Market Review: January 15, 2020

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Closing Recap

Wednesday, January 15, 2020

Index

Up/Down

%

Last

DJ Industrials

91.90

0.32%

29,031

S&P 500

6.26

0.19%

3,289

Nasdaq

7.37

0.08%

9,258

Russell 2000

6.70

0.40%

1,682


 

Equity Market Recap

·     U.S. stocks touched intraday record highs before slipping late day, as the S&P 500 came within 2-points of the 3,300 level for the first time, the Nasdaq Composite with 2 points of the 9,300 level and the Dow Jones Industrials topping 29,100 before sliding. Banks were the biggest drag in the S&P, falling after mixed results from GS, BAC, USB, and PNC today while energy stocks dropped on lower oil and semiconductors lagged the broader tech complex. Retailers were pressured after Target (TGT) issued a weak comp sales outlook citing weakness in toy and electronic sales (hurting MAT, HAS, BBY). Outside of earnings, the highlight of the day was the United States and China signing a Phase 1 trade agreement and pledged to resolve their tariff dispute. The main focus of the deal includes the pledge by China to purchase at least an additional $200 billion worth of U.S. farm products and other goods and services over two years, over a baseline of $186 billion in purchases in 2017. President Trump said all tariffs will come off when they finish phase two deal with China. Also today, White House economic advisor Larry Kudlow said today in a CNBC interview that the White House continues to work on a tax-cut plan in hope that Republican lawmakers will be in control of Congress after the 2020 elections. Kudlow said “I am still running a process of Tax Cuts 2.0,” but noted that “we’re many months away.” Kudlow said the plan will released later in the summer, in time to be a campaign issue ahead of the 2020 election. Economic data mixed this morning as inflation data (PPI) came in tamer than expected while manufacturing data was slightly above estimates.

Economic Data

·     December producer price index (PPI) rises 0.1% for headline and core (ex: food and energy), both slightly below the 0.2% estimate while final demand PPI YoY was 1.3% (in-line with estimates) but core YoY rose a smaller 1.1% (est. 1.3%)

·     The Empire Manufacturing report for January rose 4.8, above the est 3.6 (prior month was 3.5) as new orders index 6.6 in Jan vs. revised 1.7 in Dec while prices paid index 31.5 in Jan vs. 15.2 in December; employment index at 9.0 in Jan vs. 10.4 in Dec

 

Commodities

·     Oil prices dropped as WTI crude fell to fresh one-month lows of $57.81, down 42c or 0.7% following a bearish inventory report as the EIA showed a -2.6M bbl drawdown in crude stocks (bullish) but massive builds for gasoline (rose 6.7M barrels) and distillates (8.2M barrels). The large product build more than offset the crude stock drop. Overall, U.S. oil production hits estimated record 13 million barrels per day. Gold prices advanced $9.40 or 0.6% to settle at $1,554 an ounce amid another report that showed modest inflation pressures (PPI) keeping expectations high that interest rates will remain low for the foreseeable future from the Fed. The weaker US dollar also kept gold prices higher. Earlier, December producer prices rose at its slowest pace since December 2016.

 

Currencies & Treasuries

·     The dollar index fell for its first time in three days, pulling back following a tame inflation report. The dollar dipped slightly against the Japanese yen, back below the 100 level after touching its best levels since May of last year on Tuesday. The euro moved to one-week highs of 1.1163 from near 1.1145 while the dollar faded against the Canadian dollar in what was a generally weak day for the U.S. greenback. Treasury prices were steady most of the day, with yields trading lower across the board on weak inflation data, as the 10-year yield dropped to around 1.79%.

 

 

Macro

Up/Down

Last

WTI Crude

-0.42

57.81

Brent

-0.49

64.00

Gold

9.40

1,554.00

EUR/USD

0.0028

1.1155

JPY/USD

-0.11

109.89

10-Year Note

-0.022

1.788%

 

 

Sector News Breakdown

Consumer

·     Retailers; TGT shares slide, dragging retailers lower as well (WMT, BBY) after guides Q4 comp sales 1.4%, below the 3.8% estimate and vs. prior view of 3%-4% as sales comps growth in-line with Nov/Dec levels/said comparable digital sales grew 19% in November/December period; shares of toy retailer (MAT, HAS) fall after TGT cites weak demand for toys, electronics in crucial shopping season; Moody’s said it sees US Dept stores operating income down about 20% in 2019 and down about 5% in 2020 (M, KSS, JWN)

·     Consumer Staples & Restaurants; BYND was downgraded to market perform at Bernstein as the stock is now trading at ~18x EV/NTM Sales, which compares to a fair multiple range of 8-10x based on our regression analysis of high growth consumer peers’ EV/Sales multiples vs. their organic sales growth/risk/reward has become less attractive; SHAK mentioned positively by Goldman Sachs saying sees 80% rally because of exclusive GrubHub deal/separately, SHAK said it has launched in four new international markets: China, Mexico, the Philippines and Singapore.

·     Casino & Leisure movers; in boats (HZO, MBUU, MCFT), SunTrust noted .S. Boat registrations were flat YoY in November, bringing YTD sales to down 3.6%. We point out that November represents just 3% of annual retail registrations. Fiberglass O/B gains offset declines elsewhere

 

Energy

·     Inventory data mostly bearish; the EIA said weekly crude inventories fell -2.55M barrels vs. est. for build of 1.1M barrels, Gasoline inventories rose 6.678M barrels vs. est. for build of 3.246M barrels and Distillate inventories jumped 8.17M barrels vs. est. for build of 1.65M barrels – recap – as oil data bullish but gasoline and distillate data bearish. Overnight, the API reported that U.S. crude supplies rose by 1.1M barrels for the week ended Jan. 10, showed a stockpile climb of 3.2M barrels for gasoline, while distillate stocks rose by 6.8M barrels

·     OPEC expects lower demand for its crude oil in 2020 even as global demand rises, it said on Wednesday. The U.S. will see total liquids output exceed a 20 million barrel per day (bpd) milestone for the first time, OPEC said in its monthly report. U.S. liquids output will reach 20.21 million bpd in the fourth quarter of 2020 – almost meeting U.S. demand of 21.34 million bpd.

·     E&P sector; overall, shares of oil and gas companies declined after crude prices extended losses, falling to their lowest in over a month after a weekly U.S. report showed crude production rose to a new record, overshadowing a bigger-than-expected draw in crude inventories; shares of refiners (VLO, MPC, HFC) as well as natural gas levered names (RRC, SWN, EQT) declined sharply; TUWOY warned of a $1.5B write-down after the struggling oil and gas explorer downgraded its crude price assumptions and cut its reserves estimate; PACD slides after seeing a loss of about $225M following an arbitration decision

·     Utilities & Solar; in solar, Barclay’s downgraded FSLR to underweight from overweight and slashed tgt to $49 from $66 after assessed industry data on ~5k projects, both operational and in the pipeline and said it looks like FSLR’s Systems business is in trouble; in utilities, RBC Capital upgraded AEP to outperform joining other high-growers like NEE and SRE while said would focus on two stocks that we believe could re-rate in 2020: DUK and EXC (downgraded AY); PCG was upgraded to buy and raised tgt to $15 at Citigroup saying the company’s potential agreement with bondholders is a big step forward

 

Financials

·     Bank movers; GS shares slipped early as a surge in litigation charges ($1.1B, up 100% YoY) and higher comp expense ($3B actual vs. $2.4B estimate) led Goldman Sachs to miss earning expectations ($4.69 vs. $5.47 est.) for the second quarter in a row – Piper noted every $500MM of incremental Litigation Reserve hurt EPS by $1.09 per share (overshadowed better investment banking revs up 10% and FICC trading which was up 50%); BAC reported Q4 eps that topped consensus while net interest yield of 2.35% was in line with estimates, and net interest income fell by 3% YoY, as lower interest rates were partly offset by loan and deposit growth/also said sees NII to decline in Q1 and Q2 but rising modestly in 2H; in regional banks, PNC core EPS beat by 15c as Net interest income eats by 2c and higher core fees and expenses; USB slips after top and bottom line results missed estimates with return on average common equity 11.8% vs 15.8% last year and qtrly provision for credit losses $395M vs. $367M reported in Q3; WFC was downgraded at Piper/Sandler after earnings miss, higher costs and company’s guide; BLK attracted a record amount of money from investors last year as earnings beat

·     REITs; two analyst sector calls: 1) Mizuho upgraded AVB, HPP, and O while downgraded BDN, MAC, DEI, and MAA as firm said it remains constructive on REITs given its view of a 2.0% 10-year Treasury, 2.0% GDP growth and 2.0% inflation in 2020 (remain overweight Industrial, Healthcare, Multifamily, Single-Family Rental and Triple Net, neutral on Shopping Centers and Underweight Malls and Office; 2) Jefferies upgraded FRT and REG to buy as assumes coverage of the retail REITs and generally prefers strips to malls (SPG, TCO, FRT, REG, SITC, WRI, ROIC, RPAI, RPT) following consecutive years of underperformance; firm also downgraded MAC to underperform

·     Credit card data; BAC reports December net charge-offs 2.54% vs. 2.60% last month and 30-plus day delinquencies 1.60% vs. 1.63% last month; AXP December net write-off rate 2.5% vs. 2.4% MoM and 30 day-delinquency as a percentage of total 1.3% vs. 1.3% MoM; Citigroup (C) December net charge-offs rose to 2.77% from 2.55% YoY and delinquencies at 1.56%

 

Healthcare

·     Pharma movers; BMY said the FDA accepted its supplemental Biologics License Application (sBLA) for Opdivo (nivolumab) in combination with Yervoy (ipilimumab) for the first-line treatment of patients with metastatic or recurrent non-small cell lung cancer (NSCLC); MNTA was upgraded to overweight at JPMorgan and had its tgt raised to $50 at SunTrust as confidence has increased in MNTA’s drug candidate M254 being a more potent drug than currently used to treat autoimmune diseases; MYL said at JPMorgan conference remain extremely confident in forecast

·     Biotech movers; NKTR shares drop after yesterday’s unanimous FDA advisory committee vote against approval of oxycodegol for chronic low back pain (27-0), leading the company to withdraw its marketing application and make no further investments in the program; CLVS shares rose after the company’s Rubraca drug was granted FDA priority review for advanced prostate cancer; NVAX said the FDA granted Fast Track Designation for NanoFlu™, its recombinant quadrivalent seasonal influenza vaccine candidate; APTX said it closed its public offering of 11.7 million shares of common stock, which included the exercise in full of the underwriters’ option to purchase additional shares, at $3.00 a share

·     Medical equipment and devices; RMTI rises after announcing exclusive license and supply agreements with Sun Pharma to sell Triferic in India where it will receive and undisclosed upfront fee and will be eligible for milestone and royalties on sales; IART said it expects Q4 sales to be at or near the low end of the previously communicated guidance range of $395-400M

·     Healthcare services and providers; managed care giant and Dow component UNH reported a 12C eps beat on mostly in-line revs with MLRs a touch better 82.5% vs. consensus 82.8% and reaffirms FY20 guidance; LHCG was named as new short call by SprucePoint Capital saying it sees 35%-65% downside to $60-$90 per share as management appears to be struggling to integrate the Almost Family transaction; in hospitals, CYH rises on guidance as sees adjusted EBITDA for full-year 2019 toward middle portion of guidance and expects to continue to execute on its previously-stated margin initiatives; ALGN extends yesterday losses after SDC unveiled plans to enter the US in-office, doctor-directed channel in ’20 by offering its aligners to GPs/ortho’s; SYNH rises after guides year EPS, revs above estimates

 

Industrials & Materials

·     Transports; in trucking sector, Susquehanna upgraded WERN, CHRW, ECHO and LSTR to Positive from neutral as see risk of a “melt-up” in spot rates in 2020, driving multiples/shares higher even as estimates fall (also remain Positive on TLs (SNDR, KNX) while lukewarm on later cycle intermodal (Positive, HUBG Neutral, JBHT); CHRW was upgraded to overweight at Barclay’s saying investors could gain cycle exposure in a quality company at relatively low valuation as raises PT to $100 from $95; FRO, DHT, EURN slipped in crude-tanker stocks as Baltic Time Charter Equivalent index falls 13.6% on Wednesday in its third consecutive day of declines

·     Chemicals; NTR was downgraded to market perform from outperform at Bernstein and cut tgt to $53 from $68 saying while they see 2020 as a good year for ag chems, believe a selective approach is required as prefer potash and phosphate to nitrogen, while ag retail should see a modest recovery (prefer exposure to MOS to long side and CF on the short side); DAR was downgraded to neutral at JPMorgan while up tgt to $29 on its view that share price now largely reflects the currently favorable margin environment for renewable diesel producers; TSE was downgraded to hold at Deutsche Bank saying with styrene arguably the most challenged chain in all of commodity chemicals over the next 2-3 years owing to significant new capacity in China, they see no near-to-medium term catalysts in the styrenics portion of Trinseo’s business

 

Technology, Media & Telecom

·     Internet; NFLX tgt raised to $450 from $400 at Goldman Sachs ahead of 4Q results (1/21) as they forecast 9.7M net paid subscriber additions – well above guidance/consensus of 7.6/7.8M; FB tgt raised to $275 from $240 at Guggenheim as sees significant further appreciation potential given its industry-leading position in mobile social media and advertising

·     Semiconductors; sector preview at Oppenheimer shows they see beat and raise scenario w North America lagging Asia and Europe curbing upside but we expect the US Book to Bill to Turn by 2Q . 5G DC/Cloud and Auto strongest verticals w DC/Cloud setting up the best. They favor NVDA as largest beneficiary of hyper-scaler, MRVL on 5G, MPWR on Auto and AVGO on cap allocation

·     Software movers; ZNGA and GLUU both initiated overweight at KeyBanc as believe the mobile gaming market is attractive given the strong growth expected over the next few years, which should benefit scale mobile-first publishers

·     Media & Telecom movers; FLNT shares surge as raises FY19 revenue view to $280.8M-$281.8M from $265M-$267M (est. $266.05M) which reflects Q4 revenue $79.1M-$80.1M (above est. $64.3M); DIS said latest “Star Wars” film topped the $1B mark in ticket sales worldwide

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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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