Closing Market Summary: Indices Follow Oil LowerThe stock market ended its Tuesday affair under heavy selling pressure as the major indices followed oil's rout to close near their session lows. The tech-heavy Nasdaq (-2.2%) ended behind both the S&P 500 (-1.9%) and the Dow Jones Industrial Average (-1.8%).
Today's selloff was underpinned by:
- Substantial losses in biotechnology
- Weakness from market cornerstones Apple (AAPL 94.48, -1.95) and Exxon Mobil (XOM 74.59, -1.70)
- The market's inability to capitalize on positive earnings from Alphabet (GOOG 764.65, +12.65); and
- Hawkish remarks from Kansas City Fed President and FOMC voting member Esther George
Ahead of today's session, oil sold off in the wake of yesterday's disappointing manufacturing data, diminishing speculation for production cuts between OPEC and non-OPEC states, and Iran announcing that it will be increasing its crude exports to 2.3 million barrels a day in its next fiscal year. Oil was able to close its day off its low but ended beneath the $30.00/bbl price level. WTI crude closed its pits session lower by 5.3% at $29.95/bbl.
The energy sector (-3.3%) rounded out the leaderboard while financials (-2.6%) and industrials (-2.0%) followed. On the flipside, utilities (+0.4%) and materials (-0.7%) outperformed.
In the heavily-weighted technology space (-2.0%), Alphabet was unable to lift the broader sector or the market despite its earnings beat. However, the company surpassed Apple in terms of market capitalization in the S&P 500. The high-beta chipmakers showed relative weakness today, as the PHLX Semiconductor Index declined 3.4%. The group saw headwinds from a Goldman Sachs research note, which cut smartphone growth estimates for 2016 and 2017. This note was consistent with Qualcomm's (QCOM 43.15, -2.96) Q1 guidance, which forecast a 16.0% to 25.0% drop in chipset sales year-over-year.
Large-cap Exxon Mobil fell 2.2% after reporting that revenue declined 31.5% year-over-year in its Q4 earnings report. This set the tone for the beleaguered energy sector as fellow energy giant Chevron (CVX 81.24, -4.05) tumbled 4.8%. Including today's performance, the group has fallen 8.0% in 2016.
Biotechnology continued to anchor the health care space (-1.5%), evidenced by the 2.8% decline in the iShares Nasdaq Biotechnology ETF (IBB 261.01, -7.52). Component Gilead (GILD 82.70, -1.34) narrowly underperformed the group ahead of the company's earnings results after today's close.
Money center banks faced continued headwinds from the broader market's potential inability to support a rate hike. Bank of America (BAC 13.23, -0.73) and JPMorgan Chase (JPM 57.03, -1.83) declined 5.2% and 4.9%, respectively. On a related note, the yield on the benchmark note is down more than 40 basis points (from 2.29%) since the Fed's rate hike decision on December 16th. Treasuries ended today on their highs as selling pressure in equities continued throughout the second half of the session. The yield on the 10-yr note ended nine basis points lower at 1.86%.
Despite the defensive positioning in the bond market, Kansas City Fed President and FOMC voting member Esther George stated that "economic growth, steady job gains and modestly higher core rates of inflation will warrant further 480 increases" during her speech.
Today's participation was true to recent form with more than a billion shares changing hands at the NYSE floor.
Investors did not receive any economic data today, but auto and truck sales were reported throughout today's session.
Tomorrow's economic data includes the weekly MBA Mortgage Index and the ADP Employment Change for January (consensus 190k) being released at 7:00 ET and 8:15 ET, respectively. Meanwhile, January's ISM Services Index (consensus 55.0) will cross the wires at 10:00 ET.
- Russell 2000 -11.2% YTD
- Nasdaq -9.8% YTD
- Dow Jones -7.3%
- S&P 500 -6.9%
Kuoni top shareholders say EQT offer price fair
Two of Kuoni Travel Holding’s [SWX:KUNN] top-10 investors said EQT’s CHF 370 per share takeover offer on the company’s listed shares looks fair.
This assessment is based on a first impression, the first cautioned, adding further analysis is required before taking a final decision on whether to the tender or not.
The bid is in line with a sum-of-the-parts (SOTP) valuation carried out by the second investor. In this investor’s model, Kuoni’s two main units, VFS and GTD, are worth about CHF 1.5bn combined, while smaller division GTS is given a CHF 170m price tag. Deducting CHF 180m in pending restructuring costs and CHF 90m of debt, the SOTP valuation stands at around 1.4bn.
A strategic bidder might have had the ability to place a higher offer, a third top-10 investor suggested. He cited sell-side research giving Kuoni a SOTP value of around CHF 400 per share. While there could be room for a better price, the offer on the table does give shareholders a good exit option, he added
Kuoni’s leading visa services business, VTF, was described by two of the shareholders as a good margin, cash flow and growth-generating business. Still, it might have been hard to find a natural buyer for it, considering the sensitive area in which operates, one of them noted.
Booking platform GTD has been squeezed by increasing competition and could have faced major risks from a business perspective in this sense, the third investor said.
EQT also faces some execution risk on implementing its own restructuring plan, which should be considered when assessing the level of the offer, the first shareholder noted.
EQT announced an all cash offer for all registered Kuoni B-shares Tuesday (2 February) morning in an offer worth CHF 1.39bn. The offer has the backing of Kuoni’s board, largest shareholder Hugentobler Foundation and more-than-3% shareholder Veraison.
The Foundation’s 6.25% stake in Kuoni, made up of class-A unlisted shares, is not being sold. The class-A stake gives the Foundation 25% of Kuoni’s voting rights.
Yahoo Plans to Say It Is Exploring Strategic Options
Such comments would be strongest indication yet that Yahoo is considering a sale
Yahoo Inc. on Tuesday plans to announce it is exploring “strategic alternatives” for its struggling Internet business, people familiar with the matter said.
The announcement, which is expected to come along with a fourth-quarter earnings report after the market close, would be the strongest indication that Yahoo’s board is considering a sale of all or part of its Web properties.
Executives at Verizon Communications Inc. have publicly expressed interest in buying Yahoo, and others, including firm private-equity firm TPG Capital, have considered bidding for parts or all of the Web business, according to people familiar with the matter.
In December, Yahoo Chief Executive Marissa Mayer and Chairman Maynard Webb said in an interview that a sale isn’t the most likely outcome. But Mr. Webb said then that the board has a fiduciary duty to entertain any offers.
Reportedly will announce the exploration of strategic alternatives in its update today after the close - press - Source TradeTheNews.com
Fed vs. the Dollar: Why Yellen Can’t Win
A vicious cycle will make it hard for the Fed to raise rates this year
The U.S. dollar sits at the center of a tangle of negative feedback loops that are roiling financial markets and economies around the world. It is coming to the point where the Federal Reserve may have to try to cut through the snarl.
The dollar’s strength over the past year and a half is unprecedented. It has gained 23% against the euro and 17% against the yen—moves that are eclipsed by what it has done versus a host emerging-market currencies. The dollar has gained 76% on the Brazilian real, 51% on the South African rand and 121% on the Russian ruble.
These moves are making it difficult for U.S. companies to compete globally on price, and are also cooling already low inflation at a time when the Fed wants it to go higher. Further dollar strength risks making the situation even worse, while intensifying global pressures that could put the U.S. economy at risk.
Recognizing this, the Fed and its Chairwoman Janet Yellen may end up not just pushing back rate increases planned for this year, but tabling them for 2016 altogether. Already, futures markets, which at the beginning of the year put even odds on a rate increase at the Fed’s March meeting, show investors now expect the central bank to take a pass.
Among the several, related forces behind the dollar’s rise: The U.S. economy has performed better than many other economies, making it a seemingly safer bet for global investors. The Fed has moved to push rates higher, while its major counterparts are adding to economic stimulus. Oil and other raw-materials prices also have dropped sharply, putting commodity producers at risk and further straining global growth.
But the dollar’s rise is now intensifying many of the strains that have helped propel it higher.
One channel for this is the substantial amount of dollar debt that has been extended to nonbank borrowers outside of the U.S. Many Turkish companies, for example, borrowed heavily in dollars in recent years, even though they had little in the way of dollar revenues.
The 38% rise in the dollar versus the lira over the past 18 months has made those loans hard to service and repay. Such debt strains darken economic outlooks and intensify the need for dollars. But that serves to only send the dollar higher.
Dollar-indebted commodity producers are getting hit by a double punch. The oil, iron ore and soybeans that Brazil exports are quoted globally in dollars. So when a rising dollar causes prices for those to fall, these exporters earn less. Coupled with the deterioration of the Brazilian real, this creates an intense need for dollars that forces commodity producers to sell at even deeper discounts.
Meanwhile, the weakness in other emerging-market currencies is making an already slowing China less competitive globally. That is putting further pressure on Chinese policy makers to further devalue the yuan.
Worry that this might happen is adding to the pressure on commodity prices, since a depreciated yuan would make it harder for Chinese companies to buy raw materials. And it also feeds back into weakness in other currencies as the foreign-exchange market discounts the possibility of a devalued yuan.
Yuan worries are contributing to the massive capital outflows China is experiencing, as Chinese citizens move their money out of the country to protect against future devaluations. Chinese policy makers have been liquidating U.S. Treasurys to hold the yuan steady amid the outflows, but as the decline in Treasury yields this year shows, there have been plenty of ready buyers for this debt.
In effect, the availability of these Treasurys may have drained liquidity from other dollar-denominated debt, making an already bad situation even worse.
For the most part, the problems driving the dollar higher are taking place away from the U.S. But there is no escaping their adverse impact.
By cooling inflation and hurting trade, the dollar’s effect on the U.S. economy is becoming too pronounced for the Fed to easily ignore. While the central bank’s mandate is focused squarely on the U.S., the dollar’s role as the world’s reserve currency means the world can quickly become the Fed’s problem.
To stem the dollar’s rise, and short-circuit the feedback loops, it may soon signal an intention to put its rate-raising plans on hold. The risk is that even that fails to cut through the noise.
GoPro Stock: Can You Stomach This Action Shot?
Bargain hunters shouldn’t be tempted by GoPro’s steep slide
From a big momentum play to a short seller’s dream, GoPro Inc.’s stock has seen it all in less than two years on the public markets.
After surging nearly 300% to its October 2014 high, the camera maker’s shares have since lost more than 90% of their value and sit near record lows. GoPro has been punished for disappointing sales of its newest wearable camera and a lack of other sustainable revenue streams.
With the stock trading around $10, it is only natural for bargain hunters to sniff around when GoPro reports fourth-quarter results on Wednesday. And since GoPro already unveiled disappointing preliminary figures last month, much of the bad news for the period ending in December might already be priced in.
But as with most volatile stocks, GoPro shares in recent months have repeatedly looked set to hit rock bottom, only to then fall further. Without a specific catalyst to juice sales, investors should cast a skeptical eye toward any future rallies.
For instance, since peaking in October 2014, there have been six instances in which GoPro shares rallied at least 10%. That includes the whopping 64% rally between March and October. Yet in that instance, it took less than a month for those gains to be wiped away.
For years, GoPro benefited from strong brand identity among surfers and cyclists who sported the wearable high-definition video recorders. But its action cameras struggled to achieve widespread adoption. Meanwhile, increasing competition from overseas manufacturers and better smartphone-camera technology have weighed on GoPro’s results.
Plans for a consumer drone could be promising, but GoPro faces a crowded hardware market. And while some bullish observers are pegging hopes on GoPro’s media plans, the company has yet to show it can make real money from content.
GoPro does appear beaten down. It fetches a price-to-sales ratio of 0.81 times, some 75% below its average as a public company. And it trades at 14 times forward earnings, well below the Nasdaq Composite’s average.
But it is cheap for a reason, looking more like a value trap than a fun ride. Investors should have learned by now to avoid daredevil antics.