Market Review: August 02, 2019

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Closing Recap

Friday, August 02, 2019

Index

Up/Down

%

Last

DJ Industrials

-98.14

0.37%

26,485

S&P 500

-21.49

0.73%

2,932

Nasdaq

-107.05

1.32%

8,004

Russell 2000

-17.14

1.11%

1,534


 

Equity Market Recap

·     U.S. stocks decline in a tough week for U.S. stocks that saw the S&P losing streak stretch to five sessions and fall below its 50-day moving average support of 2,927. The last time the Dow Industrial Average was down three consecutive days was right before Christmas, while Treasury prices posted their best weekly return in over a year. Meanwhile in Europe, the FTSE 100 fell -2.3%, the Cac-40 -3.5% and the German Dax dropped -3.1% all ending near the worst levels of the day as the negative trade tensions between the U.S. and China spilled over. The week seemed promising after the Fed delivered on its widely anticipated 25-bps rate cut on Wednesday (despite some hoping for a 50-bps cut), but trade uncertainty between the U.S. and China the last two days erased the enthusiasm. The decline started mid-afternoon on Thursday after President Trump said in a tweet that the U.S. would levy a 10% tariff on $300 billion in Chinese goods starting Sept. 1st after talks this week between trade reps from the U.S. and Chinese counterparts failed. Also overnight, China struck back, pledging to retaliate if the U.S. raised tariffs on an additional $300B of Chinese goods. Treasury yields post their worst week since the 2016 election, oil prices gains 3%, paring some of yesterday’s losses to end the week down 1%, gold prices jumped to 5-year highs and the dollar slipped. The trade news overshadowed a monthly jobs report that was generally in-line with expectations while technology and energy stocks dropped again on earnings. 

Economic Data

·     Jobs report was mostly in-line as the change in Nonfarm Payrolls for July added 164K vs. est. 165K – prior month revised to 193K from 224K, while Private Payrolls for July were 148K vs. est. 165K – prior month revised to 179K from 191K; the unemployment rate was steady at 3.7% vs. est. 3.6% (vs. 3.7% prior) and average Hourly Earnings MoM for July rose 0.3% vs. est. 0.2%

·     Factory Orders for June up 0.6% vs. est. 0.7% (prior month was -0.7%), while Durable Goods Orders, June-F rose 1.9% and 1% ex transportation

·     University of Michigan Sentiment, July-F 98.4 vs. est. 98.5; Expectations index rose to 90.5 vs. 89.3 last month while current economic conditions index fell to 110.7 vs. 111.9 last month.

 

Commodities

·     Oil prices partially recovered from its 8% decline bloodbath yesterday (biggest one day drop in roughly 5-years) as WTI crude gained $1.71 or 3.2% to settle at $55.66 per barrel. Oil prices, prior to yesterday’s rout had risen five straight days prior, but ended the week lower by 1%. President Trump’s plans to implement new tariffs on Chinese goods starting September 1st raises news concerns about a slowing of economic growth. Natural gas prices fall 3.8% to settle at $2.12 mln btu, back down near 3-year lows.

·     Gold futures jumped to end the week, as the most active December contract rose $25.10, or 1.8%, to settle at $1,457.50, a more than six-year high and rising 2.7% for the week. News of Trump’s plan to implement new tariffs on Chinese goods next month worsened tensions between the two nations, lifting safe haven assets the last 2-days. Copper prices fell to a 2-year lows on the London Metal Exchange

 

Currencies

·     The U.S. dollar index (DXY) ends the week little changed, but that doesn’t tell the story as the buck touched a new 2-year high yesterday before its slide. The dollar fell the most against the safe haven Swiss franc and Japanese yen (falls to lowest levels since March of 2018 around the 106.50 level), while the Euro and British Pound bounce off their 2-year lows earlier this week. Economic data this morning was mixed, but trade concerns is what dragged the buck lower. It has been a whirlwind for the greenback surging into the FOMC policy despite expectations of a rate cut, as it is still seen among the strongest of currencies as central banks around the world are starting to ease, looking to devalue its currency for trading benefits.

 

Bond Market

·     Treasury prices remained strong throughout the day as yields post their biggest weekly decline since 2014 according to the Financial Times following the mass rotation into safety the last few days with trade tensions heating up between the U.S. and China with the announcement of new tariffs on additional China goods starting in September. The yield on the benchmark 10-year Treasury fell to its lowest levels since November 2016 (low 1.829%), after trading above the 2.05% level just yesterday, while the shorter term 2-year yield plunged to lows sub 1.70% (recall it hit a post FOMC rate cut high of 1.96% after Powell press conference comments). Yields fell globally as the German benchmark bund hitting a historic record low of -0.5%, while the 30-year fell below 0% for the first time ever. Yields extended their drop as fed fund future expectations jump for additional rate cuts from the FOMC this year on trade uncertainty.

 

 

Macro

Up/Down

Last

WTI Crude

1.71

55.66

Brent

1.39

61.89

Gold

25.10

1,457.50

EUR/USD

0.002

1.111

JPY/USD

-0.83

106.51

10-Year Note

-0.034

1.858%

 

 

Sector News Breakdown

Consumer

·     Retailers; Jefferies noted GIII and SHOO have the most direct incremental exposure to China under their coverage following President Trump announcing a 10% tariff on all remaining goods coming from China starting Sept. 1., but says biggest concern now is this comes right into BTS/Holiday; KSS downgraded to mixed at OTR Global; CENTA shares dropped on lowered guidance following mixed Q2 (EPS miss/revs beat); GPRO slides after downbeat Q2 results, despite promising rebound in 2H; FBHS dropped after cutting guidance

·     Consumer Staples; FIZZ to replace BKS in the S&P SmallCap 600 index on August 7th; in food sector, UNFI, SPTN and SFM were all downgraded at BMO Capital based on view that the outlook for small and regional grocers is becoming increasingly challenging in a rapidly-changing digital food retail landscape; KR was upgraded to neutral from sell at Pivotal Research saying they feel the stock is mispriced; HLF shares dropped after EPS missed lowest estimate and cut its forecast

·     Restaurants; RUTH Q2 company-owned comparable restaurant sales fell 0.5% in Q2, while traffic fell 1.3% and average check grew 0.9%, franchise income slipped 0.8% to $4.42M and average unit weekly sales declined 0.8%; LOCO reported a Q2 comp sales miss of 0.7% vs. est. 1.8% while Q2 EPS and revs were slightly better than estimates; QSR 2Q adj EPS 71c vs est 67c, BK comps +3.6% vs est +2.1%, TH comps +0.5% vs est +0.5%, PLK comps +3%

·     Autos & Leisure movers; in gaming equipment, SGMS shares active after Q1 EPS and revenue well short of consensus; RACE beat Q2 estimates while total shipments growth of 8.4% Y/Y to 2,671 units in Q2 and revenue rose 6.8% on a constant currency basis while reaffirms 2019 views; in auto parts suppliers, AXL shares dropped after lowering its 2019 rev outlook to $6.9B-$7.0B from $7.3B-$7.4B after Q2 EPS/revs missed estimates

 

Energy

·     Energy stocks had been cruising the early part of the week before running into a bulldozer yesterday with oil prices plunging 8% and E&P companies reporting disappointing results which crushed shares. Baker Hughes weekly US rig data showed total U.S. rig count fell -4 to 942 rigs (18-month lows), with oil rigs falling for a 5th week in a row down -6 to 770 , gas rigs up 2 to 171

·     Dow components report earnings; XOM posted slightly better than expected Q2 earnings of 73c vs. est. 66c even as total revenues fell 6% YoY to $69.1B, as higher production helped offset lower prices/Q2 production volume rose 7% Y/Y to 3.91M boe/day, highlighted by an 8% gain in liquids production driven by Permian Basin growth and reduced downtime/Permian production jumped 20 % Q/Q and nearly 90% from the year-ago quarter/cap-ex rose 22% Y/Y to $8.08B, and cash flow fell 23% to $7.22B/Q2 downstream production fell 38% to 451K bbl/day; CVX posted mixed results with EPS easily beating but revenues fell short of consensus, as record quarterly production volumes helped offset the impact of lower oil and gas prices/Q2 total production rose 9.1% Y/Y to 3.08M boe/day from 2.83M boe/day in the year-ago quarter

·     E&P sector; TUSK shares drop after larger than expected Q2 loss and suspending its quarterly dividend and said it is also reducing its FY 2019 capital spending budget to $41M from $80M previously citing oilfield market conditions; EOG EPS above consensus but production guidance that was 1.8% below consensus/reported 2Q19 production that was 1% above consensus; SM EPS beat with no changes to its previously reported 2019 capex and production guidance; GPOR Q2 EPS slight miss but 2Q19 capex was 7.6% above consensus

·     Equipment, services; VAL shares fall after Wells Fargo downgraded as believe VAL’s outlook has more inherent risk going forward with lower EBITDA forecasts, a diminished near to intermediate term FCF picture and the weaker operational and contracting performance; NBL shares outperformed after cutting year cap-ex by $100M and said is still on track to divest $500M-$1B of assets this year

·     Utility and Solar; Utility stocks/sector holds on to strong gains from yesterday as the dividend paying sector continues to benefit from the low interest rate/Treasury yield environment; in solar, good week of earnings overall for the most part, though FSLR reported a miss on both the top and bottom line last night, but shares held strong

 

Financials

·     Consumer finance and lending; SQ shares fall after Q3 guidance fell short of Wall Street’s estimates and said it was selling its food delivery platform Caviar to DoorDash for $410M; WU shares traded to 52-week highs despite weaker earnings and guidance as investors focused on its cost-cutting strategy as announces 10% headcount reduction

·     Services; in real estate, RDFN shares rise after guided Q3 revenue $223M-$233M above consensus $195.58M and Q2 sales beat by $7M; CATM shares rise after earnings as Q2 revenues of $340.8M, effectively flat Y/Y, up 3% on a constant-currency basis, while operating margin increased 264 bps to 7.5% and guides year above views after quarterly beat; NCI agrees to be acquired by Guidehouse, a portfolio company of Veritas Capital for $28 in cash per share

 

Healthcare

·     Biotech & Pharma movers; ACOR shares fell as much as 50% as posted smaller EPS loss but sales of new drug Inbrija disappointed; in cannabis space, ABBV received European Commission approval for its Maviret to shorten treatment duration to eight weeks for chronic hepatitis C and compensated cirrhosis; COHR rallied following better-than-expected Q2 results as sales of its Neulasta biosimilar, UDENYCA were $83.4M, up 125% from Q1; XENT was downgraded at both Guggenheim and Piper as reported Q2 revenue light of estimates, but the big news was management meaningfully reducing revenue guidance for the year

·     In the Cannabis sector; APHA shares surge after better rev results last night as announces 158% increase in adult-use sales and profitable Q4 as net revenue of $128.6M was an increase of 75% from prior quarter and 969% from prior year; CRON agreed to acquire four of Redwood Holding Group LLC’s operating subsidiaries in a cash and stock deal for about $300 million – rest of cannabis space moving higher in sympathy: ACB, CGC, TLRY

·     Medical equipment and devices; busy night of earnings for MedTech; MTD mixed Q2 results as EPS beat/sales just miss and guided next quarter EPS light ($5.65-$5.75 vs. $5.73 expected); ABMD shares downgraded by several analysts after yesterday’s miss and sharp guidance cut; TNDM shares rise as Q2 results far exceeded expectations and raised guidance as the pump market has clearly accelerated according to Piper (raises FY19 revenue view to $350M-$365M from $300M-$315M and also ups gross margin outlook); FLDM drops after Q2 rev miss $28.2M vs. $30.06M and guides Q3 revenue $27M-$30M below consensus $32.71M; CDNA reports Q2 rev beat and upped year guidance to $123M-$125M from $113M-$115M in revenue

 

Industrials & Materials

·     Industrial & Machinery; OSK was downgraded at KeyBanc as think about the deceleration in macro data, a growing view that AWP will be flat-to-down next year, and order and backlog contraction against a tough comp from FY19; in flow control equipment, Credit Suisse upgraded FLS to outperform while downgraded XYL to neutral

·     Transports; logistics company XPO lowered its year revenue outlook to drop 1% or grow 1%, from 3% to 5% growth estimated previously citing the expected impact of lower truckload rates in freight brokerage and unfavorable forex, but shares focused on better Ebitda outlook and Q2 EPS beat; DAL reported July load factor 90%, Capacity rose 3.5%, Traffic rose 5.2%

·     Engineering and Construction; FLR shares tanked as posted Q2 EPS loss with charges ($3.96) on revs $4.1B vs. est. 52c/$4.7B; said it is withdrawing all previously issued earnings per share guidance for 2019; MTZ reported better Q2 top/bottom line on better guidance for Q3/year

·     Metals & Materials; group sliding in general following the renewed trade tensions between the U.S/China on tariff threat; in steel sector, US Steel (X) bet top and bottom line estimates on better Ebitda of $278M (though fell 38% YoY), while Q2 total shipments of flat-rolled steel rose 8.5% YoY to 2.8M tons; gold miners surged yesterday (AUY, GOLD, AEM, KGC) after gold prices spiked on the stock sell-off/dollar roll off highs; GFI said it expects interim earnings have fallen by as much as 15% despite reporting higher gold production; after a strong run that made it one of the best performing commodities of 2019 the price of iron ore is starting to crack. The steelmaking ingredient is set to close the week down by more than 8% (CLF, VALE, RIO)

·     Chemicals; KWR shares dropped after in-line earnings; NWL rises on Q2 EPS beat and better guidance 3Q sales $2.42-2.47B vs est $2.23B, FY EPS $1.50-1.65 vs est $1.51; LYB declines following EPS and revenue miss; CC shares plunge around 20% after Q2 adjusted EPS 72c/$1.4B missed the est. 86c/$1.5B and cuts FY19 EPS view to $2.37-$3.08 (below est. $3.90) citing the weaker financial performance in Q2 and increasing macro-economic uncertainty

 

Technology, Media & Telecom

·     Internet; PINS shares rise on better quarter and raises FY19 revenue view to $1.10B-$1.12B from $1.06M-$1.08B and ups FY19 adjusted EBITDA; GDDY reported Q2’19 results above consensus on bookings, uFCF and revenue/full year revenue guidance was unchanged and in-line with the Street, while the uFCF outlook also remained the same; SVMK upgraded to buy at UBS after better than expected top/bottom line results, and positive momentum in key growth initiatives, namely Enterprise and Teams; ETSY delivered mostly solid Q2 results, with stronger active buyer, active seller, and GMS growth, but softer revenue and adj. EBITDA

·     Hardware & Storage; sector under pressure after NTAP guides Q1 EPS 55c-60c on revs $1.22B-$1.23B well below est. 83c/$1.39B/said now sees year revs down between 5% and 10% year-over-year, below the company’s previously stated full fiscal year 2020 guidance of low-end of the mid-single-digit range (PSTG, HPE, DELL active in reaction); MSI beat and raised full year 2019 EPS guidance to $7.67-7.77 ($7.72 midpoint), up from prior $7.60-7.72 ($7.66 midpoint) and consensus of $7.73.

·     Semiconductors; STX Q4 EPS/revs slightly topped estimates (86c/$2.37B vs. 84c/$2.33B) though revs fell 17% YoY and mixed Q1 guidance as sees Q1 revs in-line $2.42-2.68B (vs. est. $2.53B) and downside EPS of 86c-95c vs. $1.11 est. while adjusted gross margin was 26.8% vs. last year’s 32.4%; OLED Q2 results top forecasts easily and raised FY19 revenue view to $370M-$390M from $345M-$365M; QRVO posted beat and higher guidance, but the semi sector came under pressure amid renewed trade uncertainties between the US/China; BRKS shares dropped over 10% after Q4 revenue misses lowest estimates; IPHI bounce on beat and raise; XLNX fell a 7th straight day of declines after its lower guidance on 7/24 (down 14% over that stretch)

·     Software movers; FTNT a bright spot with shares rising as reported strong Q2 results and slightly increased guidance for FY19/beat on billings by about 4%, product revenue by 5%, total revenue by 2% and operating income by 8%; CLDR shares rose after Carl Icahn reported a 12.62% holding and plans for talks to enhance shareholder value in a new 13D filing; GLUU reported solid Q2’19 results, but FY19 guidance is below consensus due to weakness in WWE Universe and delay of Disney Sorcerer’s Arena; CTSH shares fell after UBS downgraded to neutral; BL shares one of the days top performers after better Q2 results and raised its year outlook

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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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