Closing Recap

Thursday, January 30, 2020

Equity Market Recap

·     U.S. stock were volatile on Thursday, trading lower most of the session before surging in the final hour of trading, as the coronavirus was declared a global emergency by the World Health Organization (WHO), saying the spread of the virus in China and other countries is a public health emergency of international concern. The WHO said the decision comes as the number of confirmed cases in China overtakes the official number of infections in the country during the SARS epidemic (coronavirus has claimed a confirmed 171 lives and over 8,000 infected). The CDC also confirmed first human-to-human transmission of coronavirus in U.S. as total cases in the U.S. rises to six, while France also announced its sixth case of the virus today as well. Outside of the virus fears and its potential economic impact (to China specifically), stocks managed to bounce back off the lows on mixed earnings results. Dow components MSFT and KO traded to 52-week highs after their solid earnings in what marked the busiest day of the quarter for S&P related names. U.S. Treasury prices edge higher, driving the two-year yield 2 bps lower to 1.40% and the 10-year yield down a basis point to 1.54%. The Bank of England on Thursday decided to hold interest rates at 0.75% by a 7-2 vote, while in US economic data, The U.S. economy (GDP) grew at 2.1% in the prior quarter, slightly above estimates for 2% growth, but was among the slowest growth levels in several years. Another heavy dose of earnings coming up tonight highlighted by Amazon, Visa, Amgen, EA, Western Digital and US Steel with oil giants Chevron, Exxon tomorrow.

Economic Data

·     The U.S. economy (GDP) grew at 2.1% in the prior quarter, slightly above estimates for 2% growth as personal consumption rose 1.8% in 4Q after rising 3.2% prior quarter (vs. est. 2%) and the GDP price index rose 1.4% in 4Q after rising 1.8% prior quarter (below 1.8% est.). Core PCE q/q rose 1.3% in 4Q after rising 2.1% in the prior quarter (and below the 1.6% estimate)

·     U.S. jobless claims fell 7K to 216K, in-line with the 215K estimate (prior week revised up to 223K from 211K) while the 4-week moving avg fell to 214,500 from 216,250 prior week; continued claims fell to 1.703 mln vs. est. 1.733 mln and down from 1.747 mln prior week

Commodities

·     Oil prices slide, with WTI crude down -$1.19 or 2.2% to settle at 5month lows of $52.14 per barrel as concerns over the economic impact of the coronavirus raised the potential for a slowdown in global energy demand. April gold prices jumped $13.20 or 0.8% to settle at $1,589.20 an ounce, back to 7-year closing highs as safe-haven assets rally.

Currencies & Treasuries

·     The U.S. dollar index (DXY) slid to lows late day, falling among the most against the Japanese yen, down as low as -0.4% to 108.58, its lowest level since January 8th (Jan low 107.65 on 1/7), while the buck also gave up recent gains against the euro and Pound after U.S. economic growth slowed by the most in several years. In Treasuries, the 10-year and 3-month yield inverted today, (1.545% vs. 1.559%) while yields were down across the board as the 2-year dropped below 1.40%

Sector News Breakdown

Consumer

·     Auto’s; TSLA surges to new all-time highs overnight topping the $650 level overnight after a big Q4 beat that’s saw EPS of $2.14 topping the $1.74 estimate and revs rising to $7.38B from $7.06B a year ago while saying deliveries should “comfortably exceed” 500,000 units in 2020, thanks to Model Y and 3 production in Fremont and Shanghai; MNRO shares fall after Q3 EPS missed and lowered its year profit outlook to $2.25-$2.35 from $2.45-$2.55 on weaker revs

·     Consumer Staples; MDLZ posted Q4 adj. EPS of 60c, narrowly topping estimates and Q4 revs of $6.91B beat the $6.84B estimate driven by high demand for its snacks in emerging markets, where they saw rev growth of 4%; GO 16M share Secondary priced at $33.00; MO reported in-line results while saying the value of its stake in Juul fell by $4.1B in Q4 as it now values the e-cigarette maker at about $12B, down from its $38B valuation when it invested in 2018; Dow component KO reports organic revenue growth of 7% in Q4 to sail past the consensus expectation of +5% with in-line EPS of 44c on slightly better sales of $9.1B while anticipates FY20 revenue growth of 5% and EPS of $2.25 vs. $2.10 consensus; SFM downgraded to neutral at UBS citing heightened competition, NT supply chain challenges and questions about the sustainability of the company’s produce pricing strategy; HSY forecast 2020 profit and sales largely above Wall Street expectations, after the candy maker posted sales that beat estimates on higher prices and investments in healthier snacking options

·     Housing & Building Products; FBHS shares rose after Q4 results topped views and issued guidance forecast of 4-6% cabinet sales growth (was upgraded to hold at Loop Capital post earnings); TSCO shares slumped as 4Q comparable store sales fell below its expectations, given a warmer-than-expected weather that hurt sales of seasonal products – shares of home improvement retailers such as LOW, HD slipped; homebuilder MTH reported a big beat on Q4 earnings, with revenue increase of 13% Y/Y to $1.14B and net earnings increase of 37% Y/Y

·     Casino & Leisure movers; once again, the overnight news of more infected cases of the coronavirus has taken its toll on casino operators (WYNN, LVS, MGM), cruise operators (CCL, RCL, NCLH) and online travel booking firms (EXPE, BKNG, TCOM) as the death toll from the coronavirus outbreak in China rose to 170 – airlines also lower, while CCL announced news of potential coronavirus infection at its cruise ship – said two passengers being tested for coronavirus, a spokesman for CCL’s Costa Crociere cruise says; hotel stocks (MAR, H) also on watch given slowing travel

Energy

·     Energy stocks punished by another drop in crude prices, slowing demand fears amid potential impact from the coronavirus and outright selling pressure in stocks; XOM and CVX both touching 52-week lows into earnings tomorrow morning; MUR shares tumble after Q4 sales and earnings miss and issued a disappointing production outlook; in refiners, VLO posted a Q4 earnings beat topping the highest estimates and said sees oil demand growth at the same pace the next two-years; in solar, RUN to replace DAR in S&P 600 at open on 2/4; utilities making new record highs again today given the low yield environment and flight to defensive stocks

Financials

·     Bank and brokers movers; private equity companies APO and BX both slumped after earnings results; LAZ Q4 adjusted EPS of 91c on revs $708M exceeds consensus while financial advisory operating revenue of $395M fell 1% Y/Y and asset management operating revenue of $301M increased 7% (notable expenses rose 12% QoQ and 3% YoY); in insurance, MMC Q4 revenue disappoints sending shares lower ($4.26B vs. est. $4.34B); in FinTech, PYPL shares fell initially before paring losses after guiding 2020 profit below expectations as it invests in technology to fend off competition in a crowded digital payments space

Healthcare

·     Pharma movers; LLY and INCY said baricitinib met the primary endpoint in BREEZE-AD5, a Phase 3 study evaluating the safety and efficacy of baricitinib for the treatment of adult patients with moderate to severe atopic dermatitis; LLY also posted an EPS upside surprise; ALXN Q4 EPS and sales topped estimates while forecasts 2020 total revs between $5.50B-$5.56B which is below expectations of $5.64B and weaker EPS $10.65-$10.85 vs. est. $11.37; RHHBY earnings slightly below analysts’ expectations, as the Swiss drugmaker sought to fend off increased competition; MGEN rises after saying leukemia and lymphoma patients treated with its experimental drug cobomarsen survived for 26 months on avg, compared with a historical 7.4 months for patients treated with similar standard of care

·     Biotech movers; BIIB posts Q4 adjusted profit of $8.34 topping estimates of $8.02, helped by higher sales of multiple sclerosis drug Tecfidera which rises 4.5% to $1.16B topping the $1.12B estimate and said it hopes to file for U.S. approval of its experimental Alzheimer’s treatment aducanumab “as soon as possible” (Spinraza sales of $543M missed the $549M est.); INO rises after saying it is collaborating with Beijing Advaccine Biotechnology to develop INO-4800, a vaccine against coronavirus, in China; BDTX opened at $33 after IPO priced at $19 per share

·     Medical equipment and devices; ALGN shares dropped after warning it expects Q1 2020 net revenue $615M-$630M, below the $657.3M estimate saying the forecast reflects about 20K-25K fewer shipments of its key teeth aligner product, Invisalign on lower revs in products sold in China due to the uncertainty caused by coronavirus; in life sciences, TMO reports mostly in-line quarterly results as sales in the life-sciences segment grew 8% and laboratory-products grew 9% but analytical-instruments and specialty-diagnostics segment sales each fell YoY; ILMN posted 4Q19 results slightly above prior view but issued 1Q20 guidance significantly below expectations with ~1% topline growth at the midpoint

Industrials & Materials

·     Industrial & Machinery; URI outperformed on the top and bottom lines in 4Q19, but its adjusted EBITDA underperformed expectations due to the “absorption of higher rental operating costs in a slower-growth environment.” IEX downgraded to sell at Janney after Q4 results noting it was the 2020 guidance that caught their attention after the company sees flat to a 2% organic sales decline for 2020, with a 4 to 5% sales decline in 1Q20; Bloomberg reported GE is exploring a sale of its steam-power unit; TSCO shares weighed on machinery names (DE, CNHI, AGCO) after the company said 4Q comparable store sales fell below its expectations, given a warmer-than-expected weather that hurt sales of seasonal products 

·     Aerospace & Defense; NOC shares fell as posted a beat for Q4 top and bottom line, but issued year profit and sales that fell below consensus views; SPR shares fell after the company promoted Mark Suchinski as CFO, replacing outgoing CFO Jose Garcia after identifying non-compliance in certain accounting processes, and said it would restart production of 737 MAX parts; RTN said it’s on track to close its merger with UTX in Q2, after a pair of recent divestitures set the companies up for regulatory approval.

·     Transports; The Baltic Dry Index, a measure of commodity shipping costs, slumped to the lowest since April 2016 after dropping -5.14% to 498 points, falling for a 10th day as Capesize fell -9.05% to $4,081, Panamax -6.89% to $4,015 (DSX, EGLE, NMM, SBLK, GOGL among names to watch); in package delivery, UPS sees 2020 earnings below estimates ($7.76-$8.06 vs. est. $8.03), as it grapples with weakness in global industrial production, hurting shipments as U.S. domestic package revenue of $13.4B (+6.5% Y/Y) in Q4 to just miss the consensus mark of $13.5B; LSTR shares slip after Q4 EPS of $1.27 missed the $1.42 estimate as trucker said shortfall was “entirely due to higher insurance and claims costs than (we) anticipated in (our) initial estimate (follows weak earnings from CHRW yesterday); KEX shares plunge on miss and lower guidance

·     Metals & Materials; ADM firmly beat Q4 profit estimate, driven by gains in its nutrition business and refined products unit as operating profit for refined products unit jumped to $363M from $72M a year earlier; steel producers in focus tonight with earnings results from U.S. Steel (X) expected; metals in general remain weak on fears of slowing demand from China on virus impact; gold miners (AEM, NEM, GOLD) were among gainers as gold rises to 7-year highs

·     Paper & Packaging sector; IP reported a drop in net profit and sales for Q4, though adjusted EPS came in above consensus on in-line sales; WRK updates guidance as expects sales of $18.0B to $18.5B vs. $18.5B consensus and adjusted segment EBITDA of $3.0B to $3.2B is seen vs. $3.06B; PKG reported in-line Q4 results but guided Q1 EPS $1.20, well below the $1.64 estimate after saying they “expect lower prices as the remaining impact of the published domestic containerboard price decreases from last year work through our system”

·     Chemicals; DD shares slide after reporting a ~36% fall in Q4 adjusted profit, though was in-line with estimates and sales fell 5% missing estimates on lower guidance (sees FY20 adj EPS of $3.70-$3.90 on sales $21.5B-$22B vs. est. est. $4.11/$21.98B/sees further nylon pricing declines; DOW downgraded to sector perform at RBC Capital citing a cloudy outlook on PE margin recovery, weak MDI margins on the commodity end markets and conservative view on JV earnings growth; SHW shares dropped after Q4 results and guidance for the year came up short due to items

Technology, Media & Telecom

·     Internet; FB shares slumped overnight despite a relatively strong quarter as EPS beat revs grew by nearly 25% also topping views, announced a $10B share buyback and said daily active users (DAUs) rose 9% to 1.66B while monthly active users (MAUs) rose 8% to 2.5B; FTCH said Tencent and Dragoneer each commit to purchase $125m in convertible senior notes; SFIX was upgraded to buy at Davidson as see multiple catalysts this upcoming year for active client growth and revenue per client to exceed expectations

·     Semiconductors; a day after semi’s declined on weaker forward looking revenue estimates from AMD and XLNX, CRUS shares rose overnight as Q3 revs and profit beat expectations, as they experienced higher-than-anticipated volumes for certain smartphone components shipping (guidance for Q4 of $250M-$290M was well above the $245.7M est.); QRVO another chipmaker rising as Q3 revs and profit beat on strength in their end markets of 5G, Wi-Fi and Defense and continued strong operating performance (sees Q4 revs $800M-$840M vs. est. $727.8M); in the semi-equipment space, LRCX posts a 2Q earnings and revenue beat (multiple positive analyst upgrades) as the firm said they are executing at a high level in an improving wafer fabrication equipment environment and building a powerful pipeline of new products to fuel future growth; a California jury ruled AAPL must pay $837.8M in damages for infringing on Wi-Fi patents held by California Institute of Technology, while the jury also ruled against AVGO saying it owes damages of $270M for infringing on the same patents; CREE issued a Q3 outlook that was weaker than expected sending shares lower

·     Software movers; MSFT shares touched new all-time highs, as cloud growth accelerates as intelligent cloud segment’s revs were up 27% to $11.9B in the quarter; AZPN shares dropped as posts Q2 revenue and profit below analysts’ estimates, and forecasts FY revenue of $575M-$615M which falls below analysts’ estimates at midpoint; NOW posted beats across top-line, billings, and margins, as well as adjusted cRPO growth of 34%, and initial FY20 guidance above expectations

·     Media & Telecom movers; Intelsat (I) shares tumble further after the company and fellow satellite service providers Telesat and SES lost their bid to get “fair compensation” for the spectrum clearing costs they’ll incur as the US FCC stood by its plan to hold a public auction to free up frequency spectrum in the key C-band, Reuters reported Thursday; VZ reported mixed Q4 results that beat on revenue but missed on earnings as wireless revenue totaled $25.3B, wireline came in at $7.1B while postpaid adds: Wireless, +1.2M, Smartphone, 969K and Phone, 790K while expects low-to-mid single-digit percentage revenue growth Y/Y for 2020

·     Hardware & Component news; in the EMS sector, BHE lowers Q4 non-GAAP EPS view to 24c-28c from 34c-42c and also lowers Q4 revenue view to $505M-$510M from $520M-$570M; NTDOY with earnings and said that lifetime unit sales of its Switch system reached 52.48M/compares to the Wii U, Nintendo’s previous home console that launched in late 2012, sold a total of 13.56M units in its lifetime