Market Review: November 06, 2019

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Closing Recap

Wednesday, November 06, 2019

Index

Up/Down

%

Last

DJ Industrials

-1.42

0.00%

27,492

S&P 500

2.11

0.07%

3,076

Nasdaq

-24.05

0.29%

8,410

Russell 2000

-9.96

0.62%

1,589


 

Equity Market Recap

·     U.S. stocks ended mostly flat, though the tech heavy Nasdaq Comp and SmallCap Russell 2000 index underperformed after a strong run over the last few days. Stocks teetered between gains and losses, slipping midday after a Reuters headlines that Trump/Xi meeting to sign trade deal may be delayed until December due to terms and venue. Stocks rebounded on a follow up report that the U.S. is considering scheduling the Trump-Xi meeting to sign interim U.S.-China trade deal after the NATO summit in London in early December, but no decision yet has been made. Note all three indexes have set new highs this week, driven by optimism about the potential for a partial trade deal between the U.S. and China, easing monetary policy from the Federal Reserve and a better-than-feared corporate-earnings season, but appear to be treading water at these levels. Economic data disappoints as nonfarm productivity declined for the month, the lowest reading since December of 2015 (which follows a recent round of better results in jobs and manufacturing). Oil prices slipped from earlier highs after a bearish weekly inventory report, while Treasury prices and gold each rebounded after their recent pullbacks. There were a handful of stock movers on M&A news (HPQ rises on reports XRX considering a bid, while AYR jumped 16% and WLH by 11% after both being agreed to be acquired). Energy stocks among the biggest decliners following the decline in oil prices. Another heavy dose of earnings tonight with QCOM, ROKU, SQ expected.

·     Nonfarm productivity for Q3-P reported at an unexpected decline of down (-0.3%), its first negative reading since December 2015 and vs. est. at 0.9% (prior month upwardly revised to 2.5% from 2.3%) and unit labor costs surge 3.6%, well above the estimate of up 2.2%. Note Investor Intelligence poll shows equity newsletter writers considered bullish rises to 57.1% from 54.2%, its highest since July 31, while newsletter writers expecting a correction falls to the lowest since October of 2018, sinking to 24.8% from 28.0%; those considered bearish rise to nine-week high of 18.1% vs 17.8%

 

Commodities

·     Oil prices slumped on Wednesday with WTI crude falling 88c or 1.5% to settle at $56.35 per barrel while Brent prices dropped $1.22 or 1.94% to settle at $61.74 per barrel, falling post-bearish inventory data (larger than expected builds on the week from the EIA) and an earlier Bloomberg headline saying OPEC+ is not seeking pushing for deeper output cuts. This comes following reports on November 4, when Iran’s oil minister said the cartel plus Russia had discussed further reducing output. Add reports that the Trump/Xi meeting to sign trade deal may be delayed until December due to terms and venue also factored in. Natural gas prices turn lower after three straight days of increases as investors take some profits ahead of a weekly EIA storage report due Thursday morning – nat gas prices edge lower 1% to $2.83 mln btus.

·     Gold futures settled higher, rising $9.40 or 0.6% to settle at $1,493.10 an ounce, cutting yesterday’s losses in half while silver prices added 3c to $17.598 an ounce. Prices dropped yesterday (gold to lowest since Oct 15th) amid gains in stocks, yields and a firmer U.S. dollar, all weighing on commodity prices, but the dollar slipped today as yields erased gains.

 

Currencies & Treasuries

·     The U.S. dollar opened lower following two days of gains, but slowly pushed higher throughout the session, rising against the euro and Pound (Pound slides to 1-week lows vs. the dollar around 1.285), while the buck slipped against the Japanese yen, falling to intraday lows of 108.82 from over 109.05 on reports saying a trade deal between the U.S. and China may not happen, according to a senior White House official. A weaker non-farm productivity report weighed on the greenback earlier. Treasury prices rose as yield slipped from one month highs. The U.S. Treasury sold $27B in 10-year notes at a yield of 1.809% vs. 1.82% when/issued prior as the bid-to-cover (demand) stood at 2.49 vs. 2.43 prior auction and indirect bidders were awarded 64.5% of the auction and directs 12.4%.

 

 

Macro

Up/Down

Last

WTI Crude

-0.88

56.35

Brent

-1.22

61.74

Gold

9.40

1,493.10

EUR/USD

-0.0006

1.1068

JPY/USD

-0.25

108.91

10-Year Note

-0.051

1.807%

 

 

Sector News Breakdown

Consumer

·     Retailers; CPRI shares fell on lower-than-expected Q2 profit as sales of its Versace brand hit by protests in Hong Kong and negative consumer reaction to an incorrectly labeled T-shirt while also forecasts Q3 revenue below analysts’ estimates; in guns (RGR, AOBC), October NICS data shows another month of double-digit increases, the third consecutive month of double-digit growth; ADDYY posts slightly better EPS as Europe improves but China decelerates; TIF shares advanced early afternoon after Reuters reported that asked LVMH to raise its $14.5B offer

·     Consumer Staples; WW shares fall after Q3 sales and gross margins missed estimates, prompting a downgrade by Davidson ($348.6M vs. est. $352.5M and subs rose 6% YoY to 4.4M but was down from last quarter’s 4.6M); NUS shares slide as EPS beat but revenues miss on much weaker guidance citing China weakness, prompting a downgrade at Citigroup; COTY Q1 results were mostly in-line with expectations as high-margin luxury fragrances power Coty’s profit beat

·     Restaurants; WEN posted Q3 beat and FY forecast raise as revs and earnings rose from year-ago quarter as well, helped by strong performance in North America/revises adjusted EPS forecast range for 2019 to between ~1.5% fall and ~1.5% rise, from ~3.5% to ~6.5% fall; BLMN reported in-line EPS and revs while also announces that its exploring and evaluating strategic alternatives that have the potential to maximize value for shareholders, including looking at a possible sale; RRGB slides after mixed results (EPS miss, revs beat) as lowers year outlook; PZZA shares jump following earnings as system-wide North America comparable sales increased 1.0% in Q3 vs. -0.9% consensus and better int’l comps as well

·     Housing & Building Products; a deal in the housing sector as TMHC agreed to acquire smaller homebuilder WLH in a deal valued at $2.4B in cash/stock, offering $21.45 per share (including debt) – deal for $2.50 per share in cash and 0.8 shares of TMHC stock https://bit.ly/36DII37 ; LOW was upgraded to outperform at Credit Suisse and raise tgt to $129 from $114 as believe that LOW offers a compelling risk/reward; in building products, VMC pares early losses despite missing Q3 earnings expectations while revenues rose 14% Y/Y to $1.42B/Q3 Aggregates segment sales gained 15% Y/Y to $1.13B/reaffirms guidance for full-year earnings; flooring co LL bounces off lows despite EPS miss (8c vs. est. 23c) on light sales ($264M vs. $276M est.) and lowers 2019 total revenue growth percentage of flat to slightly positive compared with prior est of low single digits/sees year comp sales of negative 2% to flat from earlier est. of about flat; BXC shares plunge over 30% after its Q3 EPS and revs missed views

 

Energy

·     Energy stocks; in Brazil, PBR, CEO, CNODC won the country’s Buzios oil block; EQR said it found oil and gas at the Echino South prospect near the Fram field in the North Sea, with estimated recoverable resources of 38M-100M boe; DVN shares were little changed after earnings. In inventory news, the API reported that U.S. crude supplies rose by roughly 4.3 million barrels for the week ended Nov. 1, showed stockpile declines of about 4 million barrels for gasoline and 1.6 million barrels for distillates. The EIA this morning with bearish reading for oil inventories as the EIA weekly energy inventory data due at 10:30: Crude inventories rose 7.93M Barrels vs. est. for build of 2.0M barrels; Gasoline inventories fell -2.82M Barrels vs. est. for draw of -2.0M barrels; Distillate inventories fell -622K Barrels vs. est. for draw of -1.25M barrels

·     E&P sector; FANG shares drop as 3Q oil volumes missed already low expectations, combined with a downward revision to FY19 oil volumes, and initial 2020 oil guidance that is well below Street expectations on relatively in-line; WLL shares dropped initially after weak gas and NGL pricing realizations hurt 3Q results, posting Q3 EPS loss of (38c) vs. est. loss (12c); PE Q3 EPS was 1.9% above expectations, but 4Q19 oil production guidance was 2.2% below consensus/3Q19 production was 3.3% above expectations; CHK shares plunged below $1.00 per share after WSJ reported Chesapeake Energy said it may be unable to stay in business if oil and natural gas prices remain depressed

·     Utilities & Solar; AES reports Q3 earnings beat and announcing a 10-year alliance with Google to develop and implement solutions to help AES customers utilize clean energy; PCG shares fell sharply mid-morning, dropping nearly 20% halted briefly for volatility (no apparent news)

 

Financials

·     Consumer finance and lending; AYR rises after the company agrees to be acquired by Marubeni and Mizuho Leasing, for $32 per share https://bit.ly/2POd6C9 ; LC shares outperform after higher than expected adjusted EPS in 3Q19 along with 16% growth in origination volumes, and a notable decline in direct expenses

·     REITs; Bespoke: 8 of the 25 worst performing S&P 500 stocks since last Wednesday’s Fed meeting are from the Real Estate sector; INN 3Q results were largely in line with expectations while RevPAR growth was marginally softer than expected; KRG maintained the FY19 FFO guidance midpoint, raised its SSNOI growth forecast for the year after slight Q3 miss; DEI posted a 3Q19 FFO beat and maintained the midpoint of its 2019 FFO guidance

 

Healthcare

·     Pharma movers; SUPN shares fall as lowers FY19 net product sales to $390M-$395M from $400M-$410M and sees FY19 op earnings in range of $150M-$155M, vs. prior range of $150M-$160M/said SPN-810, its treatment for impulsive aggression in ADHD patients aged 6-11, failed a trial; PRGO raises lower end of 2019 adj. EPS forecast to $3.85 from $3.75, maintains upper end at $4.05 as Q3 sales of $1.2B was in-line on better EPS; MNK said in a regulatory filing that in August 2019, the company received a subpoena from the SEC for documents related to the company’s disclosure of its dispute concerning the base date average manufacturer price under the Medicaid Drug Rebate Program for Mallinckrodt’s Acthar Gel; ELAN reported 3Q results in-line operationally but core revenue guidance was lowered; GWPH rolls to lows after earnings as Piper noted Epidiolex 3Q sales of $86.1M was relatively in-line w/ expectations has some investors concerned about future growth prospects; ANIP slides on lower 2019 revenue outlook of $209M-$212M vs. est. $222.3M); sliding on earnings/guidance: VVUS, LGND, RARE, FATE

·     Biotech movers; GILD announces new data from two Phase 3 clinical trials presented at the European AIDS Conference where HIV meds show sustained benefit in late-stage studies; CNST rises as abstracts show JAK-naïve myelofibrosis patients who have only received CPI-0610 in combination with Incyte’s Jakafi saw benefits; ARQL fell following an abstract on blood cancer candidate ARQ 531, a reversible BTK inhibitor, that will be presented at ASH next month

·     Medical equipment and devices; DVA rises as tops Q3 revenue and profit expectations on kidney business strength, and raises FY20 adj. EPS forecast to $5.25-$5.75 from its prior range of $5-$5.50; EW announces CE Mark certification for its SAPIEN 3 transcatheter heart valve for the treatment of patients diagnosed with aortic stenosis who are at low risk for open-heart surgery, the first transcatheter aortic valve implantation (TAVI) system to have this indication in Europe; PODD shares jump after better earnings and raising year revenue outlook; FLDM shares nearly cut in half as 3Q19 revenues missed the midpoint of the guidance range by ~$2mm driven by weaker than expected mass cytometry instrument placement/lower guidance

·     Healthcare services and providers; CVS boosted its full-year earnings outlook as it reported quarterly results that exceeded expectations, boosted by higher prices for brand name drugs (raises FY19 adj. EPS view to $6.97-$7.05 from $6.89-$7.00 and ups rev view as well); HUM raises 2019 adj. EPS forecast to $17.75 from $17.60, after reporting a better-than-expected Q3 profit due to strength in its Medicare Advantage business; THC upgraded at Credit Suisse to outperform; EVH reported no update on the status of Passport Health Plan’s RFP with the Kentucky Medicaid program and cuts year adjusted Ebitda loss view; INGN jumps on EPS beat; ACHC shares slide on Q3 revenue miss and lower profit and sales outlook

 

Industrials & Materials

·     Industrial & Machinery; CAT CFO said expects the hit from tariffs to be below $250M for 2019, compared with a prior expectation for $250M-$350M, at co presentation; MWA provided initial guidance of 4-8% adj. EBITDA growth in FY20, implying a range of $206-214M below the $219.7M consensus; BA slips on headlines regulators find gaps in 737 Max software documentation

·     Metals & Materials; GOLD Q3 results topped expectations for profit after producing more gold and fetching stronger prices for the precious metal/revenue rose 46% from the year earlier to $2.68 billion, slightly higher than estimates; industrial metals (steel, copper, aluminum producers) slipped on headlines of a delay to sign a trade deal between the U.S.-China; CENX shares advanced despite missing on the top/bottom line and talked about lower alumina prices

·     Chemicals; LTHM shares fell as missed Q3 GAAP earnings and sales expectations and called for lower full-year profit and revenue (guides year revs $400M-$410M on EPS 44c-47c vs. est. $453M/58c)/signed a memorandum of understanding for a multi-year supply agreement with LG Electronics Inc. for lithium hydroxide starting in 2020; VNTR rises after earnings beat for Q3 and better adj Ebitda $526M vs. est. $511M (follows good results from CC the day prior in the TiO2 sector along with TROX, KRO)

 

Technology, Media & Telecom

·     Semi’s and Internet; CARS Q3 revenue beats estimates, FY19 guidance is maintained; MEET falls after being downgraded to hold at Canaccord citing concerns about revenue at the company’s video product; Semiconductors; MCHP reported SepQ earnings last night that disappointed vs. consensus expectations and guidance for the DecQ also came in light as mgmt expects revenue to decelerate 6% Q/Q; QCOM to report earnings tonight; semi names pullback after recent highs

·     Software movers; CYBR rises as reports Q3 beats with revenue up 28% Y/Y and upside guidance for revs ($125-127M vs. est. $122.7M), and EPS and for year as well while Q3 license revenue was up 25% Y/Y to $57.9M; several names in the software sector with earnings today included

·     Media & Telecom movers; ATUS falls as lowers year rev outlook to up 2.5% from prior view up 3%-3.5%, while fell short of Street expectations with its Q3 earnings, with revenue growth dragged by a slowdown in news and advertising and telephony; MTCH shares slump as 3Q revenue/EBITDA beat slightly, but shares fell as co guided 4Q below Street ests (revs of $550M vs. Street’s $559M)/Jefferies said the expected step-down in Tinder net adds (437k to 236k) is the likely driver of the stock weakness; CTL was downgraded to sell at Guggenheim noting shares are up 41% since late May and industry data points are not encouraging; WIFI jumps on better Q3 results (Q3 EPS 0c/$64.7M vs. est. loss (10c)/$62.8M) and narrows year outlook; SBGI shares rolled early after Q3 results disappoint amid higher expenses; NYT shares slipped after 6.7% ad revenue decline and said was experiencing turbulence in the online mkt; VG dropped after swinging to an unexpected quarterly loss

·     Hardware & Component news; HPQ rises after the WSJ reported XRX is considering making a cash-and-stock offer for HPQ at a premium to its market value https://on.mktw.net/2WLSbRs; PLT shares plunged on sharply lower guidance; Q2 EPS $1.24/$462M vs. est. $1.33/$482.88M; sees 3Q revs $383M-$423M below est. $509M

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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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