Market Review: June 04, 2019

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Closing Recap

Tuesday, June 04, 2019

Index

Up/Down

%

Last

DJ Industrials

511.72

2.06%

25,331

S&P 500

58.76

2.14%

2,803

Nasdaq

194.10

2.65%

7,527

Russell 2000

38.56

2.62%

1,508


 

Equity Market Recap

·     U.S. stocks registered their best one-day totals since January, as the Dow Industrial Average jumped over 500 points and the Nasdaq Composite outperformed rising over 2.6% as the thought of the FOMC cutting rates lifted market sentiment. Several sectors that have suffered on fears of slowing global growth ripped higher led by a 3% increase in the Dow Transports index, autos rebounded on bets the U.S. and Mexico will work out their trade issues, banks surged on a spike in Treasury yields and energy stocks rallied as oil snapped its 4-day losing streak. Stocks pushed higher as Federal Reserve Chairman Powell signaled that the central bank is prepared to cut interest rates to sustain U.S. economic growth. The comments echoed recent calls by Fed members (Evans, Bullard) that they will keep an eye on trade impact and will act “appropriately” to keep the economy stimulated. Fresh optimism about the possibility that the U.S. and Mexico will swiftly reach a trade deal also helped lift the market. The other big recover came in tech which recoup its losses from the day prior led by large cap, semi and software. Defensive utilities and REITs (which have been market leaders of late), fell in a rotation into riskier assets.

·     Several other factors lifting stocks (outside of the general oversold bounce in financials, technology and energy) included Mexican President Andres Manuel Lopez Obrador saying "I think that tomorrow’s meeting will be very important and an agreement will be reached before June 10, before tariffs go into effect" (raising hopes for auto industry, beverages of no tariffs). Also, the Fed appear to be getting even more dovish following recent comments about the possibility of rate cuts later this year from Bullard yesterday as well as the Fed’s Evans and Chairman Powell today. Evans said "markets seem to be seeing something that we’re not seeing as quickly," in a CNBC interview. "We need to pay attention to that," he adds. Fed Chairman Powell, in his speech at the Fed conference (that mostly focused on long-term policy issues), said the Fed is closely monitoring the impact of trade developments and will act appropriately to sustain expansion.

Commodities

·     Oil prices rise, snapping their 4-day losing streak as WTI crude settles at $53.48, rising 23c on the day and bouncing well off session lows of $52.43 along with the broader bounce in equities – rally comes ahead of weekly API data tonight and EIA inventories tomorrow. Oil prices have been hammered recently on slowing global growth concerns and weakening demand fears given trade issues between the U.S. and China. Note a settlement at or below $53.04 for the front-month contract would have marked WTI’s entry into a bear market (20% off highs).

·     Gold prices managed to push higher into settlement, ending the day up 80c at $1,328.70 an ounce, extending its winning streak to 5-day and holding at its best levels since February. The pullback in the dollar and the increased dovish rhetoric from Fed speakers the last two days (hinting about possible rate cuts this year) helped offset the mass exodus out of safe-haven assets on the day. Earlier, Federal Reserve Chairman Jerome Powell suggested that interest rates could be cut if trade tensions damage the economic outlook. Powell also said the Fed didn’t know “how or when” these trade issues would be resolved.

 

Currencies & Treasuries

·     The dollar fell as recent Fed officials (Bullard yesterday, Evans and Powell today) are becoming more dovish and hinting that Fed rate cuts could be possible, as the Fed monitors the ongoing trade development impact. The dollar index (DXY) dipped as low as the 97 level (down from last week 2019 highs above 98.37), falling against the euro and Pound which moved above the 1.27 level; the Mexican Peso rebounded over 1% vs. the dollar, as the greenback dropped after AMLO said they will crackdown on immigration; the dollar fell against the Canadian dollar under 1.34 as oil prices snapped a 4-day losing streak. In Treasury markets, the yield on the benchmark 10-year rose above 2.12%, bouncing off yesterday lows around 2.07%, though the shorter-term 2-yr yield remained weak under 1.88% which is more leveraged to interest rate moves.

 

Economic data

·     Fairly quiet with Factory Orders for April falling (-0.8%) vs. est. down (-1%) while March revised to down (-1.3%). Durable Goods orders for April-F was down (-2.1%) and Durable Good ex: transportation was unchanged.

 

 

Macro

Up/Down

Last

WTI Crude

0.23

53.48

Brent

0.69

61.97

Gold

0.80

1,328.70

EUR/USD

0.0016

1.1257

JPY/USD

0.02

108.10

10-Year Note

0.027

2.119%

 

 

Sector News Breakdown

Consumer

·     Retailers; TIF posted a mixed Q1 as EPS beat on slight revs miss ($1.03/$1B vs. est. $1.02/$1.02B) while comp sales miss as Q1 comps sales ex-FX fell (-2%) vs. est. (-1.2%) and cut its FY outlook to up low-to-single-digit percent, down from prior view of up mid-single-digit percent citing lower spending by tourists worldwide for missing estimates for quarterly same-store sales; LE reported a narrower Q1 EPS loss of (21c) vs. est. (30c) on higher revs of $262.4M though Q2 guidance fell short of consensus; KSS was downgraded to neutral at Atlantic Securities

·     Restaurants; CBRL Q3 earnings topped consensus by 2c on better revs while reaffirming its year outlook and announced a $50M share buyback plan; WING was upgraded to buy at Stifel and raised tgt to $92 from $80 based on view system sales growth will remain in the mid- to high-teens for the foreseeable future

·     Casino & Leisure movers; toy makers HAS and MAT among the top leaders in the S&P early – recall yesterday NFLX that it’s teaming up with Hasbro and producers Joe and Anthony Russo to create an animated series called "Magic: The Gathering"; cruise lines were notably weaker, with shares of NCLH among top decliners in the S&P early

·     Auto’s; industry gets a bounce (GM, F, FCAU, LEA, BWA) after Mexican Foreign Minister said the most likely scenario in the trade war is for Mexico to negotiate a solution on migration to avoid U.S. tariffs; NIO said delivery volume of the ES8, its 7-seater electric SUV for May was 1,089, while cumulative deliveries of ES8 reached 17,550/now sees Q2 ES8 deliveries to be near top of, or exceed prior guidance range of 2,800 to 3,200 qtrly deliveries; HTZ s introducing a monthly vehicle-subscription service with two tiers ranging from $999 to $1,399./says customers can exchange their vehicle twice a month to another make or model within the tier

 

Energy

·     Energy stocks, alongside financials and technology helping pace today’s market gains, getting a boost as oil prices recovered (ahead of inventory data tonight and tomorrow), with investors putting money to work in the beaten up sector. Energy as a whole has been battered across the board as negative data fuels concerns that consumption of oil, natural gas and coal will be hit hard by a global economic slowdown. Brent oil prices have fallen by 20% from their 2019 peak in late April, as the economic slowdown and threat of trade wars raised demand fears.

·     E&P sector; CLR a positive for the E&P space, with shares jumping after they reiterated 2019 guidance for volumes, capex, and costs, and introducing a 20c dividend and $1B share buyback program, while reiterating its year-end net debt target of $5B; RDSA said it expects to return $125 billion or more to shareholders from 2021 to 2025 via dividends and buybacks; also raised its guidance for organic free cash flow in 2025 to $35 billion at an oil price of $60 a barrel; SPN jumped after JPMorgan upgraded to overweight concerns around stock sell off have not necessarily abated, but the company has outs that are clearer today

·     Utilities & Solar; defensive and safe haven sectors such as utilities and REITs the only S&P sectors in the "red" – falling as yields bounce off recent lows and investors rotate back to riskier assets – the UTY moved back 740 level (recent all-time high was 769.93 on 5/24); EIX was upgraded to buy at UBS saying they see improving regulatory/legislative visibility in California with progress toward wildfire legislation for 2019 and changes at the CPUC; in solar, CSIQ signs 15-year power purchase pact with Anheuser-Busch for 310 MWp/222 MWac of electricity from its Maplewood solar project, marking the U.S. beverage industry’s largest solar power purchase agreement

 

Financials

·     Bank movers; the financials leading the charge higher today, getting a big boost as Treasury yields recover from recent slide as JPM, BAC, C, MS, GS, WFC as well as regionals (PNC, CFG, STI, HBAN, RF, KEY) all spiking amid the bounce in yields (oversold conditions) – though the more dovish stance from Fed officials the last few days may not help sentiment going forward as rate cuts for 2019 a possibility

·     Consumer finance and lending; MELI was downgraded to neutral at BTIG citing limited upside after rising 94% YTD, they believe the market has fixed the significant price inefficiency in shares when they initiated in Nov 2018; IIIV shares fell again after it announced the acquisition of Pace Payment Systems and updated its full-year outlook and filed to sell 4.49M shares

 

Healthcare

·     Pharma movers; MRTX shares upgraded to buy at Citigroup with $132 tgt while SunTrust raised tgt to $120 from $85 saying the side effect profile and response to the treatment’s lowest dose in AMGN’s AMG 510 are positive for Mirati’s MRTX849; RHHBY Genentech unit announces the successful outcome of a Japan-based Phase 3 clinical trial, BLOCKSTONE; PTI rises after European Commission grants orphan drug designation to its experimental cystic fibrosis drug, PTI-428/drug has already been granted orphan status, breakthrough therapy designation in the U.S

·     Biotech movers; BMRN said that Vimizim® (elosulfase alfa) has been approved by the National Medical Products Administration for the treatment of patients with mucopolysaccharidosis type IVA; SRNE announces joint venture (JV) with Chinese medical device maker LifeTech Scientific Co. Ltd. to sell hemp products in Asia

·     Healthcare services and providers; CVS said it would offer expanded health services such as nutrition counseling and blood pressure screenings in 1,500 stores by the end of 2021, while forecast adj EPS of over $7 in 2020, and reiterated 2019 profit and sales forecast at analyst day

 

Industrials & Materials

·     Industrial & Machinery; CIR shares active after CR said it remains firmly committed to pursuing its proposal to acquire CIRCOR after its initial bid was rejected; NAV shares rallied early as quarterly sales beat, and raises 2019 sales and EBITDA projections/adjusted net income for the second quarter grew 57% to $105M vs. $67M in the same period one year ago; CAT tgt was cut to $115 from $125 at UBS saying their sell thesis is predicated on expectation that a 2020 EPS decline (now -15%, was -8% vs. consensus +6%), is not priced in; MMM was removed from short-term sell idea list at Deutsche Bank after the 23% drop from late March on lower guidance; LXFR was downgraded at KeyBanc citing lack of near-term catalysts

·     Transports; DAL reported May traffic rose 7% and capacity was up 5.3%, helping boost the beaten up airline sector (AAL, HA, UAL); Dow Jones Transports outperform, up around 3% as the index reclaims the 10K level (off yesterday lows 9,715.20) – led by airlines, rails and shipping

·     Metals & Materials; US Steel (X) received its 3rd analyst downgrade in the last 2-weeks as Goldman Sachs said today it expects the stock to weaken as the market continues to absorb the effects of materially lower steel prices; Paper stocks (IP, WRK, GPK) got a lift after Goldman Sachs said the closure by Georgia-Pacific of a solid bleached sulfate mill is likely to significantly tighten the SBS market

·     Chemicals; LYB ended its pursuit of Braskem SA after failing to agree to terms with the Brazilian chemical maker’s controlling shareholder (Braskem shares plunged); caustic soda prices trending higher according to RBC, giving a bounce for shares of OLN, WLK

 

Technology, Media & Telecom

·     Internet; FB shares slid to lows of $160.84, below its 200-day MA support of $161.30 before rebounding (comes a day after reports the FTC is said to open competition probe of Facebook practices); CTRP active after the Chinese government has warned its citizens over the risks of travelling to the U.S. spurred by difficulties Chinese nationals are encountering while in the U.S., Foreign Ministry spokesman Geng Shuang; overall rebound for the big cap Internet giants after yesterday’s slide, with NFLX, AMZN, GOOGL recovering

·     Semiconductors; the Philly semi index (SOX) posted its biggest one-day percentage gain in over two months, with all 30 -components trading higher, led by more than 4% gains for NVDA, MCHP, AMD, MU, ADI and AMAT in equipment

·     Software movers; CRM expected to report earnings tonight after the close; TTWO was upgraded to market perform at BMO Capital saying with the threat of an economic downturn they believe video game stocks will be increasingly seen as safe havens for investors; COUP posted a $7.5M revenue beat and $17M FY20 revenue raise driven by broad-based strength that contributed to accelerating billings growth at 44% TTM vs. 41% TTM last quarter; APPS shares rise, tgt raised by analysts (Hallum to $6, Ladenburg to $5.10) after better earnings

·     Hardware & Component news; BOX shares the latest in storage to issue weak results as Q1 revenue and EPS came in ahead of estimates, but billings, expansion rate, and retention rate all materially decelerated while cuts FY20 revenue view to $688M-$692M from $700M-$704M (est. $701.9M) while raising year EPS (downgraded at Canaccord) – follows recent results from NTNX and PSTG whose shares tumbled recently as well

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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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