Market Review: June 19, 2019

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Closing Recap

Wednesday, June 19, 2019





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     U.S. stocks jumped, bonds rallied, yields plunged and the dollar declined following the results of the highly anticipated 2-day June FOMC meeting. The Federal Reserve removed its language about a “patient” approach to policy and said it would “act as appropriate to sustain the expansion” helping give stocks a further lift. Given markets were trading near record highs coming into the day, the bar was set for high, but the dovish stance from the Fed helped maintain strength. Interest rate sensitive stocks/sectors outperformed as Treasury yields rolled to lowest levels in over 18 months (for the 2-year to 1.75%, down 11 bps) as expectations rise for the Fed to lower rates in July given the lowered inflation expectations and trade uncertainty. After today’s Fed statement and Powell press conference, the January 2020 fed funds futures contract implies close to 75 basis points of easing by the end of 2019 and a likely cut in July. Stocks added to yesterday gains as now with the Fed in the rear-view mirror (giving markets the best they could have hoped for), attention turns to the G20 meeting next week where President Trump and Chinese leader Xi agreed yesterday to meet. Better earnings out of software company ADBE overnight lifted shares, with ORCL set to report tonight.

FOMC Meeting

·     Fed leaves key interest rate unchanged but says uncertainties rising, signaling future rate cuts. The FOMC did hint they would cut rates in the months ahead if the economic outlook weakens. While inflation near the goal and a strong labor market are the most likely outcomes, “uncertainties about this outlook have increased,’’ the FOMC said and removed the word “patient” on borrowing costs and forecast a larger miss of their 2% inflation target this year (said it would increase just 1.5% by end of ’19 vs. prior view of 1.8% March forecast). Notable was that the Fed’s Bullard wanted a rate cut – vote was 9-1 to keep rates unchanged this meeting – while 8 members of 17 penciled in a reduction by the end of the year.



·     Bullish weekly inventory data failed to lift WTI oil prices which ended lower by 14c to $53.76 per barrel, off earlier highs of $54.38 per barrel after the EIA reported a larger than expected weekly drawdown in inventories (similar to API report overnight). The report came hours after OPEC and its allies officially proposed an early July date to discuss new supply cuts, ending weeks of speculation about whether the group of major producers could overcome divisions. Gold prices were steady ahead of the FOMC meeting results, with August gold falling $1.90 to settle at $1,348.80 an ounce (settlement was prior to the FOMC meeting).



·     Bond gained and the U.S. dollar dropped on a dovish Fed outlook on interest rates; the greenback fell vs. most rival currencies. The Turkish Lira dropped initially on reports the Trump administration is weighing three sanctions packages to punish Turkey over its purchases of Russia’s S-400, and may be imposed in July. Given the massive rally in bonds over the last few weeks, the Fed came through for markets, giving hints that they may cut rates soon after holding steady today, but noted inflation expectations have fallen. The yield on the 2-year fell as much as 11 bps to lows of 1.752%, the lowest since Dec ’17 and the 10-year was down at 2.02% (hasn’t been below the 2% level since Dec ’16).






WTI Crude















10-Year Note





Sector News Breakdown


·     Housing & Building Products; ENR was downgraded to underweight at JPMorgan saying although trends for ENR’s organic business appear solid, negative sell-through rates have worsened for the acquired Rayovac battery business; LZB shares slipped after Q4 EPS missed by 6c on lighter than expected sales of $453.8M (vs. est. $469M); homebuilder sector was down sharply, with more than 2% declines for many names – also earnings in space next week (LEN, KBH)

·     Casino & Leisure movers; HOG said it will partner with a manufacturer in China to produce a smaller bikes for that fast-growing market by year-end 2020/says the new bike to be manufactured by Qianjiang Motorcycle; in towables, WGO shares active after Q3 revs of $528.9M missed the $569.4M estimate, while Q3 revenue for Motorhome segment fell 35% YoY, driven by decreases in both Class C and Class A unit sales (shares of RV makers THO, LCII, PATK active); SIX was upgraded to outperform at Wedbush in theme parks as believes that a number of potential catalysts line up nicely for Six Flags, most notably Per-Capita spending improvements

·     Retail and Staples; BYND shares slipped after CNBC reported YUM’s Taco Bell will not be adding fake meat from Beyond Meat or Impossible Foods to its menu; CHS shares slipped after Sycamore Partners confirmed in a filing it was lowering its takeover offer the company to $3.00 from a prior offer of $3.50; DRI reports earnings in the restaurant sector tomorrow morning



·     Energy stocks active on OPEC headlines and inventory data which was bullish for a change: Oil held steady in New York after rising the most in more than five months as OPEC set a date for its next meeting, and as the U.S. and China signaled trade talks would resume.

·     Inventory data: The API reported that U.S. crude supplies fell by -812,000 barrels for the week ended June 14, showed a stockpile climb of 1.5 million barrels in gasoline, while distillate supplies edged down by 50,000 barrels. This morning, more bullish data as the EIA reported crude oil stockpiles fell -3.1M barrels vs. est. for draw of -1.25M barrels (larger draw), while gasoline inventories fell -1.69M vs. est. for build of 1.0M barrels

·     Utilities, Coal & Solar; after being upgraded to buy at Goldman Sachs yesterday, SPWR was downgraded at Raymond James citing valuation; in coal, ARCH and BTU agreed to combine their Powder River Basin and Colorado assets in a joint venture which they expect to unlock synergies with a pretax net present value of about $820M (joint venture will be 33.5% owned by Arch & 66.5% owned by Peabody, which will serve as operator); GPRE falls as has decided to suspend its quarterly cash dividend in order to retain and redirect cash flow to the company’s Project 24 opex equalization plan and plans to offer $100M of notes; PCG reached a $1 billion settlement with local government agencies that were harmed by blazes its equipment ignited



·     Bank stocks held up relatively well late day despite the rout in treasury yields and higher expectations for the Fed to remain dovish the remainder of the year. In consumer finance and lending; NCR shares fell after the NY Post reported NCR put itself up for sale in early May, attracting two bidders who have walked away in recent weeks without striking a deal. The two private equity firms who expressed interest in making an offer include Warburg Pincus and Apollo Global Management 



·     Pharma movers; IRWD and AGN said Phase IIIb Linzess study met all primary and secondary endpoints in adults with Irritable Bowel Syndrome with Constipation (IBS-C); AKTX reports positive results for nomacopan in moderate to severe atopic keratoconjunctivitis (AKC) as there was an overall improvement in clinical score of 55%; BHVN 6.98M share Secondary priced at $43.00; CALA 12.5M share Secondary priced at $4.00; KURA 5.9M share Secondary priced at $17.00; STOK 7.89M share IPO priced at $18.00

·     Biotech movers; MLNT shares jump after the FDA accepted its supplemental New Drug Application (sNDA) for BAXDELA (delafloxacin) for priority review to include adult patients with community-acquired bacterial pneumonia; SRNE reports positive preliminary data from an early trial of its experimental treatment resiniferatoxin for moderate-to-severe pain due to osteoarthritis of the knee; GILD announced a global strategic collaboration to discover, develop and commercialize a pipeline of innovative targeted protein degradation drugs for patients with cancer and other challenging diseases; SESN 20.41M share Spot Secondary priced at $1.47

·     Healthcare services and providers; IQV rally’s to fresh 52-week highs following investor day yesterday, as management provided investors with a better than expected three-year outlook for revenue growth of 7-10%/EBITDA guidance also reflect upside to consensus


Industrials & Materials

·     Transports; LUV better guidance as sees Q2 CASM ex-fuel +11.5%-12.5% vs. 10.5%-12.5% prior and sees Q2 RASM up 6.5%-7.5% (had seen up 5.5%-7.5%); sees Q2 capacity down about 3.5% (had seen down 2%-3%); GWR carloads are tracking down ~8% y/y in 2QTD (same railroad traffic is down ~3% y/y), which compares to our Q2 estimate of +1% growth y/y for CSFB; Stifel reduced 2019 industry volume and yield estimates again for truckers (CVTI, KNX, HUBG) and believe the Street has anticipated a good chunk, if not all of this, by the stock action in recent months

·     Metals & Materials; U.S. Steel (X becomes the 3rd steel producer to temper guidance the last 3-days as guides Q2 adjusted EPS to 40c below est. 52c and sees Q2 adjusted EBITDA approximately $250M, which excludes approximately $15M of estimated Q2 impacts from the December 24, 2018 fire at the Clairton coke making facility; in iron ore, RIO shares slide after cutting its full-year iron ore output est. (to 320M-330M tons from prior 333M-343M tons); VALE active after Brazil’s Superior Court of Justice revokes an injunction stopping Vale from using its Laranjeiras dam in Brucutu, opening door for operations to resume in 72 hours

·     Materials and Chemicals; AXTA shares rise after saying its board begins review of options, including a possible sale, and has formed a Strategic Review Committee/review of alternatives also explores changes in capital allocation, and ongoing execution of strategic plan


Technology, Media & Telecom

·     Internet; online travel names active after TRIP upgraded to buy at SunTrust saying the overall business can show accelerating topline growth over the next several years, driven by robust growth in Experiences segment, given the sizable opportunity and TRIP’s leading position…but expects Q2 to be the trough for core Hotels segment growth this year; SABR was downgraded to sell at Goldman Sachs and cut tgt to $20 from $23 on industry challenges which are likely to impact revenue growth over the next year; after hitting its highest level in over a month yesterday on announcement of crypto Libra FB, shares are down nearly $8 off those highs

·     Semiconductors; Philly semi index (SOX) holding around the 1,400 level most of the day after jumping 4.3% yesterday on the trade talk hopes w China/US (yesterday as biggest 1-day gain for the SOX since Jan 24 5.7% spike) – the 100-day MA or SOX remains at 1,400; MTSI announced a restructuring plan/cuts Q3 EPS view to loss of (45c)-(41c) from (8c)-(4c) and cuts Q3 revenue view to $107M-$109M from $120M-$124M on lower margins;

·     Software movers; ADBE shares rally after quarterly results as Q2 EPS and revs topped consensus (Q2 EPS $1.83/$2.74B vs. est. $1.78/$2.70B) though guided Q3 results below consensus/also posted $1.55B in FY19 net new Digital Media ARR and ~43% 4Q19 exit operating margin; ORCL the next big earnings name in software, reporting after the close

·     Media & Telecom movers; the WSJ reported late yesterday that CBS is preparing to make an offer for sister media company VIAB in the coming weeks, following a meeting of CBS directors last week in which a potential deal was discussed

·     Hardware & Component news; JBL shares rose as much as 10% after its upside guidance for Q4 revs ($6.3B-$6.9B vs. est. $6.42B) as see robust demand in 5G / wireless, cloud, industrial, healthcare and packaging; MDB shares active, as several analysts raise their tgt after the 2019 MongoDB World user event, where the company unveiled new features for its Atlas cloud database product (KeyBanc street high $188 tgt); NTGR initiated buy and $40 tgt at Guggenheim pointing to new products and secular gains from the evolution of data consumption


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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