Closing Stock Market Summary
The S&P 500 (+0.3%), Nasdaq Composite (+0.5%), and Dow Jones Industrial Average (+0.02%) closed at record highs on Friday, even as President Trump said he had not yet agreed to roll back existing tariffs. The Russell 2000 increased 0.3%.
President Trump's statement refuted China's claim that an agreement was already made, but the market maintained an optimistic view on trade. It presumably continued to think that a "Phase One" deal will still get signed considering the president didn't technically rule out the possibility to roll back tariffs and White House trade advisor Peter Navarro said the U.S. might be willing to delay the Dec. 15 tariffs.
There still wasn't much conviction from buyers or sellers for most of the session, though, until a wave of buyers pushed the market to session highs into the close. The S&P 500 health care (+0.8%) and information technology (+0.6%) sectors posted decent gains, while the energy (-0.8%), utilities (-0.4%), and real estate (-0.2%) sectors finished lower.
Walt Disney (DIS 137.96, +5.00, +3.8%) beat earnings estimates and shares of the Dow component rose accordingly. Its outperformance also helped the S&P 500 communication services sector (+0.4%) overcome weakness in Verizon (VZ 59.35, -1.18, -2.0%), which fell on no confirmed new catalyst.
The trade-sensitive Philadelphia Semiconductor Index (+0.5%) continued to rise amid the upbeat trade sentiment. The group also benefited from follow-through buying in shares of Qualcomm (QCOM 94.03, +4.05, +4.5%) after it reported positive earnings results earlier in the week.
In other corporate news, Southwest's (LUV 58.18, -0.06, -0.1%) 10-Q stated it plans to remove Boeing's (BA 351.00, -6.31, -1.8%) 737 MAX from its flight schedule through March 6, 2020. This is a one-month delay. Gap, Inc. (GPS 16.68, -1.38, -7.6%) announced the departure of its CEO and issued downside EPS guidance.
The U.S. Treasury market finished relatively unchanged in a quiet session. The 2-yr yield declined one basis point to 1.66%, and the 10-yr yield increased one basis point to 1.93%. The U.S. Dollar Index increased 0.2% to 98.37. WTI crude increased 0.2% (+$0.10) to $57.21/bbl.
Reviewing Friday's economic data, which included the preliminary University of Michigan Consumer Sentiment Index for November and the Wholesale Inventories report for September:
- The preliminary University of Michigan Consumer Sentiment Index for November crossed at 95.7 (consensus 95.0), which was slightly better than expected and roughly even with the final reading of 95.5 for October.
- The key takeaway from the report is that consumer expectations increased from October, underscoring an otherwise confident attitude that should continue to manifest itself in relatively solid consumer spending activity.
- Wholesale inventories declined 0.4% m/m in September (consensus -0.1%), on top of a downwardly revised 0.1% increase (from +0.2%) in August. That was the largest decline since October 2017. Wholesale sales were flat in September after declining 0.1% in August.
- The key takeaway from the report is that it could prove difficult for wholesalers to gain pricing power given that inventory growth remains well ahead of sales growth on a yr/yr basis.
Investors will not receive any notable economic data on Monday.
- Nasdaq Composite +27.7% YTD
- S&P 500 +23.4% YTD
- Dow Jones Industrial Average +18.7% YTD
- Russell 2000 +18.6% YTD
Weekly Market Update: Santa Claus rally starts early amid talk of rolling back China tariffs
Fri, 08 Nov 2019 16:02 PM EST
The breakout in US stock indices resumed this week as investors’ willingness to add to risk positions increased. Technicians and Dow theorists were heartened by widening participation into new high territory which now includes a confirmatory new high in the Transports for Dow theorists. Sentiment continued to be underpinned by reports that the US and China were discussing rolling back tariffs on the way to signing the first phase of a trade deal. Risk-on trade flows powered Treasury bond yields to jump to levels not seen since the summer. Heavy sovereign supply in both Europe and the US exacerbated the aggressive move up in rates. Rising rates and steepening yield curves helped financials assume a leadership role.
By Friday, the strength in equity markets petered out after President Trump and others within his administration emphasized that, despite what had been reported in the press, nothing had been agreed upon with regards tariff roll backs. Crude and copper prices drifted lower along with the Yuan as some of the risk-on flows perpetuated by trade hopes earlier in the week reversed, and gold ended off of lows after breaking back below $1,500. The Dollar index crept higher, approaching potential resistance at the 50-day moving average. For the week, the S&P gained 0.8%, the DJIA added 1.2%, and the Nasdaq rose 1.1%.
In corporate news this week, McDonald's CEO Steve Easterbook was forced to step down after the board determined he violated company policy in regards to a recent consensual relationship with an employee. Under Armour confirmed it was the subject of a federal accounting probe related to revenue recognition. Xerox offered to acquire HP Inc (HPQ) for $22/share, and HP confirmed that talks have been occurring intermittently. Bidu posted top and bottom line beats, citing strength in its video streaming division. Roku shares plunged after the company cut its EBITDA outlook despite notching better than expected earnings for the quarter. Dish Network rallied after reporting a Q3 that saw its pay TV net subs surprisingly increase. Disney shares also rallied on Friday after reporting strong earnings results ahead of next week’s official launch of the Disney+ streaming platform.
SUN 11/3
MCD Appoints President, McDonald's USA Chris Kempczinski new CEO; effective immediately; succeeds Steve Easterbrook, who has separated from the Company following violation of company policy and demonstrated poor judgment involving a recent consensual relationship with an employee
UA Confirms under investigation: Cooperating with US SEC and DoJ investigations, believe accounting practices and disclosures were appropriate - CNBC
MON 11/4
*(ES) SPAIN OCT MANUFACTURING PMI: 46.8 V 47.5E (5th straight contraction and lowest reading since Apr 2013)
*(US) SEPT FINAL DURABLE GOODS ORDERS: -1.2% V -1.1%E; DURABLES (EX-TRANSPORTATION): -0.4% V -0.3%E
(CN) US said to be considering removing some tariffs from China goods in order to secure partial trade deal - FT
SHAK Reports Q3 $0.31 v $0.20e, Rev $158M v $157Me
TUES 11/5
ARNC Reports Q3 $0.58 v $0.53e, Rev $3.56B v $3.60Be
*(US) OCT ISM NON-MANUFACTURING INDEX: 54.7 V 53.5E
*(US) SEPT JOLTS JOB OPENINGS: 7.024M V 7.063ME
WBA Reportedly considering deal with buyout firms to go private - press
(EU) Pres Trump reportedly to miss auto import tariff deadline next week in order to maintain leverage in broader US-EU trade talks, according to former officials - press
(CN) China PBOC sets Yuan Reference Rate: 7.0080 v 7.0385 prior (strongest fix since early Aug)
JGB (JP) Japan MoF sells ¥2.1T v ¥2.1T indicated in 0.1% 10-year JGBs: avg yield: -0.099% v -0.158% prior, bid to cover 3.62x v 3.42x prior
HPQ Xerox considers cash and stock takeover offer - US Financial Press
WEDS 11/6
*(US) Q3 NONFARM PRODUCTIVITY: -0.3% V +0.9%E; UNIT LABOR COSTS: 3.6% V 2.3%E
(US) Senior Trump administration official: Trump-Xi meeting could be delayed until Dec as talks continue over terms and venue; still possible that a US-China trade agreement will not be reached, but deal is more likely than not - press
BIDU Reports Q3 $1.76 v $1.25e, Rev $3.93B v $3.97Be (2 est)
(CN) China PBOC sets Yuan Reference Rate: 7.0008 v 7.0080 prior (strongest since Aug 7)
992.HK Reports Q2 Net $202.2M v $201Me, Op $441.7M v $784M y/y Rev $13.5B v $13.4B y/y
7203.JP Reports H1 Net ¥1.3T v ¥1.2T y/y; Op ¥1.4T v ¥1.3T y/y; Rev ¥15.3T v ¥14.7T y/y, announces stock buyback of ¥200B (~1.2% of market cap)
THURS 11/7
DTE.DE Reports Q3 adj Net €1.4B v €1.3B y/y, adj EBITDA (adj for leases) €6.48B v €6.44Be, Rev €20.2B v €19.1B y/y
SIE.DE Reports Q4 Net €1.32B v €1.01Be, Industrial Business EBITA €2.64B v €2.21B y/y, Rev €24.5B v €22.6B y/y
MT.NL Reports Q3 Net -$0.5B v -$0.5B y/y, EBITDA $1.06B v $943.2Me, Rev $16.6B v $16.8Be
(CN) China Commerce Ministry (MOFCOM): If China and US reach Phase 1 deal, both sides must cancel existing tariffs at the same time, with the same proportion based on agreement - weekly press conference
*(UK) BOE NOV MINUTES: VOTED 7-2 TO KEEP INTEREST RATES UNCHANGED AT 0.75%; First dovish dissent since July 2016
(CN) US govt spokesperson: US has agreed that first China trade deal would include tariff rollbacks - press
*(US) TREASURY $19B 30-YEAR BOND REOPENING DRAWS 2.430%; BID TO COVER 2.23 V 2.25 PRIOR
*(US) SEPT CONSUMER CREDIT: $9.5B V $15.0BE
(JP) Japan Investors Net Buying of Foreign Bonds: ¥668.1B v -¥1.02T prior week; Foreign Net Buying of Japan Stocks: ¥420.9B v +¥649.5B prior week
DISH Reports Q3 $0.66 v $0.59e, Rev $3.17B v $3.17Be; Pay-TV net additions 148K v -341K y/y
China Global Times Editor-in-chief Hu Xijin: What President Trump said is not what the markets expect. But he said "the US hasn’t agreed to a rollback of tariffs". It's not a flat denial. What's certain is that if there's no rollback of tariffs, there will be no 'Phase 1' deal
UK funds suffer record outflows in wake of Woodford
Investment Association data show damaged investor sentiment in British equity funds
UK funds suffered record outflows of £4.6bn in the third quarter, as Brexit uncertainty and the fallout from the Woodford scandal damaged investor sentiment in British equities.
Half of the outflow was due to investors pulling record amounts of cash from UK equity products, according to the latest data from the Investment Association, the UK lobby group whose 250 fund managers control assets of £7.7tn.
Asset management groups that have suffered investor withdrawals in recent months include Jupiter, Invesco and Standard Life Aberdeen.
Investors have turned against British stocks amid uncertainty about the strength of the UK economy and Brexit’s impact on growth. Sentiment has also been hit by the downfall of Neil Woodford, once the country’s most high profile stockpicker, whose Equity Income fund was suspended in June.
However, the IA figures also showed that tracker funds experienced net retail inflows across all asset classes of £4.6bn in the third quarter.
Chris Cummings, IA chief executive, said: “Global uncertainty cast a long shadow over stocks and shares in the last quarter.
“Savers particularly shied away from UK equities with £2.3bn of outflows.”
He said bond funds benefited as investors looked for a “port in the storm”, with mixed asset funds also performing well. Bond and mixed asset funds each experienced inflows of £2.2bn in the quarter.
Adrian Lowcock, head of personal investing at broker Willis Owen, said fears of a global slowdown and a rising possibility of a no-deal Brexit had seen investors cut their exposure to stocks.
“The Brexit situation was so unpredictable that it was easier for investors to just take the risk off the table and adopt a wait-and-see approach,” he said.
Laura Suter, personal finance analyst at investment platform AJ Bell, said: “The tally of outflows since the Brexit vote keeps ratcheting up, and is now within touching distance of £15bn — leaving quite a hole in UK fund managers’ portfolios.”
She noted one “bright spot” in September was emerging markets, which saw £270m of net inflows.
Property funds also experienced outflows in September, with net retail outflows of £82m.
Germany’s eurozone gambit could meet a swift death
Building a more effective, closely united Europe has never presented a bigger challenge
When Martin Luther arrived at the Diet of Worms in 1521 to defend his Protestant ideas in front of the Catholic hierarchy, a guard whispered to him: “Little monk, it is an arduous path you are taking.” The same thought may occur to Olaf Scholz, Germany’s finance minister, as he tries to convince his country’s political and financial establishment, not to mention other eurozone governments, of the merits of the plan he unveiled this week for completing Europe’s banking union.
The lack of a comprehensive union, including common deposit insurance, is one of the vulnerabilities that could be exposed if the 19-nation eurozone experiences turmoil of the kind that almost destroyed Europe’s currency union in 2010-12. For the past seven years, however, efforts to set up common deposit insurance have met a wall of resistance from northern Europeans, suspicious of being lured into forking out billions for their southern neighbours.
What explains Mr Scholz’s initiative and will it lead to anything? The answers lie in Germany’s unruly domestic politics, its leaders’ gradual reassessment of the nation’s standing and the broader problems of EU integration.
Building a more effective, closely united Europe has never presented a bigger challenge. Disputes abound over asylum policy, enlargement into the Balkans, the EU’s next long-term budget and much else. Trade wars and a choppy world economy point to difficulties ahead. Next time — unlike during the eurozone’s existential crisis — the European Central Bank’s unconventional monetary measures might not be enough to save the day.
As Mr Scholz recognises, this provides a compelling argument for prompt action to strengthen the eurozone’s defences, starting with common deposit insurance. His proposals are limited, consisting not of a fully mutualised scheme, but of a reinsurance mechanism in which EU funds would be deployed once national guarantees had run out. Moreover, he appears to stipulate conditions for German participation, such as stricter regulation of banks’ ownership of sovereign bonds and a common corporate tax base — unacceptable to some eurozone governments. Nonetheless Mr Scholz’s plan is unquestionably a bolder German initiative than any in recent years.
One reason for its appearance lies in emerging concern in Berlin about friendships on the international, especially European, stage. German relations with the US are at a postwar low. Brexit, detaching the UK from Europe, will turn it into a hard-nosed competitor, German strategists suspect. Emmanuel Macron, France’s president, does not disguise his impatience with tepid German responses to his proposals for overcoming the EU’s troubles.
The desire to build bridges, and to display a more positive attitude towards eurozone integration, was illustrated in Germany’s recent choice of Isabel Schnabel as its next representative on the ECB’s executive board. Unlike most German economists, not to mention politicians, she has avoided demonising the ECB as a wrecker of German central banking principles and a thief of ordinary Germans’ bank savings.
Mr Scholz’s banking union plan fits the pattern. His ideas do not go far enough for Italy, but can be seen as an attempt to send a constructive signal to the less Eurosceptic government that came to power in September. It might be more awkward to deal with Matteo Salvini, the hard-right former deputy premier waiting in the wings.
However, this is far from the whole story. Mr Scholz did not make his proposal on behalf of the German government, a coalition between his Social Democrats and Chancellor Angela Merkel’s Christian Democrats. Nor did he consult in advance with CDU financial experts, who soon aired doubts. Coalition quarrels could yet doom his initiative to the same swift death that befell a proposal he made last year for an EU unemployment insurance scheme.
The manner in which Mr Scholz unveiled his plan resembles the way Annegret Kramp-Karrenbauer, Germany’s defence minister, CDU leader and Ms Merkel’s preferred successor, floated an idea for a multinational security zone in Syria. She did not consult with government colleagues, either.
Meanwhile, an article by Heiko Maas, SPD foreign minister, on the 30th anniversary of German unification thanked Mikhail Gorbachev, the former Soviet leader, and other Europeans for their support. He failed to mention the US, in 1990 the most helpful of the big powers. The overall impression is one of absent consultation, proposals from one government party attacked by the other, and no firm guidance from the top — that is to say, Ms Merkel. Small wonder that Norbert Röttgen, chairman of the Bundestag’s foreign affairs committee, described Germany as “completely paralysed, held captive by a quarrelling, zombie coalition”.
Mr Scholz’s plan has many promising features. But the German coalition is fractious, focused on a post-Merkel future and unsettled by recent bad election results. Progress on European banking union is almost certain to remain slow, a hostage to the next Bundestag elections in 2021, and to the instincts and outlook of the next German government.
Gapping down
In reaction to disappointing earnings/guidance:
- MED -28.4%, TDC -25.5% (also Teradata names Victor Lund interim CEO following departure of Oliver Ratzesberger), MOD -19.8%, GDOT -17.9%, NVEE -15.2% (issues correction regarding FY20 guidance; guidance now in-line with analyst estiamate) RGR -15.1%, ALTR -14.6%, TIVO -12.3%, HEAR -11%, SCPL -9.6%, CWH -9.2%, TUSK -9.1%, ENLC -5%, UPLD -4.9%, ARLO -4.6%, SVMK -4.3%, LPSN -3.5%, MTD -2.9%, MGA -2.9%, MITK -2.6%, GSBD -2.4%, PEGA -2.4%, CTRE -2.2%, KRO -2.1%, TTD -1.9%, TRHC -1.9%, PEN -1.7%, ATVI -1.7%, BE -1.6%, USCR -1.4%, COLD -1.2%, NWSA -1.2%, TTWO -0.8%
Other news:
- AFMD -11.4% (prices public offering of 12 mln common shares at a public offering price of $2.50 per common share)
- ADMS -10.6% (files $200 mln mixed securities shelf offering; reports Q3 results)
- GPS -8.9% (names Chairman Robert Fisher to as interim CEO, sees Q3 EPS below consensus)
- LXRX -5.4% (files $150 mln mixed securities shelf offering)
- AGIO -3.9% (prices offering of 8.25 mln shares of common stock at $31.00 per share)
- EQH -1.6% (announces sale of an aggregate of 144.0 mln shares of its common stock by AXA S.A. ), DB -1% (in sympathy with peer Credit Ag (-3%) after releases earnings)
Analyst comments:
- WORK -4% (initiated with Underperform at Wedbush)
- ALB -1.9% (downgraded to Underweight from Neutral at JP Morgan)
Gapping up
In reaction to strong earnings/guidance:
- SIEN +21.4%, FSLY +19.7%, STMP +19.4%, AAXN +17.6%, PAR +14.3%, EB +12.3%, ZG +11.3%, SWCH +10.8%, QNST +10.1% (also retains Goldman Sachs for review of strategic alternatives), AMPH +9.2%, PLNT +9.1% (also appoints Jeremy Tucker as Chief Marketing Officer, effective November 20), CORT +8.7%, YELP +8.6%, VSAT +8.6%, MTW +8.3%, GH +8.3%, FARM +7.7% (also discloses CFO change), GPRO +6.9%, LGF.A +6.4%, MIME +5.8%, DIS +5.7%, UEPS +5.2%, BKNG +4.8%, SWAV +4.3%, SGMS +4.3%, NCR +4.1%, CUTR +4.1%, MNST +4%, TROX +3.3%, AL +3%, AIRG +2.9%, ZIOP +2.7%, NET +2.6%, AMH +2.5%, REV +2.3%, RVLV +2.2%, CYRX +2.2%, CDAY +1.9% (CFO Arthur Gitajn to retire), ENB +1.6%, DBX +1.4%, NLOK +1.4%, AMCR +1.3%, AMBC +1.2%, WPRT +1%, HMC +1%
Other news:
- CFMS +15.7% (announces FDA clearance of next generation Conformis Hip System)
- IOVA +11.3% (presents new data from Cohort 2 of the ongoing Phase 2 lifileucel metastatic melanoma study)
- NK +10.1% (announces presentation of results from Phase 2 trial of natural killer cell-based therapeutic in metastatic Merkel cell carcinoma)
- PRTY +10% (modestly rebounding from yesterday's 67% decline)
- WKHS +4.2% (enters into intellectual property licensing agreement with Lordstown Motors Corp)
- EXEL +3.8% (collaborator Daiichi Sankyo reports positive results from Phase 3 pivotal trial of Esaxerenone)
- AIMT +2.2% (announces results from new analysis showing consistent efficacy and safety with AR101 across phase 3 PALISADE and ARTEMIS trials)
- MSG +0.9% (Madison Square Garden announces update regarding potential spin-off transaction; now pursuing full spin-off of entertainment businesses from sports businesses)
Analyst comments:
- TEX +3.8% (upgraded to Buy from Neutral at Goldman and added to Conviction Buy List)
- FL +2.2% (upgraded to Positive from Neutral at Susquehanna)
- ZIXI +1% (initiated with Outperform at Wedbush; tgt $10)
- MCD +0.9% (upgraded to Buy from Neutral at Longbow).
