Market Review: February 18, 2020

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Closing Recap

Tuesday, February 18, 2020





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     U.S. stocks were extremely resilient in today’s trading, with the Dow Jones Industrial Average ending the day lower (though well off its worst levels), while the tech heavy Nasdaq managed to turn positive late session despite Apple Inc. warning yesterday its quarterly sales would miss forecasts due to impacts from the coronavirus which had weighed heavily on semiconductor stocks and others in the supply chain of the Apple iPhone initially. Markets also overcame a profit, revenue, comp sales miss and lower guidance outlook from retail bellwether Wal-Mart this morning, as shares actually finished solidly in positive territory after early weakness. Defensive assets and sectors outperformed, led by gains in gold (best closing levels since March 2013), Treasury prices (as yields fell) and new record highs for utilities. The coronavirus global impact have been subsiding (though China reported 1,886 new virus cases and 98 more deaths in its update Tuesday and the update raised the number of deaths in mainland China to 1,868 and the total confirmed cases to 72,436), while better U.S. economic data (manufacturing today) has boosted sentiment. In M&A news, BEN agreed to acquire LM in a $4.5 billion dollar deal. Earnings results for the quarter begin to slow up after this week.

Economic Data

·     The NY Empire State manufacturing index rises to 12.9 in February, easily topping consensus of 5.0 and was above the 4.8 reading in January, led by a surge in the new orders index to 22.1 in Feb vs. 6.6 in January while the prices paid index was 25.0 vs. 31.5 in Jan; the employment index was at 6.6 in Feb vs. 9.0 in Jan and six-month business conditions index 22.9 from 23.6 prior

·     U.S. Home Builders’ Confidence index (NAHB) in February falls to 74 vs 75 last month as the present single family sales falls to 80 vs 81 last month and the future single family sales falls to 79 vs 80 last month



·     Oil prices end the session unchanged at $52.05 a barrel, rallying off overnight losses as crude markets continue to track developments related to the outbreak of the coronavirus in China. Oil prices were initially lower but rebounded late day amid hopes for a slowdown in new cases of the virus, and the potential for OPEC action to offset the demand reduction.

·     Precious metals were broadly higher as April gold prices settle higher, rising $17.20 or 1.1% to finish the day at $1,603.60 an ounce, its highest closing level since March 2013 as traders pare risk. At the same time, palladium prices popped to new record highs despite Chinese auto disruption as Nymex palladium futures soar over 5% to $2,442.20 an ounce, extending its YTD advance to nearly 28%. The move comes despite shutdowns and delays at auto factories in China, with demand for the metal surging as auto regulators tighten emissions regulations in China and Europe.


Currencies & Treasuries

·     Treasury prices stayed higher as yields slipped across the board with the 10-year falling 3.5bps to move back below 1.55% while the 2-year yield dropped over 2 bps holding the 1.40% level and the 30-year slipped back below 2%, down over 4 bps (hasn’t closed below 2% since September). Treasury prices (along with gold) advanced amid the rising uncertainties over the extent of the coronavirus, as well as the bearish impacts from travel dislocations and supply chains.

·     The U.S. dollar touched fresh 2019 highs, rising 0.4% to around 99.40 while the dollar index was not far off its 52-week highs of 99.66 (on 10/1/19) as the buck extends its recent gains, especially against the euro which slipped below the 1.08 level vs. the dollar to its lowest since April 2017 (followed weak German data overnight – coupled with better US manufacturing data).






WTI Crude















10-Year Note





Sector News Breakdown


·     Retailers; WMT reports U.S. comp store sales rose 1.9% in Q4, missing the 2.4% estimate along with a miss on the top and bottom line for profit and sales/transactions were up 1.0% during the quarter, while average ticket was 0.9% higher/comparable sales were up 0.8% for the Sam’s Club business (ex-fuel) vs. +1.2% consensus/guides year EPS $5.00-$5.15 vs. est. $5.22; AAP reported a Q4 profit that beat expectations, while same-store sales came up short (EPS $1.64/$2.1B vs. est. $1.35/$2.12B – while 4Q comparable sales +0.1% vs. estimate +1%); AEO was downgraded to Market Perform at Cowen given concerns on downside risk to sales traffic and promotions; KTB downgraded at Stifel as expect coronavirus weighs on Lee brand sales in China (~25% of brand revenue) and impedes the planned 1Q Wrangler China launch to weigh on FY20 guidance

·     Consumer Staples; CAG shares dropped after it lowered its outlook, as now anticipates FY organic sales to be flat or to grow only 0.5%, down from prior view for growth forecast of 1% to 1.5% while also lowers year EPS view to $2.00-$2.07 a share, from prior $2.07-to-$2.17 (est. $2.11); KR shares active after Berkshire Hathaway reports new stake in 13F filing Friday; SAM receives positive mention in Barron’s related to its hard seltzer brand

·     Restaurants; BLMN reports comparable restaurant sales increased 1.9% in the U.S. during Q4, led by a 2.7% gain for the U.S. Outback Steakhouse chain, but restaurant-level operating margin fell 80 bps to 13.9% of sales vs. 14.6% consensus (better year EPS view of $1.85-$1.90 vs. $1.72)

·     Housing & Building Products; PIR said it has commenced voluntary Chapter 11 proceedings as enters Plan Support Agreement with majority of term loan lenders and its pursuing a sale of the company; BBBY entered into a definitive agreement to sell its business to 1-800-FLOWERS.COM, Inc. for $252M; VMC shares slip after Q4 EPS missed while revenues rose 9% to $1.19B – margins and issues in-line FY 2020 EPS guidance of $5.20-$5.80 vs. $5.76 analyst consensus estimate, as well as adjusted EBITDA of $1.385B-$1.485B

·     Casino & Leisure movers; boating stocks BC, MCFT, MBUU and HZO all upgraded to outperform from market perform at Raymond James, more bullish saying 1) consumers willing and able to make big ticket purchases, 2) industry fundamentals have improved and 3) valuations still reasonable even after recent run-up; the Chinese territory of Macao will allow casinos to reopen Friday January 21st after a 15-day closure imposed to help block the spread of China’s virus outbreak (shares of WYNN, LVS, MLCO have been among the casinos affected by the closures)



·     Energy stocks again among top sectors lagging alongside a retreat in the price of crude oil, which is being pressured by concerns over the impact on oil demand from the coronavirus outbreak. Also to this point, OPEC+ still has shown no sign of reacting to the virus-related slump in demand by making additional production cuts. Note Moody’s recently lowered China’s 2020 GDP growth forecast to 5.2% from 5.8% – weakness was broad based for energy stocks again with services, E&P, integrated and equipment names all lower; PBF was downgraded to sell in the refiner space at Goldman Sachs amid concern about the company’s lack of free cash flow generation power. New record highs for utilities given rotation into defensive names and another decline in Treasury yields – 52-week highs for AES, ES, WEC, XEL, ETR, NEE, PNW, DUK, FE, AWK, AEE



·     Asset managers; sector dominated by M&A after BEN agreed to acquire LM in an all-cash deal valued at $4.5 billion, with Franklin Templeton paying $50 per Legg Mason shares and take on about $2 billion of its outstanding debt. ; in bank movers; HSBC said it would cut 35,000 jobs and $100 billion in assets in the next three years as it scales back operations in the U.S., mainland Europe and its investment bank; said that net profit fell 53% to $5.97 billion last year, hit by a goodwill impairment of $7.3 billion.

·     Credit Cards and Finance; ADS was downgraded to market perform from market outperform at JMP Securities, as they have less conviction in the company’s near-term portfolio growth targets; separately, monthly master trust credit cards data showed: 1) ADS reported delinquencies for Jan. of 6% vs. 5.80% YoY, Jan charge-offs 7.2% vs. 6.60% YoY and Jan net charge-offs $113.6 million, +21% YoY; 2) SYF 30+ day delinquency rate of 4.5% in January rises from 4.4% in December; three-month average is 4.5%, while adjusted net charge-off rate of 5.2% declines from 5.4% in December; three-month average is 5.2%; 3) COF January credit card delinquency rate of 4.10% increases from 3.93% in December; three-month average is 3.98%, while net charge-off rate of 4.31% declines from 4.55% in December and compares with three-month average of 4.43%; 4) JPM January credit-card delinquency rate of 1.14% is roughly flat with 1.13% in December and compares with the three-month average of 1.15% and January 2019’s 1.21% and net charge-off rate was 2.19%, down from 2.28% in December and vs. three-month average of 2.22% and January 2019 rate of 2.26%.



·     Pharma & Biotech movers; AMRN was upgraded to buy at Citigroup as they continue to believe Vascepa sales will accelerate strongly over the next couple years and with AMRN trading ~27% lower since November, now see as an attractive time to buy; the FDA late Friday approved AGRXs Twirla hormonal contraceptive patch, making it company’s first product to be approved after FDA turned down the marketing application for the patch in 2013 and 2017; BIIB rises early after Berkshire announced stake last Friday

·     Medical equipment and devices; MDT reported mixed Q3 results as EPS beat while sales of $7.7B missed the $7.81B estimate as expects a negative impact from coronavirus in the fourth quarter, but duration and magnitude of the impact difficult to quantify (raised full-year guidance to $5.63-$5.65 from prior $5.57-$5.63); BLPH shares surge on positive top-line data from a recently completed acute, intra-patient, dose escalation, hemodynamics study of INOpulse for the treatment of Pulmonary Hypertension associated with Pulmonary Fibrosis; SENS active on positive coverage decision for Eversense CGM from CI

·     Healthcare services and providers; CVS says the DoJ served it with subpoena on behalf of U.S. DEA regarding false claims, controlled substance laws/says it received subpoena in January 2020 and is cooperating with government probe of opioids


Industrials & Materials

·     Industrial & Machinery; EMR was downgraded at RBC Capital as their bull case for a breakup appears to be postponed following its Feb-13 analyst meeting comments/is now in a "cost reset" mode focused on restructuring, rather than in growth mode; ETN was upgraded to buy at UBS and raise tgt to $121 from $98 as believe the market does not yet ascribe enough value to the margin benefit from the sale of the fluid conveyance business; in E&C sector, FLR shares tumble after earnings and said the SEC is investigating its past accounting and financial reports for possible errors/ says it does not expect to complete and file its form 10-K annual report for the period ended Dec. 31, 2019; GE slipped on reports the Trump administration might bar CFM International, the conglomerate’s JV with Safran, from selling jet engines to China.

·     Chemical movers; WLK shares slipped after Q4 profits fall sharply on lower prices, falling short of consensus and net sales of $1.88B, missed the $1.93B estimate and was down from $2.0B YoY; DD announced a management shake-up where CEO Mark Doyle and CFO Jeanmarie Desmond will leave and the board has appointed Edward Breen, the current chairman, to take on the additional role of chief executive officer, effective immediately; LTHM downgraded at Credit Suisse to neutral citing challenging conditions in China, the company potentially slowing its pace of expansion and unchanged lithium fundamentals

·     Metals & Materials; BHP warns coronavirus could impact demand and company also cautious over dividend; GLNCY reported a 2019 loss of $404M after booking $2.8B in impairment charges linked to coal and other assets, compared with a profit of $3.41B in 2018 and took nearly $1B in write-downs on its two key Colombian coal mines, Prodeco and Cerrejon; SCCO was downgraded to underweight at Morgan Stanley saying despite good cash flow generation, the stock’s premium valuation relative to peers and its own history seems unwarranted

·     Aerospace & Defense; ARNC was upgraded to buy from hold at Argus noting the management team has done a good job of setting and meeting expectations over the past two years, and the balance sheet is improved; LDOS reports Q4 beats with FY20 guidance that has upside revenue of $12.6-13B (consensus: $11.38B) and EPS of $5.30-5.65 (consensus: $5.50); AAXN said more than 1,000 Axon Body 3 cameras are now deployed in Cincinnati as part of a previously announced order of the Officer Safety Plan 7+


Technology, Media & Telecom

·     Hardware and Software; AAPL the big story today as preannounced that the company would not meet its March quarter sales guidance of $63-$67 billion (consensus at $65 billion) provided during their January earnings call due to the Coronavirus that had two negative impacts to Apple; a consortium led by Symphony Technology Group, Ontario Teachers’ Pension Plan Board, and AlpInvest Partners has entered into a definitive agreement with DELL to acquire RSA in an all-cash transaction for $2.075 billion, subject to certain adjustments.

·     Semiconductors; AAPL warned that the coronavirus will impact production, which took its toll on semi chip suppliers and other supply chain members initially – shares of names like SWKS (50% of revs comes from AAPL), QRVO (30% of revs from AAPL), LITE (20% of revs), AVGO (20% of revs) were among names that were impacted (revs figures as per Bloomberg); TSEM misses Q4 estimates on the top and bottom lines and sees Q1 revs $300M (in-line) after Q4 EBITDA totaled $75M, flat on the year; Samsung’s semiconductor manufacturing division wins a contract to make new QCOM 5G chips, according to Reuters sources/Samsung will fabricate at least a portion of QCOM’s X60 modem chips and will use its 5nm process; PXLW announced collaboration w/ QCOM on a 5G-based fixed wireless access CPE platform that integrates OTA tech from PXLW

·     Media & Telecom movers; TME was downgraded at KeyBanc and lowering estimates as TME sees regulatory headwinds for social entertainment and thus materially guides down 1Q and 2020 growth; VG said it is initiating a strategic review of its Consumer segment, including the feasibility of its divestiture, to further the Company’s goal of becoming a pure-play Business SaaS company; Intelsat (I) shares jumped after avid Tepper’s Appaloosa reports 7.4% stake in the company and says delivered letter to board and said is dissatisfied with FCC proposal; CTL shares down fall after MoffettNathanson downgrades to Sell From Neutral and Price Target is $10


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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