After Hours Summary: BBBY +16%, KBH +5%, UNP +2%, WDFC -2% following earnings/guidanceAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance/SSS: VERI +23.1%, BBBY +16.2%, ZUMZ +8.1% (reports Dec comps +4.9% and raises Q4 guidance), KBH +4.6%, UNP +1.8% (updates guidance - December carloadings were stronger than expected, led by international container imports)
Companies trading higher in after hours in reaction to news: CGC +3.7% (continued strength after closing up 13% on the day), PVG +3.4% (light volume; reports Q4 production of 96,342 ounces of gold - achieving 95% of guidance of 200,000 ounces for the second half of 2018), TLRY +1.3% (modestly rebounding), SGMO +1% (after seeing late sell-off during conference presentation), BA +0.6% (upgraded to Overweight at Morgan Stanley), STZ +0.6% (upgraded to Neutral from Sell at Guggenheim)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: WDFC -2.1%
Companies trading lower in after hours in reaction to news: N/A
Closing Market Summary: Stocks Gain, but Close Off Best LevelsThe S&P 500 gained 0.4% on Wednesday, helped by softening trade tensions, easing anxieties over U.S. monetary policy, and rebounding oil prices ($52.20/bbl, +$2.54, +5.1%). The Dow Jones Industrial Average gained 0.4%, the Nasdaq Composite gained 0.9%, and the Russell 2000 gained 0.9%.
During the recent stock market rally, the market has shown a propensity not only to buy beaten-down stocks, but also to buy on intraday dips. Wednesday was no exception.
The S&P 500 briefly fell into negative territory (-0.2%) in the early going, but ultimately rebounded before running into some resistance as it approached the 2600 level shortly after the release of the FOMC minutes from the December policy meeting.
Regarding the minutes, they revealed a view that the path of U.S. monetary policy is "less clear" than before, and a contention that the Fed can "afford to be patient" about future rate hikes.
In light of more recent remarks from other Fed officials discussing a more patient-minded approach, namely Fed Chair Powell, the view communicated in the minutes wasn't altogether surprising. Roughly an hour after their release, the S&P 500 was trading at a level close to where it was trading when the minutes were released at 2:00 p.m. ET.
Stock prices wavered a bit late in the day, however, after some discouraging news out of Capitol Hill. President Trump tweeted his dissatisfaction over a meeting with Congressional Democrats, calling it a "total waste of time." The S&P 500 ended off its best levels of the day, but still managed to end on an uptick in the closing minutes of trading.
Within the S&P 500, the energy (+1.5%) and information technology (+1.2%) sectors led the broader market higher. Conversely, the defensive-oriented consumer staples (-1.0%), utilities (-0.7%), and real estate (-0.4%) sectors underperformed.
The Philadelphia Semiconductor Index (+2.5%) was a notable outperformer on Wednesday, despite Apple (AAPL 153.31, +2.56, +1.7%) supplier Skyworks Solutions (SWKS 67.69, +2.50, +3.8%) lowering its fiscal first quarter guidance.
Some catalysts that underpinned the group's performance included (1) the positive price action in Skyworks despite the bad news, which was interpreted as a sign that the bad news was already priced in (2) Bernstein upgrading Micron (MU 35.44, +1.70, +5.0%) to 'Outperform' from 'Market Perform', and (3) optimism over the trade discussions with China.
The U.S. Treasury yield curve steepened a bit on Thursday, undoing the prior session's flattening. The 2-yr yield decreased four basis points to 2.55%, and the 10-yr yield added one basis point to 2.73%. The U.S. Dollar Index fell 0.8% to 95.13.
Separately, the weekly MBA Mortgage Applications Index spiked 23.5% from the prior 8.5% decrease last week.
Looking ahead, investors will receive the weekly Initial and Continuing Claims report on Thursday.
- Russell 2000 +6.7% YTD
- Nasdaq Composite +4.9% YTD
- S&P 500 +3.2% YTD
- Dow Jones Industrial Average +2.4% YTDs7p
Fed Minutes: Key Excerpts
- Based on their current assessments, most participants expressed the view that it would be appropriate for the Committee to raise the target range for the federal funds rate 25 basis points at this meeting. A few participants, however, favored no change in the target range at this meeting, judging that the absence of signs of upward inflation pressure afforded the Committee some latitude to wait and see how the data would develop amid the recent rise in financial market volatility and increased uncertainty about the global economic growth outlook.
- With regard to the outlook for monetary policy beyond this meeting, participants generally judged that some further gradual increases in the target range for the federal funds rate would most likely be consistent with a sustained economic expansion, strong labor market conditions, and inflation near 2 percent over the medium term. With an increase in the target range at this meeting, the federal funds rate would be at or close to the lower end of the range of estimates of the longer-run neutral interest rate, and participants expressed that recent developments, including the volatility in financial markets and the increased concerns about global growth, made the appropriate extent and timing of future policy firming less clear than earlier. Against this backdrop, many participants expressed the view that, especially in an environment of muted inflation pressures, the Committee could afford to be patient about further policy firming.
- A number of participants noted that, before making further changes to the stance of policy, it was important for the Committee to assess factors such as how the risks that had become more pronounced in recent months might unfold and to what extent they would affect economic activity, and the effects of past actions to remove policy accommodation, which were likely still working their way through the economy.
- Recent readings on household and business spending, inflation, and labor market conditions were largely in line with participants' expectations and indicated continued strength of the economy. By contrast, financial markets were volatile and conditions had tightened over the intermeeting period, with sizable declines in equity prices and notably wider corporate credit spreads coinciding with a continued flattening of the Treasury yield curve; in part, these changes in financial conditions appeared to reflect greater concerns about the global economic outlook. Participants also reported hearing more frequent concerns about the global economic outlook from business contacts,,, Investors' perceptions of downside risks to the domestic and global outlook appeared to increase over the intermeeting period, reportedly driven in part by signs of slowing in foreign economies and growing concerns over escalating trade frictions.
- Concerns over escalating trade tensions, global growth prospects, and the sustainability of corporate earnings growth were among the factors that appeared to contribute to a significant drop in U.S. equity prices.
- Several participants noted that business fixed investment remained solid despite a slowdown in the third quarter, as more recent data pointed to a rebound in investment spending. Business contacts in several Districts reported robust activity through the end of 2018 and planned to follow through or expand on their current capital expenditure projects. However, contacts in a number of Districts appeared less upbeat than at the time of the November meeting, as concerns about a variety of factors—including trade policy, waning fiscal stimulus, slowing global economic growth, or financial market volatility—were reportedly beginning to weigh on business sentiment.
- A couple of participants commented that the recent decline in oil prices could be a sign of a weakening in global demand that could weigh on capital spending by oil production companies and affect companies providing services to the oil industry.
FOMC minutes for December meeting released -- Fed used certain words to convey that Fed is data dependent; Fed can afford to be patient about future rate hike
Allergan to look for tuck-in buys in the USD 1bn to USD 2bn range, CEO says
Allergan [NYSE:AGN] continues to look for acquisitions in the USD 1bn to USD 2bn range even as it works to reduce leverage from previous deals, said CEO Brent Saunders.
Dublin-based Allergan, best known as the maker of the aesthetic treatment Botox, wants to add assets in its four focus areas of medical aesthetics, central nervous system treatments, gastrointestinal products and eye care products, Saunders said in an interview after a presentation at the JPMorgan Healthcare Conference this week in San Francisco.
“We’re looking for stepping stones, tuck-ins, what have you,” said Saunders, in all of its four focus areas. “Acquisitions in the USD 1bn to USD 2bn range are doable if we found the right opportunities.”
Allergan, once a darling of the investment community, has seen its shares fall 26% in the last three months following disappointing acquisitions, a strategic review that some investors called half-hearted and generic competition for its second-best selling drug, dry-eye treatment Restasis.
The company has said it is aiming to reduce net leverage to 2.5x EBITDA by the end of 2020. The company ended September at 3x adjusted EBITDA to pro-forma debt. It reported USD 23.6bn in total debt for the period.
Investor concerns ignited in April when Allergan it said it was considering a counterbid for Shire against Takeda Pharmaceuticals[TYO:4502] and shares fell by 7% amid unease about the company’s debt-load. The company quickly shelved the Shire plans once they became public.
Two months later, the company announced that it would look to sell its women’s health and anti-infective businesses following a strategic review. Hedge fund shareholders Appaloosa and Senator Investment Group called the result of that review underwhelming and said that Allergan should split its chairman and CEO role.
Saunders told investors in December that the sale of the health and anti-infective businesses are nearing an end, noting that the company remains open to selling the assets, but it has to be at a price that recognizes their value.
Allergan was recently trading at USD 144 per share with a market cap of USD 47bn.
Dublin-based Allergan, best known as the maker of the aesthetic treatment Botox, wants to add assets in its four focus areas of medical aesthetics, central nervous system treatments, gastrointestinal products and eye care products, Saunders said in an interview after a presentation at the JPMorgan Healthcare Conference this week in San Francisco.
“We’re looking for stepping stones, tuck-ins, what have you,” said Saunders, in all of its four focus areas. “Acquisitions in the USD 1bn to USD 2bn range are doable if we found the right opportunities.”
Allergan, once a darling of the investment community, has seen its shares fall 26% in the last three months following disappointing acquisitions, a strategic review that some investors called half-hearted and generic competition for its second-best selling drug, dry-eye treatment Restasis.
The company has said it is aiming to reduce net leverage to 2.5x EBITDA by the end of 2020. The company ended September at 3x adjusted EBITDA to pro-forma debt. It reported USD 23.6bn in total debt for the period.
Investor concerns ignited in April when Allergan it said it was considering a counterbid for Shire against Takeda Pharmaceuticals[TYO:4502] and shares fell by 7% amid unease about the company’s debt-load. The company quickly shelved the Shire plans once they became public.
Two months later, the company announced that it would look to sell its women’s health and anti-infective businesses following a strategic review. Hedge fund shareholders Appaloosa and Senator Investment Group called the result of that review underwhelming and said that Allergan should split its chairman and CEO role.
Saunders told investors in December that the sale of the health and anti-infective businesses are nearing an end, noting that the company remains open to selling the assets, but it has to be at a price that recognizes their value.
Allergan was recently trading at USD 144 per share with a market cap of USD 47bn.
>>> Apple - Gap filled today 154,23 - could extend move up to 159,5, But will be that we see it back below 147
US indicates progress in latest China trade talks
Beijing reported ready to boost imports by $1.2tn, but structural issues remain
BEIJING -- The U.S. and China wrapped up three days of working-level trade talks here Wednesday on a positive note, raising hopes that a deal will be reached to open up the Chinese market to additional American exports.
The talks "focused on China’s pledge to purchase a substantial amount of agricultural, energy, manufactured goods, and other products and service," the office of U.S Trade Representative Robert Lighthizer said Wednesday, saying the sides discussed "ways to achieve fairness, reciprocity and balance in trade relations." The statement added that the American delegation will "report back to receive guidance on the next steps," giving no further details.
The two sides appear to be closing in on a time frame and what products will be included in a proposal to boost imports from the U.S. by $1.2 trillion, which was first pitched by the Chinese at the December summit in Argentina. Soybeans and natural gas are the main candidates for the expansion.
Beijing had reportedly proposed increasing American agricultural and energy imports by $200 billion a year during ministerial-level talks last June. It is believed the new breakthrough is based on that overture. China has favored boosting imports if it will ward off additional tariffs from the U.S.
The three-day talks also focused on structural issues the U.S. has complained about, such as intellectual property protection, forced technology transfers and subsidies to state-owned enterprises. Beijing has offered proposals on intellectual property theft and tech transfers that may help bridge the gap, according to an informed source close to the negotiations.
The details are unclear, but China moved to strengthen intellectual property protections in December through a set of reforms. There is a proposal to increase fines for patent violations as well as a draft law on foreign investment that would ban forced technology transfers.
"I expect that there will be a restraining effect against compulsion by local governments," said a lawyer well versed in protecting intellectual property rights of foreign businesses.
It is likely that U.S. negotiators, led by Deputy Trade Representative Jeffrey Gerrish, welcomed the reforms during talks with the Chinese team headed by Vice Commerce Minister Wang Shouwen. The talks were originally scheduled for two days but were extended into Wednesday, which was taken as a sign of progress. Previously, a U.S. government source told Nikkei the discussions could be extended if the Chinese came forward with worthwhile proposals.
On the other hand, the two sides remain far apart on China's subsidies to state-owned companies. The one-party state is reluctant to make concessions on this issue given that it is at the heart of its economic structure.
China will not negotiate matters that threaten "core national interests," Wei Jianguo, a former vice minister of commerce, told Bloomberg last week. Those core interests include sovereign integrity, national security and the right to development, he added.
Beijing seems to be making that point by accelerating funding to the semiconductor industry through a dedicated state fund connected with "Made in China 2025," the initiative to develop the nation's high-tech sector.
Both the U.S. and China are playing up the progress of the trade talks with an eye on slumping stock markets on both sides of the Pacific. Beijing has indicated that hopes for a compromise are gaining steam. "Talks with China are going very well!" U.S. President Donald Trump tweeted Tuesday.
The two sides will next move into ministerial-level discussions. Chinese Vice Premier Liu He will meet U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin in Washington, perhaps by the end of the month.
The U.S. is prepared to impose a 25% tariff on $200 billion worth of Chinese imports if negotiations fail to reach a resolution by March 1. Within the Trump administration, officials have floated the idea of striking quick partial agreements while extending talks on the tougher structural issues.
Bezos' Net Worth Cut In Half: Amazon CEO Announces He Is Getting A Divorce
Update: Following Bezos' announcement of his divorce from wife MacKenzie, Amazon has a message to the public (and its shareholders in particular): Personal issues aside, Bezos will remain "focused on and engaged in all aspects of the company".
Put another way: Please don't sell our stock (we just put up the 'world's most valuable company' plaques).
Given the abysmal performance of the FAANG cohort during Q4, Amazon's trepidation that the divorce news could hurt the company's share price is certainly understandable - particularly since the performance of David Einhorn's Greenlight Capital following his divorce has helped cement the conventional wisdom that companies (and asset managers) can struggle when their leaders' attentions are divided by personal issues.
The divorce is coming at a particularly inopportune time for Amazon, which recently announced its plans to split its HQ2 between New York City and Virginia (with some left over for Nashville). And despite the company's intimidating market cap, Amazon just became profitable last year after two-and-a-half decades of growth-focused expansion.
* * *
Just days after Amazon finally seized the mantle of world's most-valuable company - surpassing Microsoft and Apple - CEO Jeff Bezos, currently the world's richest man with a net worth upwards of $135 billion, has released some surprising - though not entirely unexpected - news: He's getting a divorce.
Bezos revealed during a tweet on Wednesday that after a trial separation, he and his wife MacKenzie would be seeking a divorce - though he insisted that the two would "remain friends." The two recently launched a charitable organization to help the homeless and specifically homeless children.
Bezos also said that though they will be exploring new "ventures and adventures" separately, the pair, who have four kids - three sons and a daughter - together, would "remain a family."
The two have been together for 25 years, which means their union is about as old as Amazon itself, which Bezos founded in 1994. It's unclear whether MacKenzie and Jeff signed a prenup. Since Washington is a "community property" state, half of all assets accrued in the marriage would go to her. It's also a "no fault" state, meaning that these rules apply no matter what transpired to end the union.
But assuming for a minute that they didn't and she successfully wins half of his assets, the 50% expected hit to Bezos' net worth would lead him to drop from world's richest to world's fifth-richest man behind Bernard Arnault.
An even distribution of marital assets would leave MacKenzie a billionaire with just under $70 billion - or roughly $2.8 billion for each year she was married to Bezos.
Source: @SamRo
While the factors behind the divorce are unclear, it's worth noting that Bezos' physical transformation from an impish nerd to a body builder with swollen biceps received a lot of media attention last year.
Perhaps he's looking over at fellow tech CEO Jack Dorsey and wondering if the grass may in fact be greener on the other side.
"You Know It's Coming..."
After a horrible December and a rough start to the year, as if manna from Heaven the clouds parted and everything seemed good again. Not 2019 this was early February 2015. If there was a birth date for Janet Yellen’s “transitory” canard it surely came within this window. It didn’t matter that currencies had crashed and oil, too, or that central banks had been drawn into the fray in very unexpected ways.
Actually it did, at least with that last one. The world’s default setting remains central bankers. No matter how thoroughly they discredit themselves, in times of trouble people really, really want to believe there exists this technocratic savoir.
They can get it wrong time after time after time, but when things appear most dire it is almost like a defense mechanism this running back to “home” the Yellen’s, Bernanke’s, and Powell’s. The world looks like it is falling apart leading a central bank, any central bank to try something and for a time it appears to work.
It never does.
That was the winter and spring of 2015. After tremendous global upheaval, beginning in early February the BOND ROUT!!! was back on and Economists were all over the media pairing the “best jobs market in decades” with “oil price crash is a tax cut” nonsense. Relief was palpable. Even WTI rebounded sharply, from a low around $44 to back above $60 by May.
The UST 10s had been heavily bid, as they often are during these “unexpectedly” bad outbreaks, the yield falling sharply from about 2.40% in early November 2014 to a low around 1.70% at the end of January 2015. Long rates would retrace that entire decline and then some, arriving at 2.50% after nearly five months of cautious optimism.
These countertrends can last that long. The pattern repeats time and again. In 2008, following the announcement of Bear Stearns’ near failure (of all things), the same process played out. Throughout the spring of that year there was some level of speculation in markets that maybe, perhaps the Fed had finally caught up to the crash.
Sure, Bernanke had said subprime was contained but then he realized his error. The central bank then spent the rest of 2007 and early 2008 experimenting and working behind the scenes. The relatively orderly shepherding of Bear into JP Morgan convinced many there was at least a chance he had at long last succeeded. Some started to speculate, literally, the US would avoid a recession altogether.
Policymakers, at least, convinced themselves of that very outcome.
It didn’t work out that way, to put it charitably.
In the grand scheme, central banks don’t matter. They just don’t. But people believe they do even those who have become legitimately jaded over their performance. The current version is Yellen/Powell has screwed up this exit, but the latter will realize his error(s) before it’s too late.
This is where we are in January 2019. Powell after being unshakably confident about the US economy in particular he has said all the right things this month. His dove is as chicken as chickens can get (until whatever comes next comes next).
In the short run, aided by promised RRR cuts and stimulus in China, softening in Mario Draghi, and whatever else some central banker might dream up, optimism can catch on and drive the markets for a while. Maybe even months at a time. In fact, if a months-long rally failed to materialize it would be the first time.
Nothing goes in a straight line. Markets move on probabilities, spectrums pieced together from incomplete information as well as outdated, outmoded myths and legends. Even during those mid-stride rallies in 2008 and 2015 the bond market (or oil) wasn’t actually saying Bernanke or Yellen had come up with the definitive solution, rather it was saying there wasn’t a 100% chance they hadn’t.
This is going to be a give and take; action and reaction like always. The more serious it becomes, the more serious the counterpunching. Powell’s already moved on skipping higher dots and going right to a “Fed pause.” It’s really easy if maybe he starts to sound more dovish still – hinting at rate cuts “if conditions warrant.”
You know it’s coming.
Markets will jump when he does. They always jump for the Fed in the short run. Then the anesthesia wears off and everyone feels the pain again.
That’s really all central banks offer. People have said monetary policy is like speed or heroin, some sort of highly effective stimulant. That’s not really an accurate characterization (especially given how there is no money in monetary policy; it is entirely psychology). The Bernanke’s of the world can only dull the pain for a little while at a time, so that you might forget all the big stuff that’s bothering you.
It’s like going to a psychiatrist for a gun shot wound, a medical professional predisposed to believing your gaping, bleeding hole is all in your mind; on to the pharmacy for Xanax instead of emergency surgery.
Anesthesia is a very good thing if at the same time the doctor giving it to you actually treats what’s wrong. Which, obviously, assumes he can diagnose and then remedy the disease or wound. If all he gives you is something to temporarily numb the agony? Your relief can feel so good but it comes with its own expiration.