Notable post-earnings movers
- Post-earnings gainers: CHMA +14.3%, ANW +12.9%, AMRS +11.5%, TTD +8.4%, NDLS +7.7%, CAPR +5.6%, CWH +5.5%, JWN +2.5%, AZPN +2.1%
- Post-earnings losers: UNXL -17.6%, SNAP -13.6%, CBAY -5.1%, NVDA -4.6%, BIOC -3.4%
Closing Market Summary: Sell Off Picks Up the Pace on ThursdayThe equity market took a sizable blow on Thursday as combative jawboning between the U.S. and North Korea weighed on investor sentiment for the third day in a row. Tech stocks led the retreat, sending the tech-heavy Nasdaq (-2.1%) and the S&P 500 (-1.5%) below their 50-day simple moving averages for the first time in a month. The Dow also finished solidly lower, dropping 0.9%.
President Trump dialed up his warning to North Korea on Thursday afternoon, saying Tuesday's 'fire and fury' comment--in which the president promised action against North Korea if it continues to threaten the United States--may not have been tough enough. Pyongyang has threatened a strike on the U.S. territory of Guam, laying out a plan in detail, in response to Mr. Trump's Tuesday statement.
The U.S.-North Korea spat got the bearish ball rolling on Tuesday and Wednesday, sending the S&P 500 lower by 0.2% and 0.1% on each day, respectively, but today's much larger decline points to a market that was most likely overdue for a pullback following yet another run to record highs.
Recent trends seem to validate this belief, including the underperformance of transports and small caps, which are seen as leading indicators, a rally in the Treasury market, and a lack of conviction among investors throughout a strong earnings season.
Today's risk-off sentiment was distinguishable in the sector standings as countercyclical groups largely outperformed their cyclical peers. In total, ten of eleven sectors settled in negative territory with the rate-sensitive utilities group (+0.3%) being the lone advancer as a rally in the Treasury market left rates lower across the curve; the benchmark 10-yr yield dropped three basis points to 2.21%.
The top-weighted technology sector (-2.2%) settled at the very bottom of the day's leaderboard. The sector's most influential component--Apple (AAPL 155.32, -5.11)--plunged 3.2% while chipmakers also showed notable weakness, sending the PHLX Semiconductor Index lower by 2.8%.
The heavily-weighted financial sector (-1.8%) also settled behind the broader market, as did the consumer discretionary group (-1.5%), which was weighed down by retailers in particular, evidenced by the 3.1% decrease in the SPDR S&P 500 Retail ETF (XRT 39.40, -1.24). Kohl's (KSS 39.50, -2.43) and Macy's (M 20.67, -2.36) led the retail retreat, dropping 5.8% and 10.3%, respectively, despite beating bottom-line estimates.
It's also worth pointing out that the CBOE Volatility Index (VIX 15.74, +4.63) surged 41.7% to a four-month high after drifting near an all-time low from mid-July to early August.
Reviewing Thursday's economic data, which included the July Producer Price Index and the weekly Initial Claims Report:
- July producer prices came in at -0.1%, which is below the consensus of +0.2%. Core producer prices also declined 0.1% while the consensus expected an increase of 0.2%.
- The Producer Price Index (PPI) report for July was weaker than expected. The key takeaway from the report is that the downturn in producer prices will presumably keep a lid on consumer inflation expectations.
- The latest weekly initial jobless claims count totaled 244,000 while the consensus expected a reading of 240,000. Today's tally was above the revised prior week count of 241,000 (from 240,000). As for continuing claims, they declined to 1.951 million from the revised count of 1.967 million (from 1.968 million).
- There are no new takeaways from those data series, which remain at low levels reflective of a tight labor market.
On Friday, economic data will be limited to the July Consumer Price Index (consensus +0.2%), which will cross the wires at 8:30 ET.
Cerberus May Be Just What Commerzbank Needs
US hedge fund Cerberus’ newly-acquired 5-percent stake in Germany’s second-largest bank could be a saving grace for the struggling lender.
For Commerzbank, the paragon of successfully-rebounded banks might reside in Vienna. Its name is Bawag, an Austrian lender that has put losses, crises and risky speculative deals well behind it. Years ago, Bawag began to pivot away from investment banking to focus more on its retail business. This may have been a relatively boring choice from a banker’s perspective, but thanks to its rigorous frugality, Bawag has since become one of the most profitable banks in Europe.
The Austrians didn’t accomplish this feat on their own. They had help from the US hedge fund Cerberus Capital Management, which holds a majority stake in Bawag. Last week, this very same financial investor procured a modest stake in Commerzbank as well.
Snap needs to prove it’s still growing despite Facebook’s repeated copying
Here’s what to watch for when Snap reports Q2 earnings on Thursday.
Take two.
Snap is set to report its highly anticipated Q2 earnings on Thursday, its second earnings report since going public in early March, and, more importantly, a chance to turn things around after a very disappointing inaugural earnings report in May.
The popular messaging app made less and spent a lot more than Wall Street was expecting, and the company’s stock has been bleeding ever since. Snap stock is down more than 43 percent since it reported its Q1 earnings.
But Wall Street — as we saw with Twitter earlier this year — can be very forgiving. Advertisers (and investors) are still looking for legitimate mobile alternatives to Facebook and Google, and it’s possible Snap could still become an important player in that world.
The company will have to do a few obvious things on Thursday when it reports earnings in order to reverse course.
Snap needs to show its user base is growing despite repeated efforts by Facebook and Instagram to copy all of its best features. Snap added nine million new users last quarter, and RBC Capital’s Mark Mahaney expects the company to add just seven million more in Q2. It’s clear Snap won’t grow like Facebook, but it also can’t afford to flatline the way Twitter has.
One key metric for measuring Snap’s business growth: ARPU, or the average money generated from each user. If that number keeps climbing, Snap’s business should grow even if its user base doesn’t. It’ll be an important metric to watch Thursday.
Snap’s expenses should return to “normal.” The company surprised a lot people last quarter with a massive net loss bogged down by a lot of vested stock awards, including a big one for CEO Evan Spiegel. No one expects Snap to be profitable this quarter, but returning the company to a more manageable net loss would be helpful, even if only for peace of mind. Snap is still on the hook for a number of large cloud services deals that will become more expensive over the next couple of years.
Spiegel needs to sell Snap’s story instead of stoically remaining so self contained, and show he’s taking Facebook and Instagram seriously. On the first earnings call, Spiegel dismissed Facebook’s cloning efforts, compared the social giant to “Yahoo” and declined to share any real vision for where Snap was going because he likes to surprise people. It was a performance that rubbed some investors the wrong way.
Whatever happens, the focus on Snap won’t end Thursday. Current employees have not yet been able to sell stock since the IPO, and should be able to start selling for the first time next Monday. It’s possible a good earnings report might encourage some employees to hang on to their shares a little bit longer.
A bad earnings report could, ironically, do the same. Snap’s stock is already near an all-time low, and nobody likes to sell at the bottom.
Snap reports Q2 earnings after markets close on Thursday. Wall Street is expecting a net loss of 14 cents a share on revenue of $189 million.
Altice-Charter Chatter May Be Just Talk
It would be hard for Altice’s Patrick Drahi to make the math of a Charter takeover add up
How would European cable billionaire Patrick Drahi fund a bid for Charter Communications CHTR 2.86% ? It is the obvious question -- but perhaps it misses the point.
Mr. Drahi is the majority shareholder in Altice ATC +1.58% NV, a Netherlands-listed entity that owns, among other assets, a majority stake in Altice USA , ATUS 0.13% the fourth largest U.S. cable operator following its takeovers of Cablevision and Suddenlink. When Altice USA completed its New York IPO in June, Mr. Drahi’s managers made no secret of their interest in using the publicly traded shares as a currency to vacuum up more regional cable companies.
Wall Street speculated that privately owned Cox Communications, the third-largest U.S. cable group, was the obvious prize for Altice -- if only the Cox family would sell. But now Altice says it is considering a bid for Charter, the second-largest after Comcast . Both Sprint and Verizon have also poked around at doing deals with Charter.
It is hard to fathom the math behind an Altice USA bid for Charter. Even assuming that the Altice parent company would use the full weight of its balance sheet, Charter is almost twice the size, with an enterprise value of $176 billion. And much of that is debt, so Altice couldn’t pay for all of the company by further leveraging up its balance sheet. It could issue equity, but Charter has indicated it is not interested in stock, so Mr. Drahi would have to drum up interest from external investors -- and face dilution of his own stake.
That said, Mr. Drahi is known for bold bets, funded by his trademark knack for cutting costs. Altice USA’s second-quarter adjusted earnings before interest, taxes, depreciation and amortization rose 22% year over year as the margin jumped 6.6 points to 42.7%. Charter’s adjusted margin in the same period was 37.1%. Bringing it up to Altice USA’s level would boost Charter’s earnings by roughly 15% or $3 billion. With Charter’s enterprise value trading on about 11 times Ebitda, that could be worth $33 billion, funding a healthy takeover premium, though not the entire deal.
The bid discussion at Altice remains internal; the company has yet to sound out banks. The market’s response hasn’t been an unambiguous no: Shares in Altice USA barely moved, while its parent’s stock fell slightly.
Perhaps this is another way for Altice USA, less than two months after its IPO, to make clear to the U.S. cable and telecoms industry that it wants to be part of the consolidation game now taking shape. If Charter is the company in play, the new kid needs to find a way of playing -- even if it’s just talk.
The Federal Ministry of Transport has commissioned the Kraftfahrtbundesamt (KBA) to investigate Ford's mid-class Mondeo model for illegal shutdowns.
This was confirmed by the Federal Ministry of Transport at the request of WirtschaftsWoche. The tests on the model have been awarded to a testing institute and are already in progress according to information from the WirtschaftsWoche. The motor vehicle office has obtained results from exhaust gas tests, which allow conclusions to be drawn about possible illegal shut-off devices. This test should have been a trigger for the review of the Ford model. Ford's CEO Gunnar Herrmann argued against the economic week that Ford "neither cheated nor trickled": "No illegal switch-off devices were used in the exhaust aftertreatment of our diesel models."
The research commission "Volkswagen" of the Federal Ministry of Transport last year had the Ford models Focus and C-Max checked for possible illegal shutdown devices. According to the Federal Ministry of Transport, no illegal shutdown facilities could be found. However, the final report attests to the model C-Max "very high" nitrogen oxide emissions, as soon as the car is no longer tested on the road, but on the road. The values were partly seven to nine times the limit value.
In the ADAC Ecotest 2017, Ford is among the manufacturers with the highest pollutant emissions. In the ranking of a total of 77 cars, the four tested Ford models landed on the seats 62, 72, 74 and 75. The Ford Mondeo was the negative front-runner of the German environmental aid tests: the car exceeded the nitrogen oxide- Limit in the road test by more than nine times.
However, Ford does not see any reason for a software upgrade of current diesel. For this reason, Ford is not part of the diesel alliance's alliance alliance (VW, BMW, Daimler, Opel).