Market Review: July 29, 2019

Auto PostDaily Market Report

Closing Recap

Monday, July 29, 2019

Index

Up/Down

%

Last

DJ Industrials

28.96

0.11%

27,221

S&P 500

-4.89

0.16%

3,020

Nasdaq

-36.88

0.44%

8,293

Russell 2000

-9.94

0.63%

1,569


 

Equity Market Recap

·     U.S. stocks were mixed, lacking volatility as investors remained on the sidelines ahead of what should be an action/news packed week with several potential market moving catalysts including trade meetings resuming in Shanghai between US/China trade reps, a two-day FOMC meeting starting tomorrow (that should see a 25 bps cut but may deliver a 50-bps cut), monthly payroll data on Friday and nearly another 1/3 of S&P companies reporting earnings over the next few days including Apple tomorrow night. The Healthcare sector outperformed following a few big deals announced today, and ahead of big earnings (MRK, LLY). Tech was mixed as strength in the semiconductor sector was overshadowed by profit taking in software and Internet stocks. Energy was a drag on the S&P 500 despite oil closing higher for a 3rd straight session. President Trump was on the attack again vs. Fed Chairman Powell and company saying in several tweets this morning that “the Fed has made all of the wrong moves. A small rate cut is not enough, but we will win anyway!” The commentary comes ahead of the 2-day FOMC policy meeting this week (results Wednesday) where a 25-bps cut is factored into markets, but a 50-bps cut still remains a possibility. Last Thursday, the ECB held its key interest rate steady last Thursday, but it made clear that more stimulus is on the way.

 

Commodities

·     Oil prices revered off earlier lows, as WTI crude rose 67c or 1.2% to settle at $56.87 per barrel – its 3rd straight gain and ended near the highs of the day (and off the lows $55.81 earlier). Headlines were quiet in the energy sector with commodities closely watching the currency markets ahead of the FOMC meeting tomorrow and Wednesday. Natural gas prices fell to 52-week lows, dropping below $2.12 mln Btu’s on milder temperatures. Hopes of interest rate cuts and trade talks this week between the US/China helped sentiment. Gold prices inched higher, rising $1.10 to settle at $1,420.40 an ounce, trading in a narrow range most of the day ahead of the 2-day FOMC policy meeting where a rate cut is anticipated, but investors will closely watch language on its guidance for the rest of the year. Gold has enjoyed strong gains over the last few weeks on the back of a dim outlook for the health of the global economy and the prospect of lower rates globally.

 

Currencies & Treasuries

·     The U.S. dollar held near two-month highs ahead of the key FOMC interest meeting this week (30/31st) where a 25 bps cut is a certainty at this point but some market participants are not ruling out the possibility of a 50-bps cut. The British Pound plunged to fresh 29-month lows as Britain’s new Prime Minister Johnson and former Brexit chief, Dominic Raab, told the European Union it needed to change its "stubborn" position to avoid a no-deal crunch in October. Losses in the U.K. pound and the New Zealand and Australian dollars bolstered the greenback Monday along with tweets from U.S. President Donald Trump in which he attacked the Fed before a likely rate cut this week. The dollar moved back near 3-week highs vs. the yen at 108.90 – hasn’t been above the 109 level since late May (YTD high 112.40 in late April). Treasury market’s rally as yields inch slightly lower into the Fed in what was quiet trading (10-year 2.04%).

 

 

Macro

Up/Down

Last

WTI Crude

0.67

56.87

Brent

0.25

63.71

Gold

1.10

1,420.40

EUR/USD

0.0014

1.1142

JPY/USD

0.11

108.80

10-Year Note

-0.021

2.049%

 

 

Sector News Breakdown

Consumer

·     Autos; group has had a rough ride over the last week, not helped today after CTB becomes the second tire maker to disappoint (GT on Friday) after its Q2 profit missed the lowest estimates saying its int’l segment was challenged by the ongoing decline within the new vehicle market in China and a weak replacement tire market in Europe and no longer expects full year unit volume growth compared to 2018 and an operating margin of around 5.9%; THRM downgraded to hold at Argus after weaker Q2 results and lower sales outlook; LYFT shares slipped after reports its COO McNeil is leaving the company

·     Consumer Staples; the hottest IPO of the year, BYND, is expected to report earnings after the close tonight (IPO priced at $25 on May 1st and traded to highs of around $240 last week – has roughly 46% short interest of float coming into today); in cosmetics, ULTA shares fell on news that Kylie Jenner sales fell 14%

·     Restaurants; CMG tgt was raised to $1,000 at Goldman Sachs saying with food safety concerns behind them they believe management will now be able to shift focus towards innovation and reinvigorating; Goldman also initiated other restaurants (buys on: CMG, MCD, SBUX, SHAK, WING and sells on JACK and WEN); SBUX downgraded at JPMorgan saying after reporting a 7% US comp, firm sees comps going back to the 3-4% range with ticket being driven by modest price as well as Nitro which will complete its US company store rollout by the end of September 2019

·     Housing & Building Products; MHK was downgraded to underperform at Wells Fargo saying weaker-than-expected markets would drive production curtailments and inventory corrections, putting additional downside risk to second-half EPS and margins

·     Services; NSP shares falling from all-time highs after in-line Q2 results and narrows year EPS views – said net gains in clients were lower than expected due to less hiring of full-time/seasonal

 

Energy

·     Energy stocks remain better for sale, with big declines in the service sector (HAL, SLB) as well as names leveraged to natural gas as prices hit 3-year lows below $2.12 mln btu on milder temperature outlooks (EQT, CHK, SWN, RRC); equipment name OIS falls after posting a larger than expected Q2 loss amid a 7% YoY decline in revenues; earnings tonight from NOV and COP tomorrow in the large cape energy space; CLB shares fell as much as 10% following a Q2 sales miss last week (7/24) and softer guidance outlook for Q3 revs as well (171M-175M vs. 179M est.)

·     Utilities & Solar; utilities quiet all day – little changed along with small decline in Treasury yields today – the UTY currently at its 50-day MA 766.50; PEG was downgraded to neutral from buy at Citigroup on PJM weakness saying while utility valuation has increased to reflect the ‘safety premium’ in utility valuation, has reduced to reflect the lower PJM forward curves.

 

Financials

·     In bank research, CFG was upgraded to buy at Argus noting strong revenue growth in recent quarters, reflecting record gains in capital markets, mortgage banking, trust and investment services, and credit card businesses; SMBK was downgraded at Raymond James on valuation, while the firm upgraded TBNK to market perform after earnings; FHB was downgraded to underweight at JPMorgan citing a steep premium and sluggish bottom line growth which limits upside

·     Insurance; AFL was to outperform at Raymond James saying while the company’s 2Q19 results were ahead of target and suggest positive earnings momentum, the near-term sales outlook in Japan will be challenged as one of its strategic partners works through compliance issues; MCY shares slipped as Q2 operating EPS of 74c missed the $1.03 estimate

·     Consumer finance and lending; PYPL was downgraded to sell at Guggenheim as sees meaningful headwinds including the eBay separation, Brexit – which is expected to constrain growth in the PYPL’s revenue and cause earnings growth to slow materially from current levels; GDOT positive mention at SunTrust saying Friday’s Green Dot Unlimited card launch is a positive; ONDK shares fell as Q2 EPS of 9c missed by 3c on in-line revs of $110.2M, though Q3 and year revs falls short of views (Q3 revs $108M-$112M vs. est. $112.3M and FY19 revs $438M-$448M vs. est. $449M)/also pursuing a bank charter, enabling it to provide small business customers a wider range of products, while improving its financial profile/and JPM no longer intends to originate new small business loans through the company’s platform

 

Healthcare

·     Pharma movers; big news in the generic/specialty pharma space as PFE to separate its "Upjohn" off-patent drugs business and merge it with MYL as Pfizer shareholders would own 57% of the combined new company and Mylan shareholders would own 43% https://on.mktw.net/2YpzZk5 . Separately, PFE and MYL each reported better than expected quarterly earnings today as well; MRK positive results from a Phase 3 clinical trial, KEYNOTE-522, evaluating Keytruda (pembrolizumab), combined with chemo, compared to placebo + chemo; TEVA enters into deal with Iontas Limited to bolster its optimization of human antibodies for use as biotherapeutics; ALKS rises as announces settlement with Amneal over VIVITROL patent dispute

·     Biotech movers; GILD was upgraded to Top Pick at RBC Capital given high conviction that with new leadership and many overhangs out of the way, shares will begin to better reflect the value of future cash flows from their marketed products and pipeline, which we believe is worth $91; LXRX shares tanked after SNY terminated its partnership with LXRX to develop an oral diabetes drug/prior deal was signed in 2015 for the development of Zynquista as an add-on drug; KIN announced positive results for KIND-016 in its pilot effectiveness study of its IL-31 monoclonal antibody treatment of atopic dermatitis in dogs; GLPG downgraded at Jefferies; NKTR dropped over 5% – recall last week, announced that it has received a notice from the FDA that product-specific ad coms are being postponed, including the ‘181 ad com previously scheduled for Aug 21. The review will continue, however the FDA noted it may not meet the Aug 29 PDUFA date

·     Medical equipment and devices; diagnostic stocks active given a tie-up in the sector as EXAS acquired GHDX in a $2.8B deal, with EXAS holders to receive $72 per share in cash and stock, which is expected to generate revenue of ~$1.6B and gross profit of ~$1.2B in 2020 https://on.mktw.net/2Ka8xxB . Separately, GHDX reported qtrly results and lifted its FY profit and revenue outlook (shares of GH, MYGN, NTRA, NSTG, VCYT were among movers); NVCR upgraded to buy at SunTrust saying enhanced model includes prob-adj sales for indications in Phase 3, and still includes some areas of potential conservatism; MYGN was downgraded to hold from strong buy at Needham saying revenue growth in F20 will be a challenge given flat Hereditary Cancer Testing revs, leaving GeneSight & Prenatal as the main drivers of NT rev growth, but expanded payor coverage remains uncertain

 

Industrials & Materials

·     Industrial & Machinery; EMR said trailing three-month orders were flat with underlying orders up 2%, excluding a 2% unfavorable currency impact. June underlying orders growth was below the 5%-7% expected range prior; PH agreed to acquire Exotic Metals Forming Company, a company that makes specialty parts used in the aerospace industry for $1.73B

·     Aircrafts & Parts; MOG was downgraded at SunTrust saying the disclosure of operational challenges within the co’s aircraft control segment (45% of total revs) and the resulting margin head winds came as a complete surprise; BAH rises as Q1 revenue, profit above Street estimates, driven by strength in client demand

·     Transports; airlines AAL, SAVE, HA, ALK all downgraded to neutral from outperform at Macquarie as part of a broader industry note, saying the competitive environment for these airlines should become choppy in the fall of 2019 and in 2020 as LUV attempts to win back market share; also in airlines, RYAAY posted a 21% drop in quarterly profit but kept its full-year profit target of €750M to €950M in place; UPS was downgraded to hold at Stifel on valuation

·     Chemicals; DOW downgraded by two analysts as Citigroup cut to neutral citing weakness in all three of Dow’s major supply chains (ethylene markets, siloxanes and urethanes), while Susquehanna also downgraded; EMN was downgraded to neutral at JPMorgan and cut its tgt to $80 from $88

 

Technology, Media & Telecom

·     Internet; GRUB rises after European food delivery companies Takeaway.com and Just Eats announce they’re in the "advanced stages" of a $10B merger; Reuters reported AMZN is planning a foray into online food delivery business in India this year, working with local partner Catamaran, and has begun hiring staff for the new operation; NFLX invests more than $520M to make 3-big budget films – spends $200M for The Rock’s "Red Notice and $173M or more on Scorsese "The Irishman" – DJ reported

·     Semiconductors; NXPI upgraded to outperform at Evercore/ISI and up tgt to $125 from $110 saying Q2 results to likely be good enough for investors given current demand backdrop, a strong self-help story and solid pipeline of its automotive design; TSEM Q2 beats, in-line guidance, and a capacity expansion plan

·     Software movers; OKTA, NOW, WDAY shares pressured early following Barron’s cautious this weekend saying analysts are starting to see bubbles in cloud software companies, warning of earnings disappointments given expectations for annual revenue gains of more than 30%

·     Media & Telecom movers; DIS shares traded to new record highs after another strong weekend at the Box Office for “The Lion King” with movies pushing shares up this year (Aladdin, Avengers End Game, Captain Marvel, Toy Story 4, Lion King the top five box office revs this year – still has Frozen and Star Wars later this year); DISH was downgraded to underweight at Barclay’s with a $31 price target

·     Hardware & Component news; 3D stocks SSYS and DDD shares were weaker initially after Piper said system demand downticked in Q2, and believe DDD and SSYS will likely report results modestly below consensus estimates

_________________________________________________________________

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.

Live Trading

Open an Account

Paper Trading

Register