Market Review: March 06, 2019

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Closing Recap

Wednesday, March 06, 2019

Index

Up/Down

%

Last

DJ Industrials

-132.70

0.51%

25,673

S&P 500

-18.12

0.65%

2,771

Nasdaq

-70.44

0.93%

7,505

Russell 2000

-31.45

2.01%

1,536


 

Equity Market Recap

·     Stocks declined on Wednesday, with the Dow Industrials, S&P 500 and Nasdaq Composite all falling for a 3rd straight session (Dow and S&P down six of the last seven) as investors look for the next catalyst to push shares to new highs. Note it was ten years ago today when the S&P hit an intraday cycle-low of 666.79, back at the height of the financial crisis…today, the S&P is trading around 2,800, but having trouble getting/staying above that level as investors deal with global trade concerns, the possible ramifications of Brexit (or if no deal), among other issues. Financials and Energy among the top sector laggards today while Transports made it a 9th straight day of declines, led by airlines after some lower guidance this week (JBLU, ALK). Retailers were active with earnings from DLTR, BJ, ANF, ROST, and URBN, while biotech shares plunged (IBB down over 3%) as markets try and gauge the impact of FDA head Gottlieb leaving. The European Central Bank (ECB) holds its monetary policy meeting tomorrow morning, with press conference from ECB President Draghi at 8:30 AM EST. The dollar was mixed after slightly weaker private payroll report and as the U.S. trade gap surged to $621B in 2018, its’ highest in a decade.

·     The Fed Beige Book showed economic activity continued to expand in late January and February, with ten districts reporting slight-to-moderate growth, and Philadelphia and St. Louis reporting flat economic conditions. About half of the districts noted that the government shutdown had led to slower economic activity in some sectors. Labor markets remained tight for all skill levels, including notable worker shortages for positions relating to information technology, manufacturing, trucking, restaurants, and construction. Wages continued to increase for both low- and high-skilled positions across the nation, and a majority of districts reported moderately higher wages. A few districts continued to report upward price pressures from tariffs on certain goods and services.

Economic Data

·     Private payroll report light as ADP said U.S. firms’ added 183K jobs in February, slightly below the 190K estimate (compared with a revised 300K in January); small firms added 12,000 jobs in February, medium-sized businesses added 95,000 to large companies added 77,000

·     U.S. Trade Deficit widened to (-$59.8B) in December from (-$50.3B) last month and compared to the (-$57.9B) estimate; the Dec. trade deficit largest since Oct. 2008; imports rose 2.1% in Dec. to $264.89b from $259.36b in Nov and exports fell 1.9% in Dec. to $205.12b from $209.06b in Nov

 

Commodities

·     WTI crude bounced off the lows, settling at $56.22 per barrel (down 34c on the day), well off its intraday lows of $55.42 per barrel. Prices dropped initially following a round of bearish inventory data, as both the EIA and API weekly reports showed stockpile builds of over 7M barrels of crude. The headlines pushed oil down before paring losses late. Gold prices snapped their 7-day losing streak, rising a modest $2.90 to settle at $1,287.60 an ounce.

 

Currencies & Treasuries

·     The U.S. dollar was mixed with the index (DXY) trading in a tight range most of the session after weaker economic data; the dollar gained vs. the Aussie dollar, Canadian Loonie, and British Pound while slipping vs. the Japanese yen. The pound declined for a sixth day as pessimism grows that a deal can be reached in time to stop the U.K. from leaving the EU by months end. The Australian dollar sank after disappointing economic data spurred bets on interest-rate cuts while the Canadian dollar fell after the Bank of Canada warns there is "increased uncertainty" about future rate hikes. The euro was little changed vs. the dollar around the 1.13 level.

·     Treasury prices gained as stocks slumped, with the yield on the 10-year falling to around 2.69% (giving back much of its 10 bps spike last week), the 2-year dropping below the 2.52% level and the 30-year at 3.07%. A round of weaker economic data points (ADP, Trade Balance) reassured investors the Fed will stand pat on rate hikes.

 

 

Macro

Up/Down

Last

WTI Crude

-0.34

55.22

Brent

0.13

65.99

Gold

2.90

1,287.60

EUR/USD

0.0003

1.1311

JPY/USD

-0.09

111.80

10-Year Note

-0.024

2.693%

 

 

Sector News Breakdown

Consumer

·     Retailers; apparel stocks active after earnings from ANF and URBN; ANF Q4 results and year net sales forecast topped estimates/Q4 comps of 3% beat the 1.3% estimate; URBN soft outlook for Q1 highlighted a deteriorating trend in January and a hard fall in February according to MKM Partners/URBN blamed weather and some product issues for a weak start to the first quarter; BBY was upgraded to outperform by Wolfe Research; DLTH shares fall after Davidson downgraded on weather and competition factors; ROST Q4 results top views and announces more than $2B share buyback, though Q1 and year guidance falls short; CHS shares dropped after a weaker guidance outlook as sees Q1 and FY19 net sales down low-single-digits; JILL shares rise on better EPS (3c beat) and comps falling less than expected (-1.7%)

·     Consumer Staples; BF shares slipped after results which showed a 2C Q3 EPS beat on lighter sales of $904M while reaffirmed its outlook, though Jefferies said the organic growth view looks ambitious; food stocks were lower with DF falling 52-week lows on S&P credit rating cut while Kellogg (K) shares dropped on negative call out of Prescience Point Capital

·     Casino & Leisure movers; regarding cruise lines, Morgan Stanley said their survey of US cruise travel agents is somewhat more downbeat than last month, and our web scraping data is negative for CCL’s European brands/CCL reports Q1 in late March and we are cautious as we see limited scope for a yield guidance upgrade. In gaming, Morgan Stanley raised its Macau 2019 GGR forecast to +1% from (2)%, driven by a stronger China outlook, which increases Macau mass market expectations as ups tgts for LVS, MGM to $66, $35 & $130, respectively

·     RV group under pressure, led by weakness in THO after Q2 results miss and warn that dealers continue to reduce inventory levels/Q2 sales fell 36% for the Towable segment, 34% for the motorized segment and 35% overall, missing lowest est (shares of LCII, CWH, WGO active); the CEO said that for the rest of this fiscal year, THO expects to face challenges that may impact financial results

·     Auto’s; NIO shares slide, downgraded to underperform at Bank America after the company reported quarterly results and cut its Q1 delivery forecast; TSLA shares volatile again today with Morgan Stanley saying Chinese customs authorities temporarily suspended clearance for Model 3s imported by Tesla, highlighting risks to China sales; FCAU shares rose after CEO Mike Manley said there was an opportunity for a potential alliance or a merger; CNBC reported Volvo may not sell its Tesla rival electric car in the US over tariffs; Germany’s Schaeffler AG announced job cuts, abandoned earnings targets, citing a challenging auto business and global growth

 

Energy

·     Energy stocks were among the biggest drags early on following a drop in oil prices after bearish weekly inventory data; XOM investor day showed it sees asset sales of $15 billion by 2021, with capital investments of $63 billion to $65 billion this year and next; PUMP was removed from the JPM analyst focus list; HFC said its refinery suffered "modest" damage to fuel and electrical lines from Wednesday night’s fire/may begin restarting units at El Dorado by Thursday

·     Inventory data bearish; the EIA reported that U.S. crude supplies rose by 7.1M barrels for the week ended March 1, more than 1.45M barrel build estimate and was close to the 7.3M barrel build reported by API overnight. Supplies of gasoline fell by -4.2M barrels, while distillates edged down by -2.4M barrels last week

·     Utilities & Solar; in solar, JKS refutes allegations made by Hanwha Q Cells this week which filed actions against JinkoSolar/also slumped on a report that the Chinese panel producer’s debts may be significantly higher than previously reported; VSLR shares dropped after posting its biggest loss in several years, wider than expectations

 

Financials

·     Bank movers; sector has been a drag on the S&P the last few sessions; The Federal Reserve announced it is weighing a lower interest rate for narrowly-focused institutions known as pass-through investment entities that could take in a lot of deposits from institutional investors and enjoy an advantageous rate on excess balances at reserve banks; PNC was upgraded to outperform from neutral at Macquarie and raise tgt to $144 from $134 given recent multiple compression, high BlackRock estimates and potential regulatory change for capital deductions; Morgan Stanley positive on DFS as it raised 2020 EPS by 2% on improving credit trends; BANC named Jared Wolff as CEO, replacing Doug Bowers in surprise move; TRUP lows after SYF bought pet insurance business Pets best

 

Healthcare

·     Pharma movers; BMY said in a letter to shareholders that they have conducted a thorough strategic process and is confident that acquiring Celgene is best path forward; VRTX said the triple combination of VX-445, tezacaftor and ivacaftor met primary endpoints); BPTH said it plans to change Phase 2 clinical program in acute myeloid leukemia (AML) to include Venetoclax combination treatment with prexigebersen (BP1001), sending shares higher; MYL was upgraded to overweight at Morgan Stanley in generics and downgraded TEVA to equal-weight; LGND share fell after selling rights to its biggest sales driver, Promacta, to Royalty Pharma; Cannabis stocks (CGC, ACB, TLRY) declined after news that the head of the U.S. Food and Drug Administration head Gottlieb has resigned, leaving the fate of the cannabis ingredient CBD in regulatory limb

·     Biotech movers; ALNY shares fell as markets focused on safety concerns in late-stage results for givosiran to treat acute hepatic porphyria; ASND 4.167M share Secondary priced at $120.00; NVTA 9M share Secondary priced at $19.00; SRPT 2.6M share Spot Secondary priced at $144.00; CBAY 8M share Spot Secondary priced at $12.50

·     Medical equipment and devices; VCYT 2.7M share Block Trade priced at $20.10; TNDM shares active after saying it will use its Tandem Device Updater, a remote software update tool, to fix a glitch in its Control-IQ technology software

·     Healthcare services and providers; COO trades to fresh 52-week highs as reported a beat and raise quarterly results; IQV 5M share Spot Secondary priced at $141.00; HZNP said in a filing that it received a civil investigative demand from the U.S. Department of Justice over certain payments to pharmacy benefit managers that may be in violation of the Anti-Kickback Statute; CVS tgt cut to $68 from $74 at Citigroup concerned with the sizable drop implied within the healthcare benefits segment

 

Industrials & Materials

·     Industrial & Machinery; ALSN was downgraded to hold at Stifel saying with shares trading above the midpoint of its recent trading range, they struggle to see why shares would outperform; GE shares fell after JPMorgan said they are no longer willing to engage in a debate where the Bull case is that Power is “not that bad”, the stock can be valued on $1+ in FCF, and GECS is merely a zero/as long as this sentiment prevails, the stock can’t find a bottom; Credit Suisse upgrades AYI to outperform and downgraded LII to neutral as catalysts include improving Lighting commentary (volume and price), stock valuation, and ETN’s announcement to spin its $1.7B Lighting business and says based on market share concentration, they see more opportunity for industry consolidation within lighting markets than in HVAC markets.

·     Transports; Dow Transport index came into the day with 8-day losing streak (longest since 2011); CSX downgraded to hold at Stifel primarily on valuation, as believe CSX has the lowest revenue growth potential in the next two years among railroads; UNP said it sees higher Q1 costs and lost business due to the weather (speaking at JPM conference); ECHO upgraded at Morgan Stanley saying believe TL rate behavior over the last 6 months points to a potential structural bull case of rates rebasing higher

·     Aerospace & Defense; VLRS was upgraded to buy at Goldman Sachs and lifts its price target on the ADRs to $13.80 from $7.40 to rep +60% upside potential; AVAV shares rise after quarterly earnings beat, upsized guidance/raises FY19 EPS view to $1.60-$1.80 from $1.30-$1.50/Q3 backlog $132.5M vs. $113.3M last year

·     Metals & Materials; LYB upgraded to buy at Goldman Sachs with the potential for the ethylene chain to establish a new trough in the coming quarters; Metals were broadly lower, with steel producers X, AKS and aluminum names pressured (AA, CENX, CSTM) amid follow through weakness on softer China GDP figures the day before

 

Technology, Media & Telecom

·     Semiconductors; sector was broadly lower pulling back further after jumping the first two months of the year on profit taking/trade concerns/slowing growth; Apple supplier DLGNF reported Q4 EPS above expectations; VECO downgraded at Stifel to hold after shares hit tgt price; AMBA mixed results as Q4 EPS and sales topped views but guided F1Q sales/EPS below consensus (upgraded at Craig Hallum); MCHP narrowed its Q4 outlook; MU shares dropped after Cleveland Research said weaker than expected pricing feedback for Q1 and Q2 led firm to lower his EPS and revenue assumptions for FY19

·     Software movers; VMW was downgraded to sell at Goldman Sachs; SAIL Q4 results exceeded expectations, even after adjusting for the ASC606 accounting change while FY19 guidance essentially bracketed Street revenue expectations, equating to just 19% growth; PVTL downgraded to neutral at Goldman Sachs saying while sees a general trend of workloads migrating to the public cloud, expects the majority of workloads will still remain on-premise over the next three-to-five year; Chinese tech names (HUYA, IQ, YY) slid after QTT results

·     Media & Telecom movers; ZAYO said its board and management are currently evaluating strategic alternatives and decides to postpone its analyst day to allow time to review; Intelsat (I) upgraded at Raymond James on pullback saying feel Intelsat shares more appropriately reflect a reasonable $/MHz Pop net price valuation for the possible monetization opportunity

·     Hardware & Component news; ROKU tgt raised to $77 at Guggenheim as sees higher future incremental ad revenue as well as “significant opportunity for the company to sustainably outperform consensus expectations, fueled by secular streaming video tailwinds.” AGS shares jumped as Q4 revenue and Ebitda forecast topped estimates

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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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