Market Review: July 30, 2019

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Closing Recap

Tuesday, July 30, 2019

Index

Up/Down

%

Last

DJ Industrials

-23.00

0.08%

27,198

S&P 500

-7.78

0.26%

3,013

Nasdaq

-19.72

0.24%

8,273

Russell 2000

16.57

1.06%

1,585


 

Equity Market Recap

·     U.S. stocks were in negative territory most of the session, ending the day well off its lows in what was a nice rebound mid-afternoon. Stocks dropped early after President Trump dimmed hopes of a U.S.-China trade deal, while the Fed’s monetary policy-setting team began day one of its two day meeting (a rate cut widely expected tomorrow), and as earnings results were heavy. European stock markets were crushed, as the Europe Stoxx 600 Index fell 1.5%, the FTSE 100 Index slipped 0.5%, and Germany’s DAX Index sank 2.2%. Stocks fell after Trump warned China against waiting out his first term in office to finalize any trade deal, saying if he wins re-election in the November 2020 U.S. presidential contest they will get no agreement or a worse one. The comments come as U.S. delegates including Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer are in Shanghai for another round of talks with their Chinese counterparts. In stock movers, defensive sectors once again paced the gains while energy stocks also helped propel markets higher off lows coupled amid a jump in oil prices (rises a 4th straight day) and several companies earnings reports being well received (BP, NOV, SLCA, FRAC). As for tomorrow’s FOMC meeting, markets are expecting a 25 bps cut, while 50 bps cut is not out of the question at this point…though no rate cut would be a major surprise to markets and likely largely disruptive. The dollar has rallied into the meeting along with gold (up 3-days) and oil (up a 4th day), while Treasury prices have stayed steady the last week. Markets also saw stronger economic data as personal spending and income was in-line with estimates, while pending home sales rose 2.5% MoM and consumer confidence surged to its best level since late last year.

Economic Data

·     Personal Spending and Income were both reported in-line with economist estimates as Personal Income for June rises in-line at 0.4% and Personal Spending for June reported in-line at 0.3%. PCE Deflator MoM for June in-line at 0.1%, PCE Deflator YoY for June rises 1.4% vs. est. 1.5%. PCE Core Deflator MoM for June in-line at 0.2% and PCE Core Deflator YoY for June 1.6% vs. est. 1.7%

·     Pending Home Sales MoM for June rise 2.8% MoM topping the est. 0.5%

·     Consumer Confidence for July surges to 135.7 vs. est. 125.0 (prior reading was 121.5) – highest since November of last year which was a print above 136

 

Commodities

·     Crude oil prices surge into settlement, advancing for a 4th straight session, as WTI crude gains $1.18 or 2% to finish at $58.05 per barrel ahead of tonight inventory data (API and EIA tomorrow) and as markets eagerly await the FOMC interest rate decision tomorrow. Gold prices rise a 3rd straight session, with August gold adding $9.30 or 0.7% to settle at $1,429.70 an ounce ahead of the FOMC meeting. Natural gas prices rise 1% to $2.14 mln btu, bouncing off 3-year lows.

 

Currencies

·     It was a quiet day for the U.S. dollar, ending little changed vs. the yen, euro and Pound as markets eagerly await results of the FOMC rate decision tomorrow. Since moving below the 96 level late June after the last FOMC meeting indicated a dovish view of interest rates going forward (traded to 95.84 on 6/24), the dollar index has risen over 200 bps to highs around 98.20 today about 2% as the Pound has slipped on Brexit concerns and change of power in the UK, while defensive assets have pulled back given the historic rise in stocks (yen falls). The dollar sliding vs. the Canadian buck as oil prices rise further ahead of API inventory report tonight.

 

Bond Market

·     Treasury prices erased earlier gains, pushing yields slightly higher after lackluster trading the last week in anticipation of the FOMC policy meeting results tomorrow. Will the Fed cut rates by the market expected 25-bps, or will they be more aggressive with a 50-bps cut that President Trump has been calling them to do over the last few days to stimulate the economy? Either way, a cut is expected – as rates had been sliding over the last month awaiting such a move. The 10-yr was tight ranged between 2.04%-2.07% before ending around 2.06%.

 

 

Macro

Up/Down

Last

WTI Crude

1.18

58.05

Brent

1.01

64.72

Gold

9.30

1,429.70

EUR/USD

0.0008

1.1153

JPY/USD

-0.19

108.59

10-Year Note

-0.005

2.059%

 

 

Sector News Breakdown

Consumer

·     Retailers; UAA shares fell after saying it expected North America year revenue to decline slightly vs previous view of “relatively flat” revenue growth for the region/2Q revs $1.2B in-line; guides FY revs +3-4% including slight decline N.A; SHOO Q2 eps 47c vs. 43c and comps 6.2% vs. 3.8% and Q2 sales $445M vs. $420.5M; RL Q1 EPS 1.77 vs. est. 1.67; total comps ex: FX 2% vs. 3.2% est/while guides FY revs ex-fx +2-3%, FY op margin ex-fx +40-60bps; ZBRA shares outperformed on EPS beat and in-line revs and stock buyback of up to $1B in shares; in retail auto, KMX shares slipped after Wedbush said based on proprietary sales tracker, KMX used unit comps have remained soft in July trending flattish for the month-to-date

·     Consumer Staples; Dow component PG shares at record highs after reporting Q2 organic sales increased 7% in Q2 to smash the +4% consensus estimate and organic sales were up 10% for the healthcare business during the quarter and 8% for the beauty business/anticipates FY20 all-in sales growth in the range of 3% to 4% and EPS is expected to increase 4% to 9%; BYND shares plunged more than 18% overnight despite a stronger Q2 rev report and upping its guidance for the year as it was pressured after files to sell 3.25M shares of common stock for holder; in tobacco, MO 2Q adj EPS $1.10 vs est $1.11; and sees FY adj EPS $4.15-4.27 and lowered their outlook for cigarette industry volumes for the second time this year, now looking for a 5.0%-6.0% decline.; COTY is looking to unload $500M to $1B in assets as part of a turnaround plan, Women’s Wear Daily reported without specifying which assets; in cosmetics, LRLCY Q2 comp sales 6.8% vs. est. 7.1%; 1H sales EU 14.81B vs. est. EU14.79B (moved shares of EL)

·     Restaurants; TACO shares fall as Q2 earnings in line with consensus and sales came in above expectations but same-store sales missed forecasts (2.2% vs. est. 2.7%); TXRH reported largely in-line quarterly results as comps of 4.7% result exceed industry benchmarks by ~450 bps, slightly better than the 420 bps gap in 1Q19

·     Housing; LEG Q2 sales fell short of consensus and also lowered its year EPS and revenue outlook amid lower volume from business exited in our Furniture Products segment, weak trade demand; RH shares jump after boosting its year EPS to $9.08-$9.52 vs. prior view of $9.10 and raised its revenue forecast; TREX rises on mixed Q2 results (EPS miss/sales beat) but guided Q3 revs above consensus; in builders DHI posted better Q2 EPS/revs but new orders rose 6.4% to 15,588 homes in quarter, slightly below views as avg home prices fell 2% to $296,450; CVCO earnings beat; SSD shares dropped on earnings results; MLM jumps on earnings (lifts VMC shares)

·     Leisure and Gaming; in lodging related space, WYND Q2 EPS handily topped estimates by 9c though revs a little light and boosted year EPS view to $5.38-$5.58 from $5.21-$5.42 while also announced the sale of Wyndham Vacation Rentals to Vacasa for $162 million; in services, CHGG shares jumped after its results and upbeat guidance

 

Energy

·     Energy stocks; strong move in energy stocks after earning; BP Q2 earnings and revenue topped expectations and increasing its cash flow, as higher production offset weaker crude oil prices.; COP boosts cap-ex to $6.3B this year, up from a prior forecast of $6.1B as believes that spending will rise compared with its earlier forecast due to additional exploration work and drilling in Alaska, as well as the addition of a drilling rig in the Eagle Ford production region of Texas; coal stocks active, led by CNX gains after Q2 beat; natural gas leveraged stocks (RRC, GPOR, EQT) rebound after plunging yesterday with nat gas prices reaching new multi-year lows

·     Drillers; E&P and Equipment; FRAC delivered better-than-expected 2Q adjusted gross profit and EBITDA on record pumping hours for the company as a result of strong execution, operational efficiencies and less white space in the frac calendar; SLCA rises after beating Q2 earnings expectations, as overall volumes sold rose 9% Y/Y and 2% Q/Q to 4.9M tons; NOV Q2 revs beat at $2.13B vs. est. $2.09B but posted a nearly $5.4B loss during the quarter; RIG handily beat estimates (guidance) across the board – revs, costs, cash flow, etc. RIG reported adjusted EBITDA of $257M vs. SE/street estimates of $187M/$186M and generated $65M in FCF; NBR results and guidance are better than the expectations that were baked into the stock after weak outlooks from peers PTEN and HP last week

 

Financials

·     Consumer finance and lending; COF shares fell after saying personal info of about 100 mln in the U.S. and 6 mln people in Canada were obtained by a hacker who has been arrested/is expected to cost between $100M-$150M in ’19; MA Q2 EPS of $1.89 beat by 7c on in-line revenue while still sees FY19 GAAP sales growth at high end of low double digits; OMF shares jumped, upgraded at Wedbush after earnings beat and noted a decline in NCO ratio

·     Asset managers/Services; BAC announced they will officially terminate their JV with FISV (First Data/FDC) at the end of June 2020 though they will continue to have a commercial business relationship until at least 2023 with FISV providing services to BAC; BEN Q3 EPS of 48c missed the 62c estimate while AUM fell -1.2% YoY to $715.2B

 

Healthcare

·     Pharma movers; LLY raises FY EPS to $5.67-5.77 vs prior $5.50-5.70, consensus $5.66 and also said its combination therapy including breast cancer treatment Verzenio helped women with certain types of advanced breast cancer live longer in a late-stage trial; MRK 2Q sales $11.8B vs est $10.96B, and guides FY sales $45.2-46.2B above prior $43.9-45.1B; PFE shares fell after being downgraded at Bank America and Morgan Stanley after its deal with MYL yesterday

·     Specialty Pharma/generics; NBIX reported a strong qtr with Ingrezza revenues beating estimates. The strong Ingrezza sale growth is driven by new patient starts in addition to a strong refill rate; MNTA said the FDA grants fast track status to its blood disorder treatment (M281)

·     Medical equipment and devices; VLRX rises in response to positive results from a preclinical study assessing the pharmacokinetics of subcutaneously infused cannabidiol (CBD) administered via the company’s h-Patch wearable drug delivery device; WAT posted a Q2 sales miss of $599M vs. est. $602M with EPS beat while guides Q3 below views and cuts FY19 adjusted EPS view to $8.95-$9.10 from $9.05-$9.25 and 2019 constant-currency sales growth in the range of 1% to 3%, compared to the prior range of 2% to 4%; PKI in-line Q2 EPS on sales miss and backs year

·     Healthcare services and providers; hospital sector (THC, HCA, UHS) and managed care (ANTM, CI, CVS) a key focus today after the Trump administration on Monday proposed a rule requiring hospitals and medical care operators to disclose the reimbursement rates they have negotiated with insurers. According to the proposal, which would cover all the more than 6,000 hospitals that accept Medicare, hospitals that fail to share the discounted prices in an online form could be fined up to $300 a day; HCA plunges on quarterly results; MEDP shares jumped after boosting year revs to $840M-$860M from prior $813M-$837M view with higher net income

 

Industrials & Materials

·     Machinery; CMI falls on Q2 EPS and revenue miss and guides year rev to flat, down from prior growth view of 0%-4% due to reduced truck demand in international markets (PCAR, NAV move in reaction); TEX plunges as cut its adjusted EPS forecast for the full year to $3.40-$3.80 from $3.60-$4.20 and below est. $4.04 after Q2 EPS missed by 14c; AGCO shares rose as much as 5% as Q2 EPS beat though sales missed ($1/82/$2.4B vs. est. $1.59/$2.6B) and said sees another good year in 2020 with more margin improvement

·     Industrial movers; IR posted a Q2 EPS beat and boosted its 2019 guidance to $6.40 from $6.35 after strong growth in the heating, ventilation and air-conditioning market; ETN Q2 EPS beat as sales missed while narrowed its 2019 EPS forecast; AOS posted a Q2 EPS/rev miss citing slowdown in China and channel inventory build,/still see headwinds in appliance market in China and expects FY sales in the country to fall 16%-17% in local currency terms/lowers year eps view to $2.35-$2.41 from $2.69- $2.75

·     Engineering; MDR shares plunged over 30% after it reported weaker-than-expected Q2 operating results and lowered its guidance saying higher operating costs weighed on its bottom line/sees year EPS loss about (32c) on Ebitda about $725M below prior view of about $1.65 and $1.1B; GVA shares plunged after Q2 revs well below consensus Q2 revenue $785M-$790M vs. est. $955.68M and large Q2 EPS loss (2.05-$2.10)

·     Transports; transport index falls over 100 points early, led by a 10% decline in shares of Ryder ($R) after slashing its full-year earnings guidance to $5.50 to $5.80 a share, down from a previous forecast of $6.05 to $6.35 a share amid expectations of weaker market conditions for sales of used vehicles/for Q2 said began to see softening demand heavy-duty tractors in its transactional used vehicle sales and rental product lines

·     Metals & Materials; BERY shares plunge after missing estimates while also said it sold its Seal for Life business to P-E firm Arsenal Capital Partners for $330M; Seal for Life makes sealants and corrosion protection products; in chemicals, LXU shares jump on earnings beat, while potash/nitrogen names rally after NTR quarterly results topped views for earnings and revs, while the company lowered its forecast for the year; in metals, AKS 2Q adjusted Ebitda beat highest estimate; HUN rebounded after initial weakness after profit and revs missed expectations

 

Technology, Media & Telecom

·     Internet; GRUB drops as Q2 eps 27c vs. est. 30c (miss); revs $325.1M vs. $318.7M while narrows year rev view to $1.34B-$1.39B from prior $1.32B-$1.42B (est. $1.37B); SFIX shares fell due to the launch of Amazon’s Personal Shopper by Prime Wardrobe service, a personal styling service for Prime members similar to Stitch Fix’s offering

·     Semiconductors; NXPI Q2 profit below estimates, while revenue was in-line, hurt by a fall in demand for its industrial and automotive segments and guides Q3 revenue flat to 2% higher on a sequential basis, but down 7-10% on an annual basis; IPGP reports mixed Q2 results (rev beat/EPS miss) with downside Q3 guidance revenue of $325-355M (est. $359.34M) and EPS of $1.05-1.35 (est. $1.51); MU was upgraded at Morgan Stanley; Lynx Equity Research said they are hearing "rumblings" that GOOGL is dissatisfied with INTC’s server platform and that field research into the hardware supply chain suggested Google-specific server boards are being made with AMD’s Epyc CPU, which would mark a huge gain for AMD and loss for Intel; AMKR a rebound after quarterly results; sector will be active tomorrow after AAPL earnings tonight

·     Software & Hardware movers; SSNC shares plunge after lowered guidance on deal slippage and weaker market environment as guide 3Q adj revs $1.12-1.15B vs est $1.18B, 3Q adj net $227.5-243.5M vs est $257M; Google Cloud and VMW announce they extend their strategic partnership; VRNS rises on strong 2Q results that saw faster transition to a subscription-driven model and raised its guidance for full-year subscriptions as a percentage of license revenue from 25% to 45%; NTDOY reported a 10% decline in quarterly profit as a rise in costs dulled stronger sales of its Switch console; AAPL reports earnings tonight; other movers on earnings included PI (rises), APPF (shares fell)

·     Media & Telecom movers; RNG shares rise as Q2 results far exceeded expectations and its 2019 guidance above the Street from the 2Q out-performance with implied 2H19 slightly above current Street estimates. Subscription revenue is now projected to grow 30% for FY19 compared to TTM bookings growth of 33.5%; tower stocks a boost behind SBAC earnings; SBGI was downgraded to in-line at Evercore/ISI as carriage renewal discussions between a major pay-TV operator and the 21 FOX regional sports networks being divested by SBGI broke down last week; DISH shares fell as much as 6%

·     Comm Equipment news; GLW shares slipped after lowering FY sales forecast from optical communications unit to be up by a low- to mid-single digit percentage, from earlier forecast of ~10%, citing weakness in the carrier market (Q2 EPS beat); after falling over 10% last night on weak results/guidance, CGNX shares reversed higher; SNE Q2 profits hit another record thanks to image sensor demand, but trimmed a recent full-year revenue forecast as sales begin to slow

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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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