Market Review: July 18, 2019

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Closing Recap

Thursday, July 18, 2019

Index

Up/Down

%

Last

DJ Industrials

1.60

0.01%

27,221

S&P 500

10.63

0.36%

2,995

Nasdaq

22.04

0.27%

8,207

Russell 2000

4.85

0.31%

1,555


 

Equity Market Recap

·     U.S. stocks were very volatile on Thursday, with major U.S. averages erasing early losses, spiking late afternoon on a bevy of possible reasons. Major averages jumped after a report in The Guardian said Iran has offered a deal with the US in which it would formally and permanently accept enhanced inspections of its nuclear program, in return for the permanent lifting of US sanctions. The offer was made by the Iranian foreign minister, Mohammad Javad Zarif, on a visit to New York. The headlines lifted stocks, while oil prices sank further. In fact, oil prices sank to one month lows on easing Iran sanction concerns, while precious metals jumped, as gold touched new 6-year closing highs and silver over 1-year highs as the dollar dropped. Also a factor, the Fed as New York Fed President William made overly dovish comments, boosting market expectations for more aggressive interest rate easing at the July meeting (now more than a 50% chance according to latest fed fund futures for a 50 bps rate cut). Williams said the Fed should respond early to signs of economic weakness. "When you only have so much stimulus at your disposal, it pays to act quickly to lower rates at the first sign of economic distress." The comments pushed Treasury yields markedly lower, with the biggest moves in the short end of the curve. Prior to the late day macro headlines, stock had been moving on earnings, with transports bouncing back on UNP results, semi’s up on a handful of factors, Internet weak on NFLX sub miss, banks busy again on mixed results while energy names dropped on the oil slide. However, wind came out of the sails of stocks in the final hour after President Trump said a U.S. ship shot down an Iranian drone in the Strait of Hormuz, taking defensive action – that bounced oil and eased stock gains.

Economic Data

·     Weekly Jobless Claims rose 8K to 216K, in-line with estimates while the prior week claims revised down to 208K from 209K; the 4-week moving average stood at 218.75k in the latest week while continuing claims fell 42K to 1.686M in the week ending July 6

·     Philadelphia Fed Index for July soars to 12-month highs, rising to 21.8 and handily topping the 5.0 economist estimate; July prices paid rose to 16.1 vs 12.9 prior, new orders jumped to 18.9 vs 8.3 prior and employment spiked to 30.0 vs 15.4; also shipments rose to 24.9 vs 16.6 while the six-month outlook rose to 38.0 vs 21.4

·     The 30-year fixed mortgage rate for week ended today rose to 3.81% from 3.75%, Freddie Mac said while the 15-year rate avg 3.23%, up from 3.22% a week earlier

·     Leading index an unexpected drop of (-0.3%, missing the consensus for a rise of 0.1% – last negative reading was October 2018

 

Commodities

·     Oil prices fell for a 4th day, sliding $1.48 or 2.61% to session lows late and pushing its weekly decline to roughly 9% on slowing fuel demand and easing US-Iran tensions. Oil prices had risen to highs of $57.32 earlier (over 1%) after Iran said it had seized a foreign oil tanker in the Gulf amid rising tensions between Tehran and the West over the safety of shipping in the Strait of Hormuz. But prices tumbled late day on easing Iran tensions following comments from a foreign paper (The Guardian) saying Iran has offered a deal with the US in which it would formally and permanently accept enhanced inspections of its nuclear programme, in return for the permanent lifting of US sanctions. Those headlines eased concern with Iran and pushed prices lower. Note oil had fallen on Wednesday in response to a sharp rise in U.S. stockpiles of products such as gasoline that pointed to weak demand during the U.S. driving season.

·     Gold prices add to recent 6-year highs (May 2013), with August gold up $4.80 to settle at $1,428.10 an ounce after prices jumped nearly 1% on Wednesday. Prices had touched earlier lows of below $1,416 an ounce before ending the day near session highs as the dollar slipped. Falling government bond yields and the recent struggles for the dollar and stocks along with expected rate cuts from the Fed later in July has boosted prices. Meanwhile, September silver futures rose 1.4% to $16.20 for a fifth straight day of gains and the best finish in over a year.

 

Currencies & Treasuries

·     The U.S. dollar was in free fall late afternoon, with the dollar index dropping below the 97 level (-0.4%) following comments from the Fed’s Williams which boosted expectations for a more aggressive rate cut by the Fed later this month. The shorter tem 2-year Treasury yield, more sensitive to near term changes in Fed policy tumbled over 4 bps to lows of 1.76% and the 10-year dropped over 4 bps from its highs back under 2.03%. Williams said the Fed should respond early to signs of economic weakness. "When you only have so much stimulus at your disposal, it pays to act quickly to lower rates at the first sign of economic distress," he said. Williams said sees need to vaccinate economy against risk. Traders in the fed funds futures market now expect a more than 50% chance of a 50 basis point rate cut by the Federal Reserve at its July 30-31 meeting after today’s comments. The Turkish Lira strengthened on headlines Trump saying he wasn’t considering Turkey tariffs. The U.S. dollar fell to 3-week lows against the safe-haven Japanese yen (at 107.30) amid declines in oil prices and a reversal lower in Treasury yields late day. The euro jumped vs. the dollar as well to afternoon highs. 

 

 

Macro

Up/Down

Last

WTI Crude

-1.48

55.30

Brent

-1.73

61.93

Gold

4.80

1,428.10

EUR/USD

0.0051

1.1276

JPY/USD

-0.63

107.31

10-Year Note

-0.017

2.027%

 

 

Sector News Breakdown

Consumer

·     Auto sector; GPC shares weighed on parts/retailers as posted a miss on both the top and bottom line and lowered profit guidance and higher for sales for 2019 due to its results so far this year citing expected continued softness in Europe for the balance of the year, as well as the impact of the acquisitions of PartsPoint Group (shares of AZO, AAP, ORLY among those weak); KMX tgt was raised to $150 at Bank America saying the ongoing change in KMX’s business model from just the traditional brick-and-mortar model to a more omni-channel oriented/CVNA-like structure, should help increase its addressable market

·     Consumer Staples; tobacco names a boost after PM posted better-than-expected Q2 and raised its FY forecast after posting a Q2 EPS beat by 12c with a rev beat as well driven by higher volume of heated tobacco units such as HEETS and Heatsticks overseas

·     Restaurants; MCD tgt raised to $235 at Cowen saying they believe shares are going higher despite being at all-time-highs and raising their 2Q U.S. comp estimate to 5.0% from 4.5% (vs 4.3% consensus) as Franchise checks suggest underlying US sales momentum from 1Q persisted; Wedbush with tgt changes – upping DENN, CMG (to 750) and SBUX (to 88) while cut CAKE to 45 and favors DNKN the most as expect upside relative to Q2’s comps and also positive on BJRI

·     Housing & Building Products; UBS cautious on HD saying believe there’s a good chance it will update its FY guidance when it reports 2Q to account for the drag from lumber deflation & some uncooperative weather early this year; in flooring names, Piper cautious view on retailers lowering ests/comps for FND, LL, and TTS (all Neutral rated) ahead of Q2 earnings as they believe the flooring backdrop took a leg down in Q2 vs. Q1 based on a variety of data points; in housing, ZG tgt raised to $56 at Guggenheim and lifting revenue estimates; Wayfair (W) shares fell after announced retirements of chief operating officer and chief technology officer

·     Casino & Leisure movers; in cruise lines, SunTrust said they believe NCLH and RCL will again have upbeat 2Q earnings calls with a markedly different tone than CCLs

 

Energy

·     Refiners; RBC revises EPS estimates on refiners down 7% for 2019 and 26% for 2020 as prices of light crude are expected to recover due to rising pipeline access as well as prolonged shortage of heavy crude. U.S. refiners have struggled to find cheap heavy crude on the back of Alberta governments mandated output cuts to prop up prices of Canadian crude and U.S. sanctions on Venezuela. Cuts PTs on MPC by $2 to $68, PBF by $4 to $32 and VLO by $1 to $99

·     Utilities & Solar; Goldman Sachs buy rated on NRG, EXC heading into the PJM (the nation’s largest power market) capacity auction, as they expect clearing prices to largely decline YoY – a headwind for power companies exposed to the region; in MLP’s KMI misses Q2 estimates by 2c while revenue fell 6.2% to $3.21B from a year ago, below analyst est. of $3.59B

·     Other energy movers; XOM was downgraded to sector perform at RBC Capital as shares now trade at a substantial premium to the peer group; SM raises its full year production to 129 to 131 mboe/d, from 126 to 131 mboe/d while cut the top end of 2019 capital spending view to $1 billion to $1.05 billion from $1 billion to $1.07 billion

 

Financials

·     Bank movers; MS earnings beat by 9c on higher than expected revs of $10.24B as Institutional Securities revenue fell 11% Y/Y to $5.11B, with investment banking revenue of $1.47B down 13% Y/Y and sales & trading revenue of $3.30B down 12%/wealth Management net revenue of $4.41B increased 1.9% Y/Y; other banks mixed with BBT up as EPS beat by 4c (along with STI earnings – recall the two agreed to merge in February; MTB falls on EPS miss driven by larger loss provision and NIM miss; CATY mixed as core EPS was ahead driven by higher than expected other income and a lower than expected loan loss provision, while loan and deposit growth were in-line/NIM 3.58% vs. 3.83% YoY; EGBN shares drop as higher provision due to growth neg impacted core results, and NIM was down 11 bps; TCBI shares slide after SunTrust downgraded after earnings which missed and ongoing credit issues

·     Consumer finance and lending; ALLY trades to new 52-week highs after 8c EPS beat and revs topped along with retail deposit, auto finance growth; ADS shares also rise on earnings and better outlook as sees 2019 core EPS of $19.50-$19.75, up from $18.47 in April;… More

 

Healthcare

·     Healthcare services and providers; managed care stocks active after Dow component UNH Q2 top and bottom line results beat and raised its FY19 adj. EPS view to $14.70-$14.90 from $14.50-$14.75 (est. $14.70) led by strength in the largest U.S. health insurer’s pharmacy benefits management business and its insurance plans but warned it may miss 2019 rev guidance

·     Pharma movers; NVS rises to 4-year highs after the company boosted its 2019 operating income and sales forecasts and said $700M was set aside in the hope of settling a decade-old lawsuit alleging the co bribed U.S. doctors which could help avoid a trial in a case, BAYRY, BMY and OPHLF said they will collaborate on a clinical trial evaluating the combination Stivarga and Opdivo in patients with metastatic colorectal cancer (MSS mCRC)

·     Biotech movers; GMAB opens at $18.25 after IPO priced at $17.75; CTIC said it plans to start late-stage study testing its lead drug pacritinib in patients with bone marrow cancer myelofibrosis and severe thrombocytopenia, or low platelet count, in Q3; FTSV 9.38M share Secondary priced at $8.00; MIRM 5M share IPO priced at $15.00

·     Medical equipment and devices; CODX announced positive results from a study to detect cancer mutations using its CoPrimer technology; says its test demonstrated highly specific detection of ten mutations associated with non-small cell lung cancer; DHR outlook boost for 2019 guidance to $4.75 to $4.80, after lowering it to $4.72 to $4.80 last quarter (from $4.75 to $4.85); NVCR said Medicare will cover Optune (Tumor Treating Fields) for newly diagnosed glioblastoma effective September 1st;

 

Industrials & Materials

·     Industrial & Machinery; HON EPS of $2.10 narrowly beat with a miss on revenue $9.23B vs. $9.35B) and lower rev view for Q3 as well while narrows year outlook (sales by segment: Aerospace +11%; Home and Building Technologies +5%; Performance Materials and Technologies +4%; Safety and Productivity Solutions -4%); waste stocks WCN and WM downgraded at Oppenheimer citing to commodity headwinds, softening medium term indicators and the highest valuations in a decade; IIIN shares plunged after reporting lower Q3 profit, marginal decline in revenue from last year

·     Transports; it has been an up and down week for transports, surging Tuesday on better CP and JBHT results/guidance, while yesterday shares plunged behind lower outlooks from CSX, CVTI and KNX in the rail and trucker sector; today, UNP showed that lower expenses from its new operating plan helps 2Q profit grow even as revenue fell slightly due to weak volume while operating ratio fell to 59.6% helping boost shares

·     Metals movers; aluminum producer AA reported a smaller than expected Q1 EPS loss but said global aluminum demand growth for 2019 is estimated to range between 1.25%-2.25%, down from 2%-3% in the previous quarter; gold miner GOLD said it expects Q2 copper production to fall sequentially and gold costs to rise while HL reports Q2 silver production of 3M ounces, +16% Y/Y and gold production of 58,390 ounces down 3%; steel producer NUE a miss on the top and bottom line for Q2 ($1.26/$5.9B vs. $1.29/$6.02B) and said it expects performance in its raw materials business to decline in Q3 compared with Q2, due to weaker profit margins for a metal product called direct-reduced iron

·     Chemical movers; ASH the latest chemical maker to cut forecasts as guides Q3 EPS 76c-78c, below consensus 86c and cuts FY19 adjusted EBITDA for Specialty Ingredients to $560M-$570M from $585M-$610M citing lower-than-anticipated sales in personal care and certain industrial end markets; PPG Q2 EPS beat by 2c while sales of $4.02B missed the $4.1B est and guides Q3 EPS $1.57-$1.67 vs. estimate $1.67; APD was downgraded at Bernstein on valuation as shares up 40% YTD as top performer in their coverage

·     Materials movers; in packaging/beverage can, CCK Q2 EPS just missed while guided Q3 below views and cut its year EPS view to $5.05-$5.20 from prior $5.20-$5.40 and est. $5.30 on lower adjusted free cash flow view of about $725M-$750M; SON Q2 results missed on both the top and bottom line as cuts its operating cash flow view to $435M-$455M from prior view $600M-$620M

·     Aerospace & Defense; ATI and ARNC both downgraded to neutral at Longbow saying channel checks are showing too many negative survey data to remain confident in the 2020 estimates for across the entire specialty materials group

·     Industrials; URI shares fell after the company trimmed the upper ends of its revenue and adjusted Ebitda outlook citing a slightly slower-than-expected pace for the BlueLine integration and bad weather in several key regions

 

Technology, Media & Telecom

·     Internet; NFLX the first of the big names to report with mixed Q2 results and in-line revs but shares fell more than 10% overnight after saying Q2 paid membership grew by 2.7M, less than the 5.5M in Q2 a year ago and below the company 5.0M forecast saying miss was across all regions; EBAY reported a better than feared 2Q19, with revenue in line with expectations and a beat on EPS though GMV growth continues to be challenged; STMP downgraded at Maxim in light of the recent stock appreciation, and as they lower 2020 forecast amidst uncertainty on the timing of any changes in elevated spending and the signing of a new carrier to replace USPS.

·     Hardware movers; IBM Q2 top and bottom line results beat estimates while saying they continued to grow in the high-value areas of the business, led by a strong performance across our Cloud and Cognitive Software segment Media & Telecom movers; AAPL was upgraded along with SWKS at Raymond James on increased conviction in the impact of a 5G iPhone product cycle in 2020; PLXS first EMS name to report with better quarter but lower guidance

·     Semiconductors; QCOM said it plans to appeal the finding to the General Court of the European Union, after being fined 242 million euros by EU antitrust regulators for deliberately pricing some chips so low they could eliminate a smaller rival; SWKS mixed research as Barclays downgraded to Equal-weight while Raymond James upgraded to outperform (along with AAPL) on increased conviction in the impact of a 5G iPhone product cycle in 2020; POWI was upgraded to buy at Stifel on near-term momentum from USB-PD adoption cycle, and l-t positioning; AMD cut to neutral at Mizuho on share appreciation but raise tgt to $37 as favors its solid Ryzen/Rome portfolio and new product ramps; TSM reported in-line to modesty better results

·     Software; SAP Q2 misses with the company blaming the US-China trade tensions for the results as software sales fell 5% Y/Y to €948M on softness in Asia and an 11% operating profit increase missed the 14% consensus/reiterates its FY19 outlook; LLNW shares dropped after guiding adjusted EPS 0c well below prior view 10c-20c and cuts FY19 revenue view to $200M-$210M from $215M-$225M (est. $207.47M); PHR opens at $26.75 after IPO priced at $18

·     Media & Telecom; TTD was downgraded to hold at Jefferies as believe the multiple at all-time highs may already reflect the bull case for the stock; EGHT announced acquisition of Singapore-based Wavecell for $125M; ADTN posted Q2 adjusted EPS 14c/$156.4M vs. est. 8c/$156.11M but shares slid after cautious comments on its conference call; in tower stocks, CCI shares fell despite topping expectations with its Q2 results and boosted its full-year outlook, though reduced its organic growth expectations for the year to 5.6% from 6.0%, driven by slower than anticipated small cell deployments; Ad stocks fall (OMC, IPG) after Publicis Q2 organic sales growth 0.1% vs. est. 0.7% and said it now expects full-year revenue to be "broadly stable," after previously aiming to beat last year’s organic revenue growth of 0.8%

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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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