Closing Market Summary: Trade Tensions Weigh for Third Straight SessionU.S. stocks retreated for a third consecutive session on Tuesday as U.S.-China trade tensions continued to weigh on sentiment. However, also for the third straight session, an intraday rebound made the close look notably better than the open. The S&P 500, for instance, was down 1.1% early on Tuesday, but settled lower by just 0.4%. Meanwhile, the Nasdaq and the Dow ended lower by 0.3% and 1.2%, respectively, while the Russell 2000 outperformed (+0.1%), ticking up to a new all-time high.
President Trump threatened to escalate trade tensions with China even further on Monday evening, asking his administration to identify an additional $200 billion worth of Chinese goods to be penalized with tariffs. The president says this new list of goods will be subject to tariffs of 10% if Beijing follows through on its promise to retaliate against planned U.S. tariffs of 25% on $50 billion worth of Chinese imports. In addition, if Beijing retaliates against the new $200 billion list, Mr. Trump said he will place tariffs on yet another $200 billion worth of Chinese goods.
The industrial sector, which is viewed as being in the crosshairs of protectionist trade actions, was the worst-performing S&P 500 group on Tuesday with a loss of 2.1%. Meanwhile, chipmakers, which derive a large chunk of their revenue from shipments to China, also underperformed, sending the Philadelphia Semiconductor Index lower by 1.2%. The top-weighted technology sector, which houses semiconductor names, settled with a loss of 0.7%, and the materials sector was also a notable laggard, dropping 1.8%.
In general, cyclical sectors underperformed their less-risky, countercyclical peers. For instance, the three aforementioned groups -- industrials, technology, and materials -- are all cyclical spaces, and the health care (+0.2%), consumer staples (+0.5%), utilities (+1.1%), and telecom services (+1.4%) groups, which finished in the green, are all countercyclical.
Within the health care space, Sarepta Therapeutics (SRPT 143.93, +38.69) spiked 36.8% after announcing positive trial results for its Duchenne muscular dystrophy (DMD) drug. The iShares Nasdaq Biotechnology ETF (IBB 112.04, +1.61) rallied 1.5%, hitting a three-month high.
Elsewhere, Tesla (TSLA 352.55, -18.28) dropped 4.9% after CEO Elon Musk revealed in a company email that a disgruntled employee conducted "extensive and damaging sabotage."
Outside of equities, U.S. Treasuries moved higher in a curve-flattening trade that left the 2-10 spread at its lowest level in more than a decade. The yield on the benchmark 10-yr Treasury note slipped three basis points to 2.89%, and the yield on the 2-yr Treasury note finished flat at 2.55%. Meanwhile, the U.S. Dollar Index rallied 0.3% to 94.67, and West Texas Intermediate crude futures dropped 1.2% to $64.90 per barrel.
Reviewing Tuesday's economic data, which was limited to Housing Starts and Building Permits for May:
- Housing starts rose to a seasonally adjusted annualized rate of 1.350 million units in May (consensus 1.323 million), up from a revised 1.286 million units in April (from 1.287 million).
- Building permits declined to a seasonally adjusted 1.301 million in May (consensus 1.343 million) from a revised 1.364 million in April (from 1.352 million).
- The key takeaway from the report is that permits -- a leading indicator -- declined for both single-family units (-2.2%) and multi-unit dwellings (-8.8%), suggesting there might not be follow-on strength for badly needed single-family homes in June.
Looking ahead, investors will receive on Wednesday the Existing Home Sales report for May ( consensus 5.55 million), the Current Account Balance for the first quarter (consensus -$129.2 billion), and the weekly MBA Mortgage Applications Index.
- Nasdaq Composite +11.9% YTD
- Russell 2000 +10.3% YTD
- S&P 500 +3.3% YTD
- Dow Jones Industrial Average -0.1% YTD
![]()
Oracle beats by $0.05, reports revs in-line; sees FY19 EPS up double digits, above estimates (46.27 -0.25)
* Reports Q4 (May) earnings of $0.99 per share, excluding non-recurring items, $0.05 better than the Capital IQ Consensus of $0.94; revenues rose 2.9% year/year to $11.26 bln vs the $11.17 bln Capital IQ Consensus. Q4 Cloud Services and License Support revenues were up 8% to $6.8 billion. Q4 Cloud License and On-Premise License revenues were down 5% to $2.5 billion.
* "Last year, I forecast double-digit non-GAAP earnings per share growth for FY18 and we delivered 14% growth this year, largely driven by strong growth in our cloud businesses," said Oracle CEO, Safra Catz. "Looking ahead to FY19, I expect revenue growth [consensus +2.7%] will enable us to deliver double-digit non-GAAP earnings per share growth once again." -- FY19 EPS consensus +7.4% to $3.35.
* "We had a great fourth quarter with total revenues more than $200 million above our constant currency forecast," said Oracle CEO, Mark Hurd. "Our strategic Fusion ERP and HCM SaaS cloud applications suite revenues grew over 50% in the fourth quarter, and we expect continued strong growth from our Fusion SaaS suites throughout FY19."
* "Some of our largest customers have now begun the process of moving their on-premise Oracle databases to the Oracle Cloud," said Oracle Chairman and CTO, Larry Ellison. "For example, AT&T is moving thousands of databases and tens of thousands of terabytes of data into the Oracle Cloud. We think that these large scale migrations of Oracle database to the cloud will drive our PaaS and IaaS businesses throughout FY19."
FedEx beats by $0.20, reports revs in-line; guides FY19 EPS in-line, revs above consensus (258.39 -5.28)
* Reports Q4 (May) adj. earnings of $5.91 per share, $0.20 better than the Capital IQ Consensus of $5.71; revenues rose 10.1% year/year to $17.31 bln vs the $17.24 bln Capital IQ Consensus. Operating income +15% to $2.0 bln vs. $1.95-2.05 bln guidance; operating margin 11.5% vs. 10.0-11.8% guidance.
- Express margin 11.5% vs. 9.9-10.4% guidance; Ground margin 17.3% vs. 17.0-17.5% guide; Freight margin 9.4% vs. 8-9% guide.
* Co issues guidance for FY19, sees EPS of $17.00-17.60, excluding non-recurring items, vs. $17.47 Capital IQ Consensus Estimate; sees FY19 revs of +9% to ~$71.34 bln vs. $69.41 bln Capital IQ Consensus Estimate; sees adj. operating margin +70 bps to 8.5%.
* "We expect improved earnings, cash flows and returns this fiscal year and remain committed to improving operating income at the FedEx Express segment by $1.2 to $1.5 billion in fiscal 2020 versus fiscal 2017."
* FedEx has ordered 12 incremental Boeing (BA) 777F aircraft and 12 incremental Boeing 767F aircraft as the next phase of the company's ongoing fleet modernization program.
SoftBank looks to put $5bn staff incentive scheme into Vision Fund
Tech investor seeks to tackle difficuties securing final cash commitments
SoftBank is in talks to pour $5bn into its giant technology fund on behalf of its employees, as the Japanese group scrambles to find ways to hit a $100bn fundraising target set for its so-called Vision Fund.
According to multiple people briefed on the discussions, the move comes in response to SoftBank’s difficulties in securing final investor commitments after announcing a first close of the fund last May at $93bn.
To plug the hole, SoftBank is drawing up plans for what amounts to an employee incentive scheme, or partners pool, for current and future staff at the Japanese company, accounting for $5bn of the remaining $7bn it needed to raise.
If approved, it will require employees to contribute a small amount of funding to a newly created facility while SoftBank will provide the bulk of it in the form of a loan to the employees, these people said. SoftBank has been in touch with Japanese banks to arrange the lending for the vehicle.
The Financial Times revealed last month that SoftBank had recruited new funds from investors including Mercedes-Benz carmaker Daimler, a Bahraini state fund, and Oracle co-founder Larry Ellison.
SoftBank declined to comment.
Jason Glover, a partner at law firm Simpson Thacher said investors in a fund liked to see executives put “skin in the game” as that creates a greater alignment of interest for both groups.
He said: “Typically that will amount to 2-5 per cent of funds raised and is often part-funded through leverage provided by third-party lenders. What is much less common is for executives to agree to commit to ‘skin in the game’ at such a late stage of a fundraising.”
The Vision Fund, which is principally backed by the state investment arms of Saudi Arabia and Abu Dhabi, has turned SoftBank and its founder Masayoshi Son into one of the most powerful and active investors in technology.
At $93bn, it already dwarfs the size of any fund ever created for private equity or venture capital, prompting the group to go on a deal spree where it has put tens of billions into lossmaking companies across the digital economy.
However, SoftBank has struggled to complete its fundraising because pension fund investors and sovereign wealth funds are fearful of making what would amount to a sizeable commitment only to have it pale in contrast to the $45bn committed by Saudi Arabia and $15bn put in by Abu Dhabi.
If signed off on by the Vision Fund investors and the SoftBank board, the extra $5bn would be separate to the $28bn that SoftBank itself has committed to the fund. That contribution from SoftBank includes a 25 per cent stake in Arm, the UK chip design company, worth about $8bn.
People close to SoftBank have previously told the FT that the remaining $20bn may come from a plan to swap the group’s stakes in a collection of ride-hailing companies included Uber. Any increase in the value of those assets beyond what SoftBank paid before contributing them to the fund would help meet the contribution,
Unlike other investors, who received a combination of preferred units that receive bond-like coupon payments and equity, SoftBank’s stake was purely in equity, meaning its upside or downside from the fund’s performance is more volatile.
The Japanese company also stands to make management fees and carry on the fund’s investments like a typical private equity or venture capital funds. The extra $5bn under discussion is also planned to be purely an equity stake.