Market Review: January 09, 2020

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Closing Recap

Thursday, January 09, 2020

Index

Up/Down

%

Last

DJ Industrials

212.35

0.74%

28,957

S&P 500

21.60

0.66%

3,274

Nasdaq

74.18

0.81%

9,203

Russell 2000

1.43

0.09%

1,665


 

Equity Market Recap

·     U.S. stocks set new record highs, as the Dow Jones Industrial Average neared the 29,000 level for the first time, led behind gains in tech (AAPL, IBM, MSFT) and financials (GS, AXP), helped by trade comments, but lingering questions about the downed Ukrainian flight surfaced, with U.S. officials claiming it was in a missile that caused the destruction and not a technical glitch as was first reported yesterday. According to various reports, two surface-to-air missile launches were detected from an Iranian battery minutes after the jet took off, followed by an explosion near the plane, as the jet carrying 176 people began an abrupt descent and crashed. The new revelations failed to dent sentiment as markets remained higher into a key jobs report tomorrow and the start of earnings season next week. Stocks got a further boost mid-afternoon after President Trump said the negotiations for the second round of a U.S.-China trade deal will start “right away,” but might not be finished until after the election, giving the markets more time to deal with trade uncertainties. Retailers were under pressure after KSS and BBBY each issued softer earnings and/or outlooks that weighed on the sector. Financial gains were paced by positive analyst commentary as Dow component GS traded to fresh 52-week highs.

Economic Data

·     Weekly jobless claims 214k vs. est. 220k (prior month revised to 223k from 222K); continuing claims 1.803M vs. est. 1.72M and the 4-week moving avg. at 224k in the week ending Jan. 4; actual, unadjusted initial claims at 335.2k from 312.5k in prior week

·     The 30-year fixed-rate mortgage rate averages 3.64% for the week ending Jan. 9, 2020, down from 3.72% in the previous week and at its lowest levels in 13-weeks, according to the Freddie Mac Primary Mortgage Market Survey. Compares with 4.45% at this time a year ago

 

Commodities

·     Oil prices end little changed, as WTI crude slips a nickel to $59.56 per barrel, off earlier lows of $58.66 per barrel, paring losses on reports that it could have been a missile that took down the Ukrainian flight instead of a technical glitch as first thought, once again raising prospects of further military action against Iran. Gold prices slipped for a second straight day, down -$5.40 or 0.4% to settle at $1,554.30 an ounce, a day after snapping its 10-day winning streak, and down from weekly highs above $1,600 as profit taking ensued given the strong run-up in prices.

 

Currencies & Treasuries

·     The U.S. dollar rises for a third straight session, with the dollar index (DXY) up around the 97.50 level, though ended mixed on the day. The dollar was little changed vs. the euro around the 1.11 level, while the Pound sunk and the buck rose to 109.50 (2-week highs) vs. the safe haven yen. The USD/CAD rallied over 1.3090, from overnight lows of 1.3024, rising on the back of further oil prices losses. Treasury yields gained (highs of 1.898%) following the further decline in prices as stocks set new intraday record highs. The U.S. Treasury sold $16B in 30-year notes at a yield of 2.341% compared to when issued at 2.358% prior, with a bid-to-cover at 2.54 vs. prior auction at 2.46 and indirect bidders awarded 63% of the auction and directs awarded 17.9%.

 

 

Macro

Up/Down

Last

WTI Crude

-0.05

59.56

Brent

-0.07

65.37

Gold

-5.90

1,554.30

EUR/USD

0.0001

1.1106

JPY/USD

0.37

109.49

10-Year Note

-0.024

1.849%

 

Sector News Breakdown

Consumer

·     Retailers; KSS shares weigh on retail after guiding its year EPS view to the low end of $4.75-$4.95 (vs. est. $4.86) and said its holiday period comp sales were down (-0.2%); LB lowers Q4 EPS to about $1.85 from $2.00 and said holiday 2019 holiday sales down about 3%; PRTY said prelim year brand comp sales down 3% and hires new CFO (from CHS); CHS raises Q4 revenue view to flat versus prior of low single-digit decline as outlook reflects sequential comparable sales improvement at Chico’s and White House Black Market; CATO Dec comp sales were flat and overall sales $85M; in research, Gordon Haskett downgraded shares of DLTR, FIVE, BJ and TSCO ratings while upgraded JWN; JCP announced today that its comparable store sales for the combined nine-week period ending Jan. 4, 2020 decreased 7.5%; COST Dec total comp sales rose 9% vs. est. 7.3% and US comp sales ex-gas and FX rises 7.8% vs. est. 6.3%; reported net sales of $17.04B for the retail month of December; Macy’s (M) upgraded to neutral at Atlantic

·     Consumer Staples; U.K. clothing and food retailer Marks & Spencer shares tumbled as it forecast gross margins for the March-ending fiscal year to be at the lower end of guidance; KO was upgraded to Outperform at Credit Suisse and raise tgt to $64 from $54 as expect revenues to grow at the high-end of Coke’s 4% to 6% algorithm for several years, driving margin expansion; Kellogg (K) upgraded to Outperform from Market Perform at BMO Capital as sees improvement in U.S. cereal and better execution across Kellogg’s portfolio; HELE rises on Q3 EPS and sales beat while raises year sales view to be in the range of $1.650B-$1.675B, which implies consolidated sales growth of 5.5% to 7.1% compared to the prior expectation of 2.9% to 4.8%; GRUB shares rose after the NY Post reported executives of WMT, KR, Albertsons and Ahold-Delhaize have mulled acquiring the food-delivery service https://bit.ly/35DkPY3

·     Restaurants; SBUX was upgraded to overweight from equal-weight at Barclays citing a fundamental reacceleration into fiscal 2020 and an attractive valuation as the company continues to offer an attractive combination of outsized global growth in both comparable sales and store units; NDLS 1.6M share block priced at $5.65 per share; SHAK initiated underperform at Raymond James as believe Street expectations for 2020/2021 seem overly optimistic and create further downside risk from still elevated valuation levels; Oppenheimer identified WEN and SBUX as our 2020 top picks, while upgrading CMG to Perform from Underperform

·     Housing & Building Products; in home furnishing, BBBY shares tumble as reports Q3 EPS loss (3c) on revs $2.76B below the est. $2.85B as Q3 operating loss $29.8M compared to profit $49.5M YoY, and withdraws FY19 guidance/Q3 comp sales fell (-8.3%) vs. est. loss (-4.9%); KBH expected to report earnings tonight after better LEN results yesterday lifted builders

·     Casino & Leisure movers; in cruise lines, RCL was upgraded to buy at Argus with $160 tgt as believe it is agile enough to focus on the strongest markets, but large enough to endure the occasional weak regional economy; movie theatres AMC and CNK pressured after yesterday declines after AMC CEO at Citi TMT conference said 2020 doesn’t look as strong as 2019; in autos, TSLA was downgraded to Neutral from Outperform at Baird and up tgt to $525 from $355 saying the risk/reward is more balanced following the recent stock appreciation; ORLY was upgraded to outperform from in-line at Evercore/ISI

 

Energy

·     Energy stocks were mixed as oil prices recovered off its lows, with oil markets in limbo as new detail emerge from the Ukrainian plane crash in Iran that was cited a technical issue at first but new light today that it was shot down by missiles according to U.S. officials

·     E&P sector; Wells Fargo with 2020 preview, as they downgraded XOG, GPOR, WLL to underweight neutral view of risk/reward in 2020 but remain optimistic over the long term, top picks are PXD, FANG and PDCE while also constructive on PE, WPX, CXO, and COG;

·     MLPs; KMI said it has sold all ~25M shares of Pembina Pipeline received in connection with the latter’s acquisition of Kinder Morgan Canada/says it expects to use the $764M in after-tax proceeds from the sale to pay down debt, creating balance sheet flexibility

 

Financials

·     Bank movers; Bank America with some upgrades they raised both GS and PNC to buy from neutral and call Citigroup (C) its top pick for the decade as raises tgt to $92 – GS the tgt to $270 from $245 citing a more favorable macro backdrop, strategic repositioning, and a relatively attractive valuation for the upgrade, while for PNC, views it as the regional bank version of JPM; Bank America also upgraded ENV to neutral; JEF rises early after earnings results; GS was upgraded to buy at Buckingham with $290 tgt, while downgraded NTRSin insurance; VOYA rises after the Financial Times reports that the U.S. retirement plan provider held talks with a number of prospective buyers late last year https://bit.ly/2utBK25

 

Healthcare

·     Pharma movers; FOLD announces preliminary 2019 revenue and Galafold (migalastat) commercial updates. Global revenue for Galafold in Q4 was ~54M and for FY 2019 was ~$181M, exceeding updated 2019 guidance of $170M to $180M; NBRV said the FDA accepts resubmitted antibiotic application/sets PDUFA goal date of 6/19/20 for completion of its review of its application; MDGL upgraded to buy at UBS as are now 1 year closer to phase III readout and competition concerns are largely built in

·     Biotech movers; DBVT rises after announces positive long-term results from the open-label extension study (PEOPLE) of its Phase 3 clinical trial, PEPITES, evaluating Viaskin Peanut in peanut-allergic children aged 4 – 11 years; SLDB said it plans to cut one-third of employees as part of organizational changes to prioritize development of SGT-001; AMAG slides after announces the initiation of a leadership transition, the decision to divest Intrarosa and Vyleesi and financial updates; FATE was downgraded at BMO Capital and HALO was upgraded; IPHA shares fell after saying the FDA placed its Tellomak trial on partial clinical hold – leading the company to suspend the trial enrollment

·     Healthcare services and providers; Bank America with three ratings changes as PDCO upgraded to neutral with $22.50 tgt saying the company saw signs of total segment improvement from a Primescan-led dental equipment cycle; HSIC downgraded to underperform and cut tgt to $65 from $71 saying the overall market for dental distribution has been soft for a multiyear basis, yet Henry Schein has been able to outpace Patterson; TDOC downgraded to neutral from buy with $90 tgt (up from $82) as believes shares are fully valued; SDC initiated underperform and $7 tgt at Wolfe citing the likelihood of deceleration, future capital raises, and macro/credit sensitivity

 

Industrials & Materials

·     Industrial, Materials & Machinery; LNN reported a mixed quarterly results as EPS beat by 25c but revenue fell short of consensus; DE shares rise ahead of WASDE ag report tomorrow at 12:00 PM EST; BA shares rose amid an increasing possibility that the 737-800 passenger plane which crashed in Tehran this week was downed by an Iranian missile, not an airline malfunction as CBS reported US officials are confident Ukrainian Flt 752 was shot down by Iran; lighting company AYI shares sunk after reported Q1 EPS $2.13 missing the est $2.23 while Q1 sales $834.7M misses $874.8M estimate; shares of metals underperformed broader markets that were higher, with aluminum, steel and iron ore names all weaker (AA, AKS, CLF, CENX, FCX, X)

 

Technology, Media & Telecom

·     Internet; SNAP was upgraded by two analysts today as Jefferies upgraded to buy with $21 tgt as believes Snap can accelerate user growth, particularly from international markets with AR lenses, the rebuilt Android app, and local language investments while Cowen raised to outperform with $20 tgt citing a rebound in fundamentals, a positive survey from ad buyers, and branding trends; EBAY was downgraded to underperform at Jefferies saying the online auction company is losing relevance for consumers and cuts price target to Street-low $31 from $38; SPOT initiated underperform at Bernstein as believes consensus growth expectations are overly optimistic

·     Semiconductors; AMD was upgraded to buy with $55 tgt at Mizuho as see the 2020 server market could be stronger than current muted consensus, many of the aggressive INTC price cuts are in the rear-view mirror and, points to a better 1H20 PC market versus consensus combined with a new PS5 AMD gaming console cycle starting in 2H20E; ASML was downgraded to neutral at Bank America after the big run higher in the stock

·     IT Services; Wells Fargo with a sector call as for government services, says 2019 was a great year for the sector; good news for the sector are GFY20-21 Budgets, Book-to-Bills, and EBITDA margins but the worries include the Presidential Election, and retaining talent as firm downgraded shares of LDOS, MANT and PSN. For IT/BPO Services, 2019 performance was mixed as firm favors EPAM for pure-play bias to software engineering, ASGN given its role as "arms" provider for digital, and CTSH for the best "value" opportunity – upgraded CTSH and cut DXC, EXLS ratings to underweight while G is favorite given improved positioning

·     Hardware & Software movers; TUFN plunges as cuts Q4 revenue view to $29.5M-$30.1M from $34M-$38M (est. $36.1M); sees Q4 adjusted operating loss $1.1M-$2.6M; AAPL traded to another all-time record high, with shares more than doubling from last year lows

·     Media & Telecom movers; VZ unveils Mix & Match on Fios, allowing customers to mix Internet and TV plans to match their needs/customers get more choices and only pay for what they want when it comes to Internet and TV, the company says; ATUS initiated outperform at Raymond James as believe Altice represents a strong FCF growth story over the next few years

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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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