Market Review: May 10, 2019

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Closing Recap

Friday, May 10, 2019

Index

Up/Down

%

Last

DJ Industrials

115.09

0.45%

25,943

S&P 500

10.75

0.37%

2,881

Nasdaq

6.35

0.08%

7,916

Russell 2000

2.92

0.19%

1,572


 

Equity Market Recap

·     U.S. stocks erased early losses (in a big way), with major averages closing sharply higher and closing well off session lows after U.S. Treasury Secretary Steven Mnuchin said trade talks between the United States and China were constructive after failing to finalize a deal overnight. Stocks opened weak and slumped lower after the U.S. raised tariffs on select China goods from 10% to 25%, as the administration claimed its counterparts reneged on commitments made in earlier talks. The disappointing news, coupled with several weak earnings/guidance outlooks overnight, sunk U.S. stocks and the dollar (S&P fell 1.6% near its lows). However, optimism grew throughout, with stocks starting to climb around noon after the China Global Times said China-U.S. trade talks didn’t break down and both sides have agreed to meet again in Beijing in the future. Following the headlines markets were in cruise control higher until the final hour as the Dow Industrial Average posted a 500-point move off session lows, the Nasdaq Composite with a 175 point move off its lows and the S&P 500 a 50-point move off its worst levels. Still, despite the major reversal to the upside for major averages, stocks ended the week lower for their worst weekly outcome since December. The dollar rebounded to trade little changed, and Treasury yields reversed higher. Markets now await to see if China will retaliate to the latest U.S.-imposed tariffs. The headlines on trade and tariffs overshadowed the debut of the biggest IPO of the year as UBER priced 180M shares at $45 per share, falling as low as $41.06 before recovering. In an interesting data point, Bloomberg reported that U.S. junk bond issuers rush to the market, pricing $3B in bonds on Thursday and bringing this week’s total to $12B, the busiest week since September 2017.

Economic Data

·     Consumer Price Index (CPI) for April rose 0.3% MoM, missing the 0.4% increase estimate while core CPI (ex: food & energy) rose 0.1%, below the economist estimate of up 0.2%. CPI ex. food, energy YoY rose 2.1% (in-line with estimates while headline CPI YoY rose 2% (vs. est. 2.1%)

·     Federal surplus for April fell 25% from year-earlier levels. The Treasury Department said it recorded a surplus of $160.3 billion in April, as receipts rose 5% while spending jumped 27%.

 

Commodities

·     Oil prices finish down on the day, as WTI crude settled at $61.66 per barrel, down 4c (off lows $61.42 and high $62.49 per barrel). Oil prices fell amid demand uncertainty given the trade war escalation between the U.S./China this week, while supply shortages support bullish sentiment.

·     June gold prices rise $2.20 to settle at $1,287.40 an ounce, getting a boost the last few days on a weaker dollar and a flight to safety as investors fled riskier assets as the U.S. and China failed to reach a trade deal this week, prompting the U.S. to raise tariffs on China goods. For the week, gold managed a modest 0.5% advance.

·     Corn futures dropped to their lowest levels since September after the USDA report forecast the 2019/2020 U.S. corn crop at 15 billion bushels, up from last year and the second largest on record (soybeans and wheat also declined).

 

Currencies

·     The U.S. dollar made a late day run higher after falling for 3-straight sessions, falling early after the U.S. officially increased tariffs to 25% from 10% on $200 billion worth of Chinese goods. The euro gained vs. the greenback while the dollar made a late day push vs. the Japanese yen to end higher. The Turkish lira spiked more than 3% late afternoon after President Recep Tayyip Erdogan said the country would not buy the Russian-made S-400 missile defense systems, according to German newspaper Bild. The U.S. had said it would hold delivery of its F-35 fighter jets and impose sanctions had President Erdogan gone ahead with the deal with Russia.

 

Bond Market

·     Treasury prices erased earlier gains, as the yield on the benchmark 10-year climbed back above yesterday’s levels (2.45%) to around 2.47% after lows around 2.43% earlier amid a tamer inflation report (CPI for April) leading investors to believe the Fed will maintain its easy monetary policy. A rotation into bonds out of stocks also boosted Treasuries early, but that was erased late day after stocks managed to find solid footing and rally well off session lows. The 2-year yield also recovered off lows below 2.24% late afternoon. Note Thursday, the three month T-bill yield briefly traded above the 10-year Treasury note, raising fresh recessionary fears.

 

 

Macro

Up/Down

Last

WTI Crude

-0.04

61.66

Brent

0.23

70.62

Gold

2.20

1,287.40

EUR/USD

0.0017

1.1232

JPY/USD

0.19

109.93

10-Year Note

0.016

2.469%

 

 

Sector News Breakdown

Consumer

·     Autos; UBER prices 180M share IPO at $45 per share, while shares opened at $42 (LYFT shares fell to lifetime lows as UBER IPO comes to market); TRUE shares slipped after saw Q2 revenue of $88.5M-$90.5M below the $92M consensus and full-year revenue of $361M-$374M vs. $374; CARG top and bottom line results topped estimates with upbeat guidance for Q1 and the year; Ford (F) upgraded to buy at Bank America and raise tgt to $14 saying the automaker was just starting to hit a more sustainable inflection in earnings citing a favorable product cadence in the North American market, along with restructuring efforts with its Global Redesign

·     Retailers and Consumer Staples; ADM and BG slide after the U.S. boosted tariffs on China as investor fear of possible retaliatory moves by China on the agricultural sector; in retail, WMT among top Dow leaders, helped after Cleveland Research said sales appeared to improve through 1Q and they now see upside to consensus comp expectations for the quarter; SPTN cuts FY19 EPS view to $1.20-$1.50 from $1.70-$1.80 citing challenges in the supply chain, fresh kitchen and retail operations; ELY shares dropped on results/guidance

·     Restaurants; Same-store restaurant sales fell -0.4% in April as the later Easter holiday this year impacted the comparison to a year ago, according to tracking conducted by TDn2K. Higher average spending per guest wasn’t quite enough to offset a sharp 3.5% drop in same-store traffic. Same-store traffic is down 3.05% on a rolling three-month basis

·     Housing & Building Products; ZG shares jumped after Q1 results topped estimates and provided an upbeat outlook for the year (Jefferies noted top line beat in 4 of ZG’s 5 business units); WHR was upgraded to buy at Longbow in appliances on the expectation that it can generate above consensus earnings from price/cost-driven NA margin performance, gradually improving situation in EMEA, and a shareholder-friendly capital allocation plan

·     Casino & Leisure movers; in casinos, WYNN mostly in-line Q1 results but shares fell as Q1 adjusted Property EBITDA was $494.8M down -12.3%, from $564.3M YoY and operating revenues from Wynn Macau were $523.9M for Q1, a -15.3% decrease YoY; in lodging, MAR shares slid as Q1 EPS beat but revs of $5.01B fell short of consensus as room revenue was at the low end of the company’s forecast (said worldwide or RevPAR rose 1.1% (had seen up 1%-2%)

 

Energy

·     Energy stocks were mostly lower, led by declines in drillers (RIG), services (SLB, HAL), while E&P names were mixed (EOG, CHK, DVN); Baker Hughes (BHGE) rig count fell -2 rigs to 988 with oil rigs down 2 to 805 and gas rigs steady at 183 – recap; BPL agreed to be acquired by IFM Investors in an all-cash deal with an enterprise value of $10.3 billion and equity value of $6.5B, or $41.50 per unit https://on.mktw.net/2HhjrjB

·     Utilities & Solar; SPWR shares rise after the solar provider raised the low end of its 2019 adjusted EBITA guidance; the defensive utility sector held up well in this broad based market sell-off on trade concerns; PNM was upgraded to buy at Mizuho based on higher estimates and incremental earnings upside from the Energy Transition Act (ETA) adopted into New Mexico law in March

 

Financials

·     Bank movers; overall quiet in the financial sector outside of related moves in banks and brokers due to volatility of Treasury yields (banks have slipped lately as lower yields effects lending margins); in bond insurance, MBI and AGO shares slipped last 2-days despite better earnings; in services, EFX shares declined as Q2 EPS trailed estimates

·     Asset managers; WDR said AUM at the end of April was $72.89 billion, up from $71.65 billion at the end of March/total April outflows were $1.1 billion; IVZ prelim AUM $975.2B as of April 30, up 2.1% as the increase was driven by favorable market returns, non-management fee earning AUM inflows, net long-term inflows, higher money market AUM, and reinvested distributions, partially offset by foreign exchange; TROW preliminary month-end Assets Under Management of $1.11t as of April 30; MN reports preliminary AUM of $21.2B as of April 30

 

Healthcare

·     Biotech movers; PBYI shares plunged over 35% as revenue of Nerlynx at $45.6M missed the est. $65.8M saying net product revenue declined in the quarter as a result of an increase in patients discontinuing treatment with Nerlynx; FGEN dropped after saying a pooled analysis of roxadustat for anemia in chronic kidney disease failed to show a clinically meaningful difference in MACE between the drug and epoetin alfa; VSTM falls after 2019 sales outlook for its lead cancer drug Copiktra trailed expectations at $10M-$12M (Bloomberg est. $40.5M for year); GH surges after better earnings/revs and raised guidance and said plans to start testing a colorectal cancer screening study in over 10,000 patients in the latter half of the year (EXAS shares fell on the GH news as competes in colon cancer space)

·     Medical equipment and devices; NVRO shares drop after results come in below expectations and suspended its guidance for the year (follows new CEO taking over in March); MTD shares dropped after beating Q1 top and bottom line estimates but the mid-point of year guidance fell short of consensus ($22.55-$22.75 vs. est. $22.69)

Healthcare services and providers; Managed care stocks ANTM, CNC and UNH all upgraded to buy from neutral at Citigroup saying the magnitude of the sell-off/underperformance in managed care and the broader services sector on fears of Medicare for All has been extreme and overdone; NTRA shares jumped after narrower Q1 EPS loss of (54c) on better revs at $66.8B

 

Industrials & Materials

·     Industrial & Machinery; MTW strong quarter as EPS came in positive vs. expected loss on revs of $418M topping the $400M estimate and raised its year rev view to $1.9B-$1.975B vs. est. $1.9B – however shares turned lower on the better results; SSTI shares fell after larger Q3 EPS loss and cuts revenue forecast for 2019 to $44.5M-$45.5M form prior $45M-$47M citing delays with two potential customers and the loss of another

·     Transports; JBLU reported capacity for April of +7.4%, April traffic +6.6% and said still sees second quarter revenue per available seat mile to range between 1%-4%; RLGT shares dropped after Q3 results as rev growth was weak at 1% Y/Y to $206.05M missing estimates

·     Metals & Materials; ThyssenKrupp announced it would spin off its prized lifts business and abandon an alternative plan that involved a merger with India’s Tata Steel; in chemicals, HUN was upgraded to buy at Goldman Sachs; corn, soybeans and wheat prices declined following monthly WASDE ag crop report data; TROX reported an unexpected loss for Q1, as well as and sales that missed the lowest analyst estimate

 

Technology, Media & Telecom

·     Internet; YELP fell as Q1 results mostly in-line with views along with guidance to the light side for current-quarter revenues – Q1 EBITDA grew 19% to $39M, with EBITDA margin up two percentage points, to 17%; online travel active after BKNG reported 217M room nights booked, up 10% YoY while missed quarterly EPS and revs (Q1 adjusted EPS $11.17/$2.84B vs. est. $11.26/$2.93B) and softer Q2 profit view; PINS was initiated buy and $34 tgt at Nomura (Argus with a hold) saying Pinterest’s user base and revenue are growing faster than any company in their coverage as its domestic user base (MAUs), while already 25% greater than TWTR will likely continue to improve; JD Q1 EPS and revs topped estimates while guided Q2 revs 145 billion yuan to 150 billion yuan, above the estimate 145.35 billion yuan

·     Semiconductors; the sector has been in decline mode over the last week, led by concerns over the impact additional tariffs on China good will have on companies, as well as weaker guidance this week from MCHP for the upcoming quarter and INTC’s slide (down 12 of the last 13 days into today) after its cautious comments at its analyst day this week; SYNA shares rallied despite lower than anticipated revs for Q2 ($300M-$320M vs. est. $362.8M) – had 8-session losing streak prior; in research, Citigroup downgraded the Consumables to neutral (OLED, ENTG) as they expect group outperformance to slow down while they prefer LRCX, AMAT; INTC shares down for the 13th time in last 14 sessions – and has turned negative YTD following the week’s slide

·     Software movers; SYMC shares slipped as CEO Greg Clark has stepped down, effective immediately and also guided Q2 EPS/revs below consensus after Q1 sales misses ests; FSCT shares fell as guided Q2 EPS and revs below consensus to loss of (48c-46c) on revs $75.3M-$78.3M vs. est. loss (24c)/$83M; DBX posted Q1 EPS/rev beat (10c/$385.6M vs. est. 6c/$381.6M) on solid ARPU growth and raised the top end of its revenue guidance for the year

·     Media & Telecom movers; VIAB reaffirmed the full year domestic affiliate growth outlook after mixed Q2 results as EPS beat and revenue fell short of consensus/sees FY19 operating income down low to mid-single digits; QRTEA shares fall over 25% after weaker revs as Q1 QVC Group revs $3.09B vs. est. $3.25B; NWSA one of top S&P gainers on mixed earnings

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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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