Market Review: May 07, 2019

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Closing Recap

Tuesday, May 07, 2019





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     U.S. stocks sunk across the board, as weakness was broad based but more pronounced in technology, industrials and materials as U.S. officials vow higher China tariffs will kick in by Friday if no deal can be reached, while Vice Chairman Liu He is expected to attend negotiations this week in Washington. The S&P 500 index fell more than 2% midday, its most since January while the Dow Industrial Average fell below the 26,000 level, down more than -650 points at its low. Tech got crushed on tariff concerns with China as the NASDAQ underperformed. The Cboe Volatility Index (VIX), or fear index, posted its sharpest daily jump in nearly seven months amid fears of increased tariff tensions between the U.S. and China, topping the 20 mark for its highest level since January. The picture in Europe was just as bleak as the German DAX dropped 1.58% to 12,092, its largest one-day point decline since Thursday, Feb. 7, 2019 and largest one-day percentage decline since Friday, March 22, 2019 and remains off 10.82% from its record close of 13559.60 hit Tuesday, Jan. 23, 2018. The mood was sour overall ahead of key trade talks this week after U.S. Trade Rep Lighthizer confirmed tariffs would increase to 25% on $200B of Chinese goods starting Friday, claiming China has backtracked from prior agreements. U.S. Treasury prices were higher, with the two-year yield and 10-year yield down to their lowest levels in about 5-weeks while oil prices slid and the dollar gained.



·     Oil prices end lower alongside other riskier assets, with WTI crude sliding 85c to settle at $61.40 per barrel and Brent fell below $70 per barrel, as investors rotated into defensive assets (Treasuries, gold) ahead of inventory data tonight and tomorrow (API and EIA). Earlier today, U.S. energy secretary Rick Perry said that Saudi raising production to counter Iran sanctions impact which weighed on prices. The other issue of course, fears of demand destruction that a new round of U.S./China trade tariffs would cause (offsetting potential oil bullishness with Iran sanctions). Also earlier today, the EIA said U.S. crude oil production is expected to rise by 1.49 million barrels per day (bpd) in 2019 to average 12.45 million bpd, up from its previous forecast for a rise of 1.43 million bpd. The EIA forecast output in 2020 will rise by 930,000 bpd to 13.38 million bpd, a bigger increase than it previously estimated.

·     Gold prices edged higher, rising $1.80 to settle at $1,285.60 an ounce after earlier lows of $1,279.10 an ounce following a modest 0.2% gain on Monday. Gold holding up well despite dollar strength as investors rotate into defensive assets amid global trade uncertainty.


Bond Market

·     Treasury prices gained, with yields plunging to lowest levels in over a month as investors rotated out of riskier assets such as stocks and commodities on trade/tariff fears and into more defensive/safe haven assets. After having traded in a range of 2.45%-2.61% the last month, the yield on the 10-year slipped to 2.44% (down 6 bps on the day) while the 2-year was down 3 bps on the day to 2.28%. There were no major economic data points for a second straight day as markets focused mainly on China/trade. The U.S. Treasury sold $38B in 3-year when issued notes at a yield of 2.248% compared to 2.2415 prior to auction, with a bid-to-cover at 2.48 vs. 2.49 in prior auction and indirect bidders awarded 37.9% (lowest since Nov 2014) and primary 42%.






WTI Crude















10-Year Note





Sector News Breakdown


·     Retailers; NLS shares fell as posted a larger than expected Q1 EPS loss while revs missed ($84.4M vs. est. $92M); DLTH upgraded to outperform at Baird citing low expectations, improving focus/execution and attractive valuation support favorable risk-reward at current levels; CROX Q1 EPS and revenue beat analyst estimates helped by clean inventories which analysts said bode well for the coming quarter gross margin expectations

·     Consumer Staples; BUD said had best market share trend performance in the U.S since 4Q12 and outperformed the market in Brazil with double digit volume growth in both beer and non-beer; IFF reported a mostly in-line quarter, as EPS of $1.57 beat Street by a nickel and LC sales growth of +3% for both the base business and for Frutarom was in-line with estimates; ARMK shares drop after cutting its full-year profit outlook as Q2 miss; USFD posted a Q1 EPS and rev beat (37c/$6.0B vs. est. 36c/$5.96B) and reiterated full-year guidance

·     Restaurants; very busy day of earnings for the sector with DFRG, TACO, FRGI soft 1Q results reflecting lower-than-expected comps at Taco Cabana (TC) and higher underlying Other Opex that more than offset sequentially improving comps at Pollo Tropical; JACK downgraded at OTR Global to mixed from positive; TXRH was upgraded at Longbow

·     Housing & Building Products; BLDR reported a solid Q1 volume, revenue, GM, EPS, and EBITDA beat despite a challenging housing backdrop/net debt-to-EBITDA fell to 3.0x; HD estimates cut at JPMorgan saying in light of not-so-cooperative weather and a softer backdrop trims 1Q comp forecasts to 3.7% (4.0% U.S.) vs. consensus of 4.7%; LGIH shares slipped as EPS and revs missed as lower overall margins, and higher construction overhead had negative impact

·     Autos; RACE rises after 1Q earnings exceed estimates, helped by revenue, bolstered by V8 units and Chinese performance and reiterated guidance; GM Cruise reports an equity investment of $1.15B from a group including funds and accounts advised by TROW and existing partners General Motors, SoftBank Vision Fund and Honda; BWA to form a joint venture with Romeo Power Technology, a supplier of battery modules and packs, to bolster its electrification portfolio and systems expertise/BWA will take a 20% equity position in Romeo Power Technology; LYFT to report earnings after the close (first time as a public company); ADNT declines after reports FQ2 EPS lower than expectations and mid-point of year rev guidance below estimates



·     Energy stocks dropped as oil prices tumbled ahead of inventory data and commentary from U.S. energy secretary Rick Perry who said that Saudi Arabia is raising production to counter Iran sanctions impact which also weighed on prices.

·     E&P sector; APC accepted OXY’s revised bid as CVX now had 4-days to respond with counterbid; CDEV EPS was in-line with consensus, 1Q19 production was 4% above consensus, and 1Q19 oil production was 1.6% above consensus while capex was above consensus; PXD EPS beat was counteracted by an obscure Eagle Ford asset sale and the fact that 2Q19 Permian-only production guidance was 1.7% below our estimate said KeyBanc/shares dropped further as cuts long-term output growth to 15% from 20%; DNR, FRAC also reported earnings

·     Utilities & Solar; solar space strong after SEDG posted a strong 1Q and guidance for both revenue (guides Q2 revs $310M-$320 vs. est. $282M) and GMs impressed analysts (upgraded at JMP Securities while Roth raises to Street high $70 tgt); VSLR was also upgraded in solar space by Citigroup to buy citing growth opportunities and improved execution; utilities SRE and PNM reported earnings in the utility space



·     Insurance; AIG reported Q1 EPS of $1.58 beating both consensus of $1.06 marking the first time AIG has beat the street in seven quarters and both of its core businesses reported double-digit ROEs; ATH slipped early after Q1 EPS missed by over 20c while announced formation of Athene Co-Invest Reinsurance Affiliate; RE shares led reinsurers higher after operating EPS topped consensus handily on better revs

·     Other financial news; banks were broadly lower across the board for large cap and regional banks (brokers etc.) as Treasury yields sunk to 5-week lows as global stocks declined; in service news, NCR shares spiked after Bloomberg reported the maker of ATMs, is exploring options including a potential sale after receiving takeover interest

·     REITs; WELL upgraded at BMO Capital to outperform noting after two years of declining earnings as Welltower cleaned up its portfolio, they believe it is back on a solid growth path; DOC was downgraded at BMO citing share outperformance; INVH 1Q19 core FFO of 33c, +3c above consensus as expense control drove the beat; KRC 1Q results were steady overall, with the sequential occupancy dip and 4.2% cash SSNOI decline expected; KRG reported in-line 1Q19 results and management maintained the FY19 FFO guidance; SKT reported in-line 1Q19 FFO, and management revised guidance lower by the expected 9c related to the previously disclosed sale of four non-core assets during the quarter



·     Pharma movers; MYL shares fell as much as 20% after it reported a quarterly loss hurt by restructuring-related expenses at its Morgantown manufacturing plant in West Virginia while revenue of $2.5B missed estimates; MRK said study evaluating the efficacy and safety of BELSOMRA C-IV for the treatment of insomnia in people with mild-to-moderate Alzheimer’s disease dementia meets primary efficacy endpoint; TXMD shares fall after Q1 rev miss and in-line quarterly loss; CPRX plunges after FDA approval of a competitor to its Firdapse drug that helps patients who suffer from Lambert-Eaton myasthenic syndrome, for which CPRX charges a list price of $375K; LCI with second consecutive beat-and-raise quarter (raises FY19 revenue view to $640M-$645M from $615M-$635M; GWPH shares rise as upgraded to outperform at Oppenheimer and raise tgt to $234 from $162 as announced top-line results of a Phase 3 clinical trial of Epidiolex that met its primary endpoint; BMY launches $19B bond sale to fund Celgene acquisition; AKRX rises on earnings beat

·     Biotech movers; REGN shares drop after quarterly results both miss the top and bottom line and also cut its guidance for reimbursement from partner SNY to $500M-$535M from $510M-$560M previously; XENT falls as cuts FY19 revenue view to $113M-$117M from $123M-$127M (est. $125.25M) while announced that Lisa Earnhardt will be stepping down from her role as Chief Executive; CELG phase III Radiance Part B trial of oral Ozanimod showed a reduction of cortical grey matter volume loss versus the first-line treatment, Avonex (interferon beta-1a) in adults with relapsing multiple sclerosis across all age groups, including patients ages 18 to 25; CLVS posted a smaller than expected quarterly loss on better than expected Rubraca sales

·     Medical equipment and devices; OFIX reported weaker Q1 results with outperformance in Biologics mitigated by weakness in legacy (non-M6) Spinal Implants and Global Extremities and backed its year outlook; TCMD sales of $37.6M exceeded consensus by ~$4.5M as quarter and guidance top analyst views; LMNX shares drop on Q1 EPS loss and revenue miss

·     Healthcare services and providers; HIIQ Q1 revs were in-line with adj. EBITDA / EPS below estimates and reiterated FY’19 guide but guided Q2 below estimates; BKD posted strong Q1 Ebitda beat driven by better pricing and tighter cost controls, helping lift shares; IVC posted a small EPS miss on slightly weaker revs with no changes to its 2019 guidance or LT financial targets; CRL slumps on mixed quarter as EPS/revs beat but analysts noted light margins; HSIC rallied on EPS beat (sales miss) and raised the top end of guidance for the year


Industrials & Materials

·     Industrial & Machinery; EMR shared fell as lowered the top end of its full-year earnings outlook, after in-line Q2 results while backs FY19 operating cash flow view ~$3.2B, free cash flow ~$2.5B; KMT declined after 3Q results missed estimates and narrowed its full-year outlook

·     Industrial/instruments; MWA lowered its FY19 sales outlook to +7- 9% YoY from +8-10% previously, including Krausz, and EBITDA growth guidance by -200 bps to a 12-15% range from 14-17% previously; ITRI Q1 beats with Q2 results expected to be sequentially flat to slightly down on both revenue and EPS due to overachievement in Q1 and timing issues as continues to expect H2 improvement with the Q4 exit rate at 150 bps higher than Q1; FAST, MSM and WCC all downgraded to Market Perform at William Blair saying with growth challenges rising distributor earnings estimates are too high for 2019 and 2020

·     Metals & Materials; IAG was downgraded by two analysts after reported Q1/19 production of 185koz, a miss relative to consensus at 213koz gold owing to operating issues at Westwood; BHP is facing a landmark, $5.0B damages claim in England for being "woefully negligent" in the run-up to a 2015 dam failure that led to Brazil’s worst environmental disaster, a lawsuit alleges; KALU tgt cut to Street low $97 at Goldman Sachs citing BA risk

·     Chemicals; ag chemicals weak after MOS fell to 52-week low as they lowered year adjusted Ebitda and EPS outlook while BMO said it may not be sufficient amid the continued decline in phosphate prices; FMC Q1 EPS beat by 10c, driven by strong organic topline growth of 14% (9% volume, 5% price), partially offset by FX (6% headwind); CBT mixed Q2 as EPS beat/revs miss and guides year below views for EPS ($4.05-$4.30 vs. est. $4.38)


Technology, Media & Telecom

·     Internet; EVER Q1 revenue beat expectations and gave a Q2 outlook that was above consensus forecasts, prompting at least two analysts to raise their price targets on the company; CTRP upgraded to buy at Mizuho citing decreased competition and improved macro/RMB appreciation, which he expects to drive travel; COHU upgraded to buy at Stifel and up tgt to $22 citing increased confidence in the forming recovery after earnings; FB COO Sandberg is meeting with Senate committee leaders on Capitol Hill Tuesday as the social-media company nears a record privacy settlement with U.S. regulators

·     Semiconductors; KLAC delivered revenue upside in F3Q and guided F4Q revenues slightly above consensus though co outlook for front-end equipment spending for 2019 was essentially unchanged from its previous comments; VECO Q1 earnings and revenue topped estimates prompting an upgrade at Benchmark to buy with a $15 tgt; the Philly semi index (SOX) fell over 3% to below the 1,500 level (traded to all-time highs of 1,604.56 on 4/24)

·     Software movers; NOW positive mention by several analysts following analyst day in Las Vegas with main announcement was its Finance Operations Mgmt product; EVBG reported 1Q results ahead of estimates, and posted a strong +60 billings growth metric; GLUU shares declined following its quarterly results and guidance

·     Media & Telecom movers; DIS tgt raised to Street high $170 at BMO Capital; RNG delivered a beat and raise in Q1, highlighted by subscription revenue growth of 33+% and the largest deal-by-seat count in the company’s history (a 45K seat win with a large UK retailer)

·     Hardware & Component news; AKTS rises after announcing the first pre-production order for its 5.6 GHz XBAW WiFi RF filter; FN Q3 results beat expectations and announced an expansion deal with existing customer INFN as analyst raise tgt prices; AEIS posted mixed 1Q results, with revenue slightly below consensus and EPS above consensus primarily due to 1-time tax benefit; KRNT negative mention by short-seller SprucePoint which issued a new sell rating saying recent performance is unsustainable, driven by a “hyped” Amazon deal and that it sees 75%-85% downside risk for the shares.


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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