Market Review: July 17, 2019

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Closing Recap

Wednesday, July 17, 2019

Index

Up/Down

%

Last

DJ Industrials

-115.78

0.42%

27,219

S&P 500

-19.62

0.65%

2,984

Nasdaq

-37.59

0.46%

8,185

Russell 2000

-1.22

0.72%

1,550


 

Equity Market Recap

·     U.S. stocks dropped for a second straight session, falling from intraday record highs early Tuesday as shares of transports and energy stocks weighed heavily on markets as earnings season cranks into full gear the next few weeks. Transports were the biggest drag led by weakness in rails and truckers after disappointing earnings results and guidance from CSX, KNX and CVTI (ironically follows a spike in the space yesterday behind CP and JBHT results) and ahead of results from UNP tomorrow morning. Energy names were hammered again as oil prices dropped. Interest rate sensitive stocks once again heating up, getting a boost as Treasury yields declined with utilities back near record highs while gold miners rallied behind the highest closing level for gold futures in over 6-years. Another onslaught of earnings for large cap and regional banks today (BAC, BK, PNC, USB, CMA), with the theme this week remaining a dip in net interest margins and lower outlooks for net interest income but positive loan growth and mixed trading revenues (on top/bottom line beats for majors). Gold prices rise, oil volatile after mixed inventory data and Treasury yields slip on weaker housing data. In addition to earnings movers, trade concerns with China, expected Fed interest rate cuts in two weeks and debt limit talks in Washington remain other market factors.

Economic Data

·     Housing Starts for June fell a greater (-0.9%) to 1,253M annualized, slightly below the est. decline of (-0.7%) to 1,260M after falling (-0.4%) the prior month. Single-family starts +3.5% to 847,000 unit rate and multifamily (-9.2%) to 406,000 unit rate. Building permits fell an unexpected (-6.1%) to 1,220M vs. est. of up small to 1,300M, after rising 0.7% the prior month – recap of housing data – which was weaker ($KBH, $PHM, $TOL, $LEN)

 

Commodities

·     Oil prices tumble, as WTI crude slides 84c, or 1.5% to settle at $56.78 per barrel following a mixed weekly inventory report that showed in-line crude stockpile drawdowns of roughly 3M barrels, but posted unexpectedly big weekly stockpile builds for gasoline and distillates. Oil prices dropped yesterday and after Secretary of State Pompeo said Iran was ready to negotiate on its missile program, lowering expectations of additional Iran sanctions and disruption to supply.

·     Gold prices jumped mid-session, rising $12.10 or 0.9% to settle at $1,423.30 an ounce, its highest closing levels since mid-May 2013, over 6-years amid growing expectations that the Federal Reserve will lower interest rates at their FOMC meeting the end of the month.

 

Currencies

·     The U.S. dollar index (DXY) dipped, paring back recent gains (up 0.4% the last 3-days), falling slightly against the euro (stood around 1.225) after June inflation data largely met economists’ expectations while the British Pound fell to lows of 1.2382 overnight before rebounding above 1.244 midday (+0.3%), bouncing off 2-year lows amid growing investor concern that a no-deal Brexit is becoming increasingly likely. The dollar slid vs. the Japanese yen to lows around 108, off earlier highs of 108.33 as stocks slipped from earlier highs and investors rotate into safe-havens. Bitcoin prices all over the place the last few days, touching lows of $9,083 earlier this morning before jumping above $9,800 mid-afternoon

 

Bond Market

·     Treasury market’s rallied all afternoon, with the yield on the 10-year sliding below 2.06%, down over 4 bps while the 2-yr yield dropped below 1.83% after weaker housing starts and building permits data provided the Fed with more ammunition to be more aggressive their expected rate cutting agenda to stimulate growth given trade uncertainty. A pullback in European rates also helped push down US yields amid risks of a no-deal Brexit heating up.

 

 

Macro

Up/Down

Last

WTI Crude

-0.84

56.78

Brent

-0.69

63.66

Gold

12.10

1,423.30

EUR/USD

0.0017

1.1228

JPY/USD

-0.16

108.09

10-Year Note

-0.043

2.059%

 

 

Sector News Breakdown

Consumer

·     Retailers; shares of RL, PVHand LEVI were all downgraded at Goldman Sachs as retailers remain weak; FRAN shares jumped as Cross River Capital Management LLC, Affiliates report a stake; in toy stocks, MKM said its positive on HAS ahead of its earnings report, raises PT to $123 from $112, maintains buy and raises estimates saying it benefited from its Marvel and Transformers products; KSS announced holiday hiring starting today for an early wave of seasonal positions across 500 stores, ~2x the number of stores w/early hiring positions vs. 2018

·     Consumer Staples; NUS shares plunged and was downgraded by a few analysts after cutting FY19 EPS view to $3.20-$3.35 from $3.80-$4.05 (est. $3.95) and lowers FY19 revenue view to $2.48B-$2.52B from $2.76B-$2.81B (est. $2.77B) citing slowness in China markets; HSY was upgraded to neutral from sell at Goldman Sachs and boosted tgt to $142 from $86; in protein sector, Stephens remains positively inclined on the sector despite the fact that the stocks have taken a bit of breather following each of the co’s most recent EPS reports, given rising feed costs and slower than expected ASF-related demand (TSN, PPC)

·     Casino & Leisure movers; in lodging, Bank America downgraded PEB and SHO saying they expect a more cautious tone to Q2, particularly on corporate demand, and think full year guidance cuts are now on the table –especially for those coming in at or below the low end again in Q2; in services; CTAS shares jumped amid upside 4Q rev/margin/EPS which reflects strong execution in supportive markets, which followed a weak F3Q hurt by weather and other one-offs

 

Energy

·     Energy stocks have lagged broader markets of late given the decline in oil prices, but names were mixed today; COP was upgraded to buy at Bank America with a $75 tgt. Utilities moved higher, trading above the 781 level (all-time highs stand at 785.69 on 7/10) – as defensive sectors remain high and Treasury yields fall to lows, making dividend paying sectors more attractive; Oil stocks hammered again with oil tumble – service names near lows SLB, HAL and BHGE weak with E&P names down over 3% – COG, MUR and nat gas leveraged names down even more (RRC, SWN)

·     Inventory data: WTI crude slipped on bearish data as the EIA weekly energy inventory data shows crude stockpiles fell -3.16M barrels, mostly in-line with est. for draw of -3.0M barrels while gasoline data bearish as stockpiles unexpectedly rose +3.56M barrels vs. est. for draw of -2.4M barrels; and distillate a large build of +5.6M barrels vs. est. for build of +1.0M barrels. Overnight, the API said U.S. crude supplies fell by -1.4M barrels for the week while showed a stockpile decline of 476,000 barrels for gasoline, but distillate inventories jumped by 6.2 million barrels

 

Financials

·     Bank movers; the theme this week in banks so far has been a dip in net interest margins and lower outlooks for net interest income but positive loan growth and mixed trading revenues; BAC cuts its guidance for net interest income for 2019 after reported a quarterly profit beating estimates, while reported a 3 bps increase in its interest margin to 2.44% for Q2 and Q2 sales, trading revenue fell 10% to $3.3B ex-DVA; PNC Q2 EPS of $2.88 beat by 5c and rises from $2.61 in Q1 and $2.72 in Q2 2018 saying loan growth was strong, as total loans increased to $234.8B, up 3% from Q1, and net interest income of $2.50B increased $23M Q/Q/NIM declined 7 bps from Q1 to 2.91%); USB Q2 EPS and revs topped estimates while NII climbed partly because of the company’s loan growth and loan mix and NIM was 3.13%, unchanged from the comparable quarter a year earlier; CMA shares dropped after Q2 EPS of $1.94 missed by 6c while net interest income fell $3M to $603M, and net interest margin dropped 12bps QoQ to 3.67%; trust bank BK Q2 EPS of $1.01 beat the 95c est. as Q2 net interest margin 1.12% vs. 1.26% YoY and vs. est. 1.16%; other bank movers on earnings included FULT, HOPE, FNF

·     Brokers/services; IBKR reported Q2 EPS 46c/$413M below est.54c/$451M while said total DARTs increased 4% from the year-ago quarter to 828,000; RDFN was upgraded to Positive at Susquehanna with a $23 target, after recently announced a partnership with Opendoor in the Atlanta and Phoenix markets.

 

Healthcare

·     Pharma & Service movers; MNK shares fell after saying said it is permanently discontinuing its Phase 2B study designed to assess the efficacy and safety of Acthar Gel as an investigational treatment for amyotrophic lateral sclerosis, or ALS; DRRX rises after saying the FDA to review its non-opioid pain treatment Posimir by December 2 (the FDA declined to approve the post-operative drug in 2014); dialysis stocks DVA, FMS shares weak early in response to the commencement of a clinical trial evaluating a home dialysis device from CVS that could pose a competitive threat; the cannabis sector was higher following M&A in the space as Curaleaf Holdings Inc., agreed to buy Grassroots Cannabis in a cash and stock deal valued at about $875 million https://on.mktw.net/2Y2I2TG (shares of ACB, CGC, CRON, TLRY all active)

·     Biotech movers; SGEN shares jumped following better-than-expected Q2 sales of its cancer treatment Adcetris and says it submitted a marketing application for a bladder cancer treatment, enfortumab vedotin, to the FDA – Adcetris Q2 sales rise 30% to $159M (RBC est. $149M); PBYI licensing Partner Knight Therapeutics receives regulatory approval from Health Canada to commercialize NERLYNX® (neratinib) for extended adjuvant treatment of hormone receptor positive, HER2-Positive early stage breast cancer; AVRO 6.5M share Secondary priced at $18.50; INO shares slip after cutting jobs and cancer program to sharpen focus, to save cash

·     Medical equipment and devices; ABT Q2 EPS beat by 2c on roughly in-line sales of $7.98B, helped by demand for its heart devices and FreeStyle Libre and boosted its 2019 EPS forecast to $3.21-$3.27 range from prior range of $3.15 to $3.25 and boosted organic sales growth of 7% to 8%, up from the previous outlook of growth of 6.5% to 7.5%; BRKR 2M share Block Trade priced at $48.50; CSII was downgraded to hold at Stifel entirely valuation-based and does not reflect any negative view of the upcoming F4Q19E or F20E outlook

 

Industrials & Materials

·     Industrial & Machinery; Wells Fargo previewed the machinery sector saying they expect mixed earnings performance vs. consensus against potentially weaker international demand (outside of European truck) and choppy US performance while they downgrade AGCO to market perform and lower tgt; TXT shares dropped below its 100-day MA support $51.34 (50-day MA lower at $50.37) after Q2 sales missed as sales slide across all segments (sales by segment: Aviation -12%; Bell -7%; Textron Systems -55%; Industrial -18%), though did raise its year profit outlook; NAV shares fell after reports Volkswagen’s truck maker Traton plans to grow without the help of acquisitions, German daily Handelsblatt reports

·     Transports; after the transport index surged yesterday on better JBHT (truckers) and CP (rails) earnings results, rails giving back some today after CSX reported Q2 results below estimates, hurt by weakness in the intermodal markets, and lowered its full-year revenue outlook to down 1%-2% from prior view of low single digit rev growth; in airlines, UAL the 2nd major carrier to report as EPS and revs beat and raises low end of year EPS view to $10.50-$12.00 from $10.00-$12.00 while authorized a new $3B share buyback plan; in truckers, KNX guides Q2 and Q3 EPS below consensus vies (Q2 EPS 57c-58c vs. 61c and Q3 54c-57c vs. 62c) on capacity oversupply in truckload freight market follows mixed results from JBHT yesterday, though shares rallied), while CVTI also lowered guidance in the trucking space late afternoon

·     Metals & Materials; BHP said iron ore production rebounded in the April-June quarter after a cyclone slowed output in March, and forecasts FY 2020 iron ore production of 273M-286M mt, a 1%-6% increase from FY 2019; metals overall slipped along with broader markets

·     Containerboard stocks (WRK, PKG, IP) shares active after June box data, a key demand gauge, show shipments down 3.7% y/y, according to the Fibre Box Association. June box shipment was 31.8 Bsf, compared to ~33 Bsf last year, and was down -7.4% m/m

 

Technology, Media & Telecom

·     Internet; NFLX and EBAY earnings tonight after the close, first in Internet sector; AMZN said that over the 48-hour Prime Day sales event, sales surpassed the previous Black Friday and Cyber Monday combined. Amazon added more new Prime members on July 15 than any previous day, and almost as many on July 16; CNBC’s David Faber said EBAY is moving forward with potential sale of StubHub

·     Semiconductors; very active sector with news, as QCOM shares rose after Reuters reported the U.S. Justice Department asks appeals court to pause antitrust ruling against Qualcomm; AAPL supplier DLGNF raises Q2 revenue view to $482M, up from prior view of $438M-$478M; MTSI was upgraded to overweight at Piper citing cost cuts in place, data center coming back, 5G remains an opportunity; semi-equipment names moved higher after ASML reiterated its full-year forecast despite a weaker-than-expected Q3 view (KLAC, LRCX, AMAT) and Q2 sales were boosted by the rollout of 5G telecom networks that kept up demand for co’s machines

·     Software movers; OKTA tgt was raised to a Street high $154 at Needham saying business appears strong, momentum out of OKTANE19 still driving robust growth, and new features & capabilities appear to be getting strong uptake & interest; EBIX to buy YTRA in an all-stock transaction valued at $337.8M, with YTRA shareholders to receive $4.90 per share https://yhoo.it/2JNxA9f ; DOYU 67.387M share IPO priced at $11.50; TTWO tgt raised to $140 at Stephens on increased conviction in the ability to outperform cons in F20; UBSFY CEO says Q1 net bookings came in well above tgt at EU314.2M vs. outlook of EU270M and sees Q2 net bookings about EU310M

·     Media & Telecom movers; MSFT and AT said they reached a deal under which the telecommunications firm will tap Microsoft’s Azure cloud service for its computing needs and provide Office 365 software to much of its 268,000-strong workforce; GLOB and EXLS (both downgraded at Citigroup citing valuation as well as partly anticipated performance-related volatility; OMC posted an EPS beat but in-line revenue in the ad sector

·     Hardware & Component news; IBM to report earnings after the close; LFUS shares slipped early after guiding preliminary Q2 EPS $1.91/$398M below consensus $2.03/$412.86M (and down from previously guided Q2 EPS $2.00-$2.14 and revenue of $409M-$421M); LASR tgt cut to $21 from $26 at Needham and trim ests to reflect expectations of slowing conditions in Industrial & Microfabrication; ERIC shares dropped as posted earnings that missed analyst estimates and warned its rollout of 5G mobile networks in Asia would weigh on profits; GLW announces $5B stock buyback

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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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