Market Review: April 09, 2019

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Closing Recap

Tuesday, April 09, 2019

Index

Up/Down

%

Last

DJ Industrials

-187.52

0.71%

26,153

S&P 500

-17.44

0.60%

2,878

Nasdaq

-44.61

0.56%

7,909

Russell 2000

-19.17

1.21%

1,559


 

Equity Market Recap

·     U.S. stocks fell broadly in the U.S. as the S&P halted its eight-day rally with its biggest drop in two weeks amid renewed concerns about the worldwide economy, while Treasuries gained and the 10-year yield falling back below 2.5%. Tech stocks slipped as Dow component Apple snapped its 9-day win streak (longest streak since Oct 18, 2010) while the Philadelphia semiconductor index (SOX) snapped its 7-day win streak as well as tech saw profit taking. Transports slipped on the day, led by airlines after lower outlook from AAL and ahead of DAL earnings tomorrow. Earlier today, the IMF cut its global growth forecast for 2019 to 3.3% from 3.5%, lowest since the financial crisis, renewing global growth fears. The British Pound dropped vs. the dollar as U.K. Prime Minister Theresa May met with key EU leaders to discuss a possible Brexit extension. Stocks also fell and haven assets like government paper rose following the U.S. Trade Office’s representative talk of imposing tariffs on the European Union, in retaliation against the EU’s financial support for aircraft manufacturer Airbus SE. Reports were the Trump administration moving toward imposing tariffs on about $11 billion in imports from the European Union. The number of job openings in the U.S. fell by more than half a million in February to the lowest level in almost a year, according to today’s JOLTs report as job openings declined by 538,000 to 7.09 million in February.

 

Commodities

·     Oil prices slide from 5-month highs, dipping 42c, or 0.7% to settle at $63.98 per barrel ahead of weekly inventory data tonight (API) and tomorrow (EIA) where expectations are that U.S. crude supplies climbed for a third straight week. The recent unrest in Libya has helped support price accretion the last few days around potential supply outages. On Monday, prices rose for a sixth straight session and marked the highest finish since late October (having risen 4.9% last week). Gold prices gained, ending around the $1,305 an ounce level on the mixed dollar.

 

Currencies

·     The U.S. dollar rebounded off morning lows, erasing losses vs. the euro to trade flat around 1.126 late day, while rebounding against the Canadian dollar as well; the buck fell vs. the safe-haven yen as defensive assets outperformed today; the British Pound fell to lows late morning around the 1.303 level amid more ongoing meetings in Europe between UK Prime Minister May and other Euro leaders on Brexit extension. There were no major economic data points to influence markets today though there are two Fed speakers later tonight (Quarles and Clarida).

 

Bond Market

·     Treasury prices were mostly higher, as yields slipped, as the 10-year yield dipped back below the 2.50% level and the 30-year held around 2.90%. The US. Treasury sold $38B in 3-year notes at a yield of 2.301% vs. 2.299% pre-sale when issued with a bid-to-cover at 2.49 vs. 2.56 prior auction (demand) and indirect bidders awarded 42.7% of auction, and 38.6% to primary dealers and 18.7% to directs (highest since Sept 2014). Treasury markets dealing with the renewed threat of trade tariffs after the U.S. threatened to slap import levies on the European Union.

 

 

Macro

Up/Down

Last

WTI Crude

-0.42

63.98

Brent

-0.49

70.61

Spot Gold

7.00

1,304.50

EUR/USD

0.000

1.1263

JPY/USD

-0.40

111.09

10-Year Note

-0.018

2.499%

 

 

Sector News Breakdown

Consumer

·     Retailers; PVH initiated overweight and $164 tgt at Morgan Stanley as see the concerns that have pressured the stock over the last eight months turning into positives in 2H19; GPRO shares active after Longbow raised 1H sales and EPS forecasts following our end of quarter preview as all evidence suggests units mix is heavily skewing towards HERO7 Black; TPX shares traded to fresh 52-week highs, rising on the day; UAA shares dropped after B. Riley FBR said its sell rated UAA remained a laggard in its annual athletic survey, dropping in footwear rankings (placed behind New Balance and Puma as well as No. 1)

·     Consumer Staples; EL tgt raised to $188 from $179 at Citigroup after conducting a survey of 50 prestige beauty stores in China; SMPL downgraded at SunTrust saying the 68% improvement in the stock since Feb.’18 initiation and current valuation fairly reflects the strong fundamentals

·     Casino & Leisure movers; in the RV sector, Stephens cut CWH estimates saying improved RV sales in late March won’t be enough to rescue the quarter from challenges at the start of the year; while Jefferies said the RV industry-wide wholesale shipments declined by 15.4% in Feb, while retail trends saw a decline of 10.6% (said WGO sales actually increased slightly Y/Y and the data supports their bullish call on supplier LCII vs. the manufacturers); in the casino sector, WYNN has ended talks with Australia’s Crown Resorts after deal talks leaked, CNBC reported

 

Energy

·     Energy stocks were mixed ahead of inventory data tonight/tomorrow morning as oil prices pullback from 5-month highs; TOT and its partners (includes XOM) sign a long-awaited agreement with the government of Papau New Guinea to allow work to begin on the $13B Papua LNG project that is expected to double the country’s energy exports; offshore drillers were among the better performers (ESV, RDC, DO)

·     E&P and equipment sector; CPE announced it has entered into a definitive agreement regarding the sale of certain non-core assets in the Midland Basin for initial cash proceeds of $260M (Seaport Global said CPE got a surprisingly high price of $14K per acre); FTI was awarded a significant subsea equipment contract for the Lapa field offshore Brazil in the pre-salt Santos Basin/FTI values a "significant" contract at $75M-$250M; LPI cut total employee count by approximately 20%, including a greater than 40% reduction at the Vice President and above level

 

Financials

·     Bank movers; markets await the start of earnings season, starting with JPM, WFC, PNC Friday morning; BAC said it is raising its minimum wage to $17 per hour effective May 1 then will increase it in increments over the next two years; Societe Generale plans actions that could slash up to 1,600 jobs globally, including about 750 in France, as a way to improve profitability and ensure sustainable growth according to newswires

·     Insurance; PFG agreed to acquire WFC’s Institutional Retirement & Trust business for $1.2B, giving Principal ownership of Wells Fargo’s defined contribution, defined benefit, executive deferred compensation, employee stock ownership plans, institutional trust and custody, and institutional asset advisory businesses (to serve a combined 7.5M U.S. retirement customers)

·     Asset managers; BEN reported preliminary month-end assets under management of $712.3B at March 31, compared to $714.2B at February 28; CNS reported preliminary assets under management of $62.6B as of March 31, an increase of $1.9B from February 28.

 

Healthcare

·     Pharma movers; ZGNX declined as received a refusal to file letter from FDA regarding its new drug application for Fintepla for the treatment of seizures associated with Dravet syndrome; PHAS shares rose as announced that the FDA has granted breakthrough therapy designation for PB2452, a reversal agent for the antiplatelet drug ticagrelor; ALKS announced positive topline results from ALPINE, a first-of-its-kind, six-month study evaluating the efficacy, safety and tolerability of ARISTADA® and INVEGA SUSTENNA; GERN upgraded to buy at Needham as believe the negative optics of a big pharma passing on imetelstat, and not a fundamental issue with the drug itself, have created a buying opportunity; ZSAN shares fell on stock offering

·     Medical equipment and devices; CERN shares rise after reaching a pact with activist investor Starboard Value and appoints four new directors to the board/also boosts its share buyback program by $1.2B; PKI was upgraded to buy at Goldman Sachs and adding the stock to the bank’s Conviction List saying its continued accelerated growth should exceed conservative expectations; the FDA sent a Warning Letter to BIOS subsidiary Infusion Partners, LLC concerning deficiencies in its sterile drug product production at its Canfield, OH facility

·     Managed care;; Piper said (on CNC, WCG, MOH) they identified a $90B organic growth opportunity for MCOs within the Long-Term Support Services (LTSS) Medicaid population, which accounts for $167B in Medicaid spending on individuals with long-term disabilities; Caresource to switch drug plan from CVS to Express Scripts

 

Industrials & Materials

·     Industrial & Machinery; PNR lowers adjusted FY19 EPS view to $2.30-$2.35 from $2.50-$2.60 (est. $2.56) and sees Q1 EPS 43c, down from prior view of 52c-55c (est. 54c) saying results were significantly impacted by adverse weather in its higher-margin aquatics and ag-related businesses; in ag space, LNN shares tumble as reported Q2 operating revenue that missed the lowest analyst estimate, saying North America irrigation market conditions worsen as trade concerns weigh on farmer sentiment ($109.2M vs. est. $116.3M); LII was downgraded to market perform at Cowen as see limited valuation headroom w/shares trading at a historical record 16x C20 EBITDA, decelerating C20 "adj. EPS" gain from C19’s one-time favorable insurance mismatch; HOLI downgraded to Neutral at JPMorgan and lowered its target to $23 from $26 as views the company’s 7.8M share offering as surprising

·     Transports; in airlines, AAL guides 1Q total revenue per ASM flat to up 1%, down from prior view of flat to up 2% while says 1Q capacity was slightly higher than previous guidance due to better completion factor offset by flight cancellations due to 737 Max 8 groundings (also lowers 1Q pre-tax margin ex-items to about 2% to 4%, down from previous view of up 2.5% to up 4.5%); also, HA narrows Q1 operating revenue per ASM to (5%)-(3%) from prior view (6%)-(3%); lowers Q1 operating costs per ASM excluding fuel to up 0.5%-2.5% from up 1%-4%

·     Aerospace & Defense; BA shares resume downside pressure after Q1 orders nearly halved to 95 from 180 yr-ago, with no new 737 MAX orders in March (shares fell yesterday as the company said its cutting production of its 737 jet output 19% to 42 airplanes a month by mid-April from 52 per month); AJRD shares were pressured after short-seller SprucePoint said sees 40%-60% downside in shares; HRS received a $243M contract from LMT to provide fully digital navigation signals for the first two GPS III Follow-On satellites; Japan’s military said it lost contact with one of its LMT F-35 stealth fighters over the Pacific Ocean close to northern Japan

·     Metals & Materials; US Steel (X) was downgraded to underperform at Credit Suisse and lowered its tgt to street low $13 from $21 saying the step-function rise in unit costs the past several years coupled with loss of automotive share suggests X is in a weaker competitive position vs. peers entering the “Sheet Tsunami” period in the US from 2021-2022; MUX reported Q1 production results and saying it is exploring the potential sale of its Mexican assets.

 

Technology, Media & Telecom

·     Internet; FB tgt raised to $95 at Morgan Stanley as see Instagram the ~$4bn+ opportunity but believe a stronger payments offering is key to capitalize, which takes time; HPE and GOOGL’s Cloud announced a global partnership to "deliver hybrid cloud solutions that accelerate innovation and expand choice and agility for customers.

·     Semiconductors; the Philly semi index (SOX) snapped its 7-day win streak; NXPI tgt raised to $110 at Piper saying even after the recent price appreciation, they believe NXP is still attractive at these levels, as believe its story is one of the most underappreciated in the semiconductor industry; QCOM lost a European Union court bid to overturn a request for information from EU regulators as part of their antitrust probe into whether the chip giant deliberately underpriced products to thwart a smaller rival; KLAC was resumed with a sell and $107 tgt at Goldman Sachs, cautious given potential downside to second half of 2019 Street estimates and near-term concerns regarding Orbotech’s business; SIMO said it sees Q1 revs to be within 5% below the low-end of the original guidance range of $97.5M-$103.6M but margins to be within 50 bps above the high-end of its 47.0%-50.0% guidance

·     Software movers; ZS tgt raised to $75 (from $55) at Credit Suisse saying conviction in Zscaler’s long-term growth increases in the absence of any real competition; SAP was downgraded by two firms (HSBC and UBS) both citing limited upside potential with no inflection in S/4 adoption this year; OKTA shares traded to all-time highs; WDAY shares rose on reports of a potential win with Geico according to KeyBanc

·     Media & Telecom movers; DIS was upgraded to outperform at Cowen and upped tgt to $131 (first time at OP rating since 2008) saying while they still have concerns on the wisdom of the Fox merger and the success of the OTT push, there is about a year to evaluate during which we expect the news-flow and catalyst progression to be very positive; WIFI rises as announced the successful deployment of Wi-Fi 6 at John Wayne Airport in Orange County, Calif.

·     Hardware & Component news; AAPL shares outperformed again, rising for a 10th consecutive session (longest streak since Oct 18, 2010); HPE and NTNX announced a global partnership to offer integrated hybrid cloud as a service/Nutanix will enable its channel partners to directly sell HPE servers combined with Nutanix’s Enterprise Cloud OS software; NTCT reported prelim Q4 revs of $235M, about $15M lower than originally anticipated and missing the average analyst estimate of $249.2M citing delayed revenue recognition

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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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