Market Review: August 27, 2019

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Closing Recap

Tuesday, August 27, 2019





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     U.S. stocks couldn’t hold early gains, fading late morning into late day trading and adding to monthly declines with only a few days left in the month as Treasury yields continue to tumble as the 2-year/10-year yield curve inversion become more pronounced (raising recessionary fears). The 10-year Treasury yield sinks 5 bps to 1.48% slipping further below the 2-year Treasury’s yield of 1.52%, bringing the spread to nearly 5 bps now (while the 3-month/10-yr yield remains inverted by over 45 bps). Interest rate sensitive stocks active again with the decline in Treasury yields, as utility names perform the best, along with defensive Telecom and REITs while banks falter again as well as small and mid-cap stocks. Healthcare stocks leveraged to opioids came under additional pressure late day on new settlement claims (after JNJ news overnight) after NBC reported Purdue Pharma and its owners, the Sackler family, are offering to settle more than 2,000 opioid-related lawsuits brought by states, cities and counties for $10B-$12B. Uncertainty regarding tariffs and trade as we approach September also weighs on market sentiment, especially after the tit-for-tat tariff moves by both China and the U.S. over the last few days. Economic data was mixed as consumer confidence remains very high while housing data shows continued signs of deceleration.

Economic Data

·     Housing data: The June FHFA Home Price Index rises 0.2%, in-line with estimates as home prices rose 4.8% YoY. S&P CoreLogic Case-Shiller 20-City Index rises 2.13% YoY vs. est 2.30%; Home-price gains in 20 U.S. cities decelerated for a 15th straight month and were weaker than expected; the 20-city SA index rose 0.04% MoM in June after rising 0.13% the prior month

·     Consumer Confidence for August strong at 135.1, well above the 129.0 estimate (prior reading revised to 135.8 from 135.7); the consumer present situation index 177.2 in Aug vs. 170.9 in July and the consumer expectations index 107.0 in Aug vs July revised 112.4; the 1-year consumer inflation rate expectations 5.0% in Aug

·     Richmond Fed index for August reported at +1 vs. est. down -4 and last month -12



·     Commodity prices rise, led by gains in oil after sliding nearly 5% the last four sessions, getting a boost today ahead of weekly inventory data (API tonight and EIA tomorrow). WTI crude rose $1.29 or 2.4% to settle at $54.93 per barrel while natural gas prices slipped -1.3% to $2.20 mln btus and Brent rose 81c or 1.38% to $59.51 per barrel.

·     Gold prices for December rose $14.60 or 1% to settle at $1,551.80 an ounce, its highest closing total since 2013 while September silver prices jumped 51c or 2.9% to settle at $18.153 an ounce (best level in over 2-years – April 2017). The precious metals got a boost amid the decline in Treasury yields, a weaker dollar and general market concerns over trade and slowing growth.


Bond Market & Currencies

·     Treasury yield weakness (along with trade concerns) remains a key market driver, with the 10-year yield falling to lows of 1.469% (down over 5 bps) as the inversion of the 2/10-yr yield curve (inverted for the first time since 2007 on August 14th) widened to over 4 bps today. Meanwhile, the yield on the 30-year US Treasury just dropped below the S&P 500 dividend yield for the first time since March 2009 according to Bespoke. The ongoing rotation into Treasuries has weighed on investor sentiment while the yield curve inversion has raised recessionary fears. The 3-month and 10-year yield curve has now inverted nearly 50 bps. Also today, the U.S. Treasury sold $40B in 2-year notes at a yield of 1.516% compared to when-issued 1.515% prior, with the bid-to-cover (demand) at 2.60 vs. 2.50 prior auction and indirect bidders awarded 47.1% and directs awarded 20.4% (mostly in-line auction). The US dollar pares some of yesterday’s strong gains.






WTI Crude















10-Year Note





Sector News Breakdown


·     Retailers; in footwear, CAL shares advanced following better-than-expected quarterly results topping views, while markets rallied by the company’s maintained year forecast, which now incorporates the tariff schedule as of last week; FTCH said it wasn’t buying Barneys New York, following a New York Post story that said it was in advanced talks to do so. "The story is incorrect — Farfetch is not acquiring Barneys New York," the report said ; JILL tops Q2 sales, EBITDA and EPS estimates saying it saw improved full price selling during the summer months and maintained positive traffic for the quarter; COST mentioned positively at Morgan Stanley saying they think China could usher in another phase of unit growth after the company has been successful in Japan, Taiwan, and South Korea

·     Consumer Staples; in tobacco, PM confirmed that it is in talks with MO for an all-stock merger though said there can be no assurance any agreement or transaction will result (said the companies to weigh a 58%-42% spilt in favor of PM) ; SJM reported soft Q1 EPS and sales ($1.58/$1.78B vs. est. $1.74/$1.87B) primarily due to the timing of shipments and deflationary pricing in the coffee and peanut butter categories/cuts year EPS and sales view to $8.35-$8.55 from $8.45-$8.65 and sales growth to (1%) – 0% from 1% – 2%; WW was upgraded to buy from hold at Craig-Hallum driven by improving trends, a mostly positive member response to new free app called Kurbo by WW, and the potential for upside to estimates stemming from an upcoming new diet program launch

·     Restaurants; CMG tgt raised to $900 from $815 at SunTrust as believe that Chipotle will roll out Carne Asada nationally in mid-September, contributing to both check and traffic growth; PZZA appoints Rob Lynch as president and chief executive officer, effective immediately (former marketing exec at YUM’s taco Bell and PG while company reaffirms most recent guidance; Panera Bread is striking deals with major third-party delivery companies DoorDash, Grubhub and Uber Eat’s that will market its products but still use the company’s own couriers; RRGB was downgraded at Bank America to underperform as believe the company’s earnings growth will materially miss consensus next year; DIN that it has added nearly triple the number of Applebee’s and IHOP locations to the GRUB marketplace, now more than 3,000 restaurants



·     Energy stocks continue to get no love, faltering with market gyrations on a daily basis, as oil prices fail to move higher meaningfully on trade concerns, slowing global growth fears and oversupply (ahead of weekly inventory data tonight and tomorrow); in stocks news, PE initiated a dividend a little earlier than expected while also highlighted 3Q’19 oil production should trend toward the high end of the 87.0-90.0 guidance range; BP sold its entire business in Alaska to Hilcorp Alaska for $5.6B; KMI shares held up well after the Chairman of Board Kinder purchases shares the last 2-sessions; Utility stocks outperform given the ongoing slide in Treasury yields, making the higher dividend paying sector more attractive; EXC outperformed after Morgan Stanley upgraded to outperform with a $60 tgt



·     Pharma movers; JNJ shares volatile following a highly-publicized opioid-addiction trial ruling, as an Oklahoma judge ruled against JNJ, ordering the company to pay $572M (vs. $17B sought by the State) which is targeted at remediating the Oklahoma opioid crisis (shares of pharma companies with exposure to opioid litigation including ENDP, TEVA active); the FDA designates AZN’s Farxiga (dapagliflozin) for Fast Track review to delay the progression of renal failure and prevent cardiovascular and renal death in patients with chronic kidney disease; MNK loses appeals court ruling in favor of LIN that the latter’s inhaled nitric oxide, branded as Noxivent, does not infringe on MNK’s INOMAX

·     Biotech movers; IONS announced today that GSK exercised its option to license Ionis’ antisense medicines for people with chronic hepatitis B virus (CHB) infection following positive Phase 2 results; MDCO extends gains for a second day on positive ORION-11 study results as they met all primary and secondary endpoints; PRTA rises after holder EcoR1 reports 23.6% stake in Prothena

·     Medical equipment, services and devices; NVTR announced after the close that the company will engage with an investment bank to seek strategic alternatives, including a potential sale or merger; CAH was downgraded to hold from buy at Argus saying the company is facing margin pressure in its Pharmaceutical Distribution segment, as well as sluggish revenue growth and rising costs in its Medical segment as it integrates the Cordis acquisition; managed care (CI, ANTM, UNH) remains weak – recall last week JPM said 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


Industrials & Materials

·     Metals & Materials; steel stocks weaken as Citigroup reduced its US steel price forecasts and company estimates for 2019-2022, saying steel demand is disappointing and price benefits of Section 232 quickly evaporated in flat steel. The firm forecast an extended period of below normalized prices for HRC: $550/st through 2022 vs long-term price of $600/st while saying rebar is expected to be more robust (prefers STLD)


Technology, Media & Telecom

·     Internet; SHOP target raised from $410 to $481 at Rosenblatt citing the potential of the Shopify Fulfillment Network as sees revenue growing from $300M in 2021 to $6B+ in 2025; TWTR estimates were raised at Cowen to reflect incremental test spend, partner investments, and favorable market share trends; SNAP fell after a report from The Verge that FB was testing a messaging app designed around a user’s “close friends” list on Instagram

·     Software movers; PLAN slipped initially despite a beat and raise quarter as the high flying software company pulls back from record highs as raised FY20 revs guidance $339M-$343M from $326M-$331M (est. $329.8M) after smaller Q2 EPS loss and better revs of $84.5M; ATVI rises as World of Warcraft Classic launched last night in the Americas, globally today, with one firm noting viewership is strong at 500-600k concurrent viewers; ZNGA was added to the Wedbush Best Ideas List as think that key titles Empires & Puzzles and Merge Dragons along with three new releases later this year have the potential to drive significant upside to the Street’s expectations; earnings expected in software today from ADSK and VEEV; MDB was upgraded to buy at Citigroup citing the potential for its Atlas product

·     Media & Telecom movers; VZ was upgraded to outperform at Oppenheimer in front of the Sprint/TMUS merger while downgrading TMUS to Perform in front of a difficult integration, as well as weak Sprint trends/says both VZ will benefit from elevated Sprint churn from deal; TME shares active on reports they are under investigation by China’s antitrust authority in a review that could end exclusive licensing deals it forged with the world’s biggest record labels; GTT slides as its CFO accepted a more senior role with data center and cloud solutions provider

·     Hardware & Component news; TECD was added to negative catalyst watch at Citigroup ahead of 2QFY20 earnings as think top vendor softness, high European exposure and heavy back half loaded operating income guidance are key risks; XRX downgraded to underweight at JPMorgan pointing to persistent topline declines, as considerable headwinds to XRX’s core printing business continue to plague co/sees no evidence this will subside in the foreseeable future; global sales of smartphones to end users declined 1.7% in the second quarter of 2019, totaling 368 million units, according to Gartner, Inc. Among the top five global smartphone vendors, Huawei and Samsung exhibited the strongest annual sales increases in the second quarter of 2019 at 16.5% and 3.8%


Content is provided by Hammerstone Inc., which has no affiliation with Regal Securities, Inc. (“Regal”) This commentary is provided for information purposes only, and is not a recommendation, offer or solicitation by Regal to buy or sell securities or to adopt any investment strategy. Regal has not participated in the creation of the Hammerstone content and does not directly or indirectly endorse the content. Any reliance on this material is at the sole discretion of the reader.

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