Market Review: September 19, 2019

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Closing Recap

Thursday, September 19, 2019





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     U.S. stocks end mixed, with the S&P falling short of record highs earlier in the session (high 3,022 vs. record of 3,027.98 on 7/26) before slipping late day as energy stocks failed to hold early gains while technology and healthcare outperformed. Stocks took a turn lower midday after the South China Morning Post reported that Donald Trump’s adviser on China Mike Pillsbury said the President was ready to escalate trade war if deal not agreed soon, and said tariffs on Chinese good could go to 50%-100%. The headlines came ahead of trade talks between representatives from the U.S. and China scheduled to start today in Washington ahead of high-level discussions in October. The headline pushed markets lower in what was an otherwise quiet day post the FOMC rate cut yesterday. The New York Fed announced it would hold a 4th straight day of repo operations tomorrow after the last two days were oversubscribed. Economic data came in stronger than expected again in the U.S. with housing and trade headlines.

·     The NY Federal Reserve intervened for a third time to ease the strain on money markets (liquidity concerns) as they accepted $75B of $83.875B in bids submitted at overnight repo operation (oversubscribed for a second straight session) as accepts $55.843B of $56.325B in repo bids backed by treasuries at stop-out rate of 1.8%. The intention of this third round of repo operations was to help maintain the Federal Funds rate within the target range of 1.75%-2.00%. The New York Fed held a second repurchasing auction early Wednesday, injecting another $75 billion which followed its first overnight repurchase auction in a decade Monday. The Fed said they will perform overnight repo actions again tomorrow morning for a 4th day.

·     Central Bank news: following the U.S. Fed’s 25 bps cut yesterday: 1) the Swiss National Bank held interest rates steady even as it slashed its growth forecast; 2) Norway’s central bank boosted interest rates again (by 25 bps), going against the grain in monetary policy; 3) Taiwan’s central bank left its policy rate unchanged and raised its 2019 growth forecast; 4) the Bank of England’s (BOE) kept its key Bank Rate at 0.75% in a unanimous vote of 9-0 voted to maintain stock of U.K. government bond purchases, financed by the issuance of central bank reserves at £435B; 5) the Bank of Japan left policy unchanged but hinted at possible action at its next meeting, saying it believes momentum toward achieving its inflation target may be falling short; 6) Brazil’s central bank cut its benchmark interest rate for a second straight meeting

Economic Data

·     Weekly Jobless Claims rose 2K to 208K, below the 213K estimate (prior claims to 206K from 204K) and 4-week moving average at 212.3K; continuing Claims fell 13K to 1.661M vs. est. 1.672M

·     Philly Fed Survey Outlook for Sept reported at 12.0, topping the est. of 10.5 (but down from prior month reading of 16.8); segment breakdown shows: prices paid rose to 33.0 vs. 12.8 last month, new orders slipped to 24.8 from 25.8, employment rose to 15.8 from 3.6 and shipments rose to 26.4 from 19.0 MoM

·     U.S. 2Q current account deficit at (-$128.2B) compared to est. (-$127.4B); and narrowed from $136.2B prior quarter; the balance of goods and services deficit widened to $163.3B compared to $156.5B prior quarter

·     Aug Existing Home Sales rise 1.3% to 5.49M .vs. est. -0.7% to 5.38M; 30-year fixed mortgage rate for week ended today rose to 3.73% from 3.56%, marking the largest weekly gain since Oct. 2018

·     Leading Index for Aug reported at unchanged vs. with est. (-0.1%)



·     Oil prices settled little changed, up 2c to $58.13 per barrel, off earlier highs of $59.44 per barrel, while natural gas prices fell 3.9% to settle at $2.54 mln btu following bearish weekly inventory data. Brent prices gained 80c to $64.40 per barrel. Gold prices fell -$9.60 or 0.6% to settle at $1,506.20 an ounce despite the drop in gold prices today. The weaker dollar helped push commodity prices higher early before fading.


Currencies & Treasuries

·     The U.S. dollar gave back much of yesterday’s gains, led by declines against the euro and Pound as well as more defensive currencies such as the yen following various central bank comments overnight. In fact the yen, pound and Swiss franc led Group-of-10 currency gains after their respective central banks left borrowing rates unchanged, unlike other central banks which have recently cut interest rates to stimulate their economies. The British Pound jumped further mid-afternoon (to near 3-month highs) after EU’s Junker said on Brexit that he thinks they can have a deal in an interview with Sky News saying if the objectives of the backstop are met through alternative arrangements, they don’t need the backstop.

·     Treasury prices were volatile early before trading in a narrow range the remainder of the day as the benchmark 10-year yield ended down slightly at 1.78% (off highs 1.817% and off lows 1.747%) after yields jumped Wednesday. While the FOMC didn’t clearly lay out its rate path, it left the door open for further cuts, while at the same time, most other central banks are still in easing mode.






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10-Year Note





Sector News Breakdown


·     Retailers; COST was downgraded to underperform at Bernstein but raise tgt to $230 from $220 as see new competitive pressure as they near peak club counts, members per club, and revenue per member; TGT announces a new $5B share buyback plan; Piper said they are bullish on VFC into their first Analyst Day post the KTB spinoff; in furniture, MLHR shares rise after total sales increased 7.4% YoY to $670.9M, topping the $661M estimate with organic sales up 7.7% YoY and total orders increased 6.9% YoY on a reported basis; OSTK pressured after founder and largest holder Patrick Byrne sold almost 4.7 million shares (entire stake) at a range of $16.32 to $21.84 from Monday to Wednesday

·     Consumer Staples; BF shares slipped after being downgraded at Evercore/ISI citing valuation (shares up 33% YTD); COTY cautious mention at Citigroup saying overall 1Q sales growth is trending towards the lower-end of their previous guidance for “stable to slightly lower LFL, starting in 1Q20; MO had a quick move lower after the CDC says vaping related illnesses rise to 530 from 380

·     Restaurants; DRI posts Q1 sales of $2.13B, mostly in-line with the $2.14B estimate (on slightly better EPS) while issues a second consecutive same-store sales miss with Q1 same-store sales growth of 0.9%, below the estimate of 1.3% increase and reaffirms full-year forecast; RUTH estimate cut at Raymond James to reflect sharply higher Prime beef costs in recent months (exacerbated by lapping record low prices in 3Q18)/also trimming 3Q comp estimate by 75 bps to reflect the potential impact of disruption/closure days related to Hurricane Dorian

·     Casino & Leisure movers; in lodging/time share, Goldman Sachs downgraded HGV to neutral from buy and upgraded Hyatt (H) to buy saying the firms economist’s project muted growth in key lodging indicators such as industrial production and business fixed investments through 2020/sees tepid U.S. revenue per available room (RevPAR) growth through 2019 and into early 2020, but expects hotel pipeline points to pick up slightly in supply through 2020



·     Energy stocks opened higher along with gains in oil prices, but as they slipped, energy stocks followed suit in what has been a very volatile week of trading given the Saudi facility disruption last weekend and bearish weekly inventory data. Not much in way of individual stock news or research for that matter on the day though utilities (UTY) traded to a new all-time high today and now up about 20% YTD with 52-week highs for D, SO, AEP and ED among them; solar stocks extend recent gains led by shares of SEDG, SPWR, FSLR as the TAN ETF trades at more than 3-year highs



·     Bank movers; another group that has been moving primarily on Fe commentary, action in the dollar and Treasury markets and impact on yield; banks managed to gain again today while interest rate sensitive REITs benefitting from lower yields (ARE 52-week high); KKR added to Goldman conviction list saying shares are poised for accelerated earning growth, fueled by the firm’s upcoming fund-raising cycle and maturing investment portfolio, which should yield above-consensus incentive income and EPS; insurance related names HIG, RE, AIG 52-week highs



·     Pharma & Biotech movers; LGND was upgraded to overweight at Barclay’s citing post-new P3 Kyprolis data and mgmt meeting, as re-visit LGND’s pipeline potential and note expanded opportunities, which drives our medium-term revenue forecasts higher and improved risk/reward profile; CPBO received a preliminary non-binding go private proposal letter for shares not already owned by the Buyer Group for $120 per share in cash ; AERI seeks FDA approval for sale of Ireland-produced Rocklatan in U.S.; Credit Suisse said estimates JNJ’s pipeline will add ~2% to WW Pharma growth in 2020 on a risk-adjusted basis, nearly offsetting biosimilar pressure on Remicade/expect 2020 top line growth to accelerate vs. 2019; XGN 3.6M share IPO priced at $14.00

·     Healthcare Services and Medical equipment and devices; TNDM announced the publication of real-world Basal-IQ predictive low glucose suspend technology in an 8,000 patient study/result showed patients experienced a 45% relative risk reduction in hypoglycemia and a 71% relative risk reduction in hypoglycemic events; DVA shares fell after a negative comment by short-seller Jim Chanos of Kynikos at the CNBC Delivering Alpha conference


Industrials & Materials

·     Transports; Dow Transports bounced off the lows (10,487 low for index) after dropping on FDX guidance yesterday and airline weakness Monday after the oil spike – down 2.2% on the week; airlines have since had a decent bounce, along with the truckers as oil prices have slipped

·     Metals & Materials; steel sector pressured after U.S. Steel (X) revealed 3Q19 EBITDA guidance of $115M (excluding a cash impact from Clairton of $53M and restructuring), below the Street’s $195M with larger Q3 EPS loss of (35c) due to pronounced and broad-based pricing and demand weakness/Flat Rolled, lagged pricing and rebasing in spot hot-rolled is taking its toll; CLF shares fall along with weakness in US Steel guidance while KeyBanc said Q3 earnings may take sizable hit

·     Paper & Packaging industry; (IP, WRK, PKG shares active) as KeyBanc noted the Pulp and Paper Products Council (PPPC) released final N.A. uncoated freesheet statistics for August. Shipments fell a substantial 16% in August (14% when adjusting for one fewer shipping day), worse than the YTD decline of 11%. Some of the decline in shipments is attributable to the shutdown of Georgia-Pacific’s Port Hudson mill in March, which removed ~8% of industry capacity, but demand remains profoundly weak as well; it plunged 13%, the steepest decline of the year and significantly worse than the YTD decline of 5.9%.


Technology, Media & Telecom

·     Internet; AKAM downgraded to sector weight at KeyBanc based on our view that accelerating growth for CDN in 2020 is built into expectations and AKAM’s valuation/with the stock trading near its three-year high EV/EBITDA multiple, we would look for a more favorable risk/reward; GRUB was mentioned cautiously by Jim Chanos at Delivering Alpha conference

·     Software movers; MSFT announces $40B share buyback and raises dividend to 51c from 46c; DDOG 24M share IPO priced at $27.00 (follows Bloomberg report overnight that CSCO approached the company in recent weeks with a takeover offer significantly higher than the $7B valuation it is aiming for in its IPO; several rating changes in software sector today; CHKP was downgraded to underperform at Bank America, while Morgan Stanley upgraded TWLO to overweight ($135 tgt), while downgraded BAND to underweight (tgt down to $67) and cut FIVN to equal-weight; PING 12.5M share IPO priced at $15.00

·     Hardware & Component news; Huawei launched its Mate 30 range of smartphones on Thursday, saying its cameras were superior, its wraparound screen brighter and its dimensions more compact than Apple’s iPhone 11 Pro Max launched last week. – Reuters; ROKU unveiled its new streaming player lineup as new versions of the Roku Express (MSRP $29.99), offering easy HD streaming in a sleek new form factor, and the Roku Ultra (MSRP $99.99), featuring fast channel launch and a remote with personal shortcut buttons; STX held its investor day today as provides long-term financial targets, rev growth 2-6%, operating margin 13-16% (shares fell)

·     Media & Telecom movers; DISH shares active after reports last night that it is not in talks with AT over a deal with DirecTV due to regulatory issues, Reuters reports. Report follows earlier story in the Wall Street Journal that AT&T was exploring parting ways with its satellite TV unit DirecTV – ; Comm Infrastructure sector downgraded to In-Line from Attractive at Morgan Stanley noting that the group is up about 100% since early 2016 and about 30% this year (firm upgraded QTS to overweight citing improved execution while downgraded DLR and SBAC primarily on valuation while raising tgts for each; Intelsat (I) tgt raised to $32 from $27 at JPM as believes the FCC and C-Band Alliance are working toward an order that would include 300 MHz of cleared C-Band spectrum, targeting a November order


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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