Market Review: April 30, 2019

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Closing Recap

Tuesday, April 30, 2019

Index

Up/Down

%

Last

DJ Industrials

36.89

0.14%

26,591

S&P 500

2.59

0.09%

2,945

Nasdaq

-54.09

0.66%

8,107

Russell 2000

-7.11

0.44%

1,591


 

Equity Market Recap

·     U.S. stocks managed to rally off earlier lows, and the Nasdaq Composite bounced off lows over 1.3% (off its all-time record highs) after weak quarterly revenue from Alphabet (GOOGL) sunk shares 7%. Attention now turns to tech mega-giant Apple (AAPL) which reports earnings after the close (shares slid). Stocks also sunk midday with some attributing the pullback (in the broader market) to comments from White House chief of staff Mulvaney saying they won’t do a deal with China if it’s “not great.” Bloomberg noted while it was tempting to point to trade stuff or the PMI as a rationale for today’s equity weakness, it noted to not ignore the impact of month-end rebalancing, especially given the strong performance of U.S. stocks this month. The S&P and Dow Industrials rallied back behind gains in healthcare (PFE, MRK earnings beats) though managed care stocks slipped. President Trump also boosted his attack on the Fed (ahead of the FOMC meeting results tomorrow – no change expected in rates), saying the U.S. economy would go “up like a rocket” if the Federal Reserve lowered rates by 1 point and resumed quantitative easing. Economic data was mixed on the day as the Chicago PMI manufacturing report dropped to lowest levels since 2015 while consumer confidence topped estimates and Pending Home sales came in better as well. Also later this week the jobs number Friday and trade meetings in China between Lighthizer and Mnuchin with Chinese delegates.

Economic Data

·     Chicago PMI falls to 52.6 from 58.7 the prior month and below the est. 58.5; prices paid rose at a slower pace, signaling expansion and new orders rose at a slower pace, signaling expansion; employment rose at a slower pace, signaling expansion

·     Consumer Confidence for April rose to 129.2, topping the 126.8 estimate and above 124.2 in prior month; the present situation confidence rose to 168.3 vs 163.0 last month and the expectations index rose to 103.0 vs 98.3 last month

·     Employment Cost Index for Q1 rose 0.7%, in-line with estimates as wages rose 0.7% q/q, benefit costs rose 0.7% q/q

·     Pending Home Sales for March rise 3.8% MoM vs. est. 1.5% as the Northeast fell 1.7%; Midwest up 2.3%; South up 4.4%; and West up 8.7%; Feb. rose 0.5%

·     The S&P CoreLogic Case-Shiller 20-city index rose a seasonally adjusted 0.2% in February compared to January, and was 3.0% higher compared to a year ago (est. 2.95%), though that was the slowest pace of annual growth since September 2012. S&P CoreLogic Case-Shiller National Home Price index rose 4.01% y/y in Feb. after rising 4.22% in prior month

 

Commodities

·     Oil prices rise as WTI crude rose 41c or 0.7% to settle at $63.91 per barrel (its 4th straight monthly gain, up 6.3%), boosted by a rebound in riskier assets after early declines. Prices overcame recent declines after Saudi Energy Minister Khalid Al-Falih added his voice to OPEC members pushing back against President Donald Trump’s call to increase production, saying that Saudi Arabia and its partners remain focused on reducing inventories. Gold prices close higher as the dollar retreats further from 2019 highs reached last week following mixed economic data earlier. June gold rose $4.20 to settle at $1,285.70 an ounce. In other commodity news, orange juice futures extended recent losses, falling to its lowest levels since 2009.

 

Currencies & Treasuries

·     The U.S. dollar sunk on Tuesday, a day ahead of the FOMC rate decision (no change expected and more dovish commentary likely), pulling back further after touching fresh 2019 highs last week. The U.S. dollar slipped after another round of mixed economic data while the British Pound pushed back above the 1.30 level. Overall it was some profit taking in the US currency that has seen strong gains into the FOMC meeting. Treasury market’s rally as yields slip, but remain in a tight range heading into the FOMC meeting (10-year between 2.50% and 2.54% this week).

 

 

Macro

Up/Down

Last

WTI Crude

0.41

63.91

Brent

0.76

72.80

Gold

4.20

1,285.70

EUR/USD

0.0032

1.1218

JPY/USD

-0.28

111.37

10-Year Note

-0.022

2.507%

 

 

Sector News Breakdown

Consumer

·     Auto’s; GM Q1 EPS topped consensus but noted slowing sales of sports utility vehicles and a wipeout of its international profitability caused an 11% decline in quarterly profits; Ford (F) tgt raised to $13 at Deutsche Bank and raise 2019E EPS from $1.25 to $1.50 on the back of Ford’s 1Q19 beat and incorporating company comments

·     Restaurants; Dow component MCD with mixed results as EPS missed by 3c on slightly better revs of $4.96B while US comp sales rose 4.5% vs. est. 3% and overall better comp sales up 5.4%; TXRH shares fell after missing Q1 earnings and revenue saying high labor costs were putting results under pressure/Street also concerned about margins; YUMC Q1 EPS/revs/comp sales beat on better margins YoY (upgraded at Bank America)

·     Housing & Building Products; TREX mixed Q1 results as EPS missed by a nickel on better revs but guidance falls short of consensus (Q2 $195M-$205M below consensus $230.78M); MHK upgraded to buy at Jefferies calling it a bounce back candidate as investors get comfortable with estimates that have bottomed; LL shares active on earnings with a smaller than expected comp sales loss of (-0.8%) vs. est. (-1.6%); TTS was downgraded at CJS Securities after Q1 EPS and Ebitda miss; MLM shares jump as Q1 results handily top consensus helped by robust pent-up demand and modestly improved weather (EXP, VMC, SUM also active)

·     Retail/consumer; PETQ shares fell after short seller SprucePoint announced a new short saying sees 75%-90% downside; CRI shares slipped as Q1 comp sales fell (-3.7%) vs. est. loss (-2.9%); in casinos, MGM with mixed Q1 results as EPS missed by 16c on slightly better revs though revs fell at MGM Grand Las Vegas and Mandalay Bay; MO shares rally as the FDA greenlights Philip Morris IQOS heated tobacco devices

 

Energy

·     E&P sector; Barclay’s upgraded CDEV saying it could be an M&A target for companies seeking "high-grade inventory and able to leverage cash flow and scale to accelerate NAV accretion”, while NBL was upgraded saying it could be open to Permian M&A if it divests NBLX rises on earnings as delivers a +8% EBITDA beat (+$65MM vs. consensus) driven by a 2% beat on oil volumes – this was partially dampened by a 6% capex miss (+$44MM); OXY active after Berkshire Hathaway commits to $10B investment in Occidental for Anadarko (APC) deal; BP boosted cash flow and hit the target on profit estimates in Q1; COP also rises on earnings

·     Equipment and services; OII posted a nearly across the board Q1 beat, affirmed Q2 consensus and tightened its full-year EBITDA guidance to $150MM-$180MM, an increase of $10MM at the low end; RIG reported Q1 adjusted EBITDA of $254MM, well above consensus of $193MM and adjusted revenue was much better than expected but shares slipped as operating expenses rose to $508M from $424M YoY as shares lows down over 9%; BHGE slipped as posts negative free cash flow of $419M, compared with analysts’ estimates of a positive $188.5M

·     Utilities & Solar; solar stocks dipped after NYT reported TSLA is cutting prices of solar panels and related equipment to as low as 38% below the U.S. average to recover lost ground in the market. Also reports that China announced a plan to cut benchmark prices for electricity from ground-mounted solar plants by at least 20% (VSLR, FSLR, SPWR, CSIQ, RUN)

 

Financials

·     Bank movers; after leading markets higher yesterday, banks were mixed on the day; brokerage names active following several earnings results as GHL plunges on earnings miss with lower-than-expected advisory revenues yet higher-than-expected expenses; SF reported a beat on top and bottom line while its net interest margin of 3.17% increased 28 basis points

·     Consumer finance and lending; MA reported Q1 EPS and revenue that topped analysts’ estimates (SunTrust said topped results from V and PYPL) as gross dollar volume rose 5.4% to $1.48 trillion in Q1; PYPL’s $2.2B acquisition of payment processor iZettle AB was provisionally cleared by U.K. antitrust authorities; PAYX and ADP were both downgraded at Bernstein; other movers in finance on earnings included CACC, EEFT, FDC, FIS; DBD dropped sharply on earnings

 

Healthcare

·     Pharma movers; large cap pharma dominated by earnings as Dow components MRK and PFE report results along with shares of LLY; PRGO shares fell the IRS says Perrigo owes it a tidy $843M for additional taxes owed from its acquisition of Elan in December 2013 plus a 40% penalty; MRK approved a new restructuring program as part of a global initiative focused on further optimizing the company’s manufacturing and supply network/sees total pretax costs $800M-$1.2B; MRK raised its outlook for the full year after better than expected sales and earnings driven by soaring sales of its immuno-oncology treatment Keytruda and sales of cancer drugs and vaccines; MNK shares dropped after CNN reported two whistleblowers allege in a lawsuit against Mallinckrodt, in which the Justice Department has now intervened, that the company bribed doctors and their staffs to increase sales of H.P. Acthar Gel https://cnn.it/2J4Y7A8

·     Managed care stocks tumbled mid-morning (UNH, CI, WCG, among others), as investors head for the exits over concerns with U.S. Representative Pramila Jayapal’s (WA) proposal for "Medicare-for-All." A House Rules Committee hearing on the matter kicked off earlier today; MOH also reported quarterly results in the sector

·     Biotech movers; GTHX shares rose after saying it expects to file a new-drug application for its trilaciclib, a drug designed to protect bone marrow from the effects of chemotherapy; VRTX received FDA approval for Kalydeco for use in children with cystic fibrosis ages 6-12 months who have at least one mutation in cystic fibrosis transmembrane conductance regulator gene; INCY shares after EPS beat and in-line midpoint revenue guidance for Jakafi

·     Medical equipment and devices; BRKR which was notified about investigation and subpoena to produce documents from the SEC on Oct. 19, 2017, got notice from the SEC that it’s concluded the investigation and doesn’t intend to recommend an enforcement action

·     Healthcare services and providers; WAGE acquired by HQY for $50.50 a share in cash https://on.mktw.net/2J0u4tA ; in hospitals, HCA reported adjusted Ebitda for Q1 that beat the highest analyst estimate on better EPS/revs and 1Q same facility revenue per equivalent admission +4.4% while THC shares dropped after posting a Q1 loss of $27M (though EPS beat estimates); CHE shares slipped early after Q1 EPS and revenue missed estimates

 

Industrials & Materials

·     Industrial & Machinery; HON announces $10B share repurchase program; GE shares rises after reporting a more than three-fold rise in quarterly profit to $954M, helped by higher sales in aviation, oil and gas, and healthcare, offsetting a loss in renewable energy; other earnings results from ETN, EME, HUBB, CMI on the day; IR said it would spin off its industrial business and merge it with industrial pumps and compressors producer GDI/the combined company would have a 2019 pro forma revenue of about $6.6B, Ingersoll said. https://reut.rs/2WgPaaP (IR also posted earnings and raised guidance); JBT jumps on Q1 earnings beat and Proseal acquisition

·     Aerospace & Defense; WWD jumps after a sound Q2 EPS/revenue beat and boosted both its EPS and sales outlook for the year; ARNC posted a quarterly EPS and revenue beat while boosting its year EPS outlook to $1.75-$1.90 from $1.55-$1.65 prior; LDOS rises on Q1 beats with 6% Y/Y revenue growth and in-line year rev outlooks

·     Transports; KSU noted that the Mexican Revenue Service Administration had eliminated its fuel excise tax credit starting on April 30th/Citigroup said estimate the loss of the tax credit will increase its 2019 and 2020 ORs by ~40 bps and ~70 bps, respectively, reducing EPS by ~1% in both years; also in rails, CNI was slightly below expectations on account of challenging winter weather, even with continued strength in pricing; in airlines, ALK upgraded to overweight at JPM calling it a YTD laggard, second only to SAVE having underperformed the market by nearly 17%

·     Paper & Packaging; Bank America upgraded OI, UFS and LPX to buy citing an improving global growth outlook and the need to balance his industry recommendations following a recent downgraded of containerboard stocks (IP, WRK); WRK reported a Q1 EPS beat while sales of $4.62B missed the $4.67B estimate

·     Metals & Materials; AKS reported earnings and said it expects higher iron ore costs later in the year; lithium stocks active (ALB, SQM) after Tianqi Lithium, China’s biggest producer of lithium, said its net profit fell by 83% in the first quarter because of weak lithium prices and high interest payments on a loan; HUN reported Q1 EPS beat while revenue missed estimates

 

Technology, Media & Telecom

·     Internet; GOOGL Q1 revenue missed analysts’ estimates, while revenue from Google advertising rose 15% from a year earlier but that was down from 24% YoY growth in the Q1’18; JPMorgan upgraded China-based e-commerce companies VIPS and JD to overweight from neutral, citing an improved revenue outlook in its upgrade of JD.com, and a more positive view of VIPS earnings; FB introduced two new ways for brands to connect with people and conduct business on Messenger at the F8 annual developer conference.

·     Semiconductors; NXPI posted solid 1Q results with revs/EPS slightly above but its 2Q outlook for 5% q/q growth topped similarly broad-based peers forecasting a flat quarter; chip names pulled back further off record highs last week after a drop in Samsung growth…but recovered in the afternoon; MKSI shares tumbled after its Q2 was well below expectations; AMD earnings tonight

·     Hard-disk drive names mixed, WDC shares slumped after Q3 EPS fell well short of consensus and guided Q4 EPS 10c-30c on revs $3.6B-$3.8B vs. est. 49c/$3.7B, while STX reports Q3 results that narrowly missed revenue estimates with an 18% Y/Y decline but beat on EPS though the Q4 outlook has revenue below consensus at the midpoint with $2.31B plus or minus 5%

·     Media & Telecom movers; CRTO shares fell after a softer Q2 outlook ($221M-$224M vs. $235M) in addition to full-year guidance coming down as management cited execution delays; CHTR boosted quarterly revenue as growth in the company’s internet business accelerated/adds 398,000 broadband subscribers in quarter while video subscriber loss of 152,000 was worse than expected; NLSN active on earnings beat

·     Software, Hardware & Component news; EMS stocks got a boost after SANM Q2 EPS and revs beat for both the quarter and the upcoming one; CGNX shares dropped overnight on mixed Q1 results but sees Q2 revenue $190M-$200M below consensus $223.04M and says Q2 gross margin is expected to be in the mid-70% range (Q1 GM was 73%); AAPL to report earnings tonight; IBM boosted its dividend; GLW shares dropped after mostly in-line results but guided to a full-year slowdown in its largest segment, Optical Communications, to sales growth of about 10% vs. a previous expectation for low teens; PI shares jumped after posting a narrower than expected Q1 EPS loss and improved guidance on both the top and bottom line; CVLT shares dropped after a miss on the top and bottom line on lower YoY rev growth

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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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