Market Review: September 30, 2019

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Closing Recap

Monday, September 30, 2019





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     U.S. stocks posted strong returns on the final day of trading for both the month and quarter, with stocks extending their gains for the S&P 500, up roughly 19% YTD as it enters Q4 with the biggest increase in the first three quarters of the year since 1997. Among S&P 500 industry sectors, health care and information technology with the strongest gains, while energy declined led by a decline in oil prices and utilities fell from record highs. The tech heavy Nasdaq Composite outperformed, rising around 0.8% and topping the 8,000 level, while the SmallCap Russell 2000 continues to underperform its large cap peers. Trade hopes continue to underpin market strength with high level U.S./China negotiations set to resume October 10-11th. Stocks recovered early as investors dismissed last Friday’s reports that the Trump administration was considering delisting Chinese companies (which was refuted aggressively by White House trade adviser Peter Navarro this morning on CNBC calling the reports “fake news” – lifting Chinese ADRs). Asked in particular about a Bloomberg report on the matter, Navarro said told CNBC, "Over half of it was highly inaccurate or flat out false." The Dow gains were paced by Apple (AAPL) as shares rose more than 2%, while commodity prices tanked (gold was down over 2% and oil 3%) as the dollar trades to fresh 2019 highs vs. a basket of currencies. Economic data was weak today with the Chicago PMI report falling into contraction territory, ahead of ISM Manufacturing, Construction Spending and monthly auto sales data due tomorrow.

Economic Data

·     Manufacturing data weak as the Chicago PMI for Sept reported at 47.1 vs. est. 50.0 (prior month was 50.4); and new orders contracted as well, while Employment fell at a slower pace, signaling contraction and inventories fell at a faster pace, signaling contraction; Production fell at a faster pace, signaling contraction and order backlogs reversed direction showing a decline



·     Oil prices fell to session lows around settlement, dropping over 1.84 or 3.3%% to $54.07 on reports earlier in the day that Saudi Arabia fully restored output. Natural gas prices also in a downtrend, falling 3% to $2.33 mln btus (10th straight daily decline) as commodity prices were broadly lower again amid a surging US dollar.

·     Gold prices plunged over 2%, falling $33.50 to settle at $1,472.90 an ounce, its lowest settlement since August 2nd (and well off the $1,566 highs on September 4th), weighed down by a surging dollar pressuring commodity prices. Meanwhile, palladium prices hit a record peak on Monday, passing $1,700 an ounce, as tight supply of the auto catalyst metal stoked fears the deficit could only widen amid rising industrial demand, while a stronger dollar hurt gold prices according to reports. The metal was up for a third straight session, having risen 2.4% last week.



·     The U.S. dollar index (DXY) touched a fresh 2019 high (99.45) – and moved to its best levels since May 2017 – gaining against most currencies as the euro fell to lows below 1.09, while the greenback moved back above 108 vs. the yen. The British Pound reversed earlier losses against the dollar after a report the U.K. government has completed the draft legal text of a proposed Brexit deal and is set to present it to European Union officials later this week.


Bond Market

·     Treasury prices were little changed after early volatility, as the 10-year yield ended near the 1.68% level (holding their most of the midday session), having fallen from earlier highs of 1.71% after weaker manufacturing data in the U.S. A combination of political and economic uncertainty has kept Treasury prices well bid throughout the quarter, with the 10-year yield trading in a range of about 2.2% to start June and off lows of 1.42% the beginning of September (9/3). There are also several Fed speakers this week that could potentially move markets this week.






WTI Crude















10-Year Note





Sector News Breakdown


·     Retailers; URBN was upgraded to outperform at Wells Fargo and raises its tgt to $30 from $25 saying they believe that the URBN business (UO and Anthro concepts) may soon be able to inflect (positive comps with clean inventory and healthy margins); GCO announced a $100M shares buyback plan; mall retailer Forever 21 officially files for bankruptcy as the company says the restructuring will allow it to focus on the profitable core part of its operations and shut some international locations; OSTK shares extended recent declines, falling to lowest levels since June

·     Consumer Staples & Restaurants; in food, CALM reports larger than expected Q1 EPS loss of (94c) vs. est. (85c) on weaker sales of $241.2M as 1Q dozen eggs sold 254.4M up 1.7% YoY while Q1 net average selling price/dozen 91.5c, -30% YoY; QSR was upgraded to neutral at Longbow saying based on conversations with U.S. Burger King franchisees, they believe same-store sales for QSR’s Burger King concept were up 4.5-5.0% in 3Q19, ahead of our prior estimate of 2.0% growth and consensus at up 3.4% (raise ests); MKC to report earnings tomorrow morning

·     Housing & Building Products; NWL upgraded to buy at SunTrust as believe the business trends have bottomed out, the turnaround efforts are gaining traction, and the stock’s valuation is too cheap (raise tgt to $25 from $15); BBBY was upgraded to outperform at Wedbush with $16 tgt as see a good chance of stabilization—if not growth—in earnings over the next two years as sweeping changes take hold

·     Casino & Leisure movers; in towables, THO Q4 sales rose 23.3% to $2.31B as the inclusion of the European RV segment was partially offset by a 17.6% drop in North American Towable RV sales and an 8.1% decrease in North American Motorized RV sales/gross margin improved 140 bps; HOG active as KeyBanc said while they expected an August deceleration given tough compares, the rate came in slightly better than our forecast, and July was revised slightly higher following the inclusion of France



·     Oil prices remained under pressure after reports that Aramco Trading said they restored all oil capacity to before the attack levels on its facilities about 2-weeks ago; stock movers in energy; OXY said it is on track with its plans to sell $10B-$15B of assets as it works to pare its debt load following its $38 billion acquisition of Anadarko/said it has completed the sale of Anadarko’s Mozambique LNG stake to TOT for $3.9B as part of an $8.8B deal to sell all of Anadarko’s African assets to the French oil major; XOM expected to release an 8-k highlighting 3Q fundamentals in the form of a q/q bridge versus 2Q (the 8-k publication at the end of each quarter is a new process for XOM, initiated back in 2Q); energy stocks biggest drag on the S&P again today

·     E&P sector; NEP announced a deal to buy Meade Pipeline Co. LLC in a deal valued at $1.37B which includes about $90M in future capital contributions through 2022 (Meade Pipeline owns a 39.2% interest in Central Penn Line); COG agrees to sell its 20% ownership interest in Meade Pipeline, owner of a 39.2% stake in the Central Penn natural gas pipeline system, to NextEra Energy Partners for $256M.

·     Utilities & Solar; Utilities another strong start as defensive sectors continue to underperform into quarter end – Utilities just off all-time highs on Friday, led by gains in nearly all 20 components in the UTY early (NEE, AEE, AWK, DTE) – group reversed lower late day



·     Bank movers; group remains mixed given the ongoing weakness in Treasury yields (crimping bank lending margins) as next major catalyst in a few weeks as earnings season coming up (banks generally kick off the start of earnings season – JPM due mid-October gets it started)

·     Consumer finance and lending; FNMA and FMCC will be allowed to boost their capital by billions of dollars to protect against potential losses, as FNMA, will be permitted to retain earnings until its capital buffer hits $25B, while Freddie will be allowed to hold $20B, the Treasury Department and FHFA says; PYPL becomes first foreign company to win Chinese payments license

·     REITs; BX has struck a deal to buy a portfolio of U.S. industrial warehouses from CLNY for $5.9B, including debt, furthering its bet on the continued growth of e-commerce



·     Pharma movers; MNK rises after settling a legal case with two counties in Ohio involving opioid usage as the company will pay $24M in cash, provide $6M in generic products and provide a $500K payment in two years in recognition of the counties’ time and expenses; ICPT submitted a New Drug Application (NDA) to the U.S. FDA for obeticholic acid (OCA) for the treatment of patients with fibrosis due to nonalcoholic steatohepatitis (NASH); cannabis stocks slumped (ACB, APHA, CGC, TLRY, CRON) as Seaport Global said with current market dynamics and headlines creating profound shifts in how cannabis industry participants raise capital and with companies left with few good options in order to survive

·     Biotech movers; some highlights from European Society for Medical Oncology (ESMO) Congress in Barcelona, Spain:

·     AMGN’s Experimental drug (AMG510 daily) that targets a specific genetic mutation shrank tumors in just one of 12 patients with advanced colorectal cancer who were given the highest dose in a small, early-stage trial, the company said on Saturday. Shares of MRTX fall in sympathy after the AMGN data (Mirati makes a similar molecule to AMG510, known as MRTX849)

·     CALA presented new data from the investigational oral arginase inhibitor INCB001158 as a monotherapy and in combination with the checkpoint inhibitor pembrolizumab in microsatellite stable colorectal carcinoma patients

·     GTHX during the ESMO 2019 conference, presented a first look at G1T48 (oral SERD), which is in development for the treatment of ER+ advanced breast cancer patients

·     IMMU presented interim data from the 100-patient cohort of cisplatin-eligible patients of the company’s TROPHY-U-01 open-label Phase 2 study

·     SGEN presented impressive initial data from both enfortumab vedotin (EV) and tucatinib (Goldman said impressive initial data from enfortumab vedotin (EV) reinforces confidence that EV will be the first-to-market in metastatic urothelial cancer w/potentially best-in-class profile

·     ZYME upgraded to strong buy at Raymond James after they announced updated data from its ongoing Phase I clinical trial evaluating ZW25 monotherapy in patients with HER2-expressing solid tumors, in a poster discussion presentation at ESMO

·     Healthcare services and providers; managed care stocks active after BMO Capital upgraded CI to outperform (on valuation) but downgraded UNH and HUM to market perform related to uncertainty regarding November 2020 election outcomes saying the two are more heavily tied to Medicare Advantage, and while he sees continued bipartisan support for the program regardless of who wins the election


Industrials & Materials

·     Industrial & Machinery; EMR was upgraded to outperform at RBC Capital as sum-of-the- parts implies attractive +16% upside, relative P/E is at the bottom of its historical range, and have bias to add some quality cyclical exposure paired with ongoing 75% defensive sector weighting; ROK was downgraded to Market Perform at Wells Fargo

·     Paper & Materials; KeyBanc noted Fastmarkets RISI’s Pulp & Paper Week reported over the weekend that U.S. uncoated freesheet prices declined another $10/ton (1%) in September, with the firm saying the N.A. coated freesheet market is in even worse shape, with demand "extremely weak". And U.S. pulp prices fell another $35-$40/tonne in September, continuing their steep declines over the past year (IP, PKG, UFS, GPK)


Technology, Media & Telecom

·     Semiconductors; semiconductors (SOX) were at the highs, rising over 1% with most names in the sector ending higher; IIVI downgraded to market perform at Northland Securities saying Finisar acquisition has significant cultural/operational risks, along with risks to Finisar’s datacom revenues from SiP competitors

·     Software movers; WORK shares rose after Barron’s article on IPOs this weekend – said there is a silver lining in the recent IPO carnage (notes LYFT, PTON, UBER, CHWY, PINS). Sentiment-driven meltdowns offer buying opportunities in certain long-term winners (WORK was one of the positive mentions); WeWork said it will file a request to withdraw its S-1 filing following the dramatic collapse of the office-space rental company’s planned initial public offering

·     Hardware & Component news; AAPL positive comments at JPMorgan as they modestly raise iPhone volume forecasts and expect investor sentiment on AAPL shares to improve materially given the firm’s ability to drive upward revision to volume expectations despite the 2019 product cycle largely considered to be a muted one; NTAP shares weak early after Morgan Stanley said early channel checks suggest broad demand for storage was weaker Q/Q and caution in IT budgets was slightly higher


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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