Market Review: May 09, 2019

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Closing Recap

Thursday, May 09, 2019

Index

Up/Down

%

Last

DJ Industrials

-139.31

0.54%

25,828

S&P 500

-8.74

0.30%

2,870

Nasdaq

-32.73

0.41%

7,910

Russell 2000

-4.95

0.31%

1,570


 

Equity Market Recap

·     The waiting game begins for markets – will the clock strike 12:00 tonight with a China trade deal or no? Stocks have slumped this week as the S&P and Nasdaq Comp fall for a 4th straight session with stocks moving on EVERY headline related to trade between the U.S. and China ahead of tonight’s meeting. According to U.S. trade rep Lighthizer yesterday, the U.S. is set to raise tariffs on some $200 billion in Chinese imports to 25% from 10% on Friday morning at 12:01 a.m. Eastern Time if no deal can be reached. Beijing has also threatened unspecified retaliation if the White House pushes through tariff increases. Major U.S. averages were under significant pressure, tracking European and Asian markets lower until mid-afternoon. Stock rallied off their lows after President Donald Trump said a trade deal with China is still possible and a meeting with top officials from the nation will take place tonight in Washington. The dollar fell slipped as defensive assets (gold, Treasuries, yen) advanced. Geopolitical tensions ranging from North Korea missile tests to stress between America and Iran added to investor concerns. Federal Reserve Bank of Atlanta President Raphael Bostic said increasing tariffs on $200 billion of Chinese goods to 25% from 10%, is “a whole “other game” for U.S. businesses and could lead to higher prices. “Trade policy is a big deal. We are less than 24 hours away.” Oh, and the biggest IPO of the year is expected to price tonight with UBER 180M shares offering is expected between $44-$50 per share in one of the busiest new issue weeks of the year.

Economic Data

·     Producer Prices index (PPI) for April rose 0.2%, slightly below the 0.3% estimate while final demand producer prices rose 0.6% in March. Final demand ex food, energy (core prices) rose 0.1% m/m vs est. up 0.2%. For the year, final demand rose 2.2% y/y vs est. up 2.3% and final demand ex food, energy (core) rose 2.4% y/y vs est. up 2.5%

·     Weekly Jobless Claims fell 2K to 228K (prior week revised to 230K), slightly above the 220K estimate while the 4-week moving rose by 7,750 to 220,250; continuing claims rose 13k to 1.684m in the week ending April 27

·     U.S. Trade Deficit widened to (-$50B) in March, from (-$49.3B) last month but was in-line with estimates; imports rose 1.1% in March to $261.97B from $259.19B in February, exports rose 1% in March to $211.97B from $209.91B in February

·     30-Yr Fixed Mortgage Rate fell to 4.10% from 4.14%, Freddie Mac said while the 15-year rate avg 3.57%, down from 3.60% a week earlier; 5/1-year ARM rate avg 3.63%, down from 3.68%

 

Commodities

·     Commodity prices were once again beaten up on China trade fears, with WTI crude oil sliding 42c to settle at $61.70 per barrel on fears of lower demand if the U.S. increases tariffs to China. Industrials metals such as copper dropped again while cotton futures fell to 17-month lows. Defensive gold prices rose $3.80 or 0.3% to settle at $1,285.20 an ounce recovering most of yesterday’s modest declines as the dollar was volatile.

 

Currencies

·     The U.S. dollar slumped vs. most currencies, falling especially hard early against the safe-haven yen and euro as markets brace for the possible currency impact to increased tariffs by the U.S. against China if a trade deal can’t get worked out tonight. The dollar fell to its lowest levels since early February against the Japanese yen before paring losses, while the greenback gained against the Chinese yuan. Earlier, U.S. President Trump said he received a letter from Chinese President Xi Jinping, who encouraged him to work with the Chinese side which pared yuan losses.

 

Bond Market

·     Treasury yields fell to fresh 5-week lows before rebounding late afternoon, as the yield on the 10-year Treasury fell under 2.43% before finishing up around 2.46% (down 3 bps on the day) as Wall Street losses accelerated amid trade war concerns. The drop in yields saw the 3-month/10-year spread collapse this week and invert again briefly (had not inverted since last March). The U.S. Treasury sold $19B in 30-year notes at a yield of 2.892% vs. 2.89% prior to auction with a bid-to-cover at (demand) 2.20 vs. 2.25 prior auction and indirect bidders awarded 60.5% of bonds. Today’s Treasury auction follows one of the weakest bond auctions in recent memory yesterday when the 10-year bid-to-cover (demand) came in at a decade low (2.17).

 

 

Macro

Up/Down

Last

WTI Crude

-0.42

61.70

Brent

0.02

70.39

Gold

3.80

1,285.20

EUR/USD

0.0032

1.1224

JPY/USD

-0.37

109.73

10-Year Note

-0.029

2.456%

 

 

Sector News Breakdown

Consumer

·     Retailers; TPR shares spike after Q1 results topped views and authorized a $1B buyback program, while global comparable sales were up 1% for the Coach business and the Kate Spade -3% comp which was a sequential improvement (on improving margins); COST reported better April comp sales of 5.4% vs. est. 3.3%; ETSY falls overnight despite better Q1 net income, GMS and Ebitda as sales just miss while raises year rev growth and GMS outlook; FOSL shares rallied after a narrower Q1 EPS loss on better revs and a smaller Q1 comp loss of (-9.5%) while margins increased 280 bps; Retailers AEO, ANF, ZUMZ, and JWN all downgraded at Wedbush; AEO was also downgraded at RBC Capital while the firm upgraded RL to outperform citing the company’s sales recovery exceeding expectations; WWW fell on mixed quarter as EPS beat/sales missed

·     Consumer Staples; in the beauty space, ELF Q1 top/bottom line beat but guided FY20 adjusted EPS 35c-39c on revs $235M-$245M below est. 50c/$244.54M (recall COTY fell yesterday on weak results – watch EL, AVP); HAIN shares fell over 10% despite in-line quarterly results and reaffirmed its forecast for the year

·     Casino & Leisure movers; CWH reported top and bottom line miss, weighing on the towable sector; GOLF was upgraded to buy at Roth Capital saying results missed on lower revenue and gross margin due to fewer than expected club introductions but still reported its strongest ball growth in several years following its latest ProV1(x) launch; in gaming, PENN upgraded by two analysts (BoFa and MSCO) as core consumer remains stable while believes has upcoming catalysts (relaunch of MyChoice and sports betting)

·     Auto’s; UBER IPO comes tonight after the close; LYFT market capitalization fell below its last private valuation Thursday in premarket trading when shares dipped to $52.48; CVNA mixed quarter as EPS wider on better revs and in-line guidance for the year; RACE was upgraded to overweight at Morgan Stanley and raise PT to $160 driven by increased earnings forecasts after 1Q beat & increased conviction in mgmt’s strategy for growth & capital discipline; ADNT downgraded at Longbow on weaker earnings and valuation; auto parts maker TEN slides after reporting Q1 EPS well below estimates/guidance below expectations saying China volume declines as drags on earnings.

 

Energy

·     Energy stocks; CVX said it would not boost its $33B offer to buy APC receives a $1B cash termination fee, as OXY finishes with winning bid/CVX said it is increasing its shares buyback rate by 25% to $5B; 52-week lows today for refiners MPC and HFC; energy stocks slipped with oil declining amid weaker commodity prices

·     E&P sector; KEG reported adjusted EBITDA of $166K, below consensus of $1M and also missed on revenues as it reported $109M vs. consensus of $120M/miss on revenue was across the board; TALO reported 1Q 2019 production of 42,022 BOE per day, topping the consensus figure of 41,689 BOE per day and reported production averaged over 60,000 BOE per day during the first week of May 2019; BCEI reports Q1 EPS $1.56, topping the $1.39 estimate lifting shares

 

Financials

·     Bank movers; the continued drop in Treasury yields further depressed stocks prices for banks that look for higher yields to improve lending margins; SF was upgraded to buy at Goldman Sachs as see upside to Visible Alpha Consensus Data EPS amid strengthening organic growth in Wealth Management, positive momentum in Advisory, stable NIR, and utilization of capital; in insurance, MBI posted a big Q1 EPS beat though revenue fell short of consensus

·     Consumer finance and lending; GDOT shares dropped over 20% overnight as Q1 top/bottom line beat but cut FY19 adj. EPS view to $2.82-$2.91 from $3.59-$3.67 (est. $3.64) – was downgraded by three analysts after guidance; SYF approves $4B share repurchase plan and boost dividend; FDC slides as the WSJ reported BAC scrapping pay partnership, instead developing its own business to move money between consumers and merchants

 

Healthcare

·     Pharma movers; PRGO reached a definitive agreement to sell its Animal Health business to PETQ in a transaction valued at $185M in cash; BMY says it’s Phase 3 study with Opdivo plus radiation did not meet its primary endpoint of overall survival at final analysis; NVS agreed to buy eye-disease medicines from Takeda Pharmaceutical Co. for as much as $5.3 billion; NEPT agreed to acquire SugarLeaf Labs, LLC and Forest Remedies for $18M; FLXN rises on earnings, helped by Zilretta sales of $10.6M, up 381% from a year ago (prelim sales for April were ~$5.1M); ACRX fell as filed $46M shelf offering; DVAX jumps after better revs for Hep-B vaccine Heplisav

·     Medical equipment and devices; CDNA shares jump on surprise profit and higher guidance for FY19 revs; BSX agreed to buy Vertiflex, Inc. for $465 million in upfront cash and additional payments contingent on commercial milestones for the next three years; SWAV traded up as much as 20% after better revs in quarter (recent IPO that priced at $17 on 3/6); QDEL dropped as Q1 EPS missed by 10c and lowest estimates and weaker revs

·     Healthcare services and providers; SBRA Q1 FFO and revenue decline from last year while total revenue of $136.8M, missing consensus estimate of $141.1M; BDX guided year EPS below the lowest analyst estimates citing a stronger dollar weaker drug-coated balloon (DCB); GKOS shares slipped despite posting a narrower Q1 EPS loss and better revs

 

Industrials & Materials

·     Industrial & Machinery; industrials were pressured ahead of expected tariffs to Chinese goods tonight, weighing on ag names; NVEE reported strong results and guidance as company generated 5% organic growth and $16 million in FCF, sending shares higher; ARTX shares dropped on earnings and revenue miss

·     Metals & Materials; HL slides on Q1 loss, turnaround from income of $8.1M last year, primarily impacted by $13.8M losses from Nevada operations, due to higher costs; RYAM slides more than 30% following an unexpected Q1 EPS loss citing an increase in hardwood costs at Jesup plant coupled with unplanned downtime at another plant; in chemicals, ALB fell to 52-week lows after earnings results/said sees pocket of oversupply for lithium carbonate

 

Technology, Media & Telecom

·     Internet; STMP shares fell over 40% overnight after Q1 results topped views buy sharply lowered its year outlook for profit to $3.35-$4.85 from $5.15-$6.15 (below est. $5.43) – was downgraded by at least three analysts on guidance; ANGI reported Q1 revenue miss despite swinging to a quarterly profit as marketplace service requests rose 15% to 5.8M and operating loss narrowed to $3.6M from a year-ago loss of $10.8M; TTGT shares jump after Craig Hallum upgraded to buy following a strong Q1 earnings beat; TTD shares plunge despite better forecasts, possibly as shares have surged on the year; JMIA shares dropped after negative mention by Citron Research

·     Semiconductors; the Philly semi index (SOX) dropped below its 50-day MA support of 1,451 and off recent all-time highs of 1,604 on 4/24 as group seen heavily impacted if no tariffs enacted on Chinese good; INTC a drag on tech and semis, falling for the 12th time in last 13 days following its analyst day where the company focused heavily on detailing transformation from a PC CPU provider to a data-centric leader; MCHP falls again after lower guidance the day prior

·     Software movers; SAIL shares slide after guiding Q2 below views and cutting FY19 EPS view to 14c-16c from 25c-29c and cuts FY19 revenue view to $277M-$281.5M from $293M-$299M; TEAM was upgraded to buy at Goldman Sachs as believe that consensus billings expectations for F4Q19 ($361M, +30% yoy) appear conservative

·     Media & Telecom movers; DIS Q2 earnings and revenue topped consensus amid gains in parks, Fox, direct-to-consumer while studio was down 15%; CTL revenues declined and missed in its Q1 report, in which it took a $6.5B goodwill impairment while said is exploring strategic alternatives for its Consumer business; AMC shares slide as Q1 losses are worse than expected as attendance drops -10.1% vs. tough comp YoY; FOXA Q3 profit and sales beat estimates as TV business came in stronger than expected the night before the company’s investor meeting; CHL was barred from the U.S. market over espionage concerns

·     Hardware & Component news; in optics space, AAOI shares dropped on a weaker outlook as guided 2Q EPS loss (35c-43c) on revs $40M-$45M worse than the est. loss (23c)/$52.4M (other optic names: CIEN, ACIA, FN, LITE active); CTRL to be acquired by SnapAV in an all-cash transaction for $23.91 per share in cash, representing an aggregate value of approximately $680M https://bit.ly/2H8U977 ; ROKU surges to new all-time highs as 1Q results showed strength in nearly every metric with robust usage increases, and revenue growth and profitability coming in ahead of guidance and consensus estimates; CNDT shares dropped after Q1 top and bottom line misses estimates and said its CEO intends to step down

·     Other advancers on earnings: NUAN, ROKU, TGNA

·     Other decliners on earnings: ACIW, CCMP, COMM, DESP, EPAM, INFN, PSDO, UPWK

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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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