Market Review: August 01, 2019

Auto PostDaily Market Report

Closing Recap

Thursday, August 01, 2019

Index

Up/Down

%

Last

DJ Industrials

-281.19

1.05%

26,583

S&P 500

-26.52

0.90%

2,953

Nasdaq

-64.30

0.79%

8,111

Russell 2000

-23.83

1.51%

1,550


 

Equity Market Recap

·     It was another wild day on Wall Street, capped by a midday meltdown for U.S. stocks after President Trump said he’ll impose an additional 10% tariff on the remaining $300B of goods and products imported from China as of Sept. 1. The comments shook markets that had recovered all of its prior day FOMC related losses, as the Dow posted an intraday swing of over 600-points, the Nasdaq fell over 200 points from its intraday highs of 8,311 and the benchmark S&P 500 plunged to lows of 2,945 from 3,010, in a broad market pullback. Treasury yields posted their steepest one-day drop since May 2018 as bond market rallies on Trump’s tariff threat on China, while the dollar turned negative after hitting 2-year highs earlier. Oil plunged after U.S. President Donald Trump escalated the trade war with China with a new tariff threat, heightening concerns about an economic slowdown that would be a drag on energy demand. U.S. manufacturing sector grew at its weakest pace in nearly three years in July, as the strains from America’s trade war with China continued. Stocks slid back into the close.

·     Stocks started the slide midday after President Trump tweeted that: “our representatives have just returned from China where they had constructive talks having to do with a future Trade Deal. We thought we had a deal with China three months ago, but sadly, China decided to re-negotiate the deal prior to signing. More recently, China agreed to buy agricultural product from the U.S. in large quantities, but did not do so. Additionally, my friend President Xi said that he would stop the sale of Fentanyl to the United States – this never happened, and many Americans continue to die! Trade talks are continuing, and during the talks the U.S. will start, on September 1st, putting a small additional Tariff of 10% on the remaining 300 Billion Dollars of goods and products coming from China into our Country. This does not include the 250 Billion Dollars already Tariffed at 25%. We look forward to continuing our positive dialogue with China on a comprehensive Trade Deal, and feel that the future between our two countries will be a very bright one!”

·     It certainly feels like Trump is playing the trade uncertainty with China to his advantage as he maintains pressure on the Fed to cut rates further (he wanted a 50-bps cut yesterday while the Fed only delivered a 25-bps cut). Fed Chairman Powell yesterday called the cut “insurance” citing global developments, downside trade tension uncertainties and muted inflation pressures, while left the door open for future cuts – though said “this isn’t the start of a long series of rate cuts – but also said not saying the Fed will only cut once.” With Trump once again escalating tensions with China, in turn sending stocks and the dollar lower, it appears he’s trying to force the hand of the Fed to increase easing (after his comments – Fed fund futures jumped for additional cuts).

·     The midday reversal in stocks to lows and rally in Treasuries pressured interest rate sensitive names that need higher rates (such as banks/financials), while utilities, REITs and other dividend paying sectors advanced. Prior to the selloff, energy stock had led the decline on weak earnings and guidance from RDS/A, CXO and WLL, while financials lagged (the selling in those sectors intensified after the Trump comments as oil crashed 8% and yields slid). Technology stocks were mixed with semi’s erasing earnings related gains on the trade fears with China, while biotech and healthcare held up well along with other interest rate sensitive sectors.

Economic Data

·     Weekly jobless claims rose 8K to 215K mostly in-line with the 214K estimate (prior week revised to 207K from 206K) while continuing claims rose 22K to 1.699M in the week ending July 20 and the 4-week moving average stood at 211.5K

·     ISM Manufacturing PMI for July at 51.2 (lightest number since August of 2016) vs. est. 52.0; New orders rose to 50.8 vs 50.0 while employment fell to 51.7 vs 54.5 and prices paid fell to 45.1 vs 47.9, while Construction Spending MoM for June falls -1.3% vs. est. 0.3%

 

Commodities

·     Oil prices posted their biggest one day losses of 2019, with WTI crude sliding $4.63, or 7.9% to settle at $53.95 per barrel, extending losses after President Trump said he would slap an additional 10% tariff on $300 billion worth of Chinese imports on Sept. 1, raising fears of a further economic slowdown. WTI crude had entered the day with a 5-day win streak, but that was snapped in a big way. Oil prices remain down roughly 19% from its April highs and closed at its lowest levels since mid-June. Prices had been lower before the swoon, weighed down by a 2-year dollar high, no progress between China and US this week, as well as earlier WSJ report for a potential easing of US sanctions on Venezuela.

·     Gold prices settled lower by -$5.40 or 0.4% to $1,432.40 an ounce, but spiked in futures trading, rising up above $1,450 given the drop in stocks and the dollar, with investors rotating into safe haven and defensive assets (alongside gains in Treasuries and spike in the yen vs. USD). It was an extremely volatile session for gold prices, falling as low as $1,412.70 an ounce earlier when the US dollar was setting fresh two-year highs…but as stocks slumped and the dollar followed, demand for safe havens became apparent.

 

Currencies

·     Dollar ends lower – that was quick! After hitting fresh 2-year highs for the dollar index (DXY) earlier in the session at 98.93, the buck plunged the rest of the day, ending lower around the 98.35 level (-0.15%) amid a sharp turn around against the safe-haven Japanese yen (fell -1.25% today alone to 107.40) after Trump announced new tariffs on China good starting September 1st. The AUD/USD tumbles to 7-month lows under 0.6800 after Trump announces more tariffs while Sterling slumps to new two-year low below $1.13 amid no-deal Brexit fears – before paring losses. The dollar rebounded against the Canadian dollar following the 8% plunge in oil prices. The euro recovered off earlier two-year lows of 1.1027.

 

Bond Market

·     Wow! Is the best word to describe today’s volatile action the Treasury markets (actually over the last 24-hours), with Treasury prices soaring and yields plunging! The yield on the 10-year note touched an intraday low of 1.8763%, down over 13 bps (above 2.05% yesterday), while the 2-year yield was even more aggressive, falling as much as 16 bps to a low print of 1.692% (had touched highs of 1.96% briefly yesterday after Powell press conference comments). Investors piled into safe haven assets following Trump’s tariff comments with China, as gold, the yen and bond all saw a spike as stocks plummeted.

 

 

Macro

Up/Down

Last

WTI Crude

-4.63

53.95

Brent

-4.55

60.50

Gold

-5.40

1,432.40

EUR/USD

0.0012

1.1088

JPY/USD

-1.34

107.44

10-Year Note

-0.127

1.886%

 

 

Sector News Breakdown

Consumer

·     Retailers; BOOT shares jumped as Q1 same-store sales rise 9.4%, above analysts est of 6.2% while forecast same-store sales growth of about 6%, up 1% from its prior forecast; FIT shares tanked after cutting its sales outlook on expectations of weak smartwatch sales and lower average selling prices; Wayfair (W) shares reversed earlier gains on better earnings as guidance disappointed, saying it sees direct retail revenue of $2.22B to $2.27B in Q3 vs. $2.29B consensus and an adjusted EBITDA margin of -6.5% to -6% vs. -3.4% consensus; CROX rises after posting a mixed Q2 report, but lifting guidance ahead of expectations (posted higher sales but gross margins fell 170 bps) – guides Q3 revenue of $295M-$305M vs. $278M and boosts year sales; HBI posted slight beat to Q2 earnings/sales with in-line guidance

·     Consumer Staples; BYND 3.25M share secondary priced at $160.00 per share (shares closed at $196.51 yesterday); in food, Kellogg (K) quarterly earnings and sales topped views; SFM Q2 EPS 30c in-line on comps +0.1% vs. est. 1.5%; guides year EPS to 1.05-1.09 from 1.18-1.24 (est. $1.21) and also lowers comp sales view for year to 0% from 1.5%-3% view prior; CLX Q4 revs missed estimates reflecting a negative impact of 3 points from lower volume and 2 points from unfavorable foreign currency exchange rates/said Q4 international sales hit by devaluation of Argentine peso/guides year sales growth ranging from flat to 2%

·     Restaurants; WING Q2 comp store sales soared 12.8% in Q2 to more than double the consensus expectation for a rise of 6.1% but cost of sales increased to 76.1% of total sales during the quarter from 67.5% last year; DIN was downgraded at Raymond James following disappointing 2Q Applebee’s comps and reduced 2H comp expectations.

·     Auto’s; GM Q2 EPS beat handily on in-line revenue while EBIT-adj fell 5.6% in Q2 to $3.0B vs. $2.65B consensus and reaffirmed full year EPS guidance of $6.50-$7.00; auto parts maker DLPH shares slip following a -9% drop in Q2 revenue amid weak demand for its products in North America and Asia Pacific markets while also guides full-year profit and revenue below estimates (cuts FY19 EPS view to $2.65-$2.85 from $3.00-$3.20 – and also lowers rev outlook) though margins were above estimates due to progress on cost cuts. Monthly auto sales: TM said US July auto sales rose 0.2%; NSANY July US auto sales fell -9.1% vs. -15.1% YoY; Pirelli cuts rev growth forecast – similar to recent weak reports/softer guidance from GT and CTB in tire industry

·     Housing & Building Products; RH was upgraded to buy at Bank America after better than expected preliminary 2Q results (both sales & EPS beat) and our view that RH has further upside on stronger product momentum, price hikes and less macro risk then had assumed; ETH reported F4Q results that were below expectations, pressured by weakness in China. But while domestic trends were challenged in the quarter, management indicated results in July have improved.

·     Casino & Leisure movers; lodging stocks weak after HGV lowered its full-year guidance to $2.04-$2.21 from prior $2.61-$2.77 to reflect expected slower contract sales growth and continued pressure on volume per guest from limited inventory availability in key markets/said full-year contract sales are expected to be flat to down 3%, down from the previous estimate of 5% to 8%; on theme parks, KeyBanc said the back half of July was favorable for all three park operators from a weather perspective, most notably for FUN and SIX, with all three now experiencing favorable 3Q19-to-date conditions ahead of weather compares that ease further into August; CHDN shares to record highs after Q2 EPS and revenue topped views

 

Energy

·     Energy stocks were among the worst market performers given the drop in oil prices and disappointing earnings results from RDS and WLL Major oils/equipment; RDS shares dropped as Q2 earnings missed expectations and total revenues fell, as lower oil and gas prices and weaker refining margins outweighed an increase in production/said its Q2 profit on a current cost-of-supplies basis fell 42% Y/Y to $3.03B from $5.23B a year earlier; OXY reported 2Q19 EPS that was 4% above consensus on stronger Oil & Gas earnings, but 2Q19 capex was 1% above consensus; in refiners, MPC, HFC shares jumped early on better results while PBF declined on its 6c earnings miss; RES will replace Control4 Corp. in the S&P SmallCap 600 Index effective prior to the open of trading on August 6; XOM and CVX expected to report Friday morning

·     E&P sector; CXO shares fell after earnings missed analysts’ estimates and lowering its oil production growth guidance for the rest of the year to 22%-26% from 23%-27%; LPI with better Q2 EPS/revs and increasing FY oil production flat compared to FY 2018 vs. previous guidance of a 2% decline and total production rising 14% vs. prior guidance of 11% growth; WLL shares plunged as posted a surprise EPS loss of (28c) vs. expected profit of 30c while cutting its workforce by 33% or 254 positions and expects to incur a one-time charge of ~$8M in Q3; SRCI 2Q19 CFPS was 15% below consensus and 2Q19 production was 5% below consensus/capex was 11% below consensus and reiterated its 2019 production and capex guidance; in nat gas, GPOR, RRC, EQT all giving up recent bounce, falling amid weakness in energy complex and the bearish nat gas data

·     Utilities & Solar; in solar, SPWR shares jumped over 20% overnight as Q2 revenue of $481.9M topped the $451M estimate and boosted the top-end of its rev forecast by $100M to $1.9B-$2.1B and upped its Ebitda guidance to $100-$120M from $90-$110M (follows good results from ENPH yesterday); utilities bounce as Treasury yields sink making dividend paying sectors attractive

 

Financials

·     Insurance; MET rises to 52-week high after better top and bottom line results and stock buyback; PRU shares drop on operating EPS miss ($3.14 vs. est. $3.22) leading to a downgrade at B Riley FBR to neutral citing reduced visibility and a lower outlook for earnings over the next couple of years; LNC a mixed Q2 as EPS missed slightly on slightly better revs

·     REITs; AVB posted disappointing 2Q results that include a 2Q miss, deceleration in same store rental revenue growth of 30 bps vs. the Company’s 2Q operating update through May and unexpected delays in the Company’s development pipeline; CBL reported a 2Q miss and management revised guidance lower by 7.7% at the midpoint; CONE comes in a bit below what seem to be lowered expectations, as $13M of new leasing volume marks the lowest level in nearly 4 years; EQIX solid 2Q19 results that included its 2nd best gross bookings Q and raised 2019 guidance; IRT reported acceleration in y/y same-store revenue growth, driven by the continued earn-in of above-average increases across value-add units and improving occupancy; LSI reported a 2Q beat driven by a better-than-expected same-store performance; MAA reported acceleration in same-store revenue growth in 2Q, which exceeded expectations and increased 2019 FFO guidance by nearly 1% at the midpoint on a 120 bps increase to SSNOI growth; SKT reported a 2Q beat and management raised its FY19 FFO guidance (KeyBanc comments)

 

Healthcare

·     Pharma movers; VNDA shares jumped after Citigroup upgraded to buy as believe the stock price is undervaluing VNDA’s profitable base business (Hetlioz & Fanapt, along with $293M cash), due to very poor investor sentiment related to pipeline agent tradipitant; AVEO shares rose after Kyowa Kirin Co agrees to buy back the non-oncology rights of tivozanib in AVEO territories, which includes the United States and EU

·     Biotech movers; NKTR rises 4% after saying its lead cancer drug bempegaldesleukin in combination with BMY’s Opdivo received FDA breakthrough therapy status for treating melanoma patients; CLVS shares decline on larger quarterly loss and Q2 Rubraca revs $33M misses the $35.4M estimate/sees FY global net product revs $137M-$147M

·     Medical equipment and devices; ABMD plunges as cuts FY20 revenue view to 885M-$925M from $900M-$945M (and below est. $927.1M); Q1 revs of $208M misses the $210.5M est.; CFMS shares drop sharply after guiding for flat revenue growth this year (down from 4% prior) due mainly to denials of coverage from Aetna, adding that the rate of denials has "increased substantially" in the last few months – downgraded at BTIG; MYGN shares spiked over 50% after UNH issued positive coverage decision for Pharmacogenetics Testing for multi-gene panels; HOLX revenue beat consensus by about $3M excluding the divested blood business and the company nicely earned $0.63 vs the consensus $0.61; DXCM 2Q results solidly ahead of an overly conservative Street forecast, with revenue of $336.4M rising 39% YOY and beating consensus by $30M (shares fell after ending yesterday near all-time highs)

·     Healthcare services and providers; Health insurer’s shares CI posted a Q2 profit beat and forecast raise for 2019 to $16.60-$16.90 from $16.25-$16.65; Distributors higher as ABC guides 2019 EPS of $7.00-$7.10, ahead of estimates of $6.85 after a 14c Q3 EPS beat while MCK overnight reported Q1 EPS $3.31 topping the $3.02 est and said it sees 2020 adj. EPS of $14 to $14.60; vs. estimated $14.13

 

Industrials & Materials

·     Industrials; SRCL shares plunge in the waste sector as EPS missed by 27c on better revs and lowered its year rev view to $3.35B-$3.41B from $3.41B-$3.53B prior (est. $3.39B) and EPS below estimates; MYRG plunges as EPS misses lowest estimates; PWR Q2 miss in EPS (included a charge) on revs $2.84B missing the $2.89B est – co raised year rev outlook (to $11.5B-$11.9B from $11.2B-$11.6B) but cut EPS view

·     Chemicals; DD mixed Q2 as EPS beat but revs missed and guided Q3 EPS slightly above estimates; CF Q1 EPS and sales handily topped consensus (Q2 EPS $1.28/$1.5B vs. est. 84c/$1.39B) citing record 1st half and quarterly granular urea sales volume/record quarterly ammonia sales volumes; FOE was downgraded at Buckingham (and KeyBanc) as see declines in European construction demand and global auto builds weighing on company results well into 2020 and believe the stock will remain range-bound until that time; FMC was downgraded at Bank America to neutral as valuation now more adequately reflects its earnings potential

·     Plastics, Paper; Packaging; OI shares fall after a lower-than-expected Q2 profit and revenue, as sales volumes were softer than anticipated due to extreme weather conditions in Europe; cuts 2019 adjusted EPs of $2.40-$2.55 down from prior $3.00 and sees 2019 adjusted free cash flow of at least $260M down from $400M view prior; CLW was downgraded to underperform at RBC Capital saying despite the Q2 beat, risks remain weighted to the downside; WRK shares rise after the company’s guidance (Q4 Ebitda $880M-$925M vs. est. $906M) comes in strong on top of a FQ3 profit beat, though sales fell short

 

Technology, Media & Telecom

·     Internet; SHOP at record highs after topping estimates on both top and bottom lines of Q2 as Merchant solutions revenue rose 56% during the quarter to $209M and subscription solutions revenue grew 38% to $153M/GMV shot up 51% to $13.8B and guides year above views; AMZN shares active on reports CEO Bezos sold over $1.B in AMZN stock over the last few days

·     Semiconductors; after falling -3.2% yesterday on weak outlook in semi land, the Philly semi index (SOX) rebounds amid gains in MPWR on earnings and strength in semi-equipment names despite mixed results/guidance from LRCX; QCOM lone decline in the SOX -2.6% on weaker guidance for Q4 QCOM shares declined on a weaker Q4 sales outlook ($4.3B-$5.1B vs. est. $5.63B); CRUS shares rise as Wedbush noted delivered a nice beat and raise, with 8% and 14% upside to our Jun Q and 14% Sep Q sales estimates, respectively, even as higher GMs and lower opex drove further outperformance down to the bottom line; in equipment, LRCX posted good F4Q results but issued soft F1Q guidance as near-term demand from memory customers remained weak; WDC rises in reaction to possible trough (as per company) as EPS/revs mostly in-line but gross margin and EPS guidance were below Street – WDC said they are “seeing signs of improving conditions in the flash market and believe that it has reached a cyclical trough”; FORM jumps on earnings

·     Software movers; AYX posted strong 2Q results and boosted its full-year revenue guidance (EPS 44c-50c on revs $370M-$375M vs. est. 44c/$362.7M); TWLO shares dropped despite a quarterly beat and raised guidance, though fell short of the highest estimates; CTSH Q2 beat while forecasted Q3 sales $4.23B-$4.27B topping the $4.22B estimate; DT 35.6M share IPO priced at $16.00; PS shares dropped over 30% following a disappointing billings miss (~17 point deceleration in billings – 10% below Raymond James estimate); FIVN shares jump after Q2 results beat estimates, provides Q3 and FY profit forecast above estimates prompting an upgrade to overweight at JPMorgan; BAND better earnings and guidance lifts shares

·     Media & Telecom movers; Dow component VZ Q2 EPS and sub growth beat with total wireless subscribers up by 451K which includes 245K new phone customers (vs. est. 349K); in towers CCI was upgraded to overweight with a $150 Dec 2020 price target and SBAC downgraded to neutral with a $270 Dec 2020 price target at JPMorgan, due to the recent disconnect in relative valuation; Bloomberg reported the FCC is poised to decide that cable providers such as CMCSA and CHTR should assign a value to the channels and data networks, and then reduce fees owed to localities by that amount; RUBI shares jumped after posting smaller-than-expected Q2 loss, revenue beat, helped by market share growth in audio and video, new customer additions

·     Hardware & Component news; TIVO beat revenue expectations in its Q2 earnings report and raised guidance for the full year to $650M-$665M from $644M-$660M; TTMI delivered better than expected Q2 results & Q3 guidance; IBM rises after Morgan Stanley resumed with an OW rating and $170 tgt saying the company is in the later innings of a transformation that will bring back growth and margin expansion; CASA jumps on earnings

_________________________________________________________________

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