Market Review: May 01, 2019

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***Please note: This will be the final Closing Recap for the rest of the week.

***Service will resume normally on Monday May 6th

 

 

 

 

 

 

 

 

Closing Recap

Wednesday, May 01, 2019

Index

Up/Down

%

Last

DJ Industrials

-163.38

0.61%

26,428

S&P 500

-22.16

0.75%

2,923

Nasdaq

-45.75

0.57%

8,049

Russell 2000

-14.93

0.94%

1,576


 

Equity Market Recap

·     U.S. stocks were volatile, erasing earlier gains while a rally in Treasury prices also evaporated after FOMC Chair Jay Powell took a perceived optimistic tone at a press conference following the Federal Reserve rate decision that kept rates unchanged (as expected). Federal Reserve officials continued to pledge patience as they deal with conflicting currents in the U.S. economy. Powell struck a more upbeat tone and offered little suggestion that the FOMC is prepared to change its mind any time soon (causing the reversal in stocks and bonds lower). Following the late day pull, the Nasdaq Comp erased big gains, falling more than 80 points from its intraday highs (led higher initially by strong earnings/guidance results from AAPL). Energy stocks tumbled as oil prices declined on bearish weekly inventory data (though finished off their worst levels). The dollar made a sharp about face higher during Powell’s press conference, erasing earlier losses vs. the euro and yen, while the 10-year yield spiked back above 2.5% after falling below 2.46% briefly on the initial headlines from the FOMC. Economic data was mixed as a private payrolls report from ADP came in significantly higher, but ISM manufacturing posted a 30-month low (ahead of Friday’s nonfarm payroll report). Back to the Fed, policy makers gave no clear signal that their next move would be a hike or a cut, or that any adjustment should be expected at their next meeting in June. The unanimous 10-0 decision left the target range for the benchmark federal funds rate at 2.25%-2.5%.

Economic Data

·     Private payroll data very strong as ADP said U.S. companies added 275,000 workers in April, the biggest monthly gain since last July and exceeding analysts’ forecast of a 180,000 increase. Private payroll gains in the month earlier were revised up to 151,000 from an originally reported 129,000. The ADP figures come ahead of the U.S. Labor Department’s non-farm payrolls report on Friday

·     ISM Manufacturing for April falls to a 30-month low of 52.8, below the 55.0 estimate and from prior reading of 55.3 as new orders fell to 51.7 vs 57.4 MoM, employment fell to 52.4 vs 57.5 while inventories rose to 52.9 vs 51.8; prices paid fell to 50.0 vs 54.3

·     Construction Spending for March fell (-0.9%) worse than the unchanged estimate while February was revised to 0.7% from 1.0%; private construction fell 0.7% in March and private residential construction fell 1.8% to the lowest level since Dec. 2016; public construction fell 1.3% in March

 

Commodities

·     Oil prices end lower, but finish well off the worst levels as WTI crude slid 31c to settle at $63.60 per barrel (off earlier lows of $62.77), while Brent managed to finish higher at $72.18 per barrel. Prices dropped initially as the likelihood of an escalation in Venezuela’s political crisis appeared to fade, along with signs of a sharp increase in U.S. crude inventories and concerns over the strength of economic growth in China. Energy stocks extended decline after data showed U.S. crude stockpiles swelled to their highest levels since 2017 while American production set a new record. The EIA inventory data showed a 9.9M barrel rise in crude stocks (vs. est. 2M build) and the API reported a 6.8 M bbl increase after the close on Tuesday. Gold prices settled lower by $1.50 to $1,284.20 an ounce prior to the release of the FOMC meeting results, having held steady most of the morning as the dollar was mixed. After the Fed Chair Powell press conference, the dollar rebounded and gold futures dropped to around $1,275

 

Currencies

·     The U.S. dollar started the day slightly weaker before FOMC meeting commentary put further pressure on the greenback initially. The dollar index (DXY) dropped to lows around 97.15, down about -0.3% (and well off last week 52-week highs of 98.33), falling against the euro and Pound, while emerging market currencies such as the Aussie and Canadian dollar declined amid the roll in industrial metals (copper fell over 3%) and oil (on bearish inventory data). The Fed “dovish” take amid low inflation weighed on the dollar along with softer ISM economic data earlier in the day. The statement revealed a slightly trimmed inflation outlook, and the Fed lowered the IOER by 5 basis points to 2.35%. However as Powell spoke at his press conference, the dollar rebounded sharply to the best levels of the day vs. rival currencies, closing much higher.

 

Bond Market

·     Treasury prices rose across the board, as the yield on the short-term 2-year fell to 4-week lows around 2.21% after a worse-than-expected ISM manufacturing gauge boosted fears about sluggish industrials while the Fed once again came across dovish. The Fed it in its policy meeting statement kept rates steady at a range of 2.25%-2.5% and gave no signal what the next move would be. The Federal Reserve said inflation has weakened despite solid economic growth. The yield on the 10-year fell 4.5 bps to 2.46% (before bouncing to 2.5% during Powell press conference). Fed officials also adjusted a tool they use to keep the fed funds rate within its target range, lowering the interest paid on bank reserves deposited with the Fed to 2.35% from 2.4%.

 

 

Macro

Up/Down

Last

WTI Crude

-0.31

63.60

Brent

0.12

72.18

Gold

-1.50

1,284.20

EUR/USD

-0.0022

1.1193

JPY/USD

0.09

111.52

10-Year Note

0.004

2.509%

 

 

Sector News Breakdown

Consumer

·     Consumer Staples; CLX misses Q3 revenue estimates as cleaning segment sales impacted by a significantly milder cold and flu season and int’l sales hit by devaluation of Argentine peso while narrows EPS range and trims revenue outlook for FY19; NUS was upgraded at Deutsche Bank after Q1 EPS tops highest estimates, helped by better op margins (11% vs. 9.6% YoY) and revs in China better ($209M vs. $193M consensus); EL raised its full-year guidance for the second time this year after it exceeded expectations in the latest quarter on the back of rising sales in Asia; TAP weak after Q1 EPS and sales fell short of consensus and worldwide brand volume of 18.2M hectoliters was down 4.7% during the quarter; MDLZ Q1 results ahead of expectations, driven by strong organic growth across its segments

·     Restaurants; YUM Q1 EPS beat and revs were mostly in-line while Q1 Worldwide comparable sales +4% topped the 2.7% est. on better KFC comps (rose 5%) while Pizza Hut comps were flat; CHEF upgraded to outperform at BMO as believe the pullback and underperformance relative to the group provides a compelling re-entry point; MCD was downgraded at Longbow; DIN with weaker Q1 comp sales (Applebee’s 1.2% below 3.3% est and iHop 1.2% vs. 2.4% est.); DENN reported in-line quarterly results

·     Retailers; MAT expanded its global licensing pact with DIS for Pixar for upcoming 2020 films; PBI shares dropped after Q1 EPS missed the lowest estimate and also lowered its 2019 guidance; GRMN shares tumbled after Q1 gross margins of 59% was down from 60% YoY, overshadowing a revenue beat and reaffirming guidance

·     Casino & Leisure movers; cruise lines rally behind RCL earnings which topped estimates as bookings and onboard spending lift Royal’s 2019 yield-growth outlook midpoint (excluding Silversea) to 4.8% from 4%, and raises its 2019 EPS view by 37c; in hotel’s HLT Q1 EPS of 80c beat by 4c on in-line revs of $2.2B as mgmt and franchise fee revenue is projected to increase between 6% and 8% in Q2 compared to Q2 of 2018 (RRR and WYND also report in lodging space); in casino’s Macau April Casino Revenue Falls 8.3% YoY dropping to 23.6b patacas, and compares with median est. of 8% drop (WYNN, MGM)

·     Autos; monthly auto sales data released today; 1) HMC April US auto sales rose 0.1% vs. est. 1.9%; 2) FCAU April US auto sales fell (-6.1%) vs. est. (-4.3%) as April Jeep sales fell (-8%) YoY; 3) TM US auto sales fall (-4.4%) vs. est. (-0.7%); 4) $NSANY US April auto sales rose 9% vs. est. up 12.6%; auto and auto parts maker MTOR Q2 results beat estimates, boosted by higher truck production, primarily in North America, which partially offset impact of a strong dollar/raises 2019 forecast

·     Services, other movers; BFAM results came in ahead of consensus across the board as solid revenue trends plus contribution from recent M&A more than offset a larger FX drag; another name in education rises as STRA jumps as Q1 revs top highest estimate as EPS of $1.63 beat

 

Energy

·     Energy stocks slipped early as oil futures dropped on weaker inventory data; COP was upgraded to outperform at Credit Suisse noting the stock has underperformed peers by about 30% year to date, driven by the unwind of winners from last year

·     Weekly inventory data showed: The EIA with a big weekly build as crude stockpiles rose +9,934M barrels, more than the est. build of 1.75M barrels, while gasoline posted an unexpected build of +917K barrels vs. forecasted draw of -950K; distillates a bigger draw of -1,307M barrels. Overnight, the API reported U.S. crude supplies rose by 6.8M barrels for the week ended April 26, a fall of -1.1M barrels for gasoline, while distillate stockpiles fell by -2.1M barrels

·     E&P sector; CXO reiterated its 2019 capex budget, but increased its production guidance by 1.6% while Q2 production guidance was 0.6% below consensus; ECA was downgraded at Bernstein as merger catalysts played out and borrowed time thesis moves them elsewhere; CLH reported a jump in Q1 revs of over 4% to $780.8M, but fell short of consensus; other earnings out of DVNNBR and SLCA in the energy complex today

·     Utilities & Solar; EIX shares dropped as Q1 adjusted EPS of 63c missed estimates by 24c though revs topped estimates; ENPH surges after beating quarterly revenue and said it sold out Q2 production; slightly helping utilities, a pullback in Treasury yields, making higher dividend paying stocks (such as utilities) more attractive; ETR, SO also slipped on missed earnings

 

Financials

·     REITs; EXR 1Q beat that was 2c ahead of the high end of the Company’s own quarterly guidance. Management while raised guidance by 0.5% at the midpoint; GTY 1Q19 AFFO miss, but maintained its 2019 AFFO guidance; OFC posted in-line FFO but noted a ramp in development leasing YTD; PSB posted 1Q19 FFO beat, another quarter of >9% cash rent spreads, and improving cash SSNOI growth; QTS FFO for the quarter fell below consensus though mgmt. affirmed above-consensus FY19 guidance; RPAI reported a 1Q beat and management affirmed the FY19 operating FFO guidance; TCO posted Q1 beat and affirmed guidance; UDR earnings results were largely in line with expectations

 

Healthcare

·     Pharma movers; HRTX shares plunged as received a Complete Response Letter from the FDA for its new drug application for non-opioid postoperative pain medicine HTX-011; shares of PCRX rose in response to rival pain drug maker HRTX getting CRL from the FDA; ALKS downgraded to neutral at Citigroup as they simply do not see sufficient meaningful catalysts to drive material upside in the stock; HZNP upgraded to buy at Citigroup as view on two of the company’s key longer term value drivers, teprotumumab and Krystexxa has become more constructive; NBRV received a Complete Response Letter (CRL) from the U.S. FDA for the NDA seeking marketing approval of CONTEPO(TM) for injection for the treatment of cUTI; AMGN also reported

·     Managed care; HUM Q1 EPS beat by 18c helped by higher sales and fewer-than-expected claims in its Medicare plans while revs rose 13% $16.12B (above views) and raises lower end of 2019 adjusted EPS forecast to between $17.25-$17.50 from prior $17-$17.50; group weak yesterday (UNH, CI, WCG) with Barclays noting the House Rules Committee held the first hearing to discuss Primala Jayapal’s Medicare for All proposal (from Feb 2019), inviting witnesses from both sides of the aisle to weigh in on both the merits and concerns of single payer health care

·     Medical equipment and devices; TNDM beats again as revs of $66M (up 142% y/y), well ahead of the Street’s $47.5M, as 1) pump shipments increased 232% to 14,732 pumps; 2) operating margin improved to negative 17% from negative 57%; and 3) adjusted EBITDA was positive; EXAS delivered another strong Q1 beat, guided Q2 revenues and volumes above consensus, and raised its FY’19 volume and revenue guide; CRY beat top line estimates and reported in line profitability while leading product lines, On-X and JOTEC continue to grow in the double digits; VCYT tgt raised to $28 at BTIG after co raises year rev view to $117M-$121M from $113M-$121M

·     Healthcare services and providers; CVS posted a Q1 EPS/revenue beat and boosted its profit outlook to $6.75-$6.90, higher than the $6.68-$6.88 prior view, lifting the beaten up shares; in hospitals, CYH shares slump after missing Q1 Ebitda results missed estimates, and margins declined about 30 basis points said one analyst; TDOC posted in-line results and reiterated its 2019 guidance while said reached an arrangement with UNH to cover a “much larger population; other gainers on earnings: ACHC…decliners on earnings: AMED

 

Industrials & Materials

·     Industrial & Machinery; JCI raises 2019 EPS forecast to $1.85-$1.95 which reflects use of Power Solutions sale proceeds/closes sale of Power Solutions business with net cash proceeds of ~$11.6B; CWST traded to all-time highs after Stifel upgraded to buy

·     Aerospace & Defense; HRS raised FY guidance: EPS from continuing operations of $8.15 (from $7.90-$8.00), and revenue of ~$6.72B, up ~9% from fiscal 2018 (increased from previous guidance of up 8-8.5%); SPR beats on Q1 earnings and sales but withdraws guidance due to BA 737 Max production changes; LLL surged after its beat and raise

·     Transports; CHRW led truckers lower as total revenue missed expectations and dropped y/y, due to lower pricing across most transportation service lines; GWR was downgraded to underperform at Bank America saying stock trades at a premium to peers despite continued pressure on its North America and Australia operations

·     Metals & Materials; copper prices slumped over 3%, weighing on prices of FCX, SCCO as Bloomberg noted China’s apparent copper demand remained down through 1Q due to lower year-to-date production and refined imports; in chemicals ASH shares fell as Q2 EPS missed on lower adjusted EBITDA of $142M; OLN slipped early after missing 1Q adjusted Ebitda estimates and issuing weaker 2Q guidance; CENX shares dropped despite posting smaller Q1 EPS loss as base metals down broadly today/CEO said ample supply to pressure alumina prices; UFS shares dropped on its revenue miss; other movers on earnings included FOE, CMP and SEE

 

Technology, Media & Telecom

·     Hardware movers; Dow component and tech giant AAPL Q2 EPS and revs handily topped views while guiding Q3 revs above ($52.5B-$54.5B above consensus $51.93B), while boosting its dividend and announced a shares buyback of an added $75B; EXTR shares crashed early following a Q1 miss and lower guidance for Q2; FTR shares dropped after a larger Q4 EPS loss and said 1 net broadband losses of 38,000 and customer churn of 1.99%, up slightly from Q4

·     Internet; GRUB shares surged early earlier YUM said delivery through Grubhub positively contributed to KFC Q1 sales; GRPN rises early on its top and bottom line beat, but pared gains; group nice recovery after GOOGL rev miss weighed on the sector Tuesday; AKAM 1Q report handily beat consensus expectations as well as guidance and raised full-year 2019 guidance

·     Semiconductors; busy today after earnings from AMD which was in-line for Q1 as Q2 revs and EPS were slightly better; chip makers outperform early behind better results from iPhone maker AAPL which guided Q3 revs above views (SWKS, QRVO, CRUS, AVGO, TSM among suppliers); other earnings results from MXIM, NANO, LSCC, in the chip space; MXIM posted inline results as better than expected Consumer demand offset continued weakness Auto and Industrial demand.

·     Software movers; PAYC tgt raised by several analysts after sustained good momentum with another beat-and-raise quarter/30% y/y growth and full-year guidance raised to +27% at the midpoint, from 25.5%; TWLO rises on another impressive quarter, with robust customer/revenue growth and expansion rates and raised guidance; SSNC shares fell after cutting its forecast for revenue in 2019, prompting a downgrade by Jefferies saying the story has shifted from high growth to slower growth; TTWO was upgraded to outperform at Cowen as believe that console stocks are poised to benefit from the seasonal trade into the summer followed by the run up in the new console cycle; in security, FEYE Q1 revenue and margins in line with expectations and billings above Street consensus ($181.9M vs. $176.0M est.)

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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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