Market Review: September 23, 2019

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Closing Recap

Monday, September 23, 2019





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     Stocks slid into to the close, ending mixed as better manufacturing data in the U.S. helped offset global growth concerns overnight when EuroZone manufacturing and services data fell well short of consensus estimates, pressuring the euro. Money markets also turned calmer compared with last week’s turmoil as the Fed again announced repo operations to sustain liquidity. Stock gains were in technology, as well as defensive sectors (utilities record highs, staples and REITs also advance), while financials and healthcare were a drag. U.S. stock markets remain extremely resilient (S&P remains 1% from all-time highs) despite ongoing trade war, oil volatility after attacks on Saudi oil fields, Hong Kong protests, Brexit uncertainty, slowing growth fears overseas (European manufacturing) & evidence of a spending slowdown even in software sector. Late day, the NY Times reported that the U.S. and Japan may fail to sign a trade agreement this week, as negotiators for both sides struggle over how to resolve U.S. President Donald Trump’s threat to slap tariffs on Japanese autos – but the headlines failed to rattle markets. In Fed news, Fed’s Bullard said the Committee might opt to ease again, but concurred with Chair Powell’s comments from the September 18 presser that it’s a meeting-by-meeting decision. In another comment, Fed Bank President Williams said last week’s turmoil in money markets raises questions about the appropriate level of bank reserves in the financial system. Note today, the New York Fed injects $66B into short-term lending markets through another round of repo actions (follows repo actions all of last week). Treasury prices resume strength as investors rotate back into safe-haven assets (gold also higher), with the 10-year yield down a 6th straight session (and now more than 20 bps off 2-week ago highs of 1.90%. Markets also remain cautious ahead of trade talks between high-level trade representatives from China and the U.S. next month.

Economic Data

·     In Europe overnight, flash euro zone manufacturing purchasing managers index fell to an 83-month low of 45.6 in September, down from 47 in August (vs. est. 47.3). German manufacturing PMI fell to 41.4 in September from 43.5, the worst reading in more than a decade.

·     The Chicago Fed National Activity Index rose to positive territory in August after sinking below zero in July. For August, the index was 0.10, up from -0.41 the month before. The Federal Reserve Bank of Chicago said all four broad categories that comprise the index increased from July, but three of the four categories negatively contributed.

·     U.S. flash September Markit manufacturing PMI rose 0.7 points to 51.0 after 50.3 in August and is the highest since April (vs. 55.6 last year). The employment component improved to 50.9 from 50.1 previously and is the second straight monthly gain. The service index edged up to 50.9 from 50.7 (which was the lowest since February 2016). The index was at 53.5 a year ago



·     Oil prices edged higher, with WTI crude rising 55c or 0.9% to settle at $58.64 per barrel, while natural gas prices slipped -0.3% to $2.53 mln btu as commodity prices were mostly higher. Oil prices have fluctuated over the last week or so as markets weigh conflicting reports on how quickly Saudi Arabia will be able to restore its lost production, as the country has reiterated it will bring back all lost output by the end of September following attacks on its oil facilities. Gold prices jumped $16.40 or 1% to settle at $1,531.50 an ounce, its highest levels since September 4th, getting a boost amid a rotation early into safe haven investments.


Currencies & Treasuries

·     Outside of volatility in the euro following weak economic data overnight (manufacturing and services data for the Eurozone and Germany came in at the lowest levels in several years), currency markets were relatively tame with only manufacturing data in the U.S. today (Markit reported better results). The euro fell against most major currencies, sliding back below the 1.10 level vs. the U.S. dollar. While the buck overall, was up modestly on the day vs. other currencies. In Treasury markets, yields fell for a 6th straight day with the 10-year sliding over 2 bps to 1.69% (off lows of 1.662%), but comes after falling 18 bps last week to 1.72%.






WTI Crude















10-Year Note





Sector News Breakdown


·     Retailers; OSTK shares dropped after announcing the appointment of Jonathan Johnson as CEO (had been serving as interim CEO since August 22), while says CFO Greg Iverson has resigned; PSMT will replace Finisar Corp. (FNSR) in the S&P SmallCap 600; GME shares bounced after a report that traffic at its stores in tracking solidly in Q3, according to data from, as the firm estimates July traffic was 2.2% higher than the baseline August traffic was up 4.7%.

·     Consumer Staples; CLX was downgraded to underweight at Barclay’s in Consumer staples sector as see considerable earnings risk over the next 12 months driven by expectations for softer revenue growth, while upgraded KMB to overweight with $152 tgt as believe a widening of the stock’s relative discount to peers beyond historical does not mirror what we expect to see in terms of relative operating performance; SAM estimates raised at Guggenheim to account for better organic sales growth than were previously expecting given the ongoing strength of Truly, offset partially by softer growth for Samuel Adams and Dogfish Head; BYND was initiated with an underperform and $70 tgt at Exane citing valuation and low barriers of entry

·     Housing & Building Products; BTIG took a moderately more positive outlook on 2H19 and 2020 for homebuilders and raises tgts and fair value assumptions on most names, as well as raising GRBK to Buy from Neutral – said the 2H18-1H19 housing slowdown was much shallower than initially anticipated, bolstered by lower interest rates, aggressive price cuts and incentives; NVR will replace JEF in the S&P 500, and Jefferies will replace NVR in the S&P MidCap 400.

·     Casino & Leisure movers; CCL and RCL showed weakness in cruise lines as SunTrust noted forward booking volumes & pricing was relatively strong up until early September, when they observed a pull-back due to the hurricane. Thomas Cook Group Plc filed for compulsory liquidation after last-ditch rescue talks failed. The company ceased to operate overnight, with all of its flights and bookings canceled. Thomas Cook will now be handed over to administrators who will seek to sell what they can to pay off creditors who owed about 1.9 billion pounds ($2.4B)



·     Energy stocks were active amid a few stories: Oil fell as traders weighed conflicting reports on whether Saudi Arabia will succeed in restoring its lost production by the end of October, while concerns over demand returned following gloomy European data. Iran said a British-flagged tanker it seized in July on alleged maritime violations is free to leave, ending a month-long standoff with the U.K. ahead of a United Nations summit. Also, the WSJ reported full repairs to the attacked Saudi oil fields may take many months, not the 10 weeks promised

·     E&P sector; TELL announced a Memorandum of Understanding (MOU) with Indian LNG company Petronet for a up to 5 mtpa ($2.5 billion) equity investment in the Driftwood project; Citigroup downgraded shares of CXO, CLR and WLL in the E&P sector

·     Oil equipment and services; Citigroup trimmed its U.S. rig count to 910 in 2020 from a previous 983, which represents a 5% decline from the 958 average we estimate from 2019, while transfers coverage as VAL downgraded VAL (TP to $4.75) and NE (TP to $1) to Sell from Neutral, remain Neutral on BORR (TP to $7) and RIG (TP to $7) and remain Sell on DO (TP to $5), while remain Neutral on SLCA while our TP moves to $12 from $10

·     Utilities & Solar; PCG said it’s reached an agreement to resolve claims with entities representing 85% of the insurance claims from the 2017 Northern California wildfires and the 2018 Camp Fire. Subject to bankruptcy court approval, PG&E said the agreement formalizes the $11 billion agreement in principle announced last week; shares of AEP, ATO, DTE, AEE, NEE, ED (also upgraded at KeyBanc) with new 52-week highs as utility index new all-time highs



·     Bank movers; banks were generally lower given the decline in Treasury yields for a 6th straight session; in consumer finance and lending; the WSJ reported Fannie Mae (FNMA) and Freddie Mac (FMCC) are expected to start keeping their earnings as early as this week, putting on hold the arrangement in which the two handed over most of their profits to the Treasury Department; REITs remain strong given the sensitivity to interest rates; Citigroup downgraded a handful of REITs (SBRA, PEI, SPG) in a reshuffling of ratings in the space; AXP a late day bounce as it authorizes repurchase of up to 120M shares, boosts dividend 10%



·     Pharma movers; drug supply chain (JNJ, TEVA, ENDP, MCK, MNK, WBA) active after Barron’s was out cautious on the names given potential liabilities related to opioid lawsuits; MNK rose after the company said a Phase 3 clinical trial of its investigational StrataGraft regenerative tissue met both primary endpoints, evaluated the efficacy and safety of a single application of StrataGraft in the treatment of deep partial-thickness thermal burns; PTE rises in reaction to positive results from a retrospective study of its SkinTE skin regeneration product in patients with difficult-to-treat wounds; AVDL said FDA approves REST-ON trial amendment; AKCA said that its board of directors has appointed Damien McDevitt, Ph.D., a member of its board of directors, as interim CEO, effective immediately – announced along with several other mgmt members

·     Biotech movers; Guggenheim with a few rating changes as they upgrade AGIO to buy amid underperformance (20% YTD vs +6% BTK) as investor sentiment on its pipeline has declined in absence of news flow, in line with our prior thesis; Gugg also upgraded REGN to buy and upped tgt to $403 from $355 based on our view that competitive headwinds on the Eylea franchise are manageable, and the IPI fear is fairly reflected in the current valuation; lastly, SNY was upgraded to buy at Guggenheim; LVS signs a deal with privately held 3B Pharmaceuticals GmbH for global rights (ex. Europe, Russia, Turkey and Israel) to a peptide-targeted radionuclide therapy (PTRT) and imaging agent targeting fibroblast activation protein alpha; PSTV surges after announcement that BARDA will reimburse it $4.6M for work performed during fiscal years 2012 – 2019 to account for retrospective changes in indirect cost rates under their contract

·     Medical equipment and devices; EXAS rises after company says FDA approves cancer screening test for use in younger patients; DXCM positive Piper comments saying "we still expect some volatility around an eventual Libre 2.0 headline, but believe that impact will be short lived in nature and that longer term, DXCM remains a must own for investors." ISRG shares act5ive after MDT unveiled a new robot to target its near-monopoly of its da Vinci surgical system; CMD falls after saying the company’s Life Sciences unit is expected to show a modest decline on an organic basis and decline in the low single digits on a reported basis


Industrials & Materials

·     Industrial & Machinery; ITW was downgraded to sell at Goldman Sachs saying given the company’s deteriorating fundamentals, there is downside risk to consensus estimates and its valuation premium relative to Large Cap Defensive peers appears high; Wells Fargo transferred coverage of Industrial Distribution and maintaining the Market Weight rating on the sector as a whole, but upgraded AXE to Outperform and our top sector pick ($90 PT from $70 PT) and downgraded WCC to MP with PT of $45 from $60; ARTX to be bought by Greenbriar Equity for $3 a share, an aggregate equity value of ~$80.8M ; FLR hosting its strategic review for analysts and investors on a conference call to be held on September 24 at 8:00 AM

·     Transports; FDX sets new 52-week lows, adding to recent declines after earnings miss and lower outlook for the year took shares lower; in airlines, SAVE was downgraded at both Stephens and Bank America (BoFa also downgraded AAL to neutral)

·     Aerospace & Defense; KTOS shares fell after Baird noted after the close Friday, NOC was awarded a $1.1 billion contract from the Missile Defense Agency (MDA) for hypersonic test drones beating out KTOS in what was considered a potential win for KTOS

·     Metals & Materials; steel sector weak again after more cautious analyst comments, as JPMorgan downgraded shares of U.S. Steel (X) along with AKS and lowers price targets in group to reflect more flattish price environment for steel saying if current economic and trade conditions hold, steel prices to likely fluctuate between $500/ton and $600/ton over near to medium term. Separately, Goldman Sachs downgraded AA in aluminum sector, citing lower aluminum and alumina prices expected in the near-term and few company-specific catalysts and cut ratings on CMC and SCHN in the steel space; CLF was downgraded to neutral at JPMorgan

·     Chemicals; DD said it agreed to buy the ultra-filtration membrane business of Germany’s BASF SE’s for an undisclosed amount; said the deal expands its portfolio of water purification and separation technologies to include ultrafiltration, reverse osmosis and ion exchange resins; DOW says a Canadian court has ordered Nova Chemicals to pay C$1.43B (US$1.08B) for damages Dow incurred through 2012 related to their jointly-owned ethylene plant in Joffre, Alberta; MOS, NTR, IPI share active after potash producer K reduced potash production and output


Technology, Media & Telecom

·     Internet; NFLX falls back to January lows, extending losses from last week after Evercore said checks highlighted a slowdown in int’l download activity beginning last month which has continued into September; Dow Jones reported SNAP and other current and former competitors of FB are talking to investigators from the FTC as part of its antitrust investigation into Facebook, noting Snap’s legal team kept a dossier for years of ways Facebook was trying to thwart competition

·     Semiconductors; in the semi-equipment sector, Citigroup upgraded AEIS to buy and moved MKSI to its top small and mid-cap pick list saying recent supply chain checks indicate NAND prices are poised to rise as much as 20% in Q4 and that normalizing hyperscale cloud inventory is helping stabilize DRAM pricing (also said LRCX and AMAT remain their top equipment picks while downgraded BRKS to neutral from buy with $42 tgt; NVDA tgt raised to $216 at SunTrust as see revenue, margins, and sentiment improving across NVDA’s end markets; Stifel said iFixit published their preliminary teardown for the Apple iPhone 11 Pro Max (released 9/20) and early order rates appear positive, potentially ahead of last year’s launch cycle. CRUS was confirmed as the supplier of a new Audio Codec and 2 new (potentially custom) Audio Amps replacing 3 apparently smaller, older "off-the-shelf" CRUS Audio Amps; IPHI was defended at Stifel with company saying believe the Inphi shares are being pressured due to speculation regarding a slower ramp of 400G PAM4 at large hyper scale customer

·     Software, Hardware & Component news; JNPR upgraded to buy at Needham with $29 tgt saying stock may have some renewed life after several years of persistent declines/says co will stabilize its results in Q3 and post a return to year-over-year growth in Q4; WORK shares dropped after Bernstein raised the possibility that Slack Technologies may have given a “softball” third quarter forecast, which could set a precedent that’s difficult for the company to continue


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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