Market Review: March 20, 2019

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Closing Recap

Wednesday, March 20, 2019





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     U.S. stocks jumped well off the lows following the overly dovish (surprising many on Wall Street) FOMC policy statement as they now expect no interest hikes this year (vs. two hikes seen prior) and only one increase in 2020 (after keeping rates unchanged at 2.25%-2.5% range). Also, January 2020 fed funds futures contract showed increased odds of a U.S. rate cut this year. The Fed also lowered its growth outlook for U.S. GDP while also sees softer inflation ahead. Following the headlines, interest rate sensitive assets/stocks (REITs, homebuilders, metals, utilities, gold) rebounded while financials dropped further. Transports remained pressured all day, falling below the 10,100 level, down -1.8% before paring losses, weighed down after FDX Q4 results missed estimates and lowered its outlook for the year, renewing concerns about the global economy. Overall, the day was busy with Brexit talk, oil prices rising, transports falling on FDX and Treasury yields plunging given the comments from the Fed today – stocks finished the day well off its afternoon best levels – but the landscape certainly appears to have changed for markets!

·     Stocks were pressured earlier after President Donald Trump said tariffs on Chinese goods will remain in place until the country complies with a trade deal. Energy shares bucked the trend after unexpected drop in U.S. crude inventories pushed oil prices above $60 a barrel for the first time since November. Trade developments in the ongoing U.S.-China trade talks closely watched after the WSJ reported Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin planned to go to Beijing next week to complete a tariff agreement. In the UK, Theresa May has formally requested a short delay to Brexit from the EU, but said she’s "not prepared to delay Brexit any further than June 30." Germany’s DAX Index fell -1.4% for its worst day in over a month, lagging other European markets after BMW AG warned earnings would fall and chemical maker Bayer AG lost the first phase of a trial over allegations that its Roundup herbicide causes cancer.

Fed Meeting Results

·     The Federal kept rates unchanged at 2.25%-2.50% range; said they see slower growth and softer inflation ahead, and don’t expect to hike interest rates much at all over the next three years.

·     The new median forecast (“dot-plot” graph) was for no more interest-rate hike this year (vs. view prior of two rate hikes this year) and only one move in 2020.

·     The Fed also announced they will begin to taper the runoff of the $4 trillion balance sheet in May and end it in September.

·     Fed officials said growth has slowed from its solid rate in Q4 and said there were signs of slower growth in consumer and business spending.

·     Fed noted overall inflation had declined, while noting that core inflation, excluding food and energy prices, had remained near 2%.

·     Fed officials trimmed their growth forecast for 2019 to a 2.1% annual rate, down from 2.3% seen in December. The economy expanded at a 2.9% rate in 2018.

·     The Federal Reserve cut its GDP estimate in 2019 to 2.1% from 2.3% and trimmed its PCE inflation forecast to 1.8% from 1.9%.

·     The Fed trimmed their forecast for headline inflation to 1.8% this year from the prior estimate of a 1.9% rate.



·     Oil prices rise, with May contract closing above $60 per barrel; WTI crude topped the $60 per barrel mark for the first time since November following a round of bullish inventory data, as both the EIA and API reported surprise, or larger than expected weekly inventory drawdowns from last week. April WTI, which expired at the day’s settlement, rose 80c, or 1.4%, to finish at $59.83 a barrel on the NYMEX, the highest since November while May WTI crude added 94c, or 1.6%, to $60.23. April gold prices settled lower by -$4.80, or 0.4%, to $1,301.70 as futures closed prior to the FOMC monetary policy decision. However following the news, gold prices jumped as the dollar declined.



·     The U.S. dollar plunged to its lowest level since early February, falling amid the surprise move by the Federal Reserve to eliminate rate hikes from their forecast all of this year (down from the 2-prior forecast) and reaffirmed its dovish stance. The Fed also downgraded its economic outlook, dropping its gross domestic product forecast to 2.1% for this year, from 2.3% before, and said that the winding down of its balance sheet would end in September. The commentary took a toll on the greenback, falling broadly vs. rival currencies (except for the yen).


Bond Market

·     Treasury prices jumped and yields tumbled following the Fed statement, with the yield on the benchmark 10-year falling to lowest levels since January 2018 at 2.533% (down about 7 bps) and the 2-year dropped over 7 bps to 2.38%. The move came as the Fed came in even more dovish than markets had anticipated with no more rate hikes expected this year, creating a rush for investors to buy interest rate sensitive assets.






WTI Crude















10-Year Note





Sector News Breakdown


·     Consumer Staples; packaged food stocks were strong after GIS Q3 results topped estimates, as organic net sales growth of 1% in Q3 while put up adjusted gross margin expansion of 170 basis points (to 34.2%) over the year-ago figure, topping expectations; Deutsche Bank closes its short-term idea on STZ as they now see it trading with lingering uncertainty pending 4Q results and FY20 guidance (April 4), which hopefully brings with it validation of underlying Beer momentum strength, and more clarity on Wine/Canopy impacts; MNST was downgraded to neutral at Goldman Sachs reflecting view US sales could remain softer than expected in the near term, driving downward estimate revisions; in restaurants, WEN, QSR and YUM were all downgraded at Mizuho; SBUX shares traded to all-time highs today

·     Auto’s; BMW with cautious comments in auto space saying it expects a significant decline in profits for the year ahead and announced multibillion-dollar cost savings/said it is facing significantly higher costs to comply with stricter emissions regulation/expects operating profit margin in its auto segment to be between 6% and 8%, below its long-term goal of 8% to 10%; Ford (F) said it plans to spend about $900M and hire about 900 workers to build electric and self-driving vehicles in Michigan, while moving production of a small commercial van to Mexico from Europe.



·     Inventory data was bullish for crude oil this week as the EIA said weekly stockpiles fell an unexpected -9,589M barrels vs. an estimate build of +1,750M barrels, while gasoline inventories fell -4,587M barrels vs. the -2,500M draw estimate. Overnight, the API reported late U.S. crude supplies fell by -2.1M barrels for the week ended March 15, showed that gasoline stockpiles were down -2.8M barrels, while distillate inventories declined by -1.6M barrels

·     Solar & Utilities; Barclay’s upgraded NEE and FE to Overweight from Equal Weight, and downgraded NWE to Underweight to reflect their updated valuations based on 2021 estimates combined with price performance over the past quarter. Solar stocks were active (FSLR, SPWR, JKS among others) after Digitimes reported China’s government could limit feed-in tariff subsidies for PV-generated electricity to $448M, an 80% decline



·     Bank movers; banks slammed in the early going ahead of the FOMC meeting results, where the Fed was expected to be dovish, keeping rates low – prices fell further after the overly patient view from the Fed to keep rates lower for longer; Dow component GS shares down as much as -$10 from yesterday intraday highs; the WSJ reported BLK plans to cut the price that its largest clients will pay for investing it its biggest equity index fund; TIGR opened at $8.10 after 13M share IPO priced at $8.00 per share; CWK 16.5M share Secondary priced at $17.75; the KRE fell over 1.8% as regional banks hit hard (KEY, EQBK, FITB, TBBK among worst decliners)

·     Consumer finance and lending; WP merchants that accept payments in the U.S. can add Amazon Pay to their websites, allowing shoppers to pay with the information already stored in their Amazon account; PYPL shares traded to 52-week highs today; COOP downgraded to underweight at Piper saying the burden from the company’s deleveraging efforts will hurt earnings



·     Pharma movers; Healthcare services and managed care names a big drag on markets early (HUM, UNH, CVS) after HUM called out concerns about the return of an Obamacare fee — a premium tax based on a company’s market share — at Tuesday’s investor day; ALXN investor day presentation shows 2019 forecasts for revenue, adjusted EPS and adjusted operating margin at mid-point of range provided on Feb. 4/sees FY revenue of $4.66b, adjusted EPS of $9.20, adjusted operating margin of 54.5%

·     Biotech movers; sector slipped before rebounding; SAGE has priced its postpartum depression (PPD) med Zulresso (brexanolone) at $7,450 per vial or $34,000 per average course of treatment (before discounts)/says it does not expect to have to rebate a "significant portion" to pharmacy benefit managers (PBMs); ENTA 1.6M share Spot Secondary priced at $97.00; AMRS falls after delaying its 10K filing citing material weakness remains and may see added deficiencies

·     Cannabis sector; Bloomberg noted that Canadian marijuana stocks may be in focus today after Canada’s federal budget contains a tweak to cannabis excise taxes for edibles and other extractable products. Under the proposal, the products would be taxed on THC quantity versus the total price of the product; WEED entered into an exclusive license and assignment agreement with Yissum, where it agrees to exclusively license and, purchase certain patents, technology and know-how relating to formulations for the administration and delivery of lipophilic compositions

·     Medical equipment and devices; NVRO shares surged following the post-close announcement that, effective immediately, Keith Grossman will assume the roles of President and CEO, which was applauded by many analysts (upgraded at BMO Capital and Bank America calling him the best SMid cap commercial turn-around CEO in MedTech, while tgts were raised as well)

·     Healthcare services and providers; Jefferies said their latest scrapes show that AMZN now has PillPack licenses in 39 states, meaning they’re closer to offering a national mail-order Rx. Also, AMZN’s basic care private label OTC drug offering expanded significantly, with SKUs up 43% M/M (combo of new sizes/strengths and new products such as OTC Allegra). Cowen said today that while a “muted response” from Democrats to a Medicare drug rebate proposal rule suggests that the Department of HHS will move forward on a final rule in coming months, companies with pharmacy benefit managers such as CVS, UNH, HUM or CI may rally if implementation is delayed


Industrials & Materials

·     Transports; Dow Transports bounce off the lows of 10,084….but still down sharply on the day, dropping below its 50-day MA of 10,168 (recovered from its 100-day MA 10,072); sector falls after package delivery giant FDX Q3 results fell short of estimates and lowered its full year profit outlook saying weaker global trade growth trends contributed to the revenue shortfall/weaker demand, particularly in the Ground segment, weighed on operating margins; the sector was pressured yesterday after lower guidance from CVTI in the trucking space and rail weakness on cautious analyst commentary (UNP was downgraded)

·     Industrial & Machinery; Longbow said CY1Q checks provide a cautious read for LECO and support our modestly below-consensus estimates, as survey outlook expectations moderated for a second straight quarter and remain predicated on an uptick in CY2H demand; ROK was downgraded to neutral at UBS as sees a balanced risk/reward profile given the company’s decelerating growth outlook; URI shares dropped after flagging unfavorable weather during Q1, even though it added that the impact was not material enough to change its outlook.

·     Chemicals; BAYRY shares dropped as it has lost the first phase of a trial over allegations that its Roundup herbicide causes cancer and now proceeds to a second phase to determine the liability and damages in the case of a man who sprayed the product on his property for decades; SMG agrees to sell its ~30% stake in lawn service company TruGreen to majority owner Clayton Dubilier & Rice for $234M

·     Aerospace & Defense; AIR shares fell following Q3 results as revs were again impacted by labor tightness in the MRO market leading to a slight top line miss. Adj EPS benefited from a tax gain and lowered its FY19 outlook

·     Metals & Materials; FNV reported Q2 EPS and revenue below consensus, sending shares of the miner lower; SCHN the latest steel producer to issues guidance but was favorable as sees Q2 adjusted EPS 44c-48c above consensus of 43c (recently STLD and NUE issued lower guidance)


Technology, Media & Telecom

·     Internet; GOOGL was hit with an EU 1.49B fine by the European Union after being accused of “illegal practices” in its advertising business/relates to its use of AdSense technology to thwart competition for online ads between 2006 and 2016; FTCH 13.1M share Block Trade priced at $26.00; AMZN shares traded up to 5-month highs

·     Semiconductors; CREE was upgraded to Market Outperform at JMP Securities with a $74 PT citing the recent sale of the lighting business and its "dominant" position as a silicon carbide material supplier; AMD advanced for a second day on continued optimism after GOOGL yesterday confirmed it was using a custom AMD graphics processing units for its cloud-based gaming platform Stadia; MU set to report earnings tonight

·     Software movers; SMAR shares rise after Q4 EPS loss was smaller than expected on better revs – (7c)/$52.2M vs. est. loss (14c)/$49.75M while Q1 and year rev outlook well above estimates; TDC was downgraded to sell at Citigroup noting shares are up over 20% since the company preannounced a strong Q4, but see risk that Q4 benefitted from one-offs: with sales responding to favorable incentives that go away, and customers pre-buying ahead of 2019 pricing hikes; TME shares fell after posting Q4 results; ATVI, EA, TTWO strong early (after rising yesterday), seen as among the biggest beneficiaries from Google’s new Stadia service,

·     Media & Telecom movers; NXST agrees to sell a total of nineteen stations for $1.32B in cash following the acquisition of Tribune Media by Nexstar/clears the way for its $4.1B acquisition of TRCO; ATTO Q4 core revenue and margins below consensus estimates and 2019 guidance elusive (saying won’t provide until Q1 call); DIS closed its $71 billion acquisition of FOXA’s entertainment assets, more than a year after the mega merger was proposed; VIAB warns DirecTV (T) customers that they could lose access to channels such as Nickelodeon and MTV unless the companies reach a new programming agreement; the current contract between the parties expires Friday

·     Hardware & Component news; SNE was downgraded to hold at Jefferies citing the company’s “unwillingness” to exit the smartphones business, which he called both “a disappointment and a strategic mistake; AAPL announced new AirPods wireless headphones which use an Apple-designed H1 chip, developed specifically for headphones, which brings faster connection times, 50% more talk time and hands-free; ANET was upgraded to buy at Deutsche Bank and tgt raised to $225 citing recent news that FB would become a customer of its new 7368 X4 switch product


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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