Market Review: March 01, 2019

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Closing Recap

Friday, March 01, 2019

Index

Up/Down

%

Last

DJ Industrials

112.96

0.43%

26,028

S&P 500

19.42

0.70%

2,803

Nasdaq

62.82

0.83%

7,595

Russell 2000

14.07

0.89%

1,589


 

Equity Market Recap

·     U.S. stocks end the day and start the month on a positive note, snapping the current 3-day losing streak for the S&P as renewed optimism related to trade differences with China helped propel stocks higher, despite a rough round of economic data. Regarding trade, it has been a busy week of back and forth headlines lifting and dropping markets. Overnight, U.S. futures jumped after Bloomberg said officials in the U.S. are preparing a final trade deal that President Donald Trump and China’s President Xi Jinping could sign in weeks citing people familiar with the matter, while the U.S. is eyeing a summit between the two presidents as soon as mid-March. Recall on Wednesday, top trade negotiator Robert Lighthizer said that tariffs on $200 billion in Chinese goods set to increase to $25% from 10% at 12:01 a.m. March 2, wouldn’t go into effect. A weak round of economic data (ISM falls to lowest in over 2 years and confidence slipping from the prior month) pared some of the early market gains, but stocks still closed higher.

·     Note U.S. stocks are coming off another month as all indexes rose for a second month in a row, with the Dow rallying 3.7% in February, the S&P 500 up 3% and the Nasdaq Comp gaining 3.4%. The gains follow big returns for the month of January when the S&P 500 climbed 7.9% for its best January since 1987, the Dow rose 7.2%, its best January since 1989 and the NASDAQ had its best January since 2001 on the back of a 9.7% monthly gain.

·     Treasuries extended its decline as the dollar pushed higher for a third day, oil prices slipped and gold fell for its 5th straight day of losses. Several stocks were active today, especially in retail (JWN, FL, LB, and GPS), tech (ADSK, NTNX, PSTG, VMW, and WDAY) after earnings and autos after monthly sales released. Biotech stocks extended recent outperformance as the IBB traded to its best levels since October on better earnings and trial news.

·     Economic data disappointed today as the final reading of the University of Michigan consumer sentiment index faded in February, with a 93.8 reading, while the ISM manufacturing survey fell to 54.2 (lowest in over 2-years) in February from 56.6. The data initially sent the dollar lower, but was quick to rebound along with Treasury yields as gold plunged below $1,300 an ounce.

Economic Data

·     ISM Manufacturing for February falls to 54.2 (lowest since Nov 2016) from 56.5 last month and below the 55.8 estimate as new orders fell to 55.5 vs 58.2 MoM, employment fell to 52.3 vs 55.5, inventories rose to 53.4 vs 52.8 and prices paid fell to 49.4 vs 49.6

·     Feb. Final Michigan Sentiment rose to 93.8 from 91.2 last month, but was below the est. of 95.9 and the 95.5 preliminary reading; the expectations index rose to 84.4 vs. 79.9 last month and the current economic conditions index fell to 108.5 vs. 108.8 last month.

·     Personal Income for January fell (-0.1%) below the expected rise of 0.3% while the income for December rose 1% vs. est. 0.4%; Personal spending for December fell (-0.5%) vs. est. (-0.3%); Dec. PCE prices rose 0.1% vs. est. 0.0% and rose 1.7% y/y while December core PCE prices rose 0.2% m/m and rose 1.9% y/7 and the savings rate at 7.6% in Dec. vs 6.1% prior month

·     Markit Manufacturing PMI 53 vs Flash Reading 53.7 as index falls to 53 from 54.9 in January; was its lowest reading since Aug. 2017 and new orders fall to 52.7 vs 55.6 in Jan.

 

Commodities

·     Oil prices dropped into the close with WTI crude sliding -$1.42 or 2.5% to settle at $55.80 per barrel (off earlier highs of $57.88 per barrel) dropping late day after posting a 6% gain for February. However for the week, WTI crude slumped 2.6% despite bullish inventory data and reports that OPEC output overall fell by 560,000 barrels a day in February to 30.5 million a day. China data was mixed on the week, causing confusion in the commodity sector. Gold prices dropped for a 5th straight session, sliding -$16.90 or 1.3% to settle at $1,299.20 an ounce, closing at its lowest levels in over a month and down about 2.5% for the week (its biggest weekly decline since August) after a -0.7% drop in February.

 

Currencies & Treasuries

·     The U.S. dollar proved resilient on Friday, having fallen this morning around 10:00 AM EST after weaker ISM Manufacturing and confidence data weighed on sentiment. However, the dollar quickly rebounded (dollar index off lows of 96.07 this morning to afternoon highs around 96.50) as investors ignored the weaker reports. The euro slipped into negative territory late day vs. the greenback after trading up near highs around the 1.14 level while the dollar extended gains vs. the yen to around 112 level (highest since late December). Treasuries meanwhile extended their weekly decline as yields look to end the week near their highs as the 10-year topped 2.74%, the 2-year 2.55% and 30-year above 3.11%.

 

 

Macro

Up/Down

Last

WTI Crude

-0.58

55.80

Brent

-1.24

65.07

Gold

-16.80

1,299.40

EUR/USD

-0.0008

1.1363

JPY/USD

0.60

111.98

10-Year Note

0.028

2.748%

 

 

Sector News Breakdown

Consumer

·     Retailers; GPS shares surged after news it plans to create two independent publicly traded companies while posting mixed Q4 results (EPS beat/sales miss); JWN higher following its beat on Q4 profits, and sales in-line with mid-January holiday sales update, and high-side guidance for the coming year’s earnings/comp sales dropped -1.6% in Full-Price due to softer traffic in full-line stores; FNKO shares jump after posting strong sales in Q4. U.S. sales up 30% during the quarter and international sales were 58% higher and guides year revs $810M-$825M vs. est. $740M/Q4 sales growth of 38% vs. ests. in the high-teens range; CPRI added to Jefferies franchise picks list while removes shares of UAA; LB was upgraded at Barclay’s after earnings while Bernstein downgraded the shares following results – mixed results as overall performance has been hurt by persistent weakness at Victoria’s Secret and co plans to close 53 Victoria’s Secret stores this year; footwear and apparel names rise in sympathy with FL results after EPS handily beat and comp sales of 9.7% surpassed the 4.6% estimate

·     Consumer Staples and restaurants; grocers dropped after Dow Jones reported AMZN is preparing to launch a new grocery store business – grocery chain to be at a lower price point than Whole Foods – plans to open dozens across the US (shares of KR, WMT, TGT among top decliners)

·     Auto’s; TSLA shares slipped as the company introduced its $35,000 Model 3, but Elon Musk said he is closing physical stores and warned the company won’t make a profit in the first quarter; February monthly auto sales today: 1) HMC Feb auto sales down (-0.4%) vs. est. up 0.7%; 2) TM Feb auto sales fall (-5.2%) vs. est. (-2.5%); 3) FCAU US auto sales for February fall (-2.05) vs. est. down –(0.3%) as many Jeep sales fell MoM (Wrangler, Compass, Patriot); Lyft filed for an IPO today under the symbol LYFT

 

Energy

·     Energy stocks were mostly higher following OPEC headlines as crude production slumped again last month according to a Bloomberg survey, as the cartel implemented planned cutbacks in full and some members were hit by U.S. sanctions. Saudi Arabia, Kuwait and the United Arab Emirates delivered all — and in some cases more — of the supply curbs they pledged to try to prevent a global glut. Still, almost half of the output drop was caused by unplanned losses in Venezuela and Iran, which are under trade restrictions imposed by President Donald Trump. OPEC output overall fell by 560,000 barrels a day in February to 30.5 million a day.

·     Stock news; Baker Hughes (BHGE) weekly rig count fell -9 rigs to 1,038 while oil rigs fell -10 rigs to 843 and gas rigs rose 1 to 195; SWN shares advanced despite quarterly earnings missing the mark on weaker Ebitda; DVN downgraded to Sector Perform at RBC Capital, moving to the sidelines through the planned asset sale process because of sale valuation risk given the limited buyer pool

·     Utilities & Solar; PNW downgraded to Sector Perform at RBC following increased activism from the ACC. With the stock trading at 18.5x 2020E P/E versus its defensive peers at 18.2x, we see less room for multiple expansion during the coming quarters; EIX was upgraded at Bank America to neutral as sees an improving awareness from wider California stakeholders to address wildfire liabilities

 

Financials

·     Bank movers; WFC officials, including CEO Tim Sloan, agreed to a $240M settlement with U.S. shareholders related to millions of accounts that were opened by the bank’s employees without customers’ permission; KR said its Smith’s Food & Drug Stores division will stop accepting Visa (V) credit cards as form of payment, citing excessive transaction fees, effective April 3; IBKR said February Daily Average Revenue Trades were 19% lower than a year ago, and down 3% sequentially, despite its month-ending client account figure rising 21% in the past year.

 

Healthcare

·     Pharma and Med Tech movers; There were several 52-week highs in healthcare today: REGN, LLY, ECL, A, MTD, TMO, WAT, VAR, ABT, MRK, UHS, SYK, DHR, among those setting yearly highs; TGTX 2.44M share Spot Secondary priced at $6.15; MRSN 21.25M share Spot Secondary priced at $4.00; XRAY Q4 EPS and sales topped consensus with upbeat guidance for 2019 profit as sees $2.25-$2/40 above the $2.17 estimate; other gainers on earnings today: SGMO, BIO, FLXN

·     Biotech movers; ICPT was upgraded at RBC to outperform with $130 tgt following physician survey results indicating GIs/endocrinologist will likely be more receptive to OCA in NASH than the Street may perceive; PBYI shares surged as reported an unexpected better Q4 with +16% q/q growth vs a tepid +4% in Q3 while Nerlynx Q4 sales of $61M in sales topped the Street at $54M and issued FY19 guidance of $255-$280M in US Nerlynx sales vs. est. $250M; IMGN slides around 50% as trial of its mirvetuximab soravtansine compared to chemotherapy didn’t meet the primary endpoint of progression-free survival; XON drops after posting mixed Q4 results said it may have to scale back its operations, even with an additional capital raise

 

Industrials & Materials

·     Industrial & Machinery; MTZ posted better Q4 results though Q1 EPS f 43c was below the 46c estimate; ALRM reported Q4 beats with an in-line FY forecast as SaaS and license revenue increased 19% in the quarter to $77.8M (guides year $440M-$450M vs. est. $439M) – shares posted record high yesterday; ASTE shares jumped after earnings

·     Transports; airlines mentioned cautiously at Deutsche Bank as they downgraded AAL and DAL to hold from buy saying the stream of global macro data points have been less encouraging of late suggesting s that the industry risks are now more biased to the downside; in car rental, HTZ was upgraded to equal-weight at Barclays with $18 tgt pointing to strength in used car prices as a favorable development for Hertz

·     Metals & Materials; SQM downgraded to neutral from overweight at JPMorgan citing the lithium producer’s premium valuation; VALE falls as Brazil’s mining authorities have started a probe into the company over a possible cover-up regarding safety procedures that could lead to hefty fines

 

Technology, Media & Telecom

·     Internet; EBAY announces a series of new initiatives aimed at improving performance including an operating review and the commencement of a strategic review of a portfolio of assets such as StubHub and eBay Classifieds Group; FTCH shares jumped after earnings, boosting year guidance for sales growth and Goldman Sachs upgrading to buy with Street high $40 tgt; EXPE was upgraded to buy at Argus (a day after weakness in online travel after BKNG lower guide)

·     Software movers; ADSK Q4 beats with revenue up 33% Y/Y and billings top estimates with $1.04B versus the $952.2M consensus and ADSK added 418K subscription customers while shedding 166K from maintenance/offers mixed Q1 guidance; ZS Q2 beats with upside outlook and billings were strong at $115M (up 74% Y/Y) versus the $90.4M consensus; SPLK 4Q beat driven by license upside and large deals as revenue of $622M was up 35%, beating consensus by 10%, with license up 38%, beating consensus by 19%. Software revenue grew 41% and bookings were up 48% and raised guidance; VMW posts Q4 beat and raise as revs, license and billings all accelerated over F3Q despite a tough y/y comparison; WDAY Q3 EPS and revs topped estimates leading at least five analysts to raise tgts (KeyBanc $235, Baird $220)

·     Media & Telecom movers; ATUS 34M share Block Trade priced at $21.50; TGNA rises after topping estimates with record revenues both in political and subscription areas; movie theater stocks rise after AMC Q4 EPS easily topped consensus on better sales and reports overall attendance up 1.9% at 94.1M

·     Hardware & Component news; Storage and hardware names dropped after weaker results and guidance from NTNX and PSTG shares fell over 25% overnight after guiding 3Q adjusted loss per share (60c) on revs $290M-$300M well below the est. loss (28c)/$347.6M; PSTG shares slipped as Q4 EPS missed by 4c on light revs ($422.2M vs. est. $442.2M) with in-line guidance/Q4 product revenue missed estimates with $340.1M versus the $362.9M; MAXR plunges as quarterly revs miss estimates and trimmed its dividend to a penny per quarter with no guidance

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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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