Market Review: August 09, 2019

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Closing Recap

Friday, August 09, 2019

Index

Up/Down

%

Last

DJ Industrials

-90.75

0.34%

26,288

S&P 500

-19.30

0.66%

2,918

Nasdaq

-80.02

1.00%

7,959

Russell 2000

-19.08

1.25%

1,513


 

Equity Market Recap

·     U.S. stocks end a wild and turbulent week well off their lows of the day and actually finished the week only modestly lower, an incredible feat given more than 3% declines on Monday on escalating trade tensions between the top two global economies. Stocks started the day lower, pressured once again as President Trump said this morning “we are not going to be doing business with Huawei” echoing comments last night when the administration said to be delaying licensing decisions for U.S. companies to restart business with Huawei Technologies. Technology stocks fell the sharpest early, led by semiconductors that do business with Huawei, but stocks took a turn higher midday after Fox News said the White House clarified the President when he says "we’re not doing business with Huawei" says President referring to ONLY the ban on Federal Departments buying from Huawei. White House Official says Commerce Dept Process for special licenses still going forward. That helped ease sentiment and lift markets off the lows (the Dow Industrial Average pushed into positive territory late day after having fallen as much as 286 points earlier to lows of 26,097). The Nasdaq Composite pared its losses and the S&P 500 held its 100-day moving average support around the 2,900 level. European markets ended the week lower, as the Stoxx Europe 600 dropped 0.8%, led by declines in the Italy FTSE MIB Index which plunged 2.5% and Italian bonds slid after Deputy Prime Minister Matteo Salvini called for a snap election. Rough week for stocks globally amid the escalating U.S.-China trade conflict.

·     It has been one of the most volatile week in months, capped by last Friday’s decline after President Trump announced 10% tariffs on $300B of additional Chinese goods weighed on sentiment. Stocks dropped over 3% on Monday as China retaliated by devaluing its currency which pressured markets. U.S. stocks managed to rally the next three days (including a significant recovery from Tuesday declines) with stocks mixed today on more macro concerns (slowing global growth data) and comments on trade (from Trump again against Huawei). The S&P hit a weekly low of 2,823 Monday to the Thursday high of 2,938 (a 4% range). But that doesn’t remotely compare to volatility in Treasuries this week, as the 10-year Treasury yields has traded in a 14% range in the last five sessions (low 1.59% and 1.85% on Tuesday). Overall for the week, gold wins, the dollar loses in another volatile week for markets.

Economic Data

·     Producer Price Index (PPI) Final Demand MoM for July was reported in-line at 0.2%, while core prices (Ex: Food & Energy MoM for July declined (-0.1%) vs. est. 0.1% (as inflation remains subdued – giving the Fed more room to cut rates further if need be). PPI Final Demand YoY for July was in-line at 1.7% and core prices YoY was 2.1% below the 2.3% estimate

 

Commodities

·     Oil prices rebound, rising $1.96 or 3.73% to settle at $54.50 per barrel, bouncing off recent 7-month lows after prices fell into “bear market” territory this week (more than 20% off April highs). Oils recent drop comes amid concerns a prolonged trade war between the U.S. and China will sap energy demand. Also weighing was bearish weekly inventory data and the dollar touching recent 2-year highs. Overnight, the IEA reduced growth forecasts for oil-demand for this year and in 2020, citing increasing trade tensions between the U.S. and China. Crude maintained gains on Friday after oil-field services firm Baker Hughes said the number of U.S. oil rigs fell by six this week to 764 and the total rig count by eight (19-month lows). Natural gas prices fell 0.4% to settle at $2.12 mln Btu, just off recent three-year lows.

·     Gold prices slipped $1.00 to settle at $1,508.50 an ounce for December gold, but managed to post a weekly gain of 3.5% after touching its best levels in six years mid-week amid a flight to safety assets by investors given extreme market volatility and trade uncertainty.

 

Currencies

·     The U.S. dollar volatile, rallying over the last month into the FOMC 25-bps rate cut last week (which was well telegraphed), only to hit two year highs against the euro last Thursday, but has been on a steady decline since in a bout of profit taking, mixed economic data, and trade concerns. The dollar has slipped vs. safe haven currencies over the last week (yen and franc) given the stock market pullback, but overall remains supported on the view the US economy appears stronger than other global economies, despite the fact the Fed is expected to ease further at the September meeting. The British pound extended losses, down over -0.5% and touching lows of 1.2056, the lowest levels against the US dollar since the 2016 Brexit flash-crash, as the UK economy showed signs of being hampered by the U.K.’s political standoff with Europe. UK GDP output shrank for the first time since 2012, pressuring the Pound.

 

Bond Market

·     Huge swings in the Treasury markets this week, ending slightly lower on the day with yields bouncing off their worst levels, having had to deal with more central bank easing this week (three Asian central banks cut rates), and expected additional easing from the US Fed in September after weaker inflation data today as each central bank appears to trying to “one-up” each other to stimulate troubled economies. In just a little more than a week, the 10-year yield fell from 2.07% last Tuesday to lows of 1.60% Wednesday of this week, and the 2-year at highs of 1.96% last Wednesday to lows of 1.50% Wednesday.

 

 

Macro

Up/Down

Last

WTI Crude

1.96

54.50

Brent

1.15

58.53

Gold

-1.00

1,508.50

EUR/USD

0.0026

1.1207

JPY/USD

-0.51

105.56

10-Year Note

0.008

1.725%

 

 

Sector News Breakdown

Consumer

·     Retailers; MAT shares fell after the toy company canceled a planned debt sale and disclosed an anonymous whistleblower letter/in a filing with the SEC, the company said it was launching an investigation into matters brought up in the letter, without details; golf retailer ELY shares advanced after reports better-than-expected Q2 sales and profit boosted by its TravisMathew and Jack Wolfskin businesses; FNKO solid quarterly beat with strong double-digit growth across geographies, channels and product segments led shares higher; ALRM reported 2Q results that modestly came in ahead of guidance and consensus estimates on both the top and bottom-line and raised its year outlook to $460.2M-$465M vs. est. $452.1M; OSTK rises on earnings; HEAR shares fall after quarterly revenue missed estimates

·     Restaurants; JACK was upgraded to outperform at Wedbush and added it to the best ideas list and up tgt to $105 as Q3 performance reorients path towards LT targets; QSR 20M share Block Trade priced at $73.50; WTRH shares dropped over 50% after cutting rev guidance for the year to $210M-$220M from above $250M citing delays in roll-out of planned revenue initiatives, additional time needed to integrate Bite Squad and current competitive dynamics; CHUY Q2 EPS beat and its guidance for the year topped estimates; MCD traded to 52-week highs

·     Housing & Building Products; Evercore ISI upgraded shares of NVR and BMCH to outperform in building space and downgraded MAS and MTH to in-line; in home décor, BBBY was upgraded to in-line at Evercore ISI; TPC plunged after missing Q2 earnings estimates by a wide margin and lowered its full-year earnings guidance to adjust for an impairment charge

·     Auto’s, Casino & Leisure movers; UBER shares declined after posting a larger-than-expected quarterly loss of $5.2B as well as weaker sales (comes a day after rival LYFT posted better results);

 

Energy

·     Energy stocks were mixed in what has been a rough week on disappointing earnings results especially in the E&P sector, slowing global growth concerns and bearish inventory data this week. Also overnight, slowing demand as the IEA its oil demand forecast (again), citing weaker prospects for the global economy. Its new forecast lowers 2019 demand growth by 100,000 barrels a day to 1.1 million barrels a day, and its 2020 forecast was lowered by 50,000 barrels a day to 1.3 million barrels a day.

·     In a positive for oil, the Baker Hughes (BHGE) weekly rig count fell -8 to 934 (a 19-month low) as oil rigs declined while oil rigs slipped -6 to 764 and gas rigs dropped to 2 to 169 while miscellaneous rigs unchanged at 1.

·     Utilities & Solar; PCG reported adjusted EPS 11c above estimates while also records $3.9B charge in Q2 due to 3rd party fire claims; in solar, VSLR posted 2Q deployments of 56MW above its guidance range, and given strong 1H deployments and visibility into 3Q, mgmt raised its FY19 growth guidance to 15%

·     Equipment and E&P movers; PUMP shares slumped after reported preliminary 2q earnings but delayed the release of their 10-Q due to an audit of expense reimbursement practices with AFGlobal Corporation for the purchase of Durastim®, as well as a review of expense reimbursements and transactions/downgraded to neutral at Citigroup

 

Financials

·     Bank movers; sector remains at the mercy of plunging Treasury yields as it narrows the bank and broker lending margins; AMTD both downgraded to hold from buy at Deutsche Bank saying at this stage of the market cycle and upon market expectations of more substantial Federal Reserve easing, macro risks of lower interest rates and possible eventual equity market declines will restrain any sustainable upside in the stocks; in asset managers, BEN shares declined after reported preliminary July-ending assets under management (AUM) of $709.5B, down -0.8% sequentially and KBW Inc. estimated long-term net outflows for the month were about -$6.0B

 

Healthcare

·     Pharma movers; KALA said the FDA declined to approve its marketing application for KPI-121 0.25%, its treatment for relief from symptoms of dry eye disease; AMRN shares fell after saying it t anticipates a delay in review of its label expansion application for lead drug, Vascepa, by the U.S. FDA to late December instead of September 28; AZN results from the Phase 3 FLAURA study evaluating its Tagrisso showed a statistically significant improvement in overall survival vs. peers; weakness in specialty pharma with MNK, ENDP and TEVA all under pressure

·     Biotech movers; NKTR shares plunged, downgraded at Jefferies and JPMorgan after a strong of negative updates with its 2Q call including no lung data at ESMO, manufacturing issues and identification of suboptimal production lots of bempeg, and narrowing of the scope of the BMY collaboration; PBYI share rebound as reported 2Q19 earnings which included a small Nerlynx beat (+1%) that mgmt attributed to (i) improved gross-to-net, (ii) increased sales force presence & nurse education and (iii) higher in-office drug dispensing; RKDA jumps in reaction to its announcement that the USDA has approved Verdeca’s HB4 drought-tolerant soybeans, clearing the way for commercialization in the U.S.; STML 5M share Secondary priced at $15.25; AMGN shares spiked late day after Bloomberg reported it won a ruling that upholds patent for Enbrel patents/NVS loses bid to invalidate the Enbrel patents

·     Medical equipment and devices; VRAY shares fell as much as 50% after reporting underwhelming 2Q results and cut revenue guidance as orders fell short of expectations/mgmt noted the order slippage was due to larger order negotiations and associated funding hurdles/also increased the expected cash burn to $80-90MM from $65-75MM; QTRX 2.38M share Secondary priced at $25.25; SILK 4.2M share Secondary priced at $39.50; CUTR traded to 52-week high of $35.85 after better results, before paring gains (gross margins also were better); NVRO shares jumped after quarterly beat and maintained its year outlook

·     Healthcare services and providers; DPLO said it is reviewing strategic alternatives focused on maximizing shareholder value/followed earnings results that missed estimates and sharply cut its outgoing year outlook; IQV 4M share Block Trade priced at $157.10

 

Industrials & Materials

·     Aerospace & Defense; WAIR agrees to be taken private by Platinum Equity, where it will be combined with Pattonair for $11.05/share in cash, in a deal valued at $1.9B; AAXN was downgraded to hold at Needham due to operational risk in and out of the company’s control that put us past our comfort zone on the execution required for a massive 4Q revenue ramp (reported earnings overnight)

·     Metals & Materials; Iron ore price plunges 12% on the week for biggest drop in 16 months and down for a 7th straight day with the most-traded iron ore contract on the Dalian Commodity Exchange dropping as much as 5.4% to 628 yuan/metric ton ($89.11) per reports (shares of CLF, VALE, BHP, RIO leveraged to iron ore); Steel producers were weak (X, NUE, CMC, STLD) after Sky News Business reported ministers agree £300m British Steel support package

·     Transports; MESA shares down over 40% following its disappointing earnings results overnight (EPS 30c/$180.2M vs. est. 55c/$183.2M); CPA was upgraded to outperform in the airline sector at Raymond James; ALGT posted July traffic +14.0%; trucker YRCW shares dropped over 20% after posting a wider than expected loss

·     Chemicals; RBC Capital weighs in on the industry as they downgraded CC and VNTR (and cut tgts) saying with the H2 recovery outlook turning more cautious due to uncertainties arising from lingering trade war and slowing global growth, our view has also now turned more cautious on any near-term uplift in TiO2 demand and prices; Separately, RBC upgraded CTVA to outperform as they believe conditions could now set up 2020 nicely and also upped FMC to outperform from sector perform and raises his tgt to $103 from $87

 

Technology, Media & Telecom

·     Internet; FTCH shares tumbled following a Q2 EPS loss, a large acquisition, disappointing outlook and a decision to limit promotional activity combine to spook investors/COO also left after 9-years with company/cuts FY growth expectations for GMV to ~$2.1B (+50% Y/Y), platform GMV of $1.91B-$1.95B (+37%-40% vs. previous guidance for +41%); TRUE shares plunged after cutting its 2019 sales and adj. EBITDA outlook for the second time this year and posted lower-than-expected Q2 revenue and adj. EBITDA, as average monthly visitors fall 7% to 7.2M; YELP rises as Q2 revenue falls short of estimates but profit beats estimates, while forecasts Q3 net revenue to grow by 8-10% compared with prior year and also reiterates 2019 forecast; BIDU shares fall for the 11th time in the last 12-days as China ADRs remain pressured on trade talks impact; TechCrunch reported late day that thousands of exposed Amazon cloud backups were found leaking sensitive data, like VPN configurations, passwords, and government data

·     Semiconductors; sector was among the hardest hit due to exposure to Huawei as the Trump administration said to be delaying licensing decisions for U.S. companies to restart business with Huawei Technologies; SYNA was downgraded to underweight at JPM after posting mixed F4Q19 results, posting light revenues though beating on EPS driven by mix shift to IoT products and cost rationalizations/said FY20 initial guidance points to a material decline in revenues; SWKS resumes yesterday early slide on lower outlook, XLNX falls for 11th time in last 12 days after weak guidance few weeks back, INTC slides on competition fears from AMD after new chip release; AMD added to yesterday’s 16% advance, trading at 13-year highs – move follows AMD launch of the first 7nm EPYC second generation "Rome" processors yesterday

·     Software movers; FSLY shares plunge after a wider Q2 EPS loss of (16c) and in-line revs $46M and announced a board member resignation; ATVI reported upside to 2Q expectations with strong contributions and positive trends from its core franchises including Call of Duty, Candy Crush, and Hearthstone, but full-year guidance was only reiterated

·     Hardware & Component news; DBX quarterly billings disappointed even as profit and sales topped estimates, sending shares lower; DXC shares drop as reported an in-line quarter on lower margins and a lower tax rate and revised down FY 20 revenue, EPS and FCF guidance which reflects near-term impact from delayed deal closings, lower revenue and delays in executing cost cutting programs; Huawei suppliers active today ACIA, NPTN, LITE, AAOI, after US opts against providing licenses to sell through Huawei; CNDT slides after Q2 adjusted EPS 13c/$1.11B vs. est. 17c/$1.11B; lowers FY19 revenue growth view to (5%)-(4%) from (4%)-(3%)

·     Media & Telcom; SSP shares tumbled after posting Q2 loss compared to year-ago profit and said operating expenses rose ~21% to $315.3M and a slight miss on revs; CBS and VIAB both reported better quarterly results the last two days but CBS shares dipped after no merger announcement between the two

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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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