Market Review: January 10, 2020

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Closing Recap

Friday, January 10, 2020

Index

Up/Down

%

Last

DJ Industrials

-133.88

0.46%

28,823

S&P 500

-9.38

0.29%

3,265

Nasdaq

-24.57

0.27%

9,178

Russell 2000

-7.30

0.44%

1,657


 

Equity Market Recap

·     U.S. stocks post solid returns on the week, but end Friday lower in a bout of profit taking as the monthly payroll report disappointed, coming in weaker-than-expected as headline figures missed along with softer wage increases. The Dow Jones Industrial Average topped the 29,000 level for the first time ever while the S&P 500 and Nasdaq Composite also touched intraday record highs but failed to close at new bests. It has been a volatile week given positive trade optimism into next week’s expected signing of the Phase One trade deal between the U.S.-China along with easing tensions in the Middle East with Iran and mixed economic data. The U.S. government said Friday that it has imposed fresh sanctions on Iran, days after Iran’s missile attacks targeting U.S. forces in Iraq. The latest move included sanctions on metal manufacturing and other sectors of the Iranian economy, U.S. Secretary of the Treasury Steven Mnuchin told reporters. Attention likely turns to earnings next week with big banks (JPM, C, GS, WFC, BAC, PNC, and USB among them). The Dow Jones was weighed down by components BA (top supplier laid off workers), TRV after KBW downgraded and JPM (into earnings), while healthcare names rose (PFE, UNH, MRK).

Economic Data

·     Nonfarm Payrolls for December rose 145K, below the estimate of 160K jobs (prior month revised to 256K from 266K), private payrolls added 139K jobs vs. est. 254K) and manufacturing jobs fell -12K vs. est. rise of 5K (prior revised to 58K from 54K). The unemployment rate steady at 3.5% (in-line with estimates) while average hourly earnings rose a less-than-expected 0.1% vs. est. 0.3% (YoY rose 2.9%, prior 3.1% and vs. est. 3.1%) – Underemployment rate 6.7% vs prior 6.9%. wholesale inventories declined -0.1% in November while sales surged 1.5%

 

Commodities

·     Oil prices end the day lower, with WTI crude slipping 52c, or 0.9% to settle at $59.04 per barrel, posting a 6.5% decline on the week and erasing earlier weekly gains. WTI crude had topped $65 per barrel mid-week following an attack by the U.S. last Friday killing a key Iranian general and after Iran’s response by hitting two U.S. based tgts overseas, though causing no casualties. Bearish inventory data midweek coupled with tensions easing after the two strategic moves led to a pullback in prices. Gold prices rose $5.80 or 0.4% to settle at $1,560.10 an ounce, finishing the week higher by 0.5% (3rd straight week of gains), but well off highs above the $1,600 an ounce level mid-week. Safe haven assets eased late week as stocks set intraday record highs.

 

Currencies & Treasuries

·     The U.S. dollar slipped from morning highs, pulling back after posting gains the last few sessions following the weaker than expected jobs data for December and falling wages. The buck down against the euro and little changed vs. the Pound and safe-haven yen after a good week of gains. Treasury markets were up slightly on the weaker economic report, with yields down modestly around 1.83% (off highs 1.9% Thursday). For next week, Treasury markets could move amid the signing of the Phase One trade deal with China as well as a heavy economic calendar that includes CPI, PPI, Philly Fed and Empire manufacturing as well as a heavy dose of Fed speakers.

 

 

Macro

Up/Down

Last

WTI Crude

-0.52

59.04

Brent

-0.39

64.98

Gold

5.80

1,560.10

EUR/USD

0.0016

1.1122

JPY/USD

0.01

109.53

10-Year Note

-0.034

1.819%

 

 

Sector News Breakdown

Consumer

·     Retailers; FL downgraded to neutral from positive at Susquehanna saying its proprietary checks indicate that holiday launches from Nike, Adidas, and others were not enough to overcome last year’s difficult comparisons; URBN the latest to report disappointing holiday sales (follows that of JCP, KSS, LB) with greater-than-expected margin pressure as comps at its flagship Urban Outfitters stores falling 1%; SPWH shares drop as sees Q4 EPS 17c-21c below prior 29c-35c and sales $250M-$254M below the $274.3M est. and sees Q4 comp sales growth down (-6%-7%)

·     Consumer Staples; LK 13.8M share Secondary priced at $42; STZ was downgraded to hold from buy at Argus saying despite a strong 3Q20, they think further upward revisions to guidance are unlikely in FY21; MNST positive analyst comments for a second day as Credit Suisse reiterate outperform and tgt $77 saying long-term growth story consists of solid U.S. industry growth with innovation-driven share gains plus overseas expansion

·     Housing & Building Products; KBH shares slipped in homebuilder sector after 4Q revenue missed the lowest analyst estimate even as earnings beat, driven by a lower tax rate (KeyBanc downgraded KBH to a sector weight from overweight, citing a more neutral stance on homebuilders in general)

·     Casino & Leisure movers; in autos, TSLA tgt raised to $553 from $423 at Piper saying market is undervaluing TSLA’s potential in China, despite the recent rally; in amusement parks, SIX shares slump after warned of a Q4 revenue shortfall and disclosed "challenges" with the development of parks in China (now sees Q4 revs to be $8M-$10M less than a year ago, in which it reported revenue of $269.5M which is lower than consensus for $285.8M (SEAS, FUN fell in sympathy); HOG shares dropped among top decliners in the S&P – yesterday Longbow had said dealer checks revealed 4Q U.S. new retail sales decelerated through the quarter

 

Financials

·     Bank movers; busy week of bank earnings upcoming: on Tuesday, C, JPM, WFC, Wednesday BAC, BLK, GS, PNC, UBS, Thursday BK, MS, INDB, OZK, PBCT and Friday CFG, RF, STT; in research today, OZK upgraded to overweight at Piper and makes the shares his 2020 top idea as he sees a more favorable risk/reward dynamic; TRV was downgraded to underperform at KBW Inc. and cut tgt to $125 from $144 as expects core underwriting margin pressure in personal lines and workers compensation, to lead shares to underperform the peer group; in consumer finance and lending; SQ was upgraded to buy at Stephens and raised its tgt to $78 from $72 saying pricing will be better than expected and is not well understood

 

Healthcare

·     Pharma movers; LLY agrees to acquire DERM for $18.75 per share in deal valued at about $1.1B https://on.mktw.net/39XdXIg ; ELAN provided initial ’20 guidance for revenue of $3.05B-$3.11B (vs. cons $3.115B) and adjusted EPS of $1.09-$1.16 (vs. cons $1.21), with this guidance for stand-alone ELAN only including revenue from potential divestitures; ACRS with positive effectiveness results from an early-stage trial of its experimental medicine ATI-450; PHAS announced financing and co-development collaboration with SFJ Pharmaceuticals for the development of PB2452

·     Biotech movers; SRNE said it received a non-binding proposal from a private equity fund to acquire a majority or all shares of the company for up to $7.00 https://on.mktw.net/39Z3g88 ; PTLA plunges after announced preliminary Q4 and 2019 earnings and says expects global revenue from its Andexxa drug to decline to $28M in Q4 compared to est. $24M; MRNA announces positive safety and effectiveness interim results 7 months into an early-stage trial of its experimental vaccine mRNA-1647, targeting cytomegalovirus; SEEL said its drug, SLS-002, was well tolerated in 60 mg dosage in an early-stage trial when administered as monotherapy and in combination with an oral antidepressant; MRTX 3.08M share Secondary priced at $97.50; RARE rises as reported topline Cohort 3 data from the DTX301 Ph1/2 study which led to 3 out of 3 patients (two females and one male) showing response in patients with ornithine transcarbamylase deficiency; NKTR revised its collaboration agreement with BMY as expand the partnership beyond the three pivotal studies in first-line metastatic melanoma

·     Medical equipment and devices; ISRG provided upbeat Q4 preliminary results with revenues of $1.28B coming in above consensus ($1,216B), driven by 19% procedure growth, improving ASPs and roughly in-line system placements (336)

·     Healthcare services and providers; in the CRO industry, Goldman Sachs upgraded CRL to buy from neutral as support exposure to a preclinical market leader, with a favorable setup vs other CROs, and a smoother margin trajectory ahead while downgraded PRAH to neutral as think the recovery in Clinical conversion and bookings trends are well appreciated by investor; MCK was upgraded to overweight at Morgan Stanley and raise tgt to $162 following underperformance

 

Industrials & Materials

·     Transports; RBC Capital changed prices targets for several railroads (raised for CNI, CP while lowered tgts for CSX, NSC and UNP) as believe that the US rails’ outlook will be very negative on coal – and cause them to back off providing any guidance at all for 2020; in airlines, AAL lowered top end of Q4 TRASM outlook to 0% to +1%, from prior view 0% to +2% due primarily to lower than planned yields in the pre-Thanksgiving period and higher completion factor; RYAAY raised its full-year FY20 guidance to be in the range of 950M-1.05B euros from EUR800M-900M

·     Chemicals; JPMorgan reduced 2020 EBITDA forecasts for LYB, DOW and WLK due to poor price and volume trends in polyethylene and other petrochemicals/reduced expectations for integrated margins by about 2 cents per pound; ag chems active (NTR) as well as machinery after WASDE ag report for 2019/20 corn crop shows less weather damage than expected in WASDE; WDFC shares tumbled as revenue and profit results shrink from prior year; Cowen lifted tgts on CF, NTR, IPI, and MOS slightly but reduced 4Q19 and FY20 estimates below consensus on trade pressures and challenging field conditions.

·     Aerospace & Defense; BA released documents to Congress "paint a deeply disturbing picture of the lengths Boeing was apparently willing to go to in order to evade scrutiny from regulators, flight crews, and the flying public, even as its own employees were sounding alarms internally,” Rep. Peter DeFazio said; BA supplier SPR said it will lay off 2,800 workers, about 20% of the workforce at its Kansas base amid uncertainty over when 737 Max jets will return to service

 

Technology, Media & Telecom

·     Internet; BKNG tgt raised at SunTrust to $2,350 from $2,240 and named a favorite OTA idea for 2020 as believe earnings can grow at low double digits even in a sluggish global growth env’t; GRUB said "we felt it was important to clarify that there is unequivocally no process in place to sell the company and there are currently no plans to do so” (comes in response to recent reports suggesting they were pursuing a sale) https://on.mktw.net/39ZRfiw

·     Semiconductors; QRVO and SWKS both upgraded to buy at Mizuho as sees upside from launch of 5G handsets that will require 50% to 60% more radio frequency content compared to 4G/expects radio frequency market to benefit from 2-3 Apple iPhone models that will support 5G and potential for Huawei settlement; Bank America with several changes in semi space as they upgraded equipment names AMAT, LRCX to buy, raised tgt on NVDA to $300, NXPI tgt to $155, upgraded MCHP to buy as the upcoming December quarter is likely the cycle trough, while downgraded XLNX to underperform and cut tgt to $100 from $105 increasing competitive risks in 5G from MRVL and NVDA; NXPI tgt also raised at Credit Suisse, upping to $150

·     Media & Telecom movers; TLRA and RUBI shares slipped early after the WSJ reported Amazon in talks to sell streaming TV ads outside of fire TV; in towers, KeyBanc said they continue to recommend owning AMT and SBAC and believe a resolution to the TMUS merger should be a catalyst for the Tower operators, one way or another

·     Hardware & Component news; SNX rises as reported sales and EPS significantly above Street on upside from its cloud-server-integration business; and it announced plans to split into two public companies – the Concentrix services business and Synnex Technology Services, the core IT distribution segment; VOXX Q3 revenue fell 15%, hurt by weak performance of its Automotive Electronics segment/Q3 profit fell to 10c from 50c a year ago; INFY rises as its Q3 net profit rose 25% from a year earlier and raised its revenue guidance for the fiscal year

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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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