Market Review: October 08, 2019

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Closing Recap

Monday, October 07, 2019

Index

Up/Down

%

Last

DJ Industrials

-96.65

0.37%

26,477

S&P 500

-13.42

0.45%

2,938

Nasdaq

-26.18

0.33%

7,956

Russell 2000

-2.96

0.20%

1,497


 

Equity Market Recap

·     U.S. stocks were quiet most of the session, having bounced off overnight declines as markets brace for high level trade talks between the U.S. and China (expected to dominate headlines this week), moving around on headlines pertaining to trade today. Stocks got a little pop mid-afternoon after Fox Business reported the Chinese Commerce Ministry said China is ready to do a deal on the parts of the negotiations both sides agree upon. The Ministry said they are prepared to set out a timetable for the harder issues to be worked out next year. The headlines helped bounce stocks to highs across the board in what was an otherwise quiet day. However, equities reversed those gains after Fox also tweeted “The Chinese Commerce Ministry says what is not in the table and never will be is changes to their laws to protect intellectual property. The Commerce Ministry telling us that the Chinese will deal with intellectual property theft through administrative regulations.” Once again, the trade situation remains fluid and stocks moved on any related headline. Expects more of the same this week. No major economic data, or Fed speakers moving markets today and earnings doesn’t kick into gear for another 2-weeks, though Apple shares traded to a fresh 52-week high while Treasury prices dipped and yield inched up.

 

Commodities

·     Oil prices erase gains late day as WTI slips 6c to settle at $52.75 per barrel, off earlier highs of $54.06 per barrel as oil again fails to hold early gains. Prices were higher initially, looking to build on Friday’s advance (after having snapped its 8-day losing streak) helped after survey from S&P Global Platts showed that OPEC crude production fell to 28.45M barrels a day in September, down 1.48M barrels a day from August—the biggest month-on-month fall in almost 17 years (following the attack on Saudi facilities a few weeks ago). Meanwhile, markets are prepping for scheduled talks between U.S. and Chinese trade negotiators at the end of the week that could help determine the outlook for energy demand. Gold futures slide into the close, falling -$8.50 or 0.6% to settle at $1,504.40 an ounce, sliding mid-afternoon on reports that China open to working out more issues with the U.S.

 

Currencies

·     The U.S. dollar rebounded along with stocks off lows, snapping its 4-day losing streak against a basket of currencies. The greenback slipped last week after mixed economic data raised concerns about the US economy, but the calendar was quiet today. The euro ended little changed vs. the buck while the yen jumped to highs of 107.46 along with stocks on reports China is open to working out more issues with the U.S. before paring gains. The British Pound remains volatile ahead of the Brexit vote this month. Turkey’s lira fell to its lowest level against the dollar in more than a month after Donald Trump threatened to “obliterate” Turkey’s economy.

 

Bond Market

·     Treasury markets pare recent gains after surging last week given no major economic data on the day and as investors await results of this week’s trade talks with China. Prices jumped last week, with yields falling broadly across the curve given weaker global economic data and rising expectations for additional Fed easing measures to combat slowing growth fears (the 10-year was up slightly at 1.55%, while the shorter-term 2-yr rose over 5 bps to around 1.46%).

 

 

Macro

Up/Down

Last

WTI Crude

-0.06

52.75

Brent

-0.02

58.35

Gold

-8.50

1,504.40

EUR/USD

-0.0005

1.0974

JPY/USD

0.21

107.15

10-Year Note

0.022

1.551%

 

 

Sector News Breakdown

Consumer

·     Retailers; COLM was added to Wedbush Best Ideas List saying the combo of relevant product, strategic marketing DTC initiatives and international growth should sustain upside for 2H and into FY20; SIG shares outperform in retail space – trading above its 100-day MA today of $16.82; DKS said it would hire 8,000 seasonal workers for holidays

·     Auto’s; in ride hailing, UBER upgraded to buy at Citigroup on improving risk/reward saying the stock has been impacted by overhangs like AB5 and the IPO lock-up. Though these overhangs will likely persist, we believe Q3 results could swing sentiment more favorably, as H2 revenue is expected to accelerate and as high-level AB5 scenarios now appear better understood; GM shares slipped as labor talks with the UAW took "a turn for the worse" over the weekend; HOG falls after Reuters reported Harley struggles to fire up new generation of riders with electric bike debut

·     Restaurants; WEN was downgraded at Cowen and cut tgt to $20 saying the decision to pursue breakfast highly competitive and recently softening daypart is likely to weigh on FCF for the several years; Stifel with tgt price changes at Stifel saying they are constructive on TXRH, cautious on MCD

·     Housing & Building Products; office furniture retailers (MLHR, KNL, SCS) all downgraded at Raymond James to market perform noting BIFMA reported, August incoming orders fell – year-over-year – by 2.7%. This was the second negative incoming order rate in the past three months.

 

Energy

·     Energy stocks bounced after recent weakness as oil prices rose a 2nd straight session after having pared its biggest weekly drop since July on Friday ahead of the resumption of U.S.-China trade talks later this week that may sway a cloudy demand outlook. Foil prices fell 5.5% last week, but off to a good start this week lifting the sector.

·     Solar stocks rise; shares of SPWR, FSLR among those rising early (reversed those gains) after the U.S. said it will withdraw a previously granted Section 201 tariff exemption for bifacial solar panels (weighed on shares of Chinese solar panel makers with bifacial capacity expansion plans, including JKS, CSIQ); in utilities, handful of analyst rating changes as Morgan Stanley downgraded DRE saying analysis suggests industrial warehouse supply has started to outpace demand at the national level; Mizuho upgraded DTE and POR, citing valuation for both

 

Financials

·     Bank movers; earnings season right around the corner for the sector that has been mixed amid lower yields and rate expectations; brokers have been hit hard over the last week following the zero commission moves by SCHW, AMTD and ETFC last week; ETFC was upgraded to buy at UBS given its strong core franchise in high-value business segments saying while earnings power has clearly been diminished by the price cuts, ETFC’s customer value proposition has improved relative to peers; in asset managers, IVZ said to cut 1,300 jobs after acquiring smaller rival OppenheimerFunds, with the bulk of cuts coming from an OppenheimerFunds office that handles mostly administrative functions, the Financial Times reported

 

Healthcare

·     Pharma movers; LLY announced results from the Phase 3 RELAY trial of Cyramza (ramucirumab) in previously untreated patients with metastatic EGFR-mutated non-small cell lung cancer; NGM shares fell following underwhelming preliminary 24-week data from Cohort 4 in a Phase 2 clinical trial evaluating daily 1 mg doses of aldafermin in NASH patients

·     Biotech movers; XENT shares fell after a trial on its drug-coated sinus balloon used to dilate the frontal sinus ostium did not meet its primary endpoint of frontal sinus patency grade at day 30; IONS affiliate AKCA signed an agreement with PFE for global rights to antisense drug AKCEA-ANGPTL3-Lrx for certain cardiovascular and metabolic diseases/Akcea and Ionis will receive $250M upfront, divided equally, up to $1.3B in milestones and tiered double-digit royalties on net sales. Akcea will settle its $125M obligation to Ionis via common stock instead of cash; PFNX said the FDA approved PF708 in osteoporosis, triggering a $2.5Mm milestone payment

·     Medical equipment and devices; ZBH was upgraded to buy at BTIG with $158 tgt based on the view that ZBH’s ROSA commercialization is progressing better than we expected, which is supported by our survey of ZBH implant users. Separately, the U.S. Supreme Court has declined to hear an appeal by ZBH over the tripling a $70M patent-infringement award to competitor SYK related to devices that clean bones during surgery.

·     Healthcare services and providers; SDC was initiated coverage by several analysts today with mostly bullish calls (buy rated by at least seven of them and a street high tgt of $31 at JPM and low $18 at CSFB); ALGN downgraded to neutral at Guggenheim and cut tgt to $200 from $250 saying they believe it will be challenging for sentiment to improve until there is more evidence available to validate ALGN’s long-term competitive position

 

Industrials & Materials

·     Industrial & Machinery; GE announced it is freezing pension plans for about 20,000 U.S. employees with salaried benefits and will also suspend supplementary pension benefits for about 700 employees in the country, is expected to reduce GE’s pension deficit by about $5B-$8B and net debt between $4B-$6B

·     Transports; JBLU was upgraded to buy at Buckingham citing the company’s expanded buyback program and a stock pullback that leaves risk/reward skewed to the upside, helping the beaten up airline sector today; transport index was little changed midday, with several analysts expressing concerns into earnings, specifically on rails (numbers have come down from Morgan Stanley today after Citi lowered ests last week on NSC, UNP, others)

·     Tanker stocks rise (NAT, FRO, DHT) on Friday, Reuters reported freight rates to ship U.S. crude to Asia continue to surge, with costs to charter a supertanker rising to a record $12M – notes tanker rates already were rising after the Sept. 14 attacks on Saudi Arabia’s oil facilities that temporarily cut Saudi oil production, and rates have jumped even more after the U.S. last week imposed sanctions on two units of China’s COSCO, alleging involvement in ferrying crude out of Iran.

 

Technology, Media & Telecom

·     Semiconductors; NVDA shares rise after RBC raised price target to $217 on improving gaming GPU demand and conviction in Jan-qtr Data Center improvement; SIMO guided Q3 revenue within 5% above high-end of $104M-$108M and said gross margin is expected to be near the high-end of the company’s original guidance range of 48.0%-50.0%; ENTG shares slid as Deutsche Bank downgraded to hold from buy but upped its tgt to $49 from $46; AMD announces the Radeon RX 5500 series graphics products with RDNA gaming architecture to deliver the ultimate in high-performance, high-fidelity 1080p gaming

·     Hardware, Software movers; AYX was upgraded to outperform at Wedbush and raised tgt to $135 as customer and industry checks make us bullish on AYX’s ability to maintain its revenue momentum with relatively minimal deceleration and high net expansion; AAPL shares help lead mkt rebound again, trading to fresh 52-week hi’s today; UPLD raised FY revenue, adj. EBITDA forecast after deal to buy Altify for $84M cash/now sees FY rev between $217.3M-$221.3M vs. earlier forecast of between $213.8<-$217.8M

·     Media & Telecom movers; MTCH rises after being upgraded to buy from hold at both Deutsche Bank and Nomura/Instinet as expects a limited impact from the lawsuit filed by the Federal Trade Commission; DISH and FOXA have reached agreement on a new multi-year contract, restoring access to Fox local channels – like FS1, FS2, and BTN – for Dish Network customers after an almost two-week absence; RNG adds to Friday’s gains (rose 28%) after JPMorgan upgraded shares saying the AVYA transaction opens up an opportunity to dramatically accelerate the shift to cloud-based UCaaS, with RNG being brought into the Avaya customer base

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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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