Market Review: April 22, 2019

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Closing Recap

Monday, April 22, 2019

Index

Up/Down

%

Last

DJ Industrials

-48.29

0.18%

26,511

S&P 500

2.96

0.10%

2,907

Nasdaq

17.20

0.22%

8,015

Russell 2000

-5.70

0.36%

1,560


 

Equity Market Recap

·     U.S. stocks trade sideways most of the session, with the Dow Industrial Average losses led by financials (AXP, TRV) and industrials (BA, CAT), while energy was among the top gainers (CVX, XOM) as oil prices jumped to their best levels in 6-months. The S&P 500 index was little changed, as the index remains on track for no 1% moves (up or down) in April heading into the busy earnings season this week. Earnings out of control with 30% of the S&P 500 names expected to report on the week (123 names including 9-Dow components), with large cap names AMZN, MSFT, INTC, FB and industrials CAT, BA, UTX and MMM among those expected. Oil prices jumped after President Trump said his administration won’t renew waivers that let countries buy Iranian oil without facing U.S. sanctions, upsetting major importers. Quiet on the macro front outside of a couple of key economic data reports with GDP late week – as no FOMC speakers are expected ahead of next week’s FOMC rate decision. Existing home sales fell for March, missing economist estimates in the lone piece of major economic data this morning. Back to oil, which jumped around 3% on the Iran news, came as the Trump Administration said “this decision is intended to bring Iran’s oil exports to zero, denying the regime its principal source of revenue,” White House Press Secretary Sarah Sanders said. “The U.S., Saudi Arabia and the United Arab Emirates, three of the world’s great energy producers, along with our friends and allies, are committed to ensuring that global oil markets remain adequately supplied,” according to the statement.

Economic Data

·     Existing-Home Sales for March fell (-4.9%) to 5.21M rate (after rising 11.2% the prior month), below the economist estimate of 5.3M while February was revised to 5.48M from 5.51M; there were 3.9 months’ supply in March vs. 3.6 in February as inventory rose 3.1% to 1.68M homes; Median home price rose 3.8% from last year to $259,400

 

Commodities

·     Oil prices surged as WTI crude and Brent trade to fresh 6-month highs after the Trump Administration confirmed reports it will end all waivers from Iran sanctions when they expire on May 2, prompting a threat from Iran to close the Strait of Hormuz. WTI oil prices jumped $1.70 or around 3% to settle at $65.70 per barrel adding to fears of further supply tightening (don’t forget conflicts in Libya). The U.S. reiterated its goal of cutting Iranian oil exports to zero and says it is committed, along with Saudi Arabia and the United Arab Emirates, to ensuring that global markets remain adequately supplied. Countries such as China, India, Japan, South Korea, Taiwan, Turkey, Italy and Greece had received six-month waivers in November to reduce their purchases of Iranian oil. The waivers had allowed Iran to continue exporting ~1M bbl/day, down from 2.5M bbl/day last year.

·     Gold prices trade in a narrow range to start the week, rising $1.60 to settle at $1,277.60 an ounce, bouncing off their lowest levels of the year. Corn futures tumbled, falling over 1% to record $3.635 mln bushels as commodity prices were mixed. June hog prices fell by 3c limit exchange limit today

 

Currencies & Treasuries

·     It was a very quiet day for the U.S. dollar, falling against the Canadian dollar as oil prices jumped while the buck dipped vs. the euro, and was little changed vs. the safe haven yen and British Pound. A weaker existing home sales data point did not help the dollar, with the index (DXY) slipping to 97.25. Expect thin trading ahead of the FOMC meeting next week (no Fed speakers this week). Treasury yields rose with the 10-year yield rising nearly 3 bps to just under 2.59%. The bounce in yields came amid mixed equity markets and softer economic data.

 

 

Macro

Up/Down

Last

WTI Crude

1.70

65.70

Brent

2.07

74.04

Gold

1.60

1,277.60

EUR/USD

0.0015

1.126

JPY/USD

0.01

111.94

10-Year Note

0.027

2.587%

 

 

Sector News Breakdown

Consumer

·     Retailers; DDS was downgraded to underperform at Wedbush and see downside north of 12% to our $65 price target as data models tracking increased promotional activity and revs tracking below consensus; CAL was upgraded to buy with $32 tgt at Needham on increased conviction that ’19 EPS guide is achievable, likely beatable; LB active as late Thursday, the Victoria’s Secret owner has made peace with activist investor Barrington who had been agitating for the company to spin off its more successful Bath & Body Works brand; retail in general was weak (KSS, JWN)

·     Autos’; TSLA was downgraded to underperform from in-line and tgt cut to $240 from $330 at Evercore/ISI – also said it was investigating a video that appears to show one of its electric vehicles exploding in a parking lot in Shanghai (note TSLA hosting its Autonomy Day at its Palo Alto HQ in which the company is expected to detail its latest autonomous technology); KeyBanc comments on auto suppliers ahead of earnings, as it downgraded its view on ALV, a move that also comes in anticipation of the company’s upcoming results; ADNT was downgraded to underperform at Buckingham saying the recent positive news about a potential notes offering is "more than reflected" in the current share price.

·     Consumer Staples/Restaurants; KMB reports organic sales rose 3% in Q1 vs. +1.1% consensus to help the company top estimates on both the top and bottom line while pricing was up 4% during the quarter to help offset a 2% drop in volume (also better operating margins of 17.4%); KHC announces that Miguel Patricio will succeed Bernardo Hees as the company’s CEO starting on July 1st (Patricio coming from 20-years mgmt experience at Anheuser-Busch); Dow components KO and PG expected to report earnings tomorrow morning; DNKN was downgraded to hold at Maxim saying they believe there is limited upside to our $79 price target ahead of the release of 1Q19 (March) results on Thursday, May 2

·     Housing & Building Products; NVR reported Q1 EPS that handily topped expectations though new orders fell -1% and backlog was down -8%; DHI was downgraded by KBW Inc. citing valuation after a 34% year-to-date rally propelled valuation close the firm’s price target; lumber futures fell over 3% early to its lowest levels in four months; homebuilders also declined following the weaker existing home sales data miss for March (TOL, LEN, PHM, KBH)

 

Energy

·     Energy stocks; XOM said late Friday it made a new oil discovery offshore Guyana at the Yellowtail-1 well, marking the 13th discovery on the Stabroek Block. The discovery adds to the previously announced estimated recoverable resource of approximately 5.5B oil-equivalent barrels on the Stabroek Block; OXY was downgraded at Mizuho to neutral saying reports of a potential by for APC introduces new uncertainty; big gains in the oil complex today following the spike in oil prices (MRO, FANG, DVN, VLO, HES, APA, NBL among top gainers in the S&P)

·     Oil services; sector outperformed last week on better SLB quarterly results and higher oil prices – the same factors that are boosting prices today – only this time is was better HAL results which posted a profit beat, and sees modestly higher North America activity and says it expects demand for its services to progress modestly for the next couple of quarters (HAL reversed lower)

 

Financials

·     Bank movers; large cap quarterly earnings are already behind the banking sector, which was mixed for the most part, as many posted disappointing equity trading revenues; still to get lots of small/mid-cap banks and regional bank earnings the next 2-weeks; TCF falls as Q1 revenue misses, NIM narrows; earnings from BOH, CBU, FFIB, ONB, PBCT, WASH today among movers

·     Asset managers & Brokers; Citigroup said following BX’s announcement on 4/18 that it will be converting to a C-Corp, they come away increasingly bullish on the name and Group at large as add BX to its focus list while open 30-day positive watch calls on CG and APO;

·     Consumer finance and lending; the WSJ reported that PYPL is close to selecting SYF to issue a Venmo-branded credit card,/said Venmo executives have been meeting with banks since late last year to discuss issuing such a credit card https://on.wsj.com/2GuIYFq ; SC was downgraded to neutral at Piper saying that valuation and credit metrics are no longer as compelling

 

Healthcare

·     Pharma movers; LLY top-line results from tanezumab’s Phase III OA pain and long-term safety studies were mixed-to-unfavorable as not all efficacy endpoints were met and safety findings concerning; AKRX rises after it announced that the FDA approved its generic versions of GSK’s allergy med Flonase and BHC’s unit Bausch + Lomb’s Lotemax; TNXP said the FDA has withdrawn its Breakthrough Therapy Designation Rescind letter issued on December 20, 2018

·     Biotech movers; sector looks to recover after last week’s sharp downturn; in gene editing space, BTI raised tgts for CRSP from $43 to $49 (increased probability of approval assigned to CTX001 and CTX110), EDIT from $30 to $33 (new i/o programs) and NTLA from $20 to $22 (new engineered TCR T-cell programs); NBIX was upgraded to overweight at JPMorgan noting the stock is down ~15% from the mid-January highs

·     Medical equipment and devices; ISRG posted a healthy beat on procedures and system units placed but reported a slight miss on sales (increased leases) and opex came in near the top end of guidance, causing EPS to miss; Needham raised tgt prices for TMO (to $312 from $271) and DHR (to $142 from $141) in MedTech

 

Industrials & Materials

·     Industrial & Machinery; Baird noted that North American truck production (medium+heavy) increased 15% YoY in Q1, better than our +11% estimate with both Class 5-7 and Class 8 segments delivering upside (CMI, PCAR, NAV leveraged to data); DOV was downgraded to Baird citing a great run in shares, rising +72% since their June 2016 upgrade (vs. SPX +38%), driven by portfolio action and new CEO rightsizing initiatives; EAF falls as Citigroup downgraded to sell from buy based on the view that graphite electrode (GE) prices will come under pressure from higher Chinese exports in 2H19

·     Rental/distribution; RCII was upgraded at Raymond James to Strong Buy from Outperform ahead of Q1 results in May as the company has improved significantly from the depths of the past few years/also co announced it will receive a $92.5 million payment to settle all litigation with Vintage; GWW Q1 EPS topped estimates by 6c while sales fell short of consensus views and company reiterates 2019 guidance;

·     Aerospace & Defense; BA shares slipped early on reports its factory in North Charleston, S.C., has faced problems with production and oversight that create a safety threat, NY Times reported, citing emails, corporate documents and federal records, as well as interviews with more than a dozen current and former employees; SPR rose after forging an agreement with Boeing that would trigger Boeing’s payment obligation for any excess B737 shipsets

·     Containerboard sector; PKG and WRK stocks rallied early after U.S. kraftliner prices in April were flat, while the Street was expecting a cut according to a note from Goldman Sachs citing data from Pulp & Paper Week (PPW). Says PPW reported that export prices to everywhere in the world fell $10-$30/ton m/m, and reported more-widespread domestic discounting reaching $25/ton; yet published benchmark U.S. prices remained flat

 

Technology, Media & Telecom

·     Semiconductors; IPGP upgraded to buy at Bank America saying markets should focus on emerging green shoots that support a recovery in 2H19 to 2020 despite expectations for a very weak first quarter; Wells Fargo said after outperformance in the sector (group has seen a mid-teen rally with 10-11% outperformance since their Feb ’19 upgraded) that it expects sector should take a breather; ON to acquire a 300mm fab located in East Fishkill, New York from Globalfoundries for a total consideration for the acquisition of $430M; LRCX was upgraded to buy and tgt up to $235 at B Riley as expects an in-line quarter while sees favorable big-picture trends going forward; MX rises on reports SK Hynix is considering buying a stake in MagnaChip, Reuters; XLNX tgt raised to $137 at Morgan Stanley and stays Overweight citing its 5G potential

·     Software movers; KEYW surges after being acquired by JEC for $11.25 per share in $815M deal https://on.mktw.net/2GwkNGz ; UPLD acquires PostUp, an email and audience development solutions provider for $35M (prompting them to raise guidance for FY19); MANH shares jumped early after SunTrust upgraded to buy (first time above $60 per share since Sept)

·     Hardware, Comm equipment and Networking; JPMorgan with an earnings preview and ratings changes as the firm upgraded COMM to Overweight, and VIAV to neutral while downgraded ST to neutral as believe the broad majority of coverage is set to meet/ beat consensus expectation but given the backdrop of a +27% rise in share prices on a YTD basis – needs to be selective; Huawei suppliers (IPHI, NPTN, LITE) active after reports that add support to Chinese Govt. involvement in the telecom equipment provider/better sales

·     Internet movers; markets brace of earnings in the large sector this week (FB 4/24, AMZN 4/25), NFLX shares higher after earnings last week, positive survey comments from Morgan Stanley today; SPOT shares slipped after Barron’s was cautious on competition; TWTR to report tomorrow morning in the social media sector and SNAP after the close; CVNA highs after Citigroup said March data showed the online car-buying platform will beat 1Q consensus estimates

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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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