Market Review: August 22, 2019

Auto PostDaily Market Report

Closing Recap

Thursday, August 22, 2019





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     U.S. stocks were mixed, whipping between gains and losses on lighter than normal volume following hawkish commentary from a few Fed speakers, weaker PMI manufacturing data in the U.S., strong retailer earnings for a second day, and volatile Treasury yields that saw the 2 and 10-year yield invert again (recessionary signal). Stocks opened weaker before getting a boost behind better retail earnings out of JWN, BJ and DKS, while LB shares dipped on lower guidance, helping the discretionary sector a second day. But stocks fell after a contractionary manufacturing data point from Markit and on hawkish rate comments from Philly Fed President Patrick Harker saying he didn’t think the July rate cut was appropriate, echoing a similar sentiment by Kansas City Fed head Esther George, who voted against the July rate cut. The 10-year Treasury yield, after rising as high as 1.626% then sliding to 1.556% lows before paring losses. Shares of Dow component Boeing (BA) advanced on a Reuter’s report it plans to increase production of the 737 MAX to 52 per month in February of next year if regulators approve the MAX to fly again in Q4. Investors were also monitoring the Jackson Hole symposium where central bank leaders from across the globe are meeting to discuss issues facing world economies (Federal Reserve Chairman Jerome Powell’s speech is scheduled for Friday). The Stoxx Europe 600 fell after minutes from the ECB showed broad support for prolonged stimulus measures failed to ease recession concerns. Bank to the Fed, Fed Harker (non-voting member) squashed narrative of needing to do an "insurance rate cut" and "no need for further stimulus now." Regarding trade, Reuters reported China snapped up a small volume of U.S. soybeans last week after pledging to halt purchases of American farm products due to the escalating trade war between Washington and Beijing.

Economic Data

·     Weekly Jobless claims fell 12K to 209K, below the 216K estimate while the prior week was revised to 221K from 220K; 4-week moving avg. at 214.5k in the latest week; Continuing claims fell 54K to 1.674M in the week ending Aug. 10 which represents the lowest level since early June

·     IHS Markit US manufacturing sector flash PMI for August 49.9 (vs. est. 50.5) and final July 50.4 (first time below 50 since September 2009); Manufacturing flash new orders index for august 49.5 vs final July 51.7 (lowest since Aug 2009); services sector flash PMI for August at 50.9 (consensus 52.8) vs final July 53.0; flash composite PMI for August at 50.9 vs final July 52.6



·     Oil prices were quietly lower, adding to yesterday’s declines after the government reported a weekly decrease in domestic crude supplies, the first in three weeks, but smaller than the market expected. WTI crude slipped 33c or 0.6% to settle at $55.35 per barrel, while natural gas prices fell -0.5% to $2.16 mln btu after in-line weekly inventory data. Prices dipped this morning for oil following the sub-50 Markit manufacturing PMI, which resulted in the 2-10 Treasury curve inverting, an possible indicator of a coming recession. Gold price end lower by -$7.20 or 0.5% to settle at $1,508.50 an ounce – lowest level in nearly 2-weeks amid volatility in the Treasury and currency markets. Federal Reserve officials Harker and George each indicated that they would not support further interest-rate cuts today.



·     The U.S. dollar index (DXY) slipped, with the greenback falling against the safe-haven yen and the British Pound in response to comments by German Chancellor Angela Merkel about the UK’s plan to leave the EU. Merkel appeared to suggest the EU and UK could reach a deal by the Oct. 31 exit deadline (Pound rose to 3-week highs). The dollar also slipped early behind the weaker US manufacturing data. The USD-CAD peaked at 1.3315 at mid-morning, up from 1.3275 lows near the open. The sell-off in WTI crude prices following a sub-50 U.S. manufacturing PMI print was the driver of the rally, though with oil prices recovered some.


Bond Market

·     Treasury yields end little changed falling earlier on softer Markit PMI data as the 10-year yield slid below to lows of 1.552% (off earlier highs above 1.62%), but bounced back and forth given gyrations in stock markets after hawkish comments out of a few Fed officials ahead of Chairman Powell speaks tomorrow. IHS Markit US manufacturing sector flash PMI for August 49.9 (vs. est. 50.5) and final July 50.4 (first time below 50 since September 2009). Also of note, the yield curve between the 2 and 10-year inverted again, once again raising recessionary fears. Note the closely-watched gap between 3-month and 10-year has been inverted often the last 3-months.






WTI Crude















10-Year Note





Sector News Breakdown


·     Retailers; JWN rises after beating profit expectations even as sales slid, helped by cost cuts and inventory clearance/posted disappointing revenue, and cut its top-end of full-year EPS outlook; LB shares tumbled early after comp sales fell 1% during the quarter to miss the consensus mark of +1% as Victoria Secret comps plunged -8%/operating margin was 6.0% of sales vs. 5.8% consensus and 7.6% a year ago and guidance for Q3 and year fell below consensus; after rising 20% yesterday on earnings, TGT was upgraded to buy at Citigroup and tgts raised by several analysts after the positive quarterly results; SSI quarterly comparable sales rise for first time in 6 quarters while also raises FY EBITDA forecast to $20M-$25M from $10M-$15M prior; OSTK CEO Patrick Byrne resigns saying he is already far too controversial to serve as CEO; GPS, ROST to report earnings tonight with BKE, FL, HIBB tomorrow morning

·     Non-apparel retail; sporting goods stores rise after DKS reported positive quarterly same-store sales growth for the first time since Q2’17, saying they rose 3.2% vs. est. 1.1% on better EPS and sales as well while raises year EPS view to $3.30-$3.45 from prior $3.20-$3.40 view and above the $3.31 estimate while guides same-store sales to increase in the low single digits for year; GME shares jumped after disclosure that Michael Burry’s (the “Big Short” guy) holds about 3M shares through his firm after saying in Barron’s interview that next year’s new consoles will still use optical disk drives in a development that will extend GameStop’s life significantly; BJ rises after better-than-expected Q2 earnings results, though comp same-store sales of 1.6% slightly below the 1.9% estimate and sales of $3.35B just missing the $3.4B est and reaffirms year

·     Consumer Staples; HRL mixed results as Q3 EPS beat slightly on a small sales miss while reaffirmed its year outlook; SMPL hits record highs after announcing a large-scale acquisition of Quest Nutrition – a $1B acquisition of a $350M brand that will be modestly dilutive to earnings immediately; in tobacco (PM, MO, BTI), four dominant e-cigarette manufacturers are facing a probe from the U.S. House Energy and Commerce Committee. Chairman Frank Pallone has contacted the CEOs of Juul Labs Fontem Ventures, Japan Tobacco and Reynolds American requesting information by Sept. 20 about the health impact of their vaping products, as well as their marketing practices

·     Housing & Building Products; Wayfair (W) was upgraded to buy at Stifel saying shares have declined by ~12% (vs the S&P 500 down ~2%) following the reporting of 2Q:19 results and the closing of an $825 million, 1% convertible debt offering/compelling entry point; ENR was upgraded to buy at UBS as believe Street EPS revisions have bottomed post F3Q and says Spectrum auto care issues are misunderstood and fixable

·     Auto’s; TSLA rises initially after reports that Volkswagen CEO is interested in acquiring a stake in Tesla, German publication Manager Magazin reported/however, shares pared gains after the VW CEO later denied the reports he was interest in a TSLA stake; Ford (F) said that current Ford of Europe Chairman Steven Armstrong has been named president of the Changan Ford joint venture in China



·     Energy stocks were relatively quiet with no major news in the beaten up sector; in individual stock news, NBL was upgraded to outperform at Oppenheimer saying they see a transformational FCF inflection and multiple compression for Noble into 2020 and think the time is now for investors to position for it, with shares less than $5 above their 11-year low; DK was downgraded to market perform at Cowen saying outperformance vs the group is largely a function of more favorable differentials which they view as unlikely in the medium-term

·     Utilities & Solar; SEDG shares slip after CEO takes leave of absence effective immediately saying Guy Sella, who is also the founder of SEDG, has declined significantly, and he has taken a leave of absence to address his health issues (downgraded at UBS on news); utility stocks with a nice bounce off earlier lows to trade to fresh all-time highs today for the UTY above the 790 level



·     Financials among the early sector gainers despite another downdraft in Treasury yields following weaker than expected PMI manufacturing data; BK shares active on reports from Dow Jones that it has lost Van Eck Associates as a client of its servicing business for exchange-traded funds/Van Eck will move its ETF business to STT saying it is unclear how much of its assets will shift to State Street; in insurance; AFL said it sees sales in its Japan Post Group channel declining by as much as 50% vs. a very strong 2018 given its refreshed cancer product, and based on continuation of trends to date for the rest of the year; in consumer finance and lending; FLY shares rallied after its earnings results beat



·     Biotech movers; SRPT shares fall 4-straight days and 10 of the last 12 days – down over 34% during that stretch – after the FDA’s Complete Response Letter on golodirsen ahead of its August 19th PDUFA date was a setback; RTRX shares drop after a Phase III clinical trial for FORT, evaluating Retrophin’s fosmetpantotenate in patients with pantothenate kinase-associated neurodegeneration (PKAN) failed to demonstrate a treatment effect versus placebo; CLSD shares fell as the FDA’s Office of Pharmaceutical Quality has requested stability data on its XIPERE that was made with an enhanced manufacturing process although the formulation has not changed

·     Medical equipment, Healthcare services and providers; CERN was upgraded to buy from hold at Argus with $80 tgt saying the company has just completed a self-described investment year and see further momentum ahead; EW shares slide after received reports of burst balloons during implantation procedures with the Edwards SAPIEN 3 Ultra delivery system, part of the Edwards SAPIEN 3 Transcatheter Heart Valve System; managed care stocks fell (CI, UNH, ANTM) after JPMorgan hospital survey for July added to concerns about insurers’ 3Q earnings season/said the survey showed strong patient utilization of medical services sequentially versus the past survey/expects the higher utilization to pressure insurers’ 3Q medical loss ratios


Industrials & Materials

·     Industrial & Machinery; in the E&C sector, FLR was upgraded to buy at Canaccord with $25 tgt following the more than 40% pullback since earnings; BA was been awarded a $999M defense contract to replace the wings on A-10 close air support aircraft, which provides for up to 112 new A-10 wing assemblies and up to 15 wing kits; Reuters reported BA has told suppliers it will resume production of its best-selling 737 jets at a rate of 52 aircraft per month in February 2020, then stepping up to a record 57 jets monthly in June,

·     Metals & Materials; in chemicals, SQM shares were downgraded to underweight at JPMorgan after reporting weaker than expected Q2 earnings and a 22% Y/Y drop in revenues, as lower lithium prices more than offset higher sales volumes.


Technology, Media & Telecom

·     Internet; GRPN announced Michael Randolfi to resign as CFO, effective Aug. 23, in order to pursue another opportunity; ETSY upgraded to buy at Stifel with $70 tgt after shares fell 20% since earnings, saying concerns are transitory and would take advantage of the pullback in this emerging leader in 3P eCommerce; SPOT permanently extends free trials for its subscription service to three months from one as it works to lure more paying users to its premium tier, the WSJ reported

·     Software movers; CRM reports after the close tonight; SPLK shares fell despite reporting Q2 EPS and revenue above expectations as they trimmed full-year cash flow forecast and announced to acquire privately held SignalFx, which makes cloud software, in a cash-and-stock deal for ~$1.05B; SNPS trades at record highs after beat for 3Q FY19 and above-consensus guide for 4Q FY19 (despite geopolitical environment including shipment ban to Huawei)

·     Hardware & Component news; KEYS Q3 results were well above expectations as meaningful trade war headwinds have (so far) not materialized and 5G propelled Commercial Comms to a new record/management did not provide hard targets for FY20/operating margin was a standout driving significant upside to EPS estimates; in storage, PSTG reversed overnight declines as analysts/investors focused on the revenue beat for quarter vs. the weaker guidance for Q3 to $434M-$446M vs. est. $466.3M and lowers its year sales view as well


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