Closing Market Summary: Earnings Give Stocks a Push on TuesdayBullish catalysts were ripe for the picking on Tuesday as buyers advanced the S&P 500 (+0.6%) for the second time in a row, increasing the benchmark index's week-to-date gain to 1.7%. The Nasdaq (+0.7%) settled a tick higher than the S&P 500 while the Dow blew its peers away, adding 1.1%.
The positive sentiment surrounding the first round the French presidential election continued to linger on Tuesday, but investors turned their attention back to the home front where they were met with a slew of earnings reports. The results were largely favorable with Dow components like Caterpillar (CAT 10442, +7.61), McDonald's (MCD 141.70, +7.47), and DuPont (DD 82.21, +2.84) giving the price-weighted average a clear advantage. CAT shares spiked 7.9% in reaction to a big, upside earnings surprise, better than expected revenues, and upbeat guidance. MCD and DD also settled solidly higher, adding 5.6% and 3.6%, respectively, after beating top and bottom line estimates.
However, not all Dow components rallied around their latest earnings reports. 3M (MMM 195.13, +0.90) added only 0.5% despite beating top and bottom line estimates and issuing upbeat guidance. Coca-Cola (KO 43.11, -0.17) finished lower by 0.4% after a miss on earnings outweighed better than expected revenues.
Sector standings were largely determined by the day's earnings. For instance, MCD's positive performance helped the consumer discretionary sector (+0.8%) outperform while DuPont influenced the materials sector (+1.6%) to the top of the day's leaderboard. In the industrial space (+0.5%), Caterpillar did all it could to give the sector an edge, but Lockheed Martin's (LMT 270.02, -6.19) worse than expected revenues and disappointing guidance weighed, leaving the industrial group just behind the benchmark index.
Biogen (BIIB 286.89, +10.03) rallied the biotech industry, jumping 3.6%, after the company beat top and bottom line estimates. The iShares Nasdaq Biotechnology ETF (IBB 295.55, +3.81) settled higher by 1.3%, however, the health care sector (+0.5%) was held back by big losses from Eli Lilly (LLY 81.20, -2.22) and Express Scripts (ESRX 60.01, -7.24). ESRX plunged 10.8% after disclosing that its contract with Anthem (ANTM 172.46, +4.05) is unlikely to be extended.
With the uncertainty regarding the French presidential election largely in the rear-view mirror, the financial sector (+0.8%) benefited from some belated buying as investors tried to make up for last week's muted response to a host of better than expected earnings reports from top financial components.
Summarizing the sector standings, nine of eleven sectors finished in positive territory. The materials group closed at the top of the standings by a wide margin while the utilities (-0.1%) and telecom services (-0.3%) spaces finished in negative territory at the bottom. The real estate (+0.2%) and consumer staples (+0.3%) sectors underperformed, and the remaining sectors--financials, consumer discretionary, industrials, energy, technology, and health care--settled with gains between 0.5% and 0.8%.
However, it is important to note that while a swath of earnings was the most obvious catalyst behind today's advance, politics certainly played a supporting role. Namely, investors cheered the renewed push for tax reform (with, or without, health care reform), a sense that Congress will avoid a government shutdown this week, and China's diplomatic emphasis on quieting tensions over North Korea.
The resulting risk-on sentiment was felt throughout the bond market with Treasuries closing lower across the board. The 10-yr yield settled six basis points higher at 2.33%, which is notable given the recent resistance the benchmark yield has encountered around the 2.30% mark.
On the data front, investors received several economic reports on Tuesday, including March New Home Sales, April Consumer Confidence, the February Case-Shiller Home Price Index, and the February FHFA Housing Price Index:
- New Home Sales in March hit an annualized rate of 621,000, which was above the revised February rate of 587,000 (from 592,000), and more than the 590,000 that was expected by the consensus.
- The key takeaway from the report is that demand for new homes was strong, notwithstanding higher price points from the same period a year ago.
- The consumer confidence reading for April fell to 120.3 from the prior month's revised reading of 124.9 (from 125.6). The consensus expected the survey to hit 122.3.
- The key takeaway from the report is that confidence remains at high levels and indicative of an expectation that the economy will continue to expand in the months ahead.
- The February Case-Shiller 20-city Index hit 5.9% to follow last month's unrevised 5.7% increase. The consensus expected a reading of 5.8%.
- The FHFA Housing Price Index for February increased 0.8%, which followed a revised uptick of 0.2% (from 0.0%) in January.
Tomorrow, investors will receive only one economic report--the weekly MBA Mortgage Applications Index--at 7:00 ET.
- Nasdaq Composite +11.9% YTD
- S&P 500 +6.7% YTD
- Dow Jones Industrial Average +6.2% YTD
- Russell 2000 +4.0% YTD
Record Gucci sales help Kering bag 31% rise in revenues
Results reflect changing fortunes for luxury goods sector
The appetite for Gucci’s strand of vibrant eclecticism is showing no sign of waning and has propelled both the brand and its parent company Kering to record sales in the first three months of this year.
Luxury house Kering, which also owns Balenciaga and Yves Saint Laurent, said on Tuesday after the market closed that revenues were up 31.2 per cent in the first quarter to €3.57bn, lifted by a 34 per cent jump in sales. This was a new quarterly record for Kering.
The growth was driven by double-digit increases across its product categories, including “ever-increasing demand for ready-to-wear and shoes”, as well as “excellent momentum” in leather goods, according to Kering.
Gucci led the way, posting record revenue growth of 51.4 per cent to €1.35bn for the three months, with strong performance from all regions and product categories.
It is the latest iteration of a startling turnround that began in December 2014 when Alessandro Michele, an unknown accessories designer at the brand, was elevated to the role of creative director.
The results come amid changing fortunes for the luxury goods sector. After a couple of difficult years hurt by slowing Chinese consumption and less tourism in Europe, performance began to improve in the middle of last year.
Crucially, Chinese demand, which accounts for one in three luxury purchases, recovered in the second half, even if Chinese consumers are choosing to spend more domestically than abroad.
Luca Solca, luxury goods analyst at Exane BNP Paribas, described Kering’s results in a note as a “phenomenal beat” that “is beyond the rosiest buyside expectations” and is likely to “push the share price to new heights”.
Yves St Laurent was not far behind Gucci, with revenue growing 35.4 per cent during the quarter due in part to the warm reception shoppers have given to the brand’s summer collection designed by Anthony Vaccarello, the Belgian designer tapped last year to serve as its creative director to replace Hedi Slimane.
Meanwhile, at Puma, the sports and lifestyle brand that is a perennial topic of takeover speculation, revenues grew 17.9 per cent year on year. This month, Kering chief executive François-Henri Pinault relinquished his post as vice-chairman of Puma’s board of directors, prompting renewed suggestions that Kering may look to divest the brand imminently.
At Gucci, the 95-year-old Italian luxury house was reeling from two years of declining sales and the ousting of its chief executive and creative director when Mr Michele was appointed by chief executive Marco Bizzarri to lead its creative reinvention.
Mr Michele’s creative vision, which at Gucci’s AW17 show included 120 looks that were rich in diverse historical references, embellishments and colours — has translated into sales.
Obama to be paid $400,000 for Cantor Fitzgerald speech
Wall Street speaking engagement follows $65m book deal for ex-president and first lady
At the White House Correspondents’ Dinner a year ago, president Barack Obama teased Hillary Clinton over her six-figure speeches to Wall Street banks. “If this material goes well, I’ll use it at Goldman Sachs next year,” he said. “Earn me some serious Tubmans.”
Less than 100 days after leaving office, Mr Obama has followed through: accepting a $400,000 speaking fee from Cantor Fitzgerald, the mid-sized investment bank.
On Tuesday a person familiar with the arrangement confirmed that Mr Obama had agreed to appear as the keynote speaker at Cantor’s annual healthcare conference in September. The person declined to comment on what the former president might do with his fee, which is nearly twice the $225,000 price commanded by Ms Clinton during three speeches to Goldman in 2013.
Mr Obama could not be reached for comment.
During his time in office the former president’s relations with Wall Street often appeared strained — particularly in 2009, when he called bankers “fat cats” who kept drawing big bonuses while America went through a deep recession. Republican critics said that his landmark piece of rulemaking after the financial crisis, the Dodd-Frank Act of 2010, went much too far in its efforts to curb risk-taking at the biggest banks.
Since leaving the White House in January Mr Obama has kept a mostly low profile, resurfacing this week at the University of Chicago, at the future site of his presidential library.
Two months ago Penguin Random House agreed to pay more than $65m for the global rights to two books to be written separately by Mr Obama and his wife, Michelle. A blockbuster auction had already set a record for US presidential memoirs.
The speaking deal, which was first reported by Fox Business, is a coup for Cantor. The company has spent much of the past decade and a half trying to recover from the terrorist attacks in New York in September 2001, when it lost more than two-thirds of its staff.
Howard Lutnick, the bank’s chairman and chief executive, backed Jeb Bush, the Republican candidate defeated by Donald Trump in last year’s contest, according to campaignmoney.com. Another site, opensecrets.org, lists Mr Lutnick as a big fund-raiser for John McCain, Mr Obama’s Republican rival in the 2008 race for the White House.
Cantor launched its healthcare conference in New York two years ago, describing it as an opportunity to introduce investors to executives at dozens of the biggest healthcare companies.
Jonathan Westin, executive director of New York Communities for Change, a Brooklyn-based non-profit, said he was dismayed to learn of Mr Obama “doing favours” for big banks.
“It feels like we’re relying on the same tactics that got us in this mess in the first place – cosying up to Wall Street and alienating the entire Democratic base,” he said.
Akzo rejects Elliott call for extraordinary meeting
Hedge fund rebuffed over demand for gathering to oust chairman in takeover tussle
Akzo Nobel, the Dutch paintmaker at the centre of a €26.9bn takeover battle, has dismissed a request from activist investor Elliott to hold a special shareholder meeting aimed at ousting the company’s chairman.
The hedge fund had led a band of shareholders who called for an extraordinary general meeting to remove Antony Burgmans, as part of its campaign to force Akzo Nobel into talks with its larger US rival PPG Industries over a possible sale.
But Akzo Nobel rebuffed the EGM request on Tuesday, saying it did not meet the standards required under Dutch law.
The company noted that while investors representing more than 10 per cent of shares have the right to call a general meeting under Dutch law, this includes “meeting standards of reasonableness and fairness and a ‘legitimate interest’ test.
“The request is irresponsible, disproportionate, damaging and not in the best interests of the company. Given the sole agenda item [to remove Mr Burgmans], there is no legal basis for calling an EGM,” it added.
Elliott slammed the rejection as “groundless” and “an egregious dismissal of shareholder rights”, saying it believed Akzo Nobel was “afraid” of defeat in a vote.
The hedge fund added: “As far as Elliott is aware, it is unprecedented in European corporate history to have several large shareholders request the convocation of an EGM of a major corporate, and the fact that six Akzo Nobel shareholders have done so in this instance is indicative of the breadth and depth of shareholder discontent”.
The rejection is the latest twist in what has become a bitter transatlantic tussle over the fate of one of Europe’s oldest industrial concerns.
Akzo Nobel, which owns the Dulux brand of paints, has already knocked back two takeover proposals from PPG. It argued they undervalued the company, risked a lengthy antitrust review and would lead to substantial job losses.
Given the sole agenda item [to remove Antony Burgmans], there is no legal basis for calling an EGM
Akzo Nobel
However this has stirred dissent among Akzo’s own investors, heaping pressure on chief executive Ton Büchner. Shareholders owning roughly 17 per cent of the stock have urged it to the negotiating table.
PPG raised the tempo on Monday by tabling an improved third takeover bid, which it said was its “last” friendly overture before it would take hostile action. The increased cash-and-stock offer is worth €96.75 a share — up from a prior bid of €90 and a premium of 50 per cent to Akzo’s undisturbed share price.
The latest offer consists of €61.50 in cash, the remainder in PPG shares, and includes the payment of Akzo’s dividend. It values the Dutch company’s equity at €24.6bn. Akzo Nobel has said it will “carefully consider and review” the bid.
Last week Akzo unveiled €1.6bn in dividend payments and gave more details on a planned separation of its speciality chemicals unit, which will leave a business focused on paints and coatings.
Elliott, which holds a roughly 3 per cent stake, has criticised Akzo Nobel’s approach to corporate governance in its handling of the situation. But Mr Büchner received a boost on Tuesday as shareholders approved all resolutions at its annual general meeting.
Shares in Akzo Nobel rose 0.9 per cent to €82.64 on Tuesday.
Elliott has previously threatened recourse to the Dutch courts if the EGM request were turned down.
Uber wants to demonstrate its network of flying cars in Dubai and Texas by 2020
But don’t call them flying cars.
Say it with me: Uber is serious about flying cars. Seriously.
Today, at what it calls the Uber Elevate summit, the ride-hail company’s head of product Jeff Holden announced they are shooting to demonstrate its network of flying cars — or Vertical Take-Off and Landing vehicles — by 2020 in both Texas and Dubai.
What does that mean? Uber essentially hopes to be doing what it does for cars today for flying cars in 2020, which is: Dispatching them.
The company won’t be building the vehicles, nor will Uber be developing the charging infrastructure or building the ports for these flying cars alone. Instead, the company is partnering with a variety of aircraft manufacturers, charging company ChargePoint and real estate companies to do that.
The manufacturer partners include Aurora Flight Sciences, Pipistrel Aircraft, Embraer, Mooney and Bell Helicopter.
Don’t believe Uber is bullish on flying car technology yet? The company recently hired Mike Moore, a former 30-year-NASA employee, as its head of aviation engineering.
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A Dallas “vertiport” for VTOL vehicles Uber
According to Holden, the company has also begun discussions with NASA and the National Air Traffic Control Association about “airspace management,” which is a fancy way of saying the logistics of dispatching flying cars.
As part of Uber’s partnership with Dubai’s Road and Transport Authority, the two entities will conduct a study on things like pricing and potential VTOL routes. Dubai is quickly becoming a center for transportation innovation. The RTA has already struck up agreements with Hyperloop One — the company attempting to build a tube-like high-speed transport system — and has set a goal of having 20 percent to 30 percent of all its rides be driven autonomously.
But the ride-hail company has stumbled in meeting some of its ambitious deadlines in the past. As we reported, Uber’s self-driving team initially intended to deploy its first public test of its semi-autonomous cars in August 2016 but had to push that timeline back and bring in external help from Otto co-founder Anthony Levandowski.
However, in this case, Uber isn’t in charge of building the actual technology. As the ride-hail company now valued at close to $70 billion illustrated in a white paper published in October, Uber will be in charge of doing what it does best: Managing the on-demand logistics platform.
The burden to meet that 2020 deadline, then, is more on the manufacturers. That said, air space management is undeniably a different beast from ground space management. The company and the many manufacturers now working on flying cars — including Kitty Hawk, a startup backed by Google CEO Larry Page — also have to work with the FAA on regulations before any of this can become a reality.
--> Embraer : Enters innovation partnership with Uber; may develop small electric VTOLs for urban commutes - Embraer announced today an agreement with Uber to explore the concept of an ecosystem-dubbed Uber Elevate Network-that will allow the potential development and deployment of small electric vertical take-off and landing vehicles (VTOLs) for short urban commutes. The announcement was made in Dallas, Texas, in the opening session of the Uber Elevate Summit.
- This preliminary partnership is a project generated by the Embraer Business Innovation Center, the new initiative based in Melbourne, Florida, with outposts in Silicon Valley and Boston, which was announced last month when the company revealed its intent to promote air transportation innovations.
CEO: 'We firmly believe we need to explore several new business concepts that may impact air transportation in the future. This is a unique opportunity to complement the air transport knowledge of a visionary and revolutionary ground transport company. On exercising this partnership, we will be developing new technologies, new products and new business models which could generate opportunities for Embraer in the future,' said Paulo Cesar de Souza e Silva, Embraer's CEO.