Market Review: June 20, 2019

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Closing Recap

Thursday, June 20, 2019





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     U.S. stocks jump to all-time intraday highs for the S&P 500 index as most major sectors ended higher, but energy stocks led the way given a near 6% spike in oil prices following geopolitical tensions between the U.S. and Iran. Stocks extended yesterday’s gains, driven on rising expectations that the Federal Reserve will cut interest rates as soon as next month amid slowing global economic growth and the ongoing U.S.-China trade war from stifling economic growth. Energy stocks led after reports Iran shot down a U.S. military drone, raising fears of a military confrontation with Washington. The stock market pared gains early-afternoon after President Trump responded “you will find out” when asked what he would do about Iran shooting down the U.S. drone. Trump did say later he finds it "hard to believe" Iran’s downing of U.S. drone was intentional: "I have a feeling that it was a mistake." That helped pare some of the midday pullback, but stocks did not end at their best levels, though finished higher for a 4th day. The S&P came into today with an April 30th closing record of 2,945.83 and intraday high of 2,954.13 on May 1st that was topped. Gold prices jumped over 3.8% to settle just below the $1,400, a level it hasn’t seen in over 5-years. Defensive sectors were at or near all-time highs on lower Treasury yields (Utilities, REITs, and Staples), while Financials lagged. Weaker economic data today (Philly manufacturing 4-month lows, missing tgts) helps rate cut case for Fed. The 2-year Treasury yield fell below 1.70% briefly before rebounding and the 10-year below 2.0%.

Economic Data

·     Weekly jobless claims fell 6K to 216K, below the 220K estimate while the prior week was unrevised at 222K; continuing claims fell 37K to 1.662M in the week and the 4-week moving averages stood at 218.75K

·     The Philadelphia Fed Index for June fell to 0.3 from 16.6 last month (follows the weak Empire Manufacturing report the other day) and was below the 10.4 estimate; prices paid fell to 12.9 vs 23.1 prior and new orders fell to 8.3 from 11.0; also declines in employment to 15.4 vs 18.2 prior and shipments fell to 16.6 vs 27.6 while inventories rose to 2.4 vs -3.1

·     The current account deficit for Q1 narrowed to (-$130.4B) from (-$143.9) in the prior quarter and compared to the estimate of (-$124.3B); balance of goods and services deficit narrowed to $154.6b compared to $171.1b prior quarter



·     Oil prices jumped, with WTI crude rising $2.89 or 5.4% to settle at $56.65 per barrel while Brent spiked $2.63, or 4.25% to finish at $64.45 per barrel on geopolitical tensions between the U.S. and Iran. Prices jumped this morning on reports Iran shot down an American drone just a week after two tankers were targeted in the region. Meanwhile, Iran-backed Houthi rebels in Yemen said they hit a Saudi Arabian power plant with a cruise missile. The news coupled with a weaker dollar, hopes of a trade resolution between the U.S. and China at the G20 meeting next week and bullish inventory data also boosted sentiment. Prices also supported by expectations that the Fed could cut interest rates at its next meeting. Overall it was a “risk-on” day for oil prices and energy stocks as well, though natural gas prices fell below $2.20 mln btu on bearish inventory data.

·     Gold prices broke out to a new 5-plus year high (Sept 2013), with August gold surging $48.10, or 3.6% to settle at $1,396.90 an ounce, posting its biggest one-day advance since October amid escalating tensions in the Middle East, a softer dollar and the Fed’s fresh rate-cut signal yesterday. Other precious metals also jumped with silver and palladium prices higher. Prices got going over the last few weeks as expectations have risen for the Fed to cut interest rates in the face of slowing global economic growth and the potential impact from trade uncertainties. Copper topped $6,000 a metric ton and touched a one-month high.



·     About the only thing weaker on the day was the U.S. dollar, falling to lows vs. the safe haven Japanese yen after Trump comments regarding retaliation against Iran for having a US drone shot down, falling -0.75% at 107.24, lowest levels since plunge early January. It has been a rough few days for the greenback, sliding after the dovish outlook on interest rates from the FOMC yesterday, with the euro topping the 1.13 level (a rebound from 2-days ago when it slumped on dovish comments from ECB President Draghi on stimulus). The Turkish Lira slumped vs. the US dollar after the country threatened the U.S. with retaliatory sanctions. Commodity prices enjoyed the benefits of a weaker US dollar, potential low rate environment and hopes of positive trade dialogue with China next week at the G-20 meeting.


Bond Market

·     Treasuries in further rally mode as yields drop to fresh multi-year lows, led by an apparent global easing stance by central banks. The 10-year U.S. Treasury yield dropped below 2% for the first time since November 2016, while the 2-yr fell more than 3bps to move below 1.7% (after dropping over 11 bps yesterday). The moves in the US followed an already sharp decline in European yields this week as ECB President Draghi suggested the central bank could provide more stimulus if economic conditions do not improve. Yesterday, the FOMC did everything to stay dovish without actually cutting rates, though left the window open and lowered its inflation outlook. Markets are now pricing in a virtual certainty the U.S. central bank will cut rates by July, Fed fund futures show, while seven of 17 Fed officials now think it will be appropriate to lower the benchmark overnight rate by a half-percentage point by the end of the year, as per yesterday projections. This morning, the Bank of England acknowledged rising concerns over a no deal Brexit as it kept interest rates on hold and cut its near-term economic growth forecast to zero.






WTI Crude















10-Year Note





Sector News Breakdown


·     Retailers; furniture designer SCS shares dropped after Q1 results missed (EPS 15c/$824.3M vs. est. 18c/$839.07M) saying results just short of revenue estimates because order growth was weighted toward the second half of the quarter; firearms manufacturer AOBC shares rise after Q4 sales of $175.7M topped the $169.2M estimate on better earnings having now beaten topline estimates for five straight quarters and bottom line estimates for seven, while gave mixed guidance (RGR, DKS, VSTO share active on report); PIR announces 1-20 reverse stock split

·     Consumer Staples; HSY was downgraded to an Underweight rating from Neutral at Piper due to the high valuation it sees on the stock in comparison to food peers; Grocery Outlet (GO) 17.19M share IPO priced at $22.00; in grocers, KR reported in-line Q1 top/bottom line results while backed its earnings outlook/comp sales rose 1.5% and profit margins decreased

·     Restaurants; DRI mixed Q4 results as EPS beat on mostly in-line revs, but comp sales of 1.6% missed the 2.4% estimate and guided year outlook below views (FY20 revs $8.961B-$9.047B vs. $9.09B est. and EPS $6.30-$6.45 vs. $6.46 consensus; TACO said it is expanding its partnership with BYND and will offer two new burritos containing that company’s plant-based protein

·     Auto sector; TSLA tgt cut to $158 from $200 at Goldman Sachs saying they see a lower likelihood of hitting his upside volume scenarios, as demand is likely below estimates and unsustainable; MEI shares dropped initially after Q4 results that missed revenue and earnings estimates and guided FY20 EPS of $3.25-$3.55 on revs $1.13-1.17B vs. est. $3.57/$1.13B

·     Casino & Leisure movers; cruise lines weak after CCL Q2 results topped views but lowers year EPS outlook to $4.25-$4.35 from prior view $4.35-$4.55 as sees lower ticket prices in 2H of the year (sending shares of RCL, NCLH lower) reflecting Voyage disruptions; SGMS shares active after Chairman Perelman bought 120K shares according to a filing



·     Energy stocks outperformed the broader market, getting a lift from the spike in oil prices, after Iran shot down a U.S. military drone, raising fears of a military confrontation and possibly disrupting supply. Expectations that the U.S. Federal Reserve could cut interest rates at its next meeting, stimulating growth in the world’s largest oil-consuming country, and a drop in U.S. crude inventories, also provided support to prices. The drone was downed in international airspace over the Strait of Hormuz by an Iranian surface-to-air missile, a U.S. official said. Note that concern about slowing economic growth and a U.S.-China trade dispute has pulled oil lower in recent weeks (more than 20% off 2019 highs). Decent gains for energy complex drillers, services, refiners, equipment and major oil names. Utility stocks got a lift to new all-time highs on lower Treasury yields; California utilities (PCG, EIX, SRE) got a boosted after California governor proposes liquidity fund for utilities for wildfires, backed by bonds



·     Bank movers; next catalyst for banks are for Fed stress tests starting tomorrow (DFAST) which should lead to record capital return, capital payout and cash-back yield, while next Thursday’s CCAR (part 2) should lead to cash-back yields (est. 10%) that are 2x the S&P500 and a record relative to 10-year treasury yields according to Wells Fargo; broad weakness in regional bank stocks amid an expected declining interest rate environment that will reduce net interest margins (CFG, BBT, STI, ZION, RF weak)

·     Insurance movers; ALL estimates catastrophe pre-tax losses of $473M, or $374M post-tax in May and total estimated catastrophe pre-tax losses for the second quarter months of April and May 2019 is $763M or $603M after-tax; CB was downgraded at Atlantic Equities. In consumer finance and lending; SC was downgraded to neutral at Susquehanna as shares are up 45% from a December low and recently closed at their highest since August 2015



·     Pharma movers; strength in the healthcare sector early led by generic/specialty names (BHC, PRGO, MNK); a big day for new IPOs and secondary offerings: AKRO 5.75M share IPO priced at $16.00; BCEL 7.35M share IPO priced at $17.00; CYRX 3.75M share Spot Secondary priced at $17.00; GNCA 10M share Secondary priced at $3.50; PRVL 7.35M share IPO priced at $17.00; ZYME 5.56M share Secondary priced at $18.00; EDSA shares surged after getting FDA green light for its clinical investigation of EB01, a sPLA2 inhibitor, which Edesa is developing for chronic allergic contact dermatitis; BHC rises following yesterday’s announcement of the U.S. launch of Bausch+Lomb ULTRA Multifocal for Astigmatism contact lenses.

·     Healthcare services and providers; hospital stocks (UHS, THC, HCA, CYH) declined after the WSJ reported President Trump intends to issue an executive order on Monday to compel the disclosure of prices in health care; PSNL 7.922M share IPO priced at $17.00 (opened below price); IDXG said two of its tests for thyroid cancer are now covered by health insurer Independence Blue Cross, which has nearly 2.5 mln enrollments in Philadelphia and Southeastern Pennsylvania; weakness in service names as CVS, WBA, RAD decline in retail pharmacy


Industrials & Materials

·     Industrial & Machinery; ACM rises after activist hedge fund Starboard Value LP says ACM should thoroughly evaluate strategic alternatives and that an outright sale of its Management Services segment may be preferable to a spin-off – revealed a 4% stake in the company; Wells Fargo said recent checks for June indicated solid and proactive pricing trends (AYI announced Mexico tariff increases on 6/6 and rescinded it by 6/10), but lighting volume commentary was choppy vs last check – net + for AYI, HUBB, ATKR;

·     Metals; CMC helps boost steel producers after Q3 EPS/sales topped estimates; gold miners jumping (GOLD, NEM, AEM, AU, KGC) after gold prices topped $1,385 an ounce, best levels since 2013 on the combination of escalating tensions in the Middle East and the Fed’s fresh rate-cut signal yesterday; JPMorgan on copper space as downgraded FQM given increasing risks from its two primary geographies, and greater balance sheet pressure and reiterate underweight ratings on Antofagasta, China Molybdenum, and MMG. However, we see an opportunity among inexpensive copper miners with strong balance sheets (Lundin Mining and Boliden)

·     Materials & Chemicals; OLN 2Q19 EBITDA estimate reduced from $238MM to $229MM at SunTrust saying US caustic soda index prices weakened more than we previously anticipated during 2Q, due to ample supply despite industry turnarounds; in paper sector, KeyBanc reduced estimates for WRK and PKG on account of falling pulp and containerboard prices


Technology, Media & Telecom

·     Software movers; ORCL adds to recent software strength as reported better-than-expected Q4 earnings and revenue and gave an outlook that pointed to ongoing momentum driven by database/middleware license; ORCL results follow better ADBE numbers the day prior; WORK pursued a direct listing, rather than a traditional initial public offering and set a reference point of $26 per share, trading today for the first time

·     Hardware & Component news; COMM was upgraded to buy at Goldman Sachs citing the potential for the company to expand its margins, as well as an attractive valuation following recent declines; TEL also upgraded to buy at Goldman Sachs on a margin expansion opportunity (cost reduction plans underway in Industrial and Auto) as well as an improving product portfolio; AAPL warned that proposed tariffs on imports of iPhones and its other flagship products from China to the US would “tilt the playing field” in favor of its overseas rivals


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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