Market Review: July 24, 2019

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Closing Recap

Wednesday, July 24, 2019

Index

Up/Down

%

Last

DJ Industrials

-79.69

0.29%

27,269

S&P 500

14.05

0.47%

3,019

Nasdaq

70.10

0.85%

8,321

Russell 2000

25.50

1.64%

1,580


 

Equity Market Recap

·     U.S. stock averages were mixed again as the Nasdaq Composite trades to new record highs along with the S&P 500, while the Dow Industrial Average declined led behind weakness in Boeing and Caterpillar after weaker quarterly results. Stocks initially wavered as investors sort through weaker economic reports, a mixed bag of Q2 corporate earnings, and the U.S. government’s antitrust focus on Big Tech. FB, AMZN, and GOOGL were among those under fire amid a Department of Justice probe into the tech companies reviewing whether and how the market-leading online platforms have achieved market power. Despite the weakness in big tech (FB ahead of earnings, GOOGL, AMZN), the Nasdaq Composite set new all-time intraday record highs of 8,321, paced by gains the semiconductor chip sector (SOX also traded to record highs), after better earnings/guidance results from TER, TXN and SLAB. Stocks started lower in early trading amid a steep decline from health insurers (after ANTM results) counteracted sharp gains for technology companies, while defensive consumer staples and utilities also underperformed. Metals and mining stocks were also lower (iron ore companies specifically). Transports get a boost on strong results from UPS (shares up over 8%) and strength in airlines. Outside of another earnings barrage tonight/tomorrow, central bank action will be closely watched with the European Central Bank (ECB) meeting tomorrow with expectations for additional easing, helped after the IMF on Tuesday revised its forecasts for global growth lower and the Federal Reserve is seen trimming its policy rate by a quarter percentage point next week. No fear at all in stocks, with the CBOE Volatility index (VIX) falling to the 12 level, down over 4% today.

Treasuries

·     Treasury markets posted modest gains, as the 10-year yield slipped over 3 bps to below 2.05% on weaker economic data, and positioning ahead of tomorrow’s ECB policy meeting (easing expected) and next week’s FOMC meeting (where a rate cut is also expected). Yields pared losses after a week auction as the U.S. Treasury sold $41B in 5-year notes at a yield of 1.824% vs. 1.814% when issued pre-sale with a bid to cover at 2.26 down from 2.35 in prior auction and indirect bidders awarded 53.4% of the auction and directs awarded 13.7%.

 

Commodities

·     Oil prices slide late day, with WTI crude falling 89c or 1.6% to settle at $55.88 per barrel (off earlier highs of $57.64 per barrel) following headlines that Saudi Arabia and Kuwait coordinate to resume oil output. Oil prices did a sharp about face lower after climbing initially on bullish weekly inventory data, with larger than expected weekly drawdowns. August Gold prices end the day up slightly, rising $1.90 to $1,423.60 an ounce (off earlier lows $1,416.70 and down from highs at $1,430), holding steady along with the sideways movement in the dollar.

 

Currencies

·     After logging a third straight day of gains Tuesday, the dollar index (DXY) posted small declines, trading in a narrow range ahead of key central bank meetings that may set the tone for the direction of interest rates going forward. The dollar had fallen to its lowest level in several months at the end of June on dovish commentary from Fed speakers, but has since rallied back to more than 1 month highs as uncertainty in the UK related to Brexit, selling of safe haven assets such as the Japanese yen as stocks surge, and weakness in the euro on expected easing has helped the dollar recover.

 

Economic Data

·     Markit US Manufacturing PMI, July-P 50.0 vs. est. 51.0; Markit US Services PMI, July-P 52.2 vs. est. 51.8 and Markit US Composite PMI, July-P…51.6 vs. 51.5 prior

·     New Home Sales for June rose 7% to 646K up from the prior month but below the est. of up 5.1% to 658K (last month with downward revision to 604K from 626K)

 

 

Macro

Up/Down

Last

WTI Crude

-0.93

55.88

Brent

-0.65

63.18

Gold

1.90

1,423.60

EUR/USD

-0.001

1.1142

JPY/USD

-0.09

108.14

10-Year Note

-0.034

2.046%

 

 

Sector News Breakdown

Consumer

·     Retailers; VFC raises year rev view to 7% from 5%-6% prior after mixed quarter; IRBT shares drop after lowers FY19 EPS view to $2.40-$3.15 from $3.15-$3.40 and cuts FY19 revenue view to $1.2B-$1.25B from $1.28B-$1.31B citing impact of trade wars (China/US); TUP Q2 EPS misses estimates on weaker than expected revs and guided year lower (FY19 non-GAAP EPS $3.45-$3.60, consensus $3.97); UAA trades to 52-week highs after Pivotal Research said modeling 2Q at the high end of guidance, and modest upside seems likely; high end retail a bounce after LVMUY said Q2 organic revs growth 12% vs. est. 10.2% and better 1H profit (CPRI, RL, TPR)

·     Consumer Staples & Restaurants; BYND active after announcing partnership with DNKN to add a new plant-based menu options at Dunkin guests in Manhattan; CMG boosts outlook after strong sales growth in second quarter, as EPS and sales topped consensus and said Q2 comp restaurant sales increased 10.0%, net of 40 bps from loyalty deferral; Tobacco stocks (PM, MO) are on watch after Citi warns that the FDA is "closer" to taking regulatory action as the FDA is also launching its first TV ads to fight teen vaping; KHC pulls back on asset sales as it seeks to fix a broken business, CNBC reported

·     Casino & Leisure movers; in lodging, HLT reported a higher profit and revenue in the latest quarter as the hotel company said it experienced market share gains; in theme parks, SIX reports revenue rose 7% in Q2, primarily driven by a 8% increase in attendance to 10.5M guests and a 14% increase in sponsorship, international agreements and accommodations revenue

 

Energy

·     Inventory data for the week mostly bullish, with much larger drawdowns in crude oil as the EIA said weekly crude stockpiles fell -10.84M barrels (bullish) vs. est. for draw of -4.26M barrels, though gasoline stockpiles fell -22K barrels vs. est. for draw of -1.42M barrels. Overnight, the API said weekly oil stockpiles fell -10.96M barrels in the latest week

·     Stocks movers; RES shares fell as much as 10% to a 9-year low after the company posted disappointing 2Q results; Tullow Oil Plc reduced its 2019 production forecast for the second time in three months as technical glitches in Ghana weighed; earnings in the utility sector from FE, DTE, NEE which was overall lower as defensive assets underperformed

 

Financials

·     Bank movers; DB with weak earnings/trading results pressuring shares early; NTRS shares bounce after Q2 earnings top views though net income flat YoY with NIM expansion; TRMK rises with revenue driven headline beat; in insurance, CB reported a Q2 EPS beat of 4c though a weaker underlying margin and modestly higher catastrophe losses

·     Consumer finance and lending; Dow component Visa (V) solid F3Q19 print that included a top and bottom line beat, EPS guidance raise, and relatively stable QTD trends; DFS closed out Tuesday’s trading session at all-time highs and just set newer highs after earnings results showing stronger revenues and lower provision expense; NAVI shares jumped on earnings

·     Services; CSGP posted better-than-expected 2Q19 results, with record bookings of $59M, up 32% y/y, revenue of $343.8M, up 16% y/y (est. $336.6M), adj. EBITDA of $110.0M (est. $100.7M)/gross increased 165 bps to 79.1%

 

Healthcare

·     Pharma movers; the Senate Finance Committee released its drug pricing legislative proposal (the Prescription Drug Pricing Reduction Act of 2019). Per the Committee, the CBO scored the bill to save $100B, as well as lower Medicare Beneficiaries’ out-of-pocket costs/Premiums by $27B/$5B and lower costs in the Commercial market; ITCI shares pared some of yesterday losses as it provided additional color on the FDA’s decision to cancel the scheduled July 31 Advisory Committee meeting for lumateperone. It appears the cancellation was necessary to provide the FDA additional time to review new information provided by the company relating to non-clinical studies. Management intends to meet with the FDA shortly and provide an update after the meeting; GSK lifted its earnings outlook with strength in the drugmaker’s vaccines and consumer health units offsetting weakness in its pharmaceuticals group; MRK said a mid-stage study results of its experimental HIV-1 therapy show it helped maintain antiviral activity levels in treatment-naive adults similar to its Delstrigo

·     Biotech movers; SGEN 7.14M share Spot Secondary priced at $70.00; JNCE shares jumped following partnership with CELG under which it has in-licensed global rights to JTX-8064, an LILRB2 receptor-targeting monoclonal antibody.

·     Medical equipment and devices; EW rises as Q2 saw a significant acceleration in TAVR growth to 18.2% from 9.8% last quarter amid increased awareness of the benefits after low-risk TAVR clinical trial data in March; BSX mixed quarter with small EPS beat and slight rev miss while 2019 guidance said sales growth: ~7%-8% and non-GAAP EPS: $1.54-1.58 (both unchanged); TMO posted a Q2 beat and 2019 guidance raised but quarterly organic sales growth missed some Street estimates following data center issues; MTD issues a strong sell opinion by Spruce Point

·     Healthcare services and providers; THC said it will pursue a tax-free spinoff of its Conifer business as a separate publicly traded company, completing the separation by the end of 2Q 2021; TDOC shares weak yesterday with SunTrust defending shares today saying ATHM’s new app is not a competitive threat, and certainly not enough to change our view of the growth trajectory over the next few years; HCSG shared fell after Q2 earnings results fell short of the lowest estimates; HMOs slipped after ANTM became the third insurer to report it is paying out a higher percentage of the premiums it takes in to cover patients’ medical claims

 

Industrials & Materials

·     Industrial & Machinery; Dow component CAT shares fell as much as 7% before paring losses as reported a big earnings miss ($2.83 vs. $3.12) on slightly lower than expected revs and said it sees FY19 EPS at lower end of previously guided range and modest sales growth

·     Transports; UPS reported record profit all around with both the top and bottom line results beating consensus with record profit growth in all segments as transformation initiatives led to greater efficiency/revenue was up 3.4% to $18B and operating profit rose 6.3%/also guided full-year EPS of $7.45 to $7.75 vs. $7.45 consensus; in rails, NSC posted a miss on top/bottom line sending shares lower while CNI EPS beat and reaffirmed its forecast; in airlines, DAL 52-week highs after good airlines earnings this quarter

·     Aerospace & Defense; BA reported an unexpected loss for Q2 of ($5.82) vs. est. up $1.98 (as analysts did not adjust numbers on 737 Max issues) with revs $15.75B, -35% YoY and below the $20.45B estimate/Q2 negative operating cash flow $600 million vs. profit $4.68B YoY; GD with an EPS and revenue beat and raises FY19 EPS view to $11.85-$11.90 from $11.60-$11.70and revs view to $39.2B from $38.5B (est. $38.7B), while reports total backlog at end of Q2 of $67.7B; NOC boosted its adjusted EPS view for the year to $19.30-$19.55 from $18.90-$19.30, after posting a Q2 EPS and sales beat

·     Metals & Mining; FCX swung to a Q2 EPS loss from year ago profit due to reduced output from its Indonesia but slightly topped estimates as Q2 revenue fell 31% Y/Y to $3.55B from $5.17B a year ago but matched consensus/Q2 consolidated copper sales fell 18% Y/Y to 807M lbs. while gold sales sank 72% to 189K oz.; shares in top iron ore producers RIO, BHP, dipped after VALE said it would resume operations at one of its major mining complexes Vargem Grande, which will add to the supply of Brazilian blended fines, which is among the best-selling medium grade ores in the Chinese market

 

Technology, Media & Telecom

·     Internet; sector a focus today with shares of AMZN, GOOGL, FB among those active after the DOJ announced that the Department’s Antitrust Division is reviewing whether and how market-leading online platforms have achieved market power and are engaging in practices that have reduced competition, stifled innovation – Treasury Secretary Mnuchin said he supports the broad tech Justice Department investigation: "I think if you look at Amazon, although there are certain benefits to it, it destroyed the retail industry across the United States so there’s no question they’ve limited competition; SNAP shares surged after smaller EPS loss, better guidance and strong DAUs as Q2 Daily Active Users increased 8% YoY to 203M and vs. est. 197.1M; FB will pay $100 million to resolve U.S. SEC claims that the social networking giant misled investors about the misuse of account holders’ data in the Cambridge data story; WIX posts higher-than-expected Q2 profit, raises FY19 rev forecast on solid sales growth from a host of new products

·     Semiconductors; Philly semi index (SOX) trades to all-time highs after strong earnings in the sector 9traded above 1,616); TER posted a solid 2Q beat, with revenue and EPS above guidance and well above the consensus estimates, with upside led by semiconductor test demand, while industrial automation (robots) grew less than anticipated; TXN posted a 2Q beat, while 3Q guidance was mixed which indicates revenues continue to contract further (-11% y/y vs. -9% y/y in 2Q); SLAB also helping semiconductors after beat and raise

·     Software movers; MANH rises after beating Q2 estimates with a 9% Y/Y revenue growth and also guided an upside FY19 with revenue of $598-604M (consensus: $588.50M) and EPS of $1.46-1.50 (consensus: $1.44); AKAM downgraded at Guggenheim on valuation; CALX shares fell as expects current-quarter adj EPS in the range of 2c-6c below the 10c estimate

·     Media & Telecom movers; AT reports in-line Q2 results and raises its FY FCF outlook to around $28B while reiterates the rest of its FY view with low single-digit EPS growth and a dividend payout ratio in the 50% range/said DirecTV Now shed 168K subscribers in the quarter and Q2 wireless postpaid net adds were down 154K versus the -40,250 consensus estimate; TTD downgraded to neutral at Citigroup (but raise tgt to $250 from $205) noting shares are up 114% YTD, up 159% over the last 52-weeks, and up by more than 1,250% since its IPO in 3Q16; LGF upgraded to buy at Goldman Sachs as sees four potential catalysts for the multiple to re-rate higher including the expectation of television revenue and segment profit to trend upward in FY20 and market undervaluing Starz

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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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