Market Review: May 24, 2019

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Closing Recap

Friday, May 24, 2019

Index

Up/Down

%

Last

DJ Industrials

95.22

0.37%

25,585

S&P 500

3.89

0.14%

2,826

Nasdaq

8.73

0.11%

7,637

Russell 2000

12.73

0.85%

1,514


 

Equity Market Recap

·     U.S. stocks end the week on a positive note, holding overnight gains as investors bought depressed stocks into the holiday weekend, though markets finished off their best levels. Stocks got off on the right foot today after President Trump said last night that issues with Huawei could be included in a trade deal with China, although no trade talks are currently planned, while China committed to striking a trade deal with the U.S. but said it’s also ready to respond with more counter-measures. Some headlines/stories took the wind out of the sail of markets mid-morning which included: 1) Goldman cuts its Q2 GDP tracking estimate by two tenths to +1.3% from 1.5% after today’s durable orders data; 2) JPMorgan saying it now sees the risks of the next [Fed] move as about evenly distributed between a hike and a cut. But stocks managed to hang on to daily gains (though down on the week) snapping their 3-day losing streak. At week’s end, the Dow Industrial Average declined for a 5th straight weekly loss (hasn’t lost 5-straight weeks since 2011 according to CNBC), while the S&P 500 and Nasdaq Comp post their third straight weekly decline. Utilities rallied for another all-time high, while software stocks slipped after results from ADSK and SPLK weighed on the sector and transports fell for the 5th time in six sessions.

Commodities

·     Oil prices rise, only partially recovering from yesterdays near 6% drubbing to 2-month lows (worst daily decline of 2019) on slowing global growth fears and increasing inventories, as WTI crude rose 72c or 1.2% to settle at $58.63 per barrel and Brent crude rose 93c or 1.37% to settle at $68.69 per barrel. Markets are weighing the risk of an energy demand slowdown with the U.S. and China continuing their trade dispute along with building inventories in the U.S./increased production against the fear of OPEC production cuts and Iran sanctions. After a 5.7% drop Thursday, front-month contract prices lost 6.8% for the week.

·     July corn futures topped $4.00 per bushel for the first time in five-months. Gold prices edge lower, slipping $1.80 to settle at $1,283.60 an ounce, but managed to finish the week higher by 0.6% after yesterday’s gain following worries surrounding the U.S.-China trade standoff and political uncertainty in the U.K. after PM May announced her decision to step down.

 

Currencies

·     The U.S. dollar extended its losses mid-afternoon, pulling back after jumping to 2019 highs Thursday (DXY topped out at 98.37 yesterday before sliding to lows of 97.54 today), as the British Pound partially rebounds on news UK’s Teresa May will step down on June 7th as Prime Minister. The buck slid to lowest levels of the week vs. the Japanese yen in another flight to safety, touching down at 109.27 (down -0.2%) to lowest levels since May 15th. Emerging markets rose along with their currencies, as the dollar fell vs. nearly all major currencies.

·     Treasury prices with a little give back today as stocks bounce, but overall a solid week with yields falling across the board. After falling yesterday to their lowest levels since late 2017, the 10-yearTreasury yield inched higher to around 2.32% (now down about 7 bps on the week). Meanwhile, the 2-year yield rose about 3.5 bps to 2.165%, its biggest move in about 6-weeks (down about 4 bps on the week) and the 30-yr yield is at 2.75% (down about 7 bps on the week)

 

Economic Data

·     Durable Goods Orders (Apr-P) fell (-2.1%), in-line with analyst estimates while Durable Goods ex: transportation was unchanged (also in-line with estimates). Non-military capital goods orders excluding aircraft dropped (-0.9%) from the prior month after a downwardly revised 0.3% gain

 

 

Macro

Up/Down

Last

WTI Crude

0.72

58.63

Brent

0.93

68.69

Gold

-1.80

1,283.60

EUR/USD

0.0027

1.1208

JPY/USD

-0.28

109.33

10-Year Note

0.03

2.32%

 

 

Sector News Breakdown

Consumer

·     Retailers; in footwear two mixed reports as DECK rises after handily topping quarterly earnings (85c vs. est. 7c) as UGG brand revenue fell 7.2% Y/Y to $239M during the quarter, while Hoka One revenue was up 33% to $67M; FL shares fell after Q1 earnings missed estimates on weak profit and revenue numbers, while lowering its outlook for year earnings to be up by high-single digits, down from the double digit increase it had forecast earlier; BKE Q1 comp sales fell 1.3% in Q1, despite a 5.6% increase in online sales during the quarter, while net income was $15.1M vs. $18.3M a year ago; ROST reported 1Q comps +2% despite a difficult environment and beat its EPS guidance even as Ladies apparel (26% of sales) continues to underperform, but guided Q2 EPS below estimates ($1.06-$1.11 vs. est. $1.14)

·     Non-apparel retail; HIBB shares jump after Q1 beat handily and raised guidance/Q1 EPS $1.61/$343.3M vs. est. $1.31/$326.1M/sees FY EPS $2.00-$2.15 up from prior view of $1.80-$2.00 and comps easy beat up 5.1% vs. est. 1.2%; BIG was downgraded to neutral at Piper citing risk to 1H estimates, and ongoing tariff concerns

·     Consumer Staples & Restaurants; STZ was downgraded to Equal Weight at Morgan Stanley saying they don’t see enough upside here to justify an overweight after a recent run-up, particularly with risk around beer revenue growth; CVCO rises as Q4 revenues of $241.1M a decrease of 0.06% Y/Y, due to reduced home sales volume, largely offset by price increases and product mix while margins improved; BLMN upgraded to buy from neutral at Guggenheim as sees momentum picking up after two consecutive quarters of improved results (note BMO’s downgrade pressured shares of it and CMG yesterday saying concerns surrounding African Swine Fever add another layer of downside risk)

·     Housing & Building Products; group has been mixed this week with builders rising on lower Treasury rates (sending mortgage rates lower and in turn propping up the housing industry) as BZH, MTH, TOL, PHM advance; while building product names MLM, EXP, VMC are down on the week (lowest levels of the week) after President Trump told Democratic leaders this week that passing his replacement for the NAFTA should come before talks on infrastructure

 

Energy

·     Energy stocks still lagged broader markets, but recovered late day as oil prices rebounds. Baker Hughes (BHGE) weekly rig fell -4 to 983, with oil rigs down -5 to 797 cutting rigs for a third straight week and gas rigs rising 1 rig to 186. The Utility sector touches another fresh all-time high early, getting a recent boost higher given the recent pullback in Treasury yields (Bloomberg notes the utilities gauge pays a dividend yield of 3.67%, a fat premium of 1.34 percentage points over 10-year Treasuries) – another day of 52-week highs for AEP, DTE, ED, D, SP, XEL, NEE, PNW, AEE, AWK, ETR, PEG

 

Financials

·     Bank movers; after getting slammed the last few days banks found a little footing today as broader markets recover; Services & Payments sector was active with shares of TSS rising after CNBC reported GPN is nearing an agreement to acquire TSS for roughly $20B in latest FinTech deal and that the deal is expected to be announced Tuesday https://cnb.cx/30J8BM0 (follows strong of several FinTech deals in recent months including FISV deal earlier this year, and the WP deal); INTU rises as Q3 EPS and revs topped consensus while raises FY19 revenue view to $6.738B-$6.758B from $6.53B-$6.63B (est. $6.66B)/QuickBooks online subscriptions grew 32% to 4.2M

 

Healthcare

·     Pharma & Service movers; CNC shares rose after WSJ reported Third Point wants the company to consider selling itself before buying WCG, noting Third Point has built a CNC stake worth at least $300M https://on.wsj.com/2wkmVwt ; APHA outperforms in Cannabis space after Jefferies initiated with a buy and $15 tgt saying it scores highly, and third overall behind only Canopy and Aurora and that despite its strong global outlook, its valuation is the cheapest across their space; CERN 52-week highs after Canaccord positive as they reiterate buy and raise PT to $77 citing attention to driving shareholder returns; NVS AveXis unit received approval for Zolgensma as a gene therapy for pediatric patients with spinal muscular atrophy (if approved, RGNX will receive both milestone payments and royalties) – shares of IONS, BIIB slipped on drug news

·     Biotech movers; BRCX was downgraded to sector perform from outperform at RBC Capital and cut tgt to $4.50 from $16 based on disappointing efficacy data for ‘7353; DVAX shares fell after saying it will explore strategic alternatives related to the immuno-oncology (IO) portfolio, which in return, will reduce the workforce and operations; sector prepares for the ASCO cancer conference which begins late next week

·     Medical equipment and devices; NVCR gained after the FDA has approved the NovoTTF-100L System in combination with pemetrexed plus platinum-based chemotherapy for the first-line treatment of unresectable, locally advanced or metastatic, malignant pleural mesothelioma; GMED was downgraded at Wells Fargo citing increased competitive dynamics in US spinal robotics market

 

Industrials & Materials

·     Industrial & Defense; CNHI announced intention to restart its share buyback program of up to $700M; LII was downgraded to sell at UBS citing peak multiple; Dow component BA active again after the chief U.S. aviation regulator said he was very encouraged by a one-day discussion with his counterparts from around world on the steps needed to return Boeing Co.’s grounded 737 Max jetliner to service; BA fell midday after reports the SEC is investigating whether Boeing properly disclosed issues tied to the grounded 737 MAX jetliner; KTOS upgraded to overweight at JPMorgan saying the company is making good progress on several fronts, the most important being its Valkyrie tactical drone, which has gained the attention of Air Force brass

·     Metals & Materials; DOW was upgraded to neutral at JPMorgan as believe that risk and reward for Dow now splits more evenly. Optimism or pessimism over the economy could push the shares a little in either direction, though we do think that further incremental cuts to Consensus EBITDA estimates are likely; SQM was downgraded at BMO Capital citing concerns surrounding a lithium rebound, along with worries that it will take longer for sentiment to bottom

 

Technology, Media & Telecom

·     Internet; BABA was added to Stifel select list with a $220 tgt noting that the price is even cheaper on earnings from the company’s core marketplace-based businesses; SNAP shares active after the WSJ reported it is looking to let users add music to Snapchat posts; SINA was downgraded to neutral at Macquarie and lowers the target from $75 to $38, implying an 11% downside after the company reported mixed Q1 results yesterday

·     Software movers; ADSK shares fell as reported softer-than-expected headline results for F1Q, with subscription revenues and operating margin below consensus though maintained FY20 guidance; SPLK shares fell sharply despite Q1 beats with 36% Y/Y revenue growth and upside Q2 guidance that has revenue at about $485M above consensus and raised its outlook – some cited lower bookings growth of 32% Y/Y which is lower than prior quarters, but reflects slowing maintenance revenue as SPLK’s mix shifts to cloud and billings grew only 21% Y/Y; VEEV downgraded at Morgan Stanley to equal-weight from overweight as sees limited scope for further outperformance

·     Hardware, Components and Services; HPE gained after a beat on profits in Q2 along with boosted profit guidance for the full year/revenues slipped 4% from last year and missed expectations, with declines spread across each segment; HPQ Q2 results beat estimates and the Q3 view comes in-line while narrowed FY19 outlook sees EPS of $2.14-2.21; the Nikkei reported FLEX halts some production for Huawei in China (the latest of many companies to do so); DXC shares rallied on a beat on earnings

·     Media & Telecom movers; generally quiet on the day outside of a miss on the top and bottom line for LGF overnight (11c/$914M vs. est. 22c/$947.7M), swinging to a loss on double-digit revenue declines

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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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