with the USPS drove very poor relative 2019 guidance; TTD shares rise as posted a strong Beat on Q4 results as revenue of $160.5MM grew 56% Y/Y and exceeded Street estimates $148MM while also expanding margins (33% vs 31% in ’17) despite heavy investment

·     Semiconductors; overall sector mostly higher with broader market; INTC was upgraded at Morgan Stanley and raised tgt to $64 on the belief that shares can rerate higher given that the company has put a more financially oriented CEO; Morgan also downgraded LRCX to equal-weight saying that weakness in memory chips seemed likely to drive further downward revisions to spending for 2019 and 2020; AVGO downgraded to market perform at Cowen; OLED shares soar and tgt raised by three analysts after better quarterly profit; INFN rises after the company reported Q4 revenue that topped expectations though Q1 guidance missed views

·     Software movers; APPN falls as Q4 beats with 19% Y/Y revenue growth trampled beneath the mixed Q1 outlook; 52-week highs for several software names INTU, ADSK, RHT

·     Media & Telecom movers; telecom carriers USM and TDS both came under pressure following earnings releases; ATNI was upgraded at Maxim and Raymond James as believe the sharp pullback following earnings yesterday was an overreaction to near-term results and not reflective of a healthy long-term outlook; ATUS mixed Q4 as beat on profit but missed on revenues

·     Optical sector; AAOI shares dropped following disappointing revenue performance and downside guidance for current-quarter sales and profits/gross margin (GAAP basis) was 18.2%, significantly off from last year’s 40.3% and last quarter’s 31.1%; ACIA reported Q4 results that beat expectations and gave a Q1 outlook that topped estimates, prompting several analysts to raise their price targets on the stock

·     Hardware & Component news; CASA falls after Q4 results that beat estimates despite a 43% Y/Y revenue drop but came with downside FY19 outlook (sees revs $250M-$300M below est. $313.08M) and weaker EPS; ROKU posted better than expected 4Q revenue results, driven by player sales while initial FY19 guidance was slightly better than expected, and implies >35% y/y growth/adds 3.3M active accounts in Q4 to end 2018 with 27.1M accounts

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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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