Market Review: September 06, 2019

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Closing Recap

Friday, September 06, 2019





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     U.S. stocks managed mixed returns on Friday, closing out a strong week that saw China’s Commerce Ministry say its trade team will hold talks with U.S. counterparts in mid-September in preparation for high-level negotiations in early October, Hong Kong’s leadership (Carrie Lam) saying she would withdraw the extradition bill that had sparked three-months of protests (helping sentiment in Asia), and mostly bullish economic data in Asia, Europe and the U.S. this week, excluding today’s weaker than expected jobs report. For the week, major averages are up a little less than 2% in a broad based rally that saw Treasury yields bounce off multi-year lows, gold slip from 6-year highs mid-week and oil prices rise for a second straight week. Stocks continued their climb on Friday after Fed Chair Jerome Powell assured markets that the central bank will support U.S. economic expansion while stressing that he sees the most likely outlook as continued moderate growth. The jobs report kept the door open for the Fed to cut rates again when they meet in a few weeks, showing the economy may need another boost.

Economic Data

·     Jobs data weaker as the change in Nonfarm Payrolls for August reported at 130K vs. est. 160K (and prior month revised down to 159K from 164K); the change in Private Payrolls for August at 96K below est. 150K (prior revised down to 131K from 148K); change in Manufacturing Payrolls for August at 3K, below est. 5K; unemployment Rate for Aug in-line at 3.7%; average Hourly Earnings for August rises 0.4% vs. est. 0.3% – recap of jobs data which comes in light on headlines



·     Oil prices got a late day boost, erasing earlier losses and bouncing off lows of $54.83 before settling at $56.52 per barrel, up 22c following the Baker Hughes weekly rig count report, which revealed a -4 oil rig decline of 4 to 738, its third week of declines. That followed government data Thursday that revealed that domestic crude supplies have also fallen for three consecutive weeks. The combination of bullish inventory data, a pullback in the dollar and the rig count data helped oil finish more than $ off its weekly lows, ending up 2.6% on the week.

·     Gold prices dropped -$10.10 or 0.7% to settle at $1,515.50 an ounce in volatile trading, falling to lows of $1,510.70 an ounce before jumping back above the $1,530 an ounce level following the weaker monthly jobs report (note gold prices plunged over 2.2% yesterday on sector rotation out of safe-havens). But gold couldn’t hold its gains, sliding early afternoon after Powell comments. For the week, gold dropped -0.9%, falling from 6-year highs mid-week but still remains up roughly 18% for the year. Uncertainties around U.S.-China trade ties, fears of a deceleration in global economic growth and negative Treasury yields around the world continue to support.



·     The U.S. dollar was mixed, slipping back below the 107 level against the yen (was at 5-week highs yesterday), but off its initial post-jobs report dip to 106.62 (overnight high was 107.10), while the dollar was little changed against the euro at 1.1036, but down about -0.5% for the week (traded in range of 1.0926-1.1085 on week). The Chinese Yuan advanced to 7.1179 per U.S. dollar after the People’s Bank of China reduced the amount of funds banks have to hold in reserve/move releases another 900B yuan ($126.4B) of liquidity. The dollar bounced slightly late day on Powell comments about the economy, but notes still the Fed will sustain expansion.


Bond Market

·     Treasury markets were volatile on the day, with the yield on the 10-year rising as high as 1.604% and as low as 1.538% before settling little changed around the 1.55%, but was well off the weekly lows of 1.427% on 9/3. The inverted yield curve between the 2/10 year yields disappeared the last four trading days, easing recessionary fears. The weaker jobs report helped keep expectations in-line for another rate cut when the FOMC convenes later this month, coupled with comments from Fed Chair Powell late day in Zurich about the Fed doing what is necessary.






WTI Crude















10-Year Note





Sector News Breakdown


·     Retailers; GCO rises after Q2 earnings topped views (15c vs. expected loss) on better comps of 3% vs. est. 1.4% and raises year comp sales view to 2%-3% from 1%-2% and better EPS outlook; LULU a bright spot for retail as Q3 EPS beat by 7c on better sales ($883M vs. $845M est.) and comp sales handily topped the 5.2% estimate on better margins and raises year EPS view to $4.63-$4.70 from prior $4.51-$4.58; ZUMZ shares up as Q2 revs top estimates with upbeat Q3 guidance and raised FY 19 EPS view to 2.10-$2.20 from $1.84-$1.94 (est. $1.90); COST shares trade to fresh 52-week highs after stronger August comp sales data

·     Consumer Staples; K (Kellogg) was upgraded to buy at Goldman Sachs with improved $72 tgt on view that organic sales at the food company will accelerate and profit margins improve, while downgraded CAG to neutral and cut tgt to $31 in the food space; FIZZ shares slipped early after the beverage company falls slightly short of Q2 estimates; BYND initiated underperform and $130 target at Davidson citing cautious approach to the total addressable market

·     Restaurants; MCD is adding GRUB to its growing roster of delivery services, further eroding the exclusive partnership the burger giant once had with UBER and its Seamless division will launch the service at around 500 McDonald’s restaurants in New York City and surrounding areas; CAKE was upgraded to outperform at Wells Fargo and raise tgt to $50 from $46 saying for investors with an appetite for exposure to the U.S. consumer, strong visibility into cash flows and a business with an inflection in top-line growth, we suggest you make room for CAKE

·     Leisure movers; PII shares fell after the NY Times reported the Polaris RZR has been linked to "scores of fires" and four deaths, and lawsuits contend that the company concealed knowledge of defective products; in auto’s, the WSJ reported DOJ has started an antitrust investigation into Ford, Honda, BMW and Volkswagen related to emissions deal, citing unidentified people familiar



·     Energy stocks broadly lower as oil prices erase earlier weekly gains, with WTI crude sliding 2% dragging energy stocks lower; Goldman Sachs cut tgts for OXY, EQT, APA, HES, SWN, MRO, NBL as firm lowers growth forecast for cos exposed to natural gas and natural gas liquid prices; also downgraded AR to neutral from buy on lower-than-expected NGL/gas prices; says activity in the Appalachia Basin in the United States is starting to slow; sees continued reduction in growth expectations in 2020 for producers

·     Equipment and services; Baker Hughes (BHGE) reports U.S. rig count down 6 to 898 rigs, with oil rigs down 4 to 738, gas rigs down 2 to 160, and miscellaneous rigs unchanged at 0; MRC shares fell after lowering its Q3 revenue outlook to $930M-$950M which was below est of roughly $1B citing continued reductions in customer spending levels and lower demand mainly in midstream and upstream sectors in U.S., upstream sector in Canada

·     Utilities & Solar; Morgan Stanley downgraded ETR while upgraded NRG noting sector outperformance relative to the broader market has resulted in a very high relative valuation for the lowest risk stocks, leaving opportunities to invest in U.S. utility stocks that have been left behind/also raised price tgts on XEL, AEE and CMS as sees these Midwest utilities offering above-average earnings growth (says avoid EIX, PCG, PNW, SO); CNP upgraded at SunTrust as believe the 13%-14% valuation discount for CNP shares (relative to its peers) is unwarranted, and overly penalizes the stock for earnings outlook concerns which should be addressed in coming months



·     Consumer finance and lending; late yesterday, the Trump administration said it would support returning mortgage-finance giants Fannie Mae (FNMA) and Freddie Mac (FMCC) to private hands. The principles announced Thursday represent a major reversal from what leaders of both parties over the past decade promised — to abolish the companies, which guarantee roughly half the U.S. mortgage market as per the WSJ



·     Pharma movers; MNK rallied late day after agreeing to pay $30M to settle alleged accusations that it helped fuel the opioid epidemic, in a bid to avoid having to participate in the first federal trial over the addictive painkillers; OxyContin maker Purdue Pharma is in talks with DOJ to resolve criminal, civil probes as per DJ; ALXN shares active following AMGN’s challenge of three patents covering top seller Soliris (eculizumab); the USPTO’s Patent Trial and Appeal Board (PTAB) will conduct an inter-partes review of new Soliris patents that, if upheld, will extend Soliris’ U.S. exclusivity to 2027; ENDP submitted a Biologics License Application (BLA) to the U.S. FDA for collagenase clostridium histolyticum (CCH) for the treatment of cellulite in the buttocks

·     Biotech movers; IMUX shares rose early following encouraging IMU-838 data which showed activity at the lowest dose (10 mg) and tolerability at the highest dose (45 mg)/trial will continue with all three dosing arms; CDMO shares dropped following a quarterly earnings miss

·     Healthcare services, equipment and providers; Bank America added UHS as a top pick, upgraded HCA and EHC while downgraded MD to neutral saying improved volumes in 1H has modestly improved our outlook for hospitals in the ST, but political uncertainty (Medicare for All, transparency, surprise billing) remains an overhang and long term, we remained concerned about the structural payer mix headwind and rising labor costs; IRTC 1.37M share Secondary priced at $73.00; 52-week highs for BSX, EW, RMD


Technology, Media & Telecom

·     Internet; BABA agreed to acquire an import e-commerce business from NTES, Kaola, for about $2B, and invest $700M into NetEase’s streaming music business, NetEase Cloud Music. Alibaba will continue to operate Kaola as an independent business ; NY State AG said is launching an investigation into FB to determine whether their actions endangered consumer data, reduced quality of consumers’ choices, or increased the price of ads

·     Software movers; DOMO shares plunge for worst day since company’s IPO in June 2018 after the company cuts FY 2020 revenue, profit forecast prompting downgrade at Credit Suisse to neutral; DOCU shares jumped following earning as provided upside across all revenue drivers (though EPS missed) with subscription revs of $221M +39% YoY and subscription billings of $238M +44% YoY came in well ahead of estimates; ZM reported F2Q20 results that again easily beat Street expectations in its second earnings report as a public company as customers contributing more than $100K in the TTM revenue grew 104% Y/Y to 466 and issued upside guidance for Q3/FY

·     Hardware & Component news; PD shares slumped, as KeyBanc noted 2Q results topped expectations as billings, revenue, and profits surpassed expectations for the quarter, while net retention rate was negatively impacted by competitors churning off of the Pager Duty technology, but remained a solid 132%, while guidance didn’t wow


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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