Market Review: September 09, 2019

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Closing Recap

Monday, September 09, 2019

Index

Up/Down

%

Last

DJ Industrials

38.73

0.14%

26,836

S&P 500

-0.28

0.01%

2,978

Nasdaq

-15.64

0.19%

8,087

Russell 2000

19.04

1.26%

1,524


 

Equity Market Recap

·     U.S. stocks were mixed with today being more a rotation out of YTD winners such as software (AYX, TWLO, CRWD), Internet (SNAP, PINS), payments (V, MA, PYPL) and into YTD laggards (energy, financials, metals) in what was a very quiet day of corporate news. Central banks in focus this week and next as the ECB meets on Thursday with markets anticipating a possible rate cut while the FOMC meets next week (9/18) with expectations also for a rate cut, which could possibly push markets higher. Industrial stocks outperformed, continuing to rise for the fourth straight day, amid increasing hopes for a potential resolution to the U.S.-China trade war. The S&P 500 index touched intraday highs of 2,989.43, not far off its all-time highs of 3,027.98 in late July before fading and snapping its 3-day winning streak. Also weighing on stock was a further rebound in Treasury yields – although still depressed – are trading at best levels in over a few weeks and well off the recent multi-year lows. Stocks got a boost overnight after Treasury Secretary Steven Mnuchin said he takes it as a sign of "good faith" by China that officials will restart trade talks with their U.S. counterparts. Officials are expected to begin discussions in early October and Mnuchin said his objective is getting a good deal for American companies. It was a very quiet news day, with no economic data and no major earnings.

 

Commodities

·     Commodity prices mixed as oil prices extend last week’s rebound and gold prices fall further from 6-year highs early last week. WTI crude rose $1.33, or 2.4% to settle at $57.85 per barrel amid a recent easing of over supply fears given last week’s latest Baker Hughes rig count decline and bullish weekly inventory data. Gold prices settle lower by -$4.40 or 0.3% to settle at $1,511.10 an ounce, its 3rd straight session decline, pulling back from 6-year highs a week ago. There were no major economic data points in the U.S. to move the dollar.

 

Currencies & Treasuries

·     Treasury yields end higher, as the 10-year yield was above the 1.6% level most of the session (and off recent multi-year lows of 1.427%) while the 30-year yield traded as high as 2.11% before paring gains (and well off recent all-time lows of 1.90%). The 10-yr yield spread also widens to over 4bps vs. the 2-year yield now; the 3-month/10-yr yield still inverted by roughly 33 bps. No major economic data today to move markets as markets await upcoming central bank meetings.

·     The U.S. dollar was mostly lower, having risen against the Japanese yen, while sliding to 5-week lows below 1.315 against the Canadian dollar as oil prices rise. The euro stayed rallied after having dropped to a five-day low against the dollar overnight, as investors remained convinced the ECB will introduce a new wave of monetary stimulus at its meeting on Thursday. The dollar also fell against the British Pound.

 

 

Macro

Up/Down

Last

WTI Crude

1.33

57.85

Brent

1.05

62.59

Gold

-4.40

1,511.10

EUR/USD

0.0026

1.1056

JPY/USD

0.26

107.18

10-Year Note

0.047

1.607%

 

 

Sector News Breakdown

Consumer

·     Retailers; TGT announces it will launch a new loyalty offering called Target Circle on October 6th to include a benefit for customers of earning 1% percent on every Target purchase to use later, as well as personalized deals and perks; FRED files for voluntary Chapter 11 bankruptcy protection; ENR was double upgraded to buy from underperform at Bank America; GCO was upgraded at Pivotal research helping boost shares

·     Consumer Staples; for tobacco space (PM, MO), the FDA today issued a warning letter to Juul Labs for "marketing unauthorized modified risk tobacco products by engaging in labeling, advertising, and/or other activities directed to consumers, including a presentation given to youth at a school."

·     Restaurants; CMG upgraded to Outperform at Wedbush and raise target to $980 from $780 saying within the emerging battle for digital real estate, CMG is quickly establishing a leading position that could enable a multi-year streak of mid- to high-single digit SSS growth

·     Casino & Leisure movers; LVS upgraded to buy at Deutsche Bank with $70 tgt saying bearish sentiment on the Macau gaming market has created an attractive entry point for medium to longer term investors; LOPE shares dropped after a negative call from Citron Research, issuing negative short call with $30 tgt on shares

 

Energy

·     Energy stocks got a boost early as oil prices extend last week gains, led by natural gas stocks (RRC, SWN, GPOR) as gas prices ear the highest level since May ($2.58 mln btu); nat gas futures rose amid above-average temperatures across the country are set to increase demand for air conditioning and boost consumption. Prices were active after newly appointed Saudi Energy Minister Prince Abdulaziz bin Salman said there won’t be any radical shifts in the kingdom’s oil policy; overall a positive day for energy as investors rotate out of YTD winners and into beaten up energy and natural gas leveraged names along with the bounce in oil.

·     Utilities & Solar; PCG shares slipped early before rebounding as the city of San Francisco offered to buy PG&E Corp’s power lines and other electrical system infrastructure serving the city for $2.5 billion, according to the utility, which sought Chapter 11 bankruptcy protection in January

 

Financials

·     Bank movers; banks benefit, pacing the market gains early as Treasury yields move to their best levels in several weeks (JPM, GS, BAC, C, PNC); CMA tgt cut to $74 from $86 at RBC Capital following the company’s 3Q outlook update ahead of an investor conference this week which included stable average loans through August, modestly higher average deposit balances and deposit costs, continued strong share repurchase activity, and a negative net interest income and margin impact

·     Consumer finance and lending; FNMA, FMCC shares rose after Treasury Secretary Steven Mnuchin said on Fox Business that an agreement between the Treasury and the Federal Housing Finance Agency soon that ends the Fannie and Freddie profit sweep; in auto loans, ALLY upgraded to overweight at Stephens saying they should be able to maintain or increase auto yield as it increases its application funnel, with dealers such as Carvana, CarMax, Fair, while downgraded SC to underweight saying declining credit reserves unlikely to keep driving EPS/losses broadly increasing; PAYS cuts FY19 revenue view to $35M-$37M from $38M-$40M which reflects delays in onboarding of new plasma industry programs planned for Q1 and Q2; MGI announced the launch of a new debit card deposit service in partnership with Visa (V)

 

Healthcare

·     Pharma movers; industry pressured early as MRK falls over 3% early to lead the Dow decliners and fall below the 50-day MA of $84.20 ahead of expected drug pricing headlines in the coming weeks following Congress’s August recess – also this week lots of conferences with Morgan Stanley, HC Wainwright and Janney health conference ongoing; LLY rises as its OXO-292, an experimental cancer drug shrank tumors in nearly 70% of advanced lung cancer patients whose tumors carried specific abnormalities in the RET gene/LLY to apply to the U.S. FDA for marketing approval of the drug, also called selpercatinib, later this year; ACAD surged after saying its experimental treatment pimavanserin met the main goal of a late-stage study testing the drug in patients with dementia-related psychosis/said the study will be stopped early, upon the recommendation of the study’s independent data monitoring committee; the FDA action date (PDUFA) for XERS glucagon rescue pen is expected tomorrow (9/10)

·     Biotech movers; AMGN shares fell following data presented in Barcelona at the World Conference on Lung Cancer on Sunday as its experimental drug AMG510, that targets a specific genetic mutation, reduced tumor size in around half of advanced lung cancer patients given the highest dose in a small, early-stage trial/but median duration of response has not been reached; XLRN said the FDA granted orphan-drug designation to sotatercept for the treatment of pulmonary arterial hypertension/said it is evaluating sotatercept in a pair of phase 2 trials; NTRP shares plunged after the company’s Bryostatin-1 failed to meet the primary endpoint in a phase 2 study in moderate to severe Alzheimer’s disease

·     Medical equipment and devices; TMO signs a deal with LLY to develop its next-generation sequencing (NGS)-based Oncomine Dx Target Test as a companion diagnostic aimed at identifying suitable NSCLC and thyroid cancer patients for the latter’s RET inhibitor selpercatinib; SINT announces provisional filing for a new patent, updates 2018 patent filing; DXCM shares slipped after EVP and CFO Quentin Blackford this morning at Morgan Stanley’s Healthcare Conference said "headwinds" will make year-to-year comparisons more difficult this quarter compared to Q2, adding that growth will continue to be "depressed

·     Healthcare services and providers; WCG was downgraded at Stephens as sees limited incremental opportunity to capture value from the pending takeover by Centene and still expects the deal to close in the first half of 2020

 

Industrials & Materials

·     Transports; SAVE provided a guidance update following the market close on Friday reflecting 1) a weaker 3Q19 RASM on softer than expected yields in the off-peak period and 2) the impact from Hurricane Dorian. The net impact is a ~$0.50 drag to EPS prior to any benefit from lower fuel cost; Air France shares dropped after warned over bookings saying “close-in bookings in the peak travel period are weaker than foreseen in view of softening macro-economic environment.”

·     Aerospace & Defense; BA shares active after it suspended testing of its 777X aircraft in the latest delay to a widebody program intended to soften the impact of its grounded 737 MAX jets; SAIC was upgraded to outperform at Cowen and raised tgt to $102 from $92 saying the -8% sell off Friday on a revenue guide down that was mostly timing provides attractive entry point given strong EPS/cash flow prospects and solid B2B; Baird said RTN and UTX added as fresh picks saying shares could rice between 30%-40% for both

·     Metals & Materials; in chemicals, RYAM suspended its quarterly cash dividend in order to prioritize its cash flow to repay indebtedness and fund capital investments and working capital needs; NEM was upgraded at RBC Capital saying now that that weaker than expected guidance from the Goldcorp assets is now likely priced in, expects the market to begin to discount the successful integration of the core Goldcorp assets and synergies from the Nevada JV; gold prices tumbled late morning, sending old miners lower (AUY, GOLD, AEM); industrial metals outperformed with gains in steel (X, STLD, NUE, AKS) names as China’s iron ore imports rose last month to the highest level since January 2018, jumping 4.2% from July and 6.2% from a year earlier to 94.85M metric tons, Argus reports.

·     Paper sector, WRK announced today that it is reconfiguring its North Charleston, SC, paper mill to improve the mill’s operating efficiency and long-term competitiveness/shut down of one paper machine will reduce linerboard capacity by approximately 288,000 tons; shares of other paper stocks PKG, IP were active on the news

 

Technology, Media & Telecom

·     Internet; CYOU shares jumped after SOHU announces plan to buy remaining stake in company it doesn’t already own for $10 ADS; AKAM entered into an agreement to acquire Exceda, its largest channel partner in Latin America; NFLX rises to highest levels in a month after Bank of America says it’s ‘seeing significant reacceleration’ in mobile app downloads; GOOGL shares dropped after all 50-State attorney general investigate into its ad business; shares of YTD winners SNAP and PINS came under pressure

·     Semiconductors soar; the Philly semi index (SOX) up over 1.1% to highs of 1,588 before paring gains late day, trying to make it a 4th straight session higher (up over 7.3% during that stretch) on news of renewed talks between the US and China for October helping propel stocks higher (all-time highs at 1,625 on 7/24) – 52-week highs today for ASML, LRCX, MU in the index

·     Software movers; CRWD adds to last week declines, falling as much as 14% at lows and dropping below $65 per share – shares were above $85 prior to earnings last Thursday night (9/5); AYX leads decline in software names; sharp declines in software sector with AYX falling below its 50-day MA of $127, off 52-week highs just last Friday of $147.79 – though group broadly lower with TWLO, COUP, TEAM, also falling; WORK shares new lows down over 8% to lows under $25, falling below its reference price set at $26 per share back on June 19th ahead of WeWork IPO

·     Media & Telecom movers; AT shares jumped as shareholder Elliott Management Corp called the company "deeply undervalued" and urged it to restructure its business, including cutting costs in units, to increase shareholder value/said the company could achieve a value per share of more than $60 by the end of 2021 if it follows the shareholder’s plan; FOXA was downgraded to neutral at Macquarie, saying the company’s margins could come under pressure from rising costs related to sports rights.

·     Hardware & Component news; AAPL to hold its annual product announcement tomorrow afternoon; FFIV upgraded to overweight from neutral at Piper and raise tgt to $166 from $161 on valuation after recent underperformance; in storage, Susquehanna upgraded shares of NTNX, PSTG and NTAP to positive from neutral

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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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