Market Review: July 02, 2019

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Closing Recap

Tuesday, July 02, 2019

Index

Up/Down

%

Last

DJ Industrials

69.32

0.26%

26,786

S&P 500

8.74

0.29%

2,973

Nasdaq

17.93

0.22%

8,109

Russell 2000

-9.11

0.58%

1,560


 

Equity Market Recap

·     U.S. stocks moved back and forth between gains and losses, ending higher, as today’s focus was on Treasury markets with the benchmark 10-year yield falling back below the 2% level. The trade truce between the U.S. and China at the G20 that pushed markets to record highs on Monday faded early, but markets overall held up well into tomorrow’s abbreviated trading session (US markets closed at 1:00 PM on Wednesday and are shut on Thursday for the 4th of July). Stocks exhibited concern overnight after the U.S. threatened $4B in additional tariffs on EU goods, while markets slipped further late morning on reports Vice President Mike Pence canceled an appearance in Salem, New Hampshire, after his plane was diverted back to Washington, according to multiple reports. There was no emergency according to those reports. Once the dust settled, stocks managed to edge back higher into the afternoon behind gains in defensive and interest rate sensitive sectors (utilities and REITs), while energy stocks were the biggest laggard given the near 5% drop in crude oil prices on slowing global growth fears. Gold prices rebound after its recent slide from 6-year highs and the dollar slipped while big news in Europe was European leaders reaching a deal on new top leaders; Christine Lagarde nominated to be new ECB president, succeeding Mario Draghi later this year when his 7-year term ends in October. Lagarde said she temporarily relinquishes role as IMF head.

 

Commodities

·     Oil prices plunged as WTI crude slumped -$2.84 or 4.8% to settle at $56.25 per barrel, its lowest level since June 19th after topping the $60 per barrel mark briefly yesterday on OPEC headlines. Confirming yesterday’s reports, OPEC and non-OPEC members, at their meeting in Vienna, agreed to maintain price-supportive production cuts for nine months. However, crude-oil prices fell amid worries about waning expectations for demand amid global growth worries. Oil prices may be volatile again tomorrow with weekly API inventory data tonight and EIA data tomorrow. Prices jumped yesterday on news of the U.S./China trade truce, and OPEC+ agreement.

·     August gold futures rise $18.70 or 1.4% to settle at $1,408 an ounce, bouncing back after posting its biggest one day decline since June 2018 yesterday (fell -1.7%), as investors rotated back into safe haven and defensive assets amid growing fears of slowing global growth.

 

Bond Market & Currencies

·     Treasury markets strengthened, with the yield on the benchmark 10-year falling below 1.98% (a 4 bps decline) as markets appear doubtful on the state of the U.S. and global economy. The 10-year yield has been unable to gain traction since plunging a few weeks ago on signs the FOMC plans to step up its easing measures amid low inflation and trade uncertainties. Markets are widely anticipating a rate cut at the July 31st meeting. Today’s comments from Fed “hawk” Mester failed to dent that enthusiasm despite her saying she would need to see more hard evidence of a significant slowdown to advocated for interest rate cuts. The 2-year yield fell to 1.75% and the 30-year to 2.5%. The U.S. dollar ended mixed to down slightly, falling the most vs. the safe-haven Japanese yen on growing concern that simmering global trade tension will hamper economic growth prospects while the Federal Reserve weighs rate cuts.

 

 

Macro

Up/Down

Last

WTI Crude

-2.84

56.25

Brent

-2.66

64.40

Gold

18.70

1,408.00

EUR/USD

0.0008

1.1294

JPY/USD

-0.61

107.84

10-Year Note

-0.048

1.975%

 

 

Sector News Breakdown

Consumer

·     Auto sector; monthly auto sales data for June released today: 1) FCAU June US auto sales up 1.9% vs. est. down (-1%); 2) TM June auto sales fall (-3.5%) vs. est. (-3.3%); 3) Nissan (NSANY) June US auto sales down (-14.9%) vs. est down (-10%); GM said Q2 deliveries were down (-1.5%) versus a year ago, in line with third-party estimates for industry sales; HMC June US auto sales fell (-7.3%) vs. est. (-5.3%)

·     in other auto news, LYFT tgt raised to $76 from $70 at Stifel and maintains buy while initiated UBER with neutral and $50 tgt/raises rider growth expectations for the rest of 2019 and 2020 to +5.3M /+3.9M active rider net adds, up from +5.0M /+3.6M; KAR downgraded to sell at Guggenheim due to increased industry competition and cyclical headwinds

·     Retailers; JWN was downgraded to neutral from buy at UBS saying data shows the US high income consumer spending outlook over the next 90 days has softened while also a new survey reveals Nordstrom’s competitive positioning is weakening

·     Consumer Staples; BUD rises after Asian business seeks $9.8B in world’s largest IPO this year/IPO will raise between $8.3B-$9.8B for AB InBev before any over-allocation option is included https://on.mktw.net/2ROLmfm ; COTY was downgraded to sell at Citigroup and cut its tgt to $4 as expects Coty’s turnaround plan will take longer than investors expect as the company sees virtually no revenue growth through 2023

·     Casino & Leisure movers; CHDN was added to the Franchise Picks list at Jefferies saying growth opportunities in KY are not fully modeled and could add $6 to our PT; PLAY was downgraded to hold at Jefferies and cut its tgt to $40 from $56 saying competitive overlap analysis reveals high exposure to increasing competition, while data checks suggest limited comp sales visibility

 

Energy

·     Energy stocks were the biggest decliners in the S&P, with shares of EOG, APA, VLO, CXO, PXD, MRO, FANG among the sharpest drops of 3% or more as oil prices rolled; FTSI was downgraded to neutral at Citigroup saying the likelihood of a take-out has been reduced while domestic frac fundamentals are unlikely to improve much over the next twelve months; SM was added to the S&P MidCap 400; defensive, interest rate sensitive sectors such as utilities

 

Financials

·     Bank movers; Lots of analyst research calls as Raymond James said they believe a USB acquisition of RF would enhance its already better-than-peer profitability metrics and give it the critical mass it needs to be a more formidable competitor in the Southeast region; Goldman Sachs issues regional bank preview, downgrades CMA to sell and says they see 11% (gross) EPS risk to banks from lower rates as impacts from lagged deposit rates, less long-end benefits from inverted yield-curve and an inability to hedge asset sensitivity will all pressure margins/BUT loan growth, and fees should be better, credits losses lower and cost controls tighter; EBSB upgraded at Piper to overweight and $20 tgt based on improved margin outlook; REITs were among top gainers in the S&P 500 early – more than 1% gains for: HCP, PSA, EXR, MAA, MAC, UDR, EQR, AIV, O; insurance related names AFL, AON, MMC, HIG 52-week highs today

·     Consumer finance and lending; TREE was downgraded at RBC Capital on valuation noting shares have dramatically outperformed the market, up almost 90% vs. the S&P 500, which is up 18%; ADP shares fell after 8M share Block Trade priced at $161.00; 52-week hi’s today in Fintech/finance: SYF, FISV, FLT, TSS, GPN

 

Healthcare

·     Pharma movers; AMRN rises as raises FY19 revenue view to $380M-$420M from $350M (est. $364.78M) and reports preliminary Q2 revenue $97M-$101M vs. est. $88.21M; in specialty pharma, PRGO raises year EPS view to $3.75-$4.05 from prior $3.65-$3.95; DOVA was upgraded to outperform at Evercore/ISI saying the company surprised investors with its approval in chronic immune thrombocytopenia (ITP)

·     Biotech movers; GLPG and GILD shares active after announcing plans to ask the FDA to approve an arthritis drug this year as the two have been testing a drug known as filgotinib for rheumatoid arthritis; DRNA submitted a Clinical Trial Authorization application to the Swedish Medical Products Agency to conduct a first-in-human Phase 1/2 study of DCR-A1AT for the treatment of alpha-1 antitrypsin (A1AT) deficiency-associated liver disease; INCY and Zai Lab enter into a collaboration/license agreement for the development and commercialization of INCMGA0012

·     Medical equipment, devices and services; SYK was downgraded to in-line with a $210 tgt at Evercore/ISI; TDOC was removed from the franchise picks list at Jefferies; HNGR 1.7M share Block Trade priced at $18.25; WMGI shares weak after RBC lowers Cartiva estimates and tgt to $34 as some early SCI adopters have pulled back their SCI usage

 

Industrials & Materials

·     Industrial & Machinery; IR was downgrade to hold at Jefferies as shares approach their price tgt and note comps for resi and industrial end markets do get tougher into year end and our estimate for 2Q is 5c below the Street; AYI shares slide on mixed Q3 as EPS beat but sales of $947M missed the $971M estimate and said they are cautiously optimistic about overall market conditions and that Q4 net sales could be down modestly vs. prior year

·     Transports; GBX weighs on rail cars after Q3 EPS of 89c missed by 6c on lower revs $856M vs. $862M estimate) and guided Q4 EPS below views ($1.30-$1.50 vs. $1.89); LSTR was upgraded to market perform at Raymond James as believe the stark deceleration in the spot truckload market YTD (rates off ~20% y/y ex fuel) is now largely priced into the stock at ~17x 2019 EPS estimate; Loop Capital downgraded ratings and tgts on CMI, ECHO, PCAR and Ryder (R) as they continue to see a broader based deterioration in the level of activity across key global economies, and more important to our companies, the US economy; in airlines, DAL sees Q2 EPS $2.25-$2.35, above prior view $2.05-$2.35 and adjusted pre-tax margin 15%-16% vs. prior view 14%-16%

·     Aerospace & Defense; EADSY was center of attention after a US trade Representative proposed supplemental list of 89 "tariff subheadings" with a trade value of about $4b on EU that could be subject to additional duties over subsidies on large civilian aircraft; SPR was downgraded to hold at Jefferies and cut estimates to account for fewer 737 MAX shipset deliveries. We’re shifting now because of the recent FAA announcement that BA will need additional software changes, which likely extends the grounding to 4Q19; BA was removed from Jefferies franchise picks list

 

Technology, Media & Telecom

·     Internet; FB shares active as Germany fines Facebook EU2m after its report for the first half of 2018 violated rules. Germany’s Federal Office of Justice says Facebook gave incomplete information regarding complaints about unlawful content the company received; CARS was upgraded to buy from neutral at Citigroup with an unchanged price target of $27 saying the stock’s current valuation is low even if we were to exclude the probability for an acquisition

·     Semiconductors; WDC shares take a breather after rising for ten consecutive sessions, as Benchmark downgraded to sell noting the recent outperformance and saying any price increases likely won’t be enough to offset an expected 50% decline in NAND output during F1Q20; Bespoke noted that all but one stock in the Philly Sox Semiconductor index are now back above their 50-day moving averages (CREE is the only name still below its 50-DMA); CYBE falls as guides Q3 revs to $12M-$13.5M, below the $17.5M estimate

·     Software movers; BL shares fell after being downgraded to sell at Goldman Sachs as recent deceleration in billings could make consensus revenue growth forecasts difficult to achieve; EA tgt was raised to $130 at BMO Capital with increased confidence that the company will be able to exceed both Street EPS estimates and company guidance for the 2020 fiscal year owing to positive reaction to Apex Legends season 2 previews

·     Media & Telecom movers; EROS shares rose after announces its Indian operating subsidiary EIML has paid its outstanding interest payments, which had led to CARE ratings downgrade; TTD was downgraded to sector perform at RBC on valuation noting shares have also dramatically outperformed the market, up over 100% vs. the S&P 500 which is up 18%; GTT was downgraded at KeyBanc as expect ramping of organic growth to take longer than consensus expects as shown in slow hiring in our jobs data; DISH shares rose after CNBC’s David Faber reported this morning that TMUS and Dish have agreed to a divestiture deal, pending DOJ decision

·     Hardware & Component news; ARW was downgraded at Raymond James saying the IT supply chain is too much weight to bear while also lowers estimates for AVT following recent checks; CRNT slides after revising guidance as sees ~$20M less revenue in 2Q19 amid delay in receiving certain large orders from India; ROKU was downgraded to sector perform at RBC Capital citing valuation and outperformance in shares

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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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