Market Review: October 03, 2019

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Closing Recap

Thursday, October 03, 2019





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     U.S. stocks went for a wild ride to say the least today, as oversold conditions following a morning meltdown relating to weak economic data was enough to spark buying interest, as major averages recovered nicely from morning lows to move back above key technical levels (on no specific news). Stocks slumped after a report showed the U.S. services sector (ISM) grew at a slower pace than at any point since 2016, prompting markets to price in another Fed interest rate cut at its late October meeting. The data also added to a week of disappointing results as manufacturing and private payrolls sunk stocks the last two sessions (and comes ahead of the monthly jobs report tomorrow). Treasury prices rise for a sixth day as yields plunge further, while the dollar made it a third day of declines and gold jumped. On Wednesday, the three main benchmarks had their worst single-session decline since Aug. 23, with the Dow falling 494 points, or 1.9%, to 26,078.62 (off lows of 25,743 today), the S&P 500 index losing 52 points or 1.8% to end at 2,887.61 (off lows 2,855 today) and the Nasdaq Composite Index declined 123 points, or 1.6%, to finish at 7,785.25 (and off lows of 7,700 today). Trade news was quiet, but in Washington, President Trump said when speaking to reporters before departing for a health-care speech in Florida, said that China should probe the Biden’s, “because what happened in China is just about as bad as what happened with Ukraine.” European markets add to yesterday losses as data from the euro area this weak raises growth fears as well.

Economic Data

·     Weekly jobless claims rose 4K to 219K, above the 215K estimate (prior week revised to 215K from 213K), while the 4-week moving average stood at 212.5K; Continuing claims fell 5K to 1.651M in the week ending Sept. 21

·     U.S. Markit services index edged up to 50.9 in the final September reading (50.9 flash) from 50.7 in August. It was at 53.5 a year ago. The employment index, however, dropped to 48.6 from 50.4 previously and is the lowest since December 2009.

·     Factory Orders for August falls (-0.1%) vs. est. (-0.2%); New orders ex-trans unchanged in Aug. after rising 0.2% the prior month; and new orders ex-defense for Aug. fall 0.5% after rising 1.0% in July; Capital goods non-defense ex aircraft new orders for Aug. fall 0.4% after no change in July

·     Durables orders for August rises 0.2% after rising 2.1% in July; up three consecutive months. Consumer goods shipments for Aug. fall 0.7% after rising 1% in July

·     ISM Non-Manufacturing Index for September dips to 52.6 from 56.4 prior month and below the est. 55.1 as services index misses estimates; New orders fell to 53.7 vs 60.3 last month while employment fell to 50.4 vs 53.1 last month (lowest since Feb. 2014)



·     Oil prices pare losses into the close as WTI crude finishes the day at $52.45 per barrel, down 19c on the day (off earlier lows of $50.99), rebounding along with the bounce in U.S. stocks. Oil prices have been under consistent pressure over the last few days on slowing economic growth fears, trade impact on demand between the U.S. and China, and reports this week that Saudi Arabia fully restored its production after its facilities were disrupted. Natural gas prices rose 3.5% to settle at $2.33 mln btus, snapping its record long losing streak of 12-straight sessions.

·     Gold prices finished higher by $5.90 or 0.4% to settle at $1,513.80 an ounce, pulling back from earlier highs of $1,525.80 (best levels in over a week) as stocks recovered from earlier losses, paring interest in safe haven assets. Earlier gold had jumped following another weak economic data point in the U.S., as the service index (ISM) gauge disappointed.



·     The U.S. dollar fell for a third straight session against a basket of currencies, as the dollar index is down nearly 100bps from its 2019 high of 99.66 on Tuesday in reaction to another weak economic data point. The ISM non-Manufacturing Services index fell to a 3-year low, adding to other soft reports from ISM manufacturing and ADP private payroll data the last two days. The buck fell to 3-week lows against the safe-haven Japanese yen, was little changed vs. the Canadian dollar but dipped against the euro and Pound.


Bond Market

·     Treasury prices end higher as yields took a dive (though finished off their worst levels) as the 10-year yield fell over 6 bps to 1.53% (off earlier lows of 1.506%), but now nearly 40 bps off its September highs at 1.90%. Shorter-term yields plunged more, with the 2-yr down over 9 bps to 1.38% (lowest levels since September 2017) on the weaker manufacturing data and increased chances of further Fed easing and lower rates to stimulate the economy. The stock market is now pricing for a Fed rate cut at the end of the month according to fed fund futures (up from 40% chance last week) given the bout of weaker economic data this week. Despite the pullback off highs, Treasuries still rallied for a sixth day.






WTI Crude















10-Year Note





Sector News Breakdown


·     Autos; TSLA shares slipped after 3Q production and deliveries come in lighter than expected with Q3 deliveries reported at 97k (expectations pointed to 99k) – and now Q4 guidance being questioned as for Tesla to reach the mid-range of guidance for 360,000-400,000 deliveries in 2019, it would need to deliver 125,000 vehicles in Q4.

·     Retailers; GPRO shares plunged lowers FY19 adjusted EPS view to 30c-35c from 35c-45c, and lowers FY19 revenue view to $1.215B-$1.25B from $1.25B-$1.28B; said HERO8 Black shipments will shift from Q3 to Q4 due to production delay; BBBY Q2 comp sales fell -6.7% vs. est. down -5.3% while sees FY net sales $11.4B, at the lower end of previous guidance of $11.4B-$11.7B after mixed Q2 results (EPS beat and sales missed); COST earnings tonight

·     Consumer Staples; PEP Q3 EPS and sales topped consensus and reports organic revenue growth of 4.3% in Q3 while foreign exchange impact on revenue was -1% with core gross margin rate improved 90 bps to 55.4% and reaffirmed year outlook; STZ reports beer sales of $1.64B in Q2 on 5.3% shipments growth and wine/spirits sales of $704M on a shipments drop of 10% as EPS beat and sales were in-line and raises full-year EPS of $9.00-$9.20 from $8.65-$8.95/expects Wine and Spirits FY20 net sales to decline 15%-20%; GO said it sees 3Q preliminary net sales growth of 13.1% to $652.5M, primarily attributable to 30 net new stores opened over the last 12 months and an increase in comparable store sales

·     Services, Casino & Leisure movers; RECN shares plunged after Q1 revenue fell -3.5% YoY and missed estimates and Ebitda fell -10% YoY as well; MGM agreed to pay up to $800 million to shooting massacre victims



·     Bank movers; no selling reprieve for financials despite broader markets bouncing, as the lower rate environment weighs (lending margin fears rising into earnings season in 2-weeks), coupled with the zero commission news for online trading of stocks, ETFs and options this week from SCHW, AMTD and ETFC (which has also weighed on traditional brokers and asset managers), the sector remains pressured. Also add the weaker economic data and increased chances for the Fed to get more aggressive on rate cuts again hurting the group.

·     Brokers & Services; MKTX posted strong 3Q19 trading volumes as each of the company’s major product categories were meaningfully higher vs. the year ago period said Raymond James; follow through weakness in online brokers continues after moves by SCHW, ATMD and ETFC announcing zero commission trades online – also weighing on some asset managers



·     Pharma & Biotech movers; note President Trump gave a speech today on how he will "Protect Medicare" while Democrats want to undercut it with "Medicare for all." ZTS said current CEO Juan Ramon Alaix will retire at the end of 2019, though will continue to advise the company through 2020 as current EVP and Group President of US Operations, Kristin Peck will replace; PBYI shares active after the FDA approved a labeling supplement for NERLYNX to the extended adjuvant treatment of HER2-positive early stage breast cancer.

·     Medical equipment and devices; ANGO shares fell to lowest levels since July 2016 after mixed Q1 results as EPS beat and revenue missed while cut its FY20 adjusted EPS view to 10c-15c, from 25c-30c while backs FY20 revenue view $280M-$286M

·     Healthcare services and providers; hospitals were active (HCA, CYH, UHS, THC) after Piper noted September and 3Q19 outpatient ended up surprisingly weak at 2.2% in September which is down 40 bps y/y and 3q 2.3% which is down 10 bps y/y, compared to sentiment that was expecting a strong uptick based on our August survey and others.


Industrials & Materials

·     Industrial & Machinery; heavy duty truckers active (CMI, PCAR, NAV) on the Class 8 orders after Baird says Sept Class 8 orders fall 71% Y/Y – note Well Fargo estimated monthly Class 8 truck data expected to show between 10K-13K in orders, the Midpoint 11,500 implies 73% drop yr/yr but up about 3% from August’s 11,119

·     Transports; recession fears weighed on transportation stocks for a third straight day before paring losses mid-morning; Citigroup lowered estimates for rails (UNP, CSX, NSC, KSU) saying 3Q volumes have fallen well below their expectations/September carloads were particularly weak and raise the likelihood for 3Q misses and support a more cautious starting point for 2020 revenues; DAL was downgraded at Buckingham saying with or without a recession, shares are likely to re-rate lower for longer on 4Q cost pressures annualizing into 2020

·     Metals & Materials; CLF shares rose on news it would be added replace Mercury Systems in the S&P SmallCap 600 effective prior to the open of trading on Tuesday, October 8; NEM was upgraded to buy and $45 tgt at Deutsche Bank citing reduced headwinds

·     Aerospace & Defense; RTN was upgraded to outperform at Credit Suisse as believes its aerospace business is undervalued saying the installed base of engines at Pratt & Whitney should “grow substantially” over the next decade, adding to aftermarket revenues and profitability

·     Chemicals; BMO Capital lowered estimates for potash and phosphate stocks due to weaker price and lower volume in second half of this year, but raised estimates for nitrogen exposed stocks, as the fertilizer remains remarkably stable – says continues to prefer CF and Yara among the fertilizer peers; FMC and CTVA preferred among Ag-chem companies/says MEOH likely to be only clear 3Q, while fert weakness to be more evident during 4Q results for MOS, NTR and K


Technology, Media & Telecom

·     Internet; NFLX said it plans to make movies with Italian broadcaster Mediaset SpA as it looks to add subscribers in Italy/Netflix will contribute most of the financing for the seven titles in the hopper; SNAP shares dropped after FB is launching Threads from Instagram, a standalone; MEET shares jumped after raising Q3 revenue guidance; camera-first messaging app/Threads designed with privacy, speed and close connections in mind

·     Semiconductors; a nice bounce for the trade affected sector; AXTI lowered its Q3 revenue view to $19.6M-$20.0M from $24.5M-$26.0M and below consensus of $25.4M citing a weaker than expected demand environment, particularly in data center connectivity and LED applications. In addition, raw material revenue was also lower than forecasted.

·     Hardware and Software movers; in video games, KeyBanc said EA’s Apex Legends season 2 is failing to materially rejuvenate the player base and that bodes poorly for the video-game maker’s results this year; ANET shares fall for a 5th consecutive session after being downgraded to neutral from buy at Nomura and cut tgt to $230 from $290


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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