Market Review: August 14, 2019

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*** This will be the last “Closing Recap” until Thursday August 22nd

***Service will resume normally at that time.

 

 

 

 

 

Closing Recap

Wednesday, August 14, 2019

Index

Up/Down

%

Last

DJ Industrials

-800.49

3.05%

25,479

S&P 500

-85.72

2.93%

2,840

Nasdaq

-242.42

3.02%

7,773

Russell 2000

-42.95

2.85%

1,467


 

Equity Market Recap

·     U.S. stock markets melt down again on renewed recession fears, and weak global economic data adding to slowing growth concerns, driving down shares of financials, energy, consumer and technology stocks – and erasing all of yesterday’s tariff delay headlines on China goods from the Trump Administration to December 15th from September 1st. Demand for Treasuries were fierce, so much so that shorter-term yields (2-year) rose above long rates (10-year) in the U.S. for the first time since 2007, while the long dated 30-year note yield fell to a record low of 2.01%. The Washington Post noted late day that White House officials have not begun talks about how to deal with mounting problems in the global economy – said there are no real discussions of any stimulus, in part because they already cut taxes and boosted spending. At the same time, President Trump ramped up his attacks on the Fed and Chairman Powell, tweeting earlier “The Fed has got to do something! The Fed is the Central Bank of the United States, not the Central Bank of the World."…The Federal Reserve acted far too quickly, and now is very, very late. Too bad, so much to gain on the upside! He did so again late afternoon with another tweet attacking the Fed which has got to be feeling the pressure from Trump and markets, especially as global central banks are the world on taking a more dovish stance on rates. Have to imagine lot of hopes at this point for the Federal Reserve meeting at Jackson Hole late next week.

·     In sector movers; bank ETFs are now down over 20% from 52-week highs (bear market territory), given the latest decline in Treasury yields, while energy stocks remain the biggest sector laggard on falling oil. Consumer discretionary/retail stocks were hit very hard after Macy’s issued weak earnings results and lowered its full-year outlook. Technology stocks remain pressured on the ongoing trade dispute with China as well as slowing growth concerns. Interest rate sensitive sectors active, led by high dividend paying sectors such as utilities, telecom, and REITs outperform. Transports fell in sympathy with growth concerns as well. Note the Dow Jones Industrial Average fell nearly -800 points at its worst levels, with major averages down around 3% for the second time in less than 2-weeks. European shares lost more ground as Germany’s economy contracted in Q2, while the British yield curve also inverted for the first time since the financial crisis. Couple of important earnings results coming up with CSCO (Dow name) and NTAP in tech tonight and WMT (Dow name), TPR and BABA tomorrow morning in retail

Treasuries

·     Treasury markets extend their recent gains as yields tumble across the board but moreso on the long end of the curve. The 30-year yield falls to a record low at 2.013% before paring losses (still down about 13 bps to 2.03%), while the 10-year yield at new 2019 lows, falling over 11 bps to move below the 1.60% level (lows were 1.57%) as yields falling off a cliff on dovish central bank actions, fears of geopolitical concerns (UK, China, Argentina, Italy). The big story was the yield curve inversion between the 2/10 year yields for the first time since 2007.

 

Commodities

·     Oil prices tanked as WTI crude dropped -$1.87 or 3.3% to $55.23 per barrel snapping its 4-session advance while Brent fell -$1.82 or 2.97% to settle at $59.48 per barrel, weighed down by another bearish inventory report, as API and EIA reports surprise builds on the week, while growing concerns about a slowdown in the global economy also hurt sentiment. Trade matters between the US and China remain a problem for commodity markets as well.

·     Gold prices rose $13.70, or 0.9%, to settle at $1,527.80, as investors once again flocked to safe haven and defensive assets amid an increased risk of an economic recession. U.S. Treasury yields plunged following another round of softer-than-expected economic data points in Germany and China renewing market concerns of slowing global growth. Geopolitical concerns pertaining to Hong Kong and the 10-weeks of protests, Italy and Argentina political issues, UK Brexit deadline approaching in October and the pressure on the Fed to cut rates further all impacting metals.

 

Currencies

·     The U.S. dollar was overall firm, as the dollar index moved back up near the 98 level, best levels since Aug 5th, leading higher vs. the euro (down -0.3%) given softer economic data (German GDP) while little changed vs. the British Pound at 1.2055 (but the dollar remains near more than 2-year best levels); the dollar rises vs. the Canadian dollar as oil prices tumble. The buck however lower against the safe-have yen, down around -0.8% below 106 (low was 105.78) and off the overnight highs 106.77 after yesterday relief rally on positive trade news. Argentina’s peso resumed its slide given the potential political changes after a surprise primary result this week.

 

Economic Data

·     July Import Prices rose 0.2%, above the est. of down (-0.1%), while exports also rose 0.2% vs. est. decline of (-0.1%) both MoM; Import prices YoY fell a smaller than expected (-1.8%) vs. est. (-2%)

 

 

Macro

Up/Down

Last

WTI Crude

-1.88

55.23

Brent

-1.82

59.48

Gold

13.70

1,527.80

EUR/USD

-0.0032

1.1139

JPY/USD

-0.82

105.92

10-Year Note

-0.12

1.582%

 

 

Sector News Breakdown

Consumer

·     Retailers; group hammered, department stores specifically in the retail segment after Macy’s (M) shares fall to a 9-year low as Q2 adjusted EPS of 28c missed the 45c estimate saying they had a slow start to the year and finished below its expectations, while lowered its year EPS outlook (not including potential tariff impact) to $2.85-$3.05 from prior range of $3.05-$3.25; shares of JWN, KSS and other retailers fell in reaction as Macy’s noted a combination of reasons including a miss in key women’s sportswear private brands and slow sell-through of warm weather apparel; GOOS shares slipped after Q1 loss widened while revs beat (had a net loss of C$29.4M, wider than the loss of C$18.7M last year while revs C$71.1M topped the C$53.2M est.) and maintained guidance; 52-week lows include: RL, TPR, JWN, GPS, M, LB, CPRI, PVH after Macy’s miss

·     Consumer Staples; GO shares rise after topping Q2 estimates (by 7c on EPS and better revs) while Jefferies raises its tgt to a Street-high $50 saying GO is well positioned for long-term predictable growth/comps improved 5.8% well above Cowen s previous 3.0% estimate while gross margin expanded a better than expected 34bps; LK drops after larger Q2 EPS loss (48c) vs. est. loss (43c) and as total operating expense in the qtr surged 244%, weighed down by aggressive investments; PFGC Q4 EPS of 70c beat by 6c on better revs of $5.9B and Q4 total case volume up 9.2%

·     Housing & Building Products; homebuilders getting good news in reaction to Treasury yields plunging (30-year hit all-time lows today) as weekly mortgage refinance applications spiked 37% last week, as home loan rates drop but stocks overall slammed; PRPL shares rise after Q2 results handily beat expectations and company guidance which led the company to sharply raise its FY19 sales and margin outlook/strength in the wholesale channel

·     Casino & Leisure movers; in lodging, CPLG cut its full-year key earnings outlook and posts disappointing Q2 revs citing disruption caused by transition of its hotels to a third-party manager’s booking and loyalty platforms; lowers year FFO view to $1.67 from $2.04 and expects comparable RevPAR to fall between 2.5%-4.5% vs. prior outlook of flat to 2% growth; RACE upgraded to buy at Goldman Sachs as view the stock’s recent pullback as a good entry point

·     Services; CRCM was upgraded to buy from neutral at BTIG noting with CRCM shares down 63% since its March 52-week high, no recent bad press as it relates to the Matching business, and Best Buy back in the fold, we view the CRCM story as largely de-risked

 

Energy

·     Energy stocks among the hardest hit sectors on plunging oil as the industry remains pressured with no bounce. Also weighing along lower oil prices remains weak economic data from China and Europe and rising U.S. crude inventories. The drop partly erases previous session’s sharp gains after the Trump administration said it would delay tariffs on some Chinese products. Oil stocks hammered across the board with integrated, E&P, refiners, equipment and drilling.

·     Inventory data was bearish for crude oil again as the EIA reported Crude stockpiles rose an unexpected 1.58M barrels vs. est. for draw of -2.5M barrels while gasoline stockpiles fell -1.41M barrels vs. est. for build of 1.15M barrels. Overnight, the API reported that U.S. crude supplies rose by 3.7M barrels for the week ended Aug. 9, showed a stockpile increase of 3.7M barrels in gasoline, while distillate supplies declined by -1.3M barrels

 

Financials

·     Bank movers; shares of U.S. big banks getting hit hard (JPM, C, MS, BAC, WFC, GS, MS) after the gap between the U.S. 2-year and 10-year was the narrowest since 2007, in a sign that investors are bracing for recession risks/an inverted yield curve points to a tightening spread between short-term and long-term interest rates, hurting banks’ ability to earn interest-related incomes from loans and investment; regional banks and insurance names also lower in broad decline

·     Brokers; ETFC July daily average revenue trades of 255,423 increased 1% from June and 5% from July 2018, July net new accounts of 9,770 fell 72% from 34,309 in June and down 56% from 22,222 in July 2018, and July net new retail and advisor services assets of $0.3B fell 73% from $1.1B MoM; SCHW core net new assets brought to the company by new and existing clients totaled $19.3 billion for the month, a July record. Net new assets excluding mutual fund clearing totaled $18.2B; total client assets were a record $3.75 trillion as of month-end July, up 8% from July 2018 and up 1% compared to June 2019; EVR was upgraded to neutral at Goldman Sachs

 

Healthcare

·     Pharma movers; in cannabis sector, TLRY shares fell as its Q2 loss widens, with Q2 EPS adjusted Ebitda loss $17.9M, larger than the est. loss $14.1M/Q2 revs $45.9M vs. $40.3M est.; AZN and MRK announce the successful outcome of a Phase 3 clinical trial, PAOLA-1, evaluating PARP inhibitor Lynparza (olaparib), added to standard of care bevacizumab, compared to bevacizumab alone; BMY was upgraded to outperform at Atlantic Securities; PFE 52-week lows; TEVA and MYL shares fall on reports that Senator Bernie Sanders and Representative Elijah Cummings are opening an investigation into the two on allegations of apparent coordinated obstruction in failing to provide lawmakers with details about their pricing practices; REGN announced evinacumab successful in late-stage study in inherited type of high cholesterol; NVAX tgt raised to $17 at HC Wainwright today

·     Services, medical equipment and devices; MYGN shares plunged over 30% on Q2 miss and lower guidance as Q2 EPS 41c/$215.4M vs. est. 48c/$221.6M and lowers year EPS to $1.80-$1.90 on revs $865M-$875M below est. $1.95/$922M; in technology, CHNG shares rallied behind earnings as reported better than expected F1Q20 results, its first quarter as a publicly traded company and provided F20 guidance, which was in-line with consensus

 

Industrials & Materials

·     Metals, Industrial & Machinery; nowhere to hide in this space as slowing global growth fears and trade concerns still weighing on sentiment; DE mentioned cautiously by both Goldman Sachs and Deutsche Bank ahead of earnings tomorrow morning as Goldman expects it to cut production in North America construction equipment in coming quarters due to building inventory oversupply; CAE shares dropped as reported an 11.4% fall in quarterly profit due to higher expenses, as the cost of sales rose 15.6%, while finance expenses more than doubled

·     Transports; the Dow Transport index bounced off lows of 9,900, but still fell sharply on the session to its lowest levels since early June in a broad pullback that saw airlines (AAL, UAL, ALK, DAL) car rental (CAR), truckers (LSTR) all under pressure

 

Technology, Media & Telecom

·     Large cap tech; just a general bloodbath for technology stocks given the mass “risk-off” trade today in equities, hitting all levels of tech including Internet, semi’s software and hardware; earnings tonight from CSCO, NTAP tonight; TCEHY quarterly profit climbs 35% in Q2, enjoying a boost from the release of popular new videogames as net profit rose to 24.1 billion yuan ($3.4 billion) from 17.9 billion yuan YoY

·     Media & Telecom movers; PSDO to be bought by BC Partners for $2.1 billion including assumed debt, or $16 per share in cash https://on.mktw.net/31Elw1C ; CBS was upgraded to buy from neutral with $63 tgt at Banc America while being downgraded to market perform from outperform at BMO and cut tgt to $51 from $60 following its merger with VIAB was upgraded to buy at Guggenheim following the deal

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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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