Market Review: February 13, 2019

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Closing Recap

Wednesday, February 13, 2019

Index

Up/Down

%

Last

DJ Industrials

113.37

0.45%

25,528

S&P 500

7.64

0.28%

2,751

Nasdaq

5.76

0.08%

7,420

Russell 2000

4.73

0.31%

1,542


 

Equity Market Recap

·     U.S. stocks were higher as the Nasdaq Composite and S&P 500 made it a fourth straight day of gains, with the S&P 500 index holding above its 200-day MA resistance (of 2,743) for a second straight day ahead of high-level trade talks and expectations of President Trump signing off on the Congress spending bill (that has less money for the wall than he asked for). Stocks did pare gains late day with the NASDAQ nearly erasing all its gain led by large cap names (NFLX, AAPL, and GOOGL). President Donald Trump said yesterday he’s open to extending the March 1 deadline to raise tariffs on China which has helped boost sentiment as Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer meet China trade delegates tomorrow. The dollar extended gains vs. most rival currencies, back around 2019 highs, getting a boost vs. the Russian ruble after Reuters reported that Republican and Democratic senators will introduce a bill seeking sanctions against Russia. Inflation data this morning was subdued as CPI data MoM was mostly in-line, while YoY levels topped estimates, but were down from prior readings. There were also several reports today indicating that U.S. President Donald Trump will likely sign the border-security agreement Congress reached this week that would keep the government open past Friday. Stock gains were led by financials, energy, and discretionary sectors while defensive utilities, REITs and staples were among the biggest laggards.

Economic Data

·     The Consumer Price Index (CPI) for January was unchanged vs est. up 0.1% while core CPI (ex: food & energy) MoM rose an in-line 0.2%. The CPI YoY rose to 1.6% vs. est. 1.5% and core CPI YoY was 2.2%, in-line with prior reading but slightly above the 2.1% estimate. With this release, the BLS has incorporated revised seasonal adjustment factors for the five previous years

·     The U.S. budget deficit for January stood at -$13.5B, more than the $-11B estimate and vs. -$23.2B last year; receipts fell 4.1% y/y to $312.6B in Dec. and outlays fell 6.6% y/y to $326.1B

 

Commodities

·     Oil prices closed higher with WTI crude, but finished off the best levels, rising 80c to settle at $53.90 per barrel (off earlier highs $54.60). Crude was active following mixed inventory reports as prices jumped overnight on bullish drawdown from API report, though the EIA reported a larger than expected 3.6M barrel rise in crude stocks. Prices got a boost yesterday after OPEC said in its monthly report that the cartel’s production fell by nearly 800K bbl/day in January to 30.8M bbl/day, and Saudi Arabia pledges to cut output by at least 500K bbl.

·     Gold prices end higher by a modest $1.10 to settle at $1,315.10 an ounce, well off earlier highs above the $1,320 an ounce level as the dollar rebounded in afternoon trading (DXY back above the 97 level up over 0.3%), causing more pain for commodity prices. Gold has gained more than 2% since the end of last year amid a more cautious Fed, but has slipped over the last few weeks.

 

Currencies & Treasuries

·     The U.S. dollar bounces from earlier lows to close near the nest levels. After snapping its 8-day win streak yesterday, the US dollar advanced as dollar index (DXY) touched highs above the 97 level following on mixed data and positive macro headlines related to trade and the border wall. The Russian ruble slipped after talk of new sanctions on Russian debt and banks, while the Mexican peso dropped. Both the euro and British Pound declined vs. the greenback as weaker economic data in the EuroZone has weighed on currencies. Treasury market’s slipped as the yield on the 10-year moves back above the 2.70% level, the 30-year yield 3.03% and 2-year above 2.53%. Currency, bond and commodity markets closely watching the trade talks.

 

 

Macro

Up/Down

Last

WTI Crude

0.80

53.90

Brent

1.19

63.61

Gold

1.10

1,315.10

EUR/USD

-0.005

1.1276

JPY/USD

0.45

110.93

10-Year Note

0.022

2.706%

 

 

Sector News Breakdown

Consumer

·     Retailers & Discretionary; overall discretionary sector was among the day’s top gainers; JWN shares were under pressure all day with wires noting Cleveland Research cautious saying they see January comp sales slowing; Levi Strauss filed to go public seeking listing on the NYSE under the ticker “LEVI”; earnings tonight from FOSL

·     Consumer Staples & Restaurants; Dow component KO expected to report earnings tomorrow morning in the beverage sector; DENN shares dropped after mixed results as projected little or no same-store sales growth in 2019; beer and spirits companies (BUD, STZ, SAM) active following strong results and forecast from Heineken

·     Housing & Building Products; housing sector giving back some of yesterday gains after positive analyst call sent shares (LEN, TOL, KBH) higher on Tuesday; TMHC Q4 total revs of $1.46B missed ests. of $1.47B while sees Q1 home closings of about 1,800-1,900 and home closings gross margin in the mid-17% range

·     Auto sector; auto parts company VNE reported organic sales fell 9% in Q4 while operating margin fell 14% during the quarter and is expected to worsen in the first half of 2019; Deutsche Bank took down current quarter comp estimates for AAP and AZO to slightly below consensus estimates due to a more unfavorable calendar

·     Lodging sector; RRR delivered stronger-than-expected 4Q results a adjusted EBITDA of $135M topped the $125M est. as a result of margin upside and higher-than-expected flow-through/Las Vegas EBITDA of $121M drove the beat and same -store revenues; HLT shares outperformed after Q4 EPS, rev and Ebitda beat while guidance for Q1 (73c-78c well above 59c est.); WYND shares active after earnings results

 

Energy

·     Energy stocks were among the day’s top gainers; day started out with the IEA leaving its global demand growth forecast of 1.4M bpd for 2019 unchanged from its last report in January, stating the oil market will struggle to absorb fast-growing crude supply from outside OPEC, even with the group’s production cuts and U.S. sanctions on Iran and Venezuela; Earnings post-market: PXD, MRO, WMB, LPI, AR

·     Inventory data mixed; the American Petroleum Institute (API) reported that U.S. crude supplies fell by -998K barrels for the week ended Feb. 8 (bullish), showed that gasoline stockpiles rose by 746K barrels, while distillate inventories declined by -2.5M barrels. However, the EIA said stockpiles rose 3.63M barrels vs. the 2.4M est. though gasoline a smaller build of 408K barrels vs. est. +1.4M. In earnings, OXY Q4 core EPS $1.22 vs. est. $1.14 and Q4 revenue $4.76 billion on fractionally better 4Q18 production and much stronger Midstream earnings

·     Utilities; the defensive sector was among the top decliners early as yields inched higher and investors kept piling into stocks which trade at the best levels in a few months; in stocks news, ) announced that its competitive renewable energy subsidiary has signed an agreement to acquire Sempra Renewables LLC and its 724 megawatts of operating wind generation and battery assets for approximately $1.056B; CWEN was downgraded at Guggenheim on dividend risk while ED was downgraded to underperform at Evercore ISI

 

Financials

·     Bank movers; financials were among the top gainers today, with GS and Visa leading the Dow higher early on; TROW raised its quarterly dividend to 76c and is also adding 10 million shares to its buyback program, bringing the total of 22.4 million shares/non-executive Chairman Brian Rogers is retiring at the company’s annual shareholders meeting on April 25; DBD shares rose after mixed Q4 results that beat revenue estimates with $1.29B but missed on EPS and issued downside FY19 rev guidance of $4.4B-$4.5B (est. $4.56B); in insurance, AIG to report tonight

 

Healthcare

·     Pharma & Biotech movers; specialty pharma and generic stocks were weak after TEVA forecast 2019 earnings that missed lowest estimates ($2.20-$2.50 below the $2.81 est.) and weak rev outlook of $17B-$17.4B vs. est. $17.93B (MYL, ENDP, MNK, PRGO shares were volatile); EXEL shares active as U.S. sales of Cabometyx topped analyst expectations and rose about 8% q/q prompting several sell-side analysts to raises tgt prices; IRWD outperforms post earnings

·     Medical equipment and devices; BABY shares plunge after Q4 EPS of 43c missed by 6c and guided year profit to $1.12-$1.49, well below the $1.72 estimate; JNJ to buy privately held Auris Health in a cash deal valued at $3.4B to add developer of robotic technologies focused on lung cancer https://on.mktw.net/2GnjL25 ; RWLK shares rise after health insurer CI changes its position on the company’s exoskeleton devices/will now review submissions for coverage on a case-by-case basis; IRTC shares jumped on its earnings results

·     Healthcare services and providers; CERN shares slid after the company offered long-term revenue growth guidance as part of its Investment Community Meeting; CRL shares jumped to record highs following its earnings results

 

Industrials & Materials

·     Industrial & Machinery; DE downgraded to hold at Bank America as risk reward appears more balanced heading into this Friday’s FQ1 earnings release/while FY19 outlook seems achievable, a guide raise seems unlikely as the global trade situation remains unclear; CAT January World rolling 3-months machine sales +9% and January N.A. rolling 3-months machine sales +20%; MDR said it expects to report an adverse change in the estimate of its Cameron LNG project of about $168M, due to unfavorable labor productivity and increases in subcontract, commissioning and construction management costs.

·     Transports rise; Dow Transports on track for a 3rd day of gains, rising roughly 50 points to 10,500 (after rising more than 1% the last 2-days) – the 200-day resistance for the Transports higher at 10,557 (hasn’t been above the 200-day since early December) – MATX, R and airlines leading today (DAL )

·     Metals & Materials; FCX was upgraded to overweight at Morgan Stanley as firm expects copper market tightness to emerge beginning in Q2, given falling global production, low visible inventories and improved demand from China; ARNC said it is planning to invest $100 million to expand its hot mill capacity and add downstream equipment capabilities to industrial and automotive products at its Tennessee operation; UBS said net sentiment for their US steel coverage declined q/q and y/y in Q4 on average, w/highest net sentiment scores at STLD & NUE; gold miner GOLD posted in-line Q4 earnings and a 15% Y/Y revenue decline, as its average realized gold price fell 4% from the prior-year period to $1,223/oz/Q4 gold production fell 6% Y/Y

 

Technology, Media & Telecom

·     Internet; TRIP Q4’18 results beat with total revenue and EBITDA ahead of the Street as revenue per hotel shopper increased 14% YoY but click-based & transaction revenue and Hotel revenue, were below expectations (said Piper); GRPN shares fell after missing Q4 earnings and as 2019 guidance missed analyst estimates citing a challenging operating environment, driven by accelerating headwinds from email and changes in Google search; AKAM reported stronger-than-expected Q4 results driven by significantly better rev performance in the Media business while initial guidance for both 1Q19 and 2019 is below consensus expectations; TWTR shares active after CNBC reported Morgan Stanley (MS) disclosed it holds a 5.6% stake as of Dec 31st

·     Semiconductors; LSCC reported in-line 4Q18 results and provided a 1Q19 revenue outlook above consensus (sees Q1 revenue $94M-$98M vs. est. $93.72M); MPWR reported in-line 4Q18 results and guided 1Q19 below Street expectations ($141M midpoint coming in below $146.9M est.); AQ downgraded by at least two analysts delivered a disappointing quarter and guide, as inventory burn at its two largest customers (INTC and CSCO) is expected to continue to have an impact on its near term results according to Deutsche Bank; memory stocks higher (MU, WDC, STX) after KeyBanc said memory supply models indicate that both DRAM and NAND pricing will stabilize in the 2H of 2019 in the face of shortages by year-end; CEVA falls as Q4 EPS and revenue misses with downside FY revenue guidance at $80M compared to the $88.3M consensus as attributes the Q4 softness to softness at a large smartphone OEM

·     Software movers; CSOD Q4 subscription revenues outperform guidance and ARR end the year at the high end of guidance/but operating margins and FCF guidance below consensus; HUBS results beat consensus across the board, with above consensus revenue guidance, though Jefferies noted net customer adds were slightly below target; DOCU was upgraded to buy at Deutsche Bank; TWLO posted a $19M revenue beat on a growth rate of 77% y/y as several analysts raise tgt prices on results/guidance (Deutsche to $130, Canaccord to $125); ATVI announced plans to slash costs across the company after reporting Q4 sales that missed estimates and delivering a disappointing forecast

·     Media & Telecom movers; DISH shares slump after missing consensus profit estimates due to continued TV-subscriber losses/Q4 revenue fell 4.9% to $3.31B (vs. est. $3.28B) but EPS missed by 3c/said the number of TV subscribers fell by 334,000, adding to the 341,000 lost QoQ

·     Hardware & Component news; Dow component CSCO to report earnings tonight after the close; CRAY shares fell after Q4 revenue topped estimates but missed on EPS with downside Q1 guidance has revenue around $70M (below est. $72.18M); UIS shares outperform following beat on Q4 EPS and revenue

·     Internet security stocks lower after QLYS Q1 revenue was well below expectations, prompting a few analyst downgrades – posted weaker earnings and cut the 2019 revenue growth estimate from the previously guided +20% to 15% to 16%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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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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