Market Review: March 07, 2019

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Closing Recap

Thursday, March 07, 2019





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     U.S. stocks suffered their worst daily decline in about 2 months, falling on cautious comments about trade, weakness in the EuroZone amid lowered growth outlooks and the ECB pledging continued monetary support for its economy, prompting a rotation into Treasury prices and sending yields and stocks broadly lower. Today’s declines took the S&P 500 index below its 200-day moving average support of 2,750, while the tech heavy Nasdaq underperformed, falling over 1% as all three major benchmarks fall for a 4th straight session (S&P and Dow down for the 7th time in last 8-days). The euro plunged on the weak Euro area growth outlook and monetary easing measures, falling to 4-month lows vs. the dollar. Transports tanked again, as the index posts its 10th consecutive daily decline, led by weakness in FDX, airlines and rails. Financials dropped on the lower Treasury yields while interest rate sensitive sectors such as Utilities and Homebuilders outperformed on the day. Stocks have been rising, moving from the “lower left” to “upper right” the last 2-months, but with earnings behind us and a trade deal with China still on hold, markets are simply lacking a positive catalyst to rise further.

·     The ECB launched a new round of long-term loans to EuroZone banks (sending European yields plunging) and extended its pledge to hold off on any rate increases until at least the end of 2019. The ECB announced the launch of a new program of cheap loans — known as targeted long-term refinancing operations, or TLTROs — to EuroZone banks in return for pledges to maintain lending which will launch in Sept 2019 and end March 2021. Also, the European Central Bank slashed their forecast for 2019 GDP growth in the EuroZone to 1.1% from a previous estimate of 1.7%. The ECB now sees 2020 growth of 1.6% versus a previous forecast of 1.7%, while the outlook for 2021 was unchanged at 1.5%. The ECB also cut its inflation forecast for 2019 to 1.2% from 1.6%. The German 10-year yield dropped to 0.077%, its lowest since October 2016 according to reports. Also weighing on markets, a midday report out of the NY Times saying President Trump says he is optimistic that a landmark trade deal with China is close. Chinese officials are not so sure, with the report saying Beijing officials are wary that the final terms may be less favorable, especially given Mr. Trump’s propensity for last-minute changes.

Economic Data

·     Weekly Jobless Claims fell 3K to 223K, just below the 225K estimate, while the 4-week moving avg. dropped 3K to 226.25K in the latest week; prior week claims revised up to 226K from 225K; continuing claims fell 50K to 1.755M in the week ending Feb. 23

·     U.S. productivity advanced at an annual pace of 1.9% in Q4, up slightly from a revised 1.8% in Q3 and topped the economist estimate of 1.5%. Unit-labor costs rose at a 2% clip in Q4 (vs. est. 1.7%), but just 1% in the past 12 months (and up from 1.6% last quarter)

·     Challenger Gray and Christmas reports that February’s job cut announcements skyrocketed by 117% y/y to nearly 77,000, led by industrial goods — which included heavy and industrial manufacturing — with nearly 30,000 cuts



·     WTI crude oil rises 44c or 0.8% to settle at $56.66 per barrel, while Brent crude gained 31c to settle at $66.30 per barrel. Oil prices held up very well despite the jump in the dollar and bearish inventory data this week. Gold prices slipped -$1.50 to settle at $1,286.10 an ounce, holding steady after its recent 7-day losing streak (was snapped yesterday) despite the dollar index touching a 2019 high today



·     The Euro plunged vs. rival currencies, sliding to a 4-month low against the US dollar just above the 1.12 level after the ECB lowered growth projections for this and next year and announced additional stimulus measures to help their struggling economy. The dollar index (DXY) traded to its best levels of 2019 ahead of the monthly jobs report tomorrow morning. The Argentine peso fell to all-time low vs. the greenback. The US dollar posted strong gains vs. the Canadian loonie rising to 1.3460, best level in 2-months (52-week highs around 1.3665), after the Bank of Canada said yesterday that there’s increased uncertainty about the timing of future rate hikes. The British Pound pared losses late day after a report that the EU offered new Irish backstop terms to the U.K. ahead of parliamentary vote on Brexit next week…but the rally faded as Sterling moved back below the 1.31 level, down over -0.6%.


Bond Market

·     U.S. Treasury yields fell along with its European peers, after the European Central Bank launched fresh stimulus measures, said it was unlikely to increase rates through the end of 2019 and downgraded its forecast for economic growth. The 10-year yield dropped over 6 bps to lows around 2.63% while the 2-yr fell 5 bps to below 2.47%. Both German and Italian Treasury yields plunged on the ECB TLTRO news. The ECB said it would extend its targeted longer-term refinancing operations, or TLTRO, its program for handing out cheap loans to banks.






WTI Crude















10-Year Note





Sector News Breakdown


·     Retailers; AEO mixed Q4 results as EPS beat on a sales miss and weaker Q1 profit outlook; BKS Q3 Ebitda and sales fell well short of consensus expectations while it cut its Ebitda forecast for the full year to $140M-$155M, below prior view of $175M-$200M and estimates which includes lower than exp. post-holiday sales; BURL 4Q sales missed estimates and 1Q guidance disappointed (sees FY19 adjusted EPS $6.93-$7.06 vs. est. $7.06), weighing on discount retailers early (TJX, ROST, SMRT); CATO posted a February comp sales figure of down (-10%); Been a rough year for retail (and mall REITs: SPG, SKT, TCO) with CNBC noting 2019 store closures thus far in 2019: Payless 2,100, Gymboree 749, Charlotte Russe 512, ASNA 400 and Family Dollar 390

·     Consumer Staples; grocers slip after KR Q4 EPS missed by 4c on slightly lower sales of $28.1B while gross margin was down 93 bps to 22.0% of sales, due mostly to changes in mix and investments in supply chain/guides year EPS $2.15-$2.25 vs. est. $2.25; EL was upgraded to overweight at JPMorgan and raise price target to $175 from $160 following the company’s Analyst Day as firm now more confident about FY19 and long term top line growth goals

·     Housing & Building Products; Homebuilders MTH, TOL were downgraded to underweight from neutral at JPMorgan while TMHC was upgraded to overweight from neutral saying with the group up 11% so far in 2019, roughly in-line with the market, they remain cautious on the sector, based on outlook for fundamentals to remain less robust than last year on both an industry level and across the builders, while we also continue to see some downside risk to valuation multiples. However, the group was broadly higher as interest rates declined

·     Services, Casino & Leisure movers; IGT fell as Q4 EPS of 24c missed estimates by 11c on in-line revs, but weaker Ebitda; in education, BPI shares plunged as guides Q4 revs $93M-4(4M vs. est. $102M on a larger Q4 EPS loss saying new enrollment is down by low single-digit percent/plans to restate results as well; RST shares surged after earnings and guidance



·     Energy stocks were mixed with oil prices holding up well despite the stock sell-off; 52-week highs for AWK, SO, WEC, AEP, ED, CMS, XEL, FE, and AES in the S&P 500 today as utilities lead given the pullback in Treasury yields and rotation into defensive assets; MLPs; Baird downgraded five midstream stocks citing an overhang from incentive distribution rights (IDRs)/says that retain IDRs appear increasingly like outliers after large-cap peers have successfully restructured/cuts CNXM, GPP, NBLX, SMLP, SUN to neutral from outperform



·     Bank movers; Financials among top decliners (GS, JPM, C, MS) as Treasury yields fall across the board – 10-year yield down at 2.65%, 2-yr under 2.49% in response to the additional monetary easing measures announced by the ECB today to help boost its economy; shares of banks, insurance, brokerage and others moving lower; in the insurance sector, TRUP was defended by Raymond James saying SYF entering the pet insurance business through the acquisition of Pets Best will likely have “zero” impact to TRUP; HRB advanced despite mixed earnings results



·     Pharma movers; AGN shares active after the company announced that rapastinel, its Phase 3 adjunctive depression treatment, did not meet its primary and secondary endpoints across all studies (prompting several analysts to lower tgt prices); APLS 6M share Spot Secondary priced at $17.00; BMY CEO told CNBC in an interview yesterday that deal to buy CELG was no defensive move, while Barclay’s today said the deal likely won’t be derailed

·     Biotech movers; the sector has come under pressure the last few days with investors nervous around the sudden departure of FDA commissioner Scott Gottlieb (though note a pullback not a surprise given the 25% YTD move for XBI more than double the S&P); EPZM 10M share secondary priced at $11.50 per share; AMGN was weak after RBC said a challenge to patents on Amgen Inc.’s top-selling arthritis drug Enbrel may be more of a risk to the company than investors realize

·     Medical equipment and devices; SWAV opened at $24.80 and traded higher after its 5.7M share IPO priced at $17.00; NVCR shares defended at Mizuho saying they believe the Contract Advisory Committee (CAC) meeting yesterday to discuss and help inform a potential Medicare reimbursement decision for Optune in newly diagnosed glioblastoma (GBM) was more positive than negative

·     Healthcare services and providers; ATHM repeated its 2019 adj. EPS view of more than $19 a share as part of a long-term earnings growth target of 12%-15% a year in an investor presentation; weakness continues in retail pharmacy with WBA falling for a 7th straight session and CVS down for the 11th time in the last 12-sessions; CRCM falls on lower guidance as sees Q1 EPS loss (8c), well below the expected profit of 17c and sees revs also below consensus views


Industrials & Materials

·     Industrial & Machinery; JCI board approves additional $8.5B share buyback; EAF shares rallied after a shareholder withdrew proposed secondary offering; REZI shares drop over 20% as 2019 Ebitda view misses estimates and sees rev growth up 2%-5% vs. prior view of up 4% (follows Q4 sales beat); ABM shares fell after Q1 EPS topped views, while only reaffirmed its outlook

·     Transports; Dow Transports fell for a 10th straight day dropping as much as 140 points before trying rebound; FDX shares slipped after Citigroup lowered its tgt citing caution on execution during what has been one of the rockiest periods for FedEx in their memory; airlines continue to lose altitude this week behind weaker updates from JBLU, ALK this week


Technology, Media & Telecom

·     Internet; ETSY shares dropped after providing long-term strategy and five-year financial targets at its inaugural investor day; social media (FB, SNAP) and Internet names in general were under pressure most of the trading session; in Software & Hardware movers; GWRE Q2 EPS and revs beat as produced $10M of license upside ($87M vs. est. $77M) helping the EPS beat while highlighted closing an InsuranceSuite Cloud deal and raised the number of FY19 deals to 5-8; TECD falls on mixed Q4 results as EPS beat by wide margin, but sales of $10.5B missed the $10.67B estimate – also guidance for Q1 fell below views on sales and EPS


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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