Closing Stock Market SummaryThe S&P 500 lost 0.4% on Thursday, as disappointing economic data helped simmer the market's lengthy rally. The Dow Jones Industrial Average, the Nasdaq Composite, and the Russell 2000 also lost 0.4% apiece.
The S&P 500 energy (-1.6%), health care (-0.9%), and communication services (-0.6%) sectors underperformed the broader market. Conversely, the utilities (+0.8%) and consumer staples (+0.3%) sectors showed relative strength.
The stock market began the day slightly lower as weaker-than-expected economic data tempered buying interest. U.S. business investment declined for the second consecutive month in December, and the eurozone manufacturing sector experienced its first contraction since 2013.
Investors have generally forgiven negative data this year, but some of the reports released today covered January and February--two months that featured a strong rally in the market amid hopes that the economic picture would improve.
Separately, the U.S. and China began working on six memorandums of understanding on structural issues that would outline the path to a trade deal, according to Reuters. Specific details on talks have been sparse, though, with China's Ministry of Commerce spokesperson saying that there was nothing new to report.
The market's negative disposition despite the reported progress possibly suggested the market's patience for hopeful-sounding headlines may be wearing thin, especially when taking into account the number of rallies that took place amid upbeat headlines, but little concrete progress.
With earnings season winding down, some other corporate-specific news captured the market's attention.
Nike (NKE 83.95, -0.89, -1.1%) was under pressure following some on-the-court drama. College basketball sensation Zion Williamson sustained an injury when his Nike sneakers broke apart during a highly-anticipated game. Nike issued a statement that they were working to identify the issue.
Tesla (TSLA 291.23, -11.33) for its part lost 3.7% after Consumer Reports dropped its Model 3 recommendation due to the car's reliability issues. On a related note, Tesla has been under scrutiny for its untimely handling of returns and refunds.
U.S. Treasuries finished on a lower note, pushing yields higher across the curve. The 2-yr yield and the 10-yr yield increased three basis points each to 2.53% and 2.69%, respectively. The U.S. Dollar Index increased 0.2% to 96.62. WTI crude declined 0.3% to $57.00/bbl.
Reviewing Thursday's economic data, which included Existing Homes Sales for January, Durable Orders for December, the Philadelphia Fed Index for February, the Conference Board's Leading Economic Indicators Index for January, and the weekly Initial and Continuing Claims report.
- Existing home sales decreased 1.2% month-over-month in January to a seasonally-adjusted annual rate of 4.99 million (consensus 5.05 million) from an upwardly revised 5.00 million (from 4.99 million) in December. Total sales were 8.5% lower than the same period a year ago.
- The key takeaway from the report is that existing home sales activity has not improved much since December even when taking into account the upward revision to the December reading.
- Durable goods orders increased 1.2% in December (consensus 1.3%) after an upwardly revised 1.0% increase (from 0.8%) in November. Excluding transportation, orders increased 0.1% (consensus 0.2%) after decreasing a revised 0.2% (from -0.4%) in November.
- The key takeaway from the report is that business investment remained weak, evidenced by the 0.7% decline in nondefense capital goods orders excluding aircraft. Furthermore, the November reading was revised down to -1.0% from -0.6%.
- The Philadelphia Fed Index for February fell to -4.1 (consensus 12.0) from 17.0 in January.
- The key takeaway from the report is that the headline decrease was driven by declines in most components with the Prices Paid Index returning to its low from 2017.
- The Conference Board's Leading Economic Indicators Index decreased 0.1% in December (consensus -0.1%) after increasing 0.2% in November.
- The key takeaway from the report is that the Conference Board sees a path to GDP growth slowing to 2.0% by the end of 2019.
- Initial claims for the week ending February 16 decreased by 23,000 to 216,000 (consensus 225,000). Continuing claims for the week ending February 9 decreased by 55,000 to 1.780 million.
- The key takeaway from the report is that the decline returned the initial claims level into a sideways range that has been in place over the past year; however, the four-week moving average for initial claims remains at its highest level since January 2018.
Investors will not receive any economic data on Friday.
- Russell 2000 +16.8% YTD
- Nasdaq Composite +12.4% YTD
- Dow Jones Industrial Average +10.8% YTD
- S&P 500 +10.7% YTD
Bouygues exclut une alliance entre Alstom et Bombardier
Le premier actionnaire d’Alstom refuse d’envisager toute nouvelle alliance tant que les règles de la concurrence n’auront pas été revues par Bruxelles. Il espère récupérer un important dividende malgré l’échec du rapprochement avec Siemens.
On n’avait pas vu Martin Bouygues fâché à ce point depuis longtemps. La dernière fois, c’était en 2012 lors de l’arrivée de Free sur le marché du mobile. Le PDG du groupe Bouygues pestait contre le régulateur des télécoms de l'époque, Jean-Ludovic Silicani, qui lui avait imposé un quatrième opérateur. Cette fois, il monte au créneau contre un autre régulateur : Bruxelles. Ce jeudi matin, Martin Bouygues était très remonté contre la Commission européenne et surtout la commissaire à la Concurrence. Margrethe Vestager vient de rejeter la fusion entre Siemens et Alstom, dont Bouygues détient 28%.
« L’Union européenne a choisi le pari perdant-perdant, a-t-il déclaré lors de la présentation des résultats annuels 2018. Ne pas tenir compte de ce qu’il se passe en Chine est étrange ». Alstom a martelé pendant plusieurs mois que son mariage avec Siemens permettrait de résister à l’essor de leur concurrent chinois CRRC. Mais la Commission européenne a conclu que CRRC n’était pas encore présent en Europe, pour justifier en partie son veto au rapprochement des deux entreprises.
Un "traumatisme" pour Alstom
Mais après un round de réponses contenues, Martin Bouygues a laissé transparaître sa colère. « Nous mettons en place la destruction de l’industrie européenne » a-t-il critiqué. Il a fustigé les fonctionnaires, certes « respectables », de la commission européenne qui « ne connaissent pas le monde de l’entreprise ». Et déploré que cette période d’incertitude, entre l’annonce de l’opération et la décision de Bruxelles, soient dommageables. « C’est un traumatisme pour Alstom qui a été une entreprise 'en l’air' pendant 18 mois, a-t-il ajouté. Pendant ce temps-là, Alstom perdait des clients sur les contrats en cours ».
Les minutes et les questions passant, Martin Bouygues s’est littéralement emporté. Quant à l’hypothèse d’une alliance avec le Canadien Bombardier -déjà étudiée au printemps 2017-, il l’a balayée d’un revers de main. « Je vois mal qui que ce soit retourner voir la Commission européenne après ce qu’il vient de se passer, a-t-il tranché sans sourciller. Les conditions ne sont absolument pas réunies tant que la Commission restera sur cette position ». Martin Bouygues a salué la volonté du ministre de l’Economie, Bruno Le Maire, de vouloir revoir en profondeur les règles du droit de la Concurrence en Europe.
Bouygues veut récupérer ses dividendes perdus
Pour le moment, le groupe Bouygues va conserver sa participation de 28% dans Alstom et ses deux sièges au conseil d’administration. « On va assumer ce rôle » a déclaré le directeur général délégué, Philippe Marien, alors que Bouygues souhaitait profiter de la fusion avec Siemens pour sortir définitivement du capital d’Alstom. Le groupe doit surtout renoncer à toucher les 500 millions d’euros de dividendes promis par le fabricant de trains s’il s’était marié avec Siemens. Bouygues espère se rattraper d’ici l’été prochain en récupérant une partie de la montagne de cash dont dispose Alstom.
L’an passé, l’entreprise a engrangé 2,6 milliards d’euros en vendant à General Electric des participations résiduelles dans des coentreprises du secteur de l’énergie. Une opération qui soldait le mariage avec General Electric, en 2015. Bouygues espère qu’une grande partie de ces fonds seront redistribués aux actionnaires. Ses deux administrateurs, dont Philippe Marien, plaideront en ce sens. Le groupe familial espère qu’Alstom reversera 1,8 milliard d’euros à ses actionnaires. Dans ce cas, Bouygues récupérerait les 500 millions d’euros qu’il aurait dû toucher dans le cadre du rapprochement entre Alstom et Siemens. Une décision sera prise d’ici l’assemblée générale d’Alstom le 10 juillet.
Warren Buffett Can’t Find Anything Big to Buy
Investors are hoping his annual letter to Berkshire’s shareholders will offer hints on plans to spend its cash
Warren Buffett is always on the hunt for “elephants,” as he calls large acquisitions. But three years have passed since he bagged a new one.
One reason: The Omaha, Neb., billionaire faces unprecedented competition from private equity and other funds looking to make fast acquisitions, often at higher prices than Mr. Buffett is willing to pay. His last major deal, the $32 billion purchase of aerospace manufacturer Precision Castparts Corp., closed in January 2016.
His competitors—global fund managers—had a record $2.1 trillion in private capital ready to deploy as of June 30, according to data from Preqin. That is roughly double the amount they had a decade earlier. Mr. Buffett’s Berkshire Hathaway Inc., BRK.B -0.47% meanwhile, had $103.6 billion in cash as of Sept. 30, the fifth straight quarter those holdings exceeded $100 billion.
“With rates low and private equity folks drunk with cash and money all over the place, it’s just naturally going to be harder” for Berkshire to find acquisitions, said Bill Smead, chief executive of Smead Capital Management Inc., which holds Berkshire shares.
On Saturday investors are hoping for new hints on Berkshire’s plans to spend its cash, including whether the company will increase buybacks, in Mr. Buffett’s annual letter to Berkshire shareholders. Berkshire is also expected to release its annual results.
Mr. Buffett’s letters are widely read on Wall Street and beyond for his insights on investing, economics and other topics. In last year’s letter, Mr. Buffett complained about the difficulty of finding attractive deals. “Prices for decent, but far from spectacular, businesses hit an all-time high” in 2017, Mr. Buffett wrote. “Indeed, price seemed almost irrelevant to an army of optimistic purchasers.”
Berkshire faces more pressure to spend ever-larger amounts on acquisitions to move the needle on its earnings. Berkshire’s stock hasn’t notably outperformed the S&P 500’s average return, including dividends, in the past decade.
This isn’t the first time Mr. Buffett has backed away from making deals because values were too high. In 1969, Mr. Buffett decided to close his private investing partnership because he couldn’t find appealing investment opportunities, he has said. In the late 1990s he avoided investments in technology companies, as values of dot-com companies soared. He then sat out another boom in the mid-2000s.
“There’s no doubt about it that there is far more money looking at deals now than five years ago, and they’re willing to pay out more for the good, but mundane, businesses that we’ve been successful at buying in the past,” he said at Berkshire’s annual meeting in 2005.
Those decisions largely paid off for Berkshire during subsequent market declines and recessions. During the 2008 financial crisis Berkshire was able to offer lifelines to blue-chip companies, including Goldman Sachs Group Inc. and General Electric Co. Berkshire ultimately earned more than $10 billion on its financial-crisis era investments.
But the size of purchases decreased following Berkshire’s Precision Castparts deal in 2016. Its biggest deal since was the purchase of nearly 40% of truck-stop company Pilot Flying J for $2.8 billion in 2017. Berkshire will acquire another 41% of the company in 2023. Berkshire also bought a medical malpractice insurer for $2.5 billion last year.
While he waits for deals, Mr. Buffett has plowed some of Berkshire’s cash into equity investments, including building a $39 billion stake in Apple Inc. as of Dec. 31.
Mr. Buffett also has lieutenants helping him find investment opportunities. Berkshire promoted two executives, Greg Abel and Ajit Jain, to vice chairmen in 2018, and they are now responsible for overseeing many of Berkshire’s day-to-day business operations. Berkshire also has two portfolio managers, Ted Weschler and Todd Combs, who manage part of Berkshire’s investment portfolio.
Mr. Combs was instrumental in arranging the Precision Castparts deal and initiated two investments in financial-technology firms last year.
Some investors are hoping that Mr. Buffett’s patience pays off again.
“Next time the market drops 30% to 40% and stays there, they’ll have plenty of deals to do,” said Henry Asher, president of The Northstar Group Inc. Berkshire is Northstar’s top holding.