Market Review: June 06, 2019

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Closing Recap

Thursday, June 06, 2019

Index

Up/Down

%

Last

DJ Industrials

181.77

0.71%

25,721

S&P 500

17.32

0.62%

2,843

Nasdaq

40.08

0.53%

7,615

Russell 2000

-3.25

0.22%

1,503


 

Equity Market Recap

·     U.S. stocks rise for a 3rd straight session, with major averages on track for their best weekly performance since January as comments on trade with Mexico, a dovish Fed outlook on interest rates and anticipation ahead of tomorrow’s jobs report fueled market buying interest late afternoon. Stocks were higher most of the trading day, but turned decisively higher following headlines the U.S. is considering delaying tariffs on Mexico as talks continue over the flow of undocumented migrants/illegal drugs from Central America. Mexico is pushing for more time to negotiate over concerns the two sides won’t be able to reach agreement on all steps Mexico would have to take to avert the tariffs. Meanwhile, markets will be closely watching tomorrow’s nonfarm monthly jobs payroll report (est. 175K nonfarm payrolls, 172K private payrolls and unemployment rate to hold at 3.6%) especially after Wednesday’s surprisingly weak ADP private payrolls report showed slowest job growth in over 9-years. A weak jobs report will likely raise calls for more Fed easing on interest rates to help stimulate the economy, while a strong jobs report may cloud the rate situation.

·     Economic data today was mixed (jobless claims, productivity, trade balance), but the dollar fell after the ECB left interest rates unchanged (though commentary was more on the dovish side from President Draghi), while oil rebounded late day and gold prices advanced for a 7th straight session. Markets overlooked additional trade tensions with China as Trump said he’ll decide whether to enact tariffs on another $325B in Chinese imports after the Group of 20 summit at the end of the month in Japan. Retailers were among the top decliners in the S&P 500, while transports were market laggards, led by weakness in truckers after LSTR issued weaker commentary on earnings/revs and pricing. However, there was strength in technology, energy, materials and staples, with news highs for several food, beverage names as the S&P 500 index saw at least 77 names trade to 52-week highs today (many in utilities, staples and REITs).

Economic Data

·     Nonfarm productivity for Q1 rose 3.4%, just missing the 3.5% economist estimate after prelim 1Q productivity was up 3.6%. Unit labor costs fell (-1.6%) in 1Q, greater than the prelim reading of down (-0.9%) which was also the estimate.

·     Weekly Jobless Claims were unchanged from the prior week at 218K, slightly above the 215K estimate while the 4-week moving average stood at 215K in the latest week; continuing claims rose 20k to 1.682M

·     The U.S. trade deficit for April narrowed to (-$50.8B) from (-$51.9B) in March and was mostly in-line with the (-$50.7B) estimate as imports fell (-2.2%) in April to $257.64B from $263.32B MoM while exports fell (-2.2%) in April to $206.85B from $211.41B in March. Goods shipments to China fell to $8.5B in April from $10.2B MoM (down 20% year-to-date, while imports from the nation have declined 13.2% in 2019

·     Net worth for households and non-profit groups increased by $4.69 trillion, or 4.5%, to $108.6 trillion after a 3.7% drop in the prior period, Fed data showed. Household debt growth slowed to a 2.3% annual pace, the least since late 2015, from a 2.8% rate in the prior quarter

 

Commodities

·     Oil prices spiked late session, as WTI crude closed the day higher by 91c or about 1.75% to settle at $52.59 per barrel, well off earlier lows of $51.17 (worst since January), as oil looks to recover after falling as much as 22% from its April highs on slowing global growth concerns. A weakening global economic backdrop, amplified by tariff tensions between the U.S. and some of its key trading partners, have underpinned lower moves in crude.

·     Gold prices advanced for a 7th straight session (longest streak in nearly 18-months – which was a streak of 11-days in January ‘18), rising $9.10, or 0.7%, to settle at $1,342.70 an ounce to best levels since February. Prices have been supported over the last week or so as the U.S. dollar weakened, a softer Fed stance on interest rates and as the euro climbed today following the ECB’s decision to leave key interest rates unchanged (though commentary was more on the dovish side). Add the ongoing trade tensions between the U.S. and China/Mexico and concern ahead of tomorrow’s job report as more support.

 

Currencies & Treasuries

·     The U.S. dollar was weaker vs. most rival currencies, sliding vs. the euro after the ECB left interest rates unchanged (though commentary was more on the dovish side), as expectations are growing for the Fed to lower rates at least twice this year (long shot for June rate cut) on slowing global growth fears grow given the ongoing trade dispute with China. Tomorrow’s non-farm payroll report will be very important as to gauge the health of the economy. Where a strong report would raises questions if rate cuts are needed, a weak report will certainly juice expectations for additional Fed easing. Treasury markets also closely watching the report, especially with yields down below 1-year lows, as the 10-year stood at 2.12%, the 2-year 1.88% and longer term 30-year yield at 2.62% into tomorrow’s jobs data.

 

 

Macro

Up/Down

Last

WTI Crude

0.91

52.59

Brent

1.04

61.67

Gold

9.10

1,342.70

EUR/USD

0.0051

1.1272

JPY/USD

-0.03

108.44

10-Year Note

-0.006

2.124%

 

 

Sector News Breakdown

Consumer

·     Autos; TSLA shares rise for a 3rd day, tracking higher after Electrek reported that the EV automaker hit a record North America sales number in Q2 saying Tesla has already delivered 33K vehicles in North America this quarter; FCAU has withdrawn its offer to merge with Renault after the French company’s board failed for a second day to reach a conclusion on the proposal; tire maker GT was upgraded to neutral at Longbow with $14 tgt

·     Retailers; another rough day for retail with KSS (52-week low), M, JWN, ANF, GPS extending recent drops; BKS shares spiked late day as the WSJ reported the company is nearing a deal to be bought by hedge fund Elliott Management Corp https://on.wsj.com/2KttvJq ; MIK trades to record lows as Q1 comp sales fell (-2.9%) missing the est. for a drop of (-1.5%) amid a decrease in customer transactions while gross profit fell 130 bps to 38.2% of sales due to higher distribution related costs while lowers year EPS to $2.29-$2.41 from $2.34-$2.46 prior (est. $2.43); CATO reports same-store sales rose 1% in May, in-line with company’s expectations while total sales decreased 2% to $76.1M for the month; SIG posted a surprise Q1 profit and revenue beat but also reported bigger-than-expected drop in quarterly same-store sales and weak forecast (Q1 comps fell -1.3%)/narrows FY20 adjusted EPS view to $2.88-$3.17 from $2.87-$3.45; FIVE reported a beat for Q1 EPS/revs and boosted its year EPS outlook (backed year revs) but noted the negative impact potential of tariffs, which could lead to price hikes

·     Housing & Building Products; home product stocks slammed on weak results/guidance today as KIRK reports a net loss of $8.9M for the quarter as total sales fell (-9.1%) and comp sales dropped (-10.7%) vs. up 1.4% YoY – both below estimates – while also cut its FY19 EPS view to flat to 15c from 15c-30c (est. 18c) citing impact of negative store traffic and decline in average ticket; meanwhile HOME shares drop over 30% as profit fell in Q1 citing unfavorable weather conditions/guided year adjusted EPS 67c-74c on revs $1.39B below est $1.03/$1.4B; LZB’s Upholstery and Case goods segments faced pressure during F4Q19, reflecting relatively sluggish demand across the U.S. traditional (i.e. brick and mortar) home furnishings environment in early 2019; in building products, MLM was upgraded to buy at Davidson and raised tgt to $260 saying they are more optimistic regarding upside prospects for earnings/EBITDA/guidance; homebuilder HOV posted Q2 loss of $2.56 came in worse than the $1.77 per share loss expected.

·     Consumer Staples; shares of tobacco names (PM, MO) active after BTI, IMMBY shares jumped overseas after Barclays with industry note saying the US FDA probably won’t publish a rule banning menthol cigarettes over the next 12 months; BYND with its first quarterly earnings since its IPO later this afternoon; in restaurants; Dow component MCD traded to all-time highs along with record higher for food and beverage names at 52-week highs (SBUX, MDLZ, PEP, YUM)

 

Energy

·     Refiners active after Goldman Sachs noted the sector has pulled back 10% in the last month as concerns about global oil demand have accelerated, with weak economic data points, softening refining margins and continued product builds – though firm upgraded VLO to buy noting shares are down 17% in the last month versus the XLE down 6%

·     Oil services & equipment; Jefferies said oilfield services provider BHGE remains its top large-cap pick, maintains "buy" rating as sees growth prospects in BHGE’s Middle East offshore market and that the company should benefit from partnership with Abu Dhabi National Oil Co; TUSK shares fell again after late yesterday the WSJ reported that the FBI is looking into Mammoth Energy work in Puerto Rico https://on.wsj.com/2XtF5Ig

·     Utilities & Solar; in alternative energy, FCEL was downgraded by two analysts after the company announces the CEO has been terminated without cause and he has resigned from the Board

 

Financials

·     Bank movers; sector just can’t gain traction as louder calls for the Fed to cut rates pressures the banking and lending sector on fears of narrowing lending margins; Dow component TRV was downgraded at KBW Inc. as expects premiums to grow stronger in specialty insurance and reinsurance, which could offer investors more upside than TRV

·     Consumer finance and lending; FLT shares were pressured after Citron Research posted a negative call on the company saying them, Capital Forum, Bloomberg, and almost every major financial news publication have all written about the company’s egregious billing practices https://bit.ly/2wD0CCj ; VRRM priced 15M share Secondary priced at $12.50

 

Healthcare

·     Pharma movers; AZN said a phase 3 clinical trial, ELEVATE-TN, evaluating its Calquence (acalabrutinib) in treatment-naive patients chronic lymphocytic leukemia (CLL) met the primary endpoint; VTVT announced positive results from the primary analysis of Part 1 of the Phase 2 Simplici-T1 trial assessing the liver-selective glucokinase activator TTP399 in adult patients with type 1 diabetes; LJPC said it LJPC-401 has significant primary endpoint data; ELOX announced positive data demonstrating that ELX-02 increases functional CFTR proteins in organoid, human bronchial epithelial, and Ussing chamber systems

·     Biotech movers; CTRV shares spike over 150% as announces positive data from preclinical study of its experimental drug, CRV431, to treat liver disease from non-alcoholic steatohepatitis/says CRV431 significantly decreased extent of fibrosis in a second animal model of liver fibrosis; CELG said the U.S. FDA and European EMA accepted applications to review Ozanimod for treatment of multiple sclerosis; INSY agreed to pay $225M to settle U.S. claims that it illegally sold opioid-based painkillers/the payment will be stretched over five years, the Justice Department said

·     Medical equipment and devices; The U.S. FDA posts documents ahead of upcoming Circulatory Systems Devices Panel meet on June 19-20 to evaluate the safety and future usage of paclitaxel-coated devices to treat peripheral artery disease/JPMorgan said do not believe FDA will clear the products and does not see a recovery in sales for device makers such as MDT, BSX, BDX

 

Industrials & Materials

·     Transports; general sector was lower, led by weakness in trucking and rails; airlines mixed after strong returns yesterday; UAL was upgraded to buy at Goldman Sachs today while the firm downgraded SAVE as believe that several recent risk factors to their UAL outlook have been priced in at current levels; in trucking space, LSTR shares slipped after CEO said at Deutsche Bank conference it may not achieve bottom range of its EPS and revenue outlook for Q1 citing challenging price env’t and market conditions (JBHT, CHRW also slipped)

·     Metals & Materials; Bloomberg noted industry journal Platts reported $30/ton drop in carbon scrap prices for June in the steel sector, which came in below market expectation of flat pricing; HL said to cut 25% of workforce in Nevada as it plans to shut down operations at Hollister mine/said restructuring to result in 2019 capital reducing by $25M; GFI said it sold holdings in two non-core investments, mining companies Maverix Metals and Red 5, for a combined US$88M to help pay down debt; in the packaging sector, GEF shares fell as much as 10% Q2 sales missed views (EPS beat) and lower Ebitda then estimates (but up 31% YoY)

 

Technology, Media & Telecom

·     Internet; online retailer SFIX shares surged as Q3 active clients of 3.1M, was an increase of 17% YoY while raises year rev outlook to $1.57B-$1.58B from prior view $1.53B-$1.56B/Stifel notes marks the fourth consecutive quarter of accelerating ARPU growth; GOOGL agreed to acquire Looker, a unified platform for business intelligence, data applications and embedded analytics, in a $2.6 billion all-cash transaction; SNAP was upgraded to buy at Pivotal as they see increasing signs of momentum in the business on multiple fronts/raises tgt to $17.25

·     Semiconductors; AMD was upgraded to equal weight from underweight at Morgan Stanley and tgt raised to $28 from $17 as sees positive near-term catalysts saying the table is set well for 2020; tgts were cut at Barclays MU (to $40 from $45), LITE (to $50 from $60), NVDA to $180 from $220, QCOM to $90 from $100 and XLNX to $105 from $130 – to reflect pullback in the sector given softer demand environment, Huawei Technologies Co uncertainty and risk of further trade escalation/also notes DRAM and NAND contract prices continue to fall

·     Software movers; CLDR shares plunge as Q1 EPS/revs were in-line but bookings and churn were weak, said its CEO will be retiring at the end of the quarter and cut its full-year revenue guidance by $90M to $745M-$765M and said that Q2 would be another tough booking quarter; MDB reported a top-line beat 7% ahead of consensus estimates while guiding 2Q revs to be $91M at the mid-point, about 3.5% above the Street; CTXS upgraded to buy at Deutsche Bank citing improving growth in the company’s desktop business after the segment grew 13% in Q1

·     Hardware & Component news; FLEX was upgraded at Goldman Sachs to conviction buy list citing the recent pullback with shares down 18% from a May peak, which created an "attractive" and "compelling" valuation/Craig Hallum said believes the company reassured investors yesterday at conference who are concerned around a potential impact from trade tensions; CMTL Q3 beat and raised FY19 revenue view to $660.0M from $645M-$660M (est. $655.18M), though guides Q4 EPS and revs below views

·     Optical sector; good moves in space after CIEN raised FY19 revenue outlook to 13%-14% from previous 6%-8% guidance range and guided Q3 revs above views after Q2 beat (Q2 EPS 48c/$865M vs. est. 41c/$819.3M; Q2 GM 43.9% vs. 40.9% YoY) – note CIEN not exposed to China as other optical names that have been hit on trade woes with Huawei (LITE, NPTN)

·     Media & Telecom movers; EROS shares plunge despite the company saying it and all of its units "have met and continue to meet all debt service commitments," in response to a credit rating downgrade; GTT shares volatile after negative short call by Wolfpack Research (which is backed by short selling firm Muddy Waters); the WSJ reported AT WarnerMedia expected to package HBO, Cinemax and its library into one offering for $16-$17 a month, scrapping plan for tiered streaming

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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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