Market Review: September 25, 2019

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Closing Recap

Wednesday, September 25, 2019





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     U.S. stocks erased yesterday’s downdraft, rising after President Trump told reporters a U.S.-China trade deal “could come sooner than expected”, while the summary of Trump’s call with Ukraine’s President released by the White House today did not contain the “smoking gun” that Democrats had expected, helping ease any impeachment related concerns raised by the party yesterday that sunk stocks. Stronger new home sales data also helped boost sentiment about the U.S. economy along with better earnings results from Dow component Nike (NKE) which touched all-time highs. Safe haven plays slid with gold plunging over 1.8% and Treasury prices sliding as yields pop (10-yr up 7 bps to 1.71%) while the dollar jumped. Energy stocks continue to lag as oil prices drop on bearish inventory data and slowing growth concerns, but finished off its worst levels. Small caps have underperformed the last two weeks, down over 2% while the S&P 500 index is up around 1% over that time and the Russell 2000 remains more than 5% below its 2019 May highs while the S&P is less than 1% away from its record best.

·     Back to the Ukraine, Trump’s phone call to the country’s President showed he asked Volodymyr Zelenskiy to investigate whether former VP Joe Biden shut down an investigation into a company where his son worked, according to a summary of the call released by the Trump administration on Wednesday. "There’s a lot of talk about Biden’s son, that Biden stopped the prosecution and a lot of people want to find out about that so whatever you can do with the Attorney General would be great," Trump said in the call, according to the summary provided by the Justice Department. "Biden went around bragging that he stopped the prosecution so if you can look into it. It sounds horrible to me," he said, according to the memo. The transcript wasn’t very long (5-pages), and the bottom line is that there is no “promise,” contrary to the whistleblower’s widely reported complaint: At no point does Trump explicitly condition any action or assistance on the Ukrainians doing anything specific, which was the Democrats contention leading the impeachment news last night from Pelosi.

·     Recap of Repo operations: The New York Fed takes up $75B of Treasury’s and securities in an oversubscribed overnight repo operation, that resulted in $91.95B of bids submitted. By collateral type, $44.35B of Treasury’s (out of $56.3B submitted) were accepted with stop-out rate of 1.81% and weighted average of 1.856%. All $1.0B of agency debt that was submitted was accepted at stop-out rate of 1.86% and weighted average of 1.860%. And $29.65B of mortgage-backed securities (out of $34.65B submitted) were accepted at 1.84% stop-out and weighted average of 1.869%. Tomorrow, the NY Fed increases minimum overnight repo award to $100 bln from $75 bln on Thursday

·     Not a good week for CEOs on Wall Street as EBAY CEO stepped down today, WeWork co-founder and Chief Executive Adam Neumann was forced to step down and cede control of the shared-office startup, Juul CEO Kevin Burns replaced with MO executive K.C. Crosthwaite today, and German prosecutors on Tuesday charged its CEO Diess and a former CEO with stock market manipulation



·     Oil prices slipped on Wednesday, falling 80c or 1.4% to settle at $56.49 per barrel, but ended off its worst levels of the session ($55.55), dragged down amid several factors that have plagued oil prices over the last few weeks. After a sharp, albeit brief spike last Monday that saw prices rise nearly 20% after Saudi facilities were attacked causing massive disruption, oil has since erased all those gains. Prices dropped today on reports Saudi Arabia restores production more quickly than expected after the Sept. 14 attacks while U.S. crude inventories recorded a surprise increase on the week and slowing global growth concerns remain an issue long with trade tensions. Reuters reported Saudi Arabia has restored its oil production capacity to 11.3M bbl/day, with output from the Khurais field now at 1.3M bbl/day and from the Abqaiq field currently at 4.9M bbl/day.

·     Gold prices tanked following significant strength in the U.S. dollar and on easing impeachment fears of President Trump after the release of the summary of President Donald Trump’s July call with Ukraine’s president did little to bolster the Democrats case. Gold futures fell -$27.90 or 1.8% to settle at $1,512.30 an ounce its worst daily dollar and percentage decline since Sept. 5.


Currencies & Treasuries

·     Strong gains for the U.S. dollar, as the dollar index (DXY) rose as much as 0.7% topping the 99 level (2019 highs stand at 99.37 on 9/3, supported by a very strong reading on monthly New Home Sales data, the release of the Trump/Ukraine President transcript (easing fears of a further impeachment push), and a Trump comment on trade saying “a trade deal with China may be closer than you think.” The dollar was broadly higher with the British Pound near two-week’s lows, sub-1.2400 handle (1.235), and the euro extends its recent slide this week. The greenback rose to highs of the week vs. the safe-haven Japanese yen (107.88) as stocks surged. Bitcoin prices slide another 2% (after falling 12% yesterday) now under $8,400 – moving to its lowest levels since mid-June before it spiked to yearly highs of $13,851 on June 26th

·     Treasury prices slipped along with the rest of defensive related assets, as yields jumped across the board including a 7 bps pop in the 10-year to 1.72% as haven flows are unwound and risk appetite climbs following release of the Ukraine transcript that lacked teeth for Democrats. In addition, Trump and Japanese PM Abe signed an enhanced trade deal which boosted sentiment. Also leading bonds lower, a weak auction as the U.S. Treasury sold $41B of 5-year notes at a yield of 1.60% vs. the 1.591% WI prior to auction, with the bid-to-cover (demand) at 2.32 vs. 2.48 prior auction and indirect bidders awarded 58.8% and directs received 14.2% of the auction (weak auction kept Treasury yields higher on the day)


Economic Data

·     New Home Sales for August rise 7.1% to 713K vs. est. for sales to rise 3.8% MoM to 659K (last month revised to 666K from 635K last month) – the data very strong following the big drop in mortgage rates that occurred last month when the 30-year fell to all-time lows of 1.9%






WTI Crude















10-Year Note





Sector News Breakdown


·     Retailers; footwear and apparel names get a bounce after better NKE quarterly results as delivered strong Q1 results with upside highlighted by gross margins up +150 bps and regions (highlighted by Q/Q Greater China acceleration), though North America revenue of +4% was light of the Street, overcoming incremental FX headwinds; BBY unveiled its financial targets for fiscal 2025, including $1B in additional cost reductions and annual enterprise revenue of $50B; FL announces $3M strategic investment in NTWRK, a leading youth culture e-commerce and content platform; retailers in general outperformed today behind NKE

·     Consumer Staples; tobacco industry; dominates news as giants MO and PM announced they ended merger talks saying “after much deliberation, the companies have agreed to focus on launching IQOS in the U.S. as part of their mutual interest to achieve a smoke-free future." Separately, E-cigarettes maker Juul, in which MO has a 35% stake, said it would suspend all broadcast, print and digital product advertising in the U.S amid heightened regulatory scrutiny, and replace CEO Kevin Burns with MO executive K.C. Crosthwaite. The news comes after a crackdown on e-cigarettes by the U.S. FDA following a recent outbreak of severe lung disease that appears to be related to vaping; in food, BYND falls to 3-month lows

·     Housing & Building Products; Raymond James upgraded KBH, TOL and LEN to outperform ahead of upcoming earnings announcements that we believe will reveal decidedly improved housing fundamentals and potential upside to current consensus FY20 estimates. For the week, the MBA said that Mortgage Applications tumble -10.1%, Purchase Index -3.1% and Refinancing Index fell -15.2%; BECN commences a private offering of $300M of senior secured notes due 2026; also a positive monthly new home sales economic data report helping the sector; KBH earnings on deck tonight in the housing sector

·     Services & Leisure movers; HGV shares were downgraded at Janney saying sees risk/reward more balanced at the current share price; CTAS shares jumped after earnings beat and raises year EPS to $8.47-$8.57, from prior $8.30-$8.45 (est. $8.47) while also guides year revs higher; in auto’s, GM and United Auto Workers have made progress in discussions toward an agreement but are struggling with the pay and job security of newer or temporary workers, Reuters’ reports



·     Energy stocks still underperform broader market sectors, falling alongside the price of oil which erased its 15% gains last Monday after reports of the Saudi facility disruptions. Shares of PXD, HES, FANG, CXO, EOG, XEC among the top decliners in the S&P 500 index. Oil prices have on bearish inventory data, reports of Saudi fields being restored quickly and slowing global growth fears given weaker data in Europe and Asia (and of course trade uncertainty with China)

·     Inventory data mostly bearish as the EIA showed weekly crude inventories rose an unexpected 2.41M barrels vs. est. for draw of -600K barrels, Gasoline inventories rose 519K barrels vs. est. for draw of -564K barrels and Distillate stockpiles fell -2.97M barrels vs. est. for draw of -400K barrels. Overnight, the API reported that U.S. crude supplies rose by 1.4M barrels for the week ended Sept. 20, showed a stockpile increase of 1.9M barrels for gasoline

·     Energy stock movers; MPC rises after Elliott Management calls for MPC to separate into three independent business as the activist investor sees $22 bln potential value unlock, a total of upside of ~61% in MPC

·     Oil drilling; RBC Capital with a broad call as they downgraded offshore drillers DO, NE, VAL and RIG to sector perform saying despite tangible signs of increased activity and pricing, the duration of contracts and magnitude of day-rate improvement for UDW drillships has been less than initially anticipated when they upgraded the group in August 2018. For land drillers, maintaining OP ratings on HP and PTEN but downgraded NBR and ICD, taking a more selective approach by focusing on the companies with the best cap structures and FCF profiles given current expectation that US land rig count will be down in 2020



·     Pharma & Biotech movers; ACHN said it received FDA breakthrough therapy status for its blood disease drug in combination with a C5 monoclonal antibody for patients/the treatment currently in mid-stage trial and ACHN expects results in Q4; MDCO’s ORION-9 Phase 3 study met all primary & secondary endpoints, as did its ORION-10 Phase study as Inclisiran demonstrated durable & potent efficacy & well-tolerated in ORION-9; LCI slides after company prices its convertible notes offering; offers privately $75M 7-yr 4.50% convertible senior notes; Cannabis names remain weak (CRON, TLRY, CGC, ACB) as the ETFMG Alternative Harvest ETF (MJ) has lost half of its value since peaking at $44.29 almost a year ago and is currently mired in its longest-ever losing streak since its debut in late 2015

·     Medical equipment and devices; ABT said its Architect Stat High Sensitivity Troponin-I test has received clearance from FDA, allowing it to be sold in the U.S. for use on Abbott’s Architect analyzer; ABMD’s newest heart pump, the Impella 5.5 with SmartAssist received FDA pre-market approval (PMA) for safety and efficacy in the therapy of cardiogenic shock for up to 14 days; MDT shares slipped as many analysts said the robotic-assisted surgery (RAS) platform yesterday had no major surprises relative to what analysts were anticipating going into the meeting, as JPM said the device is not thesis changing for ISRG

·     Healthcare services and providers; TDOC shares came under pressure after AMZN announced the launch of Amazon Care, a virtual and in-person care offering that will initially be a pilot program provided to employees in the Seattle, WA area – both Credit Suisse and Canaccord said the emergence of this offering is likely to cause near-term weakness to shares of TDOC; NTRA announced a partnership with FMI/Roche to develop and commercialize liquid biopsy monitoring assays for biopharma and clinical customers that order the F1CDx test; PINC shares were pressured after announced as a short call at Spruce Point Management, saying they outline the near-term risks facing the company and how and earnings and multiple collapse would result in 55-75% downside risk


Industrials & Materials

·     Industrial & Machinery; HDS announced its intention to split into two publicly traded entities (Facilities Maintenance and Construction & Industrial businesses) through a distribution, which is expected to be tax-free to HD Supply shareholders; in aerospace, Dow component BA settles first Lion Air lawsuits for at least $1.2 million apiece

·     Metals & Materials; beaten up metals saw a bounce today for copper, aluminum and copper names, getting a boost on the China trade comments by Trump late morning; in packaging, BERY was upgraded to buy with $51 tgt at Bank America on valuation as think BERY now implies a pessimistic, mid-single digit (MSD) perpetuity decline rate when considering our normalized free cash flow (FCF) forecast of $800mn; in steel, WOR Q1 earnings came in below expectations while net sales were down 13% YoY to $855.9M, primarily driven by lower direct volume and average direct selling prices in Steel Processing


Technology, Media & Telecom

·     Internet; AMZN announced the launch of Amazon Care, a virtual and in-person care offering that will initially be a pilot program provided to employees in the Seattle, WA area; EBAY announced that Scott Schenkel, most recently eBay’s Senior Vice President, CFO, named as interim CEO as Devin Wenig steps down as President and CEO, while firm reaffirmed 2019 guidance

·     Media & Telecom; MTCH and IAC shares tumbled late morning after the FTC sued Match Group, the owner of, Tinder, OKCupid, PlentyOfFish, and other dating sites, alleging that the company "used fake love interest advertisements to trick hundreds of thousands of consumers into purchasing paid subscriptions on, among other unfair practices

·     Semiconductors; MU tgt was raised to $46 from $38 at Cowen ahead of earnings tomorrow night as expect a beat and raise which is in-line with investor expectations but are still cautious on memory pricing and demand into 2020 (firm notes capex guide will be first look at memory spending into 2020 and thinks consensus is ~6.5B-$7B down from $9B this year and that anything <$6B would likely be viewed negatively for ICHR which the firm downgraded); NVDA tgt was raised to $192 from $179 at Goldman Sachs; AVGO shares fell as prices upsized mandatory convertible preferred stock offering

·     Software movers; CLDR formally announced the launch of Cloudera Data Platform (CDP) at the Strata Data Conference in NYC; SGH shares fell on short call by Wolfpack Research saying because the new WTO guidelines effective July 1 eliminate the 28% premium on Brazilian made memory products. $SGH has lost its only advantage and OEMs no longer have a reason to buy

·     Hardware & Component news; SNX shares rise after reported Q3 revenue and non-GAAP EPS well above consensus as revenue upside came from the Technology Solutions distribution segment, which grew 11% q/q (16% y/y) due to strong demand for PCs, networking and cloud-related software, and accelerated rollouts of large solution-based deals


Content is provided by Hammerstone Inc., which has no affiliation with Regal Securities, Inc. (“Regal”) This commentary is provided for information purposes only, and is not a recommendation, offer or solicitation by Regal to buy or sell securities or to adopt any investment strategy. Regal has not participated in the creation of the Hammerstone content and does not directly or indirectly endorse the content. Any reliance on this material is at the sole discretion of the reader.

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