Market Review: April 04, 2019

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Closing Recap

Thursday, April 04, 2019

Index

Up/Down

%

Last

DJ Industrials

166.64

0.64%

26,384

S&P 500

6.01

0.21%

2,879

Nasdaq

-3.77

0.05%

7,891

Russell 2000

6.58

0.42%

1,567


 

Equity Market Recap

·     U.S. stocks were mostly higher, as the Dow Jones Industrial Average touched a six-month high, led by gains Boeing, Dow and Disney while the S&P 500 fluctuated between gains and losses as technology weakness weighed on the index. Stocks have risen all week on trade talk hopes, with President Donald Trump saying Thursday that talks with Chinese officials are “moving along very nicely” as he meets with Vice Premier Liu He at the White House later this afternoon. Market expectations is for Trump to settle a final date with President Xi to iron out the remaining details. The Nasdaq Composite underperformed, led by a decline in software and semiconductors, while TSLA shares fell as much as 10% after Q1 deliveries disappointed the market. Energy prices took a small breather as WTI crude fell from 5-month highs while the dollar gained. Trading ranges were narrow late day ahead of tomorrow’s nonfarm payroll report. Economic data helped lift markets today as jobless claims fell to a 49-year low as the labor market tightened further.

Economic Data

·     Weekly Jobless Claims fell 10K to 202K (the lowest level since December 1969), below the 215K economist estimate while the 4-week moving avg. fell 4K to 213.5K in the week ending March 30 (note overall prior week claims revised up to 212K from 211K); continuing claims fell 38K to 1.717M in the week ending March 23

·     The 30-year fixed mortgage rate for week ended today rose to 4.08% from 4.06%, Freddie Mac said in statement; the 15-year rate avg 3.56%, down from 3.57% a week earlier

 

Commodities

·     Oil prices slide with WTI crude dipping 36c or 0.6% to settle at $62.10 per barrel, while Brent crude traded to $70 per barrel for the first time since November. Natural gas prices dropped following bearish weekly inventory data (EIA said stockpiles rose 23 bcf vs. est. build 10 bcf). Oil just holding on, barely lower despite bearish inventory data yesterday and a rebound in the dollar with WTI just off recent 5-month highs.

·     Gold prices settle little changed for a third straight session, slip $1.00 to close at $1,294.30 an ounce, holding steady ahead of tomorrow’s nonfarm payroll report. Given the rebound in the dollar, gold prices have slumped from 2019 highs just 3-weeks ago when the Fed became overly dovish, predicting no further rate hikes throughout the year…but have since fallen steadily.

 

Currencies

·     The U.S. dollar edged higher posting small gains against its major rivals as markets await further clarity on a potential trade deal between the U.S. and China, as well as await March employment data due on Friday. The British pound slipped to afternoon lows vs. the dollar, trading at $1.3161, compared with $1.3160 late yesterday, well off an intraday high near $1.32. Emerging market currencies posted modest declines with markets in “wait and see” mode.

 

Bond Market

·     Treasury yields slipped, pulling back from weekly highs (above 2.52%) as markets remain on edge regarding the trade developments between President Trump and China delegates. After the sharp decline last week (10-year yield hit lows around 2.32% intraday), prices have since slipped amid mixed global economic data (better this week after disappointing PMI data last), and ahead of the nonfarm, payroll report tomorrow with yields climbing. The Financial Times reported Tuesday trade negotiations were nearing its end, with the question of how to monitor and enforce a final trade pact remaining as one of the last sticking points in recent talks.

 

 

Macro

Up/Down

Last

WTI Crude

-0.36

62.10

Brent

0.09

69.40

Gold

-1.00

1,294.30

EUR/USD

-0.0015

1.1218

JPY/USD

0.05

111.54

10-Year Note

-0.017

2.503%

 

 

Sector News Breakdown

Consumer

·     Auto’s; TSLA shares slumped after saying deliveries were 62,950 vehicles (up 110% YoY but down 31% QoQ)/ Model S/X deliveries fell far short of expectations (12,100 vs. consensus of 20,340; down >50% sequentially) while Model 3 deliveries mostly came in line with expectations – TSLA also reaffirms prior guidance of 360,000 to 400,000 vehicle deliveries in 2019; NIO was upgraded to Neutral from Underperform at Bank America and upgraded to buy at Citigroup; MNRO was downgraded at Guggenheim as believe current near-peak valuation has become difficult to justify and offers limited room for expansion; TM, F and GM formed a consortium to promote safety in autonomous vehicles. Together with auto engineering group SAE, the automakers will establish a set of safety principles to be used in the development of standards; Ford (F) said U.S. Light-Vehicle Sales Fell 1.6% YoY and truck and van sales were up 4.1% YoY

·     Retailers; sector one of the top performers, with apparel, department stores rising (UAA, M, TGT, URBN); TGT raises its minimum wage for workers to $13 an hour for all new and current employees as part of an incremental plan to hit $15 per hour by the end of 2020; ODP reports 1Q preliminary revenue of about $2.76B below est. $2.82B citing lower than expected operating performance at the Company’s CompuCom division; ADDYY announces multi-layered’ partnership with Beyoncé; home product store HOME jumped after Reuters reported the company is exploring options that include a potential sale https://reut.rs/2UewICU

·     Consumer Staples & Restaurants; STZ agreed to sell about 30 of its brands of under-$11 wine to E. & J. Gallo Winery for $1.7 billion. Constellation said it will hold onto its more premium line of wine brands like Robert Mondavi, The Prisoner Wine Co., Kim Crawford, Ruffino, and Meiomi (STZ also reported earnings and revenues that topped consensus); RRGB shares fell as said its CEO resigned and said Q1 comp sales fell (-3.6%) on a constant currency basis, slightly more than the (-2.1%) estimate (downgraded at Bank America on the news); SMPL reiterated its ability to exceed guidance for long-term net sales growth target of 4% to 6%/sees full-year fiscal 2019 net sales and adjusted EBITDA to increase double digits y/y

·     Casino & Leisure movers; MTN was downgraded to a Neutral from outperform at Macquarie and cut its price target to $240 from $250, giving shares a little bit of room to run still; HOG shares busy after Northcoast said in a note 1Q U.S. retail sales are likely to exceed investor expectations; ISCA Q1 EPS missed views while reaffirmed year EPS and revs

 

Energy

·     In stock news; PUMP was downgraded to outperform from strong buy at Raymond James saying the market is pricing in a "substantial relative premium" on the stock; RES was double upgraded to overweight at Morgan Stanley saying that its exposure to smaller E&Ps in the Permian and a more dynamic pricing model should allow the company to take advantage of any upside surprises in market tightness or pricing; in refiners, Piper cut its estimates on VLO to 19c from 52c saying headwinds abound for the refining sector in 1Q, especially after a very strong 4Q

·     E&P; stocks that are most leveraged to Colorado Senate Bill 181: XOG (40% exposure), SRCI (36%), APC (18%), PDCE (6%), NBL (1%) of their core Colorado acreage falling within municipal boundaries – were among the top gainers in the energy sector today after the State’s legislature passed a sweeping overhaul of the state’s oil and natural gas laws; the legislation gives local governments more power to regulate drilling in the crude-producing regions

 

Financials

·     Bank movers; JPMorgan (JPM CEO Jamie Dimon issued a letter to shareholders noting geopolitical uncertainty is now heightened due to uncertainty around how the United States intends to exercise global leadership; concerns on China’s economy is legitimate, but manageable; cybersecurity may be biggest threat to U.S. financial system; may have 6,500 wealth advisers in AWM by end of 2019; prefers to use capital to grow, rather than to buy back stocks

·     Banks; JPMorgan downgraded CMA, ZION and KEY while upgraded SBNY to Overweight saying their overall call remaining to reduce exposure to regional banks; CMA was downgraded to neutral from buy at Goldman Sachs and cut tgt to $84 from $89 saying while loan growth has begun to improve from the lows, a lack of additional interest rate hikes, likely means margins will begin to compress beyond Q1; SNV was upgraded to strong buy at Raymond James

·     Insurance; BHF was downgraded to sell at Citigroup saying the recent decline in long-term interest rates/the forward curve could negatively impact BHF’s ability to generate FCF from its VA business

·     Brokers and advisors; TW 40M share IPO priced at $27.00; VIRT and MKTX announced a partnership to provide institutions with enhanced trading tools and access to global exchange-traded funds (ETFs) and fixed income securities. The effort, which includes the distribution of Virtu’s streaming eNAV ETF fair value offering, is expected to launch in the third quarter.

 

Healthcare

·     Pharma movers; REPH rises as announced plan to restructure its Acute Care Segment, which analysts says should enable REPH to become cash flow positive in 2H19/also raised guidance for revs; TNXP rises after reporting it plans to expand its TNX-102 SL Phase 3 program to include fibromyalgia/sees dose boosting to 5.6 mg from 2.8 mg as evidence to support higher dose; PRGO received tentative approval from the FDA for the generic version of Sernivo Spray 0.05%; TCDA 5.6M share secondary priced at $36.00; NGM 6.67M share IPO priced at $16.00

·     Biotech movers; DBVT 5.218M share Spot Secondary priced at $6.75; PBYI has expanded two additional cohorts from the Phase II SUMMIT clinical trial investigating its lead drug candidate neratinib in patients with solid tumors who have an activating EGFR or HER2 mutation; SGMO 11M share secondary priced at $11.50

·     Medical equipment and devices; SILK 6M share IPO priced at $20.00; MYGN and AGN extend pact as the companies to use BRACAnalysis CDx to identify germline BRCA mutations in men who have metastatic castrate-resistant prostate cancer and are enrolled in the Phase III PROfound study, in services and providers; MCK, CAH and ABC shares were active after Cleveland Research said AMZN activity within pharmacy appears to be picking up, and believe AMZN could introduce a pharmacy solution (likely focused on generics) to Prime customers over the next 6-18 months.

 

Industrials & Materials

·     Industrial & Machinery; in the waste sector, UBS said underlying fundamentals and consolidation story remains intact in their view. However, with the stocks trading at 10-year peak P/E multiples relative to the S&P 500 they narrow our focus to stocks with company specific drivers. Firm downgraded WM from Buy to Neutral following 17% price appreciation YTD while upgraded ECOL to Neutral following a 12% YTD share price decline; Bank America upgraded IR to buy as see continued runway on the US non-res cycle, particularly on the institutional side of the sector beyond 2019, while downgraded ETN to neutral on valuation

·     Transports; Bank America cautious on airlines HA and JBLU, reiterates underperform and drops its EPS estimate on JetBlue by 23% and Hawaiian Holdings by 17%, calling out "meaningful" risk to JBLU’s EPS guidance and competition concerns for HA near; in rails sector, Citigroup trimmed 1Q19 EPS estimates by 2.3% on average for the rails, as weather meaningfully impacted Western and Canadian rails and volumes lagged (CSX, UNP, NSC)

·     Paper & Packaging sector; KeyBanc said containerboard stocks could see pressure citing negative catalysts and sentiment on the sector while Goldman Sachs also reiterated the bearish environment for the space, citing discussions with investors (KeyBanc cut 2019-2020 estimates for IP, WRK and PKG, as he doesn’t expect good news ahead for the sector)

·     Metals & Materials; SCHN Q2 EPS of 48c topped estimates though revs of $474M missed the $487M estimate but offered upbeat Q2 EPS outlook/said productivity initiatives tracking ahead of schedule; metals posted a good week of gains thus far amid a rebound in China economic data (ISM Manufacturing and services), as well as gains in iron ore prices; in chemicals; LNDC falls on guidance as Q3 results mixed while guides sees Q4 EPS 12c-15c on revs $150M-$153M, below est. 22c/$154M; RPM Q3 results topped views on in-line Q4 view

 

Technology, Media & Telecom

·     Internet; FB was upgraded to buy at Guggenheim and up tgt to $200 to reflect view that investors will continue to gain comfort with the incremental financial risk created by content and privacy concerns/also believe usage trends have remained solid; Guggenheim also positive on TWTR as believe the company has made progress in 1Q and see the business as well positioned to exceed investor expectations over the next several years; SNAP announced new augmented reality and camera search experiences for creators, partners, and Snapchatters

·     Semiconductors; the Philly semi index (SOX) traded to fresh 52-week highs of 1,475.27 before paring gains, as the chip space has pushed the Nasdaq higher over the last few weeks on hopes the bottom is in; MU downgraded at Morgan Stanley as they DRAM remaining oversupplied throughout the year and into next/while NAND is closer to a bottom than DRAM, they do see difficult conditions persisting through the year.

·     Software movers; cloud/SaaS/software names hit very hard (CRM, TWLO, ZS, WDAY, TEAM, HUBS, NOW), just a day after record high for S&P 500 tech names in what seemed like a bout of profit taking

·     Media & Telecom movers; LVY was downgraded to in-line from outperform at Evercore/ISI as continues to like LYV’s business model, growth, but thinks there’s headline risk to shares; DIS was reinstated buy and $142 tgt at Goldman saying the close of the Fox acquisition and the approaching debut of the Disney+ streaming service in late 2019 marks a momentous shift; Intelsat (I) jumped after FCC Commissioner said the agency needs to adopt an order in the “coming months” on the C-band to get spectrum for 5G, according to the text of a speech

·     Hardware & Component news; ROKU was downgraded to neutral at Guggenheim as believe that the Apple video product unveiled on March 25 represents an additional risk to Roku’s active user base while Amazon’s and Viacom’s greater pushes into advertising video on demand (AVOD) are increasing competition

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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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