Closing Stock Market Summary
The stock market sold off to end the week, and month, on growing concerns about the coronavirus and the negative effect it could have on economic growth. The Dow Jones Industrial Average (-2.1%) and Russell 2000 (-2.1%) led the retreat, followed by the S&P 500 (-1.8%) and Nasdaq Composite (-1.6%).
Ten of the 11 S&P 500 sectors finished lower, including six that lost at least 2.0%. The energy sector (-3.2%) bore the brunt of the damage amid the continued weakness in oil prices ($51.58/bbl, -0.60, -1.2%) and the earnings disappointments in Exxon Mobil (XOM 62.12, -2.67, -4.1%) and Chevron (CVX 107.14, -4.26, -3.8%).
The 7% gain in shares of Amazon (AMZN 2008.72, +138.04, +7.4%) following its blowout quarterly results masked the widespread selling in the consumer discretionary sector (+0.8%). IBM (IBM 143.73, +6.96, +5.1%) also bucked the broader trend after it announced a CEO leadership change.
The coronavirus angst was exacerbated by increasing reports of worldwide cases; Delta Air Lines (DAL 55.74, -1.36, -2.4%), United Airlines (UAL 74.80, -2.95, -3.8%), and American Airlines (AAL 26.84, -0.88, -3.2%) suspending U.S.-China flights; and the White House declaring a public health emergency in addition to announcing some travel restrictions.
Fueling de-risking efforts were the disappointing earnings results and/or guidance from Caterpillar (CAT 131.35, -4.02, -3.0%) and Visa (V 198.87, -9.24, -4.4%). Economic data wasn't too great, either. Preliminary GDP data for the eurozone continued to depict a sluggish economy, and the Chicago PMI fell to its lowest level since December 2015 (42.9).
Interestingly, the orderly retreat in the market didn't reflect the panic selling normally attributed with a sharp decline like today. Instead, it reflected an aversion to jump into the market that had gotten a bit overextended and had the potential to fall deeper on more coronavirus headlines.
Unsurprisingly, U.S. Treasuries remained on the advance amid the perceived growth concerns that rattled equities. The 2-yr yield fell seven basis points to 1.32%, and the 10-yr yield fell four basis points to 1.52%. The U.S. Dollar Index fell 0.5% to 97.38.
Reviewing Friday's batch of economic data:
- Personal income was up 0.2% m/m in December (consensus +0.3%) while personal spending was up 0.3%, as expected. The PCE Price Index was up 0.3% (consensus +0.2%). That left the yr/yr change at 1.6% versus 1.4% in November. The core PCE Price Index was up 0.2%, as expected. That left the yr/yr change at 1.6% versus 1.5% in November.
- he key takeaway from the report is that inflation is still running comfortably below the Fed's longer-run inflation target of 2.0%, making it clear that the market need not fear a rate hike anytime soon.
- The Q4 Employment Cost Index increased 0.7%, as expected, seasonally adjusted, for the three-month period ending in December 2019 after increasing 0.7% for the three-month period ending in September 2019.
- The key takeaway from the report is that it shows a continuation of moderate growth in compensation costs.
- The final reading for the January University of Michigan Index of Consumer Sentiment showed an upward revision to 99.8 (consensus 99.1) from the preliminary reading of 99.1. The final reading for December was 99.3.
- The key takeaway from the report is that consumer attitudes remained resilient despite a spate of disconcerting items, such as the geopolitical conflict with Iran, the impeachment trial, and the onset of the coronavirus, underscoring that attitudes about employment and income potential are integral to consumer sentiment.
- The Chicago PMI for January fell to 42.9 (consensus 48.7) from a downwardly revised 48.2 reading in January (from 48.9). This was its lowest level since December 2015.
Looking ahead, investors will receive the ISM Manufacturing Index for January, the Construction Spending report for December, and auto and truck sales for January on Monday.
- Nasdaq Composite +2.0% YTD
- S&P 500 -0.2% YTD
- Dow Jones Industrial Average -1.0% YTD
- Russell 2000 -3.3% YTD
Weekly Market Update: Coronavirus fears infect markets
Global markets landed in turmoil this week as the rapidly spreading coronavirus stoked fears over global growth and overshadowed a heavy slate of corporate earnings reports. Government officials in China and elsewhere emphasized they were tracking the virus and taking extra precautions to slow its spread, trying to calm nerves and prevent a full blown hysteria. By Friday though, global confirmed cases approached 10,000, surpassing the 2003 SARS outbreak, and the first confirmation of an asymptomatic transmission of the virus sent investors scurrying to the exit. Weak US manufacturing data only added to the concerns that global growth could be entering a precarious stage, as the effects of what the WHO declared a ‘public health emergency of international concern’, are yet to be felt. Several major airlines announced the cancelation of all flights servicing the Chinese mainland through early April. And late Friday afternoon, the Trump Administration announced more aggressive measures including limiting entry to foreign nationals who have recently traveled to China.
Stock markets came under significant pressure and risk aversion flows were prevalent across a variety of asset classes for much of the week. US Treasury yields slumped back towards the lows of last September and curve flattening resulted in portions of the curve re-inverting. Oil prices slid, sending WTI crude into the low $50’s and high yield corporate spreads continued to widen. Copper and other base metals slumped and the USD/CNY exchange rate moved back above the key psychological 7.00 level. Gold prices lifted along with the VIX which popped back above 19 for the first time since October. For the week, the S&P lost 2.1%, the DJIA dropped 2.5%, and the Nasdaq fell 1.8%.
In corporate news this week, Apple revenue and earnings handily beat estimates, with strength seen particularly in services and wearables. Microsoft crushed profit expectations and offered robust guidance as its cloud business gained traction. Boeing missed on its top and bottom line and noted $4B in abnormal production costs to be expensed as incurred, primarily in 2020, amid its ongoing 737 MAX woes. McDonald's reported a profit and revenue beat but saw US Q4 customer traffic decline. Tesla shares surged after a second straight blowout quarter, and the carmaker set a goal to sell over half a million vehicles this year. On Friday, Amazon gained $75B in market cap, joining the trillion-dollar valuation club, after smashing earnings expectations and announcing it has surpassed 150M Prime members. Facebook posted a modest beat, but investors saw warning signs on the horizon as costs and expenses continue to rise. Altria missed revenue estimates and took a charge on its disappointing investment in e-cigarette maker Juul. Auto parts supplier BorgWarner announced it would acquire Delphi Technologies for $3.3B to help shore up its power electronics product offerings. L Brands reportedly is exploring strategic options for its Victoria’s Secret division as founder Lex Wexner was said to be in talks to step down as CEO.
SUNDAY 1/26
*(CN) China National Health Commissioner Ma says appears that the coronavirus' ability to spread is getting stronger, virus is mutating and can be transmitted through human contact; total confirmed cases of infection in China is over 2,000 as of Sunday afternoon, with 56 deaths
(CN) China has confirmed 2,744 cases of the coronavirus as of the end of Jan 26th (Sunday) and 80 deaths [vs 830 cases and 25 deaths as of Jan 23rd], China officials have extended the Lunar Year holiday to Feb 2nd from Jan 30th due to the impact of the virus
MONDAY 1/27
*(DE) GERMANY JAN IFO BUSINESS CLIMATE SURVEY: 95.9 V 97.0E; CURRENT ASSESSMENT SURVEY: 99.1 V 99.1E
ARNC Reports Q4 $0.53 v $0.33 y/y, Rev $3.40B v $3.47B y/y
LHA.DE Exec: seeing 'slightly subdued' situation regarding bookings to and from China due to coronavirus
*(US) DEC NEW HOME SALES: 694K V 730KE
(US) CDC Director Messonnier: still only 5 confirmed US cases of coronavirus, and 110 people under investigation; CDC is working on a plan for distribution of more test kits - conronavirus briefing
WHR Reports Q4 $4.75 v $4.30e, Rev $5.38B v $5.53Be; Guides initial FY20 $16.00-17.00 v $16.19e
(CN) China Updates on Coronavirus: Total cases in China at 4,515 v 2,744 at the end of Jan 26th; Death toll 106 v 80 yesterday - China press
TUESDAY 1/28
SAP.DE Reports Q4 EPS €1.82 v €1.51 y/y; Op €2.84B v €2.85Be; Rev €8.05B v €8.1Be
MMM Reports Q4 $1.95 v $2.10e, Rev $8.11B v $8.13Be; Implements new global operating model and streamlined structure; To cut 1,500 jobs
DLPH To be acquired in all-stock deal by Borgwarner; deal valued at $3.3B; Borgwarner announces $1B share repurchase program
HUAWEI.CN To have limited role in 5G rollout in the UK as speculated; to have 35% cap in periphery of 5G network
*(US) DEC PRELIMINARY DURABLE GOODS ORDERS: 2.4% V 0.3%E; DURABLES (EX-TRANSPORTATION): -0.1% V +0.3%E
*(US) JAN RICHMOND FED MANUFACTURING INDEX: +20 V -3E (16-month high)
UAL To suspend some flights to China beginning Feb 1st through Feb 8th; to cut some service to Beijing, Hong Kong, and Shanghai; suspensions to last for about a week
(US) Congressional Budget Office (CBO) issues 10-year budget and economic outlook: sees US budget deficit at $1.015T in FY20; sees federal deficits at $1T per year for at least 11 years
(US) Sen Maj Leader McConnell reportedly told GOP in closed door meeting that he does not have the votes to block impeachment witnesses - press
WEDNESDAY 1/29
066570.KR Reports FY19 (KRW) Net 180.0B v 1.47T y/y, Op 2.44T v 2.70T y/y, Rev 62.3T v 61.3T y/y
GE Reports Q4 $0.21 v $0.18e, Rev $26.2B v $26.2Be; says on positive trajectory heading into 2020, despite areas of uncertainty
BA Reports Q4 -$2.33 v +$1.73e, Rev $17.9B v $21.7Be; Confirms to cut 787 production to 12 jets/month
CP Reports Q4 C$4.82 v C$4.69e, Rev C$2.07B v C$2.04Be
*(US) DEC PENDING HOME SALES M/M: -4.9% V 0.5%E; Y/Y: 6.8% V 10.3%E
(US) Association of American Railroads weekly rail traffic report for week ending Jan 25th: 485.3K, -7.1% y/y
*(US) FOMC LEAVES TARGET RANGE UNCHANGED BETWEEN 1.50-1.75%; AS EXPECTED; EXTENDS REPO OPERATIONS AT LEAST THROUGH APRIL
MSFT Reports Q2 $1.51 v $1.32e, Rev $36.9B v $35.7Be
TSLA Reports Q4 $2.14 v $1.62e, Rev $7.38B v $7.05Be
(EU) EU aims to create a single European data market in order to counteract US tech giants' dominance; large online platforms may see new rules implemented to ensure open and fair competition - EU document
THURSDAY 1/30
ROG.CH Reports FY19 (CHF) Core EPS 20.16 v 19.96e, Core Op 22.48B v 22.65Be, Rev 61.5B v 61.95Be; Proposes to increase dividend to CHF9.00/share from CHF8.70
DBK.DE Reports Q4 Net -€1.48B v -€409M y/y, Pretax -€1.29B v -€319M y/y, Net Rev €5.35B v €5.30Be
RDSA.NL Reports Q4 CCS EPS $0.37 v $0.40e, Adj CCS Net $2.93B v $3.2Be, Rev $85.07B v $80.99Be; intends to complete $25B share buyback program
DGE.UK Reports H1 Net £1.87B v £1.98B y/y, Adj Op £2.5B v £2.43B y/y, Rev £7.2B v £6.91B y/y
UNA.NL Reports FY19 Net €5.63B v €5.84Be, adj Op €9.95B v €9.94Be, Rev €52.0B v €51.0B y/y; initiates strategic review of global tea business
*(DE) GERMANY JAN NET UNEMPLOYMENT CHANGE: -2.0K V +5.0KE; UNEMPLOYMENT CLAIMS RATE: 5.0% V 5.0%E
RDSA.NL CFO: 2020 looks to be challenging - post earnings comments
*(EU) EURO ZONE JAN BUSINESS CLIMATE INDICATOR: -0.23 V -0.20E
KO Reports Q4 $0.44 v $0.43e, Rev $9.10B v $8.91Be
*(UK) BANK OF ENGLAND (BOE) LEAVES INTEREST RATE UNCHANGED AT 0.75%; AS EXPECTED
*(UK) BOE JAN MINUTES: VOTED 7-2 TO KEEP POLICY STEADY (Saunders and Haskel remain as doves)
VZ Reports Q4 $1.13 v $1.15e, Rev $34.8B v $34.5Be
UPS Reports Q4 $2.11 v $2.10e, Rev $20.6B v $20.6Be
*(DE) GERMANY JAN PRELIMINARY CPI M/M: -0.6% V -0.6%E; Y/Y: 1.7% V 1.7%E
*(US) Q4 ADVANCE GDP ANNUALIZED Q/Q: 2.1% V 2.0%E; PERSONAL CONSUMPTION: 1.8% V 2.0%E
*(US) Q4 ADVANCE GDP PRICE INDEX: 1.4% V 1.8%E; CORE PCE Q/Q: 1.3% V 1.6%E
(US) Nevada reports Dec casino gaming Rev $1.06B, +5.8% y/y; Las Vegas strip Rev $591.8M, +4.5% y/y
AMZN Reports Q4 $6.47 v $3.98e, Rev $87.4B v $86.0Be; Prime membership is over 150M worldwide (*Note: crossed 100M about 21 months ago)
V Reports Q1 $1.46 v $1.46e, Rev $6.05B v $6.06Be; Authorized $9.5B share buyback program (2% market cap)
*(CN) CHINA JAN MANUFACTURING PMI (OFFICIAL GOVT): 50.0 V 50.0E (6th month without a contraction)
FRIDAY 1/31
*Study documents first case of coronavirus spread by a person showing no symptoms - STAT News
*(IT) ITALY Q4 PRELIMINARY GDP Q/Q: -0.3% V +0.1%E; Y/Y: 0.0% V 0.3%E
CAT Reports Q4 $2.63 v $2.37e, Rev $13.1B v $13.6Be
(BR) Brazil Dec Primary Budget Balance (BRL): -13.5B v -21.0Be; Nominal Budget Balance: -38.4B v -48.5Be
(US) Atlanta Fed forecasts initial Q1 GDP growth at 2.7%
(RU) Russia Energy Min Novak: Russia is prepared to meet with OPEC+ members in Feb (pushing meeting up from March); date is currently being discussed; Russia is ready to act if needed to rebalance oil market
(US) HHS Sec Azar: Declares coronavirus presents a "public health emergency" in the US; under temporary measuers, travelers from China may be subject to screening, potential quarantine, or denied entry - White House press conf
Gapping down
In reaction to disappointing earnings/guidance:
- BR -4.2%, BZH -4.1%, WETF -3.8%, AVD -3.6% (lowers FY19 rev guidance), WY -3.4%, AMGN -3.2%, HON -3%, LYB -2.9%, EA -2.8%, V -2.7%, FICO -2.3%, CACC -2.1%, CE -2%, PSX -2%, MITK -1.7%, BAH -1.6%, POWI -1.3%, CHTR -1%, NVST -0.6%, PKX -0.5%, XOM -0.5%
Other news:
- WWE -24.7% (George Barrios, Michelle Wilson departing, searching for premanent CFO, CRO, lowers OIBDA guidance)
Analyst comments:
- ITCI -3.7% (downgraded to Neutral from Overweight at JP Morgan)
- AMGN -3.1% (downgraded to Underperform from Neutral at Robert W. Baird)
- GBT -1.8% (downgraded to Hold from Buy at SunTrust)
- ORLY -1.2% (downgraded to Neutral from Overweight at JP Morgan)
- NUE -0.8% (downgraded to Neutral from Buy at Goldman)
Gapping up
In reaction to strong earnings/guidance:
- ADNT +23.4%, AMZN +10.8%, FLEX +10.6%, BERY +10%, NATI +9.8%, WDC +4.9%, CL +4.7%, DECK +3.9%, EW +3.8%, X +3.7%, VRTX +3.6%, OTEX +3.4%, RHI +3.1%, SIGI +2.9%, RMD +2.7%, SKYW +1.9%, JCI +1.2%, KKR +1.2%, MAN +1.1%, AJG +0.8%, JOUT +0.8%, AON +0.7%
M&A news:
- NAV +55.9% (receives $35/sh takeover bid from Volkswagen subsidiary)
Other news:
- IBM +4% (IBM names Arvind Krishna as CEO)
- ESPR +3.5% (receives positive CHMP opinion for the MAA for the bempedoic acid tablet, recommending approval for the treatment of hypercholesterolemia and mixed dyslipidemia)
- TELL +3% (announces that LNG has dismissed all claims against TELL)
- DBX +2.1% (names new COO)
- NXST +1.3% (increases quarterly cash dividend to $0.56 per share from $0.45 per share)
- NVO +0.9% (Rybelsus recommended for approval for the treatment of adults with type 2 diabetes by the European regulatory authorities)
Analyst comments:
- DECK +4% (upgraded to Buy from Hold at Jefferies)
- ARNA +2.6% (upgraded to Overweight from Neutral at JP Morgan)
- CTVA +1.3% (upgraded to Neutral from Underweight at JP Morgan)
- MO +0.8% (upgraded to Overweight from Neutral at Piper Sandler)
Early premarket gappers
- Gapping up:
- NAV +57.5%, FLEX +10.6%, NATI +9.8%, AMZN +9.3%, WDC +4.7%, DECK +3.9%, EW +3.8%, IBM +3.7%, X +3.6%, OTEX +3.4%, RHI +3.1%, VRTX +3.1%, TELL +3%, SIGI +2.9%, RMD +2.7%, JCI +2.4%, SKYW +1.9%, DBX +1.8%, BAH +1.2%, CAT +1.1%, AJG +0.8%, AON +0.7%, NVO +0.6%
- Gapping down:
- WWE -24.2%, CE -5%, WY -4.6%, BZH -4.5%, LYB -4.1%, AVD -3.6%, AMGN -3.6%, CACC -3.5%, EA -3.3%, V -2.7%, FICO -2.3%, MITK -1.7%, POWI -1.3%, PKX -0.9%, POL -0.6%, NVST -0.6%