Market Review: August 28, 2019

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Closing Recap

Wednesday, August 28, 2019

Index

Up/Down

%

Last

DJ Industrials

257.25

1.00%

26,035

S&P 500

18.81

0.66%

2,887

Nasdaq

29.94

0.38%

7,856

Russell 2000

16.59

1.14%

1,472


 

Equity Market Recap

·     U.S. stocks rebounded off morning lows, on no particular news or macro related stories, just paring some of its August losses as Treasury yields bounced off lows, oil prices rebounded on bullish inventory data and there was on no earth shattering China/US trade headlines (for a change). The Russell 2000 Smallcaps outperformed after recently lagging large caps, jumping over 1.1% after falling to its lowest level since January earlier (1,450). The rally midday came amid a bounce in financials (banks) and energy stocks, two sectors that have lagged behind others. Uncertainty over the U.S.-China trade conflict and it impact on corporate profits has rattled investors over the last few weeks, along with weaker economic data and slowing global growth concerns. Throw in uncertainty regarding the pace of interest rate cuts from the Fed, rising recessionary fears and political issues in Europe weighing on sentiment as well. The U.S. market is on track to end the week with a gain after having declined the past four weeks in a row, with the Dow Jones moving back above the 26,000 level late day. European markets very active overnight amid ongoing political situations in the UK and Italy as the pound sank as much as 1% before paring losses after PM Boris Johnson moved to suspend Parliament, while the 10-year Italian bond yield hit a record low amid optimism over a new government.

 

Commodities

·     Oil prices end higher, but pare gains; WTI crude rose 85c, or 1.4% to settle at $55.78 per barrel (off earlier highs $56.75) as record-high US oil output offsets the larger than expected inventory decline (the EIA said this morning that weekly crude stockpiles fell -10.3M barrels vs. est. draw of -2.85M barrels, while the U.S. is pumping out a new record high of 12.5 million barrels of oil a day, renewing fears of a global oil glut). The inventory report temporarily allayed concerns that the market is poised to tip back into oversupply. Gold prices slipped -$2.70 or 0.2% to settle at $1,549.10 an ounce, pulling back from earlier highs of $1,556.60 an ounce, as prices remain elevated given broad market uncertainty on trade, interest rates and slowing global growth

 

Bond Market & Currencies

·     Treasury yields pulled back yet again on Wednesday, with the 10-year yield back down near 3-year lows of 1.44%, following a $41 billion auction for 5-year notes that drew good interest. The U.S. Treasury sold $41B in 5 year notes at a yield of 1.365% compared to when issued yield at 1.375% prior, with the bid-to-cover (demand) at 2.48 vs. 2.26 prior and indirect bidders awarded 59.7% of auction and directs 18.7%. The 10-year yield ended around 1.45% down about 2 bps, with the 2-yr at 1.49% and the long-term 30-yr yield back at new all-time lows 1.92%. Italian bond yields plunged to a record low on Wednesday as political leaders headed towards a deal on a new coalition government. The U.S. dollar advanced against the British Pound, falling about -0.5% as British PM Boris Johnson said to suspend parliament for more than a month before Brexit (the official event will take place October 14th and be preceded by a suspension of the House of Commons). The dollar edged higher against the safe-haven Japanese yen, while the euro inched further below the 1.11 level.

 

 

Macro

Up/Down

Last

WTI Crude

0.85

55.78

Brent

0.98

60.49

Gold

-2.70

1,549.10

EUR/USD

-0.0007

1.1083

JPY/USD

0.31

106.05

10-Year Note

-0.005

1.466%

 

 

Sector News Breakdown

Consumer

·     Retailers; TIF Q2 results were mixed as EPS of $1.12 topped estimates by about 7c on in-line total sales, but comp sales declined (-3%), missing the (-1.5%) estimate while gross margins of 62.7% dropped from the 64% YoY level (and below estimates) – warns Hong Kong protests could pressure results though reaffirms year; CHS Q2 comp sales fell (-6.1%) vs. est. (-5.3%) while raises gross margin decline for the year to -150bps-200bps from prior view -100-50 bps; EXPR shares slide after forecasting an unexpected Q3 loss and weak comp sales while reporting Q2 results that missed estimates; FIT announced the Versa 2, a new version of its popular smartwatch that brings new features like Amazon Alexa support, an improved screen, and longer battery life/watch launches on September 9 and will cost $200; COST was forced yesterday to close its new store in China early due to large crowds after officials warned on the impact on local traffic; MOV shares dropped over 25% earlier after earnings results disappoint and lower guidance; earnings tonight from FIVE, GES, PVH, SCVL, TLYS, WSM and tomorrow morning from ANF, BBY, BURL, DG, DLTR in retail sector

·     Consumer Staples; COTY Q4 results were mostly in-line while announced a mutual decision to terminate their partnership with Younique; BF reported mixed Q1 results as EPS beat by 2c but sales of $766M missed the $773M estimate while reaffirmed its year outlook; MNST was moved to a top pick at Credit Suisse following price depreciation of 15% from July and said views recent launch into Walmart as the next leg to the Reign story; PPC to acquire Tulip Limited, an integrated prepared foods supplier for about $354M; BYND announced its partnership with Carl’s Jr in Canada/the launch of the Beyond Famous Star with Cheese in Canada

·     Casino & Leisure movers; CHDN announced today that Arlington did not apply to the Illinois Gaming Board for a slot machine and table game license under the recently enacted Illinois Gaming Act; home exercise start-up Peloton filed for its IPO last night, which also showed it lost $196M on sales of $915M during the 12-months ended June 30th; PENN rises after DraftKings launched its Sportsbook app in West Virginia to make it the second U.S. state after New Jersey where the product is accessible; DraftKings is operating the app under a licensing agreement with Penn National Gaming

 

Energy

·     Energy stocks bounced along with recovery in oil prices on bullish inventory data: Inventory data: the API reported that U.S. crude supplies dropped by -11.1M barrels for the week ended Aug. 23 (bullish), while also showed a stockpile decline of -349,000 barrels in gasoline, while distillate supplies fell by -2.5M barrels; The EIA also bullish data for oil as weekly crude stockpiles fell -10.3M barrels vs. est. draw of -2.85M barrels; Gasoline stockpiles fell -2.09M barrels vs. est. for draw of -400K barrels; Distillate stockpiles unexpected draw of -2.06M barrels

·     MPLS active; TGE shares jumped after its majority shareholder, Blackstone Group Inc.’s (BX) Blackstone Infrastructure Partners submitted a non-binding proposal to buy the rest of Tallgrass for $19.50 a share; Raymond James downgraded AM to market perform from outperform on less risk/reward saying that in a bear case for AR, a potential bankruptcy in late 2021, with first upcoming maturity, implies another ~$2/share of downside for AM; TRGP was upgraded to strong buy from outperform, citing an overdone sell-off at Raymond James

·     Morgan Stanley the latest firm to lower its oil price outlook for the rest of the year, citing softer demand growth due to weaker global economic growth and rising shale production that could offset OPEC’s attempts to support the market. Morgan now sees Brent at ~$60/bbl for the rest of the year from its prior forecast of $65/bbl and U.S. WTI crude at $55/bbl from $58 previously; Bank America downgraded NBR, NINE and QES to neutral

 

Healthcare

·     Pharma movers; PAHC shares drop as Q4 results missed (33c/$204M vs. est. 36c/$206M) and guides FY20 adjusted EPS $1.08-$1.15 below consensus $1.54 saying effects of African Swine Fever have significantly impacted our performance in the June quarter; LCI surges as Q4 results handily topped estimates (adjusted EPS 37c/$133.8M vs. est. 21c/$121.68M) and guides FY20 revenue $525M-$545M above est. $505.95M; AZN phase III clinical trial, ETHOS, evaluating two doses its Breztri Aerosphere in patients with moderate to very severe chronic obstructive pulmonary disease showed statistically significant reductions; marijuana chain CURLF reported positive adjusted Ebitda in its fiscal second-quarter, though its net loss widened;

·     Biotech movers; GILD, MRK, ABBV shares slipped after an FDA warnings on rare serious liver injury with Ep C medicines; LVGO was upgraded to overweight at Morgan Stanley citing the recent decline in shares; VTGN shares rise after William Blair initiates outperform and $7 tgt as believes the company remains an overlooked, undervalued name with differentiated assets in large mood disorder markets

·     Healthcare Services, Medical equipment and devices; MDT announces that Omar Ishrak, Chairman and CEO has announced his intention to retire as CEO on April 26, 2020; SRDX completed the enrollment of 446 subjects in its TRANSCEND study comparing its SurVeil drug-coated balloon (DCB) to MDT’s IN.PACT Admiral DCB in patients with peripheral artery disease, triggering a $10M payment from exclusive global licensee ABT shares rise after the SEC ended its investigation into the company’s accounting without taking enforcement action

 

Industrials & Materials

·     Aircraft & Defense; HEI Q3 results topped consensus and raises FY net sales view to 14%-15% from prior 12%-13% view and FY net income growth to 23%-24% from 17%-18% prior; BA said that a plane order from China could result from any agreement to end a yearlong trade dispute between the U.S. and Beijing, according to Reuters

·     Industrial, Metals & Materials; DY shares bounced off near 52-week lows (which stood at $40.06 on 8/26 – low of day was $40.16) after better Q2 results (though Q3 guidance short of consensus); shares of other E&C, infrastructure related names also edged higher; shares of CAT and MMM (Dow components) touched 52-week lows today

 

Technology, Media & Telecom

·     Internet; GOOGL is moving production of its Pixel smartphone to Vietnam from China, the Nikkei reported overnight; said Google, working with an unidentified partner, has begun to convert an old Nokia factory in Northern Vietnam; Dow Jones reported that U.S. officials are looking to block the Pacific Light project, an undersea cable backed by Google, Facebook and China’s Dr. Peng Telecom & Media Group; YY named new best idea by Hedgeye with NTES named best short idea

·     Software movers; ADSK shares drop sharply as analysts lower their price targets after beating consensus expectations for Q2 results across the board, except for current deferred revenue. However, guidance was lowered across the board to reflect the weaker macro environment and geopolitical uncertainty (cuts FY20 total ARR view to up 25%-27% from up 27%-29% while cuts FY20 adjusted EPS view to $2.69-$2.81 from $2.71-$2.90 and cuts rev outlook); VEEV reported strong F2Q20 results yesterday, with non-GAAP EPS of $0.55 (consensus $0.49) on revenue of $267M, up 27% y/y (consensus $259M, up 24% y/y), billings of $234M, up 29% y/y (consensus $220M, up 21%), and subscription services growth of 28%, up from 27% last quarter

·     Services, Hardware & Component news; HPE Q3 results were mixed as revenues were once again below consensus, despite street estimates having come down materially over the quarter, but gross margins were strong, resulting in a healthy EPS beat and raised its year profit outlook; AAPL said it will no longer retain audio recordings of Siri interactions; earnings tonight from BOX, NTNX

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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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