Market Review: September 04, 2019

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Closing Recap

Wednesday, September 04, 2019

Index

Up/Down

%

Last

DJ Industrials

238.40

0.91%

26,356

S&P 500

31.54

1.09%

2,937

Nasdaq

102.72

1.30%

7,976

Russell 2000

12.47

0.85%

1,484


 

Equity Market Recap

·     U.S. stocks jumped on Wednesday, erasing yesterday’s steep losses as improving political developments in Hong Kong helped bolster gains in Asia, which carried over to the U.S. Hong Kong’s leadership (Carrie Lam) said she would withdraw the extradition bill that had sparked three-months of protests, prompting the Hang Seng index to rise nearly 4%, as markets hope it will ease protests that have hurt its economy. Italian markets rose as two rival parties agreed to form a gov’t coalition while the British Pound extended its rebound off 3-year lows on developments in the region as well. Overall, stock rallied amid a reduction of political instability overseas, coupled with better China services data and hopes Beijing and the U.S. can come to an agreement on trade which remains a big question mark for stock markets. Energy and commodities gained as oil prices rallied 4% and the dollar fell from 2-year highs. The Fed Beige Book showed the U.S. economy grew at a modest pace through much of July and August, with companies remaining upbeat despite disruption caused by international trade disputes; economy expanded at modest pace through end of August; consumer spending were mixed, although auto sales for most districts grew at a modest pace. In other data today, the U.S. trade deficit narrows 2.7% to -$54B in July vs. -$53.5B consensus and -$55.5B prior (revised), with imports: $261.4B and exports: $207.4B. Stocks have been supported by comments from U.S. Federal Reserve officials suggesting that they are open to further cuts in interest rates.

 

Commodities

·     Oil prices a nice recovery, with WTI crude rising $2.32, or 4.3% to settle at $56.26 per gallon (well off earlier lows of $53.84) ahead of weekly inventory data tonight (API) and the EIA tomorrow morning (as both pushed out a day due to the Labor Day holiday). Trade concerns, slowing global growth fears, tariff impacts and reports that OPEC shipped more crude in August than expected have weighed on prices recently with today’s action coming after an easing of tensions in Hong Kong, and improved China PMI data. Russian Energy Minister Alexander Novak plans to visit Saudi Arabia and meet with his counterpart ahead of President Vladimir Putin’s visit to the Middle East nation in October, according to reports overnight.

·     Gold prices reversed higher late day (along with other defensive assets), ending the day higher by $4.50 or 0.3% to settle at $1,560.40 an ounce, helped by a pullback in the dollar from 2-year highs – gold prices extended gains following the Fed Beige Book comments

 

Currencies

·     The U.S. dollar pulled backed after setting 2-year highs yesterday; the dollar fell against the Canadian dollar after the Bank of Canada did not follow suit of other central banks in recent weeks, holding rates steady instead of lowering and temper expectations, while oil also helped the currency; the British Pound a nice bounce off October 2016 lows yesterday when it broke below the 1.20 level vs. the dollar, rising more than 1% today to 1.222, getting a boost midday yesterday after UK PM Boris Johnson lost control of Brexit after MPs paved the way to force an extension to the October 31 deadline; dollar rallied vs. the yen but down vs. the euro.

 

Bond Market

·     Treasury yields reversed lower midday, a surprise move given that stocks outperformed the entire session reaching highs mid-afternoon. The 10-year yield slipped less than 1 bps to lows around 1.45% (off earlier hi’s 1.497%), while the 2-year yield was lower at 1.43% down 1.8 bps as yield curve no longer inverted (for a 2nd day). The yield curve has bear steepened out, ending a string of 7 days of inversion.

 

 

Macro

Up/Down

Last

WTI Crude

2.32

56.26

Brent

2.44

60.70

Gold

4.50

1,560.40

EUR/USD

0.0057

1.1031

JPY/USD

0.45

106.39

10-Year Note

0.006

1.464%

 

 

Sector News Breakdown

Consumer

·     Retailers; TPR said long-time CEO Victor Luis steps down, Chairman Jide Zeitlin to take over CEO role/Luis joined Coach in 2006 as president and CEO of Coach Japan; VRA shares declined after Q2 profit missed estimates (EPS 25c vs. est. 27c) although revenue rose more than forecast while comparable sales were up 2.1% in Q2 to match the expectation of analysts and fall in line with guidance for a low single-digit mark/E-commerce sales rose 4.7% Y/Y; AEO Q2 EPS of 39c beat by 7c on better sales while Q3 EPS 47c-49c below the 52c estimate and said American Eagle’s comparable sales decreased 1% and Aerie’s comparable sales increased 16%; GIII was downgraded to neutral from buy at Bank America; MIK shares spiked after earnings results as comp sales rose 0.3% in Q2 to top the consensus expectation for a mark of -1.1% while guides year sales of $5.16B-$5.19B and EPS $2.31-$2.42 vs. est. $5.19B/$2.34

·     Consumer Staples; in protein, TSN lowers guidance; cuts year EPS to $5.30-$5.70 from prior view $5.75-$6.10 saying it is experiencing short-term challenges that are negatively affecting Q4 earnings including margin compression commodity market volatility and others; CPB upgraded to neutral at Piper as believe better focus and reinvestment in key brands can drive long-term benefits for Campbell, but we recognize that rejuvenating brands that have been under-resourced can take some time; POST announces a new $400M share buyback plan; 52-week highs for Dow components KO, PG, WMT all in consumer space

·     Restaurants; SBUX said it sees FY20 adj EPS growth outlook below 10% model while FY19 EPS is reiterated at $2.80 to $2.82 vs. $2.82 consensus; DPZ reiterated its long-term 3%-6% comp guidance at conference today; SHAK traded to all-time highs; PZZA was rated a new buy at Northcoast with $70 tgt saying despite competitive challenges they believe PZZA’s turn-around strategy and intervention by Starboard should drive higher US same-store sales (SSS) at US locations, returning the firm to pre-2018 performance levels

·     Auto movers; monthly August total vehicle sales data out today; Hyundai Motor America reported August sales of 63,737 units, a 12% increase in comparison with August 2018 and the 13th straight month of increasing total sales on a comparative monthly basis; HMC said August U.S. auto sales rose 17.6% vs. 1.3% YoY while China Aug vehicle sales rose 5.9% YoY; NSANY Aug US auto sales up 13.2% vs. 3.7% YoY

·     Casino & Leisure movers; in leisure, BC was upgraded to buy at Jefferies saying with expectations re-calibrated post 2Q, they view the risk/reward set-up for BC at its most favorable in 4+ years; PK enters into a $950M unsecured delayed draw term loan agreement to help finance its previously announced proposed acquisition of Chesapeake Lodging Trust; WYNN rebounds on positive Hong Kong developments overnight – recall data yesterday in Macau showed gross gaming revenue in the region fell 8.6% y/y in August, and worse than the estimate 4% decline

 

Energy

·     Energy stocks rebound with oil prices; stock movers; HAL said at Barclay’s conference it expects Q3 earnings to come in at the lower end of company guidance, hurt by activity delays in the Middle East; MUR said to offer $500M of senior unsecured notes due 2029 by its wholly owned subsidiary, Murphy Oil USA, Inc.; CRK shares rose following positive comments by Dallas Cowboy owner Jerry Jones on CNBC; SDRL said its 50-50 joint venture with Sonangol secured a nine-well contract with six options, each for one well, in Angola for the newbuild Sonangol Libongos drillship; XOM CEO said at a conference that forecasts oil demand growth of 0.6%/year and natural gas demand rising 1.3%/year over the long term, which means significant new investments; SLB said it sees restoring double-digit margins in N.Am., sees international margin growth over 500bps

 

Healthcare

·     Pharma movers; TPTX shares dropped after announced 4.5M share offering last night; EBS was upgraded to outperform at Wells Fargo due to the clarity and upside on ACAM2000 and continued solid execution by the company; IDRA entered into an immuno-oncology clinical research collaboration with ABBV to conduct a clinical study evaluating whether combinations stimulate the immune system resulting in anti-tumor responses; ACB sold of the remaining 28.83 million shares of The Green Organic Dutchman Holdings Ltd. that it owned at a price of C$3.00 a share for gross proceeds of C$86.5 million ($64.9 million)

·     Biotech movers; ICPT was upgraded to buy at Citigroup while cutting its tgt to $85 from $106 saying they believe sentiment around the launch of NASH drugs is now more realistic after the stock fell ~45% since the phase III NASH REGENERATE results in February; PBYI announced that the U.S. FDA has granted Orphan Drug Designation to NERLYNX® (neratinib) for the treatment of breast cancer patients with brain metastases; AMAG activist Caligan seeks to replace four current directors on board, while saying assets could be worth at least $30 per share; RARE announces positive data from the second cohort in its Phase 1/2 clinical trial evaluating gene therapy DTX401 in patients with glycogen storage disease type Ia

·     Medical equipment and devices; SYK agreed to acquire privately held Mobius Imaging, LLC and its sister company GYS Tech, LLC for $370M in upfront cash plus up to $130M in development and commercial milestones; diagnostic test maker’s shares OPGN shares jumped after saying it will buy the unit of Curetis NV that contains all of its businesses

·     Healthcare services and providers; HQY Q2 EPS 45c/$86.6M vs. est. 35c/$85.32M; Q2 adj Ebitda $40.6M vs. est. $36.3M; guides FY adj EBITDA $138-142M vs prior $135-140M; PRAH 6.667M share Secondary priced at $97.50; TDOC shares rose after a published item from UNH’s unit extolling the benefits of its Virtual Visits telemedicine program, used by ~500K members since its launch in 2016.

 

Industrials & Materials

·     Industrial & Machinery; NAV bouncing off recent 52-week lows after quarterly earnings and revenue topped consensus estimates though cut its Q4 truck production rate by 15% from 3Q to reflect falling orders for commercial trucks; FTV said plans to separate into two independent, publicly traded companies: an industrial technology company which will retain the Fortive name and an industrial company focused on opportunities in the transportation and mobility markets/deal is expected to be structured in a tax-efficient manner and be completed in 2H20

·     Transports; in airlines, DAL issues a guidance update ahead of Cowen conference today saying for the full year it expects 6% to 7% revenue growth, 25% EPS growth and "solid" margin expansion, which are slightly ahead of views; JBLU cut its 3Q RASM guide, as sees -2-0% vs prior +0.5-3.5% citing softer bookings to Puerto Rico, weaker than forecast demand trends and impact of hurricane Dorian for decrease in Q3 RASM guidance; in rails, UNP said it sees volume down for 2nd half of 2019 "mid-single digits"

·     Metals & Materials; ThyssenKrupp said it has started a structured process to look for potential buyers of its elevator unit; a bounce overall for the beaten up metals with copper names rising despite prices touching 2-year lows yesterday; gold miners a breather after recent run with gold at 6-year highs; iron ore names also small rebound after plunging yesterday on weak pricing data points with Atlantic pellet premiums having fallen to $40/ton from $60/ton last month.

 

Technology, Media & Telecom

·     Internet; STMP was upgraded to neutral from sell at Roth Capital and upped its tgt to $52 from $32 saying it had a slightly more favorable view of 2020; TRIP was upgraded to neutral from sell at UBS noting shares have underperformed the SPX by ~33% on the back of a valuation reset as investors continue to debate long-term sustainable growth against long-term margin structure; EBAY was downgraded to neutral at UBS on valuation as shares are up 44% YTD; GOOGL paying $170M for YouTube kids privacy case – FTC claims YouTube violated children’s privacy laws

·     Semiconductors; the Philly semi index (SOX) outperformed, rising over 2% amid gains in MU and equipment stocks (MKSI, LRCX, AMAT) – with the SOX firmly above its 50-day MA of 1,493 (note over the last 2-weeks, the SOX has failed just below the 1,520 level 3-times); WDC shares trade near 52-week highs after Mizuho said supply chain checks suggest positive trends for memory chips with improving NAND pricing trends and stabilizing DRAM pricing as upped tgt on WDC to $64 from $61 and Micron (MU) from $44 to $50

·     Software movers; COUP shares jumped to a new all-time high after Q2 results of broad-based upside, with 12% upside to consensus rev estimates representing its largest beat since going public and represented the strongest quarter to date in terms of billings upside performance; EA was removed from the Best Ideas list at Wedbush as see few near-term catalysts ahead of the launch of Star Wars Jedi: Fallen Order in mid-November; ATVI was upgraded to outperform at BMO Capital amid stronger conviction that the company’s restructuring efforts and investments in core games improve financial performance; SPLK acquired stealth-mode SaaS company Omnition for undisclosed terms.

·     Media & Telecom movers; CHTR rises after Evercore/ISI upped its tgt to $460 and boosted estimates on expectations for higher cash flow from what it they think will be earlier-than-expected service price increases; AT touched a 52-week high;

·     Hardware & Component news; ROKU tgt was raised to a new Street-high of $185 (from $135) at DA Davidson citing its ability to exploit the billions being spent across the industry on proprietary content and the international advertising-based video on demand market opportunity; BOX shares rose after Starboard Value discloses activist stake in 13D regulatory filing saying shares were "undervalued and represented an attractive investment opportunity" and may seek talks with holders or other third parties; AAPL to sell $7B in debt in its first bond sales since 2017

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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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