Market Review: September 17, 2019

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Closing Recap

Tuesday, September 17, 2019





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     U.S. stocks ended mixed to up slightly (as somewhat expected) after a little early volatility in the energy markets shook up stocks, with all eyes fixated on tomorrow’s FOMC interest rate policy meeting, where the Fed is expected to cut interest rates by another 25 bps to keep up with other central banks. A day after posting its biggest one day gain in a decade for WTI and nearly three-decades for Brent, oil prices plunged (weighing on energy stocks) following reports that Saudi Arabia is close to restoring most of the oil production lost after this weekend’s attack. The other top story was the Federal Reserve injecting billions of dollars into the US financial system to alleviate a dramatic squeeze in the country’s short-term funding market (more below on the repo). European stocks closed little changed as investors rotated out of cyclicals and into defensive sectors ahead of tomorrow’s FOMC rate meeting. Stock news was lacking, though earnings results are expected from Fed-Ex after the close.

·     Garnering a lot of attention today was action in the repo markets as ZeroHedge noted back in the summer of 2013, China’s banking system was on the verge of collapse when its overnight repo rates briefly soared to the mid-20% range, prompting the central bank to take emergency intervention to avoid a funding freeze. As of this morning, the U.S. was halfway there as overnight repo hit 10% and shows no signs of slowing. In response, the NY Fed took action to end the squeezing effect saying will conduct an overnight repo operation today for up to $75B. The results showed the NY Fed’s overnight repo totaled $53.2B with a stop at 2.10%, which included $40.9B in Treasuries, with a stop at 2.10%, along with $600M of agency debt and $11.7B in MBS. This is the first overnight repo (using Treasuries) since October 2008.

Economic Data

·     Industrial Production for July jumps 0.6% topping the 0.2% est. (prior month revised to -0.1% from -0.2%); Capacity Utilization at 77.9% vs. 77.6% est. (and 77.5% in July)

·     NAHB Housing market index for September reported at 68 vs. est. 66 (and 67 last month), while Present single family sales rise to 75 vs 73 last month and the future single family sales falls to 70 vs 71 MoM; Prospective buyers traffic unchanged at 50



·     Oil prices dropped late afternoon, giving back about half of its near 15% gains yesterday (biggest single day jump in over a decade) after Saudi Energy Minister said that Saudi oil supply is fully back online and that they have contained the damage in a press conference. Prices had dipped earlier on a Reuters report that Saudi oil output will return to normal levels quicker than initially thought after operations were disrupted this weekend from drone attacks on key oil facilities; the headlines sunk Brent and WTI oil prices. WTI crude slumped 5.7% or $3.56 to settle at $59.34 per barrel while Brent down nearly 7% ahead of settlement. Prices temporarily bounced after CBS reported the U.S. has identified the exact locations in Iran from which more than 20 drones and cruise missiles were launched against the Saudi oil facilities, raising the prospect of retaliation.

·     Gold prices were little changed, inching higher (off earlier lows) to settle at $1,513.40 an ounce, up $1.90 ahead of tomorrow’s FOMC rate decision, getting help today on a weaker dollar and headlines that U.S. has identified the exact locations in Iran from which more than 20 drones and cruise missiles were launched against the Saudi oil facilities, raising retaliation fears.


Currencies & Treasuries

·     The U.S. dollar gave back some of yesterday’s gains, slipping ahead of the FOMC interest rate policy meeting tomorrow where a 25 bps cut is widely expected. At the same time, Treasury prices rose for a second session (after having fallen the 8-prior sessions), with yields edging lower (10-year yields down about 4 bps to 1.80% after topping out at 1.90% late last week and after falling as low as 1.427% the week prior). The dollar fell against the euro and Pound (back above the 1.25 level), while little changed vs. the Canadian dollar despite the oil volatility.






WTI Crude















10-Year Note





Sector News Breakdown


·     Retailers; notable weakness in department stores with M, JWN, KSS and GPS under pressure early as Cleveland Research said it sees Q3 sales trending below estimates for department stores; quiet on news front, though a couple of upgrades at UBS for TJX to neutral from sell on each saying for each tariffs likely drive incremental market share gains; FNKO shares fall after announcing filing to sell 4M in shares overnight

·     Consumer Staples; KHC 25M share Block Trade priced at $28.60 selling for shareholder 3G Capital; MO shares fell after Dow Jones reported E-cigarette maker Juul Labs Inc.’s sales have been halted in China, days after the startup launched its products in the world’s biggest tobacco market; SAM shares slipped after Nielsen data reported earlier on slowing sales

·     Housing & Building Products; HD was downgraded to neutral from buy at Guggenheim and removes its $230 price target based on HD’s relative valuation, which is at a level not seen since early post-recession recovery years, combined with potential risk to current 2020 consensus EBIT margin outlook due to anticipated pressures from HD’s strategic investment plans; MAS announces $2B share buyback and raises dividend to 13.5c; APOG rises on EPS beat as Q2 adjusted EPS 72c/$357.1M vs. est. 65c/$352.7M/still sees year EPS $3.00-$3.20 vs. est. $3.05

·     Casino & Leisure movers; SEAS announced CEO Gustavo Antorcha resigns from his position and from its Board (was named CEOP this past February) citing disagreements over the Board’s involvement in the decision making/current CFO Marc Swanson promoted to Interim CEO; EXPE to become the global optimized distributor of MAR wholesale rates, availability, and content to a network of global travel providers, effective October 15, 2019; in gaming, Nomura Instinet updates on Macau gaming revenue trends after tracking last week’s action in the region saying gross gaming revenue rose by about 3% compared to the prior week and is forecast to rise 2% to 3% year-over-year for the full month (WYNN, MLCO, LVS)



·     Energy stocks a major reversal as after being the top performing sector in the S&P yesterday with oil prices surging on Saudi facility disruptions, the sector was the worst performing sector today with a pullback in oil prices amid reports oil output will return to normal levels quicker than initially thought, according to Reuters report. The rally in oil prices took a breather after yesterday’s historic gains that saw October WTI settle up 14.7% to $62.90 per barrel. Solar stocks (SPWR, FSLR, SEDG) with notable strength given the oil pullback.

·     Stock movers; DRQ slipped after Repsol terminates its contract award for the Ca Rong Do project offshore Vietnam which was awarded in Feb. 2018 and was last extended until Dec. 31, 2019, but the project had suffered from several delays; Rosneft, Russia’s top oil producer, said it is considering increasing crude supplies to India in light of supply disruption from Saudi Arabia.



·     Bank movers; after rising over the last few weeks given the bounce in treasury yields off multi-year lows, both large cap and regional banks pressured the last two-days heading into the FOMC rate decision where a rate cut is expected at this point; shares of CME, CBOE and ICE gained as commodity exchanges outperform a second day given the high volume of contracts traded the last 2-days on oil volatility (also positive initiations at Opco today on each)



·     Pharma movers; MRK received FDA Priority review for V920 investigational vaccine for Ebola Zaire virus; NVO was upgraded to buy from neutral at Citigroup; ACRS announced positive results from its Phase 3 clinical trial, THWART-2 (WART-302), of A-101 45% Topical Solution (A-101), an investigational drug for the treatment of common warts. A-101 met the primary and all secondary efficacy endpoints, achieving clinically and statistically significant clearance of common warts; CSBR falls as Q1 adjusted EPS loss of (5c) on revs $6.7M (vs. 5c profit a year ago for EPS) vs. est. revs $7.5M

·     Biotech movers; XLRN said it would discontinue development of ACE-083, its experimental treatment for a genetic muscle-wasting disorder/plans to report data from another trial testing ACE-083 in patients with a neuromuscular disorder in Q1 next year; MDCO downgraded to neutral at Citigroup noting shares are up ~40% since the initial topline Phase 3 results were announced in late August; CRSP and collaboration partner Viacyte announce encouraging data on the use of CRISPR/Cas9 to edit a pluripotent stem cell line called CyT49 that is being used to generate islet progenitor cells for type 1 diabetes (T1D) clinical trials; CAPR said updated results from its Phase 2 HOPE-2 trial evaluating CAP-1002 in boys and young med with DMD will be presented at the International Congress of the World Muscle Society in Copenhagen on 10/5


Industrials & Materials

·     Industrial & Machinery; BA was among the top gainers in the Dow Industrials; at KeyBanc they upgraded CIR to overweight as expect to close its sizable valuation gap vs. peers as improved execution and a portfolio cleanse drive leverage back to more comfortable levels – while firm downgrade ATU as believe positive portfolio change and significant EBITDA growth potential in FY20 are mostly baked in at current valuation levels

·     Transports; FDX expected to report earnings after the close tonight – good barometer for the economy; in rails, UBS lowered rail EPS estimates to reflect worse than expected volumes for the group with only KSU realizing volumes in line with their model and the large U.S. rails showing the greatest weakness versus our prior forecast (cuts NSC, CSX, UNP, CP, CNI)/assume essentially flat volume for CSX, NSC, and UNP in 2020; airlines remain volatile (AAL, DAL, UAL) given the spike in fuel costs after the Saudi Arabia oil facilities were hurt this past weekend, cutting 50% of their production – names jumped as oil rolled; AAWW downgraded at Susquehanna as see risk-reward here as skewed to the downside, despite shares being down 34% YTD already

·     Aerospace & Defense; RTN downgraded to market perform at Bernstein (a day after JPM upgraded shares) and raised its target for UTX to $154 (up from $143) and remain at Market-Perform as see this deal transferring value from RTN to UTX at the agreed 43/57% split. We do not expect significant value creation from this deal, although not much value destruction either; EADSY shares dropped early after reports that a WTO ruling in favor of the U.S will be announced by the end of September that was focused on European subsidies for Airbus. The ruling would mean the U.S. can levy tariffs on EU products including Airbus planes.


Technology, Media & Telecom

·     Internet; SNAP was upgraded to neutral from negative at Susquehanna and raise tgt to $18 from $12 citing ad trends that appear constructive in the near term and says the company’s forecasts for user growth in Q3 and Q4 are very achievable, if not beatable; SHOP 1.9M share Spot Secondary priced at $317.50; EVER shares dropped after being double downgraded to underperform at Bank America concerned with valuation given recent outperformance

·     Semiconductors; KLAC raises quarterly dividend to 85c from 75c and adds $1B share buyback authorization while guides Q3 EPS $2.04-$2.34 on revs $1.31B-$1.39B vs. est. $2.20/$1.38B; AVGO shares traded to last week lows around $283.89 (where $284.25 was its 100-day MA support while the 50-day MA stands at 284.40) – shares bounced off those levels; the Philly semi index (SOX) was little changed – coming off record highs last Thursday of 1,625.15

·     Software movers; SPLK upgraded to overweight from neutral at JPMorgan with $130 tgt following a 19% selloff since late July as firm expects a bookings growth rebound in 2H’19 and has a favorable view of the company’s transition to a recurring/renewable model; ZNGA added as new best idea (replacing EA) at Stephens with +40% upside, calling it the best positioned mobile gamer to lead/benefit from consolidation; NEWR added to Fresh Pick List at Baird as like management’s decision to address the sales and product misexecution challenges through personnel change

·     Hardware & Component news; GLW shares dropped after cutting full-year guidance for its optical communications and display technologies units (sees down 3%-5% vs. prior view low-to-mid single digit increase), citing weaker demand as several major telecom companies have cut capital spending on cable deployments and the installation of fiber-optic networks at homes


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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