Market Review: May 28, 2019

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Closing Recap

Tuesday, May 28, 2019

Index

Up/Down

%

Last

DJ Industrials

-236.84

0.93%

25,348

S&P 500

-23.93

0.85%

2,802

Nasdaq

-29.66

0.39%

7,607

Russell 2000

-10.11

0.67%

1,503


 

Equity Market Recap

·     U.S. stocks drifted lower into the close, erasing earlier gains on a relatively quiet day of news, earnings and trade commentary, though worries that the U.S.-China trade conflict will worsen kept markets and investors on edge. President Trump said over the weekend that he expects a trade deal with China in the future but that the U.S. currently is "not ready," adding that tariffs on Chinese imports could rise "substantially." The concerns helped Treasury prices advance, pushing the 10-year yield down almost 6 basis points to 2.267% while the 2-year fell below 2.13% (back to 2017 lows), though defensive gold prices dropped as the dollar bounced. Tensions between Washington and China have ramped up after the U.S. initiated a round of tit-for-tat tariff escalations earlier this month, while China has also vowed to retaliate for a U.S. move to blacklist sales of goods to China’s Huawei Technologies. That has cause a bout of selling pressure in global stock markets after surging the first three months of the year. Economic data was mixed with rising consumer confidence, but US home price gains slump for a 12th straight month to the weakest In 7-yrs. Regarding earnings, with first-quarter results in from nearly all S&P 500 companies, the group looks on track to post a year-over-year earnings gain of 1.5%, a reversal from the 2% decline expected at the start of April, according to IBES data from Thomson Reuters. But estimates for future earnings have been declining since April.

Economic Data

·     Consumer confidence for May rose to 134.1 vs 129.2 in prior month and topped the 130.0 economist estimate while the present situation confidence rose to 175.2 vs 169.0 MoM and expectations index rose to 106.6 vs 102.7 last month

·     Dallas Fed Manufacturing for May an unexpected decline, falling -5.3 vs. est. gain of up 2 (and below prior month reading of 2.0

·     S&P CoreLogic Case-Shiller National Home Price index rose 3.72% y/y in March after rising 3.93% in prior month with the 20 City HPI Y/y rising at slowest rate since Aug. 2012. The 20-city SA index rose 0.09% m/m in March after rising 0.26% the prior month

·     U.S. FHFA home price index rose 0.1% to 273.4 in March following the 0.4% rise to 273.1 in February (revised from 272.8). Increases were seen in 5 of the 9 regions

 

Commodities

·     Oil prices rise with WTI crude up 51c or 0.87% to settle at $59.14 per barrel, while Brent crude finished unchanged at $70.11 per barrel. Note API inventory data pushed out to Wednesday due to the holiday yesterday. Gold prices end lower, finishing off their worst levels of the day, sliding -$6.50 or 0.5% to settle at $1,277.10 an ounce as the dollar strengthened. Gold prices failed to build on last week’s near 1% gain coming in reaction to renewed trade-war worries. The bounce in the dollar vs. major and emerging markets weighed on precious metals today. Lumber futures fell the CME limit to 7-month lows

 

Currencies

·     The U.S. dollar made a nice push after slipping from 2019 highs last week, gaining ground vs. both majors and emerging market currencies on a day of mixed U.S. economic data and was generally quiet in regards to trade headlines with China (outside of a few comments over the weekend). The dollar touches highs vs. Canadian dollar up 0.3% at 1.3484 while the euro drops to session lows, down -0.25% at 1.1163. Markets continue to monitor developments on the trade front as May draws to a close.

 

Bond Market

·     Treasury prices jumped as yields fell back to the lowest levels since 2017 as the 10-year yield moved back under 2.27% while the 2-yr yield fell below 2.13% and the 30-yr at 2.7% – back at fresh 2019 lows. The U.S. Treasury sold $41B in 5-year notes at a yield of 2.065% vs. 2.067% when issued prior and the bid-to-cover (demand) at 2.38 vs. 2.44 prior and indirect bidders awarded 57.5%. Overall ongoing concerns about the U.S.-China trade war and Italy’s budget policy sent benchmark U.S. Treasury yields to their lowest levels since September 2017.

 

 

Macro

Up/Down

Last

WTI Crude

0.51

59.14

Brent

0.00

70.11

Gold

-6.50

1,277.10

EUR/USD

-0.0033

1.1161

JPY/USD

-0.05

109.46

10-Year Note

-0.062

2.264%

 

 

Sector News Breakdown

Consumer

·     Retailers; GOOS higher after positive mentions by both Barclays and Canaccord ahead of earnings (reports 5/29) – Canaccord said view as one of the best growth stories in our coverage universe; short-term catalyst buy calls on FL and PLCE closed at Deutsche Bank

·     Auto’s; FCAU has proposed a merger with French rival Renault SA, which would create the third-largest auto maker by production. Fiat Chrysler said the combined business would be 50% owned by its shareholders and 50% by Renault shareholders with a "balanced governance structure." https://on.mktw.net/2wm1rzh ; NIO reported mixed Q1 and Q2 guidance; TSLA shares erased early gains, but still holding near lowest levels since late 2016

·     Consumer Staples; group was broadly lower, with several pockets of weakness on no specific headlines as tobacco stocks were under pressure (MO, PM) most of the session, along with weakness in food (KHC traded to record lows) and beverages (TAP); FIZZ shares fall after hitting lowest level since Feb 2017; tobacco weakness (MO, PM) attributed partially to weak Nielsen data as cigarette industry volume fell 11.2% in the 4-week period ending on May 18 to mark a deceleration from the -9.5% 12-week pace, according to Wells Fargo/cigarette sales dollars were down 6.9% for the 4-week period

·     Casino & Leisure movers; SEAS shares jumped after acquiring approximately 5.6 million shares for approximately $150.0M from an affiliate of Pacific Alliance Group/also entered an agreement with Hill Path Capital for certain of its affiliated investment funds to acquire ~13.2M; MGM positive mention in Barron’s saying though the stock has languished for year, it looks like an attractive gambling play, given low investor expectations, activist involvement, and a management team under pressure to deliver on ambitious financial goals

 

Energy

·     Energy names were mixed; EOG, HES, MTDR all upgraded to buy at MKM today citing valuation; in the service sector, HAL shares fell to fresh 9-year lows with UBS saying they are increasingly concerned on downside to 3Q estimates citing potential for smoothing of spending from E&Ps; DK bought a 33% stake in Red River Pipeline from an affiliate of PAA for $128M; EC reported an oil spill in Ayacucho, Cesar; SDRL extended losses from last week’s earnings miss

 

Financials

·     Bank movers; once again banks lagged markets on a lower interest rate yield environment; insurance names PGR, CB, CINF traded to 52-week highs; BNS missed analysts’ estimates for quarterly profit for the third time in a row, as a surge in non-interest expenses and provisions for bad loans offset gains from its international banking unit; 52-week highs for several REITs in the S&P 500 index including AIV, PSA, AVB, VTR, MAA, EQR, EQIX as Treasury yields remain at lows

·     Consumer finance and lending; TSS in merger deal with GPN as TSS holders will get 0.8101 GPN shares for each owned, which represents $119.86 per share for Total System Services https://on.mktw.net/2HG4Orm ; FAF shares dropped as it shut down external access to a production environment with a reported design defect that created the potential for unauthorized access to customer data

 

Healthcare

·     Specialty Pharma movers; group weaker led by TEVA after the company entered into an agreement for a one-time payment of $85M to the state of Oklahoma over claims related to the opioid epidemic (MYL, MNK, PRGO weak) – Wells Fargo said they were surprised that Teva’s settlement is so large relative to the Purdue settlement ($85M vs. $270M) as Teva’s involvement was minor in comparison – so pressuring the sector)

·     Pharma; AGN and licensor Gedeon Richter Plc. announce that the FDA has approved the use of VRAYLAR (cariprazine) to treat depressive episodes in adult patients with bipolar I disorder; MNK changes composition of companies and says the remaining Specialty Brands company will retain Amitiza, as Amitiza product will provide revenue diversification and stronger cash flows to support commitment to debt reduction. The U.S. Supreme Court on Tuesday sent a mixed message on abortion, refusing to consider reinstating Indiana’s ban on abortions performed because of fetal disability or the sex or race of the fetus while upholding the state’s requirement that fetal remains be buried or cremated after the procedure is done.

·     Biotech movers; GILD was downgraded to sell at Goldman Sachs and cut tgt to $60 as sees limited growth and pipeline expansion opportunities; KZR shares fell after preliminary data from the first two cohorts in an open-label dose-escalation study of KZR-616 in patients with systemic lupus erythematosus; BMRN shares fell after updating Phase III data on gene therapy Valoctocogene Roxaparvovec in adult patients with hemophilia A/potential diminishing effect of hemophilia A gene therapy

 

Industrials & Materials

·     Transports; FDX shares active after Reuters reported Huawei is reviewing its relationship with FedEx Corp after it claimed the U.S. package delivery company diverted two parcels destined for Huawei addresses; in truckers, JBHT was downgraded to neutral at Bank America and cut tgt to $95 from $110 saying the company’s volumes and multiple may face sustained pressure from higher rail costs and shifting traffic patterns

·     Metals & Materials; The Global Times reported that China is “seriously” considering restricting rare earth exports to the U.S. and may also implement other countermeasures in the future, with no further details; RIO was upgraded to buy at Goldman Sachs saying it is the only iron ore major that has sufficient capacity to increase high returning iron ore volumes over the medium-long run; steel names were lower (X, STLD, AKS) on continued selling pressure

·     Industrials and Aerospace; sector down as trade fears impact still weighing on sentiment; in the aircraft sector, WAIR shares jumped after Reuters reported it has hired banks to explore strategic options that include a potential sale https://reut.rs/2I4NA5Z

 

Technology, Media & Telecom

·     Internet; large cap Internet was broadly higher with FB, NFLX, GOOGL, AMZN among gainers; BABA shares active after Bloomberg reported it is considering raising $20 billion via a second listing in Hong Kong/the plans are preliminary and could change

·     Semiconductors; outside of strength in AMD, the semi space remained weak on China trade concerns, as has been the case for the last 3-weeks; AMD shares outperformed in the semi space early as Rosenblatt noted AMD’s Lisa Su gave the keynote at Taiwan’s Computex show Monday morning Taiwan time with several product announcements in the datacenter, graphics, desktop, and mobile spaces; INTC dropped in reaction to the competing AMD products

·     Software movers; WDAY shares record highs ahead of earnings tonight; PLAN shares surged after boosting its yearly forecast and reported a narrower Q1 EPS loss of (16c)/$75.8M vs. est. loss (20c) and raised year revs to $326M-$331M from prior view $310M-$314M (est. $313.0M); MOMO Q1 beat top- and bottom-line estimates with revenue up 28% Y/Y – Q2 revs in-line/live video service revenue was RMB2.7B in Q1 (+14% Y/Y); ATVI was upgraded to buy at Goldman Sachs as see a potential inflection in ATVI’s earnings trajectory, boosting video gamers

·     Media & Telecom movers; MDP sold Sports Illustrated to Authentic Brands for $110M; YNDX fell as Russian lawmakers mull a proposed draft law that could require taxi aggregators to use only drivers with Russian citizenship with cars no older than seven years that have a domestic GPS installed

·     Hardware & Component news; AAPL introduced the new iPod touch® with enhancements to power, capability and communication at a remarkable price; NTNX was downgraded to equal-weight at Morgan Stanley saying weak results from storage peers suggest a market slowdown and recent channel checks highlight increasing competition; ROKU was downgraded at Stephens citing valuation after its rally in shares; back to AAPL Citigroup proactively slashing their iPhone unit sales as we believe the US/China trade situation will result in a slowdown of iPhone demand in China as China residents shift their purchasing preference to Chinese brands

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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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