Market Review: October 04, 2019

Auto PostDaily Market Report

Closing Recap

Friday, October 04, 2019





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     After what started looking like a dreadful week for U.S. stocks, having posted the 4th worst start to Q4 if looking at a 2-day change (-2.75%), according to Bespoke, stocks have since put in a massive two day rally since yesterday lows, as the S&P, Nasdaq and Dow all move back above key technical levels the last 24-hours. Treasury prices made new highs along with stocks late afternoon as the 10-year yield touched down at lows around 1.50%. The move to the upside in stocks/Treasuries comes after a monthly jobs report showed a miss on topline reading, but underlying parts of the report provided solid signs for the stock market as unemployment fell to 3.5% (50-year lows), prior month payroll revisions were to the upside, and unchanged wages gives the Fed some wiggle room to potentially move interest rates lower this month. The report was a welcome change following a week of dismal economic data points (manufacturing, private payrolls and services data all showing signs of slowing growth). While large cap stocks pushed major averages higher, small caps (Russell 2000) and energy stocks (oil fell over 5% this week) remain drastic underperformers, while gold edged higher and the dollar fell from 3-year highs. Shares of Dow component Apple led tech higher (along with chip suppliers) on reports the company asked its suppliers to increase iPhone production by 10%.

·     Markets ignoring (for now) the several macro concerns that fail to go away (Brexit, China/US trade talks, Iran sanctions, increased protests break out across Hong Kong after the government banned face masks in demonstrations, slowing global growth after softer economic data this week, and political drama in Washington – namely Democrats calling for impeachment). Next up for global markets, U.S./China trade talks next week as Chinese Vice Premier Liu He visits Washington for trade talks with his U.S. counterparts and high level trade reps, with markets hopeful for progress on opening Chinese financial services market along with other key items

·     The U.S. economy is chugging along despite the headwinds it faces, Federal Reserve Chair Jerome Powell said on Friday, in remarks that gave little more away about the path of monetary policy. "While not everyone fully shares economic opportunities and the economy faces some risks, overall it is — as I like to say —in a good place. Our job is to keep it there as long as possible," Powell said in brief remarks introducing a "Fed Listens" event at the U.S. central bank’s headquarters in Washington.

Economic Data

·     Nonfarm payroll data mixed; Headline jobs figure were weak as prior month revised up, unemployment rate falls to 3.5%, while hourly wages flat vs. expected rise. The change in Nonfarm Payrolls for Sept 136K vs. est. 145K (prior month revised to 168K from 130K); change in Private Payrolls for Sept 114K vs. est. 130K (prior month revised to 122K from 96K) and change in Manufacturing Payrolls for Sept fell -2K vs. est. 3K; the Unemployment Rate for Sept drops to 3.5% vs. est. 3.7% (50-year lows) and average hourly earnings for Sept unchanged vs. est. 0.2%



·     Oil prices managed a small gain on Friday, with WTI crude rising 36c to $52.81 per barrel, snapping an 8-session losing streak, but energy remains the one sector unable to rally with broader markets, as prices were down on the week (falling -5.5%) given bearish inventory data, slowing global growth (amid weak economic data), Saudi restoring production after facility attack and the China/US trade battle weighing on demand. Natural gas prices rose 2.3% or 1% to settle at $2.352 mln btus, its 2nd day of gains after falling a record straight 12-days prior.

·     Gold futures slipped less than $1 on Friday, settling at $1,512.90 an ounce in what was a volatile week of moves, but still managed only a modest 0.4% gain for the week (highs $1,525.80 yesterday and off lows of $1,465 on Tuesday). Prices rebounded the last few days as softer global economic data, particularly global manufacturing data points, raised expectations that the Fed would need to step up easing measures/rate cuts to stimulate the economy.



·     The U.S. dollar ends lower for a 4th straight session, pulling back from Tuesday’s 2019 high of 99.66 (also best levels since May 2017) to lows of 98.63 yesterday morning, having cratered on weaker ISM monthly manufacturing data (worst in about a decade) as well as soft service data and mixed jobs reports. The dollar was little changed on Friday, having slipped against the euro, yen and little changed vs. Pound. The British Pound moved earlier on reports British Prime Minister Boris Johnson will send a letter to the European Union asking for a Brexit delay if no divorce deal has been agreed by Oct. 19, according to government papers submitted to a Scottish court, the BBC reported. Last month, opposition lawmakers and rebels from Johnson’s Conservative Party forced through a law requiring Johnson to request a Brexit extension but Johnson said Britain would leave the EU, "do or die", on Oct. 31.


Bond Market

·     Treasury prices rallied all week following the generally weaker than expected economic data points from Tuesday through Thursday, while today’s jobs report gave markets just what they wanted – strong enough numbers to show strength in the jobs market, but enough bullet points that provide the Fed with ammo to keep cutting rates to stimulate the economy. The 2-year yield was little changed at 1.39% today, but down from midweek highs of 1.65%, while the 10-year yield was at 1.50%, down from mid-week highs of 1.75%.






WTI Crude















10-Year Note





Sector News Breakdown


·     Retailers; COST delivered double digit EPS growth and ~10% y/y adjusted operating income growth, as comps beat, but both the top and bottom line results just missed expectations; in firearms (AOBC, RGR), KeyBanc noted September adjusted NICS checks (a proxy for retail firearm demand) came in at +10.0%, roughly in line to slightly below our sense of expectations in the +LDD range against a ~440 bps easier compare vs. August, driven by handguns +11.9% and long guns +7.5%; EYE ests and tgt cut at Goldman Sachs to reflect wage pressure, following management’s slightly guarded comments on margin expansion potential as they navigate higher wage costs, especially for optometrists; ASNA shares fall on weaker margins

·     Consumer Staples; SAM was upgraded to neutral from sell and raise tgt to $390 from $305 at UBS driven by greater confidence in the F20 top-line story flowing through to earnings growth; GO 13M share Secondary priced at $33.75

·     Housing & Building Products; HD and LOW tgts raised at Oppenheimer to $255 and $145 (from $215 and $135 previously) saying increasingly optimistic that a recent, meaningful moderation in mortgage rates should prove an incremental sales tailwind within the space; homebuilders outperform, led by gains in BZH, MTH, and DHI after good LEN numbers this week

·     Casino & Leisure movers; FUN shares pare gains as Wells Fargo said after speaking to mgmt, there was no specific comment make regarding Reuters article of SIX making a bid for FUN, but mgmt. did state that the company is NOT looking to be sold (Reuters later reported around noon that FUN rejected the $70 per share offer from SIX, confirming prior reports yesterday of interest); Guggenheim notes WWE‘s NXT and AEW went head-to-head for the first time this Wednesday as AEW came out on top with 1.41mm total viewers and a 0.68 18-49 rating vs. NXT with 0.89mm viewers and a 0.32 18-49 rating.



·     Energy stocks lagged the broader markets (as has been the case on nearly every market rally), with crude prices averaging 20% lower than a year ago, as Q3 looks tough for energy earnings. Note the bounce in stocks and oil prices following the attack on Saudi Arabia’s supplies two-weeks ago only appeared to give energy stocks a brief burst of support before fading since then on trade war and global economic weakness sapping demand. The Baker Hughes (BHGE) weekly rig report showed the overall U.S. rig count fell -5 rigs to 855, with oil rigs down -3 to 710 (7th straight week of cuts), gas rigs down -2 to 144, and miscellaneous rigs unchanged at 1; E&P names hit hard on the day (APA, XEC, MRO, DVN leading lower in the S&P)

·     E&P sector; RRC, CLR downgraded to neutral and WLL to underperform (tgt cut to $5) at Credit Suisse reflecting the impact of firms lower oil and NGL price forecasts, underscoring structural challenges to B/S and FCF generation/notes the E&P sector remains out of favor; XOG announced the start-up of Elevation Midstream’s Badger Central Gathering system and provided 2020 capex guidance for Elevation Midstream of $30M-$40M, which is significantly less than 2019’s capex budget of up to $250M; AR shares lower by nearly 6% after Morgan Stanley downgrade today and cut tgt to $1.50 noting only 10% of Antero’s gas production is hedged in 2022 and its outsized NGL exposure presents a risk

·     MLPs, Utilities & Solar; HESM said it is buying Hess Infrastructure Partners — a midstream energy joint venture that has a sizable interest in Hess Midstream’s oil and gas midstream assets — in a deal the companies value at $6.2 billion; PCG shares bounced helping pace utility gains after it said it would pay $65M to settle allegations it falsified records for natural gas lines



·     REITs; sector strong this year due to plunging interest rates and Treasury yields (helping the high dividend paying sector) but Moody’s noted that vacancies in U.S. shopping malls hit an eight-year high, though some regions are faring better with retail upheaval than others. The data, which tracks 77 metro areas, show 9.4% of units were unoccupied in Q3, equaling a post-financial crisis high reached in 2011 (mall REITs: SPG, SKT, PEI, MAC); CONE was downgraded to market perform at Cowen; EQIX is moving into Mexico, acquiring three data centers for $175M in cash



·     Pharma movers; AZN said the FDA approved the self-administration of its Fasenra asthma treatment, which uses a pre-filled, single-use auto-injector pen; HRTX falls as 8.57M share Spot Secondary priced at $17.50; DBVT said the U.S. FDA accepted for review the biologics license application for its investigational Viaskin Peanut immunotherapy in the treatment of peanut allergy in children ages 4-11 years old.

·     Biotech movers; SRPT rises on positive data from SRP-9003 trial as announced nine-month functional results from three Limb-girdle muscular dystrophy Type 2E (LGMD2E) clinical trial participants who received SRP-9003, an investigational gene therapy intended to transduce skeletal and cardiac muscle; ABUS said it was discontinuing the clinical development of AB-506, its oral capsid inhibitor for the treatment of chronic hepatitis B. This decision was made due to the emergence of safety concerns observed in the current Phase 1a/1b clinical trial

·     Medical equipment and devices; TNDM was upgraded to neutral from sell with $75 tgt at UBS as sees 33% upside and a favorable risk reward skew, while they downgraded PODD to neutral from buy but raise tgt to $160 from $155 saying while they do not see a negative catalyst, they think price performance could cool off after this strong run (up 94% YTD)

·     Healthcare Services; SDC shares dropped early after negative report from Hindenburg Research saying  latest investigation for company titled “Moving Fast And Breaking Things In People’s Mouths – 85% Downside”; XRAY rises as Goldman Sachs positive noting the company’s announced at its DS World customer trade show a new consumables loyalty program called One DS and a trade-in offer


Industrials & Materials

·     Materials, Industrial & Machinery; GE shares mentioned cautiously at JPMorgan again, this time on its Aviation unit, which he says offers materially less growth with greater risk, and therefore less value support, than consensus assumes/cites peers valuing GE Aviation at $100B, but he sees it as worst positioned among engine suppliers and believes the unit is worth only ~$30B; MYE shares fell as announced that Dave Banyard has resigned as President and CEO end of month

·     Transports; JPMorgan with a few changes in transportation sector as they downgraded CSX and ECHO to neutral from overweight while upgraded HUBG to overweight; CSX was cut at JPM as expect increasing export coal headwinds and fading demurrage revenue to put downward pressure on earnings; Dow Transports continue to underperform major averages, and still failing to top the 10K level (down over 3% on the week on slowing global growth fears)

·     Metals & Materials; copper prices drifted lower on concerns about weak global growth as the benchmark three-month copper on the London Metal Exchange (LME) slipped early (had declined for five straight sessions and has shed 2.3% so far this week); metals overall remain depressed (steel, copper, aluminum) on trade tensions and slowing global growth/weak economic data


Technology, Media & Telecom

·     Hardware & Component news; AAPL shares rise after the Nikkei Asian Review reported overnight that better-than-expected demand for its latest handset has reportedly prompted Apple Inc. to ask suppliers to ramp up production for its iPhone 11 models; HPQ shares fall after saying it will cut workforce by up to 16%, which is expected to reduce costs by about $1B by 2022/Loop Capital downgraded shares on move while CSFB cut its tgt to $18 from $21 based on uncertainty over restructuring; AVT shares dropped after reporting TXN plans to end its distribution relationship with the company by Dec. 31, 2020 (note TXN products accounted for approximately 10% of the Avnet’s sales during FY19); AVYA shares surge after announcing a strategic partnership with RNG which will include the launch of Cloud Office by RingCentral/RNG will contribute $500M to the partnership with Avaya and pay an advance of $375M primarily in stock for future payments and licensing rights

·     Internet; SNAP snaps its 6-day losing streak, helped after Morgan Stanley upgraded to equal-weight as believe SNAP’s improving ad product/go-to-market is driving faster ad revenue growth and also believe SNAP’s opex discipline is improving; overall gains in the Internet sector today, extending bounce after recent pullback (FB, GRUB, NFLX, GOOGL)

·     Semiconductors; shares of Apple Inc. suppliers (SWKS, QRVO, CRUS) rise early after reports in Asia that Apple Inc. to ask suppliers to ramp up production for its iPhone 11 models; AMAT positive move after Citigroup added a "Positive Catalyst Watch" heading into earnings season as he expects the stock to outperform the group on a relative basis; MRVL shares rose after Stifel resumed with a buy and $29 tgt as believe Marvell’s storage segment will continue to provide steady cash flow that can be utilized to fund development of technology for higher growth markets; SGH rebounds from steep overnight losses after Q4 EPS 50c/$278.4M misses the est. 67c/$286M; Q4 adj Ebitda misses as well at $25.2M vs. est. $30.7M

·     Media & Telecom movers; CHTR was upgraded to Overweight at KeyBanc with $515 tgt as think estimates are very conservative in 2020 given CHTR’s price increase/with industry leading Total revenue growth, EBITDA growth, and strong FCF growth, they recommend owning shares (also positive on cables CMCSA, ATUS, CABO); Citigroup downgraded SATS to neutral citing limitations to potential for multiple expansion given the lack of free cash flow and "limited visibility" on future growth prospects, while recommended buying shares of DISH

·     IT Supply Chain – Goldman Sachs with Q3 EPS preview: Expect weak 4Q guidance driven by industrial, auto and enterprise; datacenter a bright spot. Amidst weakness in key end markets such as industrial, automotive, and enterprise, and still elevated levels of inventory, look for in-line 3Q19 results but below consensus 4Q19 guidance. Bright spot: companies with exposure to hyperscale data center and/or NAND could beat expectations for 4Q19 guidance


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.

Live Trading

Open an Account

Paper Trading