Closing Recap

Wednesday, February 12, 2020

Equity Market Recap

·     U.S. stocks setting record highs for a 3^rd straight day, as the Dow Industrials tops 29,500, the Nasdaq Composite moves back above 9,700 and the S&P 500 index advances for the seventh time in the last eight days in another broad-based rally led by technology and recent sector laggards financials and energy. The Dow Transports firmly higher, moving back above the 11,000 level. Outside of the coronavirus economic impact fear (and obvious health concerns) for China and other nations, which has eased over the last few days given the slowing paces of new cases, the news for global stock markets has been generally positive. The Fed remains accommodative in a low rate environment, the economic data (especially jobs) has been very strong domestically, earnings results have generally been positive and the pace of new cases overseas from the virus is continuing to slow. The result – stocks setting all time bests in the U.S. and Europe while Asia continues to play catch-up. Defensive and safe haven assets have slid, with Treasury yields inching up and gold remains steady. Oil prices also rebounded off 13-month lows to settle higher by 2.5%. Testimony on monetary policy and the economy from Fed Chairman Powell today to the Senate Banking Panel did little to sway markets.

Commodities

·     Oil rallied back above the $51 level, rising $1.23 or 2.5% to settle at $51.17 per barrel, despite bearish weekly inventory data, getting a bounce on signs that Asia’s coronavirus may be easing, which spurred speculation that the worst of crude’s sell-off could have passed. After having lost about 20% during the last few weeks, and falling to 13-month lows on Monday amid fears the virus would slash fuel consumption in China, prices rebounded today with another “risk on” day for U.S. stocks and commodity prices. Gold prices edge higher by $1.50 or 0.1% to settle at $1,571.60 an ounce – bounces off earlier lows of $1,564.40 an ounce.

Currencies

·     The U.S. dollar continued its march higher, with the euro falling to its lowest levels since 2017, touching lows of 1.0865 (down over -0.4%), while the buck topped the 110 level vs. the Japanese yen firmly higher vs. most currencies supported by strong data over the last few weeks. Treasury yields ended modestly higher as prices declined, with the 10-year holding around the 1.62% level most of the day (up 2 bps) in another quiet day of economic data and surging stocks prices as investors pare back gains in Treasuries. The US Treasury sold $27B in 10-year notes at a yield of 1.622% vs. 1.623% when issued prior with the bid-to-cover at 2.58 vs. 2.45 prior and indirect bidders awarded 61.3% and directs 14.8% of the auction.

Sector News Breakdown

Consumer

·     Auto’s; LYFT shares fell after reported 4Q results ahead of expectations as revenue exceeded the Street’s forecast by ~3% and adj. EBITDA loss was $34mm better than consensus estimates while revenue per active rider increased +4% sequentially with in-line year guidance (report was good, but not up to expectations after UBER strong results recently); LAD Q4 results slightly missed estimates, not living up to recent peers earnings (such as AN); GT was downgraded to Neutral from Overweight at JPMorgan following earnings the day prior; ADNT was upgraded to an Equal-weight rating at Morgan Stanley after accounting for the sale of Yanfeng Global Automotive Interior Systems in China.

·     Retailers; URBN 4Q net sales of $1.17B just above the $1.16B estimate while 4Q comp retail segment sales +4% vs. +3% YoY; but said wholesale segment net sales decreased 10% due to a 12% decrease in Free People; PVH said a majority of the company-operated and franchised Calvin Klein and Tommy Hilfiger stores in China are temporarily closed due to coronavirus concerns; ACCO reported 4Q EPS and sales above consensus and issued initial guidance for 2020, which calls for EPS of $1.20-$1.30, as management expects another year of strong progress against ACCO’s strategic imperatives

·     Consumer Staples; TAP said Q4 sales rose 3.4% to $2.5B while EPS of $1.02 was above the 78c estimate and last year’s 84c while volume was down 1.0% to 21.8M hectoliters and for 2020 revs sees flat to low-single digit decline on a currency basis; Kellogg (K) CEO Steven A Cahillane, C.O.B., buys 16,810 on 2/10/20 of K – $1.1M worth of stock, according to filing

·     Housing & Building Products; BBBY shares tumbled more than 25% in premarket trading after reported disappointing holiday sales, saying same-store sales fell -5.4% for December-January period, hurt by lower store foot traffic, inventory issues and higher markdowns.

·     Casino & Leisure movers; WYNN and LVS upgraded to buy at Bank America on easing concerns about the impact of the coronavirus, particularly in China; in cruise lines, CCL said it believes impact on global bookings and canceled voyages will have material impact on financial results that was not anticipated in previous 2020 earnings guidance

Energy

·     Energy stocks outperformed with the sector the top performing sector early following a sharp rally in crude oil on speculation that Russia will agree to go along with a production cut that has been proposed by OPEC+. Also, China reported the lowest number of new coronavirus cases since the end of January, easing concerns about a drop-off in demand for oil. However, oil prices pared gains following a weekly EIA inventory report that was bearish

·     Inventory data: The EIA weekly energy inventory report showed crude stockpiles rose 7.46M barrels vs. est. for build of 3.2M barrels (bearish), with gasoline inventories falling an unexpected -65K barrels vs. est. for build of 650K barrels and Distillate stockpiles falling a greater than expected -2.0M barrels vs. est. for draw of -750K barrels in latest week

·     Energy movers; BP shares up slightly after saying it will aim for net zero on carbon emissions in oil and gas production on an absolute basis by 2050 or sooner; NBL reported a smaller than expected Q4 loss and a slight Y/Y revenue decline and took a $1.16B charge related to its Eagle Ford assets while cutting planned spending for 2020 to $1.6B-$1.8B, a ~$560M reduction from 2019 and $400M less than its previous estimate; NE rises after announced the execution of a unique commercial enabling agreement for drilling services in the Guyana-Suriname Basin with XOM; WLL shares plunged after a report in Debtwire said it may be considering capital structure review; solar stocks outperformed (FSLR, SPWR, JKS, SEDG) ahead of SPWR earnings tonight

·     MLPs; KMI said that it plans a 25% increase to its dividend in 2020, to $1.25 a share from $1.00 a share; that increases the quarterly dividend rate to 31.25 cents from 25.00 cents; MMP upgraded to buy from hold at Stifel with $66 tgt and total return potential of ~19% noting since announcing 4Q19 earnings, beating Stifel and Street estimates, units have declined 5%

Financials

·     Brokers and Exchanges; ETFC said daily average revenue trades (DARTs) of 463,739 in January jump 31% from December and 68% from the January 2019 with net new retail accounts of 25,341 in January increase 28% from December and 18% Y/Y; CME posted Q4 adjusted EPS of $1.52, missing the estimate of $1.55 and declined from $1.77 YoY while Q4 total revenue of $1.14B falls 7.9% Y/Y and misses the consensus estimate of $1.16B – said Q4 average daily volume of 16.9M contracts decreased 19% from a strong Q4 2018;

·     Services; NSP shares plunged after earnings results and weaker margins across the board as gross margin declined 168 bps to 15.1% and operating margin declined 79 bps to 2.6%; WU shares dropped posted quarterly earnings results that fell short on both the top and bottom line but its three-year outlook remained unchanged

·     Asset managers; AB announced that preliminary assets under management increased to $629 billion during January 2020 from $623 billion at the end of December 2019, while also posting Q4 EPS above consensus; IVZ reported preliminary month-end assets under management (AUM) of $1,218.7 billion, a decrease of 0.6% versus previous month-end driven by unfavorable market returns, net outflows in non-management; TROW preliminary month-end assets under management was $1.21 trillion as of January 31, 2020; LM preliminary AUM was $806.0 billion as of Jan 31, 2020, which included long-term net inflows of $0.1 billion, driven by fixed income net inflows of $1.0 billion and alternative net inflows of $1.0 billion

·     REITs; UDR 4Q19 earnings report was mixed, as 4Q19 FFO beat expectations, yet top-line growth moderated more than we expected and initial 2020 FFO guidance fell short of expectations; DEI with in-line 4Q19 FFO and initial 2020 FFO guidance and posted nearly 9% cash rent spreads and occupancy improved by 50 bps sequentially, notching the fifth consecutive quarter of positive net absorption; AAT reported a $0.03/sh 4Q miss, though management affirmed FY20 FFO guidance of $2.38-$2.46/share; MAC downgraded to underweight at Piper on the heels of the SPG transaction as this removes any potential M&A support in the near term, putting more pressure on MAC to improve its capital position; data center REITs rose after Bloomberg said that TMT Finance has reported that CONE has retained a bank after receiving M&A interest

Healthcare

·     Pharma movers; Moody’s warned that the coronavirus outbreak could negatively affect U.S. medical device makers and drug developers that manufacture or source products from China, but also said the epidemic could also ultimately increase demand for hospital services and certain medical products, devices and drugs. Shortages of ingredients could cause prices of certain drugs to rise rapidly as demand outstrips supply, Moody’s warns; TEVA rises following earnings/revs beat for Q4 though year guidance was below ests; XERS 9M share Secondary priced at $4.15

·     Biotech movers; FTSV tgt raised to $53 from $37 at Mizuho based on the expansion of magrolimab’s clinical program to include 1L TP53-mutant acute myeloid leukemia (AML) patients and an upward adjustment for the POS for magrolimab in 1L MDS; LGND agreed to buy assets from Icagen for $15M, sees 2020 revs $128M (was $121M)/sees 2020 adj EPS $3.45 (was $3.40); ADVM 9.5M share Secondary priced at $13.75; MRNA 26.316M share Secondary priced at $19.00; TBPH 5.5M share Secondary priced at $27.00

·     Medical equipment and devices; ABMD was downgraded to underweight at Morgan Stanley saying pressures from the company’s Impella invasive heart pump devices continue to appear more structural than transient; EXAS guided Q1 rev forecast at $349M-$359M, as mid-point missing the $356.8M estimate, which followed Q4 rev beat and said Q4 Cologuard test volume was up 63% YoY to 477K; VREX was downgraded to hold at Jefferies, while company said it entered into a renewed three-year pricing agreement with Canon Medical Systems

Technology, Media & Telecom

·     Internet; SHOP shares jump after stronger Q4 revenue ($505.2M vs. est. $482M) driven by higher sales during the holiday season while EPS of 43c beat estimates by 20c and guides FY20 revenue $2.13B-$2.16B above consensus $2.11B; in online travel, TRVG shares slipped initially after Q4 EPS and revs both fell short of estimates and fell YoY as well for revs (EXPE reports tomorrow while TRIP results due after the close); AKAM price tgt raised by at least six different analyst today following earnings/guidance after its solid Q4 beat ($1.23/$772M vs. est. $1.13/$749.2M) and profit guidance for year also above views; BABA earnings tomorrow morning

·     Semiconductors; MU upgraded to buy from neutral and raise tgt to $75 from $47 at UBS on the back of higher estimates and improving industry dynamics – especially in DRAM; QCOM upgraded to outperform at Daiwa Capital and tgt to $100 as it expects the Federal Trade Commission ruling vs. QCOM to get dismissed or materially reduced, aided by govt’s aggressive stance to support 5G; NVDA tgt raised to $310 at Susquehanna ahead of earnings

·     Software & Hardware, Component movers; CYBR shares sunk despite record Q4 results after softer guidance for Q1 (EPS 35c-41c on revs $106-110M below est. 56c and $113.5M and mixed year guidance; CPSI rises after Q4 results topped expectations; CSCO expected to report earnings after the close in the networking sector

·     Media & Telecom movers; IPG shares rise to 52-week high in advertising sector after Q4 earnings top highest estimates, boosts its dividend and sets 2020 targets for 3% organic growth, EBITA margin improvement (boosts shares of OMC, WPP)