Market Review: April 26, 2019

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Closing Recap

Friday, April 26, 2019

Index

Up/Down

%

Last

DJ Industrials

80.51

0.30%

26,542

S&P 500

13.65

0.47%

2,939

Nasdaq

27.72

0.34%

8,146

Russell 2000

16.20

1.03%

1,591


 

Equity Market Recap

·     U.S. stocks pulled into the green the final hour of trading, erasing earlier losses as a better than expected GDP reading, coupled with a majority of positive earnings announcements thus far for the quarter (minus a few big misses – MMM, TSLA yesterday, INTC overnight) have pushed major averages back near all-time highs for the S&P and Nasdaq Composite. U.S. markets received an unexpectedly stronger Q1 GDP reading, as the economy grew 3.2%, well above the 2.3% economist estimate. Prior to the afternoon recovery, the Nasdaq Comp had declined as much as 0.7% and the Dow and S&P 500 fell as much as 0.3%. Crude oil fell 2.9% to $63.30 per barrel after President Trump said he had called OPEC to demand that the cartel brings down prices. The dollar pared its weekly gains, while Treasury yields fell to weekly lows. Markets attention will remain on another busy week of earnings upcoming, but also focus on trade as Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin will lead a U.S. delegation to China next week to resume trade negotiations. Markets got strong earnings results from AMZN, Ford, and Colgate among others while semiconductors slipped from all-time highs after back to back weak outlooks from INTC and XLNX. Industrials dropped on the week behind MMM lower outlook and UPS in transports. Energy was a drag on markets behind a large earnings miss from Dow component Exxon. The IPO market continues to heat up with Uber and Slack the latest to release details of coming public in the near future (follows recent IPOs PINS, ZM, and LYFT). The Russell 2000 outperformed rising over 1%, while the S&P and Nasdaq jumped into the bell to close at new all-time highs heading into the weekend.

Economic Data

·     GDP data very strong as U.S. Q1 advance GDP grew 3.2%, well above the 2.3% estimate (note GDP rose 2.2% in prior quarter). Data shows that about 1.68 percentage point of 1Q GDP increase attributed to inventories and net exports categories. Personal consumption rose 1.2% in 1Q after rising 2.5% prior quarter and GDP price index rose 0.9% in 1Q after rising 1.7% prior quarter. Core PCE q/q rose 1.3% in 1Q after rising 1.8% prior quarter, smallest increase since 2Q 2017

·     April Final Michigan Sentiment fell to 97.2 from 98.4 last month and below est. of 97 (was 96.9 in the preliminary reading); the expectations index fell to 87.4 vs. 88.8 last month and the current economic conditions index fell to 112.3 vs. 113.3 last month; long-term expected inflation tied with lowest recorded in half a century

 

Commodities

·     Oil prices slumped on Friday, pulling back from 6-month highs reached earlier this week, as comments from President Trump on prices overshadowed the biggest decline in weekly oil rigs in over a year. WTI crude settled at $63.30 per barrel, falling $1.91 or 2.9% after President Donald Trump said he had called OPEC to demand that the cartel brings down prices (though note the WSJ later reported OPEC head Barkindo said he had not spoken to Trump). The commentary pushed oil price to their lowest levels of the week, paring an eighth straight weekly advance, even as supplies stopped flowing through a major Russian pipeline to Europe. Prices have rallied over the last few weeks amid Iran sanction impacts. Mid-afternoon, the Baker Hughes rig count fell -21 rigs to 991, with oil rigs down -20 to 805, and gas rigs down -1 to 186. Gold prices pushed higher on Friday as the dollar slipped from recent highs, with June gold up $9.10 or 0.7% to settle at $1,288.80 an ounce, ending the week roughly higher by 1%.

 

Currencies

·     The U.S. dollar tumbled on the day before paring losses, losing steam despite a strong GDP reading and in-line Michigan sentiment reading. The dollar index (DXY) dipped below the 98 level after touching 52-week highs of 98.33 earlier on the session (quick blip higher after the GDP report first broke), before sliding to end the week up roughly 0.6%. The low inflation reading components of the GDP report helped keep the market at bay on fears of interest rate hikes by the Fed. The dollar was little changed on the day vs. then yen but posted big gains on the week against emerging market currencies amid political and economic woes (Argentina, Turkey).

 

Bond Market

·     Treasury prices have stealthily advanced over the last few weeks, with the yield on the 10-year back to 2019 lows, sliding under 2.50% (and well below the October highs of 3.26%), as expectations the Fed next move (if any at all) would be to cut rates not raise after hiking interest rates four times last year. The latest round of data (GDP report today) was very strong for Q1 at 3.2%, well above the 2.3% estimate, while inflations readings were cool (providing ammo the Fed can hold off on hiking). Treasury inversion also appears to be a thing of the past, as Bloomberg noted Just a couple of weeks ago, the buzz was about the inversion of 3m/10y yields. Now the curve is steepening. The 2y/10y curve has increased to 21 bps, the highest since November, as investors step up bets on Fed rate cuts.

 

 

Macro

Up/Down

Last

WTI Crude

-1.91

63.30

Brent

-2.20

72.15

Gold

9.10

1,288.80

EUR/USD

0.0026

1.1158

JPY/USD

-0.04

111.59

10-Year Note

-0.02

2.50%

 

 

Sector News Breakdown

Consumer

·     Retailers; AMZN reported in-line revenue and operating income above consensus for Q1’19 while the mid-point of Q2 operating income guidance is well below consensus, on a revenue mid-point that is 1% below the Street – other important news item, announced a one-day Prime delivery (shares of TGT, WMT decline on the delivery news) – AWS remains the standout performer with growth +42% ex-FX &OI margin up 320bps y/y; COLM posted strong 1Q beat across metrics, also raised the FY19 outlook with the high end comfortably above consensus; in toys, MAT rallied as Q1 earnings results fared better than estimates as Q1 adjusted gross margin 38%, up 670 bps

·     Consumer Staples; CL Q1 EPS and sales narrowly topped expectations while reporting global unit volume up 1% and organic revenue up 3%; HELE soars after Q4 EPS and sales well above consensus at $1.82/$384.8M vs. $1.58/$363.3M

·     Restaurants; SBUX was little changed after solid Q2 with improving China comps and in-line results in the Americas (stock came into earnings at 52-week highs); BLMN Q1 EPS beat by 3c and affirmed its year outlook/says set up well to achieve 2019 goals; WING launched delivery in the company’s hometown of Dallas as part of a 2019 national rollout with on-demand platform DoorDash; BJRI Q1 EPS beat by 9c though profit was down overall

·     Autos; Ford (F) a positive earnings surprise helped shares trade to their best levels since last Fall, tripped up slightly after saying it was contacted earlier in April by the Justice Department that a criminal investigation into concerns involving the company’s process for estimating road load; UBER sets its IPO at 180 million shares, with each marketed between $44 to $50, according to an amended filing; tire maker GT reported a Q1 adjusted profit that beat expectations, although sales fell short/also said it refinanced its European revolving credit facility; Auto dealer stocks mixed after AN Q1 EPS beat though revenue and comp sales both missed analysts’ estimates as it focused on new vehicle margins, but CEO says feels great about start to the year; SAH rises after Bank America upgraded shares; TSLA extends yesterday earnings losses, to 2-year lows; several auto suppliers also out with results today (LEA, ALV) after big VC miss yesterday – note LAD,  ABG,  GPI,  PAG,  SAH all reported strong numbers earlier this week in auto dealer space

 

Energy

·     Energy stocks mixed on earnings as oil prices slide but still post an 8th straight week of gains; Dow component XOM weak after posting a Q1 EPS miss (55c vs. est. 72c) saying hurt by weaker crude prices than Q4 as North American differentials narrowed and natural gas prices were hurt by warmer weather/says Q1 hurt by Canadian crude differentials, heavy’ maintenance; other Dow component CVX posted a beat on earnings while revenue fell short of consensus. The Baker Hughes rig count fell -21 rigs to 991, with oil rigs down -20 to 805, and gas rigs down -1 to 186

·     E&P and equipment sector was busy with several earnings results; NOV reported results in line with its pre-released revenue and EBITDA figures; FTI EPS missed lowest estimates though orders of $6.2B, up nearly 80% YoY and exceeding announced orders during the quarter by ~50%; BCEI cuts 2019 lease op expenses to $2.75-$3.25/BOE; COG raised its dividend after Q1 EPS beat

 

Financials

·     Bank movers; banks were mixed with DB falling after quarterly results; SIVB slips as sees net neutral impact from its lowered NII guide, offset by increased core fee, lower expense guide; asset manager BEN Q1 EPS and revs topped consensus while Q1 gross inflows increased 24% from Q4 2018 while redemptions slowed to their lowest level since 2011; PFG rises in insurance sector as EPS beat by 12c; Consumer finance and lending; COF shares jump after better quarterly results; TREE shares rose after Q1 results and boosted its 2019 guidance for revenue, and adjusted EBITDA (sees revs $1.06B-$1.09B, up from prior view of $1.01B-$1.05B), in services; INTU shares were dragged lower after the company provided an update that disappointed investors (KeyBanc noted consumer revenue growth guide to 10%, the high end of the earlier 9-10% forecast, yet below their 14% estimate)

 

Healthcare

·     Pharma movers; MRK said that a Phase 3 trial evaluating Keytruda as a first-line treatment for gastric cancer failed to show improvement in patients’ overall or progression-free survival when compared with chemotherapy; PETX to be acquired by ELAN in a deal worth $245M, as PETX holders will receive 0.1481 shares of Elanco stock and one contingent value right of 25c https://on.mktw.net/2W6rW7n ; SNY rally on earnings, while AZN slipped despite strong cancer drug sales lifting profit for the quarter

·     Biotech movers; REGN shares slipped as the company receives conditional approval recommendation in Europe for Libtayo; NBIX fell after an updated exclusions list on Express Scripts’s website showed NBIX’s lone drug Ingrezza will be excluded starting on July 1; MDCO shares rallied on positive analyst comments (upgraded at Goldman Sachs) and earnings, while Citigroup said they see 25%-50% upside or ~100% downside upon phase 3 results in 3Q19; SGEN mixed results as Q1 revenue beat on higher Takeda milestone payments, but Adcetris missed consensus estimates on 1Q seasonality, and reaffirmed 2019 guidance

·     Medical equipment and devices; ILMN shares slumped as delivered a Q1 beat on the top and bottom line and raised its bottom line 2019 guide, but the raised EPS guide is due to the announced deconsolidation of DTC company Helix according to one analyst; lots of MedTech names out with earnings including ZBH, ATRC which edged higher; BEAT shares slipped on EPS and rev miss despite raising guidance for the year

·     Healthcare services and providers; EHTH shares jumped following its Q1 results topped estimates as revenue rose 60% to $68.8M, including a 78% jump in the Medicare segment to $30.8M and estimated membership was up 7% to 952,239; CERN reported bookings ahead of some estimates at $1.24B with revenue and EPS results in-line; UHS led hospital stocks lower (THC, CYH, HCA) as 1Q results came in below expectations, amid weaker-than-expected 1Q adj. Ebitda due to a disappointing performance in acute care

 

Industrials & Materials

·     Industrial & Machinery; BGG shares tumble after Q3 EPS and sales were mixed (34c/$580.2M vs. est. 65c/$571.3M) while slashing its year outlook (cuts FY19 EPS view to 45c-55c from $1.10-$1.30 (est. $1.04) and cuts FY19 revenue view to $1.86B-$1.91B from $1.90B-$1.96B); FTV reported in-line Q1 EPS but on light sales while Q2 EPS came in below estimates (86c-90c vs. 96c); ITW as upgraded to neutral at JPMorgan; IEX rises on EPS In Line ex. Lower Tax; and strong order rates give confidence on FY guide

·     Transports; Transports tumbled early after airline carrier AAL lowered its earnings guidance for the full year, despite beating estimates in Q1 as now sees 2019 adjusted EPS of $4-$6 below prior view of $5.50-$7.50 as sees the BA 737 MAX cancellations, to impact its 2019 pre-tax earnings by about $350 million (AAL shares rebounded); ALK a bright spot, rising early on earnings results; the overall transport group declined yesterday on weak UPS results; FDX was downgraded to sell at UBS saying while investors may expect pressure in 4QF19, they believe EPS expectations for F2020 remain too high; SKYW, CVTI, WERN other earnings movers

·     Metals & Materials; CLF was upgraded to outperform at Credit Suisse as sees potential value near $16-$18 once the HBI plant is fully ramped; RS was downgraded to hold at Jefferies as reported yesterday and both 1Q results and the 2Q guide were better but cuts on valuation as stock is up 28% YTD

 

Technology, Media & Telecom

·     Semiconductors; after touching all-time highs above the 1,600 level this week, the Philly semi index (SOX) pulls back on consecutive days, led by INTC which cut its 2019 revenue forecast, saying it was taking a “more cautious view,” as June-quarter sales and EPS guidance were below consensus estimates (follows weak guidance from XLNX Thursday, falling 16%); WDC cut by Baird to underperform citing an "increasing disconnect" between significant year-to-date appreciation and a continued deterioration in NAND flash fundamentals as highlighted by recent reports from Intel, Hynix, and Nidec; QRVO downgraded to sector weight at KeyBanc saying that the company has failed to be qualified in the new iPhone, despite having secured a design win; CY a standout to the upside in the weak semi space, rising after its results overnight

·     Internet; GRUB Q1 EBITDA ahead of expectations as 1Q diner adds +159% y/y were meaningfully ahead of Street expectations while Q1 EPS/revs better (Q2 and year guidance was soft); FB active a day after soaring on better earnings as the NY attorney general is opening an investigation into Facebook Inc.’s unauthorized collection of 1.5 million users’ email contacts without permission; VRSN Q1 EPS and revenue beat and 1Q .com and .net domain name registrations in the domain name base rose 4.4%; SFLY upgraded at Raymond James after better earnings

·     Software movers; PRO shares jump as Q1 earnings report beat estimates, consensus, and guidance across key metrics, posting subscription revenue growth of +45% vs. guidance of +40%; SNE shares rise amid surprise profit despite slowdown warning; internet security company PFPT shares fell despite positive analyst reaction to earnings and guidance; other software names reporting on earnings included LOGM, OMCL, SPSC

·     Media & Telecom movers; advertising stocks rise after IPG followed recent earnings results from OMC with a beat for its top line today; AMC, CNK shares get a bump as movie theatres may see bump over the next few weeks on DIS Avengers movie; after falling 34% yesterday on its dividend cut, two analysts downgrade shares of CNSL

·     Networking; JNPR reported solid 1Q results and provided positive 2Q19 top-line guidance as stronger services contribution offset softness in the cloud and service provider verticals; ANET tgt raised to $375 at Nomura as expect sales at or modestly above the high end of the range, margin upside, and a solid EPS beat; CSCO tgt raised to $60 at Oppenheimer saying April-quarter checks were solid across multiple product areas, illustrating Cisco’s execution through mixed macro/political conditions

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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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