Market Review: September 13, 2019

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Closing Recap

Friday, September 13, 2019





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     U.S. stocks posted strong gains on the week, led by strength in Small caps as the Russell 2000 outperformed amid gains in financials (regional banks jumped on rising yields), discretionary (unloved sector), and energy (despite oil sliding the last 4-days), as central bank easing and improved trade actions by both the U.S. and China boosted market sentiment. Today’s quiet market was highlighted by another spike in Treasury yields, jumping to six-week highs (best week since 2016) on better economic data and positioning off multi-year lows last week, ahead of next week’s FOMC meeting where a rate cut is expected. Optimism over a trade deal grew this week ahead of expected high-level talks next month between the Washington and Beijing, as just this week alone, China said they will exempt U.S. soybeans and pork from additional tariffs while President Trump said last night he’d be open to a smaller-scale, interim trade deal with China and offered to delay tariffs from Oct 1st to Oct 15th as a gesture of goodwill at the request of China leader as the People’s Republic of China will be celebrating their 70th Anniversary on October first. The trade moves, in addition to more global easing (ECB cut their deposit rate by 10 basis points to -0.50% yesterday while also saying QE will be restarted on Nov. 1 to the tune of €20B per month) and better economic data this week (retail sales beat and hotter CPI inflation) was enough to push the S&P 500 to within 0.5% of its all-time high in July before fading the tail end of the week. Early in the week, markets saw a rotation into value buying and selling of momentum and YTD winners in an aggressive manner before leveling off on Wednesday. Apple (AAPL) shares fell on cautious comments and a lower price tgt at Goldman Sachs (after good run in shares), which is pressured tech along with in-line results from semi maker AVGO overnight. The Fed remains in a tough spot heading into next week’s interest rate policy meeting, where they are stuck between stock market expectations for a rate cut/added easing measures, especially after other central banks around the world (ECB yesterday) has been cutting rates to stimulate growth. At the same time, economic data this week in the U.S. has been solid, including a rise in inflation (CPI), not necessarily warranting Fed intervention at this time as they said they would remain data dependent. The Dow rises for an 8th day while the Russell rises nearly 5% this week.

Economic Data

·     Import Prices MoM for August falls an in-line (-0.5%) vs. est. (-0.5%), while export Prices MoM for August falls (-0.6%) vs. est. (-0.3%); Import prices ex-fuels unchanged m/m after no change in July and import prices ex-petroleum unchanged m/m after no change in July

·     Retail Sales MoM for Aug rises a better-than-expected 0.4% vs. est. 0.2% (prior month revised to 0.8% from 0.7%) and Retail Sales Ex: Autos MoM for Aug was unchanged vs. est. 0.1%; Retail sales rose to $526.057B in Aug. vs $524.165B in July

·     University of Michigan Confidence reported at 92.0 vs. est. 90.8 after 89.8 prior month; current economic conditions index rose to 106.9 vs. 105.3 last month, the expectations index rose to 82.4 vs. 79.9 last month and the expected change in median prices during the next year rose to 2.8% vs. 2.7% last month.

·     Business Inventories rose 0.4% vs. 0.3% estimate as the three-month annualized change in inventories $51.3B in July; manufacturers’ inventories rose 0.2% MoM in July after rising 0.1% prior month and retailers inventories rose 0.8% MoM in July after falling 0.2% prior month



·     Oil prices end lower for a 4th consecutive session, with WTI crude slipping 24c or 0.4% to settle at $54.85 per barrel following a few catalysts this week that drive down prices including yesterday’s meeting of OPEC+ ending without deeper cuts in crude output though reiterated their commitment to current output cuts. Also adding to market weakness this week, expectations the U.S. may ease oil sanctions on Iran after former NSA advisor was asked to resign. Inventory data has moved more to the bullish side over the last few weeks with bigger-than-expected drawdown, while another sharp drop in oil rig counts this week pared losses on the day.

·     Gold prices dipped late day, falling -$7.90 or 0.5% to settle at $1,499.50 an ounce, settling under $1,500 and down 1.1% for the week – now off highs of $1,566.20 an ounce in the beginning of September, 6-year highs, pulling back on improved trade rhetoric and positioning ahead of the FOMC policy meeting next week.


Currencies & Treasuries

·     The U.S. dollar was mixed overall, little changed vs. the Japanese yen (5-week highs) but down against the euro and British Pound in what was a volatile week, which is expected to get even moreso next week with the FOMC meeting on tap. The British Pound jumped around 1% vs. the buck at 1.2456 (highest since July/off recent lows of 1.1959 on 9/3) after reports that Northern Ireland’s largest political party had agreed to accept some European Union rules after Brexit and hopes that a no deal Brexit can be avoided


Bond Market

·     It was a rough week for Treasury prices to say the least, with yields surging across the curve amid improved economic data, better trade talk rhetoric and rotation out of bonds and into stocks which traded near record highs for the S&P. The 10-year yield hit a session high of 1.897%, off the morning lows of 1.764% and up over 33 bps on the week (and off 3-year lows of 1.427% last week). Same can be said for long bond as the 30-yr rose around 10 bps to 2.35% (off recent all-time lows last week of 1.90%) while the 2-year rose about 6 bps and the yield curve inversion a thing of the past with the spread between the 2/10 yr now about 10 bps. The decline in prices came after August retail sales topped expectations, rising 0.4% vs. 0.2% expected and July was upwardly revised to a 0.8% gain






WTI Crude















10-Year Note





Sector News Breakdown


·     Consumer; VNCE shares jump after posting quarterly results and provided favorable guidance amid the tough tariff scenario as guides year revs to $295M-$305M vs. $290M-$300M prior; in staples, CNBC David Faber reported that Juul valuation now around $225-$230 per share after Altria paid $250/share and after Juul traded as high as $300 in the summer (follows the recent attack on company about vaping concerns) – MO shares fell in reaction

·     Housing & Building Products; MDC was upgraded to strong buy at Raymond James and raised tgt to a Street high $49 from $42, citing preliminary 3Q net order activity through July and August; LL shares dropped sharply after its CEO said in a Bloomberg interview that he will not seek a buyout of the company

·     Auto’s; Bank America with a slew of rating changes in the auto space, as they downgraded ABG, ADNT, and APTV from Buy to Neutral, cut LAD and SAH to Underperform, upgraded DAN from Neutral to Buy, and upgraded GTX and SHLO to Neutral as generally moving towards a more neutral-bias across each of the sub-sectors in our coverage (OEMs, suppliers, dealers), which they believe is appropriate at this point in the cycle; CARS rose as Dealer Inspire, a company, announced a new OEM agreement with General Motors



·     Energy stocks were mixed but up for the most part on the week despite oil prices dropping the last four trading sessions. Natural gas prices rise 1.6% to settle at $2.61 mln btu – as it approaches its 200-day MA of $2.735 (hasn’t broken 200 day to upside since January) and well off the August 5th lows of $2.029 mln btu. Baker Hughes showed the weekly rig count fell -12 rigs to 886, with oil rigs down -5 to 733 (4th straight weekly decline), and gas rigs down -7 to 153

·     E&P sector; PXD CEO said U.S. oil production would plunge to 2008 levels of 5M bbl/day from 12.4M bbl/day currently under a fracking ban proposed by several top Democrat presidential candidates/CEO said the U.S. would need to import 7M-8M bbl/day of oil from the Middle East and would lose as much as 10% in gross domestic product if the U.S. drilling sector collapses

·     Utilities & Solar; PCG shares jumped after agreeing to pay $11 billion to settle insurance claims for damages from 2017 and 2018 wildfires tied to the utility’s equipment/covers 85% of fire claims the bankrupt utility faces; overall though, utilities slipped on the day, as Treasury yields slip – weighing on high dividend paying sectors early today (MLPs, REITS, etc.)



·     Bank movers; banks have had an excellent week as Treasury yields have surged off multi-year/record lows reached last week and economic data has also improved; shares of JPM traded to fresh 52-week high today – over the last week, the XLF rises over 3.5% and the regional bank ETF KRE up over 8% this week as financials pacing market gains (SIVB, BAC, JPM, C, PNC rise)

·     Insurance; VOYA to conviction buy list in place of PRU citing Voya Financial has a better ability to beat earnings estimates in the near term as well as in 2020 and 2021 relative to Prudential Financial; PGR shares slipped after EPS of 30c falls short of last year 46c while net premiums written of $2.92B, up 13% Y/Y; net premiums earned $2.78B, up 14%

·     Exchanges; Bank America downgraded CBOE to Underperform saying trends have moderated some in September while its compares in Q4 are tough/also says open interest and assets under management in volatility products have been moderating; Bank America upgraded TW to buy and raise EPS and maintain tgt at $50 based on the stronger volume trends in the summer

·     Asset managers; LM was downgraded at Wells Fargo based on view that substantial value in LM has now been unlocked following the implementation of an aggressive cost savings plan and meaningful outperformance for the stock YTD; WDR was downgraded to Underperform at Bank America and lowered target to $17 from $18 citing expectations of elevated outflows, some weakness in investment performance, the industry headwinds, and the recent bounce in the stock, even though he sees the company’s balance sheet remaining healthy; MN reports preliminary AUM $20.7B as of August 31 compared with $21B at July 31, and $21.3B at June 30



·     Pharma movers; MNK said results of a retrospective analysis of the cost of Acthar Gel (when used as late-treatment for multiple sclerosis (MS) relapses in adults demonstrates its cost-effectiveness compared to other late-line treatments despite similar average annual cost; SNY shares slipped early on headlines FDA investigates carcinogen found in versions of Zantac; RTTR plunges after saying Phase III clinical trial of RP-G28 for lactose intolerance failed to demonstrate statistical significance in its pre-specified primary endpoint; STSA opened at $19 after its 5.5M share IPO priced at $15

·     Biotech movers; Eisai Co. Ltd. and BIIB said they would discontinue the Phase III clinical studies on lanabecestat in patients with early Alzheimer’s disease based on the results of a safety review which recommended discontinuing the trials due to unfavorable risk-benefit ratio; BMRN positive mention by Stifel and Piper ahead of likely Q4 phase III results for Vosoritide which are likely to be positive and drive shares higher; ACAD was upgraded to outperform from market perform at Leerink and raise tgt to $50 from $21 after positive results on Monday from a late-stage study in dementia-related psychosis; AMGN said a study evaluating the combined use of Kyprolis with dexamethasone and Darzalex for multiple myeloma met its primary endpoint; ADVM adds to yesterday’s 50% declines following data – Chardan said at 24-weeks post intravitreal (IVT) injection of a single dose of 6 x 10^11 vg/eye of ADVM-022 – OPTIC phase I data leave unanswered questions; SWTX opened at $24.50 after 9M shares IPO priced at $18

·     Medical equipment and devices; ABT said it has received public reimbursement in Ontario and Quebec for its FreeStyle® Libre system, becoming the first sensor-based glucose monitoring system to be listed by any provincial health plan in Canada

·     Healthcare services and providers; PRAH was upgraded to overweight at KeyBanc following conversations with management and with the stock trading at a sizable discount; INGN shares jump after Piper said after mgmt meetings they feel more confident in double-digit 2020 growth and an excitement around the New Aera acquisition; broad sector rebound in managed care stocks (UNH, HUM) which had fallen yesterday ahead of the Democratic debate last night


Industrials & Materials

·     Industrial & Machinery; CAT said N.A machines retail sales for 3-month rolling period ended august up 6%, with Asia/Pacific machines retail sales for 3-month rolling period ended august down (-8%) and Latin America machines retail sales for 3-month rolling period ended august up 24%

·     Transports; Dow Transports rise to earlier highs of 10,856 (just shy of the July 16 highs of 10,876), with all 20 components in the index higher mid-afternoon; in airlines, Macquarie upgraded shares of SAVE and LUV to outperform with increased tgt for LUV to $67 from $52

·     Metals & Materials; metals have been strong all week with improved comments on trade between China and the U.S. helping sentiment; steels, iron ore and aluminum all rising; copper names played catchup today (FCX); VALE was ordered to stop operations at part of its Brucutu iron ore mine Brazil’s Minas Gerais province by the local mining authority after Vale exceeded its mining limit for the mine; Vale says it is within the limit

·     Chemicals; AVY was upgraded to buy at Bank America and raised target to $130 from $123, saying prior concerns about its potential for decelerating revenues were priced into the stock after the company guided sluggish sales for the back half of the year; 52-week highs for FMC, CE, ARNC in materials space in the S&P 500


Technology, Media & Telecom

·     Internet; ETSY was upgraded to outperform at Wedbush as they now see a critical mass of new initiatives, highlighted by Etsy Ads and free shipping that can drive stronger GMS growth and margin expansion over time; The German government is opposed to providing regulatory approval for FB’s Libra digital currency in the European Union, Reuters reported; YELP was upgraded to buy at Aegis

·     Semiconductors; AVGO reported results essentially in-line with expectations for the July quarter and maintained its full-year fiscal 2019 guidance/continued strength in Networking, better than expected CA, and seasonal Wireless ramps; KEM was upgraded to buy at Stifel saying fundamentals have held up significantly better than comps due primarily to its product portfolio

·     Software movers; BITA said its Board received a preliminary non-binding proposal letter from Tencent Holdings Limited and Hammer Capital proposing to acquire all of the outstanding ordinary shares not already owned by the Buyer Group or their affiliates for $16 in cash per ADR; NET prices its IPO of 35M class A common stock at $15 per share; ahead of its upcoming IPO WeWork (WE) announced a series of governance changes to assuage investor concerns in an effort to bolster its flailing valuation; ADBE positive RBC Capital mention saying checks ahead of earnings on 9/17 suggest the company delivered in-line or better F3Q19 bookings results and that pipeline heading into the final fiscal quarter is robust

·     Hardware & Component news; AAPL pulling back after good run as Goldman Sachs cut its tgt to $165 from $187 and maintains a Neutral rating saying the plan to offer a trial period for Apple TV+ is likely to have a material negative impact on ASPs and EPS – meanwhile Rosenblatt reiterated its sell rating seeing "weak" pre-orders for the iPhone 11 family, citing conversations with retailers. AAPL shares pared losses after CNBC reported AAPL disputes negative Goldman call hitting the stock, says TV+ will not have ‘material impact’


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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