Market Review: March 05, 2019

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Closing Recap

Tuesday, March 05, 2019

Index

Up/Down

%

Last

DJ Industrials

-12.28

0.05%

25,807

S&P 500

-3.16

0.11%

2,789

Nasdaq

-1.21

0.02%

7,576

Russell 2000

-7.17

0.45%

1,568


 

Equity Market Recap

·     U.S. stocks posted modest losses, finishing well off the lows but erased late day gains despite better earnings results in the retailing sector (TGT, KSS) and positive economic data (ISM Manufacturing and New Home Sales) while markets await a possible U.S.-China trade deal as early as this month. With earnings mostly done for the quarter (few big S&P retailers and tech names left), the next FOMC meeting not for two more weeks, and markets apparently factoring in positive trade news with China, stocks have been sluggish the last few days. China’s Shanghai market rallied overnight to its best level since June despite lowering its annual growth target to 6%-6.5%, slightly down from last year’s 6.6% growth (weakest in three decades). After the strong start to the year (Dow rallied 3.7% in February, the S&P 500 up 3% and the Nasdaq Comp gained 3.4% after January gains of S&P 500 7.9%, the Dow 7.2%, and NASDAQ 9.7%), markets have since stalled looking for the next catalyst. Transports fell again, bringing its losing streak to 8-straight days for the Dow Transports, while Healthcare stocks and Financials remains pressured. Materials and Industrials faltered after the weaker China data while Utilities hit a 52-week high. So far, the S&P 500 has climbed about 11% in 2019 and is now about 5% away from its Sept.20 record closing high, helped by a dovish stance from the Federal Reserve and trade hopes. On the macro front, ISM’s non-manufacturing activity index showed a reading of 59.7 in February, better than estimates of 57.3, while single-family homes data rose to a seven-month high in December.

Economic Data

·     ISM Non-Manufacturing index for February rises to 59.7 from 56.7 the prior month and above estimates of 57.4; business activity rose to 64.7 vs 59.7 prior month while new orders jumped to 65.2 vs 57.7 MoM; employment fell to 55.2 vs 57.8 (lowest reading since June) while prices paid fell to 54.4 vs 59.4 and imports fell to 48.5 vs 52.0

·     New Home Sales for December rose to 621K annual rate, topping the 600K estimate; meanwhile, the previous three months’ new home sales data revised down by 75K; median new home price fell 7.2% y/y to $318,600; average selling price at $377,000; 19% of new homes sold in Dec. cost more than $500,000, up from 15% prior month

 

Commodities

·     Ahead of weekly inventory data tonight (API) and tomorrow (EIA) WTI crude prices settled little changed at $56.56 per barrel. Prices held up well despite updates from oil giants CVX and XOM saying they plan to produce almost 2 million barrels of crude a day from the Permian Basin before the middle of the next decade, flooding markets with new supplies. Bloomberg noted the output targets announced within hours of each other would make the companies’ combined Permian assets bigger sources of oil than most OPEC nations. Gold futures slipped -$2.80 or 0.2% to settle at $1,284.70 an ounce, marking the 7th straight session of declines (and longest such streak in about two-years) as the dollar advanced further on better economic data points. Gold prices stayed at its lowest level in about 2-weeks, this after prices recently touched 10-month highs on dovish Fed commentary about rates.

 

Currencies & Treasuries

·     The U.S. dollar gained again, with the dollar index (DXY) touching intraday highs of the 97 level on better economic data before paring gains, but closing higher vs. most currencies. The British pound hit a fresh session low below 1.31 on news that the U.K. was said not to be expecting a Brexit breakthrough at a meeting with the EU’s chief negotiator (but bounced back to break-even levels of 1.318). The euro traded to lows below the 1.13 level before paring losses. Recall, President Trump said Saturday he wasn’t pleased with how strong the dollar had become relative to other currencies, but the dollar has only gained the last few days. After rebounding yesterday, Treasury prices were little changed on the day as US stock markets traded sideways most of the day and economic data came in better than expected. The yield on the 10-year rallied about 10 bps last week to 2.75%, but the last 2-days, the yield has stayed around 2.73% as markets contemplate next move for bonds.

 

 

Macro

Up/Down

Last

WTI Crude

-0.03

56.56

Brent

0.19

65.86

Gold

-2.80

1,284.70

EUR/USD

-0.0037

1.1303

JPY/USD

0.11

111.86

10-Year Note

0.005

2.73%

 

 

Sector News Breakdown

Consumer

·     Retailers; TGT rises as Q4 EPS/comps top consensus with a stronger outlook as sees Q1 EPS $1.32-$1.52 vs. est. $1.43 and sees year EPS $5.75-$6.05 vs. est. $5.64; LB shares rise as shareholder Barington Capital Group, in a letter to L Brands CEO calls for changes at the company including either a spinoff of Victoria’s Secret or an IPO of Bath & Body Works; KSS guided 2019 sales above estimates while its profit view of $5.80-$6.15 topped the $5.76 estimate; GME announces a new $300M share repurchase authorization; in gun stocks, RGR, AOBC shares fell after NICS) data showed February 2019 unadjusted checks fell 12% y/y and 5.2% m/m

·     Consumer Staples; REV shares dropped after Jefferies said sales decelerated to -15% T4Wk and -9% T52Wk while Revlon brand sales -13% T4Wk and -8% T52Wk. Almay sales remain -DD; -23% T4Wk and -15% T52Wk; MNST was removed from Citi focus list as shares are up 31% YTD; GNC slid after posted weaker-than-expected earnings for Q4, offsetting news of a partnership that will garner it about $176 million; TPB shares rallied behind Q4 earnings; tobacco stocks (PM, MO) slipped late day after the Washington Post reported FDA Commissioner Scott Gottlieb is resigning, who has been pushing to restrict the sale of flavored e-cigarettes.

·     Autos; HTZ priced 5M share Spot Secondary priced at $19.60/also reports noted top shareholder Carl Icahn reduced his stake in the company; TSLA falls to a 4 1/2-month low after Barclay’s cut its tgt to $192 from $210 saying the sooner-than-expected price cuts to Model 3s and retail store closures undermines the bull thesis.

 

Energy

·     Energy stocks; CVX said it expects 3%-4% compound annual production growth through 2023 and annual capital spending of $19B-$22B during 2021-23/says its outlook is supported by strong performance in the Permian Basin, where the company expects production to reach 600K boe/day by year-end 2020 and 900K boe/day by the end of 2023, a nearly 40% increase from its previous forecast; XOM raises output target for top U.S. shale field to 1M barrels per day by 2024; in the utilities pace, the UTY index hit a 52-week intraday high for the first time since December 13; TPIC was upgraded to overweight at JPMorgan taking advantage of a 9% pullback since the 4Q print on 2/28; energy markets await inventory data tonight (API) and tomorrow

 

Financials

·     Bank movers; after opening higher yesterday before fading into the close, financials were among the weakest sectors again today, led by large cap and regional banks; in the insurance sector, WLTW rises on a Bloomberg report that AON is preparing to submit a bid to buy insurance brokerage rival WLTW in upcoming weeks https://bloom.bg/2UoypJS

 

Healthcare

·     Pharma movers; ADMS shares downgraded by several analysts (Cowen, Mizuho) and tgts slashed after the company withdrew its prior top-line guide for the year, prompting Mizuho to lower their Parkinson’s peak sales estimates to $176M from $282M; ENDP and MNK with no rebound a day after Reuters report yesterday 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 (ENDP fell -17% yesterday and MNK -6.5%); Cannabis company ACB replaces CGC as top pick in the sector at Cowen saying it is well positioned to benefit in the early innings of the Canadian adult use market, initiating with an outperform and $14 tgt; PCRX agreed to buy Myoscience, a privately-held medical device company, for up to $220M

·     Biotech movers; ALNY was upgraded to overweight from equal weight at Morgan Stanley and boosted its price target to $122 from $81, citing the potential for the company’s Onpattro treatment; BLUE was downgraded at Leerink citing current valuation

·     Medical equipment and devices; ALGN said it expects to book a charge in the first quarter for the closure of all of its Invisalign stores, following an arbitration decision of claims made by SDC Financial LLC, SmileDirectClub LLC and related parties

 

Industrials & Materials

·     Industrial & Machinery; CMI, PCAR, NAV shares active after February preliminary heavy-duty net orders (16.9k units) were slightly higher than Mizuho expectations (10k-15k units), but generally in line with the feedback received in their dealer survey/class 8 orders contracted by 58% y/y marking a fourth straight month of declines in orders; IR was added to the Buy-rated Americas Conviction List at Goldman Sachs and increased 12-month price target to $122 (from $115), representing 15% upside from current levels; GE shares dropped after its CEO said at the JPM conference that he sees free cash flow “in negative territory” this year

·     Airlines; ALK cut its 1Q unit revenue forecast as sees 1Q revenue per ASM 11.97c-12.07c; saw 12.15c-12.35c/says about half of 200 basis-point cut from midpoint of prior view to midpoint of current forecast due to close-in pricing below initial expectations, mostly in trans-continental flights from California; JBLU lowers its 1Q RASM view down 1.5% to down 3.5% from previous view of down 2% to up 1% citing off-peak pressure from competitive capacity/cuts 2019 capacity growth view by 0.5 points to range of up 4.5% and 6.5% year over year; DAL says it’s on track to deliver on its Q1 margin and EPS guidance

·     Metals & Materials; SQM was downgraded at Citigroup following the disappointing 4Q18 results and company guidance for 2019; gold prices slumped for a 7th straight day weighing on gold miners; weaker China GDP data overnight (lowest growth view in three decades) weighed on sentiment for metals and commodity prices

 

Technology, Media & Telecom

·     Internet; CTRP rises after reported better-than-expected revenues and operating income while revenue and operating income guidance also above expectations (upgraded at JPM after results); FB shares outperformed, rising for a third straight session; SINA and WB both pared paring losses after results and guidance overnight

·     Semiconductors; semi-equipment maker KLAC raised Q3 guidance to include the mid-quarter completion of its Orbotech acquisition/sees Q3 revs $1.025B to $1.115B (up from $880M-$960M) and EPS increases to $1.45-$1.79 from the prior $1.39-$1.71; WDC and MU shares slipped after Susquehanna said they could face a headwind from DRAM and NAND chip prices that are "tracking below prior expectations."

·     Software movers; CRM reported Q4 FY19 earnings results with revenue, margin and billings beating street forecasts as total reported revenue grew 27% Y/Y in CC, subscription revenue grew 26% Y/Y as reported, and deferred revenue grew 22% Y/Y in CC. Total backlog grew 25%, while current backlog grew 24%. Full year guidance was increased slightly to be in-line with top line expectations, though some growth fell a bit short

·     Media & Telecom movers; UNIT was downgraded at Wells Fargo to underperform citing too much uncertainty around its exposure to largest customer, Windstream Holdings, which filed for bankruptcy last month; Intelsat (I) shares dropped over 20% as the FCC will soon decide whether to side with foreign satellite companies, including Intelsat S.A. and SES S.A., and allow them to sell their rights to various public airwaves to speed the deployment of 5G technology.

·     Hardware & Component news; CIEN reports beat on top and bottom line sending shares higher initially before reversing and moving lower – Q1 margins of 42.2% missed the Bloomberg est. 42.6%; AAPL is expected to wait until 2020 before it releases a 5G version of its iPhone, but it may still struggle to get the necessary components to build the product according to Cowen today given its reliance on INTC’s modem products, and it has four options to deal with the situation, “none of which is ideal.”

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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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