Closing Stock Market Summary
U.S. stocks sold off to end the week, while investors continued to buy less risky assets, amid pestering concerns about the coronavirus and valuation. The Nasdaq Composite led the retreat with a 1.8% decline, followed by the S&P 500 (-1.1%), Russell 2000 (-1.0%), and Dow Jones Industrial Average (-0.8%).
Reported cases of the coronavirus continued to climb in China, but that wasn't new information for the market -- or investors who were buying yesterday's dip. Arguably, the bigger story was the continued flight-to-safety in gold ($1648.90/ozt, +28.90, +1.8%) and U.S. Treasuries (30-yr yield set a new all-time low at 1.89%).
The defensive positioning was attributed not only to the coronavirus fostering growth concerns, but also to the record run in U.S. stocks despite the coronavirus. The latter bolstered calls that the market had gotten overextended and was due for a pullback. The Markit flash services PMI for February, which fell into contraction territory, didn't help sentiment, either.
The top-weighted S&P 500 information technology (-2.3%) sector was today's outright laggard amid broad-based selling. The gains in the real estate (+0.4%) and consumer staples (+0.3%) sectors reflected the market's defensive posture and helped limit the broader decline.
Apple (AAPL 313.05, -7.25, -2.3%), Amazon (AMZN 2095.97, -57.13, -2.7%), Alphabet (GOOG 1485.11, -33.04, -2.2%), and Microsoft (MSFT 178.59, -5.83, -3.2%) -- four widely-held, and crowded, stocks largely responsible for the market's record run -- sold off more than 2% on Friday.
Deere (DE 177.43, +11.60, +7.0%) was among the few bright spots in the market after the company reported solid quarterly results.
U.S. Treasuries, as previously stated, continued to post gains. The 2-yr yield declined four basis points to 1.35%, and the 10-yr yield declined five basis points to 1.47%. The U.S. Dollar Index fell 0.5% to 99.32. WTI crude declined 0.7%, or $0.40, to $53.34/bbl.
Reviewing Friday's economic data, which featured the Existing Home Sales report for January:
- Existing home sales increased 3.6% m/m in December to a seasonally adjusted annual rate of 5.54 million units (consensus 5.42 million) from 5.35 million in November. Total sales were up 10.8% year-over-year.
- The key takeaway from the report is that there are serious inventory constraints in the existing home sales market, which is driving up prices and underscoring the importance of mortgage rates staying low.
Investors will not receive any notable economic data on Monday.
- Nasdaq Composite +6.7% YTD
- S&P 500 +3.3% YTD
- Dow Jones Industrial Average +1.6% YTD
- Russell 2000 +0.6% YTD
Hammerson/Intu: under the hammer
Portfolio sale puts the former in less precarious position than rival mall owner — but only just
Too late for the January sales, but property group Hammerson finally found a buyer for its remaining British retail parks on Friday. Touted as the largest UK portfolio sale in the past decade, the landlord is selling nine locations. Largest perhaps, but the £455m price tag is still a hefty 22 per cent below last June’s book value. That decline mirrors the dire state of British retailing as tenants struggle to pay rents rendered excessively high by the dwindling bands of shoppers.
The proceeds go towards paying down Hammerson’s net debt, which stood at £3bn last June. It officially ends the group’s retail parks’ divestment programme that began in 2018. These were among the sector’s worst-performing assets, but the prospects for Hammerson’s remaining shopping centres are not much brighter. Expect the worst from full-year results due next week.
Still, in property the important thing is to be one-up on the neighbours, and Hammerson’s lower property leverage puts it in a less precarious position than rival mall owner Intu. The owner of Gateshead shopping centre had a loan-to-value (LTV) ratio of 58 per cent last June — versus 40 per cent at Hammerson — and is seeking emergency funding. Gateshead breached covenants in January.
Hammerson’s latest disposal might boost its LTV 3 to 4 percentage points, think Numis analysts. Where that ratio now lies depends on the, still unknown, extent of writedowns to the rest of the portfolio.
A covenant breach, triggered by gearing of 150 per cent, is still distant for Hammerson. Its debt-to-equity ratio was 61 per cent last year. That justifies a somewhat higher valuation than for sickly Intu, with Hammerson’s shares trading at 35 per cent of net asset value compared with Intu’s one-tenth. A yield of 11 per cent, though, suggests Hammerson’s dividend is at risk. Those looking for a bargain should focus on its stores, not its shares.
Turner £20 banknote enters circulation
Snapchat users can view the note in augmented reality
The new polymer £20 note featuring the artist JMW Turner entered circulation on Thursday, with a hidden digital twist for 21st century users of cash.
The Bank of England has worked with Snapchat, the multimedia messaging app, to develop an augmented reality lens that enables users of the app to bring Turner’s celebrated painting The Fighting Temeraire to life by viewing it through their smartphone. The ship played a key role in Nelson’s victory at the Battle of Trafalgar in 1805.
The note’s security features include two see-through windows and a two- colour foil, which makes it very difficult to counterfeit. The large window, which echoes the shape of the fountains in Trafalgar Square, depicts the Margate lighthouse and the Turner Contemporary art gallery.
The note also contains the quote “Light is therefore colour” from an 1818 lecture by Turner.
The Bank of England expects half of ATMs around the UK to be dispensing the new £20 notes within the next fortnight.
Existing paper £20 notes can continue to be used as normal. The Bank of England will give six months’ notice ahead of legal tender status being withdrawn.
The new £20 note is the latest to be printed on plastic polymer, following the launch of a £10 note featuring Jane Austen and a £5 note featuring Winston Churchill.
Gapping down
In reaction to disappointing earnings/guidance:
- LTHM -15.1%, FSLR -14.2%, CWST -12%, ZS -11.8%, APPN -10.5%, PBYI -10.3%, CNDT -9.5%, TMST -8.4%, HBM -8.3%, FSLY -6.5% (also names new CEO), VAL -5.4%, VAL -5.4%, BOOM -5.3%, CUBE -5.2%, BLDR -5.1%, ROG -5.1%, PSO -4.9%, HSC -4.8%, ENV -4%, BJRI -3.9%, OLED -3.2% (also raises dividend), BYD -3%, COG -2.9%, CVA -2.4%, NBR -2.2%, COLD -2.2% (also to form strategic JV in Brazil; will acquire 15% ownership in SuperFrio), TECK -1.9%, ED -1.8%, PPC -1.6%, EBS -1.6%, PRA -1.5%
M&A news:
- TMUS -1.5% (TMUS and S amend combination agreement)
- PRA -1.5% (to acquire NORCAL Group for $450 mln)
Other news:
- EYPT -26.2% (stock offering)
- AGRX -11.2% (stock offering)
- UTI -8.6% (stock offering)
- NGVT -6% (CEO resigns)
- DT -2.8% (prices offering of 25 mln shares of common stock at $34.50 per share)
Analyst comments:
- BJRI -3.9% (downgraded to Hold from Buy at Stifel)
- CAR -2.1% (downgraded to Neutral from Buy at Northcoast)
- SHAK -1.7% (downgraded to Hold from Buy at SunTrust)
- DPZ -1.1% (downgraded to Hold from Buy at Stifel)
- ZG -0.6% (downgraded to Neutral from Buy at Guggenheim)