Market Review: January 14, 2020

Darwin SarazaDaily Market Report

Closing Recap

Tuesday, January 14, 2020





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     U.S. stocks end the day mixed with the Dow Jones Industrial Average getting a boost with standout performances from JPMorgan after an earnings beat and gains in Nike, Disney and Pfizer while Apple gave back recent gains, falling more than 1% for its biggest daily percentage decline in over a month. Stocks faded mid-afternoon after headlines that China tariffs to remain until after the U.S. election despite deal, as U.S. officials deny there’s a plan to cut China duties further…with news coming ahead of the expected phase-one deal sign this week. In the first batch of Q4 earnings, JPMorgan, Citigroup paced gains in financials while Wells Fargo declined and transports were lifted as Delta Airlines (DAL) easily beat consensus estimates and Fed-Ex (FDX) rallied on reports Amazon lifts ban on FedEx Group for third-party shipments. Inflation data was a little light as December consumer prices fell just short of consensus estimates. Gold prices dip while the dollar rises and oil inches up ahead of inventory data. In other trade news overnight, reports indicated China has pledged to buy almost $80 billion of additional manufactured goods from the United States over the next two years as part of a trade war truce.

Economic Data

·     US consumer prices grew at the weakest pace in four months in December as prices of used cars and trucks slipped with headline CPI rising 0.2%, below the 0.3% estimate while core prices (ex: food and energy) rose 0.1%, missing the 0.2% estimate. Ex: food, energy YoY, prices rose 2.3%, in-line with estimates while CPI overall YoY rose 2.3% vs. est. 2.4%



·     Oil prices rise as WTI crude gains 15c to settle at $58.23 per barrel ahead of weekly inventory data tonight (API) and tomorrow morning (EIA) and as optimism grows amid trade between the U.S. and China ahead of the expected phase one deal signing this week. Brent oil prices rose 29c or 0.45% to $64.49 per barrel. Gold prices sipped -$6 to $1,544.60 an ounce, its lowest level in almost two-weeks as safe haven demand has waned over that time with U.S. stock markets setting record high on a near daily basis. Ahead of the phase one U.S.-China trade deal expected to be signed this week, gold prices dipped.


Currencies & Treasuries

·     The U.S. dollar was little changed against the Japanese yen (around the 110 level), though at the highest since May 2019, and also flattish against the euro (1.132) as well as the Canadian and Aussie dollars. Crypto currencies were broadly higher, as Bitcoin, Litecoin, Ripple, Ether among them as exchange-traded bitcoin options launched Monday on the Chicago Mercantile Exchange, in response to growing crypto attraction and demand for tools to manage bitcoin exposure. Treasury prices managed small gains with the yield on the 10-year slipping to below 1.82%.






WTI Crude















10-Year Note





Sector News Breakdown


·     Retailers; BGFV shares rose despite Q4 sales miss as raises Q4 EPS guidance to 2c-4c from loss of (16c)-(4c) saying pricing and promotions over the holiday period resulted in a 4.7% increase in same-store gross margin dollars; ULTA tgt raised to $310 from $275 at Oppenheimer as expect ULTA to benefit from continued department store challenges and Macy’s ~30 planned store closures; GME shares slip as reported global sales from continuing operations for the holiday period were $1.83B, a 27.5% decrease compared to the 2018 nine-week holiday period YoY; ZUMZ announced that the company’s comparable sales increased 6.8% for the nine-week period ended January 4, 2020 YoY and raised Q4 comp sales up 6% vs. prior view 2%-4% and EPS for Q4 to $1.34-$1.38 from prior $1.26-$1.32

·     Consumer Staples; SYY was downgraded to neutral at Piper following the unanticipated CEO transition announced Monday which comes at the end of the company’s three year plan; BYND extends gains from yesterday in apparent short squeeze, but also attributed to comments made by chairman about China saying: "we haven’t announced anything, but we are expected to do something this year"; LMNR advanced after earnings beat

·     Housing & Building Products; FRTA upgraded to buy at SunTrust on the normalization of the company’s earnings power expectations over the next twelve months; in furniture, ETH said it sees preliminary Q2 EPS 25c-27c below consensus 40c and reports preliminary Q2 revenue $175M vs. est. $181.73M/boosts share buyback authorization to 3M shares

·     Auto’s; the short squeeze in TSLA continues as sets another record high as analysts continue to raise price tgts as stocks surges to record highs (Oppenheimer upped tgt to $612 yesterday and Jefferies to $600 today); VC was upgraded to buy at Deutsche Bank as views Visteon and APTV as some of the best supplier stories in the group heading into 2020; UBS downgraded Italian tire-maker Pirelli to neutral and cuts target price to EUR 5.50 from EUR 6.20 citing lower price-mix contribution and weaker volume growth due to the warm winter



·     Energy stocks were mixed as easing political tensions in the Middle East pushed the market’s focus onto the coming post-winter lull in demand. WTI held near $58 per barrel, briefly slipping to its lowest in six weeks as concerns that the U.S. and Iran were headed for conflict over the killing of an Iranian general continued to recede.

·     E&P sector; Canaccord downgraded Canadian E&P’s ECA to hold from buy and HSE to sell as expects both to have lower free cash flow yield this year vs the sector average while saying investors should focus on SU and CNQ given the volatility in prices. Canadian E&P companies will underspend cash flow through at least H1/20 as they look to strengthen their balance sheets

·     MLP sector; Barclay’s upgraded PAA to Overweight from Equal Weight and downgraded KMI, WMB, NBLX, MPLX, and CNXM to Equal Weight from Overweight: Said downgrading WMB and MPLX on the basis of Northeast gas exposure and while expectations are reset given their respective underperformances in the back half of last year, we are moving the rating as we don’t expect outperformance in 2020



·     Bank movers; JPM reported Q4 earnings that topped consensus while provision for credit losses of $1.43B (down -7.8% YoY) beat the average analyst estimate of $1.53B while revenues rose 9% YoY to $29.21B; Citigroup (C) Q4 EPS of $2.15 improves from $2.07 in Q3 and $1.61 in Q4 2018 and topped consensus estimate of $1.83 helped as continued strong growth in branded Cards and momentum attracted digital deposits in the U.S. consumer business, while Investment Banking gained share/Q4 net interest revenue of $12.0B rose 3% Q/Q and 1% Y/Y; WFC slid after posted weaker-than-expected profit and revenue for the fourth quarter (Q4 Adj EPS $0.93 vs $1.11 cons; Q4 rev $ 19.9b vs $19,87b cons; Q4 NII $11.2b vs $11.24b consensus)

·     Consumer finance and lending; Visa (V) signed a definitive agreement to acquire Plaid, a "network that makes it easy for people to securely connect their financial accounts to the apps they use to manage their financial lives" paying $5.3B ; ADS was downgraded to hold from buy at Argus as expect weak earnings growth over the next few quarters as Alliance works through the end of its business transition

·     Asset managers; AB reports preliminary AUM $623B as of December 31, 2019, up from $611B at the end of November as the 2.0% increase was due to market appreciation, as well as total firm wide net inflows; IVZ reports preliminary AUM $1.226T as of December 31, 2019, an increase of 2.0% versus previous month-end. The increase was driven by reinvested distributions, favorable market returns, foreign exchange, and net inflows in money market



·     Pharma movers; ABBV’s Skyrizi met both primary and all ranked secondary endpoints, including superiority at week 52, versus Cosentyx in a head-to-head Phase 3 study; in the cannabis sector; group slipped after APHA missed the lowest revenue estimate and cut its guidance for the current fiscal year as sees FY20 revenue view to C$575M-C$625M, down from C$650M-C$700 prior and sees FY20 adjusted EBITDA C$35M-C$42M (shares of CRON, ACB, CGC, GWPH among movers); TLRY names new chief financial officer and new chief operating officer; generic pharma names rally behind PRGO rev guidance as saw net sales for year $4.8B vs. prior $4.6B-$4.7B view

·     Biotech movers; AMGN announced strategic collaborations with leading diagnostic companies GH and QGEN to develop blood- and tissue-based companion diagnostics, or CDx, respectively, for investigational cancer treatment AMG 510; STML slides as announces 2019 preliminary net revenue of $43.2M for its rare blood disease drug, Elzonris, below analysts’ estimate of $51.7M; ADAP rises as the company enters a partnership with Japan’s second-largest drugmaker Astellas Pharma to co-develop and market T-cell therapies for cancer patients

·     Medical equipment and devices; BSX shares weak after announces preliminary Q4 2019 sales of $2.90B, representing ~13.4% growth, which is at the lower end of the company’s forecast of 13% to 15% and Q4 sales below analysts’ estimate of $2.93B; RTIX shares jump after saying it was selling its OEM business to a European private equity firm Montagu for $490M/says transaction expected to close in H1 2020, after which RTIX will be debt-free; MMSI rises after activist investor Starboard Value disclosed a 9% stake

·     Healthcare services and providers; MCK raises FY20 EPS view to $14.60-$14.80 from $14.00-$14.60 (est. $14.37)/said businesses are well positioned to continue to deliver growth and based on the continued momentum and trends in our business; ABC, CAH, MCK sued by Oklahoma Attorney General Mike Hunter related to opioids after winning a lawsuit against one drug manufacturer and reaching pretrial settlements in other cases; MDRX prelim Q4 revs missed the lowest analyst estimate ($450M-$455M vs. est. $463.4M) while reaffirms year; SDC rises on news it will start selling its aligners to orthodontists; SGRY rises after Benchmark raised its tgt to $19 from $13 earlier noting SGRY confirmed at a conference that 4Q19 was at least in line with consensus and that 2020 would be another year of double-digit AEBITDA growth; MOH shares fell as Stephens said prelim Q1 exchange enrollment of 350k lives fell short of the 407k estimate


Industrials & Materials

·     Industrial & Machinery; in diversified Industrials Wells Fargo downgraded BRC to underweight, and upgraded AIT to overweight; in heavy duty truckers CMI, PCAR and NAV all upgraded to Overweight at Wells Fargo (and raised tgts) on view industry indicators are turning positive for share accumulation and sell-side estimates are too high/specifically, Class 8 truck backlog to inventory likely remains beneath 2.0. Typically, this is a good buy point for longer-term investors; ACM shares active after Bloomberg reported that WSP Global, a Canada based professional services consulting firm approached ACM regarding a possible deal ; ICHR rises as announces Q4 revenue of $189M (+22% Q/Q) versus the $184.9M consensus and said it expects positive cash flow from operations

·     Airlines; DAL posted a Q4 profit that topped forecasts ($1.70 vs. est. $1.40), boosted by customers gained from rival airlines’ 737 MAX cancellations and what CEO Ed Bastian said was a growing preference for the Delta brand as expects trend to continue in Q1 with estimated revenue growth of 5%-7%, YoY; ALK reports combined December traffic up 9.4%, Air Group reported a 9.4% increase in traffic on a 4.7% increase in capacity compared to December 2018 and load factor increased 3.7 points to 85.9%; JLBU sees Q4 RASM -2.7% compared to prior -1.50% to -3.50% and December capacity +4.4%, traffic +5.7% and load factor for December 2019 was 82.4%; CPA reports December traffic down 2.2% YoY, capacity decreased 5.9%, while system-wide passenger traffic decreased only 2.2% year over year; AAL pushes back Boeing 737 Max return to service to June 4th

·     Truckers & Rails; Bank America upgraded rails UNP and CP upgraded to buy from neutral citing expected benefits for carloads from the upside potential of the Phase 1 trade deal with China, signs of stabilizing in the "second derivative carload declines", and continued gains from the Precision Scheduled Railroading overhaul while raised WERN and USX to buy in freight/trucking as truck spot rates have inflected over the past month as the more than 700 carrier bankruptcies in 2019 and net orders that remained well below replacement has improved; Wells Fargo downgraded railcars GBX to underweight as we expect the space to be a laggard for 2020; FDX got an afternoon boost after DJ reported AMZN lifts ban on FedEx ground for 3rd party Prime

·     Metals & Materials; FCX was downgraded to underperform at Credit Suisse as firm bearish on medium-term copper prices owing to less demand-side support from China in 2020-21 and significant supply side growth coming in 2021 and 2022; in packaging, GEF was upgraded at Wells Fargo though overall are neutral-to-positive on the Containers & Packaging sector for 2020; U.S. Steel (X) was reinstated sell and $9 tgt at Goldman Sachs

·     Chemicals; lithium producers (ALB, SQM) look to rally as investors bet on a rebound in electric car sales in China after government assurances its subsidies for buyers won’t be cut any further, the Financial Times reported; POL was upgraded at Wells Fargo; SunTrust with chemical preview as expect chemical companies to report in-line to slightly below consensus December quarter results driven by international trade headwinds, soft GDP in Europe and China, automotive holiday-related shutdowns, inventory destocking and FX headwinds (lowers estimates for CBT while favorite ideas into Q4 include DOW, HUN and NGVT)


Technology, Media & Telecom

·     Semiconductors; MU was upgraded to buy with $67 tgt at Cleveland Research as believes both pricing and demand appear set-up to be better in the near-term and his checks support a cyclical turn through 2020; MX raises Q4 revenue view to $198M-$200M from $181M-$191M (est. $186M) and now sees Q4 gross profit margin 24%-26%

·     Software movers; ACIW shares fell after cuts FY19 revenue view to $1.255B-$1.265B from $1.315B-$1.345B (est. $1.32B) and cuts FY19 adjusted EBITDA view to $300M-$310M from $360M-$350M due to expired large contract; AMZN will ask a judge to temporarily block MSFT from working on a $10B cloud contract from the Pentagon, Reuters reported; CLDR announced the appointment of former Hortonworks CEO Robert Bearden as President and CEO, who replaces Chairman Marty Cole, who has served as interim CEO since last summer; in video games, TTWO downgraded to Equal Weight at Stephens as sees EA and Ubisoft as cheaper and with more potential for upside to numbers due to more robust release slates over the next year

·     Hardware & Component news; Worldwide shipments of personal computers increased 2.3% in the fourth quarter from a year earlier, as Lenovo Group Ltd. held onto the top spot with almost 25% of the market. PC shipments climbed to 70.6 million units in the period that ended Dec. 31, researcher Gartner Inc. said. Competing firm IDC pegged the shipments at 71.8 million units, a 4.8% rise. For the year, the PC market grew for the first time since 2011, both firms said

·     Internet; PINS shares rise after new eMarketer data shows the company surpassing SNAP to become the third-largest social media platform in the U.S. last year/Pinterest users grew 9% Y/Y in 2019 to 82.4M vs. Snapchat increased 6% to 80.2M; China ADRs underperformed US counterparts with BIDU and BABA slipping early; CVNA shares fell after YipitData said its weekly tracker showed unit sales growth YoY slowed exiting 4Q and into 1Q; CRTO shares fell after reports in Adweek that GOOGL Chrome will phase out third-party cookies


Market commentary provided by Hammerstone Markets, a division The Hammerstone Group, a firm separate from and not affiliated with Regal Securities L.P. Regal Securities L.P. has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.

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