Market Review: February 03, 2020

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Closing Recap

Monday, February 03, 2020





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     U.S. stocks rise as all three major U.S. stock averages pare some of last Friday’s losses as optimism into another busy week of earnings (90 S&P companies expected to report) and strong economic data helped rebound markets from coronavirus impact fears. Energy the big drag as WTI crude and Brent both fell sharply, each now in bear market territory (down over 20% from recent highs), while consumer discretionary and tech climb the most. As of the latest update, China’s reported the number of coronavirus cases rose past 17,200 cases, with 361 fatalities, while 34 other countries have reported cases of the disease, up again from last Friday totals. China stock markets resumed trading after more than a week long holiday, falling as much as 9% before paring losses to over 7% after China’s central bank lowered the interest rates of reverse repurchase agreements while injecting a large amount of liquidity into the banking system. Note fears surrounding the spread of coronavirus, which has been declared a global emergency, had led the S&P 500 and the Dow Jones Industrials to their worst weekly losses in at least five months last Friday. A handful of biotech names advanced (GILD), along with another record high in Tesla shares as shorts continue to get hammered. Alphabet Inc. (GOOGL) is due to report four-quarter results after markets close.

Economic Data

·     Markit US Manufacturing PMI for Jan-F reported at 51.9 vs. est. 51.7 and falling from 52.4 in December (and below last year 54.9 reading) as employment falls to 51.1 vs 51.4 in Dec. and new orders decline from prior month

·     Construction Spending MoM for Dec fell (-0.2%) below the est. for up 0.5%; Private construction fell 0.1% in December, Private residential construction rose 1.4% and Private residential home improvement spending rose 0.5% in Dec. to $193.7B

·     ISM Manufacturing for January rises to 50.9 (highest since July) from 47.8 the prior month and above the est. 48.5 as Production rose to 54.3 vs 44.8 (best levels since April), new orders rose to 52 vs 47.6 (best since May) and employment rose to 46.6 vs 45.2



·     Oil prices were broadly lower, adding to the steep losses of 16% in January (falling 4-straight weeks), and falling below the $50 per barrel level for the first time in a year while Brent slides over 2.5%, falling into bearish territory (down over 20% from Sept highs). WTI crude dropped $1.47 or 2.8% to settle at $50.11 per barrel, also falling into bear market territory (20% off January 6th peak of $63.27 per barrel – and 4th trip in bear mkt territory since June 2017). Prices continue to slide following rising fears of slowing global demand given the potential impact of the coronavirus. Gold prices slipped for the first time in four sessions, ending lower by $5.50 or 0.4% to $1,582.40 an ounce as the dollar jumped and stocks partially rebounded from last week. 



·     The U.S. dollar surged as the dollar index rose over 0.4%, up against safe haven currencies as well as the British Pound (which was down over 1.45%). Treasury market’s slipped following the better ISM manufacturing reading, as yields rise following two-weeks of declines (though the 10-year yield gained only 2 bps to 1.52% after earlier highs of 1.57%, while the 2-yr gained 4 bps to 1.35% after falling to more than 2-year lows last week). Overall, the yield on the 10-year has decreased around 32 bps the last two weeks on growth demand fears.






WTI Crude















10-Year Note





Sector News Breakdown


·     Retailers; NKE was upgraded to buy from neutral at UBS and raise tgt to $136 from $103 as now think the market will pay a much higher P/E for NKE as it realizes how Nike’s business model changes will make the company worth much more long-term; ULTA upgraded to buy from neutral and raise tgt to $307 from $285 at Goldman Sachs as see the slowdown cyclical in their view, operating margins to remain intact and view the risk/reward as favorable at current valuations; GOOS says Kate Upton is the company’s newest Goose Person, as the face of the global spring campaign

·     Auto’s; TSLA tgt raised to $808 from $556 at Argus as positive view assumes continued revenue growth from the legacy Model S and Model X, as well as strong demand for the new Model 3, which accounted for more than 80% of 4Q19 production; UBER added to best ideas list with $50 tgt at Wedbush saying an analysis of Uber’s growth dynamics, pricing rationalization in the ridesharing space, and Uber Eats strategy lay the groundwork for a company going through a growth metamorphosis; ABG shares jumped early after quarterly profit and revs topped views; CVNA shares rose as Baird said that after checks and third-party data sources they believe Carvana’s Q4 unit volumes were at or slightly above investor expectations

·     Consumer Staples; MNST upgraded to overweight from equal-weight at Morgan Stanley with $78 tgt as the firm expects U.S. sales trends to accelerate again even against the recent launch of Coke Energy; CL upgraded to OP from SP at RBC Capital and raises tgt to $91 from $69 as see 2020 guidance beatable, expect CL will continue to drive efficiencies out of their supply chain via automation/robotics and anticipate a more favorable input cost environment; LK denies allegations of financial fraud after short seller Muddy Waters Research on Friday cited an unattributed report that accused them of fabricating financial and operating numbers; SYY falls after mixed results with 1c EPS beat and slightly missing on revs

·     Casino & Leisure movers; Citigroup lowered its full-year estimate for Macau gross gaming revenue after the coronavirus outbreak weighed on January results – as now sees 2020 GGR down 8% y/y, had previously projected a decline of 2% (WYNN, MLCO, MGM); SGMS shares spiked midday berg report FanDuel picked the company to provide the technology for its sports-wagering and online-casino businesses in the U.S.



·     Energy stocks slide as oil prices touch 52-week lows; the WSJ reported that Saudi Arabia is pushing for a drastic, short-term oil production cut in response to China’s deadly coronavirus, citing OPEC officials. The report said, under one scenario, Saudi Arabia would lead a collective 500,000 barrels a day reduction until the crisis is over, and another option would involve a 1 million barrel a day drop

·     Major oils; XOM downgraded to sell from neutral and tgt cut to $59 from $72 at Goldman Sachs following 4Q2019 results given downside to long-term consensus estimates, elevated relative valuation versus peers, lack of free cash flow limiting capital returns, and risk to long-term return on capital employed targets; HES was upgraded to overweight at Piper Sandler given the recent pullback in the shares and the unique LT value creation, as view valuation upside as compelling; CVI was upgraded to Neutral from Sell following underperformance at Goldman Sachs; HFC, PSX, MPC, VLO all underperform as refiners weak

·     Utilities & Solar; PCG trades to best levels since August after the company submitted an updated reorg plan , including a new board of directors and two newly expanded roles of chief risk officer and chief safety officer, aimed at addressing concerns raised by California Governor Gavin Newsom



·     Bank movers; Dick Bove of Oden Research upgraded JPM to buy from hold while downgraded GS, C, RF and TFC to hold from buy saying he cannot think of any reason to buy a bank stock right now; KKR was upgraded to overweight at Barclay’s in PE space saying the company’s balance sheet strategy and the capital markets business make the company pro-cyclical and the strong compounding is hard to ignore; GDOT shares late day after an SEC filing showed Starboard reports a 9.3% stake in the company.



·     Pharma movers; President Trump’s State of the Union address is Tuesday night, with a main focus expected to be drug pricing; AIMT shares rise after the FDA approved the first drug for children and teenagers with peanut allergies/the drug, which will be sold under the brand name Palforzia, will be marketed by Aimmune Therapeutics Inc.; CRMD said the FDA has granted a request for a rolling review of the new drug application for Neutrolin for the prevention of catheter-related blood stream infections in hemodialysis patients.

·     Biotech movers; INSM rises as announces phase 2 WILLOW study of INS1007 in patients with non-cystic fibrosis bronchiectasis meets primary endpoint; NKTR upgraded to buy from neutral at Mizuho and raise tgt to $35 from $21 as sees a good risk/reward going into 2020 and 2021 with key pivotal Phase III readouts in melanoma and bladder cancer indications starting in Q4 of this year; BLUE upgraded to outperform from in-line with $100 tgt at Evercore/ISI saying BLUE could file marketing application for its sickle-cell gene therapy this year, which could boost its valuation ; CRSP was downgraded to in-line from outperform and cut tgt to $52 from $85 at Evercore; UTHR said that Unituxin (dinutuximab) failed to achieve the primary endpoint in a Phase 2/3 clinical trial, DISTINCT, evaluating the GD-2 targeting monoclonal antibody, combined with chemo agent irinotecan, in patients with relapsed/refractory small cell lung cancer (SCLC); GILD rises after offering experimental coronavirus drug for testing in China; XLRN upgraded at Morgan Stanley as sees substantial upside potential in pulmonary arterial hypertension with the company’s surprisingly positive top-line sotatercept data

·     Medical devices, Healthcare services and providers; CTLT agreed to acquire MaSTherCell Global, a company backed by Great Point Partners, SFPI-FPIM, and ORGS, for an aggregate of $315 million in cash, subject to a customary adjustments; MMSI was upgraded at Raymond James citing belief that management is more committed to improving the margin/cash flow profile and on its comfort with consensus estimates


Industrials & Materials

·     Transports; Industrial & Machinery; ACM reports Q1 EPS of 46c, well below the 69c estimate and revenue of $3.2B also well below consensus of $4.99B; the Baltic Dry Index fell 4.31% to 466 points in London to carve out a new 52-week low, now down 12 trading sessions in a row and is 80% lower than the high in September as Capesize rates were down 7.3% and Panamax rates were off 6.6 to lead the BDI lower (DSX, EGLE, NMM)

·     Aerospace & Defense; NOC downgraded to sell from buy at Goldman Sachs citing book-to-bill ratio and organic sales growth below peers as reason for double downgrade/notes the stock is now trading at 24.5x 2020 economic P/E and 21.8x 2021 economic P/E, the high-end of its own historical range, making it the most expensive large-cap defense stock on that metric; GD was upgraded to buy at Argus with $195 tgt saying over the long term, GD mgmt. is focused on driving growth through modest sales increases, margin improvement, share buybacks, with a history of delivering positive EPS surprises; LMT awarded $2.34b contract for repair, upgrade or replacement/other services for assemblies associated with MH-60R and MH-60S helicopters

·     Chemicals; AXTA upgraded to outperform from market perform by BMO saying the stock has a positive risk/reward given the shares are trading as if there will be no sale of the company; CE was upgraded to buy at Bank America with a $110 tgt, while tgt cut to $110 from $124 at Morgan Stanley and to $113 from $144 at Citigroup (follows recent earnings)


Technology, Media & Telecom

·     Internet; BIDU said it expects revenue to be in the range of RMB 28.3-28.9 billion ($4.06B-$4.15B), rising 4%-6% YoY compared to its previous guidance in the range of RMB 27.1 billion to RMB 28.7 billion, or -1% to 6% increase year over year; CARS said it saw a huge spike in website traffic last night due to the eight commercials that were aired by automakers during the Super Bowl/reports an average 1646% lift to pages of the specific car makes and models, as well as an average 554% lift in automakers’ pages on the digital marketplace;

·     Semiconductors; AMAT upgraded to buy from hold at Deutsche Bank and raise tgt to $72 from $60 as sees upside to both consensus earnings estimates and valuation multiples; ON shares slid as reports mixed Q4 results that beat on revenue and missed on EPS; Citigroup noted the SIA announced December monthly sales of $36.8 billion (up 3.3% MoM), below their estimate of $37.3 billion (up 4.5% MoM) and typical seasonality of up 3.6% MoM due to weaker than expected analog revenue/overall C19 semi sales forecast was down 12% YoY; STX was upgraded to buy at Stifel citing improved fundamentals for hyperscale/data center and a more attractive valuation given recent market weakness.

·     Software movers; EA was downgraded at BMO Capital saying while encouraged by improvement in its sports games and strong performance from Star Wars, continuing the recent momentum could prove more challenging that we thought; NEWR rises after Raymond James upgraded to strong buy as the company’s revised product strategy, new management team, and recent conversations with customers give us increasing confidence in the risk/reward at current levels

·     Media & Telecom movers; ROKU and FOXA reached a distribution deal late Friday, narrowly avoiding a blackout that would have removed Fox apps from the Roku streaming platform ahead of the Super Bowl; Credit Suisse downgraded VZ to neutral as do not see any near-term catalysts for shares and also cut VIAC to neutral as a result of a second meaningful downward FCF revision post the Viacom/CBS merger announcement; CHTR was upgraded to outperform at Credit Suisse as they reassess the value being created by successful Time Warner Cable integration overlaid with our overweight view on the cable sector; TMUS mentioned positively in Barron’s saying the company has continued to grow throughout the merger push with Sprint (S), and it doesn’t need Sprint to succeed saying even if the deal fails; WWE shares down fall further after falling 21% on Friday after co-presidents left the company and its board in executive shake-up


Market commentary provided by Catena Media Financials US, LLC, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.

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