Come Home to Roost. The Dow Jones Industrial Average was lower to start the week, as Turkey still tops the news, though emerging markets are feeling the brunt of the pain. Turkey has burst onto the scene just as earnings season comes to an end, and the market needs something else to focus on. In today's Morning Movers, we...
•...talk Turkey once more; •...examine what else could be spooking investors ; •...highlight Nielsen Holdings' big jump following an activist investors' interest.
Stocks are poised to start the week a hair lower following Friday's slump, given ongoing worries about Turkey.
Dow Jones Industrial Average future and S&P 500 futures are down 0.1% in recent trading, while the Nasdaq Composite is up 0.1%.
Of course, Turkey is a relatively small portion of the global market. However, for "western investors contagion is the issue," not Turkey itself, writes DataTrek's Nicolas Colas. The fact that Turkish equities represent less than 1% of the MSCI Emerging Markets Index, but emerging markets took such a hit on the news demonstrates "how correlated EM equities can be during currency/economic crises, even when the country in question has a nominally low weighting."
For his part, Colas expects that the volatility will continue near-term. "Italy is the country to watch for signs that the proverbial butterfly wings in Ankara (or anywhere else) are setting off a storm in developed economy capital markets," and for now, a short crisis seems pretty manageable. A test of wills between the U.S. and Turkey is how many frame the debate, which theoretically means that either party can initiate a discussion to fix the matter. Although neither leader has actually taken that step yet.
Speaking of a test of wills, we're still dealing with the threat of increasing U.S.-China tariffs. Bank Leumi USA's Humberto Garcia notes that while the tension has eased with some allies, China remains an issue and "the full effect of trade disruption has yet to be felt," and that for "exporters targeted by retaliatory tariffs, the future is likely to bring difficulty."
Likewise, Morgan Stanely's Ellen Zentner writes that very few companies have provided any commentary on tariffs, which isn't totally surprising, given that without a final plan in place, it's impossible to know what the actual impact will be. Still, the downside is that if they are implemented, companies and analysts will finally have to incorporate their pain into estimates. "At the macro level, we expect these supply chain effects to eventually show up and account for a good amount of the total net impact on growth."
Still, it's not all doom and gloom. S&P Global Economics sees only a 10%-15% probability of recession in the U.S. over the next 12 months. While debt may be increasing risks, current "macroeconomic conditions support a sanguine view of risks to U.S. growth in the near term." The firm puts total gross domestic product growth at 3% this year, and 2.5% in 2019.
Here's hoping they're right.
Goodyear Tire & Rubber (GT) is down 3.3% to $23.49 after Morgan Stanley downgraded it to Equal Weight.
Newell Brands (NWL) is up 1.4% to $21.10 after agreeing to sell its hair and styling Goody Products business.
Nielsen Holdings (NLSN) is up 16% to $25.51 after The Wall Street Journal reported that activist investor Elliot Management, which has acquired an 8% stake, is pushing the company to sell itself.
Planet Fitness (PLNT) is down 1.8% to $51 after JPMorgan downgraded it to Neutral.
Ruth's Hospitality Group (RUTH) is down 3.5% to $32 after Raymond James downgraded it to Market Perform.
Stars Group (TSG) is up 3.8% to $33.10 after reporting second-quarter earnings. The gaming company earned 60 cents a share on revenue of $411.5 million. Analysts were looking for earnings of 54 cents on revenue of $38.08 million.
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