Market Review: March 04, 2019

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Closing Recap

Monday, March 04, 2019

Index

Up/Down

%

Last

DJ Industrials

-204.23

0.78%

25,822

S&P 500

-10.72

0.38%

2,793

Nasdaq

-17.79

0.23%

7,577

Russell 2000

-14.22

0.89%

1,575


 

Equity Market Recap

·     U.S. stocks appeared tired on Monday, with the Dow Industrial Average falling as much as -300 points midday, with markets failing to hold their overnight rally on another report of a potential trade deal with China. Headlines and dialogue over the last month related to a delay in tariffs on China and the country buying commodities of US products have helped push major global averages to their best levels since October (erasing memoires of the sharp Christmas sell-off). But a deal has yet to come to fruition and markets appeared to have now discounted the “hopes” of a deal, with a broad sell-off today after opening the day higher across the board. Healthcare stocks were dragged down by managed care companies again (WCG, CNC, HUM, UNH) while homebuilders were a bright spot with big gains for PHM, LEB, DHI and Internet security stocks dropped (PANW, FTNT, FEYE) with the RSA Security conference ongoing this week. The U.S. dollar strengthened and Treasury yields slipped after big gains last week. Amid a slew of economic data expected this week, investors will be closely watching the February non-farm payrolls report due on Friday to gauge the strength of the U.S. labor market. The dollar advanced despite President Trump warning against it becoming too strong while gold prices sink a 6th straight session that dollar strength and oil prices advance.

Economic Data

·     Construction spending for December fell (-0.6%) MoM vs. est. 0.1% gain in the lone piece of economic data today and follows an unrevised 0.8% gain; private construction outlays fell 0.6% after rising 1.3% and private residential construction fell 1.4% after rising 3.4%

 

Commodities

·     Commodity prices were mixed as energy prices advanced, with WTI crude up 79c to settle at $56.79 per barrel while precious metal prices fell. Reports (again) of the U.S.-China moving closer to a potential trade deal, which could impact commodity prices helped lift sentiment. Also today, Russian Energy Minister Alexander Novak told reporters that Russia will bring its oil production cut to 228,000 barrels a day from the October level.

·     Gold prices rebounded off earlier lows, but April gold still ended lower for a 6th straight session, sliding -$11.70 or 0.9% to settle at $1,287.50 an ounce (lowest level in about 6-weeks). The latest pullback comes after 10-month highs around $1,350 an ounce two-weeks ago amid a dovish Fed. However, prices have since declined as stocks jump to best levels since October driven by trade-pact optimism with China. Gold prices are coming off a 2.5% decline last week.

 

Currencies

·     The U.S. dollar was mixed, with the dollar index climbing given strength vs. the euro and Pound, while the greenback slipped against the yen, and Aussie dollar. The dollar failed to meaningfully pull back on a weaker construction spending report of after President Donald Trump repeated his commentary for a weaker currency while criticizing the Federal Reserve’s monetary policy yet again over the weekend. Trump said, “We have a gentleman that likes raising interest rates in the Fed. We have a gentleman that loves quantitative tightening in the Fed. We have a gentleman that likes a very strong dollar in the Fed,” Trump said of Fed Chairman Jerome Powell.

 

Bond Market

·     Treasury prices partially rebounded after last week declines, as yields slipped across the board as investors rotated out of riskier assets. The yield on the benchmark 10-year slipped about 3 bps to 2.725% after jumping nearly 10-bps last week. The shorter-term 2-year yield fell about 2 bps to 2.54% and the 30-year yield under 3.10%.

 

 

Macro

Up/Down

Last

WTI Crude

0.79

56.59

Brent

0.60

65.67

Gold

-11.70

1,287.50

EUR/USD

-0.0032

1.1333

JPY/USD

-0.15

111.73

10-Year Note

-0.039

2.726%

 

 

Sector News Breakdown

Consumer

·     Retailers; PLCE shares decline in retail sector after Q4 results missed estimates by a wide margin and issued lower guidance for Q1 and year/sees FY19 adj. EPS $5.25-$5.75 on revs $1.89B-$1.92B well below the est. $7.77/$1.96B; ODP announces a new strategic collaboration with BABA to leverage the companies’ respective strengths to serve U.S. small-medium sized businesses; FL was upgraded to buy at Pivotal following better earnings on Friday; DDS was downgraded to underweight at JPMorgan after stock has rallied 25% year-to-date; in toy space, HAS was upgraded to outperform at BMO Capital

·     Consumer Staples; in tobacco, PM sees year EPS at least $5.28, down from prior view of at least $5.37 (est. $5.40) as reflects charge from class actions; KHC was upgraded to equal-weight at Morgan Stanley after pullback in shares on accounting issues, lower guide and dividend cut;

·     Housing & Building Products; homebuilders rallied in rough market, led by MTH after posting 1% rise in orders for January and February (lifting sentiment KBH, PHM, LEN); BBBY downgraded to underweight at Barclay’s saying it isn’t seeing signs of a turnaround and that it will be highly difficult for the company to build a home furnishing/decor business, which appears to be a critical factor in the ultimate success of a turnaround; NWL discloses that it’s unable to file its annual report for 2018 on time because it needs additional time to finalize its financial statements

 

Energy

·     Top energy stock stories: LNG shares jumped as the WSJ reported reporting that the U.S./China are close to a trade deal that would lift some tariffs/as part of the reported deal, China would buy $18 billion of LNG from Cheniere; ENB shares dropped after the company’s Line 3 project to start service a year late in 2020, prompting downgraded from at least three analysts on the news; Utility stocks were lower as Treasury yields have climbed over the last week

 

Financials

·     Bank movers; banking stocks (large cap and regional) were among top performers early in the session before the group slipped with a broader market declines; in consumer finance and lending, WP was downgraded to neutral at Nomura on valuation saying risk/reward is now balanced after YTD rally of 28%; REITs were generally lower as Treasury yields rise lately and interest rate sensitive stocks pullback

 

Healthcare

·     Pharma & Biotech movers; LLY said it is offering a half-price version of its top-selling insulin Humalog, with a the low cost version of the diabetes treatment called Insulin Lispro down at $137.35 per vial (down from $265.20); NITE to be acquired by BIIB for $25.50 in cash for each share as offer represents a total transaction value of approximately $800 million https://yhoo.it/2ENRxMd

·     Specialty pharma; ASND surges after highly-anticipated Phase III data for its growth hormone drug met its primary endpoint demonstrating superiority to daily TransCon in terms of annualized height velocity (AHV) at week 52; ZTS upgraded to buy at Stifel saying they believe the roadmap for Zoetis is favorable over the next 12-24 months as see accelerating revenue growth in 2020 (and possibly again in 2021) as a renewed Companion Animal (CA) product portfolio takes hold; RKDA rises after a unit was granted a license from Hawaii’s Department of Agriculture that allows for the cultivation of industrial hemp; EVOK falls as received a multi-disciplinary review (DR) letter from the FDA in association with the Gimoti 505(b)(2) NDA; weakness in both ENDP and MNK after Reuters report said Purdue Pharma, the maker of OxyContin, is exploring filing for bankruptcy to halt thousands of lawsuits alleging it contributed to the U.S. opioid crisis

·     Medical equipment and devices; dialysis companies DVA and FMS shares lower after Reuters cited the Trump administration’s effort to cut dialysis costs and introduce a payment model that favors home dialysis over clinic-based treatment. New payment model also focuses on improving care in early stages of kidney disease and increase access to kidney transplants to lower the $114B paid by govt. per annum to treat chronic kidney disease and end-stage renal disease – Reuters report; CSII to replace Nutrisystem in the S&P 600 at open on 3/11; IRTC said it delays annual filing, sees reporting material weaknesses in controls

·     Healthcare services and providers; Managed care stocks resume downward momentum (WCG, UNH, CNC, HUM) as Goldman Sachs tried to defend shares saying the sell-off of health insurance companies “irrational” and saying now is the time to buy. Notes weakness surrounds the “Medicare For All” bill that threatens to end private plans would not just be bad for insurers but would also hurt hospitals and dialysis companies (shares of CVS, CAH and WBA have also come under pressure on the bill); UHS downgraded at JPMorgan after rally in shares; HCSG shares dropped after saying it received a subpoena from the U.S. SEC in March last year, related to the regulator’s inquiry into the co’s earnings per share calculation practices

 

Industrials & Materials

·     Transports; index slides with broader roll in US stocks as the Dow Transports fail at the 200-day moving average resistance at 10,562 – which was the intraday high before falling more than 100 points on the day as airlines lead declines; DAL reports February traffic up 2.9%, capacity up 3.4%; HA was downgraded to sell at Deutsche Bank citing the recent announcement that Southwest plans to begin flights to Hawaii and also compete in the island-hopping market; HTZ was upgraded to buy at Northcoast

·     Metals & Materials; gold miner NEM’s board unanimously rejected GOLD’s recent $18B hostile buyout bid, saying the "all-stock negative premium proposal" posed "significant risks" to its shareholders; metals pulled back from recent gains despite news of improving trade negotiations between the US and China

 

Technology, Media & Telecom

·     Semiconductors; AMAT outperformed early in the semiconductor space; in research, BMO Capital downgraded XLNX to market perform from outperform following a recent surge in the stock price while raised its price target to $125 from $100 while upgraded ON to Outperform and raised price target to $30 from $20 as believes ON will continue to execute on its strategic focuses and will remain structurally more profitable going forward; XLNX confirmed a roadshow cancellation at Evercore citing a calendar conflict

·     Software movers; CRM expected to report earnings tonight after the close; EA said its battle royale game "Apex Legends has now surpassed 50 million players worldwide; GWRE was downgraded to neutral at Piper saying channel checks suggest that Guidewire is still struggling to sell InsuranceSuite Cloud deals; OKTA shares fell as much as 10% after being downgraded to hold at SunTrust today ahead of earnings; Internet security stocks (ZS, FTNT, FEYE, PANW, PFPT) slide broadly as the RSA Security conference ongoing this week in San Francisco; SPLK slipped as GOOGL’s Chronicle launches its first commercial product, a security data and threat intelligence platform called Backstory

·     Media & Telecom movers; DISH was added to best ideas list at Guggenheim as believe DISH offers the most significant upside opportunity in 2019, while is removing TMUS from the list as still see meaningful upside for shares, but not the magnitude offered by DISH; CTL to delay filing 10-K, cites material weaknesses in internal controls; Intelsat (I) shares dropping sharply, now at lows down over 10%; JNPR said it entered into a definitive agreement to acquire Mist Systems, a pioneer in cloud-managed wireless networks powered by Artificial Intelligence (AI)

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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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