Market Review: February 25, 2020

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Closing Recap

Tuesday, February 25, 2020





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     U.S. stocks were pummeled for a second consecutive session (Bespoke noted tied with August 2015 for the weakest two-day breadth reading in the S&P 500 since at least 1990), as the S&P 500 is down over 8% in less than a week, the Dow Jones Industrials has fallen roughly 1,800 points over the last two sessions and the high flying Nasdaq Comp has been brought back down to earth, falling below the 9,000 level today (all-time highs less than a week ago at 9,838). Fears of a U.S. economic recession is rising given the potential global implications of the coronavirus as dozens of companies that have a presence in China have warned about the financial impact. The Dow Transport Index is now down over 10% from its all-time highs, led by a sharp correction in airline stocks as passengers are expected to cut back travel in parts of the world on virus fears. Today’s decline comes a day after all three major averages ended Monday lower over 3% as rising coronavirus cases outside of China continued to grow. Stocks tried to recover off lows late day as the CDC held a press conference providing updates, including saying the risk of the virus in the U.S. remains low but does warn for Americans to brace for possibility and said a pandemic is likely. That follows a rapid increase in cases from Italy to Iran and Japan, with a growing list of companies warning that profits will suffer as economies around the world suffer. The 10-year U.S. Treasury yield fell to a record low of 1.3055% and the 30-year yield dipped below 1.8% for the first time. Economic data in the U.S. mixed with slightly better housing data and mixed confidence data while Richmond Manufacturing showed a surprise decline, and big drop from the prior month. Financial stocks again pressured given the plunge in Treasury yields.

Economic Data

·     Consumer Confidence for Feb reported lower at 130.7 vs. est. 132.2 (prior month revised to 130.4 from 131.6), while the present situation index at 165.1 vs. Jan revised 173.9 (previous 175.3) and the consumer expectations index 107.8 vs. Jan revised 101.4 (previous 102.5)

·     Richmond Fed’s Feb. Manufacturing Survey at -2, well below the est. reading of up 10 and compared to up 20 last month; shipments fell to 1 after 29 the prior month while new order volume slowed to -10 after 13 the prior month and order backlogs fell to -6 after 9 prior



·     Gold prices pulled back from 7-year highs, as April gold slides -$26.60 or 1.6% to settle at $1,650 an ounce, essentially erasing yesterday’s advance. It appeared profit taking as stocks sunk along with commodity prices, as gold risen despite a surging dollar over the last few weeks, benefitting from rising investor appetite for safe haven investments, continued accommodative fiscal and central bank monetary policies globally, and ongoing low inflation globally. Oil prices, along with stocks and other commodity prices ended the day lower, as WTI crude dropped -$1.53, or 3%, to settle lower at 2-week low of $49.90 as fear of slowing demand for commodities grows.



·     The U.S. dollar sunk to lows late day, falling with the broader market selling pressure (in just about every asset class outside of treasury prices), as the dollar index dipped back below the 99 level (after hitting 3-year highs just a week ago at 99.91); the euro moved near hi’s of day late vs. the dollar at 1.088 (+0.25%) – follows lows of 1.0778 on 2/20 last week, while the buck broke below the 110 level against the safe-haven Japanese yen.


Bond Market

·     Another strong day for Treasury prices, as yields on the 10-year and 30-year set new record lows as investors continue to pile into the safety of bonds as stocks sold off sharply for a second consecutive session on increasing coronavirus outbreak fears. The 2-year yield was down over 5 bps to 1.19% (lowest since April 2017), while the 10-year yield dropped down 4 bps to 1.32% (record low 1.3055%) and the 30-yr yield fell -3 bps to 1.79% (new record lows. The 5-yr yield was down over 5 bps to 1.157% (lowest since Sept 16) with stocks rolling.






WTI Crude















10-Year Note





Sector News Breakdown


·     Retailers; Macy’s (M) posted a Q4 earnings beat and reiterated its full-year profit guidance citing a meaningful sales uptick in pre-Christmas period, while notes its guidance does not take into account any coronavirus impact; TUP shares plunge as sees FY19 adj. EPS $1.35-$1.70 well below consensus $2.78 and sees FY19 revenue in line with previously provided outlook ranges while guides FY20 revenue $1.58B-$1.62B vs. est. $1.67B; NLS a top mover in retail after its quarterly results; DDS reports comparable sales fell 3% during the holiday quarter while total merchandise sales were down 4% during the quarter

·     Auto movers; NIO shares surge after saying it had signed framework agreements with Hefei’s city government on a fundraising of more than 10 billion yuan ($1.42 billion) and new manufacturing facilities; TSLA was downgraded to hold at Jefferies saying still need valuation to be grounded into some visibility on market size and potential profitability; ADNT warns that FY20 adjusted EBITDA could land toward the low end of the prior guidance range of $870M to $910M due to the coronavirus outbreak.

·     Restaurants; CBRL reported Q2 EPS and sales above consensus as revs totaled $846.1M, up from $811.7M the prior year as comp-restaurant sales grew 3.8% while same-store sales were up 1.3% (vs. est. 2.2% and 0.6%); DIN downgraded to market perform at Raymond James as believe the stock is approaching fair value after its strong recent gains (up ~15% YTD) and that Applebee’s continues to underperform broader industry trends; SHAK shares slide as reports same-shack sales fell (-3.6%) in Q4 to miss to the consensus estimate for a decline of (-2.8%) and comp traffic was down 5.4% from a year ago and guides year sales $712M-$720M vs. est $737M

·     Housing & Building Products; Dow component HD Q4 comparable sales increased 5.2%, topping the consensus mark of 4.8% while comp sales were up 5.3% in the U.S. during the quarter after posting and EPS and sales beat and guides revenue growth of +3.5% to +4.0% in FY21; LL shares jump after Q4 EPS of 56c tops the 23c est and Q4 comps in-line at +0.4% and net sales $273.9M beats the $272.5M est while expects full-year revenue growth at a low to mid-single-digit rate vs. +3.3% consensus; Wayfair (W) downgraded at Stephens saying investor sentiment has shifted against Wayfair with the stock down almost 60% from the March 2019 high of $174; mortgage rates fall to 8-year lows, tracking Treasury yields lower (positive for builders LEN, KBH, DHI)



·     Energy sector again a drag on markets on falling oil and slowing demand fears; APA was upgraded to overweight at KeyBanc saying they think there is a reasonable likelihood the Company will see continued exploration success in Suriname/see around two 400 MMBoe gross discoveries priced into the stock, but think APA could realize multiple discoveries over the next few years; SLCA rises after the company reported an adjusted loss that was less than analysts expected (reported 53c loss vs. est. 59c loss); XOM, CVX, trade 52-week lows in the Dow



·     Bank movers; JPM holds its investor day today in New York – some highlights included: CFO says bank expects net interest income for 2020 to be lower than 2019 due to low interest rates and expects total non-interest revenue for 2020 to be about flat from year prior; the FDIC noted U.S. bank earnings in the last quarter of 2019 fell almost 7% from a year earlier due to lower net interest income and higher non-interest expense

·     Consumer finance and lending; in credit cards, MA cuts Q1 revenue growth to high end of high single digits, down from prior forecast of low double digits saying fundamentals of our business remain strong, as our switched volume and switched transaction growth remain in-line with our expectations….but cross-border travel, and to a lesser extent cross-border e-commerce growth, is being impacted by the Coronavirus; ADS card services business will continue to provide co-brand card services for CZR under a recently signed long-term agreement; TREE drops after Q4 adjusted EPS of $1.12 misses the consensus of $1.43 while Q4 total revenue of $255.2M falls short of the $262.4M consensus and down 18% Q/Q but up 26% Y/Y.



·     Pharma movers; PRGO jumps after saying the U.S. FDA approved its first generic drug to TEVA’s respiratory drug ProAir/says is launching limited quantity of the drug, and collaborating with its manufacturing partner CTLT to ramp up production in order to meet future demand; MNK after announced a settlement that would resolve all opioid-related claims (while also posted Q4 EPS beat) – said on deal, the plaintiffs would receive $1.6B in structured payments; ZYNE receives U.S patent for methods of treating autism spectrum disorder by using cannabidiol via a gel or cream/the new patent, which expires in 2038, covers its Zygel CBD gel; ALXN shares dropped after Citigroup said the company stopped developing an experimental medicine for autoimmune disease (ABY-039), removing a key 2020 catalyst; shares of AXGN, RVNC also reported

·     Biotech movers; MRNA rises as announced shipment of the first vials of coronavirus vaccine mRNA-1273 to the NIH for use in a clinical study only 42 days since sequence identification; ICPT posted a wider than expected Q4 EPS loss of ($2.99) vs. est. ($2.66) but revenue of $71.5M rose 34% YoY and topped consensus; REGN was upgraded to buy at Jefferies given the recent adverse events that have arisen with Novartis’ Beovu, which will likely dampen its uptake and minimizes competitive risk to REGN’s Eylea franchise; GH shares slip after Q4 top and bottom line beat but issued mixed 2020 outlook with expected higher spending; CLVS shares drop after Rubraca sales for the quarter rise YoY but fell short of consensus estimates

·     Medical equipment and devices; EXAS shares slipped as it offers $1B (upside from $850M) of 0.3750% convertible senior notes due 2028 for general corp purposes, including repayment or repurchase of debt, working capital and possible acquisitions; MMSI 4Q results were nicely above consensus (~4% on revenue, ~18% on adj. EPS) as was the 2020 guidance, before the impact of the coronavirus (COVID-19)


Industrials & Materials

·     Industrial & Machinery; AOS said it sees material impact from coronavirus in Q1 as resumed all operations in China at below normal levels; USCR posted a Q4 miss while also detailed a strategic acquisition, buying Coram Materials for a purchase price of $142M; KEYS jumps as reported January ended quarter results and provided an April quarter outlook that were upbeat; KTOS shares dropped as Q4 missed top and bottom line on weaker Q1 guidance as sees Q1 adj EBITDA $12-15M vs. est. $18.8M and sees 1Q revs $160-170M below est. $190M; PLOW shares advanced after posting record quarterly sales

·     Transports; tough week for rental stocks as HTZ shares drop after posting a wider than expected Q4 EPS loss on mostly in-line revs of $2.33B (follows sharp drop in CAR shares last week following its quarterly results); airlines again pressured on coronavirus impact fears as UAL withdraws its guidance given the cloudiness of future on virus impact


Technology, Media & Telecom

·     Internet; EXPE will cut about 3,000 jobs, including around 500 at its Seattle headquarters, to reduce costs, Geekwire reported; YELP rises after filing noting changes to executive compensation/severance policy; JMEI shares jumped over 20% after saying it has signed a going-private agreement, under which its wholly-owned subsidiary Jumei Investment Holding and Super ROI Global Holding will acquire all the outstanding class A ordinary shares of the company and American depositary shares.

·     Semiconductors; the Philly semi index falls to 100-day MA support of 1,770 (briefly breached level to low of 1,765) – index was just trading at record highs of 1,983 on Feb 14th; MU and SIMO both downgraded to underperform at Bank America citing a risk to memory-related chipmakers as a result of the coronavirus; does not doubt a bottoming for memory in Q1, but is concerned about earnings misses or guidance cuts for the March quarter; NVDA downgraded to reduce at Nomura saying the risks to the global semiconductor industry posed by the COVID-19 outbreak have grown over the last few weeks;

·     Software movers; security stocks fall after PANW issued its third straight quarter of missed product revenue that further erodes confidence in the company’s ability to execute (guides 3Q revs $835-805M vs. est. $872.7M and EPS $0.96-$1.08 vs. est. $1.25); CSOD shares fall after reported a weak Q4 and guided Q1 below consensus due to increased competition, softness in content sales, and higher churn rates; SAIL rises on earnings and guidance

·     Hardware & Component news; HPQ 52-week highs as met consensus revenues, while beat EPS by 10 cents (18%) due to record PC margins, driven mainly by continued favorable DRAM pricing though printer supplies were down -7% again (shares upgraded at Loop Capital); EXFO cuts Q2 revenue view to approximately $55M from $66M-$71M (est. $68.74M) due to the coronavirus impact on its supply chain and manufacturing operations in China; EXTR estimates that supply chain disruptions could result in negative impact of $10m-$15m revenue and 6c-8c adj. EPS in 3Q citing the impact of the coronavirus; JBL another to warn that Q2 results will miss due to virus saying factories are running at 65%-70% capacity


Market commentary provided by Catena Media Financials US, LLC, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.

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