Market Review: July 22, 2019

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Closing Recap

Monday, July 22, 2019

Index

Up/Down

%

Last

DJ Industrials

18.31

0.07%

27,172

S&P 500

8.40

0.28%

2,985

Nasdaq

57.65

0.71%

8,204

Russell 2000

-3.09

0.20%

1,544


 

Equity Market Recap

·     U.S. stocks were mixed, as the Nasdaq Composite outperformed behind gains in the semiconductor space on reports that White House economic adviser Larry Kudlow and Treasury Secretary Steve Mnuchin are to discuss the U.S. ban on sales to China’s Huawei this week and as Goldman Sachs upgraded several names in the sector. Consumer discretionary stocks (retailers), consumer staples (food) and defensive/interest rate sensitive sectors (utilities, Telecom) were among decliners, used as a source of funds. U.S. Treasuries held modest gains to start the week, unwinding some of last Friday selloff as the New York Fed back-tracked on statements from Fed Williams on Thursday about aggressive rate cuts. Oil prices advanced as tensions in the Persian Gulf rise following Iran’s seizure of a British tanker on Friday, while service stocks got a boost from HAL earnings as shares rose 8%. Also helping lift markets, a CNBC report that a U.S. debt ceiling, budget deal is near final that would suspend debt ceiling for two years. While the Fed, China trade and Iran remain key market catalysts, this week will likely be driven by earnings with some 140 names in the S&P 500 expected to report and ten Dow components (roughly a 1/3 of each index), including top tech names AMZN, GOOGL, INTC and FB along with a spike in industrial earnings (BA, LMT, UTX). Markets also await fresh economic data with expectations growing for additional stimulus from central banks as the ECB meets later this week and the FOMC will meet next week (with a 25 bps cut “baked” into the market, and a small outside chance still of a 50 bps cut as per fed fund futures).

 

Commodities

·     Oil prices add to gains, with WTI crude up over 1% to settle at $56.22 per barrel, as the recent advance was sparked by increased tensions in the Persian Gulf as Iran seized a British tanker last Friday. Oil prices bounce off recent one-month lows, having fallen sharply last week. Iran said on Friday that the capture of a British-flagged tanker in the Persian Gulf was in retaliation for the U.K.’s seizure of an Iranian vessel off Gibraltar two weeks earlier. The rising tensions follow Trump’s administration’s imposition of economic sanctions on Iran.

·     Gold prices manage a small 20c gain on the day, closing at $1,426.90 an ounce – while gold miners were higher (gold remains not far from recent 6-year highs), buoyed by macro concerns with Iran and expected dovish commentary/rate moves in the next week from central banks.

 

Currencies & Treasuries

·     The U.S. dollar ended slightly higher vs. most rival currencies, gaining against the Canadian dollar, Japanese yen and British Pound, while little changed vs. the euro ahead of upcoming central bank meetings the next 2-weeks. Treasury prices gained as yields slipped ahead of a busy week of earnings and economic data. Central Banks also in action with the ECB later this week and the FOMC next week in the U.S. The yields on the benchmark 10-year dipped 2 bps to 2.03%, after falling 7 bps last week to 2.05%. The U.S. 2-year yield was down slightly at 1.80% as Fed officials signaled last week of a likely interest rate cut. Expectations this week are for the European Central Bank to likely signal that monetary stimulus is on the way, while the Fed is expected to cut rates by at least 25 bps (some aggressive hopes for 50 bps cut).

 

 

Macro

Up/Down

Last

WTI Crude

0.59

56.22

Brent

0.79

63.26

Gold

0.20

1,426.90

EUR/USD

-0.0005

1.1217

JPY/USD

0.13

107.82

10-Year Note

-0.02

2.034%

 

 

Sector News Breakdown

Consumer

·     Retailers; Barron’s noted retailers have announced plans to shut of 7K stores in the U.S. this year; SFIX was upgraded to buy from hold at Stifel saying they see a compelling opportunity for active client growth with SFIX scaling its U.K. business; CAL was upgraded to positive from neutral at Susquehanna saying nothing has worsened for footwear company its Q1 results, and there is improved allocation of Nike products and a strong athletic footwear business at its brand Famous Footwear; PETS shares fell after Q1 EPS of 26c missed the 46c estimate as sales and gross margins were negatively impacted by increased online competition

·     Consumer Staples; HSY was upgraded to neutral from sell at UBS and raised its tgt to $145 from $100 saying consolidation in U.S. confection has driven better category stewardship; CALM shares fell as Q2 EPS and revenue missed estimates, reports egg sales rose 1.1% Y/Y to 254.772M in Q4 saying the average price decreased 37.3% to $1.062 per dozen and cut its dividend; BYND shares jumped to highs above $200 per share, rising as much as 13%; Dow component and beverage giant KO to report earnings tomorrow morning

·     Boating/marine names fall on data; Raymond James downgraded MBUU, HZO and MCFT to market perform from strong buy citing the persistent softness in demand for new powerboats within the U.S. market, punctuated by the double-digit decline in registrations in June which was reported Friday, with registrations down ~14% for the month and down ~6% year-to-date; BC was downgraded to neutral at JPMorgan cut tgt to Street low $46 from $61 saying the company is heavily exposed to the areas of weakness in aluminum fish boats and outboard engines, expects a fall in 2019 sales of boat and propulsion sales; SunTrust lowered estimates and tgts for BC, HZO, MBUU and MCFT following their summer dealer survey and expect a more cautious tone/tempered guidance from management teams throughout the 2Q reporting season

·     Gaming, Leisure; for LVS, WYNN, MGM, MLCO, Bernstein reduced its July Macau industry gross gaming revenue (GGR) estimate to a range of unchanged to up 2% YoY from up 2%-4% due to a lower hold rate following July Week 3 channel checks/MoM growth estimate is now 6%-8% vs 8%-11% previously

·     Auto movers; Continental AG (CTTAY) cuts outlook saying due to the following factors, Continental’s previous outlook for the 2019 fiscal year issued on May 9, 2019 will no longer be achievable; TSLA was downgraded to neutral from buy at Roth Capital as see risk-reward as well balanced at current levels and believe investors now give credibility to probable demand upside out of China, and Tesla has a viable path for meeting at least the low end of the 360-400k 2019 deliveries guide. This does not eliminate margin risks from rising 2019 battery costs

 

Energy

·     Oil prices rose on Iran tensions again; the International Energy Agency said it is closely monitoring developments in the Strait of Hormuz, including the recent seizure of a UK-flagged oil tanker, and stands ready to act if needed. The IEA considers that the right of free energy transit is critical to the global economy and must be maintained.

·     Oil services for a boost as HAL Q2 profit topped estimates by 5cwhile total revenue fell short of consensus, though revenue from international markets rise more than 12% to $2.60B in the quarter. Revenues for its Completion and Production unit were up 4% sequentially to $3.8 billion and the company was able to improve margins in that segment by cutting cost

·     MLPs and pipelines; CQP and LNG shares were active after Bloomberg reported Blackstone said to weight Cheniere energy partners stake sale — said to be worth about $8.8B; TERP agrees to acquire a distributed generation platform with as much as ~320 MW of capacity in 20 states and D.C. from AltaGas for $720M.

 

Financials

·     Bank movers; BOH Q2 EPS and revenue topped estimates while loan and leases increased to $10.8B at June 30, 2019, up 2.0% QoQ and net interest margin of 3.04% slipped from 3.12% in Q1; CADE 2Q19 EPS came lower than expected mostly driven by an elevated provision resulting from four C&I credits/NPAs also increased 35% LQ; RF was upgraded to outperform at Wedbush and raised tgt to $17 as believe RF is better positioned than most of its peers to handle a lower rate environment given actions to reduce its asset sensitivity

·     Payments & Services; EFX agreed to pay at least $575M, and potentially up to $700M, in a settlement with the FTC, the Consumer Financial Protection Bureau, and 50 U.S. states and territories over the 2017 hack that exposed private information of about 147M. Equifax will pay $300M into a fund that will provide affected consumers with credit monitoring services and compensate customers for out-of-pocket expenses associated with the hack. The company will boost that fund by up to $125M if it proves inadequate; BR tgt raised to $130 at SunTrust as view a compounder with a strong franchise and underappreciated competitive position; STNE was upgraded to outperform at Credit Suisse with a $36 tgt; PAYS shares fell off recent record highs after BTIG downgraded on valuation

·     Exchanges & Brokers; Citigroup downgraded NDAQ to sell as sees risk of slowing non-trading organic growth for Nasdaq and believes the company’s operating margin/expense guidance for 2020 may disappoint, while cut ICE to neutral following rally in shares; SCHW was upgraded to outperform at Wells Fargo and upped tgt to $50 (from $42) as believe SCHW’s business is nearing an inflection point as we expect accelerating growth in several key areas/at the same time, are encouraged by updated guidance from the company

 

Healthcare

·     Pharma movers; MYL estimates cut at Mizuho on anticipated weakness in the U.S. business, and a disappointing generic Advair launch; VNDA said the FDA identified deficiencies in the marketing application seeking expanded approval of co’s drug Hetlioz to treat jet lag disorder; DRRX shares jumped after entering into agreement with GILD which gets exclusive worldwide rights to develop and sell a long-acting injectable HIV product using Durect’s Saber technology; NTEC shares plunge as its drug for treating symptoms of Parkinson’s disease was not shown to be superior to MRK’s in reducing "daily off time", the period in which disease symptoms return; generic/specialty names were very weak early (MNK, TEVA)

·     Biotech movers; ACHN said an early study testing its drug, ACH-5228, in health volunteers outside the United States exceeded expectations – said the study demonstrated that ACH-5228 was generally well tolerated over the dose ranges tested; BHVN said the FDA issued a Complete Response Letter (CRL) for its marketing application for NURTEC (riluzole) for the treatment of amyotrophic lateral sclerosis (ALS); LVGO said it expects its IPO price range was upped to $24-$26 a share from $20-$23 a share; BIIB earnings tomorrow morning

 

Industrials & Materials

·     Industrial & Machinery; LII shares slip after the HVAC company posted Q2 earnings that missed expectations and cut its full-year outlook, citing adverse weather conditions/residential heating and cooling revenue fell 4% to $689M vs. $733M and cuts FY19 adjusted EPS view to $11.30-$11.90 from $12.00-$12.60 and free cash flow view to approximately $390M from $420M; CR reported results of its previously announced cash tender offer to acquire all shares of CIR for $48, which expired at midnight ET on July 19, 2019 saying about 66.77% of all CIRCOR shares issued and outstanding; SNC-Lavalin (SNC) said it will take C$1.9B in charges to exit turnkey contracting and split its resources and infrastructure construction segments into separate businesses/is exploring options for its resource unit, and withdrew its forecast for the year amid the reorganization, saying it expects significantly lower results than previously anticipated.

·     Metals & Materials; BG said it will form a joint venture with BP to create a bioenergy company in Brazil; Kloeckner (KLKNF) cuts 2019 Ebitda guidance EU 140-160M from prior view EU 180-200M (is a steel/metal products co)

·     Chemicals; Nomura downgraded WLK to reduce from neutral and saying despite a healthy Q2 for the U.S.-based ethylene/polyethylene producers, the outlook for the next six-to-nine months is increasingly challenging, while they cut LYB to neutral from buy; RPM Q4 adjusted EPS topped estimates by 10c on in-line revenue of $1.6B, while Ebitda beat $241M vs. est. $226.5M and guidance was mostly in-line for the year; MEOH shares fell after decision on 1.8 mln tonne methanol plant in Geismar, Louisiana costing $1.3B-$1.4B as construction on the plant to begin later this year and operations expected in H2 2022

 

Technology, Media & Telecom

·     Semiconductors; sector among top gainers after reports that White House economic adviser Larry Kudlow and Treasury Secretary Steven Mnuchin to discuss the U.S. ban on sales to China’s Huawei Technologies Co this week. Also helping, positive ratings changes at Goldman Sachs on equipment stocks, raising ratings on LRCX, AMAT and KLAC on belief that meaningful capex cuts and production adjustments from memory chip makers, coupled with recent supply-side disruptions, will result in an improvement in memory supply/demand and drive higher levels of Wafer Fab Equipment spending in 2020 (also upgraded MU, while cut MRVL, KEYS).

·     Internet; NFLX shares down for an 8th straight session, third since earnings results on lower subs, now down over 18% during this losing streak (was trading above $360 prior to earnings); EBAY poaches ex-AMZN/Alexa executive for chief product officer role; busy week of earnings for large cap Internet names: AMZN both Thursday 7/25, while FB is Wednesday 7/24 and SNAP Tuesday 7/23 (follows EBAY and NFLX results last week)

·     Hardware & Component news; AAPL tgt raised to $247 at Morgan Stanley saying low expectations for Sept. quarter suggests a positive setup into earnings and they see multiple catalysts beyond earnings that make Apple a top pick into year-end; BB names SNX a new American distributor which will distributes the BlackBerry Enterprise Mobility Suite

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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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