Market Review: March 11, 2019

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Closing Recap

Monday, March 11, 2019

Index

Up/Down

%

Last

DJ Industrials

200.50

0.79%

25,651

S&P 500

40.20

1.47%

2,783

Nasdaq

149.92

2.02%

7,558

Russell 2000

27.04

1.78%

1,548


 

Equity Market Recap

·     U.S. stocks jumped across the board, with gains in energy, financials and utilities, as well as recently beaten up consumer discretionary and healthcare. The Dow Industrials Average underperformed the S&P 500 (up 1.3%) and Nasdaq Comp (up around 2%) as weakness in Dow component Boeing tempered the index gains, with shares falling as much as 13% before paring losses late day. Tech was the big gainer as shares of Apple and Facebook rise following positive analyst research calls, while oil gains lifted energy stocks. With today’s advance, major averages snapped their 5-day losing streaks and the Dow Transports snapped its 11-day losing streak. Boeing (BA) was the top story of the day after one of the company’s 737 Max 8 planes operated by Ethiopian Airlines crashed shortly after takeoff from Ethiopia on Sunday, killing all 157 people on board. It was the second fatal crash for its 737 Max 8 planes in recent months. There was one big deal in the semi space as MLNX was acquired by NVDA in a near $7B M&A deal. Economic data was mixed today after retail sales and business inventory reports (more below). Treasury yields bounced and the dollar slipped with stocks rising globally.

Economic Data

·     January retail sales rose by 0.2%, (slightly beating the 0% est., but the December reading of -1.2% was revised to -1.6%. January figures excluding cars and excluding cars and gas, rose 0.9% and 1.2%, respectively. Retail sales suffered their biggest 2-month drop in over a decade. Retail sales less autos rose 0.9% in Jan., above the est. up 0.3%

·     Business inventories for December rise 0.6%, in-line with estimates, while Business sales declined (-1.0%) after falling 0.6% the prior month; Wholesalers inventories rose 1.1% m/m in Dec. after rising 0.4% prior month

 

Commodities

·     Oil prices gained as investors piled into riskier assets on the day, with stocks and commodities outperforming. WTI crude gained 72c or 1.3% to settle t $56.79 per barrel while Brent crude gained 84c or 1.28% to finish at $66.58 per barrel. Prices got a bump after reports that Saudi Arabia planned to extend efforts to reduce crude exports. Saudi Energy Minister Khalid al-Falih told Reuters on Sunday that it would be too early to change a production curb pact agreed by OPEC and its allies, which includes Russia, another major producer, before June.

·     Gold prices slipped by -$8.20 or 0.6% to settle at $1,291.10 an ounce, failing to push back above the psychologically significant $1,300 mark despite a rally late last week. A combination of better retail sales data (though revisions were lower) and a rise in business inventories, along with a broad rally in global stocks, lessened the appetite for safe-haven metals today.

 

Currencies

·     The U.S. dollar was slightly lower, falling vs. the British pound and Aussie dollar, while ending little changed vs. the euro and yen following mixed data. The pound was higher for the first time in eight sessions vs. the dollar and broadly higher in general vs. rival currencies on hopes Brexit could be delayed as the U.K. Parliament was set for key political votes this week. According to local reports, U.K. Prime Minister May was headed to the European Parliament in Strasbourg, France on Monday for last-minute talks with EU officials regarding her Brexit deal.

 

Bond Market

·     Treasury yields rose paring some of last week’s losses (10-year yield fell around 14 bps) ahead of a busy week of economic data, possible Brexit related news. Treasuries slipped as investors piled into stocks, with U.S. markets rallying from the open to close the day near its best levels after a mixed start. The US Treasury sold $38B in 3-year notes at a yield of 2.448% vs. 2.444% when issued prior, with the bid-to-cover (demand) at 2.56 vs. 2.55 prior and indirects awarded 49.5% of the auction and primary dealers 41.1%.

 

 

Macro

Up/Down

Last

WTI Crude

0.72

56.79

Brent

0.84

66.58

Gold

-8.20

1,291.10

EUR/USD

0.0008

1.1243

JPY/USD

0.06

111.23

10-Year Note

0.014

2.639%

 

 

Sector News Breakdown

Consumer

·     Retailers; discretionary names gained as stock rebound across the board; AZO was upgraded to buy at Bank America in auto parts retail space as does not think that the rally for auto parts stocks is over and believes that AutoZone’s valuation discount to the group should narrow; ZUMZ downgraded to hold at Pivotal saying the risk/reward is no longer compelling in our view. ZUMZ’ shares have experienced a 40% bounce off their mid- December lows and now trade at a more normal valuation as a result

·     Casino & Leisure movers; Bernstein’s Macau channel checks indicate that for the month-to-date period through March 10, the region’s gross gaming revenue (GGR) was approximately 8.6 billion patacas, or an average daily rate (ADR) of ~860 million patacas – the MTD ADR is down 5% vs February (ADR 906m patacas) and +3% y/y (WYNN, MLCO, LVS)

 

Energy

·     Energy stocks rallied with broader markets, rise in oil; Saudi Arabia will extend deeper-than-agreed oil output cuts for a second month in April, Bloomberg reported. The kingdom plans to produce well below 10 million barrels a day, a similar pace to March and compared with its output cap of 10.31 million. It will export less than 7 million. Alaska Gasoline says it signed an agreement with BP and XOM to collaborate on ways to advance the state-owned company’s proposed $43.4B Alaska liquefied natural gas project.

·     Oil drillers active; RIG reported two of its rigs, Ocean Rig Corcovado and Ocean Rig Mykonos, were awarded 629-day and 550-day contracts by Petrobras; Barron’s positive on the sector saying the offshore drilling business (DO, RIG, ESV, RDC) has suffered its deepest downturn in 30 years, as investment capital has rushed to land, chasing shale, but there are early signs of a return to the sea and investors who dive in now could profit nicely

·     Utility stocks trade to fresh 52-week highs, with the UTY continuing to benefit from later rates and yields with 52-week highs for AES, EXC, SO, NEE, AWK, XEL, AEP, CMSand FE in the S&P 500 index.

 

Financials

·     Bank movers; good gains for banks, helping push the S&P higher with large cap and regional names pushing higher; in Brokers/Exchanges; AMTD reported average daily trades for the February of 845,000 and that February total client assets $1.16 trillion; GCAP OTC trading volume is down 52.6% to $134.4B/Feb. OTC average daily volume down 52.8% to $6.7B; the CME said it will start offering Micro E-mini futures on the S&P 500, Nasdaq-100, Russel 200 and Dow Jones Industrial Average’s indexes.

 

Healthcare

·     Pharma movers; pharma names mixed with LLY, BMY sliding but generics getting a lift; PTE rises after the FDA decided not to take or recommend any enforcement actions against its manufacturing facility, after the FDA raised concerns about the Salt Lake City site last summer; RCKT sponsors clinical trial for LAD-I and IMO; Takeda’s Entyvio beats ABBV’s Humira in head-to-head UC study; LCI entered into an agreement with Elite Pharmaceuticals and SunGen Pharma to be the exclusive U.S. distributor of a generic version of Adderall with strengths of 5 mg, 7.5, 10, 12.5, 15, 20 and 30 mg tablets

·     Biotech movers; AXGT reported mid-stage study results for its gene therapy for Parkinson’s disease/two patients treated with the lowest dose of AXO-Lenti-PD showed an average of a 42% improvement in a doctor-assessed scale of motor functioning. Biotech space looking to rebound after the NBI index dropped -5.7% last week amid concerns over the FDA commissioner resignation; ALNY said the Company has submitted a clinical trial authorization (CTA) application to The Medicines and Healthcare products Regulatory Agency (MHRA) in the United Kingdom to initiate a Phase 1 study of ALN-AGT; CELG filed a marketing application in Europe seeking approval for Ozanimod for the treatment of adults with relapsing-remitting multiple sclerosis.

·     Healthcare services and providers; ARA was downgraded at SunTrust on the heels of Friday’s announcement delaying its 4Q release and 10-K filing; CRCM shares dropped late Friday after the WSJ reported critical of the company’s caregiver screening practices, which have led to "tragic outcomes."

 

Industrials & Materials

·     Airlines/Aerospace; airlines were mixed (LUV, AAL, UAL) after Dow component BA shares plunged as much as 13% (before paring losses) after one of the company’s 737 Max 8 planes operated by Ethiopian Airlines crashed shortly after takeoff from Ethiopia on Sunday, killing all 157 people on board. The crash comes months after a crash of the same plane flown by Indonesia’s Lion Air killed 189 people. Reports indicate that China has grounded all 96 of its 737 Max 8 planes. Southwest (LUV) shares fell more than 3%, even as the carrier expressed confidence in its Boeing aircraft and said it has no plan to change operations. Deliveries of the plane total about 350, according to Boeing, and it has been purchased by many airlines; in research, Barclay’s upgraded SAVE to overweight and raised its tgt to $70 from $65 (and top pick) while firm downgraded JBLU

·     Transports; Dow Transports rise for the first time in twelve days, snapping its 11-day losing streak despite early weakness in airlines on the Boeing story; railcars were downgraded at KeyBanc, cutting the ratings on GBX and TRN to sector weight saying became cautious after recently attended the annual REF conference. Firm said they think REF is the most informative rail industry event and thinks 2019 will be characterized by fewer orders and backlog contraction, which is historically negative for the group; GWR shares spiked late day after Bloomberg reported it is exploring options including the sale of a minority stake

·     Metals & Materials; Jefferies upgraded the Materials sector to Market Weight from Underweight citing early signs of "green shoots" in China, a turn in the inventory cycle, and housing data that "does not look as bad as stocks act; GOLD has dropped an $18B hostile bid for NEM, saying on Monday it had agreed to launch a joint venture with its rival instead (ownership to be 61.5% Barrick; 38.5% Newmont – and Barrick to be operator); NUE was downgraded to neutral at Longbow on reduced near-term earnings visibility and disappointing steel survey feedback; OEC was downgraded at JPMorgan and had its tgt cut at Barclay’s

·     Forest and Paper industry; BMO Capital said after waiting patiently on the sidelines for over a year, they think the current backdrop offers an interesting entry point into the lumber stocks as they upgraded shares of WFT, and WY to Outperform. Firm said demand should improve “seasonally” with spring construction activity and put upward pressure on lumber prices. At the same time, we think financial valuations are attractive.

 

Technology, Media & Telecom

·     Internet; FB was upgraded to buy at Nomura/Instinet and raised price target to $215 from $172 as heard at industry events that the transition appears to be occurring more quickly than we expected, lessening our concern; YTRA shares jumped after software firm EBIX offered to buy the Indian travel services company Yatra for $336M in a cash-and-stock deal, valuing the company at $7 per share https://yhoo.it/2CeNxCy ; EB shares fell further, extending Friday losses after disappointing guidance sank shares 25%

·     Semiconductors; sector jumped following an M&A deal in the sector as NVDA agreed to acquire MLNX for $125 per share, paying $6.9B, confirming several reports over the weekend https://on.mktw.net/2J6tdt7; all 30-names in the Philly semi index (SOX) closed the day higher

·     Software movers; ORCL was downgraded two notches to reduce at Nomura Instinet, saying that Oracle’s focused on its stock buyback program at the expense of investing in research and development (cut its price target to $42 from $53): in internet security, FEYE was upgraded to overweight at JPMorgan saying the year to date performance for FEYE’s stock has been 23% below our overall coverage, and the stock is now trading at 3.7x our FY19 revenue estimates; RPD was upgraded to outperform at Macquarie citing increased demand for vulnerability management and work flow automation

·     Hardware & Component news; AAPL was upgraded to buy and raised tgt to $210 at Bank America citing several positive factors and noting shares are down 26% from its peak; INFN was upgraded at MKM to buy following a very upbeat meeting with the CFO at OFC in San Diego last week, saying it sounds like Infinera’s order book, new wins and pipeline have all significantly improved recently; NTNX was upgraded to buy from hold at Jefferies saying potential rewards outweigh risks at current valuation

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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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