Market Review: March 26, 2019

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Closing Recap

Tuesday, March 26, 2019

Index

Up/Down

%

Last

DJ Industrials

141.44

0.55%

25,658

S&P 500

20.09

0.72%

2,818

Nasdaq

53.98

0.71%

7,691

Russell 2000

15.32

1.01%

1,528


 

Equity Market Recap

·     U.S. stock posted solid gains on Tuesday, but once again failed to maintain earlier highs with Treasury yields plunging late day to finish back near the lows as the global recession fears remain prevalent, offsetting any optimism on global trade talks later this week. The Dow Industrial Averages was up nearly 300 points late morning before settling much lower, weighed down again by weakness in healthcare, financials and tech while energy prices jumped and consumer discretionary stocks advanced along with interest rate sensitive sectors. Economic data disappointed following weaker readings for monthly housing starts and consumer confidence, both coming in well short of economist expectations (and prior month readings). A resumption of U.S.-China trade negotiations helped deliver some hope to investors with meetings scheduled later this week in Beijing between trade negotiators. Overnight, Bloomberg reported China could increase U.S. pork imports to the highest ever this year as part of its commitment to bolster purchases of American farm goods to resolve the trade war between the two countries. Managed-care stocks underperformed (MOH, CNC, WCG, UNH) the broader market today as the House Democrats plan to unveil health-care legislation aimed at lowering costs and protecting people with pre-existing conditions. Inverted yield curves, Brexit, China and trade, softer economic data all remain key market drivers along with a couple of earnings this week.

Economic Data

·     Housing Starts for February fell (-8.7%) to 1,162M annualized, below the est. 1,210M and was below the prior month reading of 1.273M when they grew 11.7%; single family starts fell to 805k; multifamily starts rose to 357k in February. Building permits fell (-1.6%) to 1,296M vs. 1,317M in January and below the 1,305M est.; completions rose to 1,303M in Feb. from 1,247M MoM

·     Consumer Confidence for March fell to 124.1 from 131.4 the prior month and was below the 132.5 economist estimate; the present situation confidence fell to 160.6 vs 172.8 last month while the expectations fell to 99.8 vs 103.8 last month

·     Richmond Fed’s March Manufacturing Survey at 10, in-line with estimates as shipments fell to 2 after 12 the prior month, new order volume slowed to 9 after 19 the prior month, order backlogs fell to -13 after -7 the prior month and capacity utilization slowed to 1 after 8 the prior month

·     S&P CoreLogic Case-Shiller 20-City Index up 3.58% YoY vs. est 3.80%; S&P CoreLogic Case-Shiller National Home Price index rose 4.26% y/y in Jan. after rising 4.60% in prior month; the S&P/Case-Shiller 20-city NSA index at 212.41 after 212.88 in Dec.

 

Commodities

·     Oil prices end higher; WTI crude jumps $1.12 or 1.9% to finish at $59.94 per barrel while Brent crude advanced 76c, or 1.13% to settle at $67.97 per barrel, coming ahead of inventory data tonight (API) and tomorrow morning (EIA). Note last week, the inventory data came in very bullish with much bigger than expected drawdowns in inventories reported.

·     April gold futures fell -$7.60 or 0.6% to settle at $1,315.00 an ounce, snapping its 3-day win streak as stocks rebound, and the dollar inches higher, causing some profit taking in precious metals that have risen sharply over the last few sessions on a more dovish Fed. Prices got a boost last week when the Fed predicted no further rate hikes in 2019.

 

Currencies

·     The U.S. dollar was mixed, with the index (DXY) posting modest gains (despite weaker economic data), rising against the euro, emerging markets (Argentina) and the Japanese yen, while the British Pound gained. The Argentine peso fell to a new all-time low as President Macri’s government struggles to instill confidence in the worst-performing currency in emerging markets this year. The Turkish Lira recovered after its recent pullback.

 

Bond Market

·     Treasury prices recovered from morning losses, with yields falling to afternoon lows late day, as the 10-year back to 2.405% (off earlier highs above 2.44%) and 2-year yield down to 2.25%. A combination of a strong 2-year auction as well as a round of weaker economic data (housing starts and consumer confidence), helped propel bonds higher. Fears of world-wide economic contraction has recently sparked buying in government debt, with Treasury yields tumbling over the last week (10-year fell to its lowest levels since December 2017 yesterday). There was a strong 2-year Treasury auction with a rate of just 2.261% and a bid to cover of 2.60 compared to prior auction of 2.50, and the highest since November. Primary dealers only needed to take down 30.7% of the action, with indirects buying 56%, one of the higher ratios in years.

 

 

Macro

Up/Down

Last

WTI Crude

1.12

59.94

Brent

0.76

67.97

Gold

-7.60

1,315.00

EUR/USD

-0.0035

1.1277

JPY/USD

0.45

110.43

10-Year Note

0.009

2.409%

 

 

Sector News Breakdown

Consumer

·     Retailers; BBBY shares surge after reports it is being targeted by three activist funds — Legion Partners Asset Management LLC, Macellum Advisors GP LLC and Ancora Advisors LLC — which together control a roughly 5% stake and are preparing to launch a proxy fight to replace its entire board https://on.mktw.net/2FruRjU (was upgraded at Raymond James); LULU reports Thursday, Credit Suisse says tricky into Q1 but raises 1Q SSS to +7% from +6.3% and sees upside

·     Consumer Staples; in food, MKC Q1 EPS beat by 8c with mostly in-line sales of $1.23B but on weaker margins (37.9% vs. 40.8% est.) and in-line guidance for the year; ANFI announced a raised in previously announced $30M contract to $42M, for suppling third party branded basmati rice to a repeat customer; MCD is buying decision-logic technology company Dynamic Yield Ltd. to better personalize menus in its digital push/reports indicate is spending more than $300M; CMG shares traded to 52-week highs (all-time highs $758.61 in August 2015)

·     Housing & Building Products; BECN pre-announced Q2 to the downside to reflect unfavorable weather conditions and lowered its FY guidance to the low end of the range (sees FY19 EPS at lower end of $2.90-$3.50 vs. est. $3.13); Homebuilding stocks have rallied the last few days on a lower interest rate outlook from the Fed last week (keeping mortgage rates lower) which could overshadow earnings the next few days (KBH and LEN to report earnings); also, markets watching as the Senate starts two days of hearings focused on mortgage giants Fannie Mae and Freddie

·     Casino & Leisure movers; cruise lines active after CCL reported a top and bottom line beat (49c/$4.67B vs. est. 44c/$4.31B), but provided Q2 EPS of 56c-60c, below the 72c estimate and cuts year EPS to $4.35-$4.55, from $4.50-$4.80 (below est. $4.76) – RCL, NCLH shares moved

 

Energy

·     Energy stocks were broadly higher as oil prices climb into weekly inventory data tonight (API) and tomorrow EIA data); big bounce for services, E&P and integrated stocks after slumping yesterday; WFT said it completed the sale of two land drilling rigs that were relocated in Algeria and delivered two idle land drilling rigs from Iraq, for aggregate proceeds of $32M; EQT said operational improvements in 1Q have been ‘very good’; sees 1Q drilling and completion operations on time, on budget; PE reiterated FY 2019 production guidance while anticipating $1.35B-$1.55B of total development expenditures.

 

Financials

·     Bank movers; after falling 9% the last 4-days (flat yesterday) the regional bank sector (KRE) rebounds along with large cap banks (XLF), as yields bounce off recent year lows, having been pressured by an overly dovish Fed the last week; in services, INFO reported mixed Q1 results as EPS topped views but revenue just fell short of consensus while backing its year outlooks

·     REITs; PSA was downgraded to underweight from equal-weight at Barclay’s as increased supply nationally is likely to lead to weaker growth in the self-storage sector/said same-store operating measures have declined and they don’t foresee near-term fundamental improvement

 

Healthcare

·     Pharma movers; VRTX was upgraded to outperform at William Blair on expectations the company’s cystic fibrosis franchise will continue dominating after Proteostasis (PTI) reported disappointing triplet data; ENDP shares jumped after Purdue Pharma and the Sackler family reached a settlement with Oklahoma over claims that illegal marketing of the OxyContin painkiller harmed local communities (ENDP among several drugmakers sued by several states); cannabis stocks slipped after CRON posted a net loss of C$11.8 million ($8.8 million)

·     Biotech movers; GILD said the Japanese Ministry of Health, Labour and Welfare has approved its once-daily oral Biktarvy for the treatment of HIV-1 infection; ALDX shares jump after its Phase III ALLEVIATE Trial of 0.25% and 0.5% reproxalap topical ophthalmic solution in patients with allergic conjunctivitis met the primary endpoint and the key secondary endpoint for both concentrations; SRNE unit Scilex Holdings says phase II trial of repeat epidural injections of SP-102 in patients with lumbosacral radicular pain showed reduction in daily leg and back pain

·     Healthcare services and providers; Managed-care stocks underperform (CNC, WCG, UNH) the broader market today as the House Democrats plan to unveil health-care legislation aimed at lowering costs and protecting people with pre-existing conditions. Piper comments on CNC, WCG, MOH saying despite the negative Medicare-for-all headlines pressuring MCOs heading into 2020 elections, they dug into the $9B Medicaid expansion opportunity that is rarely talked about. We identified 6+ states that could add Medicaid expansion to the ballot in 2020, a $2.9B opportunity, and potential for $4.6B more in states that could gain legislative backing; NEOG reported both a top and bottom line Q3 miss, sending shares lower initially

·     Med tech; ABMD shares down sharply for a 3rd straight session (fell -3% yesterday and -4.2% on Friday) – note Piper recently said (3/25) that the stock has underperformed the broader group this year and over the past six months over confusion about the company’s STEMI study. This is the most open-ended growth story in med tech, in our view, and we encourage shareholders to step up here

 

Industrials & Materials

·     Metals & Materials; VALE said its iron ore production rose 8.2% Y/Y but fell 3.8% Q/Q to 101M metric tons in Q4, which closed about a month before the collapse of its tailings dam at Brumadinho killed hundreds of people; RIO said workers are returning to its ports and rail operations in Western Australia and that mining is resuming at its Robe Valley iron ore operations; OLN, WLK receive lawsuit from caustic soda buyer Amrex Chemical Co. alleging, on behalf of U.S. caustic soda consumers, that major U.S. producers of caustic soda formed an illegal cartel in or around 4Q15

 

Technology, Media & Telecom

·     AAPL – many analyst comment on its event yesterday which focused on launch of services and offered more breadth than investors expected; Goldman Sachs noted the premium News feature was the only announced product that was immediately available while the long-expected Apple TV+ streaming service was previewed for fall with no pricing information. Canaccord maintains a Buy rating and boosts Apple’s PT from $185 to $230 and raises its Services growth rate forecasts for CY19 and CY20/firm expects $59B+ in Services revenue for CY20

·     Semiconductors; Samsung Electronics Co. shares slipped overseas after the company issued a premarket earnings warning, saying Q1 results will miss consensus views because of weakened sales of its display panels and memory chips; NVDA was initiated overweight and $200 tgt at Piper saying margins bottomed in Q4 and they we see significant margin expansion (and earnings growth) over the next several quarters; QCOM got a boost late day after Bloomberg reported a US ITC judge determined that AAPL infringes a Qualcomm patent and recommended an import ban on some iPhones

·     Software movers; CMCM was downgraded at Instinet/Nomura to neutral and cut tgt to $7 from $12 as a result of the negative publicity accusing Cheetah of engaging in fraudulent click injection; ADBE and MSFT are teaming up to mutually bolster sales and marketing software capabilities to take on CRM

·     Media & Telecom movers; in advertising, CRTO was downgraded by two analysts (KeyBanc, SunTrust) citing yesterday’s report that GOOGL is considering ad tool changes that would target restrictions at the browser level/said if Google blocks third-party tracking in Chrome, there would be a "massive disruption to Criteo and the digital ad industry." In media, WWE tgt raised to $125 at MKM saying it has the most financial upside potential over the next 3-5 years, relative to expectations, within our coverage universe; NY Post reported CBS and VIAB are gearing up to resume merger talks — and settle once and for all who will be CEO of the combined comp https://nyp.st/2Wm8EKJ (VIAB shares rallied for a 2nd day)

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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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