Market Review: June 18, 2019

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Closing Recap

Tuesday, June 18, 2019





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     U.S. stocks jumped to their best levels since early May, nearly erasing all of the prior month declines to close not far from record highs for the S&P 500 index, powered by renewed trade optimism and dovish expectations for the FOMC meeting tomorrow. The Dow Industrials rose as much as 415 points while the Nasdaq Composite topped the 8,000 level before paring gains, and oil rebounded over 2% after President Trump, just a few minutes after the stock market open and ahead of the 2-day FOMC meeting kick-off today, said: “Had a very good telephone conversation with President Xi of China. We will be having an extended meeting next week at the G-20 in Japan. Our respective teams will begin talks prior to our meeting.” The commentary boosted market sentiment as stocks jumped (specifically those leveraged to trade such as technology, industrials and materials) and never looked back.

·     Stocks were already higher overnight after ECB President Draghi suggested the central bank could provide more stimulus if economic conditions do not improve and inflation remains. Those comments pushed global Treasury yields broadly lower, as the US 10-year yield hit lows below 2.02% before paring losses, while European bond yields plunged and the euro slid. President Trump criticized Draghi’s dovish remarks, saying additional ECB stimulus makes it "unfairly easier" for Europe to compete with the U.S., but had no impact on markets.

·     Bond yields plunged globally on fears of additional easing in Europe and ahead of the FOMC meeting tomorrow. Marketwatch noted the value of debt with negative yields nears $12 trillion as the Austrian and French 10-year bond yield tipped into negative territory for first time in history and the German 10-year government bond yield pushed deeper into subzero territory to trade at a record low negative yield of 32 basis points. It is important to note that latest market rally is based solely on expectations the Fed will begin easing interest rates as soon as the July meeting and that Trump and Chinese leader Xi will come to some sort of agreement deemed acceptable by both sides on trade and remove tariffs…but nothing has happened yet!

Economic Data

·     Housing Starts MoM for May fell (-0.9%) to 1.269M from an upwardly revised 1.281M last month, but above estimates for 1.239M. Building Permits MoM for May rose 0.3% to 1.294M, above the downwardly revised 1.29M last month (from 1.296M) and above the 1.292M estimate



·     Crude oil prices recover from recent 6-month lows, getting a boost after President Trump said he would hold an "extensive meeting" with Chinese Pres. Xi at the G20 summit later this month, helping raise hopes for a trade deal to come to fruition in coming weeks. WTI crude settles at $53.90 per barrel, rising $1.97 on the day (off hi’s $54.31). The ramifications on oil demand due to the trade disagreement between the U.S. and China has overshadowed tensions in the Middle East after last week’s tanker attacks. Markets also closely following OPEC which is expected to hold its semi-annual meeting in coming weeks. Natural gas prices slid 2.4% to $2.328 mln btu.

·     Gold rises $7.80 or 0.6% to settle at $1,350.70 an ounce, its highest finish since April of 2018 ahead of tomorrow’s FOMC meeting results where the Fed is not expected to cut rates, but is expected to provide a weaker outlook on the economy and possibly provide dovish commentary that could signal the potential for rate cuts at the July meeting.



·     The U.S. dollar was mixed; the euro dropped vs. most major rival currencies after ECB President Draghi suggested the central bank could provide more stimulus if economic conditions do not improve and inflation remains low (the euro fell below 1.12 vs. the US dollar); though the dollar fell vs. the Canadian dollar, the Pound and the yen ahead of the FOMC meeting tomorrow. The yen rallied from eight session lows of 108.06, peaking at 108.67 after the sharply higher Wall Street open, and a rebound in Treasury yields.


Bond Market

·     Global bond markets were higher, with yields falling in the U.S. and Europe after Draghi’s cautious commentary on chances of additional stimulus. The yield on the benchmark 10-year yield fell as lows as 2.02% (21-month lows) from yesterday’s 2.08% levels before finishing around 2.06%, while the 2-year held above 1.8%. The 3-month/10-year yield curve inversion remains, now standing at about 15 bps (down from 26 bps last week). Bond markets moved on the ECB comments, but all eyes watching the FOMC meeting tomorrow afternoon.






WTI Crude















10-Year Note





Sector News Breakdown


·     Consumer Staples; after having been one of the better performing sectors in recent weeks, Staples pared gains today as investors rotated into more riskier assets today and out of food, product names); tobacco stocks active (PM, MO, BTI) after Nielsen data indicates cigarette industry sales in the U.K. at retail outlets fell 4.4% Y/Y in May. U.K. cigarette category volumes contracted -11.2% during the month following an -8.4% drop in April; Grocery Outlet Holdings (GO) raised its IPO price range to $18 to $19 per share from $15 to $17 per share; IPO darling BYND traded up as high as $201.88 on the day, before giving it all back to turn below $170 late morning in what has been extreme volatility to the IPO that priced in early May; STZ cautious comments at Guggenheim saying they remain among the more bearish of sell-side analysts given the continued deceleration of the beer business and the significant risk associated with the Canopy investment

·     Housing & Building Products; Raymond James downgrades U.S. homebuilders LEN (to market perform) and KBH (to underperform) on renewed concerns over declining earnings estimates and softening macro-economic data points as sees inventory staying elevated into summer, potentially creating more gross margin pressure for builders later this year; LOW said Q1 margin pressure due to slow adjustment to cost increases

·     Retailers; TPX broadens its distribution by entering into two new third-party retail relationships and expanding an existing one/sees additional net sales from the three supply pacts exceeding $400M on an annual run-rate basis once product launches are completed; BBY announced a new collection of connected fitness products from exercise companies including Flywheel Sports, NormaTec, Hyperice, Hydrow and NordicTrack.

·     Casinos & Leisure; WYNN, MLCO, LVS among gaming names shooting higher as Macau Gaming names another sector seen benefitting from improved trade talks w China; boating stocks MBUU, BC, HZO were higher after B Riley saying though May data showed a slight decline of -0.6% in new boat registrations, which they believe is above most expectations 



·     Energy stocks rise as trade optimism fueled the spike in crude prices after President Trump said trade talks with China to resume ahead of G-20 summit. Major oil stocks (XOM, CVX), along with E&P (CXO, EOG, PXD), services (HAL, SLB) and drillers (RIG, NE) were strong. Note crude prices have fallen by about 20% from April highs, partly because of concerns over the U.S.-China trade war and disappointing economic data

·     Solar stocks upgraded at Goldman Sachs as raised SPWR (tgt raised to $11 from $6) and RUN (tgt raised to $20 from $15) to buy from neutral and SEDG upgraded to neutral from sell (tgt raised to $52 from $35) anticipating volume tailwinds in the second half of 2019 given the recent signs of strength in the sector’s financing environment

·     Utilities jumped initially as plunging Treasury yields increases demand for high dividend paying sectors such as utilities. Yields plunged again today on ECB easing comments with the 10-year yield down below 2.03% – but the defensive sector faded to lows as investors dumped defensive stocks for more risky sectors (tech, materials, and energy) on trade talk hopes.



·     Bank movers; plunging Treasury yields once again pressured banking stocks before turning higher late morning with the broader market. Deutsche Bank downgraded some interest rate sensitive stocks in the Brokers and Asset Managers space (SCHW, BK, NTRS) ahead of the Q2 reporting season as easing may mean valuations will stay depressed, while net interest margins (NIM) and revenue may be hurt so much as to eliminate any material earnings per share growth next year; BAC was upgraded to outperform at BMO Capital as expects upward consensus estimates revisions and a multiple re-rating to drive 34% total return in the shares; AXP tgt raised to $130 at Jefferies after recently hosted a meeting with mgmt., who remain focused on driving revenue sustainability, while Wells Fargo upped its tgt to $135 from $125 after mgmt meetings as well and says revenue growth is trending well and within guidance

·     Consumer finance and lending; MGI shares spike as Blockchain company Ripple announced an investment in and partnership with MGI, agreeing to purchase $30M worth of freshly created MGI shares at $4.10 apiece, and can purchase another $20M more at its discretion; shares of payment/lending names such as GDOT, EEFT, WU were among the names slipping on fear new Facebook cryptocurrency will take money transfer business



·     Biotech movers; BHVN shares plunged over 20% on news it plans to raise $300 mln through public offering of its common shares/throwing cold water on takeover speculation that sent shares rising since April; REGN was downgraded to hold from buy at Argus saying several threats could affect its primary revenue driver, Eylea, which accounted for more than 75% of total revs; PACB shares fell the U.K., Competition and Markets Authority (CMA) said ILMN’s proposed takeover of the company raises competition issues; CBAY said the FDA cleared its Investigational New Drug Application for seladelpar to treat primary sclerosing cholangitis


Industrials & Materials

·     Transports; JBHT was downgraded to neutral at UBS as they have become increasingly convinced that freight is likely to remain weak through 2019 followed by falling truckload and intermodal contract rates in 2020; in rails, Deutsche Bank said overall rail volumes were down 3.6% yoy last week at CSX, NSC, UNP, CP, CNI and KSU on a weighted avg. basis compared to -5.1% yoy in the preceding week – moving the 4-week moving average to -4.2% yoy from -3.6% yoy in the preceding week as flooding in the Midwest likely remained a constraint on volumes last week

·     Aerospace show: AMZN said it will lease 15 737-800 cargo aircraft made by BA through a partnership with GE’s Capital Aviation Services; BA rises as Korean Air commits to buying 20 787 Dreamliners worth $6.3B at list prices at the Paris Airshow and AL commits to buying five more 787-9, worth about $1.5B at list prices

·     Metals; group rallies behind China trade hopes despite another lower guide in the steel sector; steel producers get lower guidance for a second straight day as STLD sees 2Q EPS 86c-90c below the 96c estimate citing lower profitability from the company’s long product steel operations/said 2Q profitability for the company’s metals recycling platform is expected to decrease QoQ (recall steel producer NUE lowered its views yesterday as well)

·     Materials; Lumber futures jumped $19 to exchange limit at 3-month highs, with shares of LPX, OSB and WY rising again following another curtailment announcement last night – 3rd in last 2 weeks); lumber stocks West Fraser, Canfor and Resolute were upgraded to outperform at CIBC saying lumber prices are rising thanks to mill closures but that the stocks are still trading at a "steep discount." Norbord reported that its OSB mill in High Level, Alberta has temporarily suspended production due to the wild fires burning nearby in the region


Technology, Media & Telecom

·     Internet; FB touched its highest level in over a month after announcing plans to launch a cryptocurrency called Libra, the latest development in its effort to expand beyond social networking and move into e-commerce and global payments; BABA gains after mgmt changes as CFO Maggie Wu will oversee BABA’s strategic investments unit, taking over that responsibility from Executive Vice-Chairman Joe Tsai, who will support Wu in her expanded role; SNAP tgt was raised to $20 from $15 at BTIG saying conviction in the company’s recovery has meaningfully increased and morale notably improved/DAUs should exceed expectations; PINS initiated at outperform and $33 tgt at Wedbush

·     Semiconductors; the Philly semi index (SOX) rises as much as 4% topping the 1,400 level for its best one day gain since late January with big boosts for AVGO, AMD, NVDA, MU, LRCX, MCHP after the Trump tweet about meeting Chinese leader Xi helped boost hopes for a trade deal; ON shares active after Chinese antitrust officials approve its $1.07B acquisition of QTNA without any conditions; Stifel 2H19 estimates for several upstream semiconductor back-end test names (FORM, COHU, TER) on the risk of deteriorating visibility and further capacity digestion, following additional commentary directly from Huawei and its supply chain that further quantifies the downstream impact of recent trade restrictions/tariffs

·     Software movers; ORCL was downgraded to neutral at Macquarie and lowers the target to $55 citing Wednesday’s Q4 print and partner checks suggesting softness in the pipeline towards the end of the period, leading to order discounts; TWLO was initiated buy and $165 tgt at Needham calling it a leader in CPaaS, w/ platform that enables all manner of digital communications to be embedded into apps and initiated RNG with a buy and $140 tgt; According to NPD, May U.S. console/handheld software sales were $141 million, down 17% year-over-year, and below Wedbush estimate of $150 million (ATVI, EA, TTWO); ADBE reports earnings tonight

·     Media & Telecom movers; USM shares jumped after it successfully bid for high frequency spectrum in recent FCC Millimeter Wave Spectrum Auctions and purchased licenses covering 98% of its subscribers for $256M or 1.7c per MHz pop/also upgraded to overweight at Morgan Stanley (along with upgrade of TDS); NWSA said to optimize its portfolio and simplify the structure of the Company, it is actively evaluating strategic options for its News America Marketing business. Reuters reported the U.S. FCC plans to vote in July on moving forward to auction off parts of a key band of largely unused 2.5 GHz spectrum to help advance next-generation 5G wireless networks

·     Hardware & Component news; DGLY plunges after Taser maker AAXN wins patent litigation as U.S. District Court for Kansas granted summary judgment finding that Axon’s Signal technology does not infringe DGLY’s ‘452 patent/court dismisses 3-1/2 year case in its entirety


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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