Market Review: August 06, 2019

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Closing Recap

Tuesday, August 06, 2019





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     U.S. stocks rebound around 1% on the session, as stocks partially recover from their worst session in 2019 amid a bounce in the technology sector. Energy names remain weak as Brent oil fell into bear market territory (20% drop from April highs), while transports rebounded. The last three days have been extremely volatile with talk of additional trade tariffs on China goods sinking stocks Friday, China’s yuan devaluation crushing stocks yesterday (as a clear retaliation to the tariff news), and major averages recouping some losses today after China’s central bank signaled it wouldn’t let the yuan fall much further, steadying stock markets. This certainly doesn’t mean we are out of the woods yet, but it took off near-term trading pressures. With today’s gains, the S&P 500 and NASDAQ snapped their 6-day losing streak ahead of another busy night of earnings, led by Dow component Disney (DIS). Markets also getting a boost today as the recent decline in Treasury yields and dollar pullback from trade uncertainty, which obviously also sunk stocks, has boosted expectations that the Fed could cut rates another 2-tinmes this year (Goldman Sachs said today it now sees three cuts in 2019). The recent trade headlines have completely overshadowed the recent Fed rate cut by 25 bps, in-line payroll data last Friday and non-stop earnings releases over the last 2-weeks.



·     Crude oil prices finish lower, rolling $1.06 or 1.9% to settle at $53.63 per barrel as demand concerns remain given the trade uncertainties; natural gas prices rise nearly 2% to settle at $2.11 mln btu; the move today comes ahead of the weekly API inventory report tonight and the EIA tomorrow morning at 10:30 AM EST. Brent crude falls 87c to settle at $58.94 per barrel – closes in bear mkt territory falling 21% from April highs.

·     Gold prices advanced $7.70, or 0.5% to settle at $1,484.20 an ounce, its 3rd straight daily gain and extended its rally toward fresh six-year highs. Prices have risen over the last month on easing FOMC interest rate expectations and escalating trade policy tensions between China and the U.S., as investors flock to safe haven assets.



·     The U.S. dollar was modestly higher, as the dollar index (DXY) snapped its 3-day losing streak as it rebounded against safe-haven currencies (franc and yen) after investors flocked to them the last few days given the stock market swoon on trade uncertainties. The euro was little changed back at the 1.12 level late day (off 2-year lows last week), while the buck recovered from overnight low of 105.52 against the Japanese yen, levels last seen in early January. The People’s Bank of China fixed the yuan under the key 7.00 mark overnight, helping prompt a risk-on equity rally, and firmer Treasury yields, both supportive of the pairing.


Bond Market

·     Treasury yields bounced off yesterday near 3-year lows (10-year actually touched overnight low of 1.67% before recovering), with the 10-year yield at 1.73% late day, up 2 bps (a long cry from last November’s high above 3.25% and last week’s 2.06% levels). A flight to safety given trade concerns between China/U.S. pushed yields lower yesterday, which followed a recent decline after the FOMC cut rates last week and central bank are easing around the globe. The U.S. Treasury sold $38B in in 3-year notes at a yield of 1.562% vs. the 1.563% when issued presale with a bid-to-cover (demand) at 2.41 vs. 2.39 prior and indirects bidders awarded 46.7% of the auction and directs 19.3%.






WTI Crude















10-Year Note





Sector News Breakdown


·     Consumer Staples; DF shares drop over 30% after Q2 EPS loss of (36c) worse than the (13c) loss estimate while sales of $1.84B missed the $1.88B est/saw volume pressure due to an accelerated decline in the conventional white milk category and higher dairy commodity inflation in Q2; IFF shares slip as the company lowered 2019 EPS to $4.85-$5.05 on revenue of $5.15B-$5.25B, down from its previous guidance of $4.90-$5.10 and sales of $5.2B-$5.3B; PRMW shares dropped after in-line Q2 profit but cut its year sales view

·     Restaurants; SHAK posted better-than-expected Q2 results and raised FY revenue forecast prompting at least six analysts to raise their tgt prices/SHAK raises 2019 revenue outlook to $585M-$590M from $576M-$582M and ups comp sales growth outlook to 2% from 1%-2%

·     Housing & Building Products; ENR shares dropped after Q3 EPS of 37c missed the 46c estimate and revs missed while guided year sales $2.48B-$2.50B vs. est. $2.52B; DOOR Q2 EPS and revs fell short of views and lowered its sales and profit outlook

·     Casino & Leisure movers; SEAS 2Q EPS topped the highest analyst estimate of 64c vs. est. 54c and higher Ebitda $149.7M (up 27% YoY); in gaming, CZR reported Q2 results with adj. EBITDAR of $631M, +2% above consensus/Q2 Las Vegas EBITDAR of $389M was +6% ahead; in lodging MAR guides full-year fee revenue to $3.82B-$3.85B from $3.85B-$3.93B prior and also trimmed its RevPAR guidance

·     Autos; Ford (F) was upgraded to overweight at Morgan Stanley and raise PT to $12 from $10 saying they are encouraged by Ford’s restructuring actions, partnerships and more focused product strategy that underpin cash flow and dividends; ADNT Q2 adjusted EBITDA of $205M topped the $191M estimate and reported 3Q net sales of $4.2B slightly better; auto parts maker TEN shares jumped on Q2 beat despite cutting year revs as boosted margin outlook



·     Energy sector cannot get a break – after rising the early part of last week, stocks have come under sharp pressure on renewed slowing global growth fears amid the potential impact of the ongoing China/U.S. trade dispute and mixed earnings results; 52-week lows in the S&P index dominated by energy: HAL, PXD, MRO, APA, COG, CXO, XEC, COP, EOG

·     Oil E&P sector; LONE shares jump as Q2 revenue above expectations top views with a narrower-than-expected EPS loss and boosted production guidance for 2019 to 14,800-15,000 BOE/d from 13,700-14,700 BOE/d/production rose 22% during quarter; WPX raised its FY19 total/oil production guidance midpoints by 5%/4% while maintaining capex guidance/$400MM stock repurchase plan announced/3Q19 oil production guidance that is 9% above consensus and +12% qoq at the midpoint; CDEV Q2 production above expectations (76.12 Mboe/d vs 71.3 mboe/d est) and ups FY production guidance to 68-75 Mboe/d vs 61.5-70.5 Mboe/d previously and consensus estimate 70.8 Mboe/d/FY capex midpoint in line with estimates; HPR in-line quarter and guidance; CLR FY19 oil production guidance increase of 1% and gas increase of 4% while keeping capex locked-in place at $2.6B while Q2 EBITDA below estimates ($845M vs $874M est); XEC posts double-digit EPS miss (by 46c) as Q2 EBITDA below expectations ($330M vs $373M est.) driven by weaker than expected realized gas prices which were partially offset by stronger than expected liquids production/FY19 oil production got bumped higher

·     Utilities & Solar; DUK Q2 earnings and revenue expectations topped estimates and reaffirming its full-year earnings guidance; AEE 7.55M share secondary priced at $74.30; AES a drag on utilities after earnings missed by 2c and narrowed its year outlook; PPL Q2 EPS beat by 2c while revenue of $1.8B missed the $1.85B estimate and reaffirmed year



·     Bank movers; financials were among the top declining sectors on Monday given the surge in treasury prices and plunge in yields; group remains under pressure again as yields only post mild bounce. In consumer finance and lending; GSKY shares plunged after saying it would explore strategic alternatives as it reported adjusted Ebitda for the second quarter that missed the average analyst estimate; MA entered into an agreement to acquire the majority of the Corporate Services businesses of Nets, a leading European PayTech company, for about $3.19B



·     Pharma movers; MNK suspended plans to spin off its specialty generics business, citing increasing uncertainties tied to opioid litigation (also reported quarterly results); ENDP delivered both 2Q revenue and adj EBITDA 1% above consensus but shares fell amid weakness in stocks leveraged to opioid industry on reports of high paying settlement (TEVA, ENDP, MYL, MNK); ZTS trades to record highs after beat and raise quarter; BHC shares slipped early after mixed quarterly results

·     Biotech movers; REGN Q2 EPS beat and revs of $1.93B topped the $1.8B estimate with strong Dupixent sales of $557M (largely in-line with the sales previewed by SNY and Eyelea was also slightly ahead at $1.16B (vs $1.1B est.); NVS ended lower after FDA says Zolgensma BLA had a data manipulation issue

·     Medical equipment and devices; PODD reported exceptionally strong Q2 results and raised guidance for the full year to $700M-$715M, above consensus $684.56M as sales grew 43% and topped consensus by $14M on upside from each of the company’s three business segments; VCEL posted Q2 beat and raised year sales to $112M-$116M from $110M-$114M

·     Healthcare services and providers; Bloomberg reported opioid distributors (ABC, MCK, CAH) have proposed paying $10 billion to settle claims they helped to fuel the U.S. opioid epidemic which pressured shares (while state AG’s countered with $45B offer); in the dental sector, HSIC slipped as Q2 revs were weak on soft dental and technology sales in the quarter/dental sales have slowed in the U.S. and abroad, which the company attributed to factors like seasonal variation; ADUS rises on earnings and Ebitda quarterly beat; hospital sector active after THC, CYH earnings

·     Manage care; Louisiana announced winners of its $8bn Medicaid RFP reprocurement today. The state narrowed the list of MCOs servicing the state from 5 to 4. The largest impact is to incumbent CNC, which wasn’t selected. We estimate this contract contributes 2.7% of its 2020E EPS. ANTM and UNH will continue to serve the state. HUM was selected and will be a new participant in LA; CI was upgraded to outperform at Bernstein


Industrials & Materials

·     Industrial & Machinery; Bill Ackman’s Pershing Square exited positions in UTX; EMR mixed Q2 results as EPS top views on slightly weaker sales of $4.7B (est. $4.8B) and backs year view for EPS but lowers FY19 net sales growth view to ~6% from 7%-8.5%; TDG among top gainers in the S&P early after Q3 EPS handily topped views and raises FY19 adjusted EPS view to $17.93-$18.25 from $16.47-$17.15 on higher revs; DCO a top performer on earnings; ITRI shares to 52-week highs after Q2 EPS beat by 40c on better revs as results were driven by strong customer demand, particularly in our Networked Solutions segment

·     Transports; Dow Transports bounce after falling -3.2% yesterday (was 4th straight down day) with nearly all names moving higher; CAR shares fell as the rental company adjusted EBITDA for Q2 trails analyst expectations slightly ($175M vs. $178M est.) with mixed guidance for the year of $9.20B-$9.50B in revs vs. $9.23B consensus and EPS of $3.35-$4.20 vs. $4.09 consensus; the Baltic Dry Index of commodity shipping costs fell 2.25% to 1,734 points to mark the 11th straight day of posting a drop (BDI is coming off its high point of the year in July and is still up 39% for the year) – shares of DSX, DRYS, SALT, SBLK, SHIP, GNK among those leveraged to data; EXPD shares outperformed in the Transport Index after its Q2 EPS/revenue beat

·     Metals & Materials; a group that has seen heavy selling pressure given the trade tensions between China and the U.S., small bounce today; Jefferies downgraded BHP, RIO, Fortescue, ARCH, CCR, BTU, METC, and HCC all to hold from buy as lowers commodity price forecasts noting Chinese demand for metals has been weak and the escalation of the trade wars is a clear concern (cutting estimates for Aluminum, Copper, Zinc, coking coal, thermal coal and iron ore); LPX shares slipped after Q2results fell short of consensus and margins plunged; Financial Times reported GLNCY to halt production at the world’s largest cobalt mine from the end of this year following a dramatic slump in prices for the key battery metal

·     Chemicals; MOS lowered its year EPS forecast to a range of $1.10-$1.50 from prior outlook of $1.50-$2.00, citing lower-than-expected sales volumes in the first half of 2019 and slow recovery of phosphates margins while EPS of 12c missed the 29c est; CC was downgraded to hold at SunTrust and Argus as well after earnings; IPI another name weak in fertilizer/potash sector (along with MOS) after Q2 adjusted ebitda $14.9M missed the $16.6M est.; DD shares spiked late afternoon after Bloomberg reported said to weight sale of nutrition and biosciences biz worth at least $20B


Technology, Media & Telecom

·     Internet; GOOGL in focus after U.S. President Donald Trump stepped up his accusations against the company claiming without offering evidence that the technology company worked to subvert his 2016 presidential campaign and warning he was watching it "very closely"; SNAP said it plans to offer $1 bln of convertible senior notes; EVER shares jump on smaller Q2 EPS loss (8c) vs. est. (15c) on better revs $55.7M and raises FY19 revenue view to $215M-$219M from $197M-$203M – upgraded at Raymond James

·     Semiconductors; KLAC reported EPS upside to both results and guide as solid exposure to foundry/ logic helps offset a weak memory market (tgt raised to $150 at BofA and UBS); CREE and ON announced the execution of a multi-year agreement where Cree will produce and supply its Wolfspeed® silicon carbide wafers to ON Semiconductor, in deal valued at more than $85M; AMD CEO Lisa Su denied early day market chatter that she was eyeing a role at IBM; LASR 2Q revs beat, at mid-point of guide, but 3Q outlook significantly weaker; XLNX fails to rally with broader semi sector, on track to fall for a 9th straight day now after breaking below its 200-day MA support yesterday at 107.70

·     Software movers; in video games, TTWO posted a big Q1 beat prompting analysts to raise their tgt prices as bookings and implied adjusted profit well above estimates and guidance, citing increased spending in its marquee titles and record sales for its NBA 2K game franchise; EVBG shares fell as 2Q19 results broadly topped expectations, although investors focus on the 2Q19 billings figure that came in 15% below consensus (+2% y/y); GWRE announced co-founder and CEO will transition to role of Chairman/reiterated guidance.

·     Media & Telecom movers; Dow component DIS expected to report earnings tonight; Vivendi announced that it has entered into prelim negotiations with Tencent (TCEHY) for a strategic investment of 10% of the share capital of UMG; DISCA Q2 results topped analysts’ earnings expectations as a result of a one-time tax benefit

·     In optical; NPTN shares jumped after topping expectations on top and bottom lines in its Q2 earnings as revenue grew 0.7% Y/Y and 3% from last quarter and guided next quarter higher to $87M-$93M (above est. $59.6M)


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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