Market Review: April 11, 2019

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Closing Recap

Thursday, April 11, 2019

Index

Up/Down

%

Last

DJ Industrials

-14.04

0.06%

26,143

S&P 500

0.11

0.00%

2,888

Nasdaq

-16.89

0.21%

7,947

Russell 2000

-2.41

0.15%

1,579


 

Equity Market Recap

·     U.S. stocks pull back from recent 5-month highs, as investors attention (for the time being) turns to corporate earnings while markets await details on trade talks between China and the U.S. Several Fed officials this week hinted that there are high hurdles to raising interest rates while inflation continues to undershoot their 2% target and risks to the economy abound. Stocks were active this week on mixed economic data, with today’s PPI data raising inflation expectations a day after the CPI failed to raise concerns. The dollar snapped its 3-day losing kid, weighing on commodity prices while the Pound slipped after the EU granted the U.K. more time to find a way of leaving the EU, with the deadline moved to Oct. 31. Producer Prices (PPI) for March showed rising inflation, while jobless claims sunk again to lows. Oil retreated from a five-month high as an increase in U.S. inventories to the highest since late 2017 yesterday.

·     Healthcare was the biggest drag in the S&P with managed care (CI, ANTM, UNH), hospitals (THC, CYH, HCA), and specialty pharma (ENDP, MNK, PRGO) all markedly lower. Tech stocks slumped along with biotech names which pushed the Nasdaq Comp lower. Banks held steady ahead of earnings tomorrow for JPM, WFC and PNC. Commodity and Material names another big sector laggard as the dollar rallied, pushing gold prices down over $20 and oil prices down over 1%. Waste stocks (RSG, WM) among the top decliners in the S&P after a sector analyst downgrade.

·     FactSet said that as of April 5 more companies are cutting earnings guidance than usual, leading analysts to make bigger cuts to their forecasts. He said 74% of the S&P 500 companies that have issued earnings guidance have lowered expectations, above the five-year average of 70%. As a result, the average analyst EPS estimate has been lowered by 7.3% during the first quarter, compared with the five-year average decline of 3.2%. – Marketwatch.com

Economic Data

·     Producer Prices (PPI) for March jumped 0.6%, well above the 0.3% economist estimate (and prior month rise of only 0.1%), while core prices (ex: food and energy) also came in “hotter” than expected, rising 0.3% vs. est. 0.2% rise. Final demand rose 2.2% YoY vs. est. up 1.9% while final demand ex food, energy rose 2.4% YoY, in-line with views (inflation data higher than yesterday’s mostly modest CPI rise)

·     Weekly Jobless Claims fell 8K to 196K, dropping well below the 210K estimate while the prior week claims revised up to 204K from 202K; the 4-week moving average stood at 207k in the week ending April 6; continuing claims fell 13k to 1.713m in the week ending March 30

·     The 30-year fixed-mortgage averages 4.12% for the week, up 4 basis points from 4.08% in the prior week, but still lower than 4.42 a year ago, according to Freddie Mac

 

Commodities

·     Oil prices dropped -$1.06 or 1.6% to settle at $63.58 per barrel as commodity prices fell broadly on Thursday, with energy, precious and industrial metals all coming under pressure, while coffee prices fell the most down over 4%. Gold prices sunk over $20 an ounce, down 1.6% to its lowest settlement of the month, ending at $1,293.30 an ounce and snapping its 4-day win streak most likely attributed to the rebound in the U.S. dollar on stronger inflation data earlier today (PPI). Silver led the declines however, sliding over 2%. Oil prices, just like U.S. stocks, are pulling back from more than 5-month highs, with modest profit taking ahead of earnings season. Earlier today, the IEA said data on demand for crude offered mixed signals amid sluggishness in global economies.

 

Currencies & Treasuries

·     The U.S. dollar snapped its 3-day losing streak, rising broadly vs. major currencies after hawkish PPI inflation data. The British pound was able to shake off Brexit drama and an early morning selloff to trade near unchanged in early afternoon trade. After nearly six hours of deliberation, European Union leaders granted the U.K. a second extension to its Brexit deadline to Oct. 31, which includes a clause that would allow Britain to exit from the EU earlier should Prime Minister Theresa May win parliamentary approval for a divorce plan. The euro, yen and Canadian dollar all posted declines vs. the greenback. Treasury yields quietly inched higher mid-session, with the benchmark 10-year topping the 2.50% (making back the 3 bps decline from yesterday), boosted by the PPI inflation report as well.

 

 

Macro

Up/Down

Last

WTI Crude

-1.03

63.58

Brent

-0.90

70.83

Gold

-20.60

1,293.30

EUR/USD

-0.0021

1.1252

JPY/USD

0.57

111.59

10-Year Note

0.029

2.504%

 

 

Sector News Breakdown

Consumer

·     Retailers; CATO reports sales fell 10% in March to $87.4M and same-store sales were down 7% during the month/negatively impacted by the shift of Easter from March last year to April; FIVE was upgraded to overweight at JPMorgan; BBBY shares fell as Q4 results topped views on weak comp sales, but Q1 guidance weighed on shares (guided Q1 EPS 7c-12c on revs $2.6B below the 29c/$2.68B est.); COST reports March total comp sales +5.7%, missed the 6.2% est. and compared to +8.60% YoY while March U.S. comp sales ex: fuel, currencies +5.5% vs. 7% est.

·     Consumer Staples; KDP was downgraded to underweight at Morgan Stanley after finding downside in coffee system sales relative to high market expectations;/says their ~80 bps below consensus corporate revenue forecast is supported by takeaways from their survey; WTW plunges as JPM lowers tgt to $12 and cuts estimates after taking in recent data that showed a 40% Y/Y drop in daily average users for WW subscribers during Q1

·     Restaurants; FRSH rises as MTY Food Group agrees to buy Papa Murphy’s for cash of $6.45 per share, in deal valued at $190M (including debt) https://yhoo.it/2uXrThZ ; CMG was downgraded at Jefferies to hold from buy though raised the tgt to $700 from $600 noting that the shares up nearly 90% from a December low; YUMC was upgraded to positive by OTR Global

·     Housing & Building Products; in building materials, APOG shares fell as reports light 4Q-FY19 due to severe winter weather’s impact on manufacturing locations and mixed guidance for FY20; FBHS was downgraded to underweight at Barclay’s saying the potential trade resolution between the U.S. and China, Bouley concluded that building products are vulnerable to disruption; homebuilders outperformed with gains in PHM, DHI among others

·     Casino & Leisure movers; TSLA shares declined after it and Panasonic are suspending plans to expand the capacity of their $4.5B U.S. plant in the face of uncertain demand for electric vehicles; MAR signed a new multiyear contract to offer bookings through EXPE’s online travel agency, according to a joint statement; ; CZR shares active after the NY Post reported the company is preparing to put itself up for sale as soon as this week after its board approved a sales process amid pressure from Carl Icahn https://nyp.st/2uXc0In

 

Energy

·     Energy stocks slipped along with other commodity prices as the dollar charged and investors took further gains in a group that has advanced to start the year. The International Energy Agency warned in its monthly report that falling demand could become a bigger issue for the rest of the year, saying the “risks to demand are to the downside” as it sees threats to global growth

·     Stock news; RDSA sold its stake in an oil-producing reservoir in the Gulf of Mexico to DK for $965M/Delek will pay cash for Shell’s 22.5% stake in the Caesar-Tonga field; Reuters reported BP plans to exit from two production sharing contracts for projects drilling for shale gas in China’s Sichuan province; BRS restructuring risk has become elevated due to its liquidity constraints and financial reporting issues, S&P Global Ratings said

 

Financials

·     Bank movers; banks were rallying into earnings tomorrow (JPM, WFC, PNC) helped as yields inching higher as 10-year up at 2.49%. Bloomberg noted that banks have been the worst-performing S&P 500 sector over the past month amid a flattening yield curve and fears of a recession, as analysts have cut their 1Q EPS estimates for the biggest banks by an average of 8.4% since the 4Q earnings season ended; CBSH shares fell after reporting Q1 EPS and revs that missed estimates with higher Q1 loan loss provision $12.46M vs. $10.4M a year ago

·     Brokers/Asset managers; AB said that preliminary assets under management increased 1.5% to $555B during March 2019 from $547B at the end of February, due to market appreciation; MN reports preliminary AUM $21.1B as of March 31; LAZ and MC were both downgraded at Bank America to reflect the slowdown in M&A activity, saying he expects Q1 to be the “first quarter in quite some time" when M&A advisors report lower revenues; several REITs at 52-week highs today: EQR, BXP, AIV, REG, AVB, MAA, PLD

 

Healthcare

·     Pharma movers; VKTX reported data demonstrating that all patients who received 5 mg of VK2809 dosed daily were considered responders, as defined by a relative reduction in liver fat of greater than or equal to 30% at Week 12; LLY was downgraded to neutral from buy at Guggenheim sees limited upside for the stock from current levels until Lilly’s overall immunology portfolio and competition is more fully understood; not the BMY proposed takeover of CELG will finally reach a climax on Friday when investors cast their votes on the merger

·     Biotech movers; the IBB was under pressure as biotech was broadly lower; ICPT shares fell on reporting additional data from late-stage study of OCA in NASH/new details emerging at the European Association for the Study of the Liver congress in Vienna; AMRS falls after receiving a deficiency notification from Nasdaq; AUTL 4.2M ADS Secondary priced at $24.00

·     Medical equipment and devices; CSII shares slump after Bank America downgraded to Underperform citing mostly valuation after rally in shares/also expects the competitive landscape to intensify in 2020 and 2021.

·     Healthcare services and providers; EVH shares rallied following a better-than-expected increase in Kentucky Medicaid rates that should allow the Passport business to remain solvent (as per analysts)/Passport is Evolent’s largest customer, accounting for ~10%-12% of 2019 revenue; managed care stocks were broadly lower (CI, UNH) as well as distributors (MCK, CVS); RAD shares declined as Q4 revenue missed the lowest estimates

 

Industrials & Materials

·     Industrial sector; industrial distributors rebound after FAST Q1 results topped expectations amid increased unit sales on strong demand and higher pricing, helping the group that declined yesterday due to weaker earnings/guidance from MSM; in the waste sector, Stifel downgraded WCN, WM, ADSW and RSG to hold from buy saying recycled paper prices are down $34/ton from the FY18 average into early April/paper accounts for 60% to 70% of the recycling basket for most companies, which translates into ~$20/ton of headwind

·     Metals & Materials; US Steel (X was downgraded to underperform at Bank America (2nd analyst downgrade this week) citing worse near-term U.S. market conditions than anticipated/channel checks indicate that recent price hikes have not stuck and that benchmark hot rolled coil prices have retreated to their yearly lows in recent days; EKX reported declining production at its four mines in Mexico during Q1, resulting in 1.9M of silver equiv. oz; FCX shares dropped as copper priced declined

 

Technology, Media & Telecom

·     Internet; NFLX shares active after Wedbush (underperform rated and $165 tgt) said they that late-quarter roll out of domestic price increases may weigh on Q2 sub guide; EBAY dipped after Bloomberg reported data from analytics firm YipitData showed a notable deceleration in the e-commerce platform’s U.S. marketplaces business in 1Q; GDDY launches Marketplaces, which lets customers easily list online store inventory through AMZN, EBAY, WMT, ETSY

·     Semiconductors; the index pulled back after the Philly semi index (SOX) made fresh 52-week highs earlier in the session as broader tech pulled back to afternoon lows; MTSI shares fell after saying CFO Robert McMullan has submitted his resignation for personal reasons and will transition to an advisory role and support the transition for the next two months

·     Hardware and Software movers; TUFN 7.7M share IPO priced at $14.00; IBM tgt raised to a Street high $173 at Credit Suisse saying the deal to buy Red Hat sets them up to be a dominant player in the fast-growing hybrid-cloud industry; PD 9.07M share IPO priced at $24.00

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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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