Market Review: November 05, 2019

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Closing Recap

Tuesday, November 05, 2019

Index

Up/Down

%

Last

DJ Industrials

30.69

0.11%

27,492

S&P 500

-3.50

0.11%

3,074

Nasdaq

1.48

0.02%

8,434

Russell 2000

2.23

0.14%

1,599


 

Equity Market Recap

·     U.S. stocks hovered near new record highs for the S&P 500, Dow Jones Industrials and Nasdaq Composite adding to yesterday’s all-time bests, while the Dow Jones Transports was the latest index to trade to a new high as investors continue to rotate into stocks and out of defensive assets. Treasury prices dropped sharply as yields hit their best levels in over a month while gold sunk for its biggest one day dollar decline in about 5-weeks. Global markets got a boost following bullish trade headlines overnight, on reports the U.S. reportedly is considering rolling back the 15% tariff rate imposed on $112B of Chinese imports in September, and China is said to have asked the U.S. to also lower the 25% tariff rate on $250B of goods. Stocks extended gains following a stronger-than-expected ISM services reading, rising to 54.7 reading and topping the est. 53.5 (prior month reading was 52.6) on better orders and employment. The Dow Transports have quietly set new all-time highs, catching up with the Dow, S&P and Nasdaq, rising as high as 11,161 and taking out its previous April record highs – index has bounced nicely since the FDX lower outlook more than a month ago. UBER shares dropped to record lows following its mixed quarterly results while Kroger jumped over 11% on its beat and raise and ADBE shined in the software sector amid a positive outlook. The earnings overload continues with about one more week of an earnings blitz, while Small caps have played catch up as the Russell 2000 outperforms to hit 1,600 today, led by energy names.

Economic Data

·     ISM Non-manufacturing index for October rises to 54.7 topping the est. 53.5 (prior month reading was 52.6); the new orders segment at 55.6 vs. 53.7 in September and the employment index rises to 53.7 from 50.4 MoM and prices paid down at 56.6 from 60.0 last month

·     Trade data mostly in-line as the US international trade deficit narrowed to its lowest level in five months as trade with China shrank in September; the US trade deficit narrowed to (-$52.5B) in Sept., vs. est. (-$52.4B) and from (-$55B) in prior month. Trade deficit fell 4.7% in Sept. to five-month low; imports fell 1.7% in Sept. to $258.44B from $262.86B in Aug. and exports fell 0.9% in Sept. to $205.99B from $207.83B in Aug.

·     IHS Markit Economics said U.S. October composite purchasing managers’ index falls to 50.9 from 51 in Sept. (below year ago 54.9), while employment falls to 48.1 vs 49 in Sept. (lowest since Dec 2009) and new orders fall vs prior month to lowest reading since series began

·     U.S. JOLTS report showed job openings dropped 277k to 7,024k in September after rising 127k in August to a revised 7,305k (was 7,051k). The JOLTS rate fell to 4.4% from 4.6% (was 4.4%). Hiring’s were up 50k to 5,934k following the -94k decline to 5,884k

 

Commodities

·     Oil prices advanced on Tuesday ahead of weekly inventory data tonight (API) and tomorrow morning (EIA), with WTI crude rising 69c or 1.2% to settle at $57.23 per barrel. Oil rose for a third day, buoyed by signs of progress in the prolonged U.S.-China trade dispute, despite expectations for expanding American crude stockpiles. Gold prices declined -$27.40 or 1.8% to settle at $1,383.70 an ounce, its lowest level in about 3-weeks following strength in the U.S. dollar on better economic data and improving optimism about reaching details of a phase 1 trade deal with China in coming weeks. Today marked the third straight decline in gold prices and biggest one day dollar decline in over a month.

 

Currencies

·     The U.S. dollar extended recent gains as the dollar index rose for a second straight day given the better economic data, gaining nearly 80 bps from yesterday lows as approaches the 98 level. The euro fell to session lows late afternoon, down -0.5% vs. the dollar at 1.1065, while the buck gained vs. the safe-haven yen as well. Strong recent economic data, hopes for a first step trade deal and the Fed likely in the rear-view mirror on additional rate cuts have provided the ammo need to push the dollar higher the last few sessions.

 

Bond Market

·     Treasury yields rise for a 3rd straight session, with the 10-year moving above 1.85%, up about 8 bps to its highest level since mid-September following stronger ISM data while the 2-yr yield was up over 5 bps to 1.635%. The decline in Treasury prices comes after last week’s FOMC cut, but appeared to be the last of the year given comments as they appear to be in wait and see mode (and last few data points for ISM, jobs have come in strong – raising prospect the Fed will indeed hold steady going forward. The U.S. Treasury sold $38B in 3-year notes at a yield of 1.63% vs. 1.631% when issued prior with a strong bid-to-cover (demand) at 2.60 vs. 2.43 prior and indirect bidders awarded 53.3% of auction.

 

 

Macro

Up/Down

Last

WTI Crude

0.69

57.23

Brent

0.83

62.96

Gold

-27.40

1,483.70

EUR/USD

-0.0061

1.1067

JPY/USD

0.60

109.18

10-Year Note

0.086

1.863%

 

 

Sector News Breakdown

Consumer

·     Retailers; TPR posts Q3 EPS beat and slight sales miss while backing FY20 outlook/reports comparable sales rose 1.0% for the Coach brand in Q3 vs. +0.9% consensus and fell 16.0% for Kate Spade vs. -18.0% consensus/op margin fell 110 bps to 12.3% of sales, but topped the consensus expectation for a mark of 10.2%; ZBRA was downgraded at JPMorgan citing outperformance this year; REAL reported strong results in its second quarter as a public company. GMV and revenue accelerated sequentially and exceeded consensus forecasts, increasing 48% and 55% y/y, respectively – shares fell above a late day CNBC investigative report

·     Consumer Staples; in grocers, KR announced a new $1B share buyback plan, guided full-year identical sales growth of +2.25% vs. a prior range of +2.0% to +2.25% and upped its full-year EPS view to $2.30-$2.40 from $2.15-$2.25 prior; BYND upgraded to Outperform at Bernstein with an unchanged price target of $106 noting the stock closed Monday down 3% to $79.79 and is making a straight forward valuation call with the shares down 66% from their peak; USFD Q3 net Q3 sales of $6.53B narrowly beat on EPS beat of 4c and raised its annual total case volume growth and adjusted EBITDA outlook and EPS to $2.35-$2.40, from prior $2.15-$2.25

·     Restaurants; SHAK reported a disappointing quarter, with Q3 comp sales of 2% missing consensus’ 2.9% and restaurant margins of 23.1% below consensus’ 24.3% while FY19 revenue guidance was raised to $592-597MM, including comps of ~1.5% (from ~2%), company unit opens of 38-40 and licensed unit opens of 24-28 (from 18-20

·     Housing & Building Products; PIR names CFO Robert Riesbeck to be the company’s new CEO in addition to his current duties; DOOR rises post Q3 results; reaffirms FY19 guidance; ETH rises by the most in 6-months after in-line Q3 results for earnings and sales; FRTA among the day’s top gainers after Q3 sales beat trading to 52-week high; AFI shares guiding 2019 adj. Ebitda of $20M-$25M below the prior $46M-$54M view

·     Casino & Leisure movers; WWE announced it will put on two PPV events annually in Saudi Arabia; PTON forecast a bigger rise in 2020 revenue than expected as the company signed up more subscribers and narrowed its loss in its first set of results/margins move higher; lodging names active following earnings from MAR, CHH, VAC; in casinos, CZR reports tonight after the close

·     Auto sector; UBER sunk to record all-time lows/said it expects to be EBITDA positive in FY21, but was overshadowed as the company missed underlying bookings and ridesharing metrics which was viewed mixed to negatively by the Street/Q3 gross bookings were $16.47B (vs. est. $16.7B) and Uber Eats bookings grew 8% on the quarter to $3.66B (vs. est. $3.89B); HTZ shares rise as U.S. RAC transaction days increased 5% during the quarter and U.S. RAC revenue was up 6% despite mixed Ebitda for quarter of $392M (beat last year’s $351M but below views of $399M)

·     Services; CHGG shares rose after reported their 11th consecutive beat and raise Q and the EBITDA/revenue beat were larger than average;

 

Energy

·     Energy stocks; OPEC said it expects its oil supplies to fall continuously over the next five years, suggesting the cartel may need to keep cutting output to stabilize prices amid a bigger-than-expected U.S. production boom and sluggish oil demand. OPEC and its allies are set to debate whether they will maintain current production cuts of 1.2 million barrels a day or deepen the reductions at a meeting on Dec 5; OXY shares dropped following its Q3 earnings miss

·     E&P sector; CHK reported a wider than expected Q3 loss and a 2.5% drop in revenues to $1.17B, hurt by a decline in production and lower natural gas prices as Q3 total production fell 11% Y/Y to 478K boe/day from 537K boe/day in the year-earlier quarter; XEC reported a miss on the quarter (adjusted EPS of 91c est 92c) on NGL prices (13%/5% lower than street) and production of 287.1 Mboe/d was 3%/4% higher than consensus largely driven by a 9% beat on natural gas volumes; PXD reported strong earnings results (beating consensus on EPS/EBITDA) for 3Q, driven largely by volumes coming in ~3% better than consensus and reported a significant beat on cap-ex (has been taken down another $150M, now down $250M); CDEV provided a mixed bag with a Q3 EBITDA miss that’s offset by a positive revision to FY19 guidance

·     Utilities & Solar; FE downgraded at Morgan Stanley to equal-weight citing the company’s narrowed P/E discount versus peers along with a more balanced risk-reward; PPL reported a miss on top and bottom line for Q3 and narrows its year EPS view to $2.35-$2.45 from prior $2.30-$2.50; ED missed 3Q EPS estimates and posted lower FY 2019 guidance but offered improved visibility through 2022; NRG shares dropped but overall utilities down on rising Treasury yields

 

Financials

·     Bank movers; stocks were mostly higher, benefitting over the last week from the jump in Treasury yields (as seen as helping lending margins), with 52-week highs for several names again today in the banking space JPM, USB, FITB, PNC, HBAN, C, STI, BBT, KEY, MS, NTRS all in the S&P; SCHW downgraded at Raymond James saying not sold on the notion that Schwab can meaningfully pivot towards a more advisory-type business model in a zero commission world

·     Insurance; CB was upgraded to outperform at Credit Suisse with a price target of $165, up from $145 saying as some insurers dramatically retrench their capacity limits, other insurers like Chubb are in a good position to win over long-term accounts; PRU was downgraded at Wells Fargo after earnings noting the quarter beats but the forward outlook is weaker; HIG posted an EPS beat easily topping views on better revs

·     Consumer finance and lending; FIS Q3 adjusted EPS beats, pushing its full-year adjusted EPS guidance to exceed the average analyst estimate/sees 2019 adjusted EPS of $5.47-$5.56 vs. consensus estimate of $5.44; MGI announces it extended its contract with Walmart to continue providing money transfer, bill payment and money order services into 2021; payments names weak this morning with shares of SQ, V, MA, FLT, GPN weak; WU cautious mention at Bank America as reiterate underperform after factoring in the expansion of Walmart’s Walmart2World global money transfer service

 

Healthcare

·     Pharma movers; MYL tops quarterly profit estimates (sales fall short) on launches of new treatments, including asthma drug Wixela and infection-fighting drug Fulphila and narrows its FY adj EPS outlook range to $4.20-$4.40 from previous forecast of $3.80-$4.80 – shares fell late day; ENDP reported 3Q revenue of $729M and adj. EBITDA of $321M, which came in ~2% and ~4% ahead of consensus, respectively, with strength in the quarter driven primarily by Vasostrict (+15% growth) and Xiaflex (+29% growth

·     Biotech movers; REGN rises after revs rose over 23% to $2.05B topping the $1.99B est helped by higher sales of eye drug Eylea; U.S. sales of drug rise 16% to $1.19B and global sales of eczema drug Dupixent more than double to $633.1M/announces $1B share buyback; AMGN was upgraded to overweight at Cantor and raised its tgt to $255; ICPT shares dropped after larger Q3 EPS loss and slight miss to Ocaliva Q3 sales while raises year sales view; AGIO disclosed that it would not file an sNDA for Tibsovo by YE 2019 after receiving feedback from the FDA; NXTC shares surged over 200% amid Phase 1 clinical trial evaluating lead candidate NC318, a Siglec-15-targeting monoclonal antibody, in patients with solid tumors; EPZM rises after announced funding agreements with Royalty Pharma and its affiliate Pharmakon Advisors that, in aggregate, could bring in up to $270 million in capital

·     Medical equipment and devices; MYGN shares plunge after misses Q1 revenue and profit estimates, marking second consecutive quarterly miss and lowers 2020 revenue forecast to $800M-$810M from $865M-$875M on lower EPS amid issues including regulatory uncertainty for its GeneSight testing system; ZBH Q3 profit beats estimate on demand for its knee products while reiterates 2019 forecast/said net sales for ZBH’s knee products rose ~4% to $652M; TNDM shares fell despite beat as forecasts 2019 revenue to be between $358M-$365M which according to analysts implies a lower-than-expected Q4 sales forecast

·     Healthcare services and providers; WBA shares jumped on a Reuters report that the company has held talks with private equity firms about the potential to be taken private; FLGT shares rise after Q3 beat as reports ~84% rise in revenue to $10.35M, beating est. of $8.45M citing improved qtr to increased demand for its gene sequencing services, especially in oncology and reproductive health businesses; in hospitals, THC reported 3Q adjusted EBITDA of $631mn vs. $577mn a year ago (+9.4% y/y), 0.8% above consensus of $626mn/beat was driven by lower other operating expenses

 

Industrials & Materials

·     Industrial & Machinery; Class 8 truck orders for October dropped 49% y/y to 22,100 units, citing ACT Research data where Buckingham expected to be in the “high-teen to low-twenty thousand” unit range for the month of October/marked the 12fth consecutive month of y/y declines (shares of PCAR, CMI, NAV leveraged to the data); MG shares drop as cuts year rev outlook to $740M-$750M from prior $765M-$785M and Ebitda view to $70M-$75M from $90M-$93M after weaker Q3 results; MDR CFO resigns and reports revenues for quarter well below consensus

·     Transports; the Dow transports have quietly set new all-time highs, playing catch up with the Dow, S&P and Nasdaq, rising as high as 11,161 and taking out its previous April record highs – index has bounced nicely since the FDX lower outlook a month ago; EXPD leads today’s gains following quarterly profit beat; in tankers, BTIG raised tgts for many (FRO, EURN, NAT, INSW) saying VLCC tanker rates look to have stabilized in the $65-75k/d range. The last time VLCC tanker rates were this high was 2015, when VLCC rates averaged $65k/d for the year

·     Metals & Materials; gold miner NEM slides after Q3 results and cutting its gold production view while sharp declines in gold prices on the day weighed on the mining sector; US Steel (X) was downgraded to hold at Argus

·     Chemicals; MOS shares fell as Q2 EPS miss and cuts FY19 adj. EPS view to 50c-60c from $1.10-$1.50 (est. 98c) and also cuts FY19 adjusted EBITDA view to $1.4B-$1.5B from $1.8B-$2.0B which reflects the impact of historically low potash sales volumes – but reversed higher after saying sees bottom; RYAM drops after 3Q sales missed the lowest estimate, and trade issues were expected to hurt 4Q results; WLK shares jump as Q3 EPS $1.22 tops the $1.03 estimate though sales of $2.07B miss views; CC Q3 EPS and sales come in just above consensus though cautious on outlook into 2020 (TiO2 stocks rallied in sympathy including VNTR, TROX and KRO)

 

Technology, Media & Telecom

·     Internet; online insurance marketplace EVER posts first qtrly profit since its Jun 2018 IPO sending shares higher and raises FY rev guidance to $242-$244M, up from prior forecast of $215-$219M, as several analysts raise tgt price with Street high $35 by a few; ATHM shares fell following mixed quarterly results; GRPN missed on rev & EPS, but EBITDA beat

·     Semiconductors; NXPI was upgraded to buy (with $130 tgt) at Mizuho as see improving auto trends (~45% of revs) in 2020-21 after declines of ~1.5%/7% y/y in 2018-19, and improving industrial trends (~20% of revs) supported by China PMI after almost a year of declines; INFN slipped after rescheduling its Q3 report from November 6 to pre-market on November 12 saying it needs the additional time to complete its quarter-end closing procedures; LRCX tgt raised to $330 from $282 at Citigroup as recent US memory supply chain discussions provide positive early assessment of 1H20 demand trends; DIOD slips initially after weaker Q4 rev outlook; VECO surges to its best levels since June 2018 after Q3 beat and midpoint of Q4 guidance above ests

·     Software movers; ADBE issued better outlook, prompting analysts’ to raise tgt as company guided 2020 revenue of about $13.15B (estimate: $13.14B), 2020 EPS of $9.75 (estimate: $9.69), and Q4 Digital Media net new ARR of about $475M (+$25M from prior guidance and said on tract for Q4 revenue of $2.97B with $2.25 EPS – Cowen raises tgt to $295, Jeff to $350 and Citi to $321; PI reported strong September quarter results beating Street estimates across the board highlighted by another quarter of record revenues and continued profitability; SYMC upgraded to buy from neutral at UBS on higher conviction in mgmt’s $1.50+ earnings power and $900M+ FCF expectations for the Consumer business based on our standalone model; WDAY acquired Scout RFP yesterday for about $540M in cash (shares of COUP fell in reaction); DFIN slides after the company cuts guidance for the year following Q3 results that fell short of consensus estimates; SNCR share plunge over 20% after wider quarterly loss

·     Media & Telecom movers; RNG shares jumped after posting its largest-ever beat in what is typically a seasonally slower quarter according to Guggenheim, with subscription revenue accelerating to 33% growth (vs. 32% in FY18) for the third quarter in a row

·     Hardware & Component news; XRX has agreed to sell its 25% stake in Fuji Xerox to Fujifilm for $2.2B, bringing an end to their 57-year-old joint venture; LASR reported Q3 results that were below expectations and gave an outlook that disappointed

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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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