Market Review: July 08, 2019

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Closing Recap

Monday, July 08, 2019

Index

Up/Down

%

Last

DJ Industrials

-115.43

0.43%

26,807

S&P 500

-14.44

0.48%

2,976

Nasdaq

-63.41

0.78%

8,098

Russell 2000

-14.24

0.90%

1,561


 

Equity Market Recap

·     U.S. stock remained under pressure throughout the trading session, with major averages pulling back further (fell Friday) after reaching record high’s mid-last week for the S&P, Dow and Nasdaq Composite, ahead of testimony from Fed Chairman Powell this week to the House and Senate on Capitol Hill on the economy and monetary policy. The Dow Industrial Average dropped over 100-points, led by declines in AAPL (2%) and BA (-1.3%) making up roughly half the Dow decline. Stocks have now slipped a second day amid growing speculation that Friday’s strong U.S. jobs data may keep the Federal Reserve from aggressively cutting interest rates at their meeting this month. Note the U.S. market has rallied through much of June after the central bank signaled that it’s prepared to lower its benchmark interest rate to offset slowing global growth and the fallout from U.S. trade conflicts. Overall, market action was listless with Powell scheduled to provide his annual midyear testimony to lawmakers in a pair of hearings on Wednesday and Thursday that will be closely watched for further clues to policy makers’ thinking.

·     In sector news, President Donald Trump’s recent statement about an upcoming executive order that would give the U.S. "favored nation" status for prescription drug prices, continues to weigh on healthcare and biotech stocks. Semiconductor stocks fell led by equipment names (AMAT, LRCX) after an analyst downgraded the sector (and a few names). Chemical stocks dropped late day (HUN, EMN, and CC) after BASF cut its full-year outlook in response to global trade turmoil and weak industrial production. Gains were led by consumer discretionary and energy names (though they pared gains late day as oil slipped from its highs). Also in tech. AAPL along with comm equipment names JNPR, NTAP and FFIV among the top decliners in the S&P after all four were downgraded by analysts.

 

Commodities

·     Oil prices end the session higher, with WTI crude up 15c to $57.66 per barrel, but ended near its afternoon lows (and off earlier highs of $58.46 per barrel). Quiet for oil on the macro front, with only a few headlines on Iran as the country threats to retaliate over a seized crude tanker and word of a foiled attack in the Red Sea triggered new worries about potential supply disruptions.

·     Gold futures slip, but hold the $1,400 an ounce level; Gold for August delivery fell by 10 cents, or 0.01%, to settle at $1,400 an ounce, after trading between a high of $1,409.90 and low of $1,395. September silver rose 4.9c, or 0.3%, to $15.05 an ounce. Amid global macro concerns, including an economic pullback, Brexit, and the Middle East (Iran), gold has held steady.

 

Currencies & Treasuries

·     The U.S. dollar posted modest gains, building on Friday’s advance after a strong jobs report pared expectations of the Fed being overly aggressive in its view of monetary easing (markets still expecting a 25 bps rate cut at the end of July despite stocks trading just off all-time highs). The buck traded to highs of 108.73, its best levels since early June in follow through strength from Friday after the better jobs report. The Turkish Lira fell after President Recep Tayyip Erdogan’s announced a surprise decision to replace the country’s central bank governor, which has fueled concern the regulator could lower borrowing costs more than expected. The euro and Pound were little changed most of the session. Treasury yields were in a narrow range throughout the day, with the 10-year edging up around 2.04% late day from 2.02% level most of the morning as markets await Powell testimony this week.

 

 

Macro

Up/Down

Last

WTI Crude

0.15

57.66

Brent

-0.12

64.11

Gold

-0.10

1,400.00

EUR/USD

-0.0012

1.1212

JPY/USD

0.30

108.77

10-Year Note

0.003

2.037%

 

 

Sector News Breakdown

Consumer

·     Retailers, Consumer Staples & Restaurants; Dow component KO touched a 52-week high today; CMG also traded to a 523-week high; EPC was upgraded to buy at SunTrust as it warms up to Edgewell’s deal to acquire Harry’s and sees enough near-term catalysts to prompt the upgrade; PEP expected to report earnings tomorrow morning; BOOT was downgraded to neutral at Baird citing valuation after recent rally in shares

 

Energy

·     Energy stocks looking to recover after slumping last week post the OPEC+ meeting last week that witnessed an agreement to extend production cuts for an additional 9-months (which was perceived to be bullish for oil but prices fell nonetheless). In oil E&P and equipment stock news today, ECA said its Newfield Exploration Mid-Continent Inc. subsidiary is selling its natural gas assets in Oklahoma’s Arkoma Basin to an undisclosed buyer for $165 million; in research, Wells Fargo upgraded COG to outperform given the focus on gas, COG is more immune to oil price volatility and the company has long embraced the strategy of curtailing activity to increase shareholder capital return.; Wells downgraded SM and ESTE to market perform as lower commodity prices and activity levels will delay the anticipated organic deleveraging into 2021; SunTrust downgraded PXD and CDEV to hold; HES active as JPMorgan said Q2 volumes and cash flow to slightly lag consensus due to higher maintenance-related downtime in the Gulf of Mexico and Asia; cuts PT to $65 from $66

 

Financials

·     Bank movers; DB said it will exit global equities trading, cut 18,000 jobs and transfer €75bn of risk-weighted assets into a so-called bad bank as part of a major overhaul of the German lender’s business. The bank has also entered into preliminary talks over the sale of its electronic trading and prime finance divisions with French rival BNP Paribas; in services, MSCI shares fell after being downgraded at UBS saying best in class growth priced in; Danske Bank cuts its 2019 profit outlook as sees net income of DKK13B-DKK15B

·     In banking research: trust banks BK and STT downgraded to Underweight from Overweight at Morgan Stanley and cut the large cap banks industry cut to In-Line from Attractive noting it is up 23% year-to-date, but the next 6-18 months look tougher as global GDP is slowing, inflation expectations are dimming and the Fed is expected to cut rates in 2019 and 2020; Raymond James downgraded shares of banks AMNB, PACW, SIVB, CMA, CBSH, EWBC while upgraded SBNY and reducing EPS estimates as primarily reflects a reduction in our NIM and loan growth projections; HBAN was downgraded to underperform at BMO Capital a relative one, compared to an average 14% total return potential for their Regional banks

·     Finance, Brokers, PE & Exchanges; BX downgraded to Market Perform at JMP Securities on outperformance – says believe many generalist money managers have been underweight Financials for some time, which only accelerated when the yield curve inverted earlier in the year; Stephens long OMF/short ADS saying California rate cap should allow OMF to take share from competitor/CECL may temper ADS buyback due to higher credit reserve requirements, while also long SLM/ Short CIT; UBS cut estimates on the brokers and boutiques (EVR, GHL), as capital markets industry trends have been mixed. IB business lines are not tanking but lack growth drivers at this point in the cycle, while Y/Y comps appear challenging.

 

Healthcare

·     Pharma movers; ITCI shares fell after its announcement of results from two Phase 3 clinical trials evaluating lumateperone in patients with bipolar depression/study 404 met the primary endpoint of a statistically significant change in Montgomery-Åsberg Depression Rating Scale (MADRS) total score versus placebo (p<0.001). Key secondary endpoints were also met…but study 401, however, failed to achieve the primary endpoint due to an unexpectedly high response rate in the placebo arm; CTST shares fell after saying Health Canada found co’s greenhouse facility in Ontario non-compliant with some regulations/says non-compliance is regarding the growing of cannabis in five unlicensed rooms and inaccurate information provided to the regulator by co’s employees; AYTU reports publication of clinical study results demonstrating effectiveness of Natesto; CBIO said its experimental treatment met the main goal of a mid-stage study in patients with hemophilia

·     Biotech movers; SGMO shares rose after it presented updated early stage data from its PFE partnered hemophilia A study this weekend in Melbourne as Wells Fargo notes overall data suggest stable Factor VIII activity in the normal range between weeks 19-24 for the highest dose cohort and well above the 68% level mean level from competitor BMRN at 24 weeks; SLGL said its Epsolay cream showed statistically significant improvement in both co-primary endpoints of the number of patients achieving “clear” or “almost clear” in the Investigator Global Assessment and, absolute mean reduction from baseline in inflammatory lesion count; CHRS shares dropped after saying it expects preliminary Q2 net sales for Udenyca to be in range of $79-$84M

·     Healthcare services and providers; INSP said UNH will provide coverage for co’s Inspire device used to treat obstructive sleep apnea, effective Aug. 1; XRAY said it has appointed Jorge Gomez, former chief financial officer of CAH as its CFO (shares of CAH fell in reaction)

 

Industrials & Materials

·     Materials; chemical stocks dropped mid-afternoon after BASF  cut its full-year outlook in response to global trade turmoil and weak industrial production/expects full year Ebitda to be as much as 30% lower than the prior year, “mainly because of the trade conflict,” (shares of EMN, HUN, CC, PPG, among those falling in reaction)

·     Industrial & Machinery; CIR confirmed that CR has commenced a revised tender offer to acquire all of the outstanding shares of CIRCOR common stock for $48.00 per share in cash, up from its prior bid of $45 per share; JPMorgan downgraded LII to underweight after 55% relative multiple expansion cycle to cycle on consensus estimates; JCI was upgraded to neutral at JPMorgan

·     Transports; airlines active after Credit Suisse downgraded AAL to underperform from neutral and cut tgt to $30 from $32 citing near-term downside risk to earnings estimates for the carrier, driven by two primary headwinds – while the firm upgraded JBLU to neutral from underperform, saying peak domestic leisure demand has been robust, with JBLU, ALK and LUV all raising 2Q guidance in June; NIO rises a 5th straight day (rising around 34% during this stretch) – note overnight, China car sales rose for the 1st time in a year up 4.9% to 1.8m units in June

·     Aerospace & Defense; BA shares active after Saudi Arabian airline Flyadeal over the weekend canceled a provisional order for up to 50 737 MAX jets, and instead chose to go with an Airbus model, according to reports. This is the second cancellation of a MAX order since the troubled single-aisle plane was grounded world-wide in March; AER said it inked lease agreements for 48 aircraft in Q2, including 4 widebody aircraft and 44 narrow body aircraft; SPR tgt cut to $90 at Cowen as BA’s extended MAX return to service target increases risk of a cut in SPR’s 737 rate from 52/month to 47/month by 2020

 

Technology, Media & Telecom

·     Top tech: AAPL was downgraded to sell at Rosenblatt as believe there is less reward after the recent stock rebound from stock buybacks and stable Q2 guidance while also believe new iPhone sales will be disappointing, iPad sales growth will slow in the second half of 2019, other product sales growth, such as the HomePod, AirPod and iWatch, may not be meaningful to support total revenue growth

·     Semiconductors; DA Davidson cautious on the equipment stocks as they downgraded AMAT, LRCX, ICHR, AEIS (four front-end, cycle driven, names and one back-end, unit driven, name (KLIC), noting the stocks have appreciated significantly YTD while the all-important memory recovery continues to lag expectations and the near term data flow will likely remain negative; AVGO has secured financing and identified cost savings for the acquisition of SYMC in an all-cash deal that could value the company at more than $22B including debt https://bloom.bg/2NDEXpf ; SIMO said it sees Q2 adjusted revenue within 4% below the low-end of its $98M-$107M view (estimates for $103.5M)

·     Media & Telecom movers; Dow component VZ was downgraded to neutral at Citigroup given that rising long-term industry risks and its current valuation premium are likely to limit returns over the next 12-months. For the Telecom sector, firm expects an uneventful C2Q operating performance from the wireless category, while long-term risks are rising for industry pricing and margins given the widening array of possible outcomes for the proposed merger of TMUS/S. In the Canadian Telecom sector, JPMorgan downgraded BCE to Neutral and RCI to Underweight, while lowering TU PT to $49 due to negative unlimited plan impact; GOOGL told CNBC this morning that the NY Post report over the weekend that it is in talks with DISH to create a new U.S. wireless carrier is untrue

·     Networking and equipment; JNPR was downgraded to sell at Citigroup as have picked up recent competitive share gains by ANET and CSCO as sets up for more share loss to Juniper and too lofty 2H expectations; ; NTAP was downgraded to sell at Citigroup pointing to increasing competition and said Q1 numbers should come in line with expectations, but Q2 outlook could show the impact of pressure on margins; FFIV downgraded to sell at Goldman Sachs and cut its tgt to $120 from $165 citing a weaker short-term spending environment and increasing competitive threat

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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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