Equity Market Recap
U.S. stocks closed out the week in solid fashion with broad market gains led by outperformance in the technology sector following better earnings results in the semi space (AVGO) and positive follow through for the rest of the group on positive analyst calls. With today’s gains the NASDAQ advanced nearly 4% for the week and 3% for the S&P 500 index while the Dow gains were tempered by weakness in Boeing mid-week following its fatal 787 Max 8 crash. However, Boeing shares paced today’s Dow gains after AFP reported the company plans to roll out a software upgrade for 737 Max stall prevention in about 10 days. Treasuries were higher, while yields fell across the board, near the lows on the week after weaker economic data results (manufacturing and housing). Stocks jumped overnight after China’s Premier Li said his country will use reserve requirements and interest rates to support the slowing economy, while markets also remain hopeful that the U.S. and China make progress on trade talks. Software stocks slid amid cautious guidance from ADBE, ORCL and PVTL while ULTA traded to record highs following its earnings beat. Today marks quadruple witching day, where futures and options on indexes and stocks expire. A potential important week coming up with two major central banks out: the U.S. and England as both the Fed and BoE are both expected to hold off on raising rates, but what markets will be watching closely policy makers’ forecast on the pace of future rate hikes.
Empire State Fed Manufacturing index fell to a reading of 3.7 in March from 8.8 in the prior month, the lowest level in almost two years and below estimates for a reading of 10. The new orders index fell 4.5 points to 3 in March, shipments index slipped 2.7 points to 7.7, its lowest level in more than 2-years and the number of employees climbed 10 points to 13.8, indicating an increase in employment, but the average workweek turned negative for the first time since 2016.
Industrial Production for February rose a smaller-than-expected 0.1%, below the 0.4% estimate after falling (-0.4%) in January. Industrial production was revised up to -0.4% from -0.6% in Jan. Capacity utilization fell to 78.2% from 78.3% in Jan., revised up from 78.2%
The preliminary University of Michigan consumer sentiment survey for March rose to 97.8 vs. 93.8 prior month and above the estimate of 95.6; the current economic conditions index rose to 111.2 vs. 108.5 last month and expectations index rose to 89.2 vs. 84.4 last month. The expected change in median prices during the next year fell to 2.4% vs. 2.6% last month.
Job Openings (JOLTs) rose to 7.581M in January vs. the 7.225M estimate, rising 102K from 7.479M in the prior month; Jan. pace of hiring 3.9% vs 3.8% prior month
WTI crude oil prices posted a modest -9c decline settling at $58.52 per barrel, but ended the week with a 4.4% gain on bullish inventory data mid-week. Oil prices took a small breather after trading to roughly 4-month highs yesterday. Bloomberg reported U.S. officials said the global oil market can withstand the removal of all Iranian crude exports this year. According to the International Energy Agency, OPEC has 2.8 million barrels a day of spare capacity, more than enough to offset Iranian supply losses. Iran exported 1.17 million barrels a day in February.
Gold prices rise $7.80, or 0.6% to settle at $1,302.90 an ounce; with today’s gains, gold manages a 0.3% advance for the week, finding support on renewed optimism over prospects for a U.S.-China trade deal, a weaker dollar and soft economic data as it supports the wait and see approach on raising rates by the FOMC (who meets next week).
The U.S. dollar closed out the day and week lower, falling amid weaker than expected economic data reports today (and week) which boosted expectations for the FOMC to stay the course and not raise interest rates in any of their upcoming meetings. Slowing global growth concerns has reared its ugly head, prompting investors to ease their views on the US economy. Losses in the greenback were exacerbated by a surge in the pound as Prime Minister Theresa May convinced some in her own party to back her withdrawal deal in a third vote slated for next week. The dollar fell vs. all major rival currencies on the day.
Treasury prices gained, settling near the best levels of the week, with yields falling across the board on weaker economic data, a softer dollar ahead of the FOMC meeting next week. The weaker economic data (NY manufacturing/Industrial Production) raises expectations for the Fed to hold rates steady going forward as the 10-year yield trades to lows of 2.58% (off about 5 bps) before paring losses slightly. The 2-year yield fell to 2.44% while the 30-yr stayed above 3%.
Sector News Breakdown
Retailers; ASNA shares dropped following a sharply lower Q3 outlook/sees Q3 adjusted EPS loss (45c)-(35c) on revs $1.43B-$1.46B, well below the est. of 2c profit and $1.52B; TLYS results beat pre-announced guidance on its strongest comp since 3Q11/but Q1 EPS guidance missed estimates due to higher shipping costs and a LSD comp; KIRK shares fell after full-year guidance arrives in below expectations as sees rev growth of 0% to +2% vs. +2.5% consensus and EPS of 15c-30c below the 40c estimate; ZUMZ shares slide on mixed Q4 results, while sees Q1 EPS loss (13c) to (7c) on revs $202M-$206M vs. est. loss (5c)/$213.07M; CTRN falls on results
Consumer Staples; in cosmetics, ULTA trades to all-time highs, and analysts raises tgts after Q4 EPS of $3.61 topped a Street forecast of $3.56 and Q4 comps increased 9.4% with two-year trends improving modestly/also introduced FY19 guidance bracketing consensus forecasts; tobacco stocks slipped (MO, PM) initially after India Health Ministry calls for preventing e-cigarette company Juul labs entry into the country
Housing & Building Products; ZG was downgraded at Barclay’s to underweight saying contribution margin at the Homes segment is likely to erode significantly over the next several quarters; Cleveland Research was cautious on WHR saying headwinds are building across North America, citing sluggish 1Q appliance demand partially driven by less aggressive pricing and promotions
Auto’s analyst weigh in on TSLA Model Y unveil last night with consensus that it broadly disappointed with shares falling, as some analysts indicate it doesn’t do enough to differentiate with one analyst (MSCO) asking “Y” you should buy a Model 3 when so much is shared between the two. He sees likely cannibalization among the models. Other analysts noted there were few surprises, while others called the mood at the event as “more subdued” than prior
Energy stocks have posted good returns this week with oil prices rising on bullish inventory and production cuts out of OPEC; the Baker Hughes weekly rig report showed the total U.S. rig count fell -1 rig to 1,026 rigs, with oil rigs down -1 to 833 and gas rigs unchanged at 193; the International Energy Agency has warned that crude supplies from Venezuela are at risk of falling sharply and becoming a “challenge” for the global the oil market
Oil services mixed after Jefferies downgrades SLB, HP, PDS to hold from buy; while upgrades FRAC, OII to buy from hold and SPN to hold from saying oilfield services growth prospects seem more modest, which isn’t completely negative, but overall support Jefferies’ neutral sector outlook, and favors stock picking; TUSK shares active after Q4 Ebitda and revs missed estimates while Barclay’s said backlog was reduced to $765M from $1.2B largely from the removal of future work in Puerto Rico
Bank movers; despite Treasury yields falling broadly today (and week), financial stocks held steady on Friday; STT was downgraded to hold at Deutsche Bank and cut its target to $70 from $84 as they no longer sees any near- or intermediate-term positive catalysts for the stock given the likely continued revenue growth pressures this year; ENV acquires PIEtech, Inc., the creator of MoneyGuide family of financial planning applications for $295M in cash and 3.185M shares
Credit cards; monthly mater trust data out: 1) BAC Feb. Credit-Card Charge-Offs 2.62% vs. 2.65% MoM, while delinquencies 1.7% vs. 1.69% in January; 2) ADS Feb. Charge-Offs 6.3% vs. 6.6% in January and February delinquencies of 5.67% vs. 5.8% in January; 3) SYF Feb Credit Card Charge-offs 5.38% vs. 4.82% in January and Feb credit card net charge-offs 5.38% vs. 4.82% MoM; 4) COF reports February net charge-offs 4.90% vs. 5.08% last month and February delinquencies 4.04% vs. 4.16% last month; Auto credit card charge-offs 1.29% vs. 2.14%; 5) JPM February net credit losses 2.25% vs. 2.26% last month and delinquencies 1.25% vs. 1.21% last month
Pharma movers; space was quiet today with large cap names modestly higher for the most part; SPPI shares fell after reporting it withdrew its ROLONTIS biologics license application citing added time to address FDA request for additional manufacturing-related information; ADMP said that the FDA accepted for review its New Drug Application for its higher dose naloxone injection product candidate to treat opioid overdoses
Biotech movers; AMGN highs up as much as 2% after BMO Capital positive initiation of outperform and $228 tgt; KPTI shares rise after announced that the FDA has decided to extend selinexor’s PDUFA date by three months to July 6, 2019 (from April 6, 2019). Wedbush said while the significance of this action for selinexor’s approval prospects is uncertain, they’re inclined to view this event as a positive for the company given the negative sentiment on the name and general belief that an April 6, 2019 approval was unlikely.
Medical equipment and devices; EW and MDT low-risk transcatheter aortic valve replacement studies are scheduled as late-breakers on Sunday, March 17; RMED shares dropped as Q4 revenue came in slightly below expectations and Q1 revs outlook also weak; SLNO soars after reporting that a data safety monitoring board recommended the continuation of the company’s Phase 3 trial in Prader-Willi Syndrome (PWS) patients, without any changes; VRAY shares spent most of the day lower on weaker guidance
Healthcare services and providers; DPLO shares volatile after Q4 revenues missed estimates and names new CFO and revises year guidance; GKOS said its iStent Inject study met its primary endpoint, demonstrating significant, sustained clinical benefit and confirms favorable profile for next-generation device approved by FDA in June 2018; BIOS shares dropped after announcing a merger with former Walgreens Boots Alliance unit Option Care.
Industrials & Materials
Industrial & Machinery; BA shares helped boost the industrial sector after AFP reported the company plans to roll out a software upgrade for 737 Max stall prevention in about 10 days. Separately, Reuters reported that the timeline hasn’t changed, citing company comments that the upgrade will be rolled out in the coming weeks; CAT downgraded to mixed from positive by OTR Global; CREE trades to 52-week highs after agreed to sell its Lighting Products unit to Ideal Industries for about $310 million before tax impacts
Transports; Deutsche Bank removed its Catalyst Call on XPO saying the quick recovery in shares they expected from mgmt.’s buyback efforts has not materialized; KSU catalyst call also removed on KSU from Deutsche Bank; AAL temporarily suspended flights to Caracas and Maracaibo, Venezuela citing concerns for the safety and security of its team members and customers
Metals & Materials; in steel space, NUE guides Q1 EPS $1.45-$1.50, below the $1.63 analyst estimates and sees Q1 steel mill, raw materials segments down vs. Q4; AVY was downgraded to neutral at JPMorgan citing outperformance in stock this year (up 20%)
Paper & Packaging/containerboard; Goldman Sachs said data for February box data seen as negative by as it adds to the argument that a price cut is probably coming for U.S. linerboards (note shares of IP, WRK, PKG among decliners)
Technology, Media & Telecom
Internet; FB slipped after saying Chief Product Officer Chris Cox has decided to leave Facebook, CEO Mark Zuckerberg says in statement. Chris Daniels, CEO of WhatsApp, has also decided to leave the company; SNAP is planning to launch a new mobile gaming platform next month that will include a handful of games from external developers, Cheddar reports (follows 12% gain in shares yesterday after BTIG upgrade); MELI was downgraded at Stifel to hold after rally shares (rising 34% since earnings); AMZN was upgraded to overweight at KeyBanc and $2,100 tgt saying the company is taking a number of operational moves to improve profitability in core retail, which could drive mid-term earnings above the current consensus view; GOOGL shares slipped after the Washington Post reported some of the most influential state attorneys general are signaling a willingness to investigateGOOGL, FB and other tech giants
Semiconductors; outperformance in sector led by AVGO on earnings and positive commentary about a bottom in sector as well as bullish analyst call;AVGO strong Q1 EPS beat while revs of $5.79B just miss the $5.82B est. while reiterated its FY19 revenue, margin, free cash flow outlook, on a strong pipeline of new product cycles in cloud networking, next-gen iPhones, custom ASIC pipeline; LRCX tgt raised to $215 at Citigroup as checks indicate NAND equipment orders have picked up at Lam recently (shares of KLAC, AMAT, MKSI rise for a second session)
Software movers; ADBE Q1 EPS/sales topped consensus but guidance for Q1 ($1.77/$2.7B) missed estimates ($1.88/$2.72B) with KeyBanc downgrading shares citing balanced risk/reward; ORCL provides a downside Q4 outlook with the strengthening dollar posing an up to 3% headwind to total revenue with a -$0.03 impact on EPS/sees Q4 EPS and revs lower as BMO downgrades Oracle from Outperform to Market Perform and lowers estimates; PVTL posted slightly better Q4 results but gave an outlook for Q1 and year revs that was below expectations (but analyst were positive with many raising their tgt prices); ZBRA tgt raised to $225 at JPMorgan after mgmt meetings; ASUR Q4 EPS, revs and Ebitda all topped consensus
Media & Telecom movers Raymond James upgrades AT&T (T) from Market Perform to Outperform with the PT set at $34, implying a 12% upside noting earlier this week, AT&T confirmed DirecTV Now changes that included higher prices and CFO John Stephens provided a guidance update that expected WarnerMedia to be stronger in the second half of the year; LYV was downgraded to neutral at Citigroup as continue to like Live Nation’s business model and long-term growth prospects…but, valuation appears full, M&A may be less likely
Hardware & Component news; HEAR quarterly results beat but shares fell as forecast of 5c/$42M missed analyst estimates for current quarter and also said it would restate financial results after improperly accounting for warrants; JBL, which is a component supplier to semi-cap equipment companies such as LRCX and AMAT slipped after results and guidance overnight after it lowered annual outlook for their Enterprise biz from ~$5.5B to now $4.8-$4.9B, largely due to lower than expected semi-cap in 2H; AAPL shares traded to its best levels since November, up a 6th straight day
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.