Market Review: April 03, 2019

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Closing Recap

Wednesday, April 03, 2019

Index

Up/Down

%

Last

DJ Industrials

38.63

0.15%

26,217

S&P 500

6.11

0.21%

2,873

Nasdaq

46.86

0.60%

7,895

Russell 2000

7.56

0.49%

1,560


 

Equity Market Recap

·     U.S. stocks pared gains late day after being on “cruise control” the last few weeks amid a bevy of reasons, as the S&P 500 and Nasdaq Comp advanced for the 5th straight session, with most major averages about 2%-3% from its record highs reached in the Fall (S&P 500 highs 9/21 at 2,940, Dow Industrial highs 10/3 at 26,951, Nasdaq highs 8/30 at 8,133, Russell 2000 highs 8/31 at 1,742). You can chalk up gains to: trade optimism (see below between China/US), a dovish Fed over the last month (changing their stance to no more rate hikes in 2019), though economic data has been mixed (ahead of the jobs report). Where global stocks slipped last week on softer data, this week has seen an uptick in PMIs in both China and the UK, which has allowed investors to re-engage risker assets, with global stocks jumping across the board. Overnight reports that U.S. and Chinese negotiators are 90% of the way to a trade deal, according to the Financial Times, helped fuel today’s market rally. Also helping sentiment, another round of positive economic data out of China as the Caixin China services PMI rose to 54.4 last month from February’s 51.1. Late day, stocks slipped (along with Mexican stocks/currencies) after reports the Trump administration is examining options for shutting entry points to the U.S. from Mexico in case the president follows through with his threat to close the border, a White House official said. Profit taking also ensued after stocks hit fresh 2019 highs.

Economic Data

·     Private payroll report was soft as ADP said US firms added 129K jobs in March, below the 175K estimate (ahead of the Friday nonfarm payroll report), though February data was revised by 14K to 197K from 183K as reported last month.

·     ISM Non-Manufacturing for March falls to 56.1 from 59.7 in the prior month and below the 58 estimate by economists; Business activity fell to 57.4 vs 64.7 prior month (lowest since July 2017), while new orders fell to 59.0 vs 65.2 and employment rose to 55.9 vs 55.2; also, prices paid rose to 58.7 vs 54.4 and backlog of orders rose to 56.5 vs 56

 

Commodities

·     Oil prices slip; WTI crude dips 12c to settle at $62.46 per barrel, edging off recent November highs after a round of bearish weekly inventory data. Despite the surprise 7M barrel weekly crude oil build (vs. an expected drawdown), prices held up fairly well, holding comfortably above $62, while gasoline and distillate drawdowns posted weekly declines in inventories. Impressive that he biggest build since January couldn’t dent the recent momentum.

·     Gold prices held steady, dipping a dime to $1,295.30 an ounce, holding ahead of this week’s jobs report. Prices have been buoyed by a “softer” Fed on rates, though a bounce in riskier assets the last few weeks (stocks heading back near record highs) has dulled interest in safe haven assets.

 

Currencies

·     The U.S. dollar pulled back on the day following a round of weaker economic data (ADP private payrolls and ISM services data both missing estimates), while China service data was strong and investors pared recent gains in the greenback that neared 2019 highs just a day ago. The dollar index (DXY) dropped back around the 97 level, with the buck dipping against the euro and Pound. The dollar also dropped against emerging market currencies.

·     Cryptocurrency prices burst higher, extending gains from the prior session and taking the market value of all digital assets above $180 billion for the first time in more than four months. Major gains were seen in altcoins, cryptocurrencies other than bitcoin. Bitcoin Cash gained more than 100% in 36 hours to reach an intraday high at $348 and Litecoin, the fifth-largest cryptocurrency, rose more than 60% over the same period. Bitcoin has gained more than 25% since early Tuesday, storming above $5,100 for the first time since November 2018 – Marketwatch.com

 

Bond Market

·     Treasuries dipped; the 10-year yield inched higher, up around 2.52%, a near 20 bps move off last week’s 15-month lows, while longer dated Treasuries remain pressured amid a global bond selloff and improved risk appetite. Stocks jumped early (before paring gains) amid signs the U.S.-China trade talks were progressing with reports of getting near a deal conclusion. Markets could see bigger moves in treasuries later this week after the Friday jobs report. The 2-year yield was up around 2.33% while recession fears have abated as the 3-month/10-year yield has reversed its recent inversion given softer US data.

 

 

Macro

Up/Down

Last

WTI Crude

-0.12

62.46

Brent

-0.06

69.31

Gold

-0.10

1,295.30

EUR/USD

0.004

1.1244

JPY/USD

0.14

111.46

10-Year Note

0.012

2.513%

 

 

Sector News Breakdown

Consumer

·     Retailers; GME shares dropped, falling to its lowest levels since 2005 after posting disappointing Q4 results and guidance for next year/Q4 comp store sales were up 1.4% while new hardware sales fell (-9.8%) as an increase in Nintendo Switch sales offset by a decline in Xbox One X sales and new software sales were down (-7.8%)/guidance for 2019 is very back end weighted with negative EPS in 1H and comps are expected -10 to -5%, below consensus -3.6%; SIG Q4 results topped estimates and forecast an unexpected profit for FQ1/said comparable sales fell 2% during the quarter, dragged down by a 8.4% drop for the Jared business and 1.6% decline at Kay; URBN was upgraded to buy at Davidson citing strengthening fundamentals ahead; ASNA was upgraded to neutral from sell at Citigroup as believe the risk/reward is more balanced at current levels

·     Consumer Staples; APRN shares bounce as named a new CEO (Linda Findley Kozlowski as its new CEO, most recently COO at ETSY) while reaffirms its prior guidance of a significant improvement in net loss and achieving profitability on an adjusted EBITDA basis in Q1 and for the full year; TSN said its Oklahoma-based subsidiary AdvancePierre Foods Inc. recalled 20,373 pounds of ready-to-eat beef patties that could be contaminated with soft purple plastic; ELF was upgraded to buy at Jefferies saying retail sales trends have improved from down M/HSD in late 2018 to up L/MSD in 2019 partly due to the Jan floor set update and the company just named a new CFO; in tobacco, PM, MO shares active after FDA says received 35 reports of vaping associated with seizures; USNA shares fell after prelim Q1 results with sales 11% below consensus due to limited promo activity and softer-than-expected sales in China (Usana also lowered FY sales guidance 3% and EPS 4% at the midpoint);

·     Restaurants; DNKN was downgraded at BMO Capital citing the recent appreciation in shares (up 20% over the last 90-days); PLAY 4Q comp sales (2.9% vs. 2%) and EPS beat (75c vs. 63c est.) and guides FY revenue $1.37B-$1.40B vs est. $1.38B sending shares higher; CMG, CVGW active after Mexico Haas avocado prices jump 34%

·     Auto’s; TSLA shares topped their 50-day MA earlier ($292.70) as markets await sales update (note Bloomberg noted the average analyst estimate is for production of 64,400 Model 3s, while Bloomberg’s experimental tracker sees Model 3 production of about 79,000 – is expected to report Q1 product by Wednesday); US autos outperforming the last few sessions on hopes of trade deal with China and better monthly auto sales figures for March – GM, F, FCAU higher along with gains in suppliers LEA (up 10% last 3-days), BWA (+9% last 3-days)

 

Energy

·     Energy stocks were one of the few sectors lagging broader markets after bearish weekly inventory data took a little steam out of the recent rally. The EIA reported a surprise weekly build of 7.2M barrels (vs. an expected decline of -800K barrels), while both gasoline and distillate stocks piles fell in the week, but by a smaller-than-expected margin. U.S. gasoline stockpiles forecast to drop for seventh week in EIA data, matching decline reported by API; E&P laggards included GPOR, MTDR, LPI, CPE among others

·     E&P sector; group was lower, led by declines in several E&P and integrated names; TELL and TOT announced that the two companies have signed a Heads of Agreement for Total to make a $500M equity investment in the integrated Driftwood project; in equipment, BOOM raised Q1 revenue guidance to about $100M from $82M-$85M (est. $82.51M), while gross margin is expected to be consistent with the company’s prior forecast of 34% due to strong sequential growth; OPTT surges more than 150% early after announcing a deal with an unnamed oil and gas exploration and production company to complete a 12-week paid feasibility study

·     MLPs; Goldman Sachs upgraded EPD to buy from neutral and up tgt to $32 from $30 citing the company’s improving cash flow and its "leading position" in exports for crude oil and natural gas liquids and raises Ebitda estimates for 2019 through 2021 to reflect higher natural gas volume growth and higher margin per barrel of crude oil. TEP was downgraded to neutral from buy

 

Financials

·     Bank movers; modest gains today, rising as Treasury yields continue to rebound from 15-month lows as the 10-year yield now up about 20 bps from last week lows at 2.52%, while the 2-yr up at 2.33%. In consumer finance and lending; SQ was initiated with a market-perform rating at Bernstein, writing that while catastrophic risks seem overblown, the stock still looks expensive trading at 14 times estimates for enterprise value over revenue; MGI upgraded at Northland to an Outperform rating from Market Perform on a positive view of upside potential for shares

 

Healthcare

·     Pharma movers; NVS unit Sandoz has resubmitted its U.S. marketing application seeking approval for its biosimilar to AMGN’s Neulasta; AKBA shares defended by several analysts after recent decline, with Raymond James noting shares fell as a result, in their opinion, of a statement in the company’s 2018 10K that notes a SAE of liver function test (LFT) that is considered a case of drug-induced liver injury possibly resulting from vadadustat

·     Biotech movers; RBC Capital previewed quarter and upgraded MRUS, while downgraded INCY, (primarily on valuation) and updated valuation and price target for GLPG following FINCH phase III RA data; APTX shares were active as announced preclinical data on its NMDA receptor modulator NYX-458; EDIT said it will collaborate with privately held BlueRock Therapeutics, LP aimed at discovering, developing and manufacturing novel engineered cell therapies; ADXS shares dropped after pricing 2.5M share secondary at $4.00 per share

·     Medical equipment and devices; IRTC was upgraded to buy at BTIG noting shares are down recently following multiple short attack, causing shares to retreat from the $90s into the $60s but now feel the benefits outweigh the risks; VIVO was downgraded to hold at Canaccord as believes a turnaround is not going to occur in the near-term

·     Healthcare services and providers; Cigna (CI) and recently acquired Express Scripts introduced Patient Assurance Program, which will ensure eligible people with diabetes in participating plans pay no more than $25 for a 30-day supply of insulin. For users of insulin plans managed by Cigna and Express Scripts, the average out-of-pocket cost for insulin was $41.50 for a 30-day supply

 

Industrials & Materials

·     Industrial & Machinery; CAT was downgraded to hold from buy at Deutsche Bank saying it was becoming increasingly clear that the company’s backlog growth was poised to turn negative in the next quarter, which it views as an early warning sign for earnings prospects; KMT was upgraded to overweight at Barclay’s (tgt raised to $44) saying while the company was facing growth headwinds, such risks look far more priced into KMT than its peers; in heavy duty trucking (CMI, PCAR, NAV), Class 8 orders declined 66% YoY to 15,700 units; AYI trades to highs up over 11% after earnings to the best levels since September

·     Metals & Materials; aluminum producer AA downgraded for a second day as Deutsche Bank cuts its rating to neutral from buy and slashed its price target to $31 from $45 as their global commodities team cut its aluminum price forecast by 5.4% for 2019 and 6.2% for 2020 (note Credit Suisse downgraded AA yesterday); CLF rises as the price of iron ore tops $100 a tonne on talk of a supply crunch after warnings of lower output from the industry’s three big producers; CMC leads in steel space after Credit Suisse raised estimates and named it top pick in the sector

·     Aerospace & Defense; UBS downgraded RTN to neutral from buy saying shares have outperformed the large-cap defense avg by about 900bps YTD on the back of better 4Q cash performance and an industry leading top-line outlook (weakness in general for defense names – LMT, GD, NOC); SPR was downgraded from Outperform to Market Perform at Cowen saying the stock is only slightly off highs despite having the highest 737Max exposure of any of the suppliers (48% vs 27% for BA) while an extended Max software update review increases the risk BA may need to temporarily trim production; BA has delayed initial missions to return astronauts to space for NASA, including the first flight of a rocket that will carry a crew on board.

·     Transports; overall transports climbed with broader market and hopes for trade deal to occur; group led for a second day by airlines, getting a lift yesterday after DAL boosted guidance (AAL, UAL, JBLU up again today); CSX was downgraded to neutral from Positive at Susquehanna

 

Technology, Media & Telecom

·     Semiconductors; sector leading the charge higher for markets, boosting the tech sector as the Philly semi index (SOX) trades to fresh 52-week highs (above 1,476), rising over 3% at its best levels after Nomura took a positive long-term view on chip makers’ growth, seeing annual sales growth of as much as 9% from 2020 to 2025, despite some caution in the near-term. Nomura said sector growth may come from several categories, including AI, autonomous driving, 5G communications, Internet of Things and continued buildout of global data-center infrastructure (initiated INTC and AMD with buys and neutrals on NVDA, XLNX); shares of MU, WDC, ON among top gainers; INTC said that George Davis will become the chipmaker’s CFO effective Wednesday (as he leaves QCOM where he had served as CFO since 2013)

·     Software movers; Piper said EA’s Apex Legends is two months old, but has had a material impact on the gaming landscape saying they have seen Twitch viewing for Apex stay relatively stable for three weeks, and are more confident in incorporating a meaningful contribution to revenue; OKTA traded to all-time highs following positive sell-side comments post its analyst day; BLKB and QTWO were both downgraded at Stephens; CTXS shares jumped late day after the NY Post reported that billionaire investor Paul Singer asked that Citrix executives enlist the help of an investment to explore a possible sale of the company https://on.mktw.net/2UrAJmG

·     Media & Telecom movers; Intelsat (I) upgraded to overweight at JPMorgan noting shares have declined 28% YTD and 38% since February 27th when a slew of headlines all but halted the C-Band Alliance’s (CBA) momentum in D.C. – but believe that after being overly-optimistic in the fall, the market is now underpricing the likelihood of Intelsat and the CBA’s eventually selling spectrum and reaping substantial proceeds; VIAB and TMUS announced that the companies have entered into a significant content distribution agreement; MTCH positive mention by Jefferies saying it should be able to deliver sustainable double-digit revenue growth thanks to a robust international opportunity; VZ is activating its 5G mobile network in Chicago and Minneapolis as customers can expect speeds up to 1Gbps, which is about 10x faster than normal

·     Hardware & Component news; COMM receives its 2nd analyst upgrade in as many days as Raymond James raised to strong buy based on our belief that the earnings accretion from the pending ARRIS acquisition is underappreciated

·     Internet; not much news for the broader group, but rallying across the board with strength in tech as stock momentum continues to the upside; AMZN positive mention at Jefferies saying it sees shares trading at $3,000 by 2021; IQ announces providing its in-vehicle entertainment solution for Ford’s SYNC+, a new infotainment system from Ford China and Baidu; FB shares slipped late day after Bloomberg reported user records found on Amazon cloud servers

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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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