Market Review: July 23, 2019

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Closing Recap

Tuesday, July 23, 2019

Index

Up/Down

%

Last

DJ Industrials

178.31

0.66%

27,350

S&P 500

20.53

0.69%

3,005

Nasdaq

47.27

0.58%

8,251

Russell 2000

10.26

0.66%

1,555


 

Equity Market Recap

·     U.S. stocks got a late day push (and Treasury prices sold off) after a reiteration of an overnight story that U.S. Trade Representative Robert Lighthizer and senior U.S. officials are set to travel to China next Monday for the first high-level, face-to-face trade negotiations since talks broke down in May. The Dow Industrial gains were led by shares of KO, trading to all-time highs after earnings beat, as well as strength in financials (AXP, GS, JPM) and industrials (MMM, CAT). The Nasdaq Comp gains were again paced by semiconductors while the S&P flirted back and forth with the 3,000 level as materials, financials led and utilities lagged. Stocks started the day higher after the White House and congressional leaders said they had struck a debt and budget agreement. The agreement is on a broad outline for $1.37 trillion in agency spending next year and slightly more in fiscal 2021. The news was a welcome relief but not enough to keep stocks higher which focused heavily on earnings results and weaker economic data. Also earlier, the IMF cut its global growth forecasts again, trimming it to a 3.2% pace for 2019, versus the prior 3.3% projection. Boris Johnson was elected Conservative leader — and on Wednesday will be appointed U.K. prime minister. Key earnings tonight from TXN in chips, CMG in restaurants, Dow component Visa, and SNAP in Internet, while tomorrow morning results from Dow components BA, CAT, defense stocks GD, NOC, and UPS in transports. So far, according to Refinitiv, 104 S&P 500 firms have reported Q2 earnings, with 79% having beaten EPS estimates this far (vs. long-term average (since 1994) is 65%). Stocks continue to march higher on trade deal hopes, interest rate cut hopes and a strong start to earnings season.

Economic Data

·     The FHFA Housing Price index rose 0.1%, below last month figure of 0.4% (which was also the estimate). July Existing Home Sales fell to 5.27M annual rate vs. est. -0.4% to 5.32M.

·     Richmond Fed for July unexpectedly fell to -12 (lowest since January of 2013) vs. est. up +5 (prior month +3%) as shipments fell to -13 after 5 the prior month and new order volume slowed to -18 after -2 the prior month

 

Commodities

·     Oil prices rallied into settlement, with WTI crude up 55c or 1% to finish at $56.77 per barrel, while Brent crude rose 57c or 0.9% to settle at $63.83 per barrel ahead of weekly inventory data tonight (API) and tomorrow (EIA). Oil prices also got a boost from news that "the British military has approached its EU allies to discuss a mission of protecting ships traveling through the Strait of Hormuz, and news of face-to-face, U.S.-China trade negotiations next week. August gold falls $5.20 to settle at $1,421.70 an ounce, slipping as the dollar strengthened on the debt deal.

 

Treasuries & Currencies

·     Treasury yields inched higher mid-afternoon, with the 10-year topping the 2.07% level and the shorter-term 2-year topping 1.835% after earlier weakness post soft economic data readings. Existing home sales and Richmond Fed data came in well below consensus, raising expectations the Fed could be more aggressive in their rate cut policy. But prices reversed and yields inched higher as stocks jumped. The U.S. Treasury sold $40B in 2-year notes at a yield of 1.825% compared to 1.823% when issued prior, with a bid-to-cover at 2.50 vs. 2.58 prior auction and indirect bidders awarded 43.5% and 24.9% to direct bidders. The U.S. dollar was broadly higher, rising vs. majors following news of the U.S. debt deal.

 

 

Macro

Up/Down

Last

WTI Crude

0.55

56.77

Brent

0.57

63.83

Gold

-5.20

1,421.70

EUR/USD

-0.0055

1.1154

JPY/USD

0.38

108.25

10-Year Note

0.024

2.07%

 

 

Sector News Breakdown

Consumer

·     Retailers; HAS reports solid growth across the franchise brands business (+14% Y/Y) and partner brands business (+3%) in Q2, while Hasbro Gaming lagged (-8%) as EPS handily topped consensus estimates/emerging brands business saw sales rise 28% during the quarter off strength with the Power Rangers toy line; COLM was upgraded to buy at Bank America citing outlook for the company to generate significant near-term revenue and EPS upside amid a strong wholesale environment for Columbia’s apparel; in auto retail, AN shares surge after Q2 results as revs of $5.34B tops views and posts smaller comp sales loss of (-0.5%) vs. (-3%) estimate, along with new CEO change; SWK jumped in tool space on better earnings

·     Consumer Staples; Dow component KO trades all-time highs as reported Q2 EPS 2c above consensus driven by balanced growth in unit case volume, price/mix and better margins, while guides FY organic revenue to about +5%, from prior view +4% (2Q unit case volume +3% vs. +2% YoY; KMB rises early after Q2 EPS beat by 6c on stronger revenue and raises its year sales view to up 3% from prior (-2%-1%) and ups eps to $6.65-$6.80 from $6.50-$6.70/reports organic sales growth of 5% in Q2; SFM was downgraded to perform at Oppenheimer; LW shares dropped after mixed results and mid-point of Ebitda guidance missing ests ($950M-$970M vs. est. $965M); beer stocks TAP, STZ rose after Cowen citing a Nielsen report, says in the last 4 weeks sales for combined beer (including total beer, cider and FMBs) were above 12-week trends.

·     Housing & Building Products; homebuilder PHM posted Q2 profit above analysts’ estimates, saying it sold homes at higher prices during the quarter (sold 5,589 units in the quarter, down from 5,741 a year ago, but the average home price rose to $430,000 from $427,000); ZG, RDFN shares declined following the AMZN pact, to offer TurnKey, a program that connects potential homebuyers via the Amazon portal to a Realogy agent (RLGY shares jump); WHR shares dropped despite beat on the top/bottom line and raised year guidance

·     Casino & Leisure movers; in products, HOG cut its motorcycle shipments forecast for the full year to 212,000 to 217,000, from prior 217,000 to 222,000 while Q2 adjusted EPS of $1.46 beat by a nickel; PII EPS was 8c better with weather clearly hurting the ORV segment, while the company held the line on guidance (raised the lower-end of 2019 EPS guidance by a nickel)

 

Energy

·     Energy stocks; top movers included DVN which was reinstated a sell at Goldman Sachs citing valuation, while the firm upgraded MUR to buy; BCEI 2Q preliminary estimated sales volumes increased 18% sequentially to approximately 24.4 MBoe/d and Q2 capital expenditures totaled $81.7M; REI announced an amended cap-ex budget for 2019 of approximately $152M; energy earnings season not until next 2-weeks, with sector activity dominated by recent uptick in Iran tensions and tanker seizures and impact of oil prices; SLB received a 20-year subsea equipment and services master contract from CVX awarded a significant integrated Engineering, Procurement, Construction and Installation contract from Neptune Energy for the Seagull project

 

Financials

·     Bank movers; ZION shares tumble, downgraded by at least two analysts after posting lower-than-expected net interest margins, as interest rates dropped (Q2 NIM 3.54% vs 3.68% QoQ and below the 3.67% estimate) while also missed EPS and cut its outlook for FY NII; KEY boosted its provision for credit losses in 2Q to $74M, up 16% year over year and up 19% from 1Q, while Q2 EPS missed by 4c on slightly lighter revs; FITB Q2 provision for loan and lease losses totaled $78M compared to $33M in the year-ago quarter/Q2 NIM of 3.37% rose from 3.28% in Q1 and 3.21% in the year-ago quarter while adjusted EPS beat by a nickel; other movers on earnings, WASH, AMTD, WSFS, FNB; banks have had a rough quarter, with lower NIM, NII and higher provisions

·     Insurance; Dow component TRV declined following its earnings results as core EPS of $2.02 trailed estimate of $2.30 which reflected elevated non-catastrophe weather losses. TRV said core income of $537M increased 9% Y/Y primarily due to lower catastrophe losses and higher net investment income

 

Healthcare

·     Pharma & Service movers; MYOV shares rise after positive results from a second Phase 3 clinical trial, LIBERTY 2, evaluating once-daily relugolix in women with uterine fibroids and heavy menstrual bleeding; MRNS shares plunge as data from mid-stage study in women with postpartum depression showed MRNS drug was as effective as placebo in reducing symptoms after 28 days; CHMA rises on positive results from a Phase 3 clinical trial, OPTIMAL, evaluating Mycapssa (octreotide) for the maintenance treatment of adults with acromegaly; in cannabis, CURLF shares fell following receipt of a Warning Letter from the FDA over its promotion of unapproved cannabidiol-containing products on its website and social media platforms; ITCI shares dropped after news next week’s adcom meeting was cancelled because of new info

·     Healthcare services; in Medicaid, CNC shares volatile after better results/raised guidance; HIIQ shares slipped after Northland lowered estimates as believe HIIQ is aggressively refocusing on the 65+ market post the TogetherHealth deal

·     Biotech movers; BIIB posted Q2 beat, but was helped by tax benefits, while boosted its year EPS and revenue outlook to $31.50-$32.30 from $28-$29 (estimate $29.59) and sees FY revenue $14B-$14.2B from $13.6B-$13.8B (est. $13.95B); IONS shares slumped after BIIB Q2 Spinraza revs of $488M missed the $530M est. (the two co’s market it for spinal muscular atrophy); ACAD shares plunge after its add-on treatment for schizophrenia (Nuplazid) failed to meet the main goal in a late-stage study in patients with schizophrenia who weren’t responding to current medicines; KPTI was upgraded to overweight and tgt hiked to $16 from $8 at JPMorgan saying surveyed physicians say its Xpovio drug has at least moderate effectiveness and manageable side effects for use in patients with a type of blood cancer

·     Medical equipment and devices; VIVE was downgraded by a few analysts following the announcement that the LIBERATE International trial (for stress urinary incontinence-SUI) did not hit its primary endpoint; DGX rises after Q2 revs of $1.95B and EPS of $1.73, beating analysts’ estimates while reaffirms FY forecast; MTD downgraded to sell at UBS on valuation

 

Industrials & Materials

·     Aerospace and defense sector; Dow component UTX Q2 EPS of $2.20 beat by 15c on in-line revenue while boosted its annual profit forecast again (to $7.90-$8.05 up from prior $7.80-$8.00) while narrows FY19 organic revenue growth guidance to 4%-5% from 3%-5% – recall recently announced mega merger with RTN reported strong second-quarter results and boosted their guidance for the year (FY19 EPS view to $20.85-$21.15 from $20.05-$20.35); BA, GD and NOC to report earnings tomorrow morning

·     Industrial & Machinery; PCAR posted Q2 EPS that missed estimates due to lower than expected margins), while sales were better; CR shares active after Q2 EPS topped consensus and adjusted full year 2019 EPS guidance of $6.25-$6.45 remains unchanged

·     Transports; in airlines, JBLU Q2 EPS beat by 2c helping lift airlines stocks in what has been a mixed earnings season thus far for transports (better airlines results (DAL, JBLU), mixed rails (UNP, KSU, CP better with CSX miss) and truckers generally disappoint (KNX, CVTI)

·     Metals & Materials; STLD Q2 earnings missed estimates amid a 10% Y/Y decline in revenues to $2.77B, after a weakening scrap price environment/steel inventory destocking/Q2 operating income for STLD’s steel operations fell 6% Q/Q to $295M; KPLUY said sees Bethune potash production at lower end of target range; in chemicals, SHW shares rose on earnings results along with gains in CE as well; gold miners slipped as the dollar strengthened on the US debt deal

 

Technology, Media & Telecom

·     Internet; big week of earnings for the sector with SNAP tonight, FB tomorrow and AMZN, GOOGL on Thursday night and TWTR Friday; BIDU was downgraded at OTR Global citing spending slowdown; BABA said it will now allow small U.S. businesses to sell on its platform, an attempt to tap into the business-to-business e-commerce market; SNAP another analyst upgrade ahead of upcoming earnings tonight (Stifle raised to buy and $17 tgt)

·     Semiconductors; INTC rises after the WSJ reported AAPL could be within a week of agreeing to a deal to buy its modem-chip business, that values the business at $1 billion or more https://on.mktw.net/2y10zAX ; couple of key earnings tonight for the semi sector, with TXN, TER results tonight with the Philly semi index (SOX) trading to highs of 1,565 today (not far from recent record highs of 1,604 in April)

·     Media & Telecom movers; in advertising, IPG shares weak after Q2 results pointed to soft organic revenue growth in the U.S., with mixed overall results (EPS beat/revs missed); LKSD shares plunged after the $1.4B M&A deal between it and QUAD was terminated

·     Software, Hardware & Component news; AAPL to release three ‘iPhone 11’ models this fall, including A13 chip, new Taptic Engine according to 9to5Mac.com; MAXR announced that NASA will integrate its pollution monitoring payload on an upcoming commercial satellite; CACI on a nearly-five-year contract, worth more than $232M, to provide high-level language training and cultural expertise to an Intelligence Community customer; NOW tgt raised to $345 at Citigroup and $320 at Needham as expect another good qtr tomorrow night, fueled by digital transformation initiatives

_________________________________________________________________

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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