Market Review: September 20, 2019

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Closing Recap

Friday, September 20, 2019





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     U.S. stocks erased earlier gains, slumping mid-afternoon after a Reuters report that the Montana Farm Bureau and the Nebraska Department of Agriculture both said a China delegation cancels upcoming U.S. farm visits to each. The report followed President Donald Trump saying he wanted a complete trade deal with China, not just a partial deal that will see the Asian nation buy more U.S. farm goods, Reuters noted. The news dampened sentiment on trade talks just a day after U.S. and Chinese deputy trade negotiators resumed face-to-face talks for the first time in nearly two months on Thursday, ahead of higher-level talks in October. Trade sensitive semiconductors dropped sharply after the first headline of China cancelling its farm visits hit wires, while Treasury prices and gold advanced. In other macro news, the U.S. sanctioned Iran’s Central Bank and National Development Fund, both of which finance the regime’s terrorism. Attacking other nations and disrupting the global economy has a price. The regime must be held accountable through diplomatic isolation and economic pressure, Pompeo said.

·     Stocks have overcome quite a bit this week alone, but the S&P 500 still remains less than 1% of record highs reached last in July. Some of this week’s worries were shrugged off by markets such as Iran geopolitical concerns (as U.S. confident it was them behind the attack on Saudi oil facilities last weekend) which prompted strong sanctions this morning, the subsequent surge in oil prices on those attacks (hitting transport stocks this week along with a profit warning and earnings miss from FDX), a spike in repo rates (liquidity crunch) that prompted the Fed to issues repo operations the last four sessions to bring rates lower (first repo operations in over a decade), ongoing Brexit impact concerns and weaker economic data out of China this week. The positives helping markets rally include the Fed cutting interest rates on Wednesday but another 25 bps (followed other central bank actions this week though the BOE and BOJ stayed the course), and stronger economic data in the U.S. this week (housing, confidence and manufacturing). In Fed news, Eric Rosengren said rate cut may increase financial risks and additional accommodation not needed (note he was one of two dissenters this week alongside Fed’s George against cutting rates).



·     Oil prices slipped into the close, with WTI crude falling 4c to $58.09 per barrel, well off earlier highs of $59.10 per barrel, as renewed trade concerns with China overshadowed new sanctions announced today by the U.S. against Iran in response to the Saudi facilities being disrupted this past weekend. Treasury Secretary Mnuchin said US has now cut off all sources of funds to Iran after the U.S. sanctioned Iran’s Central Bank and National Development Fund. On the week, WTI crude advanced 6%, the biggest gain in 3-months. Gold prices gained $8.90 or 0.6% to settle at $1,515.10 an ounce, getting a late day boost on those China comments, to finish out the week with a gain of around 1% (first weekly gain in a month), boosted by central bank easing.



·     The U.S. dollar gained on the day and week vs. most major currencies, but slipped late day against the safe haven Japanese yen as stocks turned lower on renewed trade concerns. The buck gained against the British Pound, off near 2-month highs yesterday as Ireland warned a Brexit deal is not close, calming a rally sparked by optimism from EC President Jean-Claude Juncker yesterday. The euro falls to lows around 1.10 vs. the dollar, down -0.35% (off overnight highs 1.1068) – lows of the week stand at 1.0990 on 9/17. The rate cut by the Fed this week and the lack of action from the BoJ Thursday moved markets. Treasury markets were little changed until the China headlines, which pushed prices higher and yields lower on renewed concerns; the benchmark 10-year note dropped below 1.74%, still in a narrow range today after a volatile week that saw yields fall from levels of 1.88% Monday to lows of 1.74% on Wednesday.






WTI Crude















10-Year Note





Sector News Breakdown


·     Consumer Staples; BYND said that former AMZN and TSLA executive Sanjay Shah will be the meat-alternative company’s chief operating officer. Shah was most recently senior vice president of Tesla’s solar business, a role he took on in 2018; Jefferies out with beer distributor survey saying for STZ, while the survey suggests ~1% declines p.a. in industry volumes over the next 3-5 years, STZ’s distributors remained favorable on the outlook; MO shares dropped after reports WMT to discontinue the sale of electronic cigarettes in its stores



·     Energy stocks posted gains on the week, but well of the Monday surge after oil prices jumped 15% that day after Saudi facilities were hit last weekend. Oil with its biggest weekly increase since January as await whether Saudi Arabia can fulfill promises to swiftly repair a critical processing facility attacked last weekend. The Baker Hughes (BHGE) said its weekly U.S. rig count fell -18 rigs to 868, with the oil rig down -14 to 719 and gas rigs down to 148

·     E&P sector; CRC comments came in 8K filing today “contrary to recent erroneous reporting, we are not considering restructuring or hiring advisors for this purpose. We regularly meet with investment banks and advisors on ideas to help us achieve our long-term goal of strengthening our balance sheet and reducing the absolute levels of our debt.”

·     Utilities & Solar; utilities touched a fresh all-time high before fading, with 52-week high reached today for AEP, AEE, ATO, ED, SO, ES, ETR and D today; PCG shares fell as bondholders battling with shareholders for control of the bankrupt utility have teamed up with wildfire victims to present a new $24B reorganization plan/that’s billions of dollars more than PG&E has offered to victims; FE downgraded to Neutral from Buy at Mizuho as believe the stock is fairly valued at these levels, pricing in much of the upside associated with successfully exiting the unregulated business, as well as removing any uncertainty related to rate case activity

·     Oil E&P, equipment, services movers; MDR said its weighing the sale of its Lummus Technology business after getting approaches that valued the unit at more than $2.5B/also said it continues with efforts to sell the remaining part of its pipe fabrication biz & industrial storage tank business (pared gains after Dow Jones reported hires law firm Kirkland & Ellis as debt talks heat up); Reuters reported India’s Petronet LNG is set to sign a deal with U.S. liquefied natural gas developer TELL worth more than $2 billion in the proposed Driftwood project in Louisiana



·     Pharma & Biotech movers; REGN rises as European Medicines Agency’s advisory group CHMP has adopted a positive opinion recommending approval for REGN and collaboration partner SNY’s Dupixent (dupilumab) as add-on therapy; ZYNE falls a 5th straight day (33% on the week) – after on 9/18 stage study data on open-label Phase 2 clinical trial, BELIEVE 1, evaluating topical gel Zygel (ZYN002) in epileptic children, as safety concerns weigh (said was well tolerated but noted two serious adverse events)


Industrials & Materials

·     Aerospace & Defense; the nation’s top aviation regulator tested new flight-control software for the Boeing (BA) 737 Max in a simulator on Thursday and gave it a favorable review; Rolls-Royce (RYCEF) said it will take longer than expected to fix problems with the Trent 1000 engine, frustrating efforts to get Boeing 787s grounded by the glitch flying again/company has said it faces £1.6B ($2B) in extra costs and disruption as a result of the engine problem

·     Machinery; Goldman Sachs upgrade URI to Buy from Neutral and HRI to Buy from Sell as construction equipment supply has likely peaked, rental rates are likely to bottom in coming quarters, and as multiple expansion is likely for the Construction Rental group if OEM production cuts play out (URI tgt up to $165 and HRI to $60); ACM was upgraded to buy from hold with $44 tgt at Argus as expect growing demand for road and water projects to provide the company’s Design & Consulting Service unit a stable source of revenue, even in a slowing economy


Technology, Media & Telecom

·     Internet; ETSY was upgraded to outperform at RBC Capital and raise tgt to $68 after conducting a deep-dive analysis into Etsy’s key initiatives; BABA will host its annual Investor Day Monday and Tuesday, September 23rd and 24th in Hangzhou, China, followed by its Cloud Conference on the 25th; GRUB was defended at Davidson after the short call announced yesterday by Kynikos’ Jim Chanos at the CNBC delivering Alpha conference; YY was upgraded to buy at UBS saying the market was overly negative on the China-based company’s live-streaming businesses; NFLX shares were weak, falling to lowest levels since January as Evercore said checks highlighted a slowdown in int’l download activity beginning last month which has continued into September

·     Semiconductors; XLNX announced CFO Lorenzo Flores is stepping down from his position to pursue another executive opportunity – went to Toshiba Memory (prompted Bank America downgrade citing sudden departure and no reiteration of forecasts being included in the associated press release); WDC announced that it will sell its IntelliFlash business to DDN and also agreed to expand their existing partnership through a multi-year strategic sourcing agreement (DDN to purchase more of WDC’s HDD and SSD devices); TXN raises quarterly dividend 17% to 90c from 77c per share; MU tgt raised to $65 from $50 at JPM saying it saw upside in the company’s upcoming results thanks to an improved view for a key product category

·     Software movers; PLAN shares rose after JMP Securities said the company may have won a multimillion dollar per year deal with AMZN w/opportunity to expand the account by multiple times the original contract; SMTX shares dropped after announces plans to exit China, lowers 2019 forecast; USAT shares fell late afternoon as 8-K filing discloses that it is unlikely that the Company will meet the Panel’s September 23, 2019 deadline to regain compliance with its periodic filing obligations

·     Media & Telecom movers; LBTYA was downgraded to sell at Citigroup and cut tgt to $25 from $31 on longer term growth concerns and on lower forecasts/multiples/says substantial buybacks will require the completion of Swiss transaction that faces deal risk

·     Hardware & Component news; ROKU was reiterated sell and $60 tgt at Pivotal as see dramatically more competition emerging that will likely drive the cost of OTT devices to zero and put material pressure on advertising revenue splits highlighted by Comcast’s recent moves with its free Xfinity Flex product that is likely to be copied by other distributors; FNSR and IIVI announced receiving Chinese regulatory approval their deal as II-VI agreed to operate separately Finisar’s wavelength selective switch business for about three years


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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