Market Review: October 09, 2019

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Closing Recap

Wednesday, October 09, 2019





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     U.S. stocks made back a chunk of yesterday’s losses, boosted amid optimism ahead of the China/U.S. trade talks the next two days as Fox Business reported a full Chinese delegation just arrived in Washington, DC for face to face talks. It is the largest delegation the Chinese have sent for face to face talks which includes entire offices for Depts. that oversee enforcement for intellectual property rights. What comes of the trade talks will soon be seen. China made a small concession overnight amid reports (from the FT) that Chinese officials are offering to increase annual purchases of U.S. agricultural products (has offered to buy 10M more tonnes of soybeans from U.S. farmers – up to 30M from 20M currently. The move comes as tensions ratcheted up this week after the U.S. imposed export restrictions on more than two dozen Chinese firms, citing their role in abuse of Muslim minorities, and put visa restrictions on Chinese officials. The yield on the 10-year U.S. Treasury note inched up to 1.58%, from 1.532% Tuesday. Trade sensitive semiconductor chip stocks and large cap tech helped pace gains along with financials.

·     Fed Chairman Powell said the "significant" protection the U.S. Federal Reserve has from short-term political pressures also gives it an obligation to "clearly explain" monetary policy. "Because Congress has granted the Federal Reserve significant protections from short-term political pressures, we have an obligation to clearly explain what we are doing and why. And we have an obligation to actively engage the people we serve so that they and their elected representatives can hold us accountable," Powell said.

·     Fed Minutes from the September policy meeting showed: Federal Reserve officials worried that slowing global growth and rising trade-policy uncertainty could exert a drag on hiring and the U.S. economy when they cut interest rates last month. Most Federal Reserve policymakers supported the need for an interest rate cut in September, minutes of the central bank’s last policy meeting showed, but they remain increasingly divided on the path ahead for monetary policy. The readout of the meeting, also showed that the Fed agreed it would soon need to discuss whether to increase the size of its balance sheet following ructions in short-term money markets. Fed policymakers at the Sept. 17-18 meeting decided, in a 7-3 vote, to lower the benchmark overnight lending rate by a quarter percentage point to between 1.75% and 2%.

Treasuries & Currencies

·     The U.S. dollar was mixed, rising against the safe-haven Japanese yen to a one-week high around the 107.50 area as stocks jumped and defensive assets slipped on revived hopes for an amicable resolution to the U.S.-Chinese trade war; the Turkish Lira fell after President of Turkey Tayyip Erdogan said a military operation targeting Kurdish fighters in northeast Syrian had begun; the dollar fell against the euro while rallied against the British Pound as Brexit conclusion nears.

·     Treasury prices fell amid a generally quiet day of economic data and mixed commentary from Fed Chairman Powell and details of the FOMC minutes from the September meeting, as yields pushed higher amid a bounce in U.S. stocks and out of defensive assets. The 10-yr yield edged higher to 1.58% while the 2-yr yield was at 1.47% and the 30-yr 2.08%.



·     Oil prices slipped into settlement, falling 4c to $52.59 per barrel, down from earlier highs of $53.74 per barrel following several mixed signals. Prices jumped earlier as Turkey launched an offensive in Syria that could disrupt crude production in the region and on hopes of progress in ending the U.S.-China trade war, but a build in U.S. crude inventories limited gains. Also helping boost prices were reports of tension in Ecuador as Ecuador Energy Minister said oil production down 232K bpd due to unrest. Protesters began a national strike in Ecuador on Wednesday after President Lenin Moreno refused to step down or overturn anti-austerity measures that have triggered the worst unrest in a decade. Meanwhile crude inventories grew more than expected last week, rising by 2.9 million barrels, compared with analysts’ expectations for an increase of 1.4 million barrels, the Energy Information Administration said. Gold prices end higher, rising $8.90 or 0.6% to settle at $1,512.80 an ounce, snapping its 3-session decline on trade hopes


Economic Data

·     Wholesale inventories for August rose 0.2%, below the 0.4% estimate, increasing to $680.7B vs $679.1B in prior month, while July inventories revised to 0.2% gain from 0.1%. Wholesale sales were unchanged in August after rising 0.2% the prior month. JOLTs data showed job openings fell to 7.051M from 7.174M prior






WTI Crude















10-Year Note





Sector News Breakdown


·     Retailers; AOBC upgraded to buy at Craig Hallum with $10 tgt as believes valuation is extremely attractive and thinks there is a compelling near-term oppty with potential catalysts upcoming; IRBT downgraded to Underperform at Raymond James as think Street models aren’t reflecting the beginning of a meaningful commoditization cycle across the RVC category; in mattresses, SNBR was upgraded to outperform at Raymond James saying pullback over the last few months (down ~20% since end of July) creates a more favorable risk/reward setup heading into 3Q; FIT announced that it has undertaken a plan to shift its manufacturing operations outside of China for effectively all of its trackers and smartwatches; LEVI shares active after overall quarterly results beat but U.S. revs slipped 3%; BOOT rises as Stephens initiates overweight and $46 tgt

·     Consumer Staples and Restaurants; UNFI shares rise after company Director Roy purchased 10,000 shares on 10/7, as per filing; DNKN was upgraded to positive by OTR Research; DPZ was downgraded at Argus following Q3 miss and medium term outlook

·     Housing & Building Products; Jefferies in building products Q3 earnings preview says macro housing trends point to pick up in growth; raises PTs on OC, VMC, TREX, BLD, CBPX, IBP and MLM, saying with housing starts and existing home sales inflecting in last few months, expects growth to reaccelerate in 2020, and valuation for group doesn’t seem stretched



·     Energy stocks rose after media reports China was open to agreeing a partial trade deal with U.S., while Turkey’s military operation in northern Syria also supported prices as it could impact regional oil production. Saudi Arabia will recover its full oil production by the end of November, Saudi Aramco CEO Amin Nasser said today. Prices were partially supported amid unrest in Ecuador as Ecuador Energy Minister said oil production down 232K bpd due to unrest.

·     Inventory data; the API reported that U.S. crude supplies rose by 4.1M barrels for the week ended Oct. 4, showed stockpile declines of -5.9M barrels for gasoline and -4M barrels for distillates; the EIA data showed crude stockpiles rose a greater than expected 2.927M barrels vs. est. for build of 1.9M barrels, Gasoline inventories fell -1.21M barrels vs. est. for draw of -900K barrels and Distillate inventories dropped -3.943M barrels vs. est. for draw of -2.0M barrels – recap of data which is mixed (bearish crude, but bullish distillates)

·     Stock movers; XOM said it is “testing market interest” for its share of production assets in Peninsular Malaysia; RDSA said it lifted force majeure on exports of Nigeria’s key crude oil grade Bonny Light on Oct. 8. The company announced the force majeure on Sept. 13 after one of the two pipelines taking the grade to the export terminal was shut down; HAL said it is cutting another 650 U.S. oilfield services jobs as U.S. and gas producers have slashed spending amid weak prices and investor demands for higher returns.

·     Utilities & Solar; PCG shares volatile after California began Wednesday morning cutting power to 800,000 San Francisco Bay Area homes and 34 counties, blackouts could affect roughly 2.4 million people; PG&E said blackouts could last up to a week; SRE warns may cut power within 48 hours to prevent fires/would affect about 30k customers



·     Bank movers were to the upside, rallying with broader markets with earnings seasons right around the corner for the sector (starts next Tuesday), but expectations are low given a slowing IPO, M&A and trading environment, as well as likely softer lending margins due to low rates; in the insurance space, JRVR shares fell after it delivered a notice of early cancellation of all insurance policies issued to UBER affiliate Rasier/downgraded at B. Riley to sell and SunTrust downgraded to hold

·     Consumer finance and lending; PYPL said it expects to report a pre-tax loss of $228M ($177M on an after-tax basis) on the Company’s strategic investments in the quarter ended September; INTU’s QuickBooks announced Instant Deposit, a new feature that enables real-time2 disbursements for small business owners using QuickBooks Payments to directly access funds with their eligible debit card using Visa Direct (V) real-time3 push payments solution; FNMA and FMCC both upgraded at KBW Inc. as they expect a positive resolution as the government-sponsored enterprises move toward recapitalization



·     Pharma movers; JNJ faces litigation risks include an estimated 13,400 lawsuits over claims antipsychotic drug Risperdal causes personal injury after an $8B punitive damages award announced last night to a claimant who alleged the drug caused male breast growth; DBVT shares fell after priced 15.829M share Spot Secondary priced at $6.59; in the cannabis sector, RBC lowered tgts and estimates for WEED, ACB, TLRY, OGI, SNDL, and TRST while downgrading HEXO as argue that retail rollout, illicit competition, significant supply/demand imbalance, and vaping concerns and rec 2.0 execution will make near to medium-term growth challenging for the LPs, except in calendar 1Q20.

·     Biotech movers; FPRX shares rose as after the close yesterday, regulatory filings were made showing direct stock purchases by interim CEO and Director William Ringo (34,451 shares) and beneficial owner BVF Partners LP (601,482 shares); BLUE announces 3-yr research pact with Danish company NVO to jointly develop genome editing treatments for diseases

·     Services, medical equipment and devices; WAT was downgraded at Barclay’s to underweight and cut tgt to $195 saying leading indicators of the macro environment continue to weaken, and they see risk to the outlook for Waters’ Industrial sales exposure (31% of sales)


Industrials & Materials

·     Industrial & Machinery; LECO was downgraded by a second analyst in as many days (Stifel today after Opco yesterday); GTES was downgraded at RBC and cut tgt to $10 saying its operating environment looks as if it could get worse before it gets better; GNRC shares outperform ahead of expected CA power cuts by PCG due to risks

·     Transports; FDX was downgraded at Bernstein saying they originally upgraded the stock based on the idea that: 1) tax reform would support material upside to cash flow and improve the return profile; 2) the TNT integration would get on track; and 3) the company would remain disciplined in Ground…but said that bull thesis has been shredded; AAL followed LUV, as it pushes back its expected restart of BA’s 737 MAX service until January 16 (as MAX won’t fly again in 2019); Goldman Sachs lowered prices targets for several airlines (HA, LUV, SAVE, while raised tgt for UAL), but upped estimates (for ALGT, ALK, JBLU, UAL) to reflect a decrease in fuel costs

·     Metals & Materials; U.S. Steel (X) shares fell after its CFO announced intention to resign from his position effective Nov. 4. Bradley will remain with the company as Executive Vice President and Adviser to the CEO through year-end – as well as a new organizational structure to reduce costs; TMST shares fell after announced the abrupt resignation of Ward "Tim" Timken Jr. as chairman, chief executive and president

·     Chemicals; Citigroup downgraded shares of WLK, OLN (to neutral) and TSE to sell saying third quarter for Chemicals felt like a continuation of the second quarter, with weak autos and construction activity as well as slowing global trade. Has turned cautious on chlor-alkali and has moved to the sidelines on the chlor-alkali chain; NVZMY guides organic revs and Ebit margin below views for the year as no longer expects to achieve the full-year guidance of 1-3% organic sales growth and the company revises its guidance to -2-0%

·     Paper & Forest sector; RBC Capital out on the sector as they reduced Q3 EBITDA estimates for nearly half of companies under coverage, largely reflecting lower-than-expected commodity prices during the quarter, while downgraded ADN and CFP to sector perform and also decreasing targets for six companies to reflect weaker-than-expected commodity markets.


Technology, Media & Telecom

·     Semiconductors; index (SOX) rises on rising trade hopes of a positive outcome of crucial U.S.-China trade talks which begin Thursday after reports that Beijing is still open to agreeing a partial trade deal with the Washington, while FT reports Chinese officials are offering to increase annual purchases of U.S. agricultural products; MPWR mentioned by short-seller Spruce Point saying they believe shares face 75% – 85% downside risk to approximately $21 to $35 per share; NVDA rises after Piper said they believe it is one of the best-positioned semi companies from a specific catalyst perspective and its two biggest growth drivers, namely gaming and data center, are back

·     Software movers; in Internet security, FEYE guides Q3 revs above the high end of prior guidance of $217M-$221M (vs. est. $219M) and Q3 billings to be within the Company’s prior guidance range of $245M-$255M; in video games, ATVI free-to-play game Call of Duty: Mobile has hit the 100M download mark in its first week of release/significantly higher than mobile competitors Fortnite and PUBG, which accumulated 26.3M and 22.5M downloads in their first week; WORK shares slip after Jefferies cut tgt to $26 from $31 today saying the co is seeing more competitive intensity from Microsoft’s Teams app versus a year ago, primarily on the marketing side

·     Media & Telecom movers; AT&T Inc. (T) has agreed to sell its Puerto Rican and U.S. Virgin Islands businesses to Liberty Latin America Ltd. for $1.95 billion in cash, a move that could allow the telecommunications giant to shave its debt load, Dow Jones reported; LGF shares rise after WSJ reported it is weighing splitting off its Starz channel into a separate company, as the studio seeks to reduce its large debt load

·     Hardware & Component news; ROKU was upgraded at Macquarie as believe the shift to connected TV viewing that has been underway in the US for the past few years will follow internationally in the coming years.

·     Internet movers; NFLX tgt was cut to $265 from $330 at Rosenblatt saying heightened competition will lead to Netflix missing 4Q consensus subscriber growth as they forecast adds are down slightly YoY vs consensus +7%.


Market commentary provided by Hammerstone Markets, a division The Hammerstone Group, a firm separate from and not affiliated with Regal Securities L.P. Regal Securities L.P. has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.

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