Market Review: July 25, 2019

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Closing Recap

Thursday, July 25, 2019

Index

Up/Down

%

Last

DJ Industrials

-125.03

0.46%

27,145

S&P 500

-15.67

0.52%

3,003

Nasdaq

-82.96

1.00%

8,238

Russell 2000

-18.80

1.20%

1,561


 

Equity Market Recap

·     Stocks slipped on Thursday, as the S&P 500 and Nasdaq Composite pulled back from record setting highs yesterday, while the Dow Industrial Average dropped for a second straight session, led by weakness in Dow component Boeing as airlines (LUV, AAL which also dropped on earnings) talk about impact of Max 737 grounding in their earnings results. The European Central Bank did not act on additional easing measures which markets were anticipating, but certainly opened the door for future rate cuts after ECB President Draghi said significant monetary stimulus was needed and that inflation expectations have declined/pressures remain muted (though he also said a risk of recession in the euro zone was low and policy makers did not discuss cuts at the meeting). The non-rate action and subsequent commentary created volatility in both currency and Treasury markets, while gold prices slipped for its biggest one day drop in about 3-weeks. Today was the unofficial “busiest” day of earnings with over sixty S&P 500 components posting earnings! Autos were among the biggest decliners with declines in Ford and TSLA on missed results, while software names also declined on lower outlooks (PTC, NOW, CTXS). Facebook reported solid results, but shares dipped after a good run higher, while investors await big tech results from AMZN, INTC and GOOGL tonight after the close.

Treasuries

·     Treasury prices slid and yields pushed higher following comments from ECB President Draghi as well as a weak Treasury auction (for a second straight day). The U.S. Treasury sold $35B in 7-year notes at a yield of 1.967% vs. the yield of 1.953% when-issued pre-sale, with a bid-to-cover (demand) at 2.27 vs. 2.44 prior and indirect bidders awarded 59.4% of the auction (weak results with higher yield than pre-sale on softer demand). Treasury market’s erased an early rally, as the yield on the benchmark 10-year rises above 2.09% after touching earlier lows of 2.01%. Mario Draghi left rates unchanged at the ECB meeting, but said a “significant degree” of monetary stimulus is needed and the outlook is “getting worse and worse.” The 2-year yield rose over 4 bps to 1.86% – with the next catalyst next week’s FOMC meeting where a rate cut is expected.

 

Commodities

·     Oil prices end with modest gains, rising 14c to settle at $56.02 per barrel, off earlier highs of $56.99 per barrel, while Brent crude rose 21c to settle at $63.39 per barrel. Gold prices drop -$8.90 or 0.6% to settle at $1,414.70 an ounce, its steepest one day decline in roughly 3-weeks, led lower by surging Treasury yields and a rebound in the dollar after ECB President Draghi and stronger than expected US economic data (Durable Goods and Jobless claims). Commentary by Draghi saying doesn’t see a recession near-term and also surprised markets by not acting today in a form of easing moved markets.

 

Currencies

·     The U.S. dollar was mostly higher, rising against the defensive Japanese yen, British Pound (UK Brexit concerns still remains), and against emerging market currencies. The euro was extremely volatile on the day, falling initially to 2-year lows (June 2017) of 1.1102 against the U.S. dollar, only to later spike as high as 1.188 after Mario Draghi left rates unchanged but said a “significant degree” of monetary stimulus is needed and the outlook is “getting worse and worse.” Meanwhile German business sentiment continued to worsen in July, as the IFO business-climate index fell to 95.7 points in July, down from a revised 97.5 points in June and below the 97 est.

 

Economic Data

·     Weekly Jobless Claims fall 10K to 206K vs. est. 218K; continuing Claims 1.676M vs. est. 1.688M; the 4-week moving avg. at 213k in the week ending July 20

·     Durable Goods Orders, June-P rise 2%, above the est. 0.7%; Durable Goods: Ex Transportation, June-P jumps 1.2% (after 0.5% rise prior) vs. est. 0.2% (Durable goods new orders revised down to -2.3% for May from -1.3%)

 

 

Macro

Up/Down

Last

WTI Crude

0.14

56.02

Brent

0.21

63.39

Gold

-8.90

1,414.70

EUR/USD

-0.0004

1.1135

JPY/USD

0.51

108.69

10-Year Note

0.038

2.081%

 

 

Sector News Breakdown

Consumer

·     Autos; Ford (F) shares slipped after Q2 EPS missed by 2c and guided year EPS $1.20-$1.35 vs. est. $1.39 (below views); TSLA shares dropped over 11% overnight as posted a larger Q2 EPS loss of ($1.12) on lighter revs and cuts year cap-ex to $1.5B-$2B from prior $2B-$2.5B; auto parts retailers weaker after ORLY with a top and bottom line Q2 miss as Q2 comps came in light of ests (+3.4% vs +4.6% consensus) and gross margin (52.8% vs. 52.9% consensus) – watch AZO, AAP; in auto suppliers, VC Q2 miss as eps 28c vs. 37c est on sales $733M vs. $723M/cuts year Ebitda forecast to 230-250M from 245-270M prior; BWA Q2 results were mostly in-line but supplier cut EPS view for year to $3.75-$4.00 from $4.00-$4.35 prior and also cut top end of sales view; THRM another names with a top and bottom line miss; other earnings from MNRO, SAH

·     Consumers/Retailers; ETSY was upgraded to buy at BTIG pointing to Etsy’s free shipping initiative, Reverb acquisition and positive Q2 trends as supportive of more share price gains; DDS shares jumped late morning after Greenlight Capital revealed a new position in Q2 letter; ABEV rises as stronger beer volume with the Brazil business helped the company top estimates

·     Housing & Building Products; in building materials and products, MAS mixed Q2 as EPS 88c vs. 82c est./sales $2.28B vs. $2.33B/raises dividend by 6c to 54c/narrows 2019 View To Adj EPS $2.62-Adj EPS $2.72 from 2.60-2.80; VMC 2Q adj EPS $1.48 vs est $1.47, revs $1.33B, still sees FY EPS continued ops $4.55-5.05 vs est $4.84; in homebuilders, MTH shares jumped after results and upward guidance for the year

·     Casino & Leisure movers; in cruise lines, RCL cut FY adjusted EPS to $9.55-$9.65 from prior $9.65-$9.85 (est. $9.59); in casinos, LVS leads gaming names lower after missing top/bottom line (72c/$3.33B vs. est. 78c/$3.39B); SGMS named as new position by Greenlight Capital in Q2 letter

 

Energy

·     Energy stocks led lower by weakness in equipment names after HP, PTEN results disappoint; HP shares fell as guided to lower activity in FQ4 vs. current consensus and slightly missed on EBITDA this quarter (adjusted EBITDA of $196MM, below consensus of $201MM); PTEN 2Q was in-line, but 3Q commentary suggest “more significant downside” to consensus; FTI rises as reported Q2 adjusted EBITDA of $450MM, well above consensus of $383MM as all three segments posted better than expected results (orders of $11.2B were a record)

·     Other energy movers; NOG reported preliminary better than estimated 2Q production, higher than forecast 2Q organic CAPEX, and higher than expected 2Q oil prices while continuing to add deals and further paying down debt; refiner VLO Q2 earnings was in-line while revenues slip 6% Y/Y, as refining margins fell and higher corn prices cut into profits from ethanol sales; OII shares plunged after posting a wider Q2 EPS loss

·     Utilities & Solar; AEE upgraded to buy at Argus as favor the company’s strong balance sheet, expanding rate base and generally positive relations with regulators, and we continue to expect Ameren to deliver average annual earnings growth; Utilities slide as Treasury yields spike, making dividend paying sector less attractive (NEE, AEP, EIX, PNW); NRG and EXC were active after FERC orders PJM not to hold the August capacity auction

 

Financials

·     Bank movers; HBAN Q1 EPS 33c vs. est. 32c/Q2 net interest income of $1.19B rose 4% Q/Q and 6% Y/Y/net interest margin of 3.31% fell from 3.39% in Q1 and increased from 3.29% in the year-ago quarter; lowers rev outlook; CFR Q2 EPS in-line at $1.72 with provisions for loan losses $6.4M and announces $100M stock buyback; several smaller cap, mid-tier banks with earnings today as well, including: STL, OBNK, ISBC, BANC, BPFHamong them

·     Services; DBD shares jumped after Q2 EPS beat and boosted its FY19 adjusted EBITDA outlook from $380-420M to $400-420M while expects FY19 revenue of $4.5B (up slightly from $4.4-4.5B) compared to the $4.46B consensus; EFX Q2 results topped views but cut its full-year outlook for adjusted earnings

·     Consumer lending and payments; PYPL shares dropped drop 52-week highs yesterday after mixed Q2 results (EPS beat/revs short of consensus) with strong metrics (9M net new active accounts, bringing total active accounts to 286 million accounts, up 17%) but cut its outlook for year revs (shares of SQ weak in reaction); on loan lending, SLM Q2 EPS beat but cut its core EPS outlook sending shares lower; NAVI downgraded by two analysts on valuation after surging yesterday on earnings; TREE shares plunged as EPS missed by 22c though beat on revs, with shares pressured by a miss on mortgage revs which fell -18.4% YoY (co did raise year rev outlook)

·     Asset managers & brokers; AMP with a headline beat for Q2 (revs$3.25B vs. $2.94B est.) though AUM for Q2 fell nearly 3% YoY; RJF AUM for Q2 rose with mostly in-line results, but shares fell; LAZ rises as Q2 beats on earnings and revenue, while asset management falls 12%

·     REITs: ESS Q3 core FFO of $3.33 beat by 7c as SSNOI grew 4.1% and revenue growth was strong at 3.5%, but favorable expense growth of only 1.8% was significantly better than expected (raised SSNOI guidance); ROIC Q2 FFO missed by 2c on lower NOI and higher expenses while mgmt maintained its guidance of $1.11-$1.15 for the year though; GTY Q2 FFO of 47c a 3c beat though only maintained its 2019 FFO/sh guidance of $1.71-$1.75; COR reported disappointing 2Q19 results, but management lowered guidance due to a number of factors

 

Healthcare

·     Pharma; BMY shares initially fell on mixed study results as Part 2 of the CheckMate -227 trial, evaluating Opdivo plus chemotherapy, did not meet the pre-specified primary endpoint, while Part 1 of the study did meet co-primary endpoint (shares rebound as reported Q2 EPS/sales beat on better drug sales and boosted its year EPS view by 10c to top/bottom end); RHHBY raised its outlook for the second time this year on what it said were growing sales of its new drugs, as it reported rising revenues; LLY said the FDA approves its BAQSIMI (glucagon) nasal powder 3 mg for the treatment of severe hypoglycemia (low blood sugar) in people at least four years old; AGN and EDIT Brilliance Phase 1/2 trial of AGN-151587 (EDIT-101) is open for patient enrollment; ANIK surges over 35% after quarterly results and boosted its forecast for yearly revs

·     Healthcare services; Invisalign maker ALGN shares dropped over 20% as Q2 beat but guided Q3 EPS/revs well below views ($1.09-$1.16 on revs $585M-$600M below est. $1.24/$623.65M) and sees FY19 revenue at low end of 20%-30% growth target; CERN mixed Q2 (EPS beat/revs miss) on lower Q3 EPS view (65c-67c vs. 69c) and 2Q bookings $1.43 billion, -19% YoY, though reaffirms year; NXGN shares plunge after FQ1 miss and guidance cut as sees 2019 revs $536M-550M from $543M-559M and lower earnings view; HCAT opens at $37.50, IPO priced at $26.00 per share

·     Biotech movers; NKTR disclosed that it received a General Advice Letter from the FDA regarding its marketing application for mu-opioid pain med NKTR-181; LVGO 12.7M share IPO priced at $28.00

·     MedTech; LNTH shares dropped over 20% early on Q2 miss and guidance cut saying TechneLite sales negatively impacted by multiple molybdenum-99 supplier issues.

 

Industrials & Materials

·     Industrial & Machinery; after plunging last month on weak results and a softer outlook, Dow component MMM reported stronger results this quarter and reaffirmed its adjusted-profit outlook and sees full-year organic local currency sales growth in the range of -1% to +2% (stocks reversed early gains); GGG a miss on top/bottom line (EPS 50c/$428.3M vs. est. 53c/$444.9M) and cuts FY19 view to low single digit organic revenue growth; MTW downgraded to sector perform at RBC Capital and lowers tgt to $20 from $25 after conducting his quarterly crane survey showed a step-down in sentiment and fleet expansion intentions from rental company responders; AXE jumps as sales beat highest estimates and lifts 2019 sales outlook

·     Airlines; discount airlines drop after SAVE quarterly results disappoint warning on rising costs (though headline was a beat), downgraded by two analysts citing the discount airline’s forward guidance; ALGT posted a top/bottom line miss and narrowed its year profit forecast; in major carriers, LUV mixed Q2 (EPS beat/revs miss) as said BA MAX groundings reduced operating income by $175M and would remove the Boeing 737 Max aircraft from its flight schedule through Jan. 5th; AAL Q2 EPS narrow EPS beat on in-line revs of $11.96B while narrows year EPS view and said MAX grounding negatively impacting Q3 pre-tax earnings by $125M

·     Transports; in logistics, ECHO Q2 revs missed and lowers FY19 revenue view to $2.10B-$2.25 from $2.30B-$2.50B; KNX was downgraded at RBC Capital; in shipping, LNG and NVGS both upgraded to outperform at Wells Fargo as LPG carrier supply/demand dynamics continue to tighten after gradually shaking off the sector’s 2013-2015 overbuild, w/ firming day rates, cash flow, and asset values creating compelling value propositions for long haul players

·     Metals & Materials; in packaging, IP reported mixed Q2 as EPS beat by 16c but revs of $5.67B ,missed the $5.77B view/adjusted operating earnings came in at $460M vs. $498M a year ago and free cash flow was $732M; PKG similar results as EPS slightly beat while revs of $1.76B missed the $1.78B view and issued a softer Q3 outlook of $1.91 EPS vs. est. $2.06; gold miners slipped after NEM posts Q2 miss on cost of deals, non-operating mines; steel producer RS shares rallied despite a quarterly miss (steel stocks have generally reported weaker this quarter)

·     Chemicals; Dow component DOW posted a better than forecast Q2 earnings alongside a 14% Y/Y drop in revenues and cutting its full-year capex guidance by $500M, citing global trade and geopolitical uncertainties; AXTA mixed results as EPS beat by 9c on slightly lighter revs of $1.16B while lowered its FY adjusted Ebitda view to 950m-975m from prior 950m-$1B view

 

Technology, Media & Telecom

·     Internet; FB reported a solid 2Q as ad revenues came in ahead of expectations despite a larger FX headwind, with stable user trends and accelerating advertising revenue growth which led to ~2% upside to consensus; huge night of earnings with AMZN and GOOGL after the close

·     Semiconductors; sector coming off record highs the day prior after better TER, SLAB, TXN results and guidance; XLNX Q1 results in-line overnight, but shares slip on lower revenue outlook for Q2 to $800M-$850M vs. est. $853M which reflects the negative impact of the U.S. supplier restriction on Huawei(co excluded Huawei from its outlook, which led to a 4% sales and 12% EPS shortfall vs. consensus); in memory space (MU, WDC, STX), SK Hynix said it will cut its DRAM production capacity from Q4 and convert part of the lines at its M10 FAB to CMOS image sensor mass production lines and also reduce its NAND wafer input by more than 15%, up from its previous plans to cut input 10% compared to last year.

·     Software; sector likely to be under pressure, especially in the SaaS sector after NOW and PTC results; NOW Q2 results beat but 2Q billings growth +31% vs. +34% YoY and sees 3Q non-GAAP subscription billings $857M-$862M vs estimate $878.7M; PTC shares dropped on lower Q4 outlook as sees Q4 EPS 42c-47c on revs $330M-$338M below est. 50c/$340.04M and said Q3 license & subscription bookings $109M, -3.5% YoY; CTXS drops on Q2 miss and softer guidance for Q3 eps $1.15-$1.30 on revs $700M-$720M below the $1.54/$761.7M est.; ASGN shares dropped after earnings was below consensus; ATVI upgraded, EA downgraded at Bank America

·     Comm Equipment; FFIV mixed Q3 as EPS missed by 4c with mixed guidance (EPS short of views and rev mid-point above consensus); NTGR shares soar after Q2 results that beat on most metrics and a new 4.5 million share repurchase authorization (also upside to revenue, margins and EPS); BHE shares fell as weaker Q3 outlook (33c-39c on revs $525M-$555M below est. 38c/$579.9M) overshadowed the Q2 beat

·     Media & Telecom movers; WWE shares rose as Q2 eps 11c vs. 1c est.; Q2 sales $268.9M vs. $270.7M/reaffirms year/Q2 Oibda of $34.6M beats views but guides Q3 Oibda $17M-$22M below $34M est.; CMCSA mixed Q2 as EPS beat and revs slight miss but shares slipped after saying it added 209K Internet subs this year, below last year pace of 224K

_________________________________________________________________

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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