Market Review: November 27, 2019

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Closing Recap

Wednesday, November 27, 2019

Index

Up/Down

%

Last

DJ Industrials

43.88

0.16%

28,165

S&P 500

13.19

0.42%

3,153

Nasdaq

57.24

0.66%

8,705

Russell 2000

9.89

0.61%

1,634


 

Equity Market Recap

·     U.S. stocks extend their winning streak to four days, with new record setting highs for the S&P, Nasdaq Comp and Dow Jones Industrials and 52-week highs for the Russell 2000 index heading into the Thanksgiving Day holiday tomorrow where markets are closed (and shortened day on Friday as stock markets close at 1:00 PM). The U.S. dollar rose after a batch of U.S. economic data brightened the economic outlook and investors remained bullish on the prospect of a U.S.-China trade accord after U.S. President Donald Trump said yesterday that Washington and Beijing were in the final throes of inking an initial trade deal (trade headlines were quiet overnight). Back to the economic data, GDP estimate reading at 2.1% vs. est. 1.9% while core PCE (inflation) at 2.1% below the 2.2% estimate and durable goods rise 0.6% vs. est. down (-0.9%); jobless claims also better at 213K vs. est. 221K but pending home sales fell unexpectedly. In the industrial space Deere (DE) with better quarterly results, but a lower outlook and revenue guidance weighed heavily on shares of farm equipment stocks. Oil edged lower after a report showing U.S. crude inventories grew unexpectedly last week.

·     The Fed Beige Book showed the U.S. economy expanded modestly from October to mid-November and the outlook for growth was generally positive while labor markets remained tight across the country. "Outlooks generally remained positive with some contacts expecting the current pace of growth to continue into next year," the Fed said in its "Beige Book" report. Several Fed districts reported "relatively strong job gains" in professional and technical services as well as in health care. The picture was more mixed for manufacturing, with some districts noting rising headcounts while others said employment remained stable.

Economic Data

·     Gross Domestic Product (GDP) second estimate for Q3 reported at up 2.1%, better than the 1.9% estimate after rising 2% last quarter; personal consumption stronger than expected, rising 2.9% vs. est. 2.8%, but lower than 4.6% growth prior quarter; the GDP price index rose 1.8% in 3Q after rising 2.4% prior quarter and core PCE QoQ rose 2.1% in 3Q (est. 2.2%) after rising 1.9% prior

·     Durable Goods Orders for October rise an unexpected 0.6%, topping the estimate for down (-0.9%) while durable goods new orders revised down to -1.4% for Sept. from -1.2%; new orders ex-transport rose 0.6% in Oct. after -0.4% fall and ex-defense rose 0.1% in Oct. after -1.8% fall

·     Weekly Jobless Claims fell 15K to 213K, below the 221K estimate while prior week claims revised up to 228K from 227K; continuing claims fell 57K to 1.640M in the week ending Nov. 16; the 4-week moving avg fell to 219,750 from 221,250 prior week (previous 221,000)

·     Chicago PMI for November better than estimates, but below last month reading as was reported at 46.3 vs. est. 47.0 (after 43.2 reading last month)

·     Pending home sales fell (-1.7%) MoM in October vs. est. for up 0.2%; with gains in the Northeast up 1.9%, but declines in Midwest, South and West

·     Personal Spending for October rose 0.3% MoM, in-line with estimates while personal income in Oct. was unchanged missing the est. 0.3%; PCE prices rose 0.2% MoM and 1.3% YoY while core prices rose 0.1% MoM and 1.6% YoY; the compensation rose 0.4% in Oct. and the savings rate at 7.8% in Oct. vs 8.1% last month

 

Commodities

·     Oil prices eased into tomorrow’s holiday, sliding 30c or 0.5% to settle at $58.11 per barrel following a weekly report showing U.S. crude inventories grew unexpectedly last week (rose 1.6M barrels vs. est. draw of -878K barrels) while production hit a record high at 12.9M barrels per day and refinery runs slowed. Gasoline stockpiles surged, 5.1M barrels, compared with expectations for a 1.2M-barrel gain, but losses were limited by optimism that a U.S.-China trade deal would be reached soon (WTI crude snapped its 2-day win streak). Oil prices pared losses slightly after the weekly Baker Hughes report showed U.S. oil drillers reduced the number of drilling rigs for a record 12 months in a row, despite fresh production highs. Natural gas prices slipped 3.2c or 1.3% to settle at $2.501 mln btus. February gold prices fell $6.60, or 0.4%, to end at $1,460.80 an ounce, as strong demand for U.S. stocks ahead of the Thanksgiving holiday kept pressure on the precious metal.

 

Currencies & Treasuries

·     The U.S. dollar rallied to its best levels in nearly 6-month against the Japanese yen, rising above 109.50 while the euro slipped to around the 1.10 level as the buck was generally higher against most major currencies following the better economic data. Sterling slipped as pre-election opinion polls showed some narrowing of British Prime Minister Boris Johnson’s Conservatives lead over opposition parties. Treasury prices slip; after a quick spike earlier in Treasury yields on solid earnings (10-yr touched highs of 1.775%), they since traded in tight range, with the 10-yr up around 2 bps at 1.76%; the 2-yr yield up 3.6 bps to 1.617%. The U.S. Treasury sold $32B in 7-year notes at a yield of 1.719%, in line with when-issued yield at 1.719% as bid-to-cover at 2.44 vs. 2.46 prior auction and indirect bidders awarded 69.6% and primary dealers 20.3%.

 

 

Macro

Up/Down

Last

WTI Crude

-0.30

58.11

Brent

-0.23

64.06

Gold

-6.60

1,460.80

EUR/USD

-0.0018

1.1003

JPY/USD

0.49

109.54

10-Year Note

0.02

1.762%

 

 

Sector News Breakdown

Consumer

·     Retailers; GES shares declined after mixed Q3 earnings/forecast, which both featured better EPS but weak sales/Americas retail revenue decreased 4.9% in U.S. dollars and 4.5% in constant currency during the quarter/guides year op margin view to 5.4%-5.6% from 5.3%-5.6% but slightly lowers year revs ex-FX to up 5.7%-6%; DKS was upgraded at Evercore/ISI and Barclay’s following earnings results yesterday; Citigroup noted PVH said it is looking for acquisition opportunities, and the firm suggested that given PVH’s large exposure in apparel, the company may want to diversify into accessories, which they say could point to TPR or CPRI Hudson Bay (HBAYF) rises after Catalyst Capital Group, which owns about a 17.48% stake, offered to acquire the company for cash consideration of C$11 per share https://on.mktw.net/2QVrfxP ; CENT shares fell after mixed quarter as gross margin fell 180 bps Y/Y to 27.5% of sales while reports sales increased 7.7% to $541M in Q4, but EPS missed for Q4; UAA was upgraded to strong buy at Raymond James and $30 tgt as firm more comfortable with the company’s risk/return profile, particularly regarding execution risk and valuation

·     Holiday season shoppers have already spent $50.1 billion between Nov. 1 and Nov. 26, according to data from Adobe Analytics (ADBE). That’s a 15% increase from 2018. So far, televisions have had an average price cut of 17.5%, double the expected reduction, computers have been discounted 14.6% on average, and toys have been discounted by 8.7% on average

·     Consumer Staples & Restaurants; in tobacco, BTI said it expects a slowdown in the U.S. vaping market will lead to lower revenue growth in its vaping arm than it originally anticipated as sees vaping revenue to fall on the low end of its previously-announced range of 30% to 50% growth in FY19, but said total revs expected to grow in the upper half of its 3% to 5% forecasted range

·     Leisure sector; MANU rises as City Football Group announced earlier that private equity firm Silver Lake has signed a definitive agreement to make a $500M equity investment, equivalent to just over 10% of the company’s post-investment value/deal values City Football Group at $4.8B

 

Energy

·     Energy stocks lagged late week given bearish inventory data; weekly Baker Hughes rig count down -1 rigs to 802 as U.S. oil drillers cut rigs for sixth consecutive week and cut rigs for record 12th month in a row. Inventory data showed: the API said U.S. crude supplies rose by roughly 3.6M barrels for the week showed a stockpile rise of 4.3M barrels for gasoline, along with a supply decline of -665,000 barrels for distillates. This morning, the EIA reported bearish data as crude stockpiles with a build of 1.572M barrels vs. est. for draw of -878K barrels; Gasoline inventories rose 5.13M barrels vs. est. for build of 800K barrels; Distillate stockpiles rose 725K barrels vs .est. for build of

 

Healthcare

·     Biotech movers; BMRN was upgraded to overweight at Barclays with $98 tgt citing favorable risk/reward from a likely positive data for the Phase 3 study of vosoritide, and better than expected commercial uptake for ValRox and vosoritide; INCY said the FDA accepted its NDA for pemigatinib, a selective fibroblast growth factor receptor (FGFR) inhibitor; TNXP rises as the FDA comments on its investigational drug for PTSD, consistent with the guidance received at its meeting with the agency. TNXP says its late-stage trial main goal will assess the drug’s safety and effectiveness at week 12; trial result expected in Q2 2020; overall biotech (IBB) came into the day with a 6-day win streak, at 52-week highs

·     Healthcare services and providers; EVH shares plunged after saying that its partner Passport Health Plan received notification from the Kentucky Cabinet for Health and Family Services (CHFS) that Passport has not been awarded a Kentucky managed Medicaid contract for the next contract periodhttps://bit.ly/2ruB6Qv ; DPLO shares extends recent gains, rising an 11th straight session (which follows its 50% decline on 11/12 after the company reported larger Q3 loss and weak guidance and had said it may not be able to meet the total net leverage and interest coverage ratio covenants in its credit agreement for the period ending December 31, 2019); ABC, MCK, MNK, ENDP, TEVA looked to bounce a day after the WSJ reported that federal prosecutors in Brooklyn are conducting a criminal investigation into the opioid crisis that could make use of the Controlled Substances Act, a federal statute used to prosecute dealers in illicit drugs.

 

Industrials & Materials

·     Industrial & Machinery; agricultural machinery/farm equipment sector pressured after DE reported slightly better Q4 top/bottom line but lowered year net income view to $2.7B-$3.1B from prior view $3.2B saying 2020 agriculture & turf equipment sales to fall -5% to -10% and sees 2020 construction & forestry equipment sales -10% to -15% (shares of AGCO, CAT, CNHI weak)

·     Metals & Materials; VALE said it will book two non-cash impairments of $1.6 billion each in its Q4 earnings amid reviews in its base-metals and coal units/to shutter Mozambique coal operations for 3 months; RIO to invest $749M in Western Australia to boost iron-ore output as invests in Pilbara iron ore mine

·     Aerospace & Defense; BA shares slipped early after a report in the Seattle Times said Boeing’s 777X’s fuselage split dramatically during September stress test https://bit.ly/2ONXInc ; Dow Jones reported on BA that European and Middle Eastern regulators will conduct independent certification reviews of Boeing Co.’s next new aircraft, breaking from longstanding practice to apply what they say are lessons learned from the 737 MAX crisis.

 

Technology, Media & Telecom

·     Semiconductors; sector bounced today with the Philly semi index (SOX) rising to weekly highs, extending its rebound from last week when it fell amid weakness in equipment stocks; AVX shares jumped after Kyocera announced that it has made a proposal to a special committee of the board of AVX to acquire all outstanding shares of common stock of the company not owned by Kyocera for $19.50 per share in cash (currently owns about 72% stake)

·     Software movers; ADSK posted a quarterly beat with tepid forecast as guided year revs $3.26B-$3.27B vs. est. $3.26B, while also forecast Q4 rev and adjusted profit below Street estimates; VMW shares moved back above its 200-day moving averages, rising after solid F3Q report with revenue growth holding at 13% CC and beating by 1.5% ex about $10M from CBLK and modestly raised its FY total rev outlook; VEEV shares pullback despite quarterly beat and raised guidance as Q subscription revs rose 27% YoY to $226.8M/raises year EPS to $2.16-$2.17 from $2.11-$2.13 (est. $2.12)/raises FY revenue to $1.09B from prior view $1.06B-$1.07B (est. $1.06B)

·     Hardware & Component news; DELL shares fall after cutting year revenue guidance to $91.8B-$92.5B from $93B-$94.5B (est. $93.54B) and narrows FY20 adjusted EPS view to $7.25-$7.40 from $6.95-$7.40 due to component shortages from Intel; BOX shares rise on Q3 results beat estimates as more customers joined its platform while also raises its full-year revenue forecast and Q3 results included a modest beat to calculated billings (+10% y/y).

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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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