Market Review: April 24, 2019

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Closing Recap

Wednesday, April 24, 2019

Index

Up/Down

%

Last

DJ Industrials

-58.05

0.22%

26,598

S&P 500

-6.39

0.22%

2,927

Nasdaq

-18.81

0.23%

8,102

Russell 2000

3.08

0.19%

1,588


 

Equity Market Recap

·     U.S. stocks paused on Wednesday, pulling back slightly from record highs yesterday in the S&P 500, while the tech heavy Nasdaq Comp slips after setting its own new all-time intraday high, surpassing its prior best of 8,133.29 last August ahead of a very busy night of earnings (especially in tech). Several high-profile earnings reports expected tonight from: MSFT, FB, TSLA, V, XLNX, LRCX, PYPL, and CMG among many others that could set the tone for tomorrow (which also includes AMZN, CMCSA and INTC. Semiconductors outperformed today as the Philly semi index (SOX) continues to set all-time highs, topping the 1,600 level for the first time ever amid better earnings in the space (TER, TXN, SLAB). The U.S. dollar rose to fresh 52-week highs as Treasury yields (10-year) tumbles back to January lows. Investors got another heavy dose of large cap earnings this morning, including industrial Dow components CAT and BA Energy stocks led the decliners as crude oil prices fell after a three-day rally. This week the attention has remained solely on earnings, which has come in positively thus far, but trade still remains a market factor. Overnight, US trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin will lead a U.S. delegation to China next week to resume trade negotiations.

 

Commodities

·     Oil prices end the day lower, with WTI crude slipping 41c or 0.6% to settle at $65.89 per barrel dropping from 6-month highs after a strong run the last few session on concerns of supplies tightening. However, the weekly inventory report told a different picture domestically as the EIA reported a larger than expected weekly build of 6.9M barrels. Also in oil, Saudi Arabia sees no need to take immediate action in the crude market, though it will respond to the requirements of buyers affected by the end of U.S. waivers on imports from Iran, Energy Minister Al-Falih said.

·     Gold prices gained $6.20 or 0.5% to settle at $1,279.40 an ounce, bouncing off its lowest levels since December, as stocks pulled back from record highs and investors rotated out of riskier assets and into defensive/safe-haven names such as gold and Treasury prices

 

Currencies

·     The U.S. dollar extended its recent rally, with the dollar index (DXY) topping the 98 level for the first time since May 2017 amid an improving US economy and as European economies continue to lag. The euro slipped to fresh 2019 lows vs. the dollar, moving below 1.1170, while the Canadian dollar dropped initially as Canada’s central bank keeps its key interest rate unchanged at 1.75% and now sees H1 growth in Canada slower than it expected in January. The British Pound touched a 2-month low around the 1.29 level vs. the dollar.

 

Bond Market

·     Treasury markets were strong, as yields dropped across the board, with the yield on the 10-year falling below 2.52% to January lows after having failed at 2.61% a week ago. There was no major economic data in the U.S. to move Treasury markets which are higher as stocks pull back from near record highs. The U.S. Treasury sold $41B in 5-year notes at a yield of 2.315%, matching the pre-sale when issued rate, with a bid-to-cover (demand) at 2.44 vs. 2.35 prior auction and indirect bidders awarded 61.5% of notes.

 

 

Macro

Up/Down

Last

WTI Crude

-0.41

65.89

Brent

0.06

74.57

Gold

6.20

1,279.40

EUR/USD

-0.0063

1.1164

JPY/USD

0.14

112.00

10-Year Note

-0.044

2.52%

 

 

Sector News Breakdown

Consumer

·     Retailers; LULU said it expects to more than double its men’s revenues and digital revenues by 2023, and to quadruple its international revenues by 2023, according to its 5-year growth plan; BURL narrows Q1 EPS view to $1.21-$1.25 from $1.21-$1.31 (est. $1.29) and narrows Q1 comp sales view to 0%-0.5% vs. the previous guidance of 0%-2%; BBY was upgraded to buy at Jefferies saying their survey and data work suggests BBY’s greater push toward services will drive LTV and customer wallet share; IRBT shares plunge posts an EPS beat but a revenue miss ($237M vs. est. $251M) while ups year EPS but reaffirms year sales

·     Consumer Staples & Restaurants; in research, PG was upgraded to overweight at Barclay’s after its strong organic revenue growth numbers; KHC was downgraded to underweight at Piper as believe expectations for KHC’s 2020 EPS are likely too high, as it plans divestitures of underperforming businesses; DPZ reported Q1 earnings that easily topped forecasts despite falling short on revenue and U.S. same-store sales; CMG earnings tonight

·     Housing & Building Products; SWK shares erase earlier gains post better earnings, fading after touching above $150 per share – best levels of 2019 on EPS beat; OC reported Q1 EPS miss of 2c on in-line revs of $1.67B and Ebitda of $116M; homebuilders active as DHI trades to a 52-week high while PHM was upgraded at BTIG to neutral after Q1 results show that demand is more elastic, and margins are more stable than they expected

·     Lodging/Casino’s; hotels HLT and Hyatt (H) both downgraded to Market Perform at Wells Fargo as they feel valuation is maximized and fail to see a catalyst to support incremental appreciation that warrants maintaining OP rating – firm raised tgt on MAR to $141; MAR was downgraded to in-line at Evercore/ISI citing valuation

·     Auto’s; NSANY issued its second profit warning in a year, partly blaming fallout from the corporate scandal around Carlos Ghosn’s arrest for financial misconduct for lower sales/slashed its forecast for annual operating profit by 29%; Hyundai reports a 24% jump in net profit to 829B won ($720M) in Q1 vs. 758B won consensus; TSLA is offering lower-priced versions of the Model X ($83K) and Model S ($78K) on its website once again; Edmunds forecast that 1,357,024 new cars and trucks will be sold in the U.S. in April for an estimated seasonally adjusted annual rate (SAAR) of 16.8M. This reflects a 16.2% decrease in sales QoQ but a 0.3% increase YoY; ABG was upgraded to buy at Craig Hallum despite new car sales down in Q1

·     Other movers; in staffing sector, RHI shares fell after lower-than-expected Q1 results, but the top line increases 5.2% Y/Y to ~$1.5B on a reported basis and 8.5% on an adjusted basis; LRN shares fell after EPS topped consensus but 3Q:F19 MPS enrollments reported last night came in at 117,100 (versus our 118,800 estimate) or 5.7% year over year growth versus the 7.1% year over year growth reported in 1H:F19

 

Energy

·     Inventory data: The API reported that U.S. crude supplies rose by 6.9M barrels for the week ended April 19, showed a stockpile climb of 2.2M barrels for gasoline, while distillate stockpiles fell by -865K barrels. The EIA meanwhile came in bearish, with a weekly crude build of 5.4M barrels (vs. est. for 1.0M barrel build) but a bigger drawdown in gasoline stockpiles of -2.12M

·     E&P sector; OXY offered to purchase APC in a deal valued at $38B, or $76, more than 15% higher than CVX’s agreement to buy the shale driller. CVX had previously bid $33B or $65 per share https://on.mktw.net/2VjtEFh ; RDSA is close to an agreement to buy BPs stake in the Shearwater oil and gas field in the U.K. North Sea for ~$250M, Reuters reports; CVE missed Q1 earnings expectations and cutting its FY 2019 oil sands production guidance by 7% to reflect the anticipated impact of Alberta’s mandated cuts across the full year.

·     Other movers; in pressure pumpers, RES missed on 1Q EPS, revenue, and Ebitda, while also announced it was cutting its dividend (other comps FRAC, FTSI, PUMP, LBRT); also SPN broad-based miss relative to consensus as revenue of $467M was well below consensus of $495MM, driven by Onshore Completion & Workover Services and Technical Services;

·     Utilities; PCG gained despite Berkshire Hathaway saying its not in talks to buy the bankrupt utility (after earlier speculation); in earnings, DTE Q1 EPS topped consensus while backed its year outlook of $5.97-$6.33 (while midpoint remains below consensus $6.22); FE mixed Q1 results as EPS were in-line on slightly weaker than expected revs and backs year EPS view

 

Financials

·     Bank movers; CS said Q1 net income of CHF 749M ($735M), or CHF 0.29 per share, rose from CHF 255M,or CHF 0.10 per share, in Q4 and from CHF 694M, or CHF 0.26 per share in the year-ago quarter; Online brokers slipped behind AMTD results as Q2 EPS beat analysts’ estimates but it was due to lower marketing spending and the capital return program as positives that would offset light revenue (SCHW, ETFC also move in sympathy)

·     Services; CSGP posted better-than-expected 1Q19 results yesterday, with revenue of $328.4M, up 20% y/y (consensus $327.5M), net new bookings up 36% y/y; HRB says tax returns prepared by or through the company for fiscal year 2019 increased 1.5% to 20.2 million.

 

Healthcare

·     Pharma movers; NVS raised its earnings outlook for 2019 after net sales and core operating income exceeded forecasts, as the drugmaker doubled down on its medicines business; LJPC says U.S. FDA granted Breakthrough Therapy Designation for LJPC-0118 for the treatment of severe malaria; in biotech, BIIB Q1 results were mixed as revs beat on in-line EPS as international sales of Spinraza, the first drug approved for treating spinal muscular atrophy, soared

·     Medical equipment and devices; BSX shares fell after missing 1Q revenue and adj. EPS estimates and lowering the high-end of its 2019 organic sales growth guidance; SYK reported 1Q revenue in line with consensus, but organic growth was 7.3%, at the upper end of SYK’s full-year guidance; EW beat sales by $4M and EPS by 10c, while sales guidance was maintained and EPS moved higher/TAVR at 10% growth came in slightly short of forecast; ARAY reported an inline F3Q, with sales just slightly below consensus and gross orders ~$1.5M above expectations; ZBH was upgraded to strong buy at Needham as expect ZBH’s revenue growth to accelerate during 2019 as it shifts back to offense after addressing its supply issues; TFX was downgraded at Needham saying organic revenue growth comps get progressively more difficult in each quarter in 2019; TMO posted Q1 beat and raised guidance for the year (comes after weaker WAT guidance)

·     Hospitals (THC, HCA, UHS); Baird said the proposed Medicare payment update for hospitals in FY2020 looks modestly better than their expectations. CMS plans to increase payments for hospital inpatient services by 3.5% and the impact table suggests payments for urban hospitals (proxy for HCA, THC, UHS) will also increase by 3.5% – compares to expectation of +2.5-3.0% and represents the highest payment update for hospitals in a decade

 

Industrials & Materials

·     Industrial & Machinery; Dow component CAT reversed pre-market gains after mixed Q1 results as posted strong Q1 results and also boosted its full-year outlook, citing a tax benefit, while reported lighter Q1 margins and CEO said the company would "lose a little bit of market share for this year" in China (MTW, OSK, TEX, ASTE, moved in sympathy)

·     Aerospace & Defense; group posted solid gains on Tuesday after LMT beat and raise with more of the same today as Dow component BA reported results (EPS miss and in-line revs) while suspended its full-year guidance previously issued; NOC reported Q1 EPS beat but revs missed and boosted year EPS to $18.90-$19.30 from $18.50-$19.00 and backed year revs; GD posted Q1 top and bottom line beat and backlog up 11.4% to $69.2B; ATI shares fell late afternoon after Bloomberg noted BA and ARNC are pushing Commerce Department officials not to limit the annual import of some $221 million in titanium sponge imports, despite complaints from the last remaining domestic manufacturer that imports threaten national security.

·     Transports; in rails, NSC better Q1 results as railway revenue was up 5% to a Q1 record of $2.8B and income from railway operations jumped 16% to $966M; CP however posted EPS below consensus views despite revenues that were in line with expectations citing extensive challenges from weather and C$50M of increased casualty expense; TK eliminates quarterly common stock dividend and said it intends to offer $300M senior secured notes due 2024 in a private placement; in trucking, KNX reported mix Q1 as EPS beat by 3c while revs of $1.2B missed the $1.3B estimate and cuts the top end of its Q1 forecast; Other rail names like UNP and CSX soared last week on the back of strong results

 

Technology, Media & Telecom

·     Internet; SNAP shares jumped more than 12% overnight before reversing and turning lower after posting a smaller EPS loss than expected and accelerated 39% revenue growth while noting that its outlook for Q2 suggests a similar rate of growth/DAUs, gross margin, EBITDA, free cash flow – all showing improvement (was upgraded by at least two analysts); EBAY reported upside to both revenues and EPS, as take rate benefited from ramping promoted listings (just under 110% growth in 1Q), but GMV declined 1% (FX neutral) and domestic marketplace GMV declined 7%; earnings tonight from social media giant FB and AMZN reports tomorrow night

·     Semiconductors; the Philly semi index (SOX) continues to set all-time highs, topping the 1,600 level for the first time ever today led by better earnings (SLAB, TER); TXN hinted slumping chip demand may not recover as quickly as some expect – shares rose initially on Q1 results before sliding on cautious comments; MTSI guides Q2 EPS loss to (18c), worse than the prior guidance of up 4c-12c and revs about $121M below the $138M estimate citing inventory factors; MRVL tgt raised to $22 from $19 at UBS citing its 5G potential; SLAB shares jump after Q1 EPS/revs beat and guided Q2 EPS 70c-80c, well above the 63c estimate; TER 1Q results topped the highest analysts’ estimates driven by strong test equipment sales; XLNX reports tonight

·     Software movers; SAP was positive in the software sector after earnings and raised its annual profit forecast on growth in the cloud business, while activist Elliott Management revealed a 1.2% stake and endorsed the company’s change of direction; MANH shares rise on earnings that beat helped by improved license revs and service agreements; some big earnings in sector today, highlighted by Dow component MSFT as well as NOW

·     Media & Telecom movers; AT reported a Q1 revenue miss as its premium TV and streaming service lost subscribers while the US telecoms group said it was on track to meet its deleveraging goals/company reaffirmed its year forecast/1Q DIRECTV NOW subscribers net additions -83,000; DIS trades to another all-time high

·     Hardware & Component news; LPL shares fell after posting a wider than expected operating loss and warned of a weak 2019 on stalled smartphones and OLED R&D costs; APH lowered its 2019 sales outlook to $8.2 billion, or 2% below consensus, citing a weaker mobile device market; VICR shares outperform on well received Q1 results

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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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