Market Review: May 06, 2019

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Closing Recap

Monday, May 06, 2019

Index

Up/Down

%

Last

DJ Industrials

-68.16

0.26%

26,436

S&P 500

-13.11

0.44%

2,932

Nasdaq

-40.71

0.50%

8,123

Russell 2000

0.99

0.06%

1,615


 

Equity Market Recap

·     U.S. stock markets were extremely resilient, with major averages recovering throughout the session despite President Trump threatening to increase tariffs for China on $200 billion of imports to 25% from 10% on Friday and also raised the possibility of imposing a 25% tariff on another $325 billion in imports from China not currently covered. Following the news, the Shanghai Index plunged over 170 points (5.58%) to settle at the lows just above 2,900 (worst day in 3-years) and the Hang Seng Index dropped -871 points (2.9%) to 29,209. The Dow Industrial Average fell as much as -471 points on the open, but that marked the low of the day. Stocks got a late day boost after reports a Chinese delegation will still come to the U.S. this week for trade talks though the Chinese would send a smaller delegation than the 100-person group originally planned (and said was unclear whether Vice Premier Liu He would still helm this smaller group). That helped narrow losses further in the final hour of trading.

·     It’s important to note that given the trade uncertainty and stocks posting their best four-month start to a year for U.S. stocks since 1987, profit taking and a pullback from record highs today was not surprising given the trade uncertainty. If no deal materializes on Friday and tariffs are enacted, investors could see a further pullback in US stocks. Also note stocks have slipped since Federal Reserve Chair Jerome Powell pushed back against calls for a near-term rate cut last week. The CBOE Volatility index (VIX) jumped nearly 50%, to highs of 18.80 (most since October) before sliding to around the 15 level late afternoon. Oil prices rebounded off lows to end higher along with gold, while Treasury prices gained and the dollar slipped. Markets await another busy week of earnings, with Small Caps outperforming broader averages, with the Russell 2000 index poking into positive territory late day.

 

Commodities

·     Oil prices with a nice rebound off earlier weakness, as WTI crude gained 31c or 0.5% to settle at $62.25 per barrel, well off earlier lows of $60.04 per barrel, while Brent gained 39c to finish at $71.24 per barrel. Prices sunk early amid the perceived demand impact due to ongoing China and U.S. trade issues as tariff fears weighed on sentiment…but oil managed to push higher. June gold gained $2.50 or 0.2% to settle at $1,283.80 an ounce, bouncing off modest lows earlier, as investors rotated out of riskier assets and into defensive safe haven related ones given the renewed uncertainty between the U.S. and China related to tariffs.

 

Currencies

·     The U.S. dollar erased earlier gains, as the dollar index slipped into negative territory late day around the 97.50 level; the euro bounced back above the 1.12 level vs. the dollar while the greenback also slipped against the safe-haven yen (though pared losses). The Turkish Lira was under pressure as Turkey’s amid political concerns as the country’s top electoral body came under fierce pressure from President Recep Tayyip Erdogan to order a new contest for the mayor’s seat in Istanbul. Emerging market currencies got a late day lift after reports a Chinese delegation will come to the U.S. this week for trade talks after President Donald Trump upended negotiations by threatening new tariffs on Sunday.

 

Bond Market

·     Treasury market’s rallied as risk-off sentiment early in the session took the 10-year yield to lows around 2.48% (still well above the 2019 lows of 2.34% and off highs around 2.81%), having remained in a 2.45-2.61% range for the past month. Front-end Treasury yields at 2.275% after holding in a wider 2.16-2.43% range over the last month. There were no US economic data points today to move markets, as Treasuries gained as stocks fell on trade uncertainty.

 

 

Macro

Up/Down

Last

WTI Crude

0.31

62.25

Brent

0.39

71.24

Gold

2.50

1,283.80

EUR/USD

0.0006

1.1205

JPY/USD

-0.23

110.86

10-Year Note

-0.029

2.496%

 

 

Sector News Breakdown

Consumer

·     Retailers; PETS shares drop as Q2 EPS of 32c/$64.5M well below the 46c/$69M estimate; BBY tgt raised to $90 at Loop Capital on its expectation that 5G will be a positive catalyst for the retailer; TPR remained overweight at Piper despite largely negative sentiment on the name saying shares are near "trough multiples" with a dividend yield of greater than 4% while Credit Suisse said checks suggest accessories category trends remained sluggish, with Coach barely positive; UBS said many retailers face a “significant” threat if President Trump’s threat of 25% tariffs goes through (said makers of home furnishings including BBBY and RH could be at risk given the category’s elevated exposure to China); FRED annual return includes going-concern assessment

·     Consumer Staples; food names strong ahead of a few earnings this week; TSN Q2 EPS/sales topped views but said average prices were down 4.8%, adjusted operating margin was 6.3% of sales vs. 7.1% YoY and margins dropped sharply in the chicken business (4.4% from 9.7%); POST upgraded to buy and $134 tgt at Goldman Sachs; KHC said it will restate its financial statements and related disclosures for the years ended Dec. 30, 2016 and 2017 and each of the quarterly and year-to-date periods in fiscal year 2017

·     Casino & Leisure movers; in lodging, PK to acquire CHSP in a cash and stock transaction valued at about $2.7 billion, including of transaction costs; CHSP holders to receive $11.00 in cash and 0.628 of a share of Park common stock https://reut.rs/2VLItjT ; CHDN said says wagering from all sources on the Kentucky Derby Day program was up 11% to $251M/wagering on the main race was up 10% to $166M and attendance at Churchill Downs was down 4% to 150,729 amid a very rainy day at the track

 

Energy

·     Energy stocks pummeled early on trade fears with China as it could crimp demand; OXY reached an agreement to sell APC’s Africa assets (Algeria, Ghana and Mozambique) to TOT for $8.8B while also revised the terms of its $76 per share offer for APC to include more cash and less stock, effectively removing the need for a shareholder vote https://on.mktw.net/2H7g6ox ($59 of which will be cash, as APC weighs a previous deal it struck with CVX); energy stocks rebounded as commodity prices did, helping pare early losses; PE was upgraded at Evercore; CRZO shares rose ahead of earnings tomorrow night; in utilities & Solar; FSLR was added to JPM focus list and up tgt to $72 citing Q1 results saying the company is heading toward a strong earnings inflection, which is not fully priced into the stock; utility stocks fall late day after rising initially

 

Financials

·     Overall quiet in the financial sector; AMG shares slumped early on mixed results as EPS was in-line on better revs while announced CEO Nathaniel Dalton to leave position, Jay Horgen succeeds; banks weak across the board today, but UBS shares underperform compared to other European banks (CS, BCS, DB); banks/brokers down in general as rates have slipped across the board with the FOMC remaining dovish at least week’s meeting

 

Healthcare

·     Pharma movers; CYTK said a Phase II study of reldesemtiv for patients with ALS failed to reach its primary endpoint of showing a dose-dependent response as measured by a test for respiratory function at 12 weeks; CHRS shares slipped following its settlement with AMGN over the alleged theft of trade secrets related to Neulasta (pegfilgrastim)/CHRS has agreed to pay a mid-single-digit royalty to AMGN for five years; ZYNE has been granted Fast Track Designation to its lead development candidate Zygel (ZYN002 CBD gel) for treatment of behavioral symptoms associated with Fragile X Syndrome; NBIX partner VYGR reported 12 month motor outcomes data in Parkinson’s disease (PD) for its VY-AADC01 gene therapy, delivered to the brain’s putamen; PFE Vyndamax (tafamidis) won FDA approval for treatment of the cardiomyopathy of wild-type or hereditary transthyretin-mediated amyloidosis earlier than expected, with a clean label (analysts noted could be negative for IONS and ALNY); AXSM announces the acceleration of the timeline for reporting topline results from the MOMENTUM Phase 3 trial of AXS-07

·     Biotech movers; ESPR rises after saying yesterday that two applications for its experimental cholesterol medication were accepted for review by the FDA; both Cowen and HC Wainwright upgraded IMGN amid potential for the company’s lead drug (Mirvetuximab) to gain approval from U.S. regulators; BIIB said results from an extension study, SHINE, evaluating SPINRAZA (nusinersen) in patients with spinal muscular atrophy showed a durable treatment effect

 

Industrials & Materials

·     Industrial & Machinery; broad weakness in the space today on trade fears with China as tariff-related threats from President Donald Trump boosted the possibility of a trade war with China (shares of DE, CAT among names moving); Heavy duty truckers PCAR, NAV, MTOR, RUSHA downgraded to neutral from buy at Longbow; distributors/services; FAST April daily sales grew 7.4% on a year-over-year basis (April net sales rose 12.5%)/this included a 50 basis point headwind from currency issues (was slowest rate since early 2017); Commodities fell after President Donald Trump threatened Beijing with steeper tariffs; MMM and CC were two names mentioned as short ideas by Larry Robbins of Glenview Capital at the Ira Sohn conference

·     Aerospace & Defense; BA revealed it knew that a cockpit alert wasn’t working as advertised, but didn’t tell airlines or the FAA until after October’s Lion Air crash; shares of AER and GATX were active after David Einhorn mentioned at Ira Sohn conference (he said he was long AER and short GATX)

 

Technology, Media & Telecom

·     Internet; China-exposed exchange-traded funds and ADRs slumped after President Donald Trump’s threat to increase tariffs on Chinese imports (BABA, BIDU, JD); EXPE downgraded to neutral at Susquehanna who sees zero catalysts that will drive the stock higher and cut tgt to $141 from $170; ZG positive mention by Valiant Capital’s Hansen at Sohn conference

·     Semiconductors; AQ shares jumped as agreed to be acquired by MRVL for $13.25 per share in cash in a total deal valued at $452M https://bit.ly/2Lp5VQb ; Apple supply chain weak amid new China tariff risks given its heavy reliance on Asia (SWKS, AVGO, CRUS, QRVO, QCOM, MXIM, NXPI); Philly semi index (SOX) pares losses late afternoon to above 1,537, which is the high of the day (SOX lows 1,513.20)

·     Media & Telecom movers; SBGI will acquire the equity interests in 21 Regional Sports Networks and Fox College Sports from Disney which were acquired by in its acquisition of Twenty-First Century Fox for a purchase price of $9.6B (DIS reports later this week) though are valued at $10.6B; DIS “Avengers: Endgame” crossed the $2 billion mark in record time and unseat “Titanic” as the second highest-grossing film ever worldwide. DISH was upgraded at Credit Suisse saying company’s video-subscriber losses "are at a nadir" and appear likely to "improve dramatically

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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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