Market Review: February 26, 2019

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Closing Recap

Tuesday, February 26, 2019





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     U.S. stocks were directionless most of the trading session before getting a lift late day before fading and closing slightly lower, with gains in financials for a second straight day but healthcare fell. The S&P 500 battled at the 2,800 level while the tech heavy Nasdaq rose and the Dow Industrials erased earlier losses of more than 100-points behind weaker earnings from Dow components HD (earnings miss) and CAT (analyst downgrade), rising late day. The semi-annual testimony from Fed Chairman Powell to the House today (Senate tomorrow) failed to move stocks as he reiterated the recent dovish comments from the Fed. Economic data was mixed following a disappointing Housing Starts reading, falling over -11% in December vs. an expected rise, though consumer confidence for February jumped to 131.4 from 121.7 prior month and Richmond Fed manufacturing also spiked (to 16 from -2 last month). The dollar slid vs. the British Pound after U.K. Prime Minister Theresa May promised a vote to delay Brexit if her proposed deal fails. Pharma stocks dropped after Senators Chuck Grassley and Ronald Wyden delivered opening remarks in a hearing on drug pricing. Treasury prices gained as yields slipped after Fed Chairman Powell’s testimony confirmed the central bank’s dovish monetary-policy stance and wait and see approach. More earnings upcoming this week, with several in the retail and technology sector.

Economic Data

·     Housing Starts for December fell 11.2% to 1,078M annualized, well below the 1,256M estimate and 1,214M in the prior month (when it rose 0.4%); single family starts fell to 758k while multifamily starts fell to 320k in December. Building permits rose to 1,326M vs. 1,322M in Nov. and above the 1,290M estimate; Permits rose 0.3% in Dec. after rising 4.5% the prior month

·     Consumer Confidence for February rose to 131.4 from 121.7 prior month and above the 124.9 estimate; the present situation confidence rose to 173.5 vs. 170.2 last month while the consumer confidence expectations rose to 103.4 vs. 89.4 last month

·     Richmond Fed’s Feb. Manufacturing Survey jumped to a 16 reading, easily topping the 5 estimate and above last month’s negative -2 reading; shipments rose to 12 after -8 the prior month while new order volume increased to 19 after -11 the prior month

·     S&P CoreLogic Case-Shiller National Home Price index rose 4.72% y/y in Dec. after rising 5.09% in prior month; S&P/Case-Shiller 20-city NSA index at 212.96 after 213.45 in Nov



·     Oil prices ended the day little changed ahead of weekly inventory data tonight (API) and tomorrow (EIA) as WTI crude edged higher 2c to $55.50 per barrel while Brent prices rose 45c to $65.21 per barrel. Gold prices for April fell -$1.00 to settle at $1,328.50 an ounce, its first back-to-back losing sessions in about three weeks. Precious metals slipped despite the dovish commentary from Powell at his semi-annual testimony in Washington. Gold prices have recently pulled back from 10-month highs as stocks have roared about 20% since December, but have dipped recently.



·     The U.S. dollar slumped late day, falling against the euro and UK pound as the dollar index (DXY) dropped to around the 96 level. The British Pound jumped over 1% to highs around 1.3250 (5-month highs vs. the US dollar) and a 21-month high against the euro after Theresa May caved to pressure from MPs, offering them the opportunity to delay Brexit if her deal is rejected. The euro advanced to highs around the 1.14 level (off earlier lows 1.1345).


Bond Market

·     Treasury prices were higher on Tuesday as yields fell across the board as stocks pulled back slightly on weaker earnings and the recent rally in equities stalled after gains supported by optimism over U.S.-China tariff negotiations. Markets closely watch Fed Chairman Powell as he gave his testimony on Capitol Hill about the domestic economy and monetary policy. The yield on the 10-year Treasury note fell nearly 4 bps to under 2.64% while the 2-yr yield fell over 2 bps to 2.48%. The U.S. Treasury sold $32B in 7-year notes at a yield of 2.538% vs. 2.547% when issued prior to auction, with the bid-to-cover (demand) at 2.60 vs. 2.54 prior auction and indirects bidders awarded 55.2% of the notes and directs 28.4%.






WTI Crude















10-Year Note





Sector News Breakdown


·     Auto’s; TSLA shares slipped initially after the SEC asked a judge to hold CEO Elon Musk in contempt for violating last year’s settlement with the agency requiring him to seek pre-approval from Tesla Inc. for social media posts and other written communication that would be material; in auto retail, AZO shares jump after Q4 EPS handily topped consensus on in-line revs while comparable sales growth of 2.6% topped the 2.1% consensus and gross margin of 54.1% vs. 52.9% a year ago; FCAU to Expand Production Capacity in Michigan to Grow Core Brands, Electrify Jeep® Vehicles. $4.5 Billion to Build New Assembly Plant in Detroit and Add Production at Five Existing Michigan Facilities, Creating Nearly 6,500 Jobs.

·     Apparel Retail/Dept stores; Macy’s (M) Q4 earnings and sales that beat consensus, while comp sales of 0.7% just missed the 0.9% estimate/Macy’s is restructuring its upper management structure to speed decision making and save money/sees year EPS of $3.05-$3.25, flat sales, and same-store sales that’s flat to up 1% on both an owned and owned-plus-licensed basis; DDS shares rise as Q4 EPS topped consensus driven largely by a benefit in taxes related to the Tax Cuts and Jobs Act of 2017, and lower interest expense, while revs just miss; FL was downgraded to hold at Pivotal ahead of earnings following run in shares; NLS downgraded at Craig Hallum after sales warning sent shares to 52-week lows; RCII reported 4Q EPS well ahead of expectations, driven by lower operating expenses while comp sales beat expectations

·     Consumer Staples; food space little rebound after SJM Q3 results topped estimates while sales were up 1% on favorable volume/mix in the U.S. retail coffee and U.S. retail consumer foods/also provided better outlook; in protein space, SAFM results were helped by chicken demand at grocery stores and jumbo wing purchases amid sluggish prices

·     Restaurants; PBPB reversed overnight gains and fell after projecting 1Q comp sales growth to be lower than 4Q; SHAK Q4 traffic fell 0.3% and the guided to 0% to 1% same-Shack sales for the full year consistent with 2018/sees FY19 revenue $570M-$576M vs. consensus $576.44M; CBRL Q2 EPS beat by 2c on slightly better revs while restaurant comp sales rose 3.8% topping the 1.3% est. but EPS guidance for the year fell short of consensus; FRGI Q4 EPS beat on light revs

·     Housing & Building Products; Dow component HD disappoints as Q4 EPS and revs missed views ( $2.09/$26.5B vs. est. $2.16/$26.57B) saying Q4 was negatively impacted by a nonrecurring, pre-tax charge of approximately $247M, or $184M while Q4 comps and guidance fell short of consensus views – a positive was $15B share repurchase program, raises dividend 32%); FND 10M share Spot Secondary priced at $37.75; homebuilders (LEN) slipped initially following the weaker Dec housing starts data – Housing Starts for December fell 11.2% to 1,078M annualized, well below the 1,256M estimate and 1,214M in the prior month



·     E&P sector active; CDEV shares fell after guiding FY19 oil production 15% below consensus with capex only 10% below and FY19 guidance is bad with full-year oil volumes actually guided lower than Q4:18 oil production (downgraded at BMO as 2019 guidance shows weaker capital efficiency); AMR was downgraded to sell from buy at Guggenheim as ’19 guidance implies an outspend that raises net debt/EBITDA to over 5.0x; SM was downgraded to equal-weight at Barclay’s; CRZO Q4 CFPS was 9% below consensus on weaker realized oil & gas pricing and made no changes to its previously reported 2019 CapEx guidance and production guidance; RRC 2019 capex was 25% below consensus and 2019 production guidance was only 4% below consensus.

·     MLPs; SMLP shares dropped after dividend cut, CEO steps down – announces series of "strategic actions" that include changes in leadership and cutting its quarterly distribution in half to $0.2875 unit from $0.575 previously; OKE shares dropped (downgraded at UBS) after Q4 earnings and revenue fell short of consensus

·     Utilities & Solar; in response to a legal setback on Monday regarding the Atlantic Coast Pipeline, Dominion Energy (D) expects an appeal to be filed to the U.S. Supreme Court in the next 90 days; I water space, Goldman Sachs upgraded AQUA to buy and downgraded MWA to neutral saying recent data points and company commentary suggest some moderation heading into 2019; Utility index (UTY) bounces off lows to trade little changed on the day above the 724 level – pulling back recently from all-time highs of 729.28 yesterday



·     Bank movers; JPM held its investor day today and said it sees slower deposit growth and expects "steady state" net interest income for the current cycle to be at or slightly above 2019 levels, according to its investor day slides. JPM sees balance sheet growth and mix and higher long-end rates boosting NII up to $2b per year. The bank also expects slower industry deposit growth of ~2%, amid quantitative tightening and higher rates

·     Finance and lending; WP shares rise after adjusted EPS of $1.12 beat the consensus estimate by 4c and a $500M stock buyback authorization is announced; ALLY was upgraded to buy at Sandler O’Neill saying it deserves a premium to other specialty finance peers citing its near-prime auto finance book less risky than others; RLGY falls as posts Q4 revenue miss

·     REITs; QTS Q4 FFO beat, with stable leasing, and the completion of a joint venture at an attractive valuation; the joint venture and the concurrent equity offering serve to assuage concerns around the capital plan for 2019 said KeyBanc (notes 2019 guidance 3% below); EPR 4Q18 beat, above consensus 2019 FFO outlook, and improved investment spending outlook; DRH 4Q18 results were largely in line with management’s preliminary results released in January



·     Pharma movers; sector dropped after Senators Chuck Grassley and Ronald Wyden delivered opening remarks in a hearing on drug pricing; AZN results from a Phase 3 clinical trial, POLO, evaluating its PARP inhibitor Lynparza (olaparib) for the first-line treatment of BRCA mutation-positive pancreatic cancer showed a statistically significant improvement in progression-free survival (PFS) compared to placebo; ZYNE rises after securing a new U.S. patent for the treatment of a rare genetic condition known as fragile X syndrome with ZYN002, a cannabidiol gel patch; AERI shares rise on earnings as Oppenheimer said revenues and cash burn in line with management’s prior guidance range; MNK shares jumped after Q4 sales, earnings and a strong 2019 forecast topped analyst expectations as key brands including Acthar and INOmax beat consensus; CTMX shares fell after announcing it will indefinitely postpone clinical studies of CX-188 and disclosing that BMY terminated a trio of discovery targets.

·     Biotech movers; IMMU announced the departure of the CEO and released a 4Q financial update and also updated on the CRL; CLVS reported a Q4 EPS miss but revs beat as Rubraca sales of $30.4M beat the Bloomberg est. $26M; XENT reported Q4 revenue in line with its preannouncement and guidance of $123M-$127M below $127.2M est. along with higher operating expenses; SAGE 3.33M share Spot Secondary priced at $150 per share

·     Medical equipment and devices; EXAS was upgraded to buy at Goldman Sachs and $120 tgt as believe the current momentum of the Cologuard commercial ramp provides strong basis for the company’s premium valuation; OFIX was downgraded to neutral at BTIG after the company reported its Q4 results and announced that its chief executive officer would retire; PODD reported a Q4 beat, topping consensus revenue by ~$2.5M and coming in 9c ahead on EPS but 2019 revenue guidance was slightly below Street and implies decelerating revenue growth over the next few quarters

·     Healthcare services and providers; in hospitals, THC helped boost hospitals after its earnings results; MEDP shares fell after posting 4Q EPS upside, but lackluster 2019 EPS guidance of $2.58-$2.69 (+1.8% y/y at midpoint), well below consensus ($2.97); AMED announced its Board authorized a $100M share repurchase program


Industrials & Materials

·     Industrial & Machinery; CAT downgraded to sell from buy at UBS as it expects more than half of the company’s end markets to peak in 2019, pressuring revenue and margins in 2020 as demand declines and cut price target to $125 from $154; ALSN Q4 results beat expectations, but it gave an outlook that analysts described as pointing to a softer economic environment; SNHY shares jumped on earnings with operating beat in 4Q following a few challenging quarters; JBT also advanced following its Q4 results

·     Transports; car rental stocks have boosted the index over the last week as HTZ reported Q4 results showed a narrower than expected quarterly loss on better revs of $2.29B – stock opened higher but declined after run up in shares and after saying that it did not expect to have a positive free cash flow in 2019 (follows recently better than expected results from CAR); airlines outperformed in sector (AAL, UAL, ALK), while MATX, KEX led decliners

·     Metals & Materials; TMST was downgraded at Cowen as sees a more balanced risk/reward profile following recent share gains; FOE said Q4 volumes were strong, while pricing in main products weakened further as a result of challenging market conditions as sales increased 29% to $603.5M with total shipments up 42.1%; MOS rises on Q4 results in fertilizer sector


Technology, Media & Telecom

·     Internet; SPOT shares active after the WSJ reported U.S. Justice Department officials are considering overhauling two longstanding music licensing rules opponents say unfairly disadvantage artists and limit the ability of publishers to create own deals; ETSY shares jumped given a Q4 beat on strong holiday sales and positive FY19 guide with int’l GMS growth of 32% vs. 27% in 3Q and paid GMS grew 55% on top of 45% growth in 4Q17; EVER upgraded to buy at Bank America after earnings saying they see evidence of a turnaround

·     Semiconductors & Software; INTC ends its partnership to share its 5G modem chips with Tsinghua Unigroup unit Unisoc, China’s second largest chipmaker; XLNX tgt raised to $140 from $110 at KeyBanc as the Samsung 5G base station announcement gives them increased confidence XLNX is well positioned to see outsized benefit from the 5G upgrade cycle given its market share increase; MDB shares fell as much as 10% after saying "marquee customer" Lyft is dissatisfied and may be migrating its database to a rival.

·     Media & Telecom movers; Evercore/ISI initiated Intelsat (I) with an Outperform rating and $50 price target as see shares as an attractive, but speculative, way to benefit from the repurposing of C-Band spectrum to support the growth of 5G terrestrial wireless; CTL was downgraded to neutral at Bank America saying that the dividend cut was based on leverage, maturities, and the state of the bond market, not any fundamental change in the business; DISCA posted Q4 EPS and revenue that fell short of consensus; RP reported a slightly lower 4Q and guided 2019 modestly lower on longer implementation cycles said one analyst; NXST Q4 results beat as revenue topped consensus with double-digit growth in Q4 while profits fell


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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