Market Review: May 14, 2019

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Closing Recap

Tuesday, May 14, 2019

Index

Up/Down

%

Last

DJ Industrials

208.07

0.82%

25,533

S&P 500

22.28

0.80%

2,834

Nasdaq

87.47

1.14%

7,734

Russell 2000

20.10

1.32%

1,543


 

Equity Market Recap

·     U.S. stocks rebounded sharply following Monday’s market rout, recovering nearly a third of yesterday’s losses as investors took advantage of depressed stock prices, specifically in sectors most leveraged to tariffs and trade with China including tech, metals, materials and retail. Markets found hope positive signals from both China and President Trump about efforts to reach a trade deal despite the most recent round of tariffs by both countries over the last week. Oil prices jumped ahead of weekly inventory data after Saudi Arabia reported drone attacks on two oil-pumping stations, following an earlier attack on two of its oil tankers. The benchmark ten-year Treasury yield edged higher to around 2.42%, while commodities targeted by China tariffs gained (though precious metals fell). The market picked up steam after President Trump remarked that the negative impact of China trade sanctions could largely be undone by a U.S. Fed rate cut. Bitcoin grabbing headlines the last few days after months of docile action, strengthening past $8,000. Markets still feeling the pain after the U.S. raised tariffs on $200 billion worth of annual Chinese imports to 25% from 10% on Friday and China retaliated yesterday in kind. But Trump referring to the escalating trade war with China as "a little squabble," adding that "we have a good dialogue going," helped on the day. Chipmakers with a nice rebound after yesterday’s collapse, while metals, financials and transports also found solid footing.

Economic Data

·     Import prices for April rose 0.2% MoM after rising 0.6% in March and well below the 0.7% economic estimate (while import prices fell -0.2% YoY in April). Import prices ex-petroleum fell -0.6% MoM after falling 0.2% in March (est. +0.2%). Capital goods prices fell -0.4% MoM after falling -0.1% in March; largest monthly decline since March 2009

·     Home Prices rose 3.9% YoY in Q1 according to the National Association of Realtors. Single-family home prices increased in 86% of measured markets last quarter, with 153 of 178 metropolitan statistical areas showing sales price gains compared to the first quarter of a year ago. Median single-family homes prices rose to $254.8k from $245.3k a year earlier

·     Total household debt rose 0.9% in 1Q from previous quarter, according to the Federal Reserve Bank of New York. Aggregate household debt balance now 7.8% higher than pre-recession peak of $12.68 trillion in Q3 ‘08

 

Commodities

·     Oil prices rise, with WTI crude up 74c or 1.2% to settle at $61.78 per barrel, ahead of weekly inventory tonight (API data) and tomorrow morning (EIA), getting support from reports Saudi Arabia reported drone attacks on pumping stations, the latest escalation in Middle East tensions (raising supply fears), as well as investors moving back into riskier assets.

·     June gold prices dropped -$5.50 or 0.4% to settle at $1,296.30 an ounce, pulling back below the psychologically significant $1,300 an ounce level, as investors took profits in defensive assets as U.S. stocks recovered some of its recent losses. Gold prices slipped after jumping 1.1% on Monday and marking the first settlement above $1,300 since April 10.

 

Currencies & Treasuries

·     The U.S. dollar registered modest gains on the day, recovering from its one-week slide on trade tariff concerns with China, helped as President Trump tried to paint a more favorable picture saying there is a “very good dialogue going” with China. Weakness in European currencies such as the euro, pound and Swiss franc also made the dollar more attractive despite weak import data this morning. Bitcoin prices rise a 12th straight day, trading as high as $8,331 before paring gains – marked its first time above $8,000 since last August. The dollar gained against the Japanese yen as investors took profits in defensive assets as stocks surged.

·     Treasury market’s pared some of yesterday’s gains, as the 10-year yield inched higher about 2 bps to around the 2.42% level most of the session after having fallen over 10 bps in the last week. The rally in Treasuries follows trade/tariff uncertainties creating a rotation into safe-haven assets as stocks declined. At the same time the weaker stock market has raised expectations/hopes the Fed will remain accommodative on rates for longer. Kansas City Fed’s Esther George said she’s opposed to cutting interest rates in order to raise inflation. Economic data was weaker than expected as April import prices came in well below economist estimates.

 

 

Macro

Up/Down

Last

WTI Crude

0.74

61.78

Brent

1.01

71.24

Gold

-5.50

1,296.30

EUR/USD

-0.0008

1.1214

JPY/USD

0.34

109.64

10-Year Note

0.026

2.421%

 

 

Sector News Breakdown

Consumer

·     Retailers; sector among top decliners on fears of tariff impact between China/U.S.; RL a top and bottom line quarterly beat as comp sales jumped in Europe (+5% vs. +2.7% consensus) to make up in part for a -4% comp in North America while gross margin came in at 60.1% of sales vs. 59.8% YoY/North America revenue was down 7% to $708M; DECK was upgraded to positive at Susquehanna saying recent checks show its HOKA brand momentum is accelerating faster than expected and its UGG unit is well positioned into 2020; GIII and SHOO were both downgraded to neutral at Piper as tariff rhetoric accelerates across their group weighing on names that have large U.S. businesses & a disproportionate share of production in China; ENR rises after Citigroup upgrade earlier (bouncing off recent 52-week lows on 5/9 of $41.88)

·     Consumer Staples; LMNR as cuts FY19 EPS view to 55c-65c from 65c-75c (est. 78c) and also lowers FY19 Adjusted EBITDA view to $23.5M-$27.5M from $28.0M-$32.0M; in protein space, TSN was upgraded by two analysts (Credit Suisse and Argus) with CSFB saying feels estimates don’t fully account for the upside to chicken, beef, and pork prices from the outbreak of African swine fever; KO was upgraded to overweight at Morgan Stanley as believe it offers a clearly superior growth outlook vs. CPG peers, with stronger pricing power, favorable strategy tweaks, solid volume growth, and rebounding emerging market trends

·     Auto’s; NSANY said it sees annual operating profit below even the lowest Street estimate and cut its dividend/issued an outlook for profit of 230B yen ($2.1 billion) for the fiscal year ending March 2020, roughly half of the average projection for 453B yen; auto and auto supplier sector remain in spotlight given the increased tariffs by the U.S. and China the last few days; tire maker Pirelli cut its 2019 revenue growth forecast citing weakness in original equipment demand and reported in-line quarterly results (shares of GT, CTB dipped on headlines)

 

Energy

·     Energy stocks were among the top gainers in the S&P (along with technology), recovering from its recent pullback as oil rose after Saudi Arabia reported drone attacks on pumping stations, the latest escalation in Middle East tensions after tankers were hit by sabotage over the weekend. E&P stocks were among the best gainers, though most sub-sectors were higher

·     Russian oil production fell in line with its OPEC+ target in early May, as the nation prepares to discuss the future of the pact while also grappling with its contaminated-crude crisis. Average daily output was about 11.16 million b/d, about 255,000 b/d below October production and a deeper cut than the 228,000 barrel reduction pledged under the OPEC+ deal.

·     Refiners; VLO was upgraded to overweight at JPMorgan saying they believe it is now uniquely positioned to outperform the refining sector and the broader XLE and is optimistic about the outlook for Texas Gulf Coast refiners on the prospect of widening coastal light crude differentials as new Permian pipelines emerge (JPM remains cautious on DK and HFC)

 

Financials

·     Online brokers, ETFC April daily average revenue trades of 272,858 declined 5% from March and increased 13% Y/Y/derivatives represented 32% of DARTs during the month and net new retail and advisor services assets were negative $0.8B during April; SCHW reported total client assets for April of +11% with total client assets $3.67 trillion vs. $3.31 trillion YoY and April new brokerage accounts 147,000 vs. 141,000 YoY

·     Asset managers; LM reported mixed FY4Q19 results as EPS beat by a few pennies but revenue missed for the quarter (raised dividend); in consumer finance and lending; COF was upgraded to buy at Jefferies saying the company is ahead of the competition in the development of a national/digital bank, there are synergies ahead associated with its tech investments and we see payouts rising; STNE posted a better Q1 revenue that estimates and announced a stock buyback

 

Healthcare

·     Pharma movers; ABBV resolves all U.S. Humira litigation with Boehringer Ingelheim, making no payments as grants Boehringer Ingelheim non-exclusive license to Humira-related IP in U.S.; HRTX presents results from real-world study on non-opioid postoperative pain medicine HTX-011/also received CRL from the FDA regarding the drug’s NDA late April; MYOV shares fell after it announced results from a Phase 3 clinical trial assessing relugolix in women with uterine fibroids with heavy menstrual bleeding as safety and efficacy data were positive, but markets fretted over performance compared to ABBV’s ORILISSA

·     Biotech movers; SLDB shares plunge as prelim data from its Phase 1/2 clinical trial, IGNITE DMD, evaluating lead gene therapy candidate SGT-001 in patients with Duchenne muscular dystrophy (DMD) showed some worrisome adverse events, prompting a few analyst downgrades (Goldman cut to sell); PBYI bounced off lows after hitting a fresh 52-week lows today; FTSV shares declined after quarterly earnings missed estimate; GILD HIV drug price to be focus of May 16th House Panel hearing, Bloomberg noted

·     Medical equipment and devices; HAE was upgraded to outperform at Raymond James with $110 tgt saying the F2021 long-range plan objectives have now been de-risked with no assumptions for incremental NexSys plasma collection contracts, removing a longstanding concern; life science sector in focus tonight ahead of Agilent (A) earnings results

·     Healthcare services and providers; STE rises on earnings as KeyBanc said exited FY19 with accelerated momentum (big sales and EPS beats) and is flashing double-digit growth across several of its businesses

 

Industrials & Materials

·     Industrial & Machinery; HON held its annual investor conference today, as they reaffirmed 2Q EPS guidance of $2.05-$2.10, FY guidance of $7.90-$8.15 and reiterates path to about 23% long-term segment margin target; in ag sector, JPMorgan upgraded AGCO to overweight given its limited exposure to the US row crop sector, the recent sell-off is overdone, and downgraded DE to underweight a result of the rapidly deteriorating fundamentals in US agriculture; NAV strong as Bloomberg noted the revival of Volkswagen’s (Traton) truck IPO plan could reignite optimism for a potential deal with Navistar

·     Transports; Dow Transport index climb after yesterday’s plunge – rising as much as 2% or over 200 points topping the 10,500 level – all 20-components higher; GWR reports April traffic of 255,647 carloads, down 5.4% y/y compared with April 2018

·     Metals & Materials; after a dreadful performance yesterday on China trade fears, industrial metal stocks rebounded (AA, CENX, FCX, X, AKS); BAYRY shares drop after being ordered to pay more than $2 billion in damages to a California couple that claimed they got cancer as a result of using its Roundup weed killer for about three decades; Reuters reported GOLD is preparing its Zambian copper mine Lumwana for sale in the second half of 2019, looking to target Chinese buyers,

 

Technology, Media & Telecom

·     Internet; FB’s WhatsApp says its 1.5 billion users should update to the latest version to protect against malicious spyware; Democratic presidential contender Joe Biden tells AP he would be open to breaking up FB and that dismantling big technology companies is "something we should take a really hard look at." SHOP gets its 2nd analyst downgrade in as many days as Morgan Stanley cut its rating saying the stock is not deserving of the same multiple as high-growth U.S. Software-as-a-Service companies; BABA to report earnings tomorrow morning

·     Semiconductors; Philly semi index (SOX) trading at the highs, up around over 2% (off yesterday lows of 1,403.35 – led by gains in NXPI, ASML, AMD, AVGO, and CY; NVDA tgt cut to $145 at Stifel and lowered FY20 ests due to more dramatic slowing of data center spending and potentially lower PC GPU ASP in FY20 after years of increasing ASP

·     Software movers; in video games, TTWO mixed results and guidance as profit results beat for Q4 and higher guide for Q1 while revs were below consensus for both quarters/also guided year EPS $3.75-$4.00 below the $4.84 estimate but analysts generally positive on quarter; IMMR agreed to enter into a settlement and license agreement with Samsung Electronics Co., Ltd., resolving the global patent infringement litigation brought by Immersion against Samsung as well as licensing deal Sony Interactive Entertainment which prompted an upgrade at Dougherty; in cyber security, CYBR Q1 results topped consensus with higher guidance for Q2

·     Media & Telecom; DIS and CMCSA said that Disney will assume full operational control of Hulu, effective immediately, in return for Disney and Comcast entering into a “put/call” agreement regarding NBCUniversal’s 33% ownership interest in Hulu; Intelsat (I) shares up for a 5th straight day – recall yesterday Bloomberg noted two U.S. senators urged the FCC to “act quickly” to make airwaves used by the company and SES SA available for advanced 5G communications; TME shares fell as announced that Mr. Guomin Xie has tendered his resignation as the company’s co-president and director due to personal reasons (mixed Q1 as EPS beat/revs missed); watch shares of MSG and MSGN tomorrow ahead of the NBA Draft if the Knicks manage to get the number one pick of the draft

·     Hardware; AAPL came into the day down 12% from recent 6-month highs amid increasing uncertainty related to U.S.-China trade tensions; KRNT posted better-than-expected Q1 revs after Monday’s close, as GAAP revs increased 22% y/o/y, at the midpoint of guidance and modestly above consensus

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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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