Market Review: August 26, 2019

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Closing Recap

Monday, August 26, 2019

Index

Up/Down

%

Last

DJ Industrials

270.81

1.06%

25,899

S&P 500

31.46

1.10%

2,878

Nasdaq

101.97

1.32%

7,853

Russell 2000

16.73

1.15%

1,476


 

Equity Market Recap

·     U.S. stocks posted strong gains to start the week, reversing overnight losses as investors and markets opted to focus on headlines from President Trump saying China called and asked to restart trade talks after Beijing’s top trade negotiator publicly urged calm. Trump said at a G7 summit of world leaders in France, that he believed China was sincere about the desire to reach a deal, citing increasing economic pressure on Beijing and job losses there. The headlines overshadowed reports late Friday that the U.S. plans to hike tariff rates on certain Chinese goods in response to Beijing’s latest retaliation, raising China tariffs on $300B in goods to 15% from 10%, and will raise China tariffs on $250M in goods to 30% from 25%. Shares of trade-sensitive sectors such as technology and agriculture were among today’s top gainers. Oil prices ended lower while gold prices fell from fresh 6-year highs and Treasury prices erased gains, as the yield on the 10-year bounced 10 bps off 3-year lows of 1.44%. In other trade news, Washington and Tokyo agreed in principle on a trade deal that cuts Japan’s duties on American pork and beef. There will be no change to U.S. tariffs on Japanese cars, Trump said at the G-7. Japan will also buy large quantities of U.S. wheat and corn. Also at the G7 meeting, Trump said he believes Washington will be able to reach a fair trade deal with the European Union without levying tariffs on car imports, according to reports. It was an overall quiet day of corporate news in this final trading week of the summer, with volumes light and all the market action taking place before the stock market opened in the U.S.

Economic Data

·     US July Durables Goods Orders rose +2.1%, topping the 1.2% estimate while prior month was revised to 1.8% from 1.9%; July durables ex-transportation orders fell (-0.4%) vs. estimate unchanged and prior month revised down to 0.8% from 1%; durables ex-defense orders +1.4%, nondefense cap orders ex-aircraft +0.4% and durables shipments (-1.1%)

 

Commodities

·     Oil prices tumbled late session, erasing earlier gains as WTI crude dropped -53c or 1% to settle at $53.64 per barrel while Brent prices fell 64c or 1.08% to $58.70 per barrel. Natural gas prices rose 3.3% to $2.23 mln btus. Gold prices slipped late day to close modestly lower, falling 40c to $1,537.20 an ounce (off earlier highs of $1,565 an ounce overnight after the initial shock of additional tariffs by the U.S. to China); gold prices erased gains as stocks in the US jumped after President Trump said China called and asked to restart trade talks

 

Currencies

·     The US dollar bounced, erasing overnight losses, with the dollar index (DXY) trading back to the 98 level (overnight low 97.47) and recovers against the Japanese yen (fell to fresh 2019 lows of 104.46 overnight) to trade back near the 106 level (off highs 106.41) as stocks recover. Meanwhile the euro dropped to afternoon lows below the 1.11 level as the greenback picked up steam on trade talk hopes. Treasury markets rallied sharply overnight as the 10-year yield hit its lowest level since 2016 (1.44%) on the increased trade tensions with China, but fought back above the 1.52% level, steady with the 2-yr yield. The 2/10-yr yield once again inverted while the 3month/10-year yield now remains inverted by over 45 bps (a recessionary indicator).

 

 

Macro

Up/Down

Last

WTI Crude

-0.53

53.64

Brent

-0.64

58.70

Gold

-0.40

1,537.20

EUR/USD

-0.004

1.1104

JPY/USD

0.80

106.19

10-Year Note

0.005

1.54%

 

 

Sector News Breakdown

Consumer

·     Retailers; shares of GPS, LB, CPRI, KSS, M among the top decliners in the S&P 500 early, PBI shares jumped initially after agreeing to sell its software-solutions unit for $700 million in cash to privately held Syncsort before fading; GPRO said it doesn’t believe tariffs will impact financial results for the 2H’19 because most of its U.S. bound camera production will come from Mexico during the period; TGT said it would create a dedicated section for DIS products inside some of its stores just in time for the holidays

·     Consumer Staples; CNBC reported KFC (YUM) to start testing plant-based fried chicken from BYND in an Atlanta restaurant; STZ said that its share of Canopy Growth Corp.’s losses will be $54.3M on a net basis, or $38.5M on an adjusted basis including a tax benefit, which will be recognized in its fiscal second quarter ended Aug. 31 (has made a $4B investment)

·     Casino & Leisure movers; in casino’s (WYNN, MLCO), Bernstein estimates Macau gross gaming revenue fell 4% Y/Y for the first 25 days of August to 824M patacas/notes GGR improved compared to July amid a normal hold rate in the VIP segment/impact from the Hong Kong protests on Macau traffic is believed to have been minimal; in car sector, LYFT was upgraded to buy at Guggenheim with $60 tgt citing an improved view for the company’s path to profitability; in the RV sector, total RV shipments fell 23.2% in July to 28,044 wholesale shipments, according to data from the Recreational Vehicle Industry Association/towable RV volume was down 23.9% during the month and motorhomes volume was off 17.6% (CWH, WGO)

 

Energy

·     Energy stocks opened higher to start the day, but as has been the case, energy stocks as a whole were unable to hold those gains; SRCI to be acquired by PDCE in an all-stock transaction valued at approximately $1.7B, including SRC’s net debt of approximately $685M as of June 30 https://on.mktw.net/2ZrYxJC ; Ladenburg downgraded shares of AXAS, HPR, OAS, RRC and REI to neutral from buy as believe reduced estimated free cash flow resulting from lower projected commodity prices, combined with uncertainty resulting from the escalation in the trade war, will be additional head winds for the E&P group; in equipment sector, FTI said it plans to separate into two publicly traded companies (onshore/offshore segment)

·     Utilities & Solar; Utilities were strong again with the UTY moving above the 787 level (touched all-time highs last Friday of 794.50 for the UTY) with all 20 names in the UTY currently higher midday led by EXC, PEG, XEL, ETR all up over 1% – group continues to benefit from low interest rates

 

Healthcare

·     Pharma movers; AMGN agreed to acquire global rights to CELGs psoriasis med Otezla (apremilast) for $13.4B in cash/BMY is divesting the PDE4 inhibitor in order to receive regulatory sign-off on its merger with Celgene/BMY raises shares buyback to $7B from $5B https://on.mktw.net/2NAaoPh ; LLY said the FDA approved Taltz (ixekizumab) for the treatment of adults with active ankylosing spondylitis; ZGNX agreed to acquire privately held Modis Therapeutics, Inc., which focuses on developing novel therapies for rare genetic diseases with high unmet medical need.

·     Biotech movers; MDCO said its Phase 3 ORION-11 study of inclisiran, a cholesterol-lowering therapy, met all primary and secondary endpoints and is consistent with the safety profile demonstrated in the Phase 1 and 2 studies/more details from the ORION-11 study will be presented at the European Society of Cardiology’s ESC Congress 2019 in Paris on Sept. 2

 

Industrials & Materials

·     Industrial & Machinery; MMM mentioned cautiously in Barron’s saying shares are down by more than 16% so far in 2019, far worse than the Dow Jones Industrial Average’s 14.4% gain, while says bargain-seeking investors shouldn’t rush back into the stock, with new potential environmental liabilities threatening to erode the premium valuation multiple 3M still enjoys; machinery names jumped initially on hopes of new trade talks (DE, CAT, AGCO) but with little details provided

·     Metals & Materials; metals erase early gains, with steel producers among others falling (FCX touches 52-week lows); STLD downgraded to neutral from buy at Longbow saying confidence in the Steel Mill segment’s ability to meet or beat expectations in the second half of 2019 is eroding as recent checks with steel distributors revealed a reversal in underlying market sentiment; in chemicals, RKDA rises on agreement with Arista Cereal Technologies and Bay State Milling Company for commercialization of its high fiber resistant starch wheat in North America, Europe and parts of Asia; LXP was downgraded at Wells Fargo citing valuation

 

Technology, Media & Telecom

·     Internet; A German court on Monday issued an interim injunction suspending a cartel office decision in February which sought to restrict FB’s data collection practices in Germany; Barron’s notes that streaming services like NFLX, AMZN could eventually compete with more traditional TV outlets for broadcasting rights of the most popular sport in the US

·     Semiconductors; QCOM shares active after a federal appeals court ruled that the chipmaker won’t have to renegotiate patent licenses while appealing an antitrust ruling/Mizuho called the ruling a "major win" and should be a near-term positive for the stock; CREE was downgraded to underweight at Piper and reducing estimates further to reflect the broader weakness in the LED market and the impact of Huawei on the Wolfspeed business; XLNX slipped early as KeyBanc said it believes the launch of MSFT’s FPGA-as-a-Service (FaaS) has been postponed from 4Q to early next year due to the availability of a key software-related feature

·     Software movers; busy week of software earnings with ADSK, WDAY, OKTA, PLAN, ZUO, VEEV, YEXT among them; PLAN positive mention by KeyBanc ahead of earnings citing new customer potential wins including: Fidelity Investments, Goldman Sachs, Cardinal Health, Conoco Phillips, and Mattel

·     Media & Telecom movers; DISH was double upgraded to strong buy from market perform at Raymond James with a $44 tgt saying now is the opportune time to buy after the recent pullback on investor concerns about the shift from a spectrum bank to a wireless operator; in Barron’s noted CMCSA earnings are expected to increase by double digit %’s in the years ahead and for CBS, notes Deutsche Bank expects the stock to rise to $70 a year from now

·     Hardware & Component news; NTAP was upgraded to market perform at Cowen saying it is still a show me story but much of the bad news is now priced in, valuation and ~$2 annual dividend likely limit downside and hence a more balanced opinion; ROKU positive mention in Barron’s saying company winning by offering a better product & executing more nimble strategy

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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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