Market Review: February 28, 2019

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Closing Recap

Thursday, February 28, 2019

Index

Up/Down

%

Last

DJ Industrials

-69.57

0.27%

25,915

S&P 500

-7.81

0.28%

2,784

Nasdaq

-21.98

0.29%

7,532

Russell 2000

-5.59

0.35%

1,575


 

Equity Market Recap

·     U.S. stocks end the day in negative territory, as a late morning rally failed and major US averages faded into the afternoon close as weaker earnings, trade concerns and geopolitical fears (North Korea summit, Pakistan/India tensions), overshadowed better US economic data in the form of Q4 GDP (2.6% tops the 2.2% estimate) and better manufacturing. Softer China manufacturing (PMI slipping to 49.2 this month, and new export orders component slumped to 45.2 from 46.9) weighed on commodity stocks and prices, while tech slipped after disappointing earnings out of HPQ, BKNG, BOX and others. President Donald Trump said he had walked out of his Vietnam summit with Kim Jong Un because of demands from the North Korean leader to lift U.S.-led sanctions. Healthcare stocks were mixed with large cap Pharma names LLY and MRK trading to 52-week highs but biotech names slipped led by CELG after two of BMY largest shareholders said they oppose the $74B deal between the two giants. Energy, consumer products and materials weighed most on the market, offsetting gains in consumer goods and real estate stocks.

Economic Data

·     Strong view of the economy for Q4 as Gross domestic product (GDP) grew at a 2.6% annual pace in topping consensus of 2.2% (though some estimates had recently been revised lower). The U.S. had expanded at a robust 3.4% clip in Q3 and 4.2% in Q2. GDP ended up at 2.9% for the full year, matching 2015 as the biggest increase since the end of the 2007-2009 Great Recession.

·     Other parts of the GDP data showed personal consumption rose 2.8% in 4Q (vs. est. 3%) after rising 3.5% prior quarter, while the GDP price index rose 1.8% in 4Q after rising 1.8% prior quarter (vs. est. 1.7%) and core PCE q/q rose 1.7% in 4Q after rising 1.6% prior quarter (est. 1.6%)

·     Weekly Jobless Claims rose 8K to 225K, slightly above the 220K estimate while the prior week was revised to 217K from 216K; the 4-week moving avg. was at 229K, while continuing claims rose 79k to 1.805m in the week ending Feb. 16

·     Chicago PMI for February rises to 64.7 from 56.7 last month and above the 57.5 estimate as new orders, prices paid and employment all rose at a faster pace 9it was the highest reading since the end of 2017 and just 3-points off its all-time highs above 67)

 

Commodities

·     Oil prices rally to settle higher by 28c or 0.5% to settle at $57.22 per barrel, ending February with a gain of roughly 6%, helped yesterday by a bullish inventory report as the EIA revealed an unexpected 8.6 million-barrel weekly drop in domestic crude supplies. Also helping matters, Saudi Arabia also recently reaffirmed its commitment to production cuts.

·     Gold prices settled lower by -$5.10 or 0.4% to finish at $1,316.10 an ounce, its 4th straight day of losses and ends February with a monthly decline of -0.7%. Gold had reached 10-month highs around the $1,350 an ounce level mid-month on a dovish Fed and geopolitical fears, but given the recent rebound in the dollar and stronger economic data in the U.S., gold prices sunk the final few days to settle at 2-week lows.

 

Currencies & Treasuries

·     Treasury markets dropped across the board as yields spiked with the 10-year yield rising over 6 bps to above 2.71% and the 2-year yield up over 2.53%, while the dollar index (DXY) bounces broadly off overnight lows vs. other currencies given the strong GDP reading for Q4 and better Chicago PMI data (only 3 points off all-time high best reading above 67. The euro made a late day rally while the greenback extended gains vs. the safe-haven yen late.

 

 

 

Macro

Up/Down

Last

WTI Crude

0.28

57.22

Brent

-0.36

66.03

Gold

-5.10

1,316.10

EUR/USD

0.0008

1.1378

JPY/USD

0.47

111.46

10-Year Note

0.071

2.72%

 

 

Sector News Breakdown

Consumer

·     Retailers; JCP reported an 8c EPS beat of 18c though sales of $3.67B missed views while comp sales were slightly better; LB shares dropped as Q4 sales of $4.85B missed estimates and profit guidance for Q1 and the year fell short of consensus following weaker Victoria Secret results; CROX shares slipped after Q1 revenue of $280M-$290M fell short of the consensus $293.25M, overshadowing the beat on the top and bottom line for Q4; FIT shares fell after Q4 results topped views but Q1 and the full-year disappointed (sees Q1 EPS (24c) to (22c) on revs $250M-$268M vs. est. loss (16c)/$268M); JWN, GPS report tonight and FL tomorrow

·     Consumer Staples; MNST shares rally in beverage space as strong international sales drove better Q4 results and EPS beat driven by SG&A expense leverage offset by lower gross margin; HAIN was upgraded to overweight at JPMorgan based on increased confidence in HAIN’s ability to drive margin growth over the next few years; WTW shares partially rebounding after yesterday’s -34% decline on lower guidance and subscriber losses; in restaurants; WING reported 4Q18 adjusted EPS of 15c, missing estimates by 2c, driven by higher SG&A, partially offset by better restaurant profit/adjusted EBITDA was slightly higher

·     Casino & Leisure movers; in lodging, STAY reported in-line 4Q18 results last night while ’19 guide came in slightly below expectations with RevPAR growth of +0-2% and EBITDA of $560-$580M; ERI Q4 EBITDAR beat consensus ests owing to strength at existing and newly acquired properties; in leisure, SEAS shares active after Q4 Ebitda topped estimates; CWH slipped after filing for a 15-day extension to file its annual report to the SEC; auction house BID jumps after earnings

·     Autos; Daimler AG and BMW Group are to join forces on automated driving. Initially, the focus will be on advancing the development of next-generation technologies for driver assistance systems, automated driving on highways and parking features; CVNA Q4 revenue miss reflected softer Cyber Monday performance, though its key gross profit per unit metric remained healthy with a 31% increase as shares rallied

 

Energy

·     Energy stocks; XOM announces a natural gas discovery offshore Cyprus after completing drilling of the Glaucus-1 exploration well in Block 10/says the discovery could represent an in-place natural gas resource of 5T-8T cf; APA Q4 EPS beats and raises the lower end of the range for its 2019 production guidance to 425K-440K boe/day from 410K-440K previously; ALTM shares fell as the pipeline company spun off of from APA last year guided Ebitda for year to $75M-$95M, 35% below guidance it gave a month ago; other moves on earnings PDCE, ESV and ECA

·     Utilities & Solar; PCG reported a large Q4 loss ($6.87B) and full-year revenue that missed expectations, as it recorded $11.5 billion in charges related to wildfires; CNP Q4 EPS missed by 10c sending shares lower while mid-point of year EPS missed est. ($1.60-$1.70 vs. est. $1.69); as a whole, utility stocks outperformed despite the jump in Treasury yields and negative news from PCG and CNP

 

Financials

·     Consumer finance and lending; SQ shares active after top- and bottom-line beats in 4Q18, but management’s guidance for 1Q19 and FY19 mixed amid higher-than-expected spending/the deceleration in adj. revenue organic growth, decelerating GPV from large sellers, and muted FY guidance below consensus weighed on shares early; WU said it will sell its Speedpay unit for $750M in an all-cash deal to ACI Worldwide, with net proceeds of about $575M; TD said it sees adjusted EPS growth closer to low end of target and that lower trading in Q1 difficult to recoup; 52-week highs for several REITs including: EQR, MAA, ESS, AVB, ARE

 

Healthcare

·     Pharma movers; ENDP rises in specialty pharma after giving an initial 2019 Ebitda forecast of $1.24B-$1.34B vs. est. $1.32B; HZNP shares jumped in response its successful Phase 3 clinical trial, OPTIC, evaluating teprotumumab in patients with active thyroid eye disease (TED) as the study met the primary endpoint; RKDA rises as its new business unit, Arcadia Specialty Genomics, will focus on optimizing and standardizing cannabis plant content, quality, climate resiliency and yield; TGTX with positive results from a Phase 2b clinical trial, UNITY-NHL, evaluating umbralisib in patients with treatment-resistant non-Hodgkin lymphoma (NHL)/study met primary endpoint; CGC shares rose after Martha Stewart is teaming up with the company, taking on an advisory at Canopy to help develop a “broad new line” of products

·     Biotech movers; CELG shares declined while BMY rises after the company’s top shareholder (Wellington) said it was not supportive of BMY’s $74B deal to acquire the biotech company; separately, another large BMY holder, Starboard, says Celgene deal not in best interest of BMY shareholders; NVAX shares plunge as announces results from Prepare, a global Phase 3 clinical trial using ResVax, saying the trial did not meet primary objective; ICPT shares jumped after Q4 results as Ocaliva sales of $52.9M top consensus views though posts larger quarterly loss

·     Medical equipment and devices; TTOO said the FDA granted Breakthrough Device designation for its diagnostic panel T2Resistance Panel; the designation allows T2 Biosystems to work closely with the FDA during the premarket review phase

·     Healthcare services and providers; TDOC shares dropped as Q4 results came in ahead of consensus, while the ’19E revenue and EBITDA guide fell short of expectations as a result of a number of TDOC’s recent larger wins scheduled to launch mid-year as opposed to Jan 1; SYNH shares plunged after announcing the delay of 4Q:18 earnings report (expected today) and the delay of its 10-K filing by 15 days; CERN was downgraded at Morgan Stanley as see risk to Cerner’s long-term growth trajectory as future opportunities rely on competitive market segments and new/unproven strategic initiatives; managed care stocks (UNH, CI, HUM) declined for a second day related to concerns about the Democrats’ “Medicare for all” bill

·     Hospitals; UHS reported a slightly better-than-expected quarter with top-line, adjusted EBITDA and adjusted EPS beating consensus by +1%, +1%, + 2%, receptively as the acute care business continued its strong performance in 2H18, driving the most of the beat

 

Industrials & Materials

·     Industrial & Machinery; WBC was upgraded to neutral and JPMorgan and tgt prices raised by other analysts (KeyBanc to $150 and Stephens to $152) after the company confirmed it has been approached by German auto parts supplier ZF Friedrichshafen; in packaging, GEF shares fell on mixed Q1 as EPS beat but sales of $897M missed estimates

·     Metals & Materials; commodity prices were among the weakest sectors as gold miners, steel, copper and aluminum producers sliding given the weakness in China manufacturing data overnight (third straight month below the 50 expansion level); in materials, MOS delayed its 10-K filing due to its recent purchase; in chemicals, KRA, FOE and TROX were active on earnings

 

Technology, Media & Telecom

·     Internet; in online travel, BKNG downgraded by a few analysts after reported Q4’18 bookings essentially in-line and EPS above the Street but Q1’19 guidance was is below expectations (sees Q1 adjusted EPS $10.90-$11.20 vs. est. $12.78 and revs down 2% to flat YoY); JD shares jumped after reporting an unexpected Q4 profit and Q1 revenue outlook is in-line from 118B yuan to 122B yuan compared to the 118.94B yuan consensus (annual active customer accounts increased to 305.3M); CARS issues year revenue growth of -5% to +2% this year, slightly below views

·     Software movers; BOX shares plunged after Q4 results disappoint and issued an outlook that was weaker than expected/miss on F4Q billings and a below consensus outlook for FY20 (sees FY20 adjusted EPS (3c)-1c on revs $700M-$704M below est. 3c/$733.5M; ANSS posted strong 4Q beat, w/ ACV growth +17% CC and guided 2019 above consensus

·     Media & Telecom movers; IRDM shares fell as it swung to a loss of $7.6 from year-ago net income of $141.9M — mainly due to a smaller income tax benefit; GTN rises after hitting record revenues in its Q4 amid strong political-ad contributions; NLSN Q4 results beat, which edged revenue expectations but also featured a strong profit outlook for the coming year; AMT was downgraded at Oppenheimer on valuation, but shares advanced

·     Hardware & Component news; HPQ shares dropped after missing on 1Q net revenue and reported flat y/y printing net revenue, prompting a two-notch downgrade to underperform at Bank America as sees "too much volatility" in supplies growth, forecasts that appear too high, and a risk to incremental PC slowdown; AAOI falls as proposes $70M convertible senior note offering; MDB rebounds after Needham raised PT to $108 from $97 — saying recent controversy regarding Lyft appears largely unfounded — our initial view move of database to AWS as highly implausible given DocumentDB inability to meet performance & scalability requirements

_________________________________________________________________

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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