Market Review: May 15, 2019

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Closing Recap

Wednesday, May 15, 2019

Index

Up/Down

%

Last

DJ Industrials

119.54

0.47%

25,651

S&P 500

16.69

0.59%

2,851

Nasdaq

87.65

1.13%

7,822

Russell 2000

5.13

0.33%

1,548


 

Equity Market Recap

·     U.S. stocks were resilient in today’s action, overcoming a handful of negative macro catalysts overnight/this morning in the form of trade and economic data, as major averages post their best two-day advance gain in six weeks. Stocks turned significantly higher late morning after the media reported President Trump decided to delay 25% tariffs on vehicles made in the European Union and Japan for six months. The headline popped auto and auto supplier stocks initially, but also took pressure off tariff related sectors in general (tech, industrials, metals, retail). Canadian stocks (and its dollar) advanced after Treasury Secretary Steven Mnuchin said the U.S. is "close to an understanding with Mexico and Canada" on removing steel and aluminum tariffs. Treasuries pared gains on the trade news after the 2-year yield touched the lowest level since February 2018 on sagging U.S. retail sales data, while the 10-year rate traded around 2.38%. The rally today was broad based like yesterday with earnings from Dow components CSCO (tonight) and WMT (tomorrow morning coming up next. Oil prices closed at a 2-week high, also recovering from earlier losses despite bearish inventory data. Note the Dow Industrial Average rallied as much as 190 points after trading down over -190 points this morning while the tech heavy Nasdaq Comp finished near the highs up around 100 points.

·     U.S. equities were under pressure initially following a combination of factors. In a CNBC interview this morning, former White House Chief Strategist Steve Bannon said there is no chance Trump is going to back down in the China trade war. Also hurting: U.S. retail sales dropped (-0.2%) in April, missing economist estimates for a rise of 0.2% and retail sales in China grew at their slowest pace since June 2003. Finally, the IEA slashed estimates for global oil demand in the first quarter by 400,000 barrels a day, and for the year as a whole by a more modest 200,000 a day. Geopolitical worries as well amid unease about escalating tensions between the U.S. and Iran, after Trump told reporters he would send more than 120,000 troops to the region in the event of hostilities.

Economic Data

·     Empire State manufacturing index climbed to a six-month high in May of 17.8 from a reading of 10.1 in April, and above estimates for a reading of 8.0; general business conditions were 10.1 in the last month while prices paid fell to 26.2 vs 27.3 and new orders rose to 9.7 vs 7.5

·     Retail sales dropped (-0.2%) in April, missing economist estimates for a rise of 0.2% as receipts fell (-1.1%) at auto dealers after a decline in sales of new cars last month. Sales also declined (-1.3%) for electronic stores and (-1.9%) at home and garden centers. Clothing stores, pharmacies and Internet retailers all posted a (-0.2%) dip in sales. Retail sales less autos rose 0.1% in April, well below the est. of up 0.7%

·     Industrial Production for April fell (-0.5%), missing the estimate to hold unchanged (after rising 0.2% in March) while Capacity utilization fell to 77.9% from 78.5% in March, revised down from 78.8%. Factory production fell 0.5% in April after no change in March

·     The U.S. Home Builders’ Confidence index (NAHB) rises to 66 in May which was above 63 last month. The Present single family sales rise to 72 vs 69 last month, future single family sales rise to 72 vs 71 last month and prospective buyers traffic rises to 49 vs 47 last month

·     Business Inventories for March was unchanged MoM, in-line with estimates while business sales rose 1.6% in March after rising 0.2% the prior month. February business inventories rose unrevised 0.3% MoM

 

Commodities

·     Oil prices, along with U.S. stocks, recover from early declines, as WTI crude advanced 24c or 0.4% to settle at $62.02 per barrel (2-week highs) while Brent rose 53c or 0.7% to settle at $71.77 per barrel despite bearish weekly inventory data. It appeared investors focused on tensions in the Middle East with Iran (and possible supply disruptions) instead of the bounce in crude supplies as reported by the EIA and API this week. U.S. crude supplies rose by 5.4M barrels for the week.

·     Gold prices settle modestly higher, rising $1.50 to $1,297.80 an ounce in what was a quiet day for the precious metal. Gold pulled back below the $1,300 an ounce level this week amid both stock market and currency volatility on trade uncertainties and weaker global economic data.

 

Currencies

·     The U.S. dollar ended little changed, erasing an earlier advance after the tariff news, while emerging-markets gained. The Canadian dollar and Mexican peso gained after Treasury Secretary Steven Mnuchin said the U.S. is "close to an understanding with Mexico and Canada" on removing steel and aluminum tariffs. The euro spiked higher on the Bloomberg report about delaying auto tariffs before retreating. Overall, the dollar held up well despite several disappointing economic data points painted a weaker picture for U.S. growth (retail sales data).

 

Bond Market

·     Treasury prices opened sharply higher as yields fell across the board after a soft batch of data raised concerns about the health of the US economy and sent short-dated yields to their lowest level in more than a year. The yield on the 2-year Treasury fell as low as 2.14% (lowest since Feb of 2018) after retail sales data fell well short of consensus estimates while the benchmark 10-year yield fell to lows around 2.36%. Treasuries pared gains midday, lifting yields off lows as stocks reversed higher midday on tariff headlines.

 

 

Macro

Up/Down

Last

WTI Crude

0.24

62.02

Brent

0.53

71.77

Gold

1.50

1,297.80

EUR/USD

-0.0003

1.1201

JPY/USD

-0.04

109.57

10-Year Note

-0.031

2.382%

 

 

Sector News Breakdown

Consumer

·     Retailers; Macy’s (M) posted a Q1 earnings beat while same store sales for owned as well as licensed stores gained 0.7% its sixth consecutive gain/also said it had another quarter of double-digit online sales growth but shares slipped after CEO said new tariffs on $300B not included in company guidance; PLCE shares reversed lower, falling despite better Q1 results and raised its year profit outlook; OSTK shares fell after CEO sells 500K shares 5/13-5/14 from filing

·     Autos; sector (FCAU, F, TM, GM) gets a boost after President Trump said plans to delay imposing tariffs on auto imports; Ford (F) issues two safety recalls in North America of select 2019 Ranger trucks and 2013-16 Fusion vehicles; TSLA tgt cut to $200 at Evercore/ISI as they reduced delivery estimates across all models amid lingering production concerns (sees 343K total deliveries for 2019 vs prior 368K est.) – while company guidance was 360K-400K; ride-hailing recent IPOs UBER and LYFT both rebound off lows on Monday, though both still below IPO pricings

·     Consumer Staples; 52-week highs for several names in food/beverage sector including TSN, PEP, SJM, HSY CEO Joel Sanderson says the spread of the African Swine Fever in China has created a "huge" protein hole that the company could be in a position to fill if a resolution to the trade battle and import ban arrives; TWNK 8M share Spot Secondary priced at $13.40; surging recent IPO BYND extends gains on news that Tim Hortons has begun testing breakfast items featuring the company’s plant-based sausage

·     Restaurants; QSR said it plans to increase its global store count to more than 40,000 from its current approximately 26,000 currently over the next 8 to 10 years/sees coffee, burger and chicken QSR markets expected to grow 5%-6% per year for the next 5 years; PZZA tgt raised to $60 from $55 at Citigroup citing the improved momentum in Q1 results

·     Housing & Building Products; ZG rises as Guggenheim raises to a buy citing the potential of the company’s Offers business; TCS reversed overnight gains of more than 10% after earnings and comps handily topped consensus, but was overshadowed by weaker margins with gross margins falling short at 58.6% vs. est. of 59.2%; HOME shares jumped after Reuters reported KSS has approached the home décor company https://reut.rs/2HldIdV

 

Energy

·     Energy stocks moving on more macro stories (inventory and IEA forecast); CVX was added to Goldman Sachs conviction buy list saying cash flow profile has positively inflected with the production contribution and capital spending roll-off from the startup of both the Gorgon and Wheatstone LNG projects. In refiners, PBF was upgraded at Credit Suisse as believes the company will be running harder in a much-improved macro environment as majority of the planned maintenance for 2019 would be in the rear view mirror by mid-2Q19; ROAN falls as lowers guidance by ~7% to 51.5k-55.5k boe/d vs previous guidance of 56k-59k

·     The IEA slashed its forecast for oil demand growth, citing an economic lull in Asia and disappointing consumption from China, Japan and Brazil. The IEA slashed estimates for global oil demand in the first quarter by 400,000 barrels a day, and for the year as a whole by a more modest 200,000 a day. As a result, the growth rate for 2019 was lowered by 90,000 barrels a day to a still "healthy" 1.3 million a day

·     Inventory data showed: The American Petroleum Institute (API) reports that crude inventories rose 8.63M barrels last week, gasoline inventories rose 567,000 barrels, and distillates rose 2.17M barrels. This morning, the EIA showed a surprise build in crude stockpiles, rising 5.43M barrels vs. an expected draw of -1.2M barrels

 

Financials

·     Bank movers; broad weakness in banks, with regionals hit hard (KEY, ZION, HBAN, RF) as Treasury yields broadly lower on weak economic data; SBNY shares underperform after Wedbush downgraded to neutral following strong run since December as well as risk of onerous new laws related to multifamily housing potentially being passed in New York and decline in the five-year treasury yield (down 21 bps over past month) which could pressure MF loan pricing; VIRT 9M share Spot Secondary priced at $22.50

·     Other movers: in insurance, PGR benefit after strong earnings results YoY and said April net premiums written $3.67B vs. $3.23B last year. In Consumer finance; PAGS reported quarterly results as shares moved higher (followed better results from STNE the day prior); OMF was downgraded to neutral ay Wedbush; also in FinTech, QTWO launched Q2 TrustView, powered by ALTR, an enhancement to Q2’s multilayered data management and protection approach that controls how individuals access data

·     Monthly Master Trust data; SYF reports April net charge-off rate 5.11% vs. 5.24% last month and April 30-plus day delinquencies 2.62% vs. 2.92% last month; DFS April Charge-offs 3.46% vs. 3.20% YoY; April delinquencies +2.38% vs. +2.30% YoY; April total card loans $66.4B, in-line YoY; COF reports April net charge-offs 5.15% vs. 4.90% last month and April delinquencies 3.42% vs. 4.04% last month; JPM reports April net credit losses 2.51% vs. 2.55% last month and April 30-plus day delinquencies 1.18% vs. 1.23% last month; ADS April net charge offs 6.4% vs. 6.3% last month and April delinquency rate 4.9% vs. 5.2% last month; AXP reports April net write-off rate

 

Healthcare

·     Pharma movers; HZNP lost an appeals court ruling that invalidated two patents on its pain drug Vimovo; PFE Phase 3 study of its investigational oral Janus kinase 1 inhibitor, abrocitinib, in ages 12 years and older with moderate to severe atopic dermatitis, achieved all co-primary and secondary endpoints; in cannabis sector, TLRY Q1 revenue of $23M was ahead of the average analyst estimate of $21.4M and was upgraded to market perform at BMO (citing valuation), while ACB quarterly revs missed estimates and Bank America said 9,160kg of cannabis sold (+31% q/q) was below their 10,370kg outlook

·     Biotech movers; IMGN shares dropped after the FDA recommended conducting a new Phase 3 trial of its ovarian cancer drug, mirvetuximab soravtansine as a recent trial looking at the drug as an ovarian cancer therapy did not meet its primary endpoint; ECOR slides after Q1 results missed estimates, prompting a downgrade at BTIG to neutral from buy; BLUE was downgraded to neutral at Wedbush as see risks to LentiGlobin launch and risk to initial launch metrics of bb2121 in multiple melanoma w/ the likely acquisition of CELG by BMY

·     Medical equipment and devices; Agilent (A) weighs on life science stocks after Q2 earnings missed estimates and cut its revenue forecast for the full year to $5.085B-$5.125B from $5.15B-$5.19B (below est. $5.19B) while backs FY19 EPS view

·     Healthcare services and providers; TDOC shares volatile after the National Committee for Quality Assurance (NCQA) listed the company’s accreditation status as "under corrective action"; HSIC was downgraded at Leerink as the stock has appreciated considerably and is fairly valued

 

Industrials & Materials

·     Transports; sector was little changed after trading as high as 10,500 before stalling, as airlines were among early decliners; LUV boosted its dividend and announced a new $2B share buyback program; not much news in transports sector which has underperformed broader markets – not helped today on weak retail sales data (for parcel names – UPS, FDX)

·     Metals & Materials; WLK was upgraded at Goldman Sachs citing potential for 40% upside as ethylene’s super trough and chloralkali’s cyclical rewind creates opportunity for investors; metals were mostly lower following the weak data out of China overnight and continued fear over trade issues between the U.S. and Beijing

 

Technology, Media & Telecom

·     Internet; GOOGL tgt raised to $1,400 at Deutsche Bank citing an accelerating pace of new ad product making them meaningfully more confident in the 2020 outlook; BABA reported quarterly earnings and sales that topped estimates as revenue climbed to $13.6B and sees FY20 revenue over RMB 500M compared to RMB 376.84M in FY19; JD was upgraded at buy at Nomura; AMZN broke ground on construction of a $1.5 billion air hub outside Cincinnati on Tuesday as part of a plan to deliver packages to consumers faster

·     Semiconductors; beaten up chip sector bounces for a second day, rising over 1% and topping the 1,460 level; AMAT was upgraded to positive at Susquehanna citing recent major memory contract wins while firm also upgraded AEIS to positive noting that AMAT accounts for about 33% of AEIS overall revenues; XLNX gave a forecast for the next five years at its analysts day

·     Software movers; CRM was downgraded to mixed at OTR Global following checks that indicate reduced momentum into FYQ1 2020; MDB tgt was raised to $178 from $143 at Barclay’s saying they continue to see further upside; NEWR shares slid following beat and F1Q/FY20 top line raise as billings beat strongly off weak deferred revenue guidance, but FY20 margin guidance was well below the Street (sending shares lower initially); ADBE CEO was optimistic about tariffs saying exposure to China in creative and enterprise businesses is “fairly minimal”; Video game names strong despite Ubisoft (UBSFY) earnings as 4Q Net Bookings Rise 25% to EU676.7M, missing outlook (TTWO, EA, ATVI were strong); GSKY fell after reports showed RF won’t renew an indirect funding commitment when it expires in the fourth quarter

·     Media & Telecom movers; EGHT fell as missed Q4 profit expectations as its net loss widened to $28.1M from a year-ago $13.3M, as operating expenses that grew 32% outstripped revenue growth of 18%/also mixed guidance; AT reaffirmed its outlook at conference yesterday; MSGN shares slipped after the New York Knicks failed to secure the biggest star in the National Basketball Association draft lottery: Zion Williamson, getting the third pick of the draft

·     Services, Hardware & Component news; DOX shares rallied on earnings as reported an overall beat versus consensus based on good revenues and strong margins – as Citigroup said it was the first time in two years it was at the top of its EPS outlook in a quarter; networking sector highlighted tonight when Dow component CSCO reports results

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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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