Gapping up
In reaction to strong earnings/guidance:
- CHGG +11.4%, LODE +10.8%, AKAM +10.2%, AMRC +9.5%, UA +8%, QGEN +7.5%, KLAC +6.9%, HZO +6.7%, DRYS +6.6%, SNE +5.9%, MEDP +5.4%, WDR +5%, BLKB +4.6%, INST +4%, BP +3.9%, KEM +3.7%, NEO +3.2%, VRNS +3.1%, SANM +2.7%, AMED +2.3%, GE +2.2%, RIG +1.9%, MDLZ +1.9%, HMC +1.8%, BRX +1.7%, CLR +1.3%, KAI +1.3%, KO +1.2%, IDTI +1.1%, WING +1.1%, LYB +0.7%, ESV +0.6%
M&A news:
- ESIO +94.6% (to be acquired for $30.00 per share in cash by MKS Instruments (MKSI))
- WRD +10.4% (WildHorse Resource Development to be acquired by Chesapeake Energy (CHK) for approximately $3.977 bln) .
Select financial related names showing strength:
- FINANCIALSSSSSSSSSSSSSSSSSSSS.
Select metals/mining stocks trading higher:
- METALSMININGGGGGGGGGGGGGGGGGGGG.
Select oil/gas related names showing strength:
- OILLLLLLLLLLLLLLLLLLLLUPPPPP.
Other news:
- DRNA +15.1% (continued strength on LLY collaboration deal news)
- BRG +7.3% (Harbert Fund discloses 5.69% active stake as well as rejected proposal to acquire outstanding shares)
- JCP +1.5% (announced that Michael Fung is temporarily joining the Company as interim chief financial officer effective Oct. 30, succeeding Jerry Murray who will resume his responsibilities as senior vice president of finance)
- BA +0.7% (after notabling decline - reportedly on the news of the plane crash off Indonesia involving a new Lion Air 737 Max)
Analyst comments:
- NVDA +1.9% (upgraded to Overweight from Neutral at JP Morgan)
- JBLU +1.8% (upgraded to Overweight from Neutral at JP Morgan)
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Early premarket gappersGapping up:
- DRNA +15.1%, AMRC +9.5%, AKAM +8.6%, CHGG +8.5%, BRG +7.3%, DRYS +6.6%, QGEN +6.6%, KLAC +6%, MEDP +5.4%, BLKB +4.6%, SNE +4.4%, BP +4.1%, INST +4%, VRNS +3.1%, SANM +2.7%, AMED +2.3%, RIG +1.9%, BRX +1.7%, IDTI +1.1%, WING +1.1%, ESV +1%, JCP +0.7%, I +0.5%
Gapping down:
- ELVT -25.2%, TREX -14%, FTSI -12.2%, TXRH -11.3%, APTI -11%, CGNX -10.4%, RMBS -9.5%, ALSN -9.3%, CYH -8.8%, VNOM -6.5%, AEIS -6.2%, ASRT -5.6%, APPF -2.8%, ACAD -2.7%, CMTA -2.2%, CBL -2%, ERJ -1.9%, HIIQ -1.8%, SCI -1.6%, LEN -1.5%, BBVA -1%, OLN -0.8%, AMKR -0.5%
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Notable post-earnings/guidance movers
- Post-earnings/guidance gainers: CHGG +6.6%, SANM +4.4%, VRNS +3.1%, AKAM +2.3%, MDLZ +1.7%, RIG +1.5%, KLAC +1.3%
- Post-earnings/guidance losers: ELVT -21.3%, TXRH -10.8%, CGNX -9.5%
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Closing Market Summary: Stocks Extend October Losses Despite Strong StartThe S&P 500 lost 0.7% in another volatile session on Monday, extending its monthly losses to 9.4%. Continued tech weakness shook investor confidence, and reports of another possible round of Chinese tariffs helped accelerate losses in the afternoon.
Stocks opened strong, with the S&P 500 trading as high as 1.8% early on, before gradually losing steam in the afternoon. Particular weakness in leadership stocks within the information technology (-1.8%), communication services (-1.6%), and consumer discretionary (-1.5%) sectors weighed heavily on the broader market.
Meanwhile, the Dow Jones Industrial Average lost 1.0%, the Nasdaq Composite lost 1.6%, and the Russell 2000 lost 0.4%.
The major averages were already at session lows, with the S&P 500 hovering near its unchanged mark, before the U.S.-China news broke out. Bloomberg reported that the White House is preparing to announce tariffs on all remaining Chinese imports if talks next month between U.S. president Donald Trump and Chinese president Xi Jinping fail to ease the trade war.
Nevertheless, the disappointing price action in technology stocks struck a chord with investors because there was an early assumption that the sector would rebound following IBM's (IBM 119.64, -5.15, -4.1%) acquisition of Red Hat (RHT 169.63, +52.95, +45.4%) for an all-cash offer of $190 per share -- a 63% premium over Red Hat's Friday closing price. The hefty premium had energized the market with speculation about additional merger and acquisition potential (and healthy premiums paid) following the steep markdown in prices.
The tech sector's rollover undermined investor confidence in a potential rebound. Facebook (FB 152.09, -3.28, -2.3%), Alphabet (GOOG 1020.08, -51.39, -4.8%) and Netflix (NFLX 284.97, -14.86, -5.0%) dragged the communication services sector lower, while consumer discretionary component Amazon (AMZN 1538.88, -103.93) extended its post-earnings losses, losing 6.3%. Also, the world's largest tech company, Apple (AAPL 212.24, -4.06), lost 1.9%.
Conversely, the heavily-weighted financials sector pared monthly losses with a relatively strong performance on Monday, adding 0.9%. The group, however, traded as high as 2.6% before trimming gains. The financial rally was helped by a calming of contagion risk concerns (for now) with Standard and Poor's maintaining its BBB investment-grade rating for Italy. Similarly, the defensive-oriented real estate (+1.6%), utilities (+1.4%), and consumer staples (+1.1%) sectors had strong performances on Monday, finishing atop the sector standings.
In other markets, Treasury yields closed slightly higher with the 2-yr yield and 10-yr yield adding one basis point each to 2.82% and 3.09%, respectively. Also, the U.S. Dollar Index increased 0.3% to 96.63, and WTI crude fell 1.1% to $66.85/bbl.
Overseas, German Chancellor Angela Merkel announced on Monday that she won't be seeking re-election as head of the CDU. The decision follows disappointing results over the weekend for her party in a regional election. Her plan, however, is to remain Chancellor until 2021, after which time she will not pursue any other political posts.
Meanwhile, in Asia, China is reportedly considering a 50% cut in its tax on car purchases. Shares of Ford Motor (F 9.28, +0.30) and General Motors (GM 33.13, +0.48) benefited from the reports, gaining 3.3%, and 1.5%, respectively.
Reviewing Monday's economic data, which included Personal Spending, Personal Income, and the PCE Price Index for September:
- Personal income increased 0.2% in September (consensus +0.4%) while personal spending jumped 0.4% (consensus +0.4%).
- The PCE Price Index was up 0.1% (consensus +0.1%) while the core PCE Price Index, which excludes food and energy, increased 0.2% (consensus +0.1%).
- The key takeaway from the report is the recognition that PCE price inflation decelerated to 2.0% year-over-year from 2.2% in August. Core PCE price inflation held steady at 2.0%. The inflation readings are on par with the Federal Reserve's longer run target, yet they haven't moved to such a degree that they are going to alter the Federal Reserve's current policy stance, which involves an expectation for further gradual rate hikes.
Looking ahead, investors will receive the Case-Shiller 20-City Index for August and the Consumer Confidence Index for October on Tuesday.
- Nasdaq Composite +2.1% YTD
- Dow Jones Industrial Average -1.1% YTD
- S&P 500 -1.2% YTD
- Russell 2000 -3.8% YTD
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Hedge Fund Frontlight Capital to Close Doors
Four other hedge funds announced earlier this month that they were shutting
Boston-based Frontlight Capital LP is shutting after fewer than three years in operation, people familiar with the matter said.
Four other hedge funds announced earlier this month that they were closing, as investors re-evaluate a once-highflying industry plagued by weak returns.
Through September of this year, Frontlight’s fund, Frontlight Enhanced Macro Master Fund I, L.P., lost 4.17%, according to a document reviewed by The Wall Street Journal. The fund lost 5.6% last year. The firm managed about $280 million, the document said.
Frontlight deployed a macroeconomic investing strategy, meaning it made bets on macroeconomic factors including interest rates.
The firm was launched by Edward DeNoble, who previously worked at Jack Meyer’s Convexity Capital Management. Mr. DeNoble founded Frontlight in 2015. Its master fund began investing the following year, according to the document.
A spokesman for Frontlight didn’t immediately have a comment.
During his time at Convexity, Mr. DeNoble was considered a top trader who for years pushed for more of a “macro” approach that would take views on the direction of rates instead of one that was agnostic about their future path, people familiar with the matter previously told The Wall Street Journal.
Mr. Meyer and his co-founders, former Harvard bond traders David Mittelman and Maurice Samuels, ultimately decided they were uncomfortable making such trades, where they felt Convexity had little competitive advantage, The Wall Street Journal previously reported.
Mr. DeNoble left Convexity and later started Frontlight.
The firm is the latest of several hedge fund firms to shut down. Tourbillon Capital Partners LP, Highfields Capital Management and Criterion Capital Management recently announced they would return billions of dollars to clients.
SPO Partners and Co. announced it was closing last week, according to a letter to clients seen by The Wall Street Journal.
Apple Expected to Unveil Updated iPad and Mac at New York Event
Latest versions, to be revealed on Tuesday, aim to reinvigorate tablet and PC businesses
For the fourth time in the past decade, Apple AAPL +0.62% is holding a second event to announce new versions of its gadgets ahead of the holiday shopping season. The technology giant, which last month unveiled updated iPhones and smartwatches, is scheduled on Tuesday to take over the Brooklyn Academy of Music in New York City, where it is expected to show off new members in its iPad and Mac product lines. Here’s what you need to know:
Apple’s invitation for Tuesday’s event said more was in the making. So what’s in store?
Apple is likely to unveil a new iPad Pro with speedier processors and new sensors that bring the facial-recognition technology featured on its iPhones to tablets, analysts say.
The update is part of Apple’s effort to reinvigorate its tablet business whose sales have tumbled 40% from their 2013 peak. Its last iPad, launched in June 2017, updated the display and processors.
Though the iPad Pro, launched in 2015, carries a higher price of $649 to $1,279 and includes additional features like keyboard compatibility, Apple has been unable to return annual sales growth in a business that has declined the past four fiscal years.
A new iPad will be critical to the company’s efforts to remain the leader in the high-end segment of the tablet market, said Rob Cihra, an analyst with Guggenheim Partners. “You have to keep refreshing the product if you want to keep a hold on the high end,” Mr. Cihra said.
Did you say updated Mac?
Apple has caught flak from its customers in recent years for its failure to update its lower-priced MacBook Air and Mac mini devices. Though the company improved the processor speed on the MacBook Air in 2017 and updated the Mac mini in 2014, major changes haven’t come to those devices in years.
Analysts expect Apple to introduce a new, lower-priced MacBook that features an updated display and a quieter keyboard. Pricing of the new device will be critical to determining how broadly adopted it becomes. Currently, the MacBook Air starts at $999.
The Mac mini, which currently starts at $499, has long been a popular device among families who prefer to have an Apple desktop at home. The company is expected to update the device with new processors that analysts hope will prompt many longtime users to update their existing devices.
Apple Seeks Streaming Success With New TV Strategy
Mac units have been declining since fiscal 2015, so this “refresh is sorely needed,” Mr. Cihra said. Though its PC business won’t become a growth driver for the iPhone maker, the new Macs could help Apple dispel the notion that “they’ve been lagging the PC market rather than leading,” he said.
New Macs. New iPads. New iPhones. New Watches. What’s up with all the Apple products this year?
This week’s expected updates to the iPad Pro, MacBook and Mac mini would mean that Apple is launching a record seven new devices ahead of the all-important holiday shopping season. Its previous high was five new gadgets in 2016 and 2017.
The increase in Apple devices ahead of this Christmas fits into a broader trend across the gadget landscape that is going to make holiday shopping more challenging this year. Amazon.com Inc. announced some 70 new devices in September. Alphabet Inc.’s Google followed with new smartphones, a smart speaker and tablets earlier this month. And Facebook Inc. recently announced a video-chat device for the home.
Could there be anything more?
With Apple, there is always that possibility. The company didn’t announce an update to its AirPods in September, as some had expected. Hosting the event at Brooklyn Academy of Music has prompted some Apple observers to speculate that the wireless earbuds could be part of the show. Invitations with digitally-drawn art also have raised expectations that Apple will talk about the digital stylus the company first introduced in 2015.
Midterm test for Trump’s boisterous trade policy
Three possible scenarios for US trade as the elections approach
Donald Trump’s “America first” trade policy, which has shattered the mould of Washington’s international economic relations, will be a ballot issue when Americans go to the polls for the midterm elections on November 6.
Conclusions will be drawn inside the White House about the political effectiveness of Mr Trump’s tariffs battle with China, his deal with Canada and Mexico to revamp Nafta, and his talks with the EU and Japan. Here are three possible scenarios I have picked out for the post-midterm world of US trade policy.
1. Trump loses and backs down
The chances of a “blue wave” sweeping across America appear to be receding, but there is still a good chance that Democrats win control of the House of Representatives and come close to winning the Senate (a takeover of the upper chamber is still possible, but unlikely). Such a defeat would make Mr Trump doubt whether the hard line on China, and the months of rhetoric against Canada, Mexico, the EU and Japan on trade, have reaped the political dividends that hardliners inside his administration promised. The commercial peacemakers — such as Steven Mnuchin, Treasury secretary, and Larry Kudlow, director of the National Economic Council — would be strengthened, and the White House posture could become more conciliatory. The US president could not reverse course immediately, but over time he would find a way to reach a truce with China, drop the threat of car tariffs against US allies and make a constructive bid to reform the World Trade Organization.
2. He wins and doubles down
Mr Trump will probably try to depict any November 6 outcome as a win. But if Republicans manage to hold on to the House, and almost certainly the Senate, this near-complete electoral vindication will surely encourage him to double down on trade. The White House would feel little incentive to strike a quick agreement with Beijing, on the grounds that American voters appear willing to pay the short-term price of economic conflict with China. Tariffs on Chinese imports would increase from 10 to 25 per cent in January, and the White House would eventually impose levies on all Chinese goods. Mr Trump would impose national security-related tariffs on foreign cars, dealing a huge blow to trade relations with the EU and Japan. He would even move to pull the US out of the WTO, confident that America does not need the Geneva-based body.
3. A midterm draw, and he stays the course
If Mr Trump loses the House but wins a few seats in the Senate — with both Republicans and Democrats claiming victory — he will face more scrutiny of his trade policies in Congress, so will have to be more careful. He would increase the rate of US tariffs on Chinese imports, perhaps to 25 per cent, but not across the board. The trade war with Beijing would continue, but on a slow burn. Mr Trump would try to smooth over tensions with US allies like the EU and Japan, and even consider removing steel and aluminium tariffs on Canada and Mexico. He would also delay deciding on car tariffs to maximise his negotiating leverage, keeping everybody waiting. No conclusive deal would be reached with either Brussels or Tokyo.
If I had to bet today, I would pick scenario three. I could also see situations in which Mr Trump loses and increases the tariffs pressure in anger, or wins and magnanimously backs off.
Forget Watson, the Red Hat acquisition may be the thing that saves IBM
With its latest $34 billion acquisition of Red Hat,IBM may have found something more elementary than “Watson” to save its flagging business.
Though the acquisition of Red Hat is by no means a guaranteed victory for the Armonk, N.Y.-based computing company that has had more downs than ups over the five years, it seems to be a better bet for “Big Blue” than an artificial intelligence program that was always more hype than reality.
Indeed, commentators are already noting that this may be a case where IBM finally hangs up the Watson hat and returns to the enterprise software and services business that has always been its core competency (albeit one that has been weighted far more heavily on consulting services — to the detriment of the company’s business).
Watson, the business division focused on artificial intelligence whose public claims were always more marketing than actually market-driven, has not performed as well as IBM had hoped and investors were losing their patience.
Critics — including analysts at the investment bank Jefferies (as early as one year ago) — were skeptical of Watson’s ability to deliver IBM from its business woes.
As we wrote at the time:
Jefferies pulls from an audit of a partnership between IBM Watson and MD Anderson as a case study for IBM’s broader problems scaling Watson. MD Anderson cut its ties with IBM after wasting $60 million on a Watson project that was ultimately deemed, “not ready for human investigational or clinical use.”The MD Anderson nightmare doesn’t stand on its own. I regularly hear from startup founders in the AI space that their own financial services and biotech clients have had similar experiences working with IBM.The narrative isn’t the product of any single malfunction, but rather the result of overhyped marketing, deficiencies in operating with deep learning and GPUs and intensive data preparation demands.
That’s not the only trouble IBM has had with Watson’s healthcare results. Earlier this year, the online medical journal Stat reported that Watson was giving clinicians recommendations for cancer treatments that were “unsafe and incorrect” — based on the training data it had received from the company’s own engineers and doctors at Sloan-Kettering who were working with the technology.
All of these woes were reflected in the company’s latest earnings call where it reported falling revenues primarily from the Cognitive Solutions business, which includes Watson’s artificial intelligence and supercomputing services. Though IBM chief financial officer pointed to “mid-to-high” single digit growth from Watson’s health business in the quarter, transaction processing software business fell by 8% and the company’s suite of hosted software services is basically an afterthought for business gravitating to Microsoft, Alphabet, and Amazon for cloud services.
To be sure, Watson is only one of the segments that IBM had been hoping to tap for its future growth; and while it was a huge investment area for the company, the company always had its eyes partly fixed on the cloud computing environment as it looked for areas of growth.
It’s this area of cloud computing where IBM hopes that Red Hat can help it gain ground.
“The acquisition of Red Hat is a game-changer. It changes everything about the cloud market,” said Ginni Rometty, IBM Chairman, President and Chief Executive Officer, in a statement announcing the acquisition. “IBM will become the world’s number-one hybrid cloud provider, offering companies the only open cloud solution that will unlock the full value of the cloud for their businesses.”
The acquisition also puts an incredible amount of marketing power behind Red Hat’s various open source services business — giving all of those IBM project managers and consultants new projects to pitch and maybe juicing open source software adoption a bit more aggressively in the enterprise.
As Red Hat chief executive Jim Whitehurst toldTheStreet in September, “The big secular driver of Linux is that big data workloads run on Linux. AI workloads run on Linux. DevOps and those platforms, almost exclusively Linux,” he said. “So much of the net new workloads that are being built have an affinity for Linux.”a