Market Review: April 15, 2019

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Closing Recap

Monday, April 15, 2019

Index

Up/Down

%

Last

DJ Industrials

-28.48

0.11%

26,383

S&P 500

-1.86

0.06%

2,905

Nasdaq

-8.15

0.10%

7,976

Russell 2000

-5.61

0.34%

1,579


 

Equity Market Recap

·     U.S. stocks end lower, with the benchmark S&P 500 index managing to hold above the 2,900 level (a level it topped last week for the first time in six months) despite weakness in banks after another round of mixed earnings from GS and Citigroup. European stocks edged higher, as losses in mining shares offset increases in media. Oil prices slipped after its longest run of weekly gains in three years, while gold also dropped. Shares of Goldman Sachs (GS) led declines in the Dow after missing estimates for sales and trading revs in Q1, coming ahead of more bank earnings tomorrow (BAC, BLK, CMA). Healthcare also in focus as well with earnings results expected from Dow components UNH and JNJ set for tomorrow morning. It was an overall quiet day of news, with major US stocks slipping early as President Trump again attacked the Fed’s December decision to raise rates, while markets also remain concerned on trade news with China. President Trump said this weekend in a tweet” if the Fed had done its job properly, which it has not, the Stock Market would have been up 5000 to 10,000 additional points, and GDP would have been well over 4% instead of 3%…with almost no inflation. Quantitative tightening was a killer, should have done the exact opposite!” Outside of earnings this week, the Reserve Bank of Australia releases the minutes of its latest rate-decision meeting Tuesday and Wednesday brings China GDP, industrial production and retail sales data. In sad news, a fire broke out at the landmark Notre-Dame Cathedral in central Paris on Monday afternoon, potentially involving renovation works being carried out at the site.

Economic Data

·     Empire Manufacturing in New York State inched higher to a reading of 10.1, topping the 8.0 estimate and above last month’s nearly two-year low of 3.7 in March; the new-orders index rose 4.5 points to 7.5 in April, while shipments inched up 0.9 points to 8.6. Inventory levels picked up while inflation pressures cooled. Optimism about the longer-term waned in April. The index for future business conditions dropped 17 points to 12.4 in April, its lowest level in three years

 

Commodities

·     Oil prices slipped as WTI crude fell 49c or 0.8% to settle at $63.40 per barrel, while Brent crude slipped 37c to $71.18 settlement, as oil pares last week’s gains. Gold finished lower by -$3.90 to settle at $1,291.30 an ounce, its lowest settlement since March 28th as markets were quiet ahead of a busy week of earnings and. May silver edged higher after touching an intraday low of $14.795, the lowest of the year so far. It climbed 1.2c to $14.975 an ounce. It was a very quiet day of news for the commodities space overall.

 

Currencies

·     The U.S. Dollar Index (DXY) was down less than 0.1% at 96.94 with its month-to-date loss at 0.4%, slipping ever so slightly despite data that showed that the New York Fed’s Empire State business conditions index rebounded to a reading of 10.1 from a nearly two-year low of 3.7 in March. The USD-JPY continued to find support under the 112.00 mark, after topping at 112.09 overnight. Optimism on U.S. China trade talks has supported the pairing, following remarks from U.S. Treasury Secretary Mnuchin over the weekend, who said negotiations were in their final stages. The euro and Pound were up slightly vs. the dollar.

 

Bond Market

·     Treasury yields were steady, with the 10-year holding around 2.55% throughout the entire trading day after having surged Friday to end the week at their highs. Market attention for the time being turning to corporate earnings after mixed to weaker economic data over the last month has led to rising expectations for the FOMC to hold rates lower. Traders will enjoy a holiday-shortened week as stock and bond markets will be closed for Good Friday on April 19. The 2-year note yield edged up slightly to just below 2.40% and the 30-year steady at 2.97%.

 

 

Macro

Up/Down

Last

WTI Crude

-0.49

63.40

Brent

-0.37

71.18

Gold

-3.90

1,291.30

EUR/USD

0.0002

1.1301

JPY/USD

-0.03

112.00

10-Year Note

-0.004

2.556%

 

 

Sector News Breakdown

Consumer

·     Retailers; BBY announced that its CFO and strategic transformation officer, Corie Barry, will take over as CEO for Hubert Joly, 59, who moves to the newly created role of executive chairman; MAT announced a recall of 4.7M Fisher Price infant sleepers, following the report of 30+ deaths; AZO tgt was raised to $1,126 at JPMorgan as remains optimistic about sustained opportunities to grow its commercial program productivity toward the level of peers

·     Consumer Staples; WTW shares rebound after Morgan Stanley said the firms tracker points to 1Q19 quarter end subscribers of ~4.5mn (-2.5% y/y), relatively in-line with guidance calling for ‘down slightly’ and also slightly above his estimate for 4.3mn; ULTA tgt was raised to $390 from $345 at JPMorgan saying it remains well-positioned to continue to gain share with one of the clearest paths for sustained strong topline performance in space; Baird comments on restaurants saying based on signs that industry demand trends improved in March, they think calendar-Q1 comps/EPS projections generally are attainable…but with indications of slower underlying comps in Feb/Mar they are selective; Dow components MCD and PG trading at 52-week highs today

·     Housing & Building Products; FND downgraded to neutral at Longbow on valuation, based on our belief that the recent run up in the shares has priced in what is likely in the way of near-term revenue and earnings growth; homebuilders were mixed as Treasury yields held steadily higher

·     Leisure movers; CCL was downgraded at Buckingham noting the Federal judge’s threat to halt Carnival from docking at cruise ports domestically is real; LYFT shares fall further below its recent IPO price of $72, touching lows below $57 today on valuation concerns and the recent UBER IPO

·     Casino’s; Bernstein said weekly gross gaming revenue in Macau fell short of expectations, as casino results for April are expected to face tough comparisons against the prior year/now expects April GGR to be down 9%-12% y/y, had seen -2%-4% a week ago; Morgan Stanley lowered US regional estimates in gaming slightly to reflect weather, but sees an attractive opportunity to own BYD and PENN as expects results will be better than feared. Raising Macau EBITDA estimates as thinks that 1Q19 Macau gaming revenue declined 0.5% y/y to $9.4B, slightly beating his estimate of a 1.2% decline (WYNN, MGM, LVS)

 

Energy

·     E&P sector; Barron’s said oil drillers sitting on oil-rich land and offshore holdings are now poised to outperform, citing large U.S. names like CXO, NBL and FANG while also said the proposed purchase of APC by CVX is sparking new enthusiasm for other companies whose stocks have been dormant, even as the price of crude oil has risen. In research, ENLC and PSX were both downgraded to hold at Jefferies citing recent price appreciation

·     Utilities & Solar; utility prices were higher; EIX positive mention by SunTrust and Citigroup following the recommendations in the California Governor’s Wildfire Strike Force report last Friday, as well as subsequent comments by the Governor (SunTrust upped EIX tgt to $77). Citigroup said the press conference by the Governor gave them confidence that CA will get something constructive accomplished by July as firm reiterates buys on PCG and EIX; EXC up about 1% after the U.S. Supreme Court allowed subsidies for reactors in Illinois and New York

 

Financials

·     Bank movers; banking earnings will dominate the next few days as shares of GS decline after results as FICC trading revenues beat estimates, while equities trading revenue missed and its investment banking transaction backlog fell compared with the end of 2018 (posted Q1 provision for credit losses of $224M vs. $44M YoY and vs. $222M QoQ) – 1Q equities sales & trading revenue $1.77B vs. $1.83B est. and FICC sales & trading revenue $1.84B vs. $1.78B; Citigroup Inc. (C) EPS and fixed income markets revenue beat estimates while equities markets revenue missed estimates. Citigroup Q1 revenue, excluding a year-ago gain, slips 1% from the year-earlier quarter, largely driven by lower revenue in equity markets as well as mark-to-market losses on loan hedges in the Institutional Clients Group and the continued wind-down of legacy assets; SCHW Q1 profit and revenue that rose above expectations/total clients assets rose 8% to $3.59 trillion/clients’ DARTs fell 10% to 418,000 while asset-based trades rose 7% to 149,000

·     Asset managers; BEN, APAM were both upgraded to neutral from sell at Citigroup as the firm favors the Alternatives and view B/Ds as broadly range-bound (said top picks remain OZM; BAM (90 Day Positive Catalyst Watch); and, BX; Monthly Master Trust data: 1) BAC March default rate 2.78% vs. 2.62% last month and reports March 30-plus day delinquencies 1.67% vs. 1.70% last month; 2) JPM March Credit-Card Charge-Offs 2.55% vs. 2.25% in February and March delinquencies 1.23%, vs. 1.25% in February

·     Consumer finance and lending; Publicis agreed to buy ADS Epsilon unit for $4.4B in cash or $3.95B after tax step-up; Publicis says it plans to build a strategic partnership with Alliance Data remaining business https://on.mktw.net/2Gq0evN

 

Healthcare

·     Pharma movers; in the cannabis sector, APHA shares fell after writing down the value of its controversial Latin American assets, reported quarterly revenue that missed estimates and announced Green Growth Brands Inc. has dropped its hostile bid for the company (reports revs of C$73.6M vs. est. C$83.5M0; AXSM reports topline analysis of the Phase 2 trial of AXS-05 for smoking cessation treatment; Dow component JNJ reports tomorrow morning; INSY replaced its CEO Saeed Motahari as it deals with ongoing costs from a criminal trial of several former senior executives related to the company’s promotion of its opioid drug

·     Biotech movers; CLVS shares fell after the drugmaker said it would stop developing Rubraca in bladder cancer after the drug failed to show efficacy; FGEN confirms that the U.S. FDA has granted Orphan Drug Designation for the company’s anti-CTGF antibody, Pamrevlumab

·     Healthcare services and providers; CTLT to buy privately held Paragon Bioservices for $1.2B; CVS shares rallied after Barron’s said it’s time to buy shares of the health care supply chain company, but Oppenheimer downgraded shares to perform saying CVS is more of a long-term opportunity and will need time to execute on its strategy, especially with the near-term

 

Industrials & Materials

·     Industrial movers; one big M&A deal in the waste sector as WM announced a roughly $4.9 billion deal to buy its smaller rival ADSW, as Waste Management would pay $33.15 a share in cash for Advanced Disposal https://on.mktw.net/2vb2uBv

·     Transports; truckers in focus tonight with JBHT the first to report earnings in the sector; airlines were mostly lower on the day; GWR was downgraded to market perform from strong buy at Raymond James citing concerns about the impact of a "loosening truckload environment" on G&W’s highly profitable N.A. carloads; Bank America said U.S. airlines may see another sequential deceleration in domestic unit revenue or Prasm in 3Q citing recent analysis.

·     Chemicals; Nomura upgraded six names catalyzed by recent improvement in China credit and industrial production data as see valuation as encouraging vs. more defensive chemicals and the broader market. Upgraded DOW, EMN, HUN, and LYB to buy from neutral and raised WLK, OLN to neutral from reduce – sees a modest improvement in cash margins for commodity chemicals in 2Q19 and further normalization in 2H19; CC was upgraded to buy at SunTrust saying with TiO2 inventory destocking activity starting to run its course and pricing declines starting to moderate, investor anxiety about the TiO2 cycle has largely dissipated; LTHM was downgraded to neutral at Citigroup and reduce tgt by 13% to $13 and also cut tgt on ALB to $88 as get the sense that the lithium market has become a buyer’s market.

 

Technology, Media & Telecom

·     Internet; SPOT dipped after Friday’s Billboard report that AMZN plans to launch an ad-supported music streaming service/says the service would work through the Echo devices with a limited catalog of music; NFLX to report earnings tomorrow after the close

·     Semiconductors; Philly semiconductor index (SOX) fell over 1%, falling after touching earlier 52-week highs just shy of the 1,500 level (1,498.09 high) – NVDA, AMD, MKSI dropped; WDC upgraded to buy and $65 tgt at Longbow based on view that NAND fundamentals are bottoming and there is a line of sight to cyclical recovery while industry NAND capex/production is likely to be further rationalized as industry profitability is under pressure

·     Media and & Services movers; EA shares dropped over 4%, sliding below its 50-day MA earlier of $98.50; VEC rises after announcing four contracts with the U.S. Army Contracting Command-Rock Island; MTCH rallied as announced it has reorganized its leadership team to "double down on the significant market opportunity for dating products in Asia." DIS shares touched 52-week highs

·     Telecom, Towers; two analysts out as Guggenheim said though they expect solid 1Q earnings across the board from tower companies, valuations of all three companies have risen to near record level, prompting a downgrade of CCI to neutral; Wells Fargo downgraded AMT to market perform following recent checks in the private tower and wireless services space, as the only tower stock they recommend is CCI, and raise our PT to $142; GOGO releases preliminary results with consolidated revenue expected between $197M-$200M (vs. est. $201.95M) with a net loss between $17M to $20M, adjusted EBITDA from $35M-$38M, and $188M in cash and equivalents.

·     Comm Equipment movers; Goldman Sachs upgraded China Telecom (CHA) to buy as believe CT has invested the most network resources on a per subscriber basis, exhibited by its highest “4G BTS per ‘000 sub” and lowest “mobile data traffic per 4G BTS” among the three telcos. The firm downgraded China Mobile (CHL) to neutral and stayed neutral on China Unicom (CHU)

·     Hardware & Component news; EFII to be acquired by an affiliate of private equity firm Siris Capital Group for about $1.7 billion in an all-cash deal, with EFII holders getting $37 per share for EFI, a 26% premium from Friday’s close https://on.mktw.net/2Xf3sZK ; CIEN was upgraded to outperform at Northland based on both a recent deep dive into emerging 600G/800G coherent optical technology (up tgt to $42 from $34); AAOI shares fell after Rosenblatt said Finisar may have taken all of Applied Opto’s 100G market share at Facebook in the second quarter, setting up Applied Opto for a 20%-30% q/q decline in total revenue in the second quarter

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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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