Market Review: April 25, 2019

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Closing Recap

Thursday, April 25, 2019

Index

Up/Down

%

Last

DJ Industrials

-135.10

0.51%

26,461

S&P 500

-1.05

0.04%

2,926

Nasdaq

16.67

0.21%

8,118

Russell 2000

-12.50

0.76%

1,576


 

Equity Market Recap

·     U.S. stocks closed mixed on Thursday, as tech stocks remained strong behind better earnings results from MSFT, FB, LRCX, CMCSA and NOW in software, (NASDAQ a new all-time highs), but the industrial sector was pressured by weak earnings and/or outlook from Dow component MMM as well as ROK. The Dow and S&P 500 held up fairly well despite a handful of disappointing earnings results from UPS in transports, MO in consumer staples, TSLA in autos and FCX in metals among others. Another big night of earnings upcoming with AMZN and INTC results expected after the bell and energy giants XOM and CVX tomorrow morning. U.S. Treasury prices and the dollar were little changed, outside of a jump in the yen as investors rotated into defensive assets early on. But as stocks rallied off the lows, defensive assets erased gains. Economic data was mixed as jobless claims jumped but durable goods orders came in stronger than expected. Oil prices tumbled late day, failing to hold above earlier 6-month highs above $66 per barrel.

Economic Data

·     Durable Goods Orders for March rises 2.7%, handily topping the 0.8% estimate while Durable goods new orders revised up to -1.1% for Feb. from -1.6%; new orders ex-trans. rose 0.4% in March after 0.2% fall and new orders ex-defense rose 2.3% in March after 1.7% fall

·     Weekly Jobless Claims rose 37k to 230K, well above the 200K estimate and off over 50-year lows as the 4-week moving avg. at 206k in the week ending April 20; prior week claims revised up to 193k from 192k; continuing claims rose 1k to 1.655m in the week ending April 13

·     Kansas City Fed Index for April falls to 5 from 10 in prior month and below the estimate for a reading of 8 as about a third of firms noted that flooding and extreme weather had negatively affected their activity in recent months; new orders for exports rises to 8 vs 5, production falls to 12 vs 17 and shipments falls to 9 vs 14

 

Commodities

·     Oil prices tumbled sharply into the close on no apparent headlines, ending lower by around 70c to settle at $65.21 per barrel – failing to hold above the $66 per barrel mark earlier (highest point of the day was $66.28). Oil prices much like stocks have enjoyed a huge rally over the last few weeks to fresh 6-month highs on tightening supply concerns. Gold prices opened strong, rising more than $5 to around $1,285 an ounce as stocks opened the day mostly lower. However, as stocks recovered off their lows, safe-haven assets erased their gains, with gold ending the day little changed at just about $1,279 an ounce.

 

Currencies

·     The U.S. dollar has steadily climbed to new highs in 2019 and is up about 10% from the lows in early 2018, all coming despite the Fed getting more dovish on its interest rate outlook going forward. The weakening economic position in the UK and the EuroZone has fueled a flight out of those currencies (along with Brexit concerns), while the US economy has steadily improved. The dollar was little changed vs. the Pound, rose against the euro but declined against the safe-haven yen. The dollar rose against the Turkish Lira as the country’s central bank signaled a lot of reluctance to raise interest rates. Emerging market currencies were mixed as the Argentine peso fell political concerns whether President Mauricio Macri can win re-election. The Brazilian real rose after President Jair Bolsonaro’s pension overhaul bill cleared another legislative hurdle.

 

Bond Market

·     Treasury prices with modest declines today on mixed economic data, though prices have rallied over the last few weeks to January lows around 2.52%. The U.S. Treasury sold $32B in 7-year notes at a yield of 2.426% vs. 2.421% pre-sale when issued, at a bid-to-cover at 2.49 vs. 2.54 prior and indirect bidders awarded 60.4% and directs 19.1%. It has been a volatile rise for Treasuries, as the 10-year yield has fallen from October highs above 3.26% to 2.52% today as the Fed has pulled back on raising interest rates further in 2019.

 

 

Macro

Up/Down

Last

WTI Crude

-0.68

65.21

Brent

-0.22

74.35

Gold

0.30

1,279.70

EUR/USD

-0.0021

1.1134

JPY/USD

-0.61

111.59

10-Year Note

0.007

2.534%

 

 

Sector News Breakdown

Consumer

·     Retailers; HAS was downgraded to hold at Argus saying believes will find it difficult over the next year to recover revenue lost from the Toys “R” Us bankruptcy (MAT to report earnings coming up in toy space as well); SHOO reports same-store retail sales increased 6.3% in Q1 and gross margin rate jumped 200 bps to 38.2%; 52-week highs for dollar stores DLTR, DG

·     Consumer Staples; tobacco falls as MO Q1 EPS missed on better revs but notable was the 14.3% Y/Y drop in cigarette volume/cigar volume was up 1.1% for the quarter/sees EPS of $4.15-$4.27 vs. $4.22 estimate and lowers its estimate for full-year total domestic cigarette industry volume growth; in beverages, SAM posted Q1 revenue beat after strong demand for Truly brand and lift in depletions and shipments guidance to between 10% and 15%; HSY rises on earnings as gross margin was 45.7% of sales vs. 44.9% a year ago, while volume (+1.7%) and pricing (+0.2%) gains in Q1/sales beat and reaffirm year

·     Restaurants; CMG reported Q1 EPS with near 40c beat, driven by stronger same-store sales, restaurant-level margin and a lower tax rate, offset by higher G&A – shares fell following another subpoena from federal prosecutors seeking information on E. coli outbreak in Ohio that left hundreds of people sick in 2018

·     Housing & Building Products; TILE falls on mixed results (EPS beat/rev miss) as kept its outlook for organic growth (+2-4% YoY from carpet and LVT ), gross profitability (40-40.5%) and SG&A (28-28.5%) after beat; OC was downgraded by two analysts after weaker results; FBHS posted Q1 beat on top and bottom line with mostly in-line outlook for the year

·     Casino & Leisure movers; WYNN was upgraded to buy at Bank America as flattening out of China macro data and easing policies that will improve second half 2019 Macau gross gaming revenue; Nevada reports March statewide gaming win down 0.12% to $1.02B; in leisure, boating retailer BC posted mostly in-line results and reaffirmed year but shares fell

·     Auto’s; TSLA results missed expectations, with both revenue and loss-per share below estimates while reaffirmed its FY19 delivery outlook (360,000-400,000 units)/hopes rest on comments during c/c saying it would be profitable again this year; in auto dealers, earnings results today from SAH, PAG, LAD moving that sector; auto retailers soft following ORLY in-line 1Q19 EPS results and comp sales that increased less than consensus expectations/Q1 comparable sales +3.2%, estimate +4.1% (AAP, AZO active as well); auto suppliers fell, led by a 20% decline in VC after Q1 EPS came in well short of consensus views

 

Energy

·     Energy stocks held up better than most sectors ahead of CVX and XOM earnings tomorrow morning; in the E&P sector, EQT said due to efficiency gains it will reduce the number of horizontal wells it drills in 2019 by ~30 while boosting completions by 10; CLB shares fell after results as EPS and revs beat for Q1 though mid-point of Q2 guidance below consensus; CRR posted a larger than expected Q1 EPS loss and revs as well

·     Oil services/equipment; HP reported adjusted EPS of 57c significantly higher than consensus of 38c but was tempered somewhat by below consensus FQ3 US land guidance; OIS rises on positive revenue and EBITDA beat expectations and backlog grows; MMLP cuts dividend to 25c from 50c

·     Utilities & Solar; Bank America downgraded AGR to Underperform as they are more skeptical in AGR’s ability to reach Renewables guidance, adding onto concern in Networks biz, while upgraded PNM to neutral given premium on stocks has come down to a reasonable valuation; CMS reported weaker Q1 EPS results; other earnings from WEC, XEL though the sector was boosted as investors rotated into defensive names

 

Financials

·     Bank/Asset managers movers; regionals active, as HBAN posts Q1 revenue of $1.15B missing consensus estimate by $10M while Q1 EPS of 32 cents matched estimates; AB Q1 EPS missed by 5c while Q1 adjusted operating margin of 24.1% narrowed from 29.3% in Q4; ISBC shares declined after Q1 EPS missed by 2c; in insurance, CINF trades to 52-week highs after earnings; LAZ announced a Q1 beat and a dividend boost sending shares higher; European banks active after BCS and UBS quarterly results and DB/Commerzbank officially cancel all merger plans.

·     Consumer finance and lending; PYPL reported solid Q4 results that were within guidance and essentially in-line with consensus; ADS reported core EPS for Q1 that missed the average analyst estimate; AXP upgraded to overweight at Morgan Stanley as now view robust revenue growth as sustainable/raise 2020e EPS by 6% and expect rev growth to rebound from 7% in 1Q19 to 8-10%; Dow component Visa (V) results better as net revenue grew 8.3% Y/Y (~10% in CC) and EPS beat while volume growth was mixed; MA, AXP, PYPL all move to 52-week highs today

·     REITs; mortgage REITs active after AGNC missed Q1 EPS results (watch NLY, TWO, NYMT, MFA); ROIC reported in-line 1Q19 results and management affirmed its 2019 FFO and SSNOI growth guidance; ESS earnings report beat consensus, and management increased 2019 core FFO guidance by 0.4% at the midpoint; BDN posted a 1Q19 FFO beat and maintained the midpoint of 2019 FFO guidance AVB core FFO beat expectations by over 1% in 1Q19. Same-store-revenue growth increased slightly better than expectation; AKR reported a solid 1Q beat, highlighted by SSNOI growth of 4.6% and steady fundamentals across the Company’s portfolio

 

Healthcare

·     Pharma movers; ABBV beat EPS expectations and raised forecasts despite suffering a 28% drop in international sales of Humira/raises year EPS to $8.73-$8.83 vs. prior view of $8.65-$8.75 (est. $8.69); LLY pulls Lartruvo from market after failed late-stage study as failed to demonstrate a survival benefit in soft tissue sarcoma patients; BMY on Q1 beat and raised GAAP EPS guidance on strong sales of stroke and cancer drugs; NVS was upgraded to buy at Guggenheim

·     Biotech movers; GILD said selonsertib did not meet the primary endpoint of histologic improvement in fibrosis without worsening of nonalcoholic steatohepatitis, according to data from a Phase 3 study

·     Medical equipment, services and providers; BAX shares were weaker initially despite a Q1 beat and raised guidance; CNMD shares outperform on a Q1 EPS beat and guided the year outlook ahead of consensus; ALGN Q1 revenue topped expectations, and EPS was well ahead of consensus after adjusting for one-time store closure expenses in the quarter; VAR shares dropped after mixed results as EPS fell short of the lowest estimate while revs beat

 

Industrials & Materials

·     Industrial & Machinery; MMM the biggest drag on the Dow Industrial Average and industrial space after Q1 adjusted EPS $2.23/$7.86B fell short of the $2.48/$8.06B estimates and cuts FY EPS $9.25-$9.75 down from prior view of $10.45-$10.90 and announced a realignment from five to four business groups; expects a reduction of 2,000 jobs worldwide; OTR Global lowered its view on farm equipment manufacturers, which includes AGCO, DE, CNHI to Mixed from Positive in January on expected lower global farm equipment sales view; ROK the other drag in industrials as shares fell on a Q2 EPS and revenue miss

·     Aerospace & Defense; RTN beat estimates for both Q1 earnings and revenues and reaffirming its full-year outlook/reported Q1 revenues rose 7% to $6.73B from $6.26B (follows suit of other better defense beats this week from NOC, LMT); Bombardier shares plunged after cutting its full-year profit and revenue forecasts amid delays in some large projects in its railcar unit

·     Transports; UPS 1Q EPS/revs missed estimates, reflecting the impact of severe winter weather in the U.S. and of Easter moving to mid-April but reaffirmed year (FDX, XPO active in sympathy); ECHO also declines in logistics sector on EPS miss; LUV solid results in airline space as Q1 EPS of 70c/$5.15B topped estimates and said 2Q RASM expected to benefit by one-half point due to timing shift of Easter and by about one point due to lower 2Q capacity from MAX groundings; but SAVE was downgraded to neutral at Bank America after the carrier lowered 2Q total revenue per available seat mile (Trasm) revenue guidance below estimates, and 1Q Trasm missed Sprit’s earlier guidance; in trucking, LSTR mixed results with Q1 EPS beat/rev miss and lower guidance as Q2 revs/EPS below views; FWRD exceeded expectations, but missed top-line estimates; railcars TRN and WAB both fell sharply after earnings results

·     Metals & Materials; iron ore producer CLF posted a smaller than expected Q1 loss and a 13.8% drop in revenues as both topped forecasts/announced stock buyback of up to added $100M; copper producer FCX posts a Q1 EPS miss revenues tumble 22%, as copper prices and production fell but raises guidance for full-year operating cash flows to $2.3B, up from $1.8B; steel producer RS posted a big EPS beat for Q1 and guides Q2 above views ($2.60-$2.70 vs. $2.33); in materials, KRA decliner on lower revenue and sales volume

·     Packaging, Lumber, Paper sector; lumber prices jumped by $15 exchange limit as it rebounded from five-month lows after the price closed up $12.40, or 3.9% on Wednesday after touching $310.20, the lowest since Oct. 31 (WY, LPX, PCH among names leveraged); paper stocks were busy after earnings with PKG Q1 EPS beating the highest estimate and said that for 2Q it expects seasonally higher containerboard and corrugated products shipments, but with lower prices due to published domestic containerboard price decreases and lower export prices; IP rallied after Q1 EPS beat by 20c though sales of $5.64B missed the $5.73B estimate

 

Technology, Media & Telecom

·     Internet; FB shares soar as ad revenue grew +31% on an FX Neutral basis driven by ongoing pricing and monetization strength on both core Facebook and Instagram, and more importantly, affording management the luxury to de-prioritize monetization of Messenger and WhatsApp to focus on privacy (said CSFB); AMZN next big name to report tonight

·     Semiconductors; the Philly semi index (SOX) falls after yesterday record highs of 1,604.56 on earnings; XLNX reported F4Q revenue above but EPS below, and guided F1Q revenue above but EPS below Street/with the stock up 66% YTD, stock pulls back/also weaker margins; LRCX posted a solid F3Q beat and guided F4Q moderately above consensus; MTSI downgraded by two analysts after the company’s negative preannouncement; AXTI jumps on earnings; Dow component INTC to report earnings tonight after the close

·     Software movers; MSFT results beat estimates, consensus, and guidance across the board, driven by particularly strong revenue growth in Intelligent Cloud, with Azure posting growth of +73%, above some estimate of +62%/operating margins expanded +223bp sequentially; NOW subscription billings +27% YoY topped most estimate of 25% billings growth while revenue outperformance + some expenses pushing to Q2 drove operating margin ~250 bps above consensus; PTC downgraded by analysts as after a disappointing December quarter, PTC put up in-line bookings for March and is cutting the bookings guidance for the full fiscal year 2019; other movers in software included: higher: BCOV, AZPN

·     Media & Telecom movers; CMCSA mixed results as Q1 revs missed estimates but analysts noted high-speed customer beat, and cable and NBCUniversal operating cash flow outperformance; WWE shares fell as reported larger than expected Q1 EPS loss of (11c) on weaker revs ($182.4M vs. $199M est.); DIS shares another all-time high ahead of the big “End Game: Avengers” movie

·     Hardware & Component news; NTGR shares fell after Q1 revenue, gross margin, operating margin, and EPS beat but Q2 guidance misses views (Q2 revenue $215M-$230M vs. $256.15M); FFIV software growth accelerated meaningfully in F2Q while weakness in core systems and, unconventionally, services, restrained F2Q sales; KN reported better results and guided mid-point of revs and EPS slightly above ests; XRX shares slumped on weaker Q1 sales; ZM rises after stronger Slack collaboration announced earlier

_________________________________________________________________

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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