Market Review: February 27, 2019

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Closing Recap

Wednesday, February 27, 2019

Index

Up/Down

%

Last

DJ Industrials

-72.28

0.28%

25,985

S&P 500

-1.55

0.06%

2,792

Nasdaq

5.21

0.07%

7,554

Russell 2000

3.58

0.23%

1,581


 

Equity Market Recap

·     U.S. stocks were lower most of the session before fighting back from steep losses, finishing well off the lows following a very busy day of macro news headlines related to trade (China), the Fed, economic data and geopolitical issues. The day started with volatility after several earnings related movers (LOW, BBY, TJX, WTW) before the news onslaught began out of Washington. Fed Chairman Powell, in day two of testimony to the Senate on the economy and monetary policy, said that he’ll soon announce a plan to stop shrinking the $4 trillion balance sheet. Also in Washington, US Trade Representative Lighthizer testified on trade, saying more China purchases alone are not enough for a deal. The headlines sent stocks to the lows before slowly climbing the remainder of the session. Lighthizer also said the U.S. will formally abandon plans to raise tariffs on $200 billion of Chinese goods if a deal can be worked out. Lastly in Washington, former Trump lawyer Michael Cohen, who is facing jail time, testified in front of Congress about President Trump. Outside of Washington, geopolitical concerns arose after an escalating military confrontation between India and Pakistan while the second U.S.-North Korean nuclear summit kicked off between Trump and Kim. Economic data was mixed as a greater than expected trade deficit prompted economists to lower their GDP estimates ahead of tomorrow’s reading, while pending homer sales and factory orders came in above consensus expectations.

Economic Data

·     Advance Goods trade deficit for December showed a 12.8% increase in the nation’s trade deficit to -$79.5B from -$70.5B prior and vs. estimate of -$73.6B (another data point likely to weigh on upcoming GDP estimates). An advanced look at wholesale inventories, meanwhile, showed a 1.1% increase in December and retail inventories reflected a 0.9% gain in the final month of 2018. Imports rose 2.4% in Dec. to $215.211B while exports fell -2.8% in Dec. to $135.718B

·     Pending Home Sales for January rise 4.6% MoM, topping the 1% estimate while the Northeast was up 1.6%; Midwest up 2.8%; South up 8.9% and the West up 0.3%

·     Factory Goods Orders for December rise 0.1%, missing the 0.6% estimate while factory orders for Nov. revised up to -0.5%; new orders ex-trans fell 0.6% in Dec. after falling 1.3% the prior month and new orders ex-defense for Dec. rise 0.4% after falling 1.0% in November

·     Durables orders for Dec. rise 1.2% after rising 0.9% in Nov., consumer goods shipments for Dec. fall 1% after falling 2.4% in Nov. consumer goods new orders for Dec. fall 1% after falling 2.4% in Nov., nondurables shipments for Dec. fall 1% after falling 2% in Nov

 

Commodities

·     Commodity prices finished mixed as energy prices rise and precious metals declined. WTI crude ended the day higher by $1.44 or 2.6% to settle at $56.94 per barrel. Inventory data was oil market friendly as the EIA reported a weekly drawdown of -8.6M barrels of crude vs. the estimate build of 3.0M barrels and the API overnight showed a -3M barrel drawdown. Oil prices had been trading higher prior to the data after Saudi Energy Minister Khalid al-Falih said OPEC and its partners were "taking it easy" in response to President Trump’s recent request for OPEC to slacken its restrictions on crude production. Gold prices dropped for a 3rd straight session, sliding -$7.30 or 0.6% to settle at $1,321.30 an ounce.

 

Currencies

·     The U.S. dollar was mostly higher following another busy day of economic data and as Fed Chairman Powell testified again on Capitol Hill. The dollar touched highs around the 111 level vs. the yen and also gained vs. the NZD/AUD/EUR. However, the British Pound rises above the 1.33 level, its best since September following a report Wednesday that the European Union will insist on deferring the U.K.’s departure date by up to two years if London/Brussels fail to agree a deal.

 

Bond Market

·     Treasury prices fell as yields jumped across the board, mostly on the long-end as the 30-year yield topped 3.05% and the 10-year rose about 4 bps to 2.68%. Bloomberg noted a hefty slate of corporate debt issuance stopped the Treasury rally in its tracks today (nine high-grade issuers tapping the credit market as the catalyst). In addition to the issuance, investors also kept focus on the mixed economic data (ahead of GDP tomorrow) and a second day of remarks from Federal Reserve Chairman Jerome Powell in his semi-annual testimony to Congress.

 

 

Macro

Up/Down

Last

WTI Crude

1.44

56.94

Brent

1.18

66.39

Gold

-7.30

1,321.20

EUR/USD

-0.002

1.137

JPY/USD

0.42

111.00

10-Year Note

0.038

2.68%

 

 

Sector News Breakdown

Consumer

·     Retailers; very strong sector behind better earnings; BBY shares jump as Q4 EPS and sales ($2.72/$14.8B vs. est. $2.56/$14.69B) topped views and issued better Q1 and year guidance while comp sales of 3% topped views (GPRO and FIT shares active after Best Buy Co. Inc. called out the wearables segment as a top performer in the fourth quarter); GPS announces $1B stock buyback plan; TJX achieves above plan comp sales growth of 6% for q4 and FY19, topping Q4 expectat5ions and announces 18% dividend increase and stock buyback of $1.75B-$2.25B; SHOO reports same-store retail sales rose 4% in Q4 and wholesale net sales climbed 14.1% to $317.4M

·     Consumer Staples (food); CPB reported a Q2 profit and sales that beat expectations and affirmed its full-year outlook, a positive piece of news in the recently beaten food sector after KHC miss and lower guidance; DF shares dropped after a larger Q4 EPS loss (50c vs. est. 26c) the suspension of its dividend, the suspension of guidance, and a strategic review; BGS was downgraded at Buckingham following the significant 4Q18 financial shortfall, saying although 4Q18 sales were good, net pricing, cost savings and adjusted EBITDA fell well short of projections

·     Other Consumer names; ELF Q4 sales missed expectations with a decline of -3.7% while stub quarter guidance came in well below expectations & the CFO is stepping down; WTW shares plunge as Q4 sales missed while guidance for year well below consensus as guides 2019 EPS $1.25-$1.50 well below est. $3.36 and said it lost 300,000 subscribers within three months; PM upgraded to buy from neutral at UBS in tobacco

·     Restaurants; RRGB mixed results as Q4 EPS of 43c beat by 6c while the blended comp was -3.9% y/y, while traffic fell -4.4% y/y and also worsened sequentially (q/q) on a two-year stacked basis (guides year EPS $1.30-$1.70 vs. est. $1.78); PZZA shares rallied despite an unexpected heft Q4 EPS loss (44c) and lower revs and guidance

·     Housing & Building Products; LOW helps lead the housing related sector after the home improvement retailer posted Q4 EPS beat on slight sales miss and comps of 1.7% just below the 1.9% est. but analysts note the comp sales was the narrowest gap vs. HD in about two-years; in housing, TOL Q1 EPS and sales topped consensus but home orders dropped 24% more than the 15% decline in Q4

·     Casino & Leisure movers; PLNT Q4 results beat on strong store & membership growth and further benefits from prior pricing increases, while management guided 2019 revenue and EPS well-above estimates to reflect accelerating store openings

 

Energy

·     Energy stocks outperformed behind better earnings in the E&P space (MTDR, CPE, and HPR), bullish inventory data and Saud Arabia comments on prices; Saudi Arabia rebuffed Trump’s call for lower prices, saying OPEC cuts will probably be extended into the second half, Bloomberg reported. Inventory data also bullish as API reported that U.S. crude supplies fell by -4.2M barrels for the week ended Feb. 22, and showed that gasoline stockpiles declined by -3.8M barrels. Meanwhile the EIA posted a surprise drawdown over 8M barrels vs. est. for a build of 3M

·     E&P sector; several E&Ps reported (CPE, HPR, MTDR, OAS, REI, EOG, and WLL); EOG ’19 capex guidance in-line with consensus but oil guidance missed consensus by 4%; LONE reported 4Q 2018 production of 13,152 BOE per day, exceeding the high end of guidance for the fourth consecutive quarter and beating our estimate of 12,764 BOE per day and topping the consensus estimate of 12,917 BOE per day; REI is acquiring privately owned Wishbone Energy Partners and plans to finance the deal with a $270 million borrowing on an increased bank revolver and issuing $30 million of common stock to Wishbone; DNR Q4 earnings and revenues edged analyst expectations as it produced 59,867 boe/day during Q4, up 1% Q/Q, and 60,341 boe/day for FY 2018, up slightly from 2017 and cap-ex is $240M-$260M, 20%-25% lower YoY; CHK said it is targeting oil output of about 119,000 barrels a day in 2019, which would exceed the Oklahoma City-based driller’s 2015 record of 115,000

 

Financials

·     Exchanges & brokers; CME futures markets resumed late Tuesday after technical problems triggered an hours long trading halt. There were no live quotes for e-mini S&P 500 futures for three hours starting at around 7:40 p.m. Eastern time. CME said all its electronic markets reopened by 10:45 p.m. Eastern time. CME offers futures and options contracts for several assets including soybeans, wheat, crude oil and U.S. stocks

·     Insurance; Credit Suisse upgraded WRB to outperform on portfolio remixing and hardening reinsurance pricing while downgraded CB to Underperform as think the assumed catastrophe load embedded within consensus EPS forecasts is materially too low/optimistic and have less confidence that CB will be able to organically grow policy counts in its peer-leading US high-net-worth personal home/auto businesses due to heightened competition

 

Healthcare

·     Pharma movers; JAZZ reported strong 4Q results, with revenue of $477M topping the $460M est. and EPS beating by about 60c driven by another solid performance for Xyrem and some upside in HemOnc while provided robust 2019 guidance on both the top and bottom lines; GWPH Q4 Epidiolex revs of $4.7M beat consensus of $2.5M; in generics, MYL Q4 missed consensus EPS estimate by 4% on higher-than-expected SG&A and guides year EPS $3.80-$4.80, below consensus of $5.04; ADMP falls on receiving "refusal to file" letter from the U.S. FDA related to its erectile dysfunction drug’s marketing application

·     Biotech movers; SRPT exercises its option to acquire collaboration partner Myonexus Therapeutics for $165M; SRPT also said its experimental gene therapy (trial of MYO-101) for a type of muscular dystrophy benefited patients in an early-stage study; KPTI falls as the ODAC panel voted 8-5 against accelerated approval of lead drug selinexor in triple-class refractory multiple myeloma (MM), opting instead to wait for randomized data from the ongoing phase III BOSTON study to better assess benefit/risk; EIDX gained after saying its pivotal trial of AG10 as a treatment for TTR amyloid cardiomyopathy has begun

·     Medical equipment and devices; TNDM shares surge as reported Q4 results, which handily beat estimates and the outlook came in well ahead of the Street/on Q4, the company added 16K pumpers with ~50% coming from competitive wins; MASI shares rise and tgts raised by analysts (Piper to $140 from $120) after solid Q4 growth and raised year guidance

·     Healthcare services and providers; WMGI reported 4Q18 revenue of $238.1M in-line with its January pre- announcement, reiterating its three-year financial targets for 2019-2021E; EVH shares slide as revenue weakness is disappointing, guiding Q1 revs $188M-$197M (est. $205M0 and year $805M-$880M vs. est. $849M and mixed Q4 results; managed care stocks among the biggest decliners in the S&P 500 index: CI, WCG, CNC, UNH, HUM all down sharply; INGN among top decliners on lower-than-expected B2B Q4 growth in U.S., softer income guidance

 

Industrials & Materials

·     Industrial & Machinery; DY shares plunged after the company’s forecast for Q1 missed the lowest estimate as gross margin and EBITDA margin guidance are also well below Street estimates; AAXN shares fall as Q4 non-GAAP EPS 8c/$115M vs. est. 11c/$104.3M; 4Q adjusted Ebitda $10.9M vs. est. $11.99M and also posted weaker margins

·     Transports; index slides as car rental CAR recovers but rest of index lower led by airlines (UAL, AAL, ALK, JBLU and DAL; CHRW was downgraded to sector perform at KeyBanc

·     Chemicals; Germany’s Merck KGaA offered to acquire VSM in an all-cash deal with an enterprise value of $5.9 billion, offering $48 per share (a 51.7% premium over Versum’s closing share price before the VSM merger announcement) https://on.mktw.net/2GOfk0I ; Financial Times reported the number of US lawsuits alleging that a Bayer-owned weed killer causes cancer has risen to more than 11,000

 

Technology, Media & Telecom

·     Internet; China ADRs BABA, BIDU, JD all moved lower on Lighthizer comments saying more China purchases alone not enough for a deal/US Trade Representative Lighthizer testifies on US/China trade; MELI rises as Q4 results delivered strong 4Q payments growth; off-platform TPV impressively accelerated to 172% growth vs. 3Q’s already enviable 163% growth/total mobile wallet transactions increased over 450%

·     Software movers; PANW rises as Q2 results were strong across the board, driven by a healthy beat in billings and the top line and consistent with prior Qs, most of the upside was driven by products/Q3 revenue guidance above views prompting several analysts to raise their tgt; VEEV Q4 revenue increased 25% y/y to $232.3M, exceeding consensus revenue by $5.2M, with billings, revenue and margins all exceeding expectations; BNFT shares fell after two analysts downgraded citing slightly lower than expected organic software growth and valuation

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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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