Market Review: April 18, 2019

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Closing Recap

Thursday, April 18, 2019

Index

Up/Down

%

Last

DJ Industrials

110.21

0.42%

26,559

S&P 500

4.67

0.16%

2,905

Nasdaq

1.98

0.02%

7,998

Russell 2000

-1.94

0.13%

1,565


 

Equity Market Recap

·     U.S. stocks just keep pushing higher, with the Nasdaq 100 at a fresh all-time high while the Dow Industrial Average trades as high as 26,602 on the day – about 350 points off its all-time highs back on October – and that comes after BA shares have fallen roughly 10% over the last 30-trading days and UNH falling to 52-week lows yesterday. Stocks appeared to have been tripped up this week with the meltdown in the healthcare industry as investors fear potential futures policy changes in Washington for expanding Medicare to all Americans, which has sunk shares of HMO’s, large cap Pharma/biotech names, hospitals as well as suppliers, services and MedTech names lower this week (though some saw buying today). But strength in technology, consumer discretionary and a rebound in financials after a tough start to earnings season helped.

·     Economic data was mixed today as the U.S. saw weekly jobless claims slide to fresh 50-year lows and retail sales jump 1.6% vs. est. 1%, though the Philly Fed data missed at 8.5 below the 11 estimate. In the EuroZone, PMI data was weaker, pushing the euro lower against the dollar. The abbreviated trading week (closed tomorrow for Good Friday) has been chock full of big news, with better China GDP, signs of improved trade deal with China (expected the end of May), the busiest IPO week of the year so far (over 8-deals), and of course a busy week of large cap earnings – with much more to come next week. Pinterest (PINS) and Zoom (ZM) were the two big IPO winners on the day surging over 25% and 70% respectively in their debuts today.

·     In sector news, metals fell after aluminum giant Alcoa lowers its global demand outlook for the metal. Cloud and software related names slipped after TEAM EPS/rev results beat but softer billings growth hurt sentiment. Banking stocks saw a rebound while managed care stocks saw a rebound late day as analysts defend the group, while large cap Pharma failed to bounce. Oil prices gained for a 7th straight week while gold prices slipped a 4th straight week.

Economic Data

·     Weekly Jobless Claims fell 5K to 192K, below the 205K estimate, a new 50-year low, while the prior week claims revised up to 197K from 196K; the 4-week moving average stood at 201.3K in the week ending April 13, falling 6K; continuing claims fell 63K to 1.653M in the latest week

·     Retail Sales for March were strong, rising 1.6% and topping the 1.0% estimate as retail sales less autos rose 1.2% in March, vs. est. 0.7% gain; the gain of 1.6% was the largest since Sept. 2017

·     The Philadelphia Fed Index falls to 8.5 from 13.7 in the prior month and below the 11.0 estimate; April prices paid rose to 21.6 vs 19.7 prior, new orders rose to 15.7 vs 1.9 and employment rose to 14.7 vs 9.6 last month; shipments fell to 18.4 vs 20.0

·     Business Inventories for February rose 0.3% MoM, in-line with estimates while Business sales rose 0.1% in Feb. after rising 0.3% the prior month; Wholesalers inventories rose 0.2% m/m in Feb. after rising 1.2% prior month and retailers inventories rose 0.3% m/m in Feb. after rising 0.8% prior month

·     The 30-year fixed mortgage rate for week ended today rose to 4.17% from 4.12%, its third straight weekly advance while the 15-year rate avg 3.62%, up from 3.60% a week earlier.

 

Commodities

·     U.S. oil futures rise, with WTI crude up 24c to settle at $64.00 per barrel, extending its weekly gains to seven straight, holding near its best levels since last fall. Oil trading in the U.S. and U.K. will be closed for Good Friday. Late day, helping oil prices bounce, the weekly Baker Hughes rig count dropped -10 rigs, with oil rigs falling 8 rigs. Note the front-month May contract expires at Monday’s settlement.

·     Gold futures slipped 80c to settle at $1,276 an ounce, ending the shortened week with a 1.5% decline (4th straight weekly decline) and closing at its lowest levels of 2019 as stocks have remained just off their all-time highs. The dollar has held steady over the last few days, while investors have abandoned defensive assets over the last few weeks on signs of a near trade deal with China and a more global dovish outlook for interest rates.

 

Currencies

·     Dollar rises as the Euro to fresh lows down -0.6% at 1.1228 mid-afternoon, under pressure throughout the day after weaker than expected EuroZone PMI data overnight as the manager’s index for April fell to 51.3, from 51.6 in March, below the analysts’ expectation for 51.8. The US dollar gained as data pointed to a sturdy U.S. economy, as U.S. retail sales increased by the most in 18 months as households boosted purchases of motor vehicles and a range of other goods. The dollar has held around the 112 level vs. the Japanese yen all week, while the dollar was mostly higher vs. other market currencies today as well (CAD, AUD, CHF)

 

Bond Market

·     Treasury prices rose early, with the 10-year yield slipping over 2 bps, holding around the 2.56% the entire afternoon (closed early at 2:00 PM EST) as markets quietly went into the 3-day holiday weekend. Prices jumped early on weaker EuroZone data, but pared those gains after mostly better US data. Markets are still optimistic on a China/US trade deal while also dealing with a global dovish outlook on interest rates.

 

 

Macro

Up/Down

Last

WTI Crude

0.24

64.00

Brent

0.35

71.97

Gold

-0.80

1,276.00

EUR/USD

-0.0066

1.123

JPY/USD

-0.11

111.95

10-Year Note

-0.025

2.56%

 

 

Sector News Breakdown

Consumer

·     Retailers; SKX shares fell after Q1 EPS and sales just missed estimates and guided next quarter below views as sees Q2 EPS 30c-35c on sales $1.2B-$1.23B vs. est. 38c/$1.23B while comp store sales increased a modest 0.7%; mattress retailer SNBR slides after Q1 comp sales and gross margin missed estimates, while only reiterated its revenue and EPS guidance for the year;

·     Consumer Staples; SJM was upgraded to equal-weight at Morgan Stanley saying after several years of below expectation results, they believe SJM’s reinvestment strategy will drive improved topline momentum and delivery on the FY2020 outlook; COTY was downgraded to hold at Stifel on valuation; Dow component PG to report next Tuesday to kick off the household products

·     Tobacco, PM cut its earnings per share forecast for the full year to at least $4.87, (saw at least $4.90) well below est. $5.18 as 1Q cigarette shipment volume 0%; group also slides (PM, BTI, MO) after Senate Majority Leader Mitch McConnell said he wants Congress to raise the minimum age for tobacco products, including vaping devices, to 21 from 18 nationwide; GNLN 6M share IPO priced at $17.00

·     Housing & Building Products; EXP said it has begun a strategic review of its portfolio of businesses – heavy materials, light materials, and oil and gas proppants; PIR posted a nearly 14% drop in comparable sales, an even deeper decline compared to previous quarters; SNA among top S&P gainers after mixed Q1 results as EPS beat while revs fell short of views, though CEO said was encouraged by results, which included a continuing recovery in our U.S. franchise network

·     Casino & Leisure movers; in gaming, LVS reported solid 1Q19 results, with adjusted EBITDA ahead of consensus in both Macau and Singapore, and only slightly below in Las Vegas while gained market share sequentially in both mass and VIP according to analysts

 

Energy

·     Oil services; SLB posted a nearly 20% Y/Y drop in Q1 earnings, but was in-line with estimates while pre-tax operating income of $908M decreased 6% Q/Q and 7% Y/Y/Q1 revenues rose less than 1% to $7.88B, with international revenue of $5B declining 5% Q/Q but increasing 3% Y/Y; the weekly Baker Hughes (BHGE) rig count fell -10 to 1,012, the oil rig count down -8 to 825 and gas rigs fell -2 to 187

·     E&P sector; GPOR missed Consensus estimates for total production by 6% and reported a slightly lower than expected natural gas price realization partially offset by better than projected crude oil pricing; SM production report showed 1Q19 capex was 2% below Street consensus, while Stifel notes the post-hedge composite realized price was 1% below their forecast

 

Financials

·     Bank movers; many regional banks reporting; KEY Q1 EPS missed by 2c as fee income declined due to lower capital markets income; STI Q1 EPS beat by 3c as average loan balances of $153.7B rose 3% Q/Q and 8% Y/Y; UMPQ shares dropped after Q1 EPS of 34c missed estimates by 3c; CATY delivered a mixed quarter as core EPS missed estimate by a penny and the net interest margin was shy of some ests but posted loan and deposit growth; RF shares slide as EPS was in-line on mostly in-line revs but Q1 net interest income and other financing income-FTE of $961M falls 1% Q/Q and rises 4.2% Y/Y; other movers on earnings BBT, BPFH, TCBI, OZK, CFG

·     Insurance; Dow component TRV reported Q1 revs of $7.67B, slightly above views while reports record gross written premiums of $7.84B in Q1, up 6% Y/Y, with growth in all segments; TMK Q1 results beat estimates, while operating fundamentals were strong,

·     Consumer finance and lending; Dow component AXP Q1 adjusted EPS of $2.01 beats ests by 4c and up YoY while Q1 total revenue net of interest expense of $10.4B rose 7% from $9.72B a year ago; SYF Q1 EPS beat by 10c while net interest income rose 10% Y/Y to $4.23B, primarily driven by the PayPal Credit program acquisition and loan receivables growth; ALLY posted a top and bottom line quarterly beat; SLM Q1 core EPS beat by 4c and reiterated guidance for originations of $5.7B and non-GAAP efficiency ratio of 35-36%.

·     Brokers/Asset managers; BX said it plans to convert to a corporation from a publicly traded partnership after watching two of its rivals benefit from the move. Notes KKR & Co. and Ares Management Corp. announced conversion plans last year following the passage of a U.S. tax law; ETFC posted EPS beat as well as revenue beat from both fee revenue & net interest revenue coupled with well-controlled expenses

 

Healthcare

·     Pharma movers; sector weakness continues with no signs of abating with Dow components PFE and MRK falling to their lowest levels in months while the biotech index fell a 6th straight day as well as competing policy proposals in Congress, including a move to replace private medical benefits with a government-run single payer system threatens the industry; in the cannabis sector, CGC agreed to acquire Acreage Holdings (ACRGF) for $300M in cash plus 0.5818 CGC shares for each Acreage/deal valued at $3.4B https://on.mktw.net/2VPttOJ; the IBB slides as much as 2% early (before paring losses) after yesterday’s 3.9% decline – sector down a 5th straight day to the lowest levels since early January; HOOK 6M share IPO priced at $14.00

·     Medical equipment and devices; ISRG expected to report after the close tonight; ANGO announced the sale of its NAMIC Fluid Management business to Medline for ~$168M which KeyBanc noted heavy EPS dilution (but firm said was a buying oppty); life sciences names (WAT, TMO, PKI, A) were active after DHR results missed expectations and lowered its 2019 guidance to a range of $4.72 to $4.80 versus previous guidance of $4.75 to $4.85

 

Industrials & Materials

·     Chemicals; DWDP said it sees 1q total company results in line with guidance provided March 28 and sees better-than-expected results from Specialty Products, Materials Science results; AVY was downgraded to underweight at JPMorgan after its 26% YTD advance; PPG mixed as Q1 EPS beat while Q2 guidance weaker but reaffirms year outlook; CF was downgraded to underperform at Bank America with $38 target; VNTR was upgraded at RBC Capital saying the TiO2 cycle is turning with destocking activity nearing completion amid improving global demand and pricing

·     Industrials; URI reported 1Q profit and revenue above analysts’ estimates, and reaffirmed its full-year outlook after saying customer sentiment remained positive, and feedback from the field pointed to healthy end-market activity (HEES, HRI also active); HON EPS was 7c above the high end of the company’s Q1 outlook and up 13% excluding the impact of the spin-offs while segment margin was above 20% for the second quarter in a row with 120 bps of segment margin expansion Y/Y driven by the favorable impact of the spin-offs

·     Transports; Dow transports outperform broader market, bouncing off lows to move above the 11K level (traded as high as 11,048.57 earlier – its best levels since October), boosted by better UNP results in the rail space (overall good results this week in transports with KSU, CSX, UAL all better and JBHT the lone disappointment in the trucking sector); UNP quarterly profit beats on price hikes and Q1 operating ratio 63.6%, up 1.0 point, though said Q1 business volumes down 2%; JBHT downgraded to sell at Deutsche Bank as firm said shifting trends in U.S. transportation will result in a shrinking "middle mile" that connects goods between ports and final delivery

·     Metals & Materials; AA cut its global aluminum deficit forecast for the full year to 1.5M-1.9M metric tons, from prior 1.7M-2.1M; and sees FY19 global aluminum demand growth 2-3%, down from 3-4%; gold prices have slipped this week to 2019 lows and 4th straight weekly decline

 

Technology, Media & Telecom

·     Internet; PINS priced its 75M share IPO at $19, higher than the expected $15-$17 range and raising more than $1.4 billion; SNAP was downgraded at Wedbush citing valuation sending shares lower

·     Semiconductors; the one stand out sector in tech as the SOX index +35% YTD as many analysts have expressed the bottom for the industry; TSM with mixed Q1 results that missed EPS estimates but beat on revenue despite a 12% Y/Y and 25% Q/Q decline/gross margin slipped to 41.3% from 47.7% last quarter and 50.3% in last year’s period

·     Software movers; cloud software names slipped after TEAM posted Q3 rev and EPS upside but billings were below consensus ($325M versus $332M), and saw a large deceleration in billings growth to 31% from 49% in F2Q19 (WDAY, ZEN, NOW active in reaction); CHKP Q1 results that narrowly beat EPS and revenue estimates but missed on Product and Licenses revenue with $112.8M vs. $113.8M consensus; LLNW results came in below consensus and FY’19 guidance was reiterated/revs miss due to late ’18 contract renegotiations with 6 of 10 largest customers

·     Hardware & Component news; ZM prices 20.9M share IPO at $36, above the recently raised $33-$35 range; ADTN shares jumped to 6-month highs after Q1 EPS topped views on the back of double-digit revenue gains and sales jumped 19%; UBS said today in a note that AAPL paid $5B-$6B to QCOM to settle the global litigation and used Qualcomm’s post-deal guidance that EPS will increase by $2 to calculate that Apple also probably agreed to pay $8 to $9 per iPhone in patent royalties.

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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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