Market Review: February 15, 2019

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Closing Recap

Friday, February 15, 2019

Index

Up/Down

%

Last

DJ Industrials

444.18

1.74%

25,883

S&P 500

29.86

1.09%

2,775

Nasdaq

45.46

0.61%

7,472

Russell 2000

24.15

1.56%

1,569


 

Equity Market Recap

·     U.S. stocks were strong to close out the week, as the Dow Industrial Average outperformed, settling up over 1% (over 400 plus points) and posted its 8th straight weekly gain. The S&P 500 Index touched its highest levels since early December with most sectors gaining after reports the U.S. and China reached some consensus on key topics in trade negotiations. President Donald Trump, speaking from the White House, said the trade talks with China are going "very well," adding that the U.S. is "a lot closer than we ever were in this country" to having a "real trade deal" with China. Hopes of a China deal and a resolution on the spending bill in Washington pertaining to the border wall have been the key market catalysts this week pushing stocks higher. Oil futures rose again after reports the U.S. may issue sanctions on Venezuela by blocking foreign entities from dealing with PDVSA and on a bullish OPEC monthly report mid-week. Investors dealt with a heavy dose of economic data today as empire manufacturing came in slightly above views (but down YoY), import prices fell more than expected, industrial production fell significantly lower-than-expected over the last month but consumer sentiment rebounded from a 2-year low. The data follows the weakest retail sales reading in over a decade yesterday that raised recession fears. Overall it was another busy week of earnings with one more hectic week ahead. Note U.S. stock markets are closed on Monday due to President’s Day.

Economic Data

·     The Empire State manufacturing index rebounded in February rising 4.9 points to 8.8 and was above the reading estimate of 7.0; the index remains well below levels seen last year, such as the 21.4 reading seen as recently as November. General business conditions were 3.9 in the last month while prices paid fell to 27.1 vs 35.9 and new orders rose to 7.5 vs 3.5; six-month general business conditions rose to 32.3 vs 17.8

·     Import Prices for January fell (-0.5%) MoM vs. est. down (-0.2%) and after falling (-1%) in December; Import prices fell 1.7% y/y in January and import prices ex-fuels fell 0.2% after no change in Dec.; Import prices ex-petroleum fell 0.7% after rising 0.3% in December

·     Industrial production for January fell (-0.6%) MoM after rising 0.1% in December its largest decline since May while it was revised down to 0.1% from 0.3% in December. Capacity utilization fell to 78.2% from 78.8% in December and revised up from 78.7%

·     The Preliminary Feb. Michigan Sentiment rose to 95.5 from 91.2 in the prior month and topped estimates for a 93.7 reading; the current economic conditions index rose to 110.0 vs. 108.8 last month and the expectations index rose to 86.2 (highest level since Jan 2002) vs. 79.9 last month.

 

Commodities

·     Oil prices finished the day and week higher, rising for a 4th session as WTI crude jumped $1.18 or 2.2% to close the day at $55.59 per barrel, registering a weekly gain of roughly 5.4%. Oil got a jump this week amid progress (though no official deal) between the US and China regarding trade as well as data mid-week from OPEC saying 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. Brent crude finished the day higher $1.68, or 2.6% to settle at $66.25 per barrel, its highest finish since November. Gold prices jumped $8.20, or 0.6% to settle at $1,322.10 an ounce, with today’s gains erasing a loss for the week, closing up 0.3% over the last 5-days. Gold prices had been pressured earlier in the week as the dollar traded up to 2019 highs amid weeklong discussions between China and Washington to resolve trade/tariff differences

 

Currencies & Treasuries

·     The dollar slipped late day, but held on to gains for the week. The euro reversed earlier losses vs. the dollar, turning higher late day above the 1.13 level (off earlier lows of 1.1234), but still posted a small decline on the week vs. the dollar. Speaking of, the dollar index (DXY) posted a late day decline, falling off earlier highs of 97.36 (weekly high) to lows around 96.85. The dollar active given mixed economic data earlier as well as some profit taking after gains this week. Treasury prices were down slightly with yields edging off yesterday’s 2.65%, but overall prices were muted on the day as stocks were generally higher, lessening the demand for safe haven assets. The 2-year yield ends the week around 2.51% and the 30-year at 3%.

 

 

Macro

Up/Down

Last

WTI Crude

1.18

55.59

Brent

1.68

66.25

Gold

8.20

1,322.10

EUR/USD

0.0003

1.1298

JPY/USD

0.03

110.51

10-Year Note

0.008

2.663%

 

 

Sector News Breakdown

Consumer

·     Consumer Staples; sector dropped on Thursday after weaker KO outlook sunk beverage stocks wile today, PEP posted a Q4 revenue beat and lackluster 2019 guidance as company cited the lower EPS outlook on incremental investments, the absence of last year’s strategic asset sales and refranchising gains and higher taxes; NWL shares dropped after beating Q4 profit expectations but missed on sales, and provided a downbeat outlook; WTW tgt cut to $40 from $98 at Oppenheimer but stay outperform saying sentiment has deteriorated significantly lately, as investors have increasingly fretted over the potential for waning subscriber growth

·     Housing & Building Products; TREX shares dropped initially on mixed results as EPS beat by 7c but revs of $176M missed the $189M estimate (but pared losses); in building products, MLM was upgraded to overweight at Stephens driven by volume, pricing and profitability

·     Auto’s; TRUE shares dropped sharply after its 4Q results and 1Q outlook fell below the lowest estimates, amid flagging traffic challenges and operational and execution problems (2019 revenue is expected to range from $371-$378MM, missing consensus of $410MM by about 9%); in auto suppliers, AXL reported a Q4 EPS and sales beat while 2019 sales view of $7.3B-$7.4B topped the $7.22B estimate while DAN also posted a Q4 beat (71c/$1.97B vs. est. 66c/$1.92B) and affirmed its 2019 financial targets (LEA, BWA, VC active in sympathy)

 

Energy

·     Energy stocks were mostly higher on the week given the 4-day rally in oil prices and a handful of earnings results; OXY was downgraded at Barclays to underweight; the weekly Baker Hughes rig count showed the total U.S. rig count rose 2 rigs to 1,051 rigs, with oil rigs up 3 to 857 and gas rigs down -1 to 194

·     Utilities & Solar; Solar stocks under pressure today with SPWR shares fall after downgrades at Bank America and Credit Suisse, with BoFa saying the recent outlook implied significantly lower margins in ’19 (FSLR, SEDG, JKS lower as well); FSLR reports earnings next week; utility sector little changed with 52-week highs today from EXC, NRG, CNP, NEE; HE reported a Q2 EPS miss on higher revs and raised its dividend

 

Financials

·     Financials outperformed with JPM and GS among the top gainers in the Dow Industrial Average; Euro zone banking shares rose sharply on Friday, the euro fell and Italian bond yields pulled back from earlier highs after European Central Bank’s Benoit Coeure said a new round of cheap multi-year loans to banks was possible.

·     Master Trust monthly credit card data: SYF January net charge offs 4.72% vs. 4.86% in December while delinquencies 2.93% vs. 2.87% MoM; ADS January net charge offs 6.6% vs. 5.4% MoM and the delinquency rate 5.8% vs. 5.7% last month; COF January charge-offs 5.08% vs. 4.95% last month and said 30-plus day performing delinquencies 4.16% vs. 4.04% last month; BAC January net charge offs 2.65% vs. 2.63% MoM and delinquencies 1.69% vs. 1.68% in December; C January credit loss 2.56% vs. 2.55% last month and delinquencies 1.64% vs. 1.56% last month.

·     Services, consumer finance and lending; the WSJ reported credit card companies (MA, V) are set to raise fees U.S. merchants pay to process transactions from April; TNET shares jumped after JPMorgan upgraded 4Q18 results again by insurance upside, but the real surprise was management’s bullish FY19 EBITDA outlook; RDFN rose on Q4 EPS and rev beat

 

Healthcare

·     Biotech and Pharma movers; MRK said the FDA grants priority review to sBLA for its KEYTRUDA/Inlyta combo that the U.S. FDA has accepted and granted priority review for a new supplemental Biologics License Application for KEYTRUDA; in the cannabis space, CGC reported a 282% increase in quarterly revenue as marijuana became legal in Canada, but production in the quarter fell significantly and costs climbed 15%; ACOR shares active after posting an unexpected Q4 profit, helped by revs of Ampyra net sales $64.2M topping the Bloomberg est. $48.2M; INCY reported Jakafi revenue of $380M was in line with the FactSet consensus estimate of $377M, and the reported Iclusig revenue of $19M was slightly below consensus estimates ($22M)

·     Medical equipment and devices; TNDM shares up early, adding to yesterday gains after the FDA allowed marketing of its t:Slim X2 insulin pump with interoperable technology for delivering insulin under the skin for children and adults with diabetes; LIVN shares rose as the CMS gets finalized National Coverage Determination to expand Medicare coverage for its Vagus Nerve Stimulation Therapy (VNS) for treatment-resistant depression.

·     Healthcare services and providers; AMN shares dropped on mixed Q4 results as EPS beat but revenues fell short of consensus while guides Q1 revs $520M-$528M below est. $559.99M)

 

Industrials & Materials

·     Industrial & Machinery; farm equipment stocks were active after DE posted Q1 EPS below estimates (Q1 EPS $1.54/$6.94B vs. est. $1.75/$6.95B) while lowers its 2019 cash flow from equipment operations to about $4.4B from prior view of $4.8B citing trade concerns and rising costs/also sees 2019 worldwide global construction/forestry sales up 13% vs. 15% prior; SPXC shares jumped on Q4 beat on EPS and revs and provided FY19 guidance

·     Transports; logistics companies weaker after XPO Q4 profit and sales fell short of the lowest analysts’ estimates, while its 2019 adjusted Ebitda view also lagged noting headwinds in France and the UK during the fourth quarter (CHRW, EXPD, LSTR, ECHO active); in tankers, TNP and SBLK were downgraded at Morgan Stanley; FDX shares dropped after President & COO Bronczek retires unexpectedly after being appointed to BOD only 2 weeks ago

 

Technology, Media & Telecom

·     Semiconductors; NVDA shares rose after a Q4 top and bottom line beat and predicted stronger fiscal 2020 sales than analysts had estimated (flat to down slightly vs. est. 7% drop); equipment stocks slipped after AMAT posted relatively good F1Q results, but offered soft F2Q guidance as demand remains impacted by end-market weakness from cloud, smartphones, PCs, autos, China/guided Q2 EPS 62c-70c on revs $3.33B-$3.63B below est. 78c/$3.69B

·     Software movers; LOGM shares fell as reported better than expected Q4 results above the high end of guidance, yet announced a multiyear initiative to heavily invest spending in the Company’s core growth drivers in UCC, Identity, and Customer Engagement, weighing on shares (downgraded at OpCo); WDAY was upgraded to outperform at Cowen while the firm cut ADBE to market perform; TLND trades to its best levels since November as tops its 100-day MA around the $46 level after jump in shares/posted in-line revs and guidance from pre-announced range; CPSI advanced after Q4 mixed results

·     Media & Leisure movers; in media, CBS shares rallied despite top and bottom line results missing estimates; HAS shares fell, touching lows of $85.96 (which was its 50-day MA support) after Bloomberg reported its CEO said at an investor conference that a prolonged trade war would be damaging to the toy sector; MAT shares dropped over 10% late day after guidance at investor day as sees Q1 gross revenue lower than Q1 of FY18, according to Bloomberg and sees flat constant-currency sales growth in 2019; CBB upgraded to equal-weight at Morgan Stanley; privately held Uber posts Q4 revs of $3B up 25% and adjusted loss $842M, down 15%

·     Hardware & Component news; GLOB 52-week highs as reported strong top-line quarterly results as its high potential accounts performed well, and it issued 2019 revenue and EPS guidance; CGNX 4Q revenue beat expectations and 1Q guide was slightly below Street; SMCI was upgraded to buy after quarterly results

·     Networking stocks outperformed yesterday on back of better results from Dow component CSCO, while today, ANET Q4 top and bottom line results beat estimates and issued Q1 revs above views ($588M-$598M vs. est. $589.67M) amid demand from Cloud and Enterprise customers

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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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