Market Review: March 21, 2019

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Closing Recap

Thursday, March 21, 2019





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     U.S. stocks quickly recover from yesterday’s late day pullback, with today’s gains broad based (absent the weakness in financials a second day on a lower interest rate environment outlook and weaker economy), with the push coming in tech again today. The Dow Industrial Average traded up as much as 250 points or 1%, reclaiming the 26,000 level sparked by strength in tech as Apple (AAPL) rose for the 9th time in the last ten sessions, moving back above its 200-day MDA ($190.65). Semiconductors also surged with the Philly semi index (SOX) rising as much a 4% (new 52-week highs), led by gains in Micron (MU) on better results (as investors overlooked the weaker outlook), which prompted buying in other chip related names. The dollar rebounded (in a big way) after Wednesday’s loss, while government bond yields steadied after falling to fresh 14-month lows earlier (10-year dipped below 2.5% briefly). The Bank of England kept rates unchanged at its monetary policy meeting but all eyes remain focused on Brexit. Financials were again a drag on the S&P, led by bank declines on the lower rate outlook as regional and big cap banks falling. But it was biotech and tech the big stories today with BIIB losing more than 29% of its value after its decision to stop late-stage phase III studies of their Alzheimer’s disease drug aducanumab. Transports rebounded after its recent downturn while markets await earnings from retail footwear giant (and Dow component) Nike (NKE) tonight.

Economic Data

·     Weekly Jobless Claims fell 9K to 221K, below the 225K estimate; the 4-week moving avg. rises 1K to 225K in the week ending March 16; note prior week claims revised up to 230K from 229K; continuing claims fell 27K to 1.750M in the week ending March 9

·     Philadelphia Fed manufacturing index rises to 13.7 in March after – 4.1 in February and above the estimate for up 4.8; General business conditions were -4.1 in the prior month. prices paid fell to 19.7 vs 21.8, new orders rose to 1.9 vs -2.4, employment fell to 9.6 vs 14.5, shipments rose to 20.0 vs -5.3, inventories rose to 17.2 vs 3.3 and prices received fell to 24.7 vs 27.7



·     Oil prices slipped, with WTI crude closing just below the $60 per barrel mark (down 25c to $59.98), pulling back from four-month highs in a bout of profit taking. Oil prices have risen lately after U.S. crude inventories plunged by the most since July yesterday and as OPEC giant Saudi Arabia pressed on with export cuts. Yesterday, EIA data showed that nationwide stockpiles declined by 9.59 million barrels, while analysts had expected an increase. Gold prices gain as April futures rise 0.4% or $5.60 to settle at $1,307.30 an ounce.



·     The U.S. dollar was in big-time rally mode, recovering all (and more) of yesterday’s post FOMC policy meeting losses after the buck plunged on the dovish monetary policy outlook. Today, the dollar index (DXY) rose 0.75% to around 96.50, posting big gains against the British Pound (fell to lows around 1.30 before paring its declines), but was up broadly vs. all rival currencies. The British Pound sinks amid ongoing Brexit fears/BOE decision to keep rates steady.


Bond Market

·     Treasury yields did an about face late day, reversing higher after touching the lowest levels since January of last year, dropping as low as 2.49% before finishing above 2.54%. Early on, Treasury yields fell, extending a sharp weekly decline after the Federal Reserve meeting sparked a sharp rally across global bond markets on its lower rate outlook. The bond market outlook landscape appears to have changed given the FOMC overview yesterday of low inflation and a weakening economic outlook.






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10-Year Note





Sector News Breakdown


·     Retailers; Dow component NKE is expected to report earnings after the close this evening; LEVI 36.667M share IPO priced at $17.00; GIII reported Q4 EPS beat of 12c though sales miss and guidance for Q1 mixed (higher sales view and weaker profit); GES mixed Q4 as EPS misses by 5c on slightly better sales of $837.1M, but guides FY20 GAAP EPS $1.09-$1.21 vs. est. $1.38 weighing on shares/analysts note inventory overhang weighs on margins; CHGG will offer $500M convertible notes due 2025, with initial purchasers having an option to purchase up to an additional $75M; for TPR UBS lowers its Kate Spade 3Q comp estimate to -7.5% from -3% and this drives the 3Q EPS change as data suggests Jan. and Feb. US Kate Spade sales have been slow; LE reported strong results this morning with $502.3M in revenue, down 1.6% y/y but above consensus estimates of $474.7M estimate; 52-week lows for TPR, JWN

·     Consumer Staples & Restaurants; CAG reports net sales growth of 36% in Q4 (but missed views), driven primarily by the Pinnacle Foods acquisition while organic net sales grew 1.9% – reaffirms year (follows better results from GIS yesterday as well in the packaged food space); DRI Q3 EPS of $1.80 beats the average analyst estimate by a nickel while Q3 blended same-restaurant sales +2.8% and total sales increased 5.5% to $2.25B topping ests/now sees fiscal 2019 same-restaurant sales growth 2.5%-2.7% vs. prior view of ~2.5%; CMG tgt raised to Street high $770 from $670 at Argus and maintaining buy as have a favorable view of new CEO Brian Niccol and expect him to strengthen the company’s menu offerings and marketing

·     Housing & Building Products; in home furnishing, WSM mixed Q4 as delivered solid core EBIT growth, with adjusted results coming in above the high-end of guidance while comp sales fell short of views (+2.4% vs. estimate +2.8%); furniture maker MLHR posted Q3 EPS beat and revenue miss with an upside Q4 EPS forecast from 76c-80c on revs $645M-$666M vs. est. 72c; JP Morgan initiated VMC and MLM with overweight in construction materials as they like their large aggregates exposure that is more exposed to infra spending, which is growing more than Res and Non-Res (neutral rated on EXP, SUM)



·     Energy stocks; MUR agreed to sell its primary Malaysia assets to PTT Exploration & Production Pcl for $2.13B in order to focus on North American onshore operations and in the Gulf of Mexico; SM affirms 1Q production view 10.5-10.9 MMBoe saying 25 wells were drilled and completed as planned and on budget; COP was upgraded to overweight at Piper saying stock’s year-to-date underperformance due to concern over major project spending risk/but believes in current valuation levels; in solar, CSIQ shares slumped after reporting better than expected Q4 earnings but warned 2019 net profit will be lower than the previous year from its module manufacturing business, partly due to higher costs caused by the appreciation of the yuan vs. the dollar/euro



·     Bank movers; regional banks no relief after yesterday’s rout following the outlook from the FOMC for no additional rate hikes this year and only one year along with their lowered US growth outlook (HBAN, FITB, STI, KEY, RF, PNC); in insurance; ALL estimates catastrophe losses for February at $151M pretax, or $119M after taxes; comprised of 10 events at an estimated cost of $140M pretax ($111M, after-tax); PYPL traded to 52-week highs

·     REITs; Raymond James upgraded CUBE to Outperform from Market Perform and establishing a $34 target price on more attractive valuation/stronger balance sheet, while also downgrading EXR shares to Market Perform from Outperform as believe the risk/reward profile has become more balanced of late



·     Pharma movers; JAZZ secured FDA approval for its drug to treat excessive daytime sleepiness linked to narcolepsy or obstructive sleep apnea/Piper noted while the highest dose of the drug wasn’t approved, was impressed with the clean label (OW rated and $202 tgt); Sun Pharma is dropping a pre-emptive case it filed over a NVS patent for Jadenu; AERI was rated a new overweight with an $80 tgt at Piper

·     Biotech movers; BIIB shares lose a quarter of its value after it and partner Eisai Co’s decision to stop late-stage phase III studies of their Alzheimer’s disease drug aducanumab based on results of a futility analysis conducted by an independent data monitoring committee, which indicated the trials were unlikely to meet their primary endpoint upon completion (shares of Alzheimer treatment makers RHHBY, LLY, ACIU were all active); PTE was initiated with an outperform and $26 tgt at Evercore/ISI; INO announced that its investigational Ebola vaccine was able to elicit a strong antibody response in the majority of subjects in a Phase 1 trial; LQDA 3M share Secondary priced at $11.50

·     Medical equipment and devices; DVA shares rose early after Capitol Forum reported that the FTC Wednesday postponed a vote on whether to approve the company’s sale of its physicians network business to United Health; DHR tgt was raised to $150 at Citigroup after mgmt meetings, coming away pretty positive on the near & mid-term outlook here; DXCM shares slipped early afternoon after cautious mention by short seller SprucePoint; TTOO spiked after announcing agreement with GE Healthcare disclosed in 8k

·     Healthcare services and providers; DPLO was upgraded to outperform at Raymond James with an $8 tgt on view that the franchise at the current valuation would represent value to a strategic buyer following the 56% decline since the February earnings delay; CVS said it will begin selling products infused with the non-intoxicating hemp component at more than 800 of its stores as part of a distribution deal with marijuana company Curaleaf Holdings Inc.


Industrials & Materials

·     Transports; nice bounce for the recently beaten up transport sector, as the index up about 1% on the day led by gains in CAR, KSU, LUV all up over 2% midday (group recently hit by FDX miss and lower guidance, CVTI lower outlook in trucking sector, rails on cautious analyst comments and airlines in follow through from BA 737 Max plane issues) – also the lower growth outlook from the Fed renews economic concerns

·     Metals & Materials; CF slides after the European Commission (EC) has announced provisional anti-dumping duties on urea ammonium nitrate (UAN) imports from Russia, Trinidad and Tobago, and the U.S; metals and mining stocks rebound from yesterday losses; WOR shares outperform following its quarterly results


Technology, Media & Telecom

·     Semiconductors; strongest group in tech, led by relief rally in Micron despite weak outlook; MU shares rallied despite weak results as the chipmaker Q2 results were lower than the year before (but topped estimates), but provided a revenue outlook for Q3 that was below consensus forecasts and said it would cut production and capital spending in response to a drop in demand for key products like its DRAM memory chips; QRVO was upgraded to buy at Goldman Sachs and raised tgt to $79 citing a compelling valuation and early signs of smartphone unit stabilization; shares of WDC, LRCX, STX among those that advanced in reaction to MU results

·     Software movers; gaming company TCEHY reports its largest quarterly profit drop since its 2004 IPO with net profit down 32% to RMB14.2B (or $2.1B) attributed to a RMB2.1B one-off charge related to Tencent Music and weaker market conditions

·     Media & Telecom movers; Intelsat (I) shares fell after FCC Chairman Pai said that a decision on Intelsat plan not needed “right now” and that its “important for us to get it right as opposed to moving very, very quickly.” Note the FCC is considering whether to side with foreign satellite companies, including Intelsat and SES, and allow them to sell their rights to a swath of public airwaves to speed the deployment of 5G technology; CMCSA announces new streaming video service Xfinity Flex which will cost $5/month and have free TV shows, films

·     Hardware & Component news; AAPL received several positive analyst mentions, upgraded to strong buy at Needham with $225 tgt while Wedbush raised its tgt to $215 and Citigroup boosted its tgt to $220 despite dour sell side sentiment,” as expects the iPhone maker to boost its buyback authorization by $100b and increase its dividend next month; ANET added to Goldman Sachs Americas Conviction List and reiterates a Buy while raises tgt to $360 as sees significant upside potential to consensus expectations driven by Arista’s expansion into campus switching


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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