Markets

Daily Markets: China Stimulates Markets, the Iowa Debacle and Trump's State of the Union

Congress - erick4x4 for Getty images
Credit: erick4x4 for Getty images

Today’s Big Picture

Yesterday the major indices reversed a bit of the decline since fears over the coronavirus began. The Nasdaq 100 lead the major US indices, gaining 1.5%, the Nasdaq Composite 1.3%, the S&P 500 0.7% and the Dow 30 0.5% while the CBOE Volatility Index (VIX) lost 4.6%. The oil market continues to suffer with estimates that China’s oil consumption could decline by as much as 20%. 

Despite a second coronavirus death being reported outside of China and the number of confirmed coronavirus cases in China exceeding 20,000 with the death count surpassing 400, the speed of the virus’s international increase appears to have slowed compared to last week, This potential good news coupled with another round of stimulus from the People’s Bank of China — another $71.2 billion of liquidity via reverse repo agreements on top of the $143 billion injection on Monday — led Asian markets to end the day higher, including a rebound in the Shanghai Index today.  European equities have followed suit and are up across the board while US equity futures point to a vibrant market open. 

If you were expecting to read about the results of the Iowa Caucuses, we are sorry to inform you that an “election debacle” unfolded yesterday as the Democratic Party found “inconsistencies in the reporting.” According to Mandy McClure, the state party’s communications director, “The underlying data and paper trail is sound and will simply take time to further report the results.” Results could be released as soon as late today. 

While this could make for some interesting barbs as we get ready for tonight’s annual State of the Union Address to a joint session of Congress at 9 PM ET, we suspect President Trump will take a victory lap on the economy and US-China trade deal. Investors will be listening to see what is likely to be on the President’s 2020 agenda including a potential middle-class tax cut, addressing healthcare costs and transparency, and infrastructure spending among other things. We’ll be sure to break it all down in tomorrow’s Daily Markets note. 

Data Download

The December Industrial Producer Prices in the Eurozone fell 0.7% YoY (+0% MoM) compared to the -1.4% move in November, marking the fifth consecutive month of declines. Declines in energy prices were the primary culprit behind the move lower. 

The majority of the economic data to watch today will be US-centric and will include the weekly retail Redbook Index, December Factory Orders, the January ISM Index for New York, and IBD/TIPP Economic Optimism Index for February. Coming off its highest reading in the prior eight months in January and 2019 holiday shopping, we'll be digging into the February IBD/TIPP with a focus on the Personal Financial Outlook and Six-Month Economic Outlook data.

Stocks to Watch

Cummins Engine (CMI) reported December quarter Non-GAAP EPS of $2.56, $0.10 ahead of the consensus forecast due in part to quarterly revenue that also topped expectations. Given the company's core engine business, it's guidance is viewed as a harbinger of the global economy, which means investors will likely pay more attention to its outlook for 2020 - "Based on the current forecast, Cummins projects full-year 2020 revenues to be down 8 to 12 percent…Revenue declines in 2020 are driven by lower truck production in North America, Europe, China, and India as well as lower projected demand in off-highway markets, including global Power Generation, mining, oil and gas, and construction markets." 

Clorox (CLXreported December quarter EPS of $1.46, $0.13 ahead of consensus expectations even as revenue for the quarter matched the consensus forecast. Clorox boosted its 2020 outlook to EPS of $6.10-6.25 from $6.05-6.20 vs. $6.16 consensus forecast driven by a low single-digit decrease to 1% increase in sales vs. the consensus that calls for roughly flat total sales.

Sirius XM (SIRI) reported December quarter results that were largely in line with expectations and added approximately 1.1 million net new self-pay subscribers leading 2019 to end with nearly 30.0 million self-pay subscribers. Total net subscriber additions were 870,000, resulting in more than 34.9 million total SiriusXM subscribers at the end of 2019. Sirius issued downside 2020 guidance with revenue of ~$8.1 billion vs. $8.22 billion consensus with free cash flow approaching $1.7 billion. 

Italian luxury carmaker Ferrari (RACEreported December quarter results that missed EPS expectation despite the 9.7% YoY increase in revenue that outpaced the consensus forecast. 

Ferrari shared its adjusted EBITDA should increase to between 1.38-1.43 billion euros in 2020 vs. prior guidance of over 1.3 billion euros that was set in its 2018 plan.

Beauty salon company Regis (RGS) reported better than expected quarterly results even though its same-store sales fell 3.6% during its FY2Q as the number of transactions fell 6.6% YoY, which was offset by 3% growth in ticket. Same-store sales service -2.1% and retail -9.3% for the quarter.

The Financial Times is reporting “Germany’s government has proposed a clampdown on anti-competitive behaviour by digital platforms, putting Berlin in the vanguard of European efforts to regulate companies including Google (GOOGLand Amazon (AMZN). The draft “digital law” will strengthen the intervention powers of Germany’s competition watchdog, the Federal Cartel Office.” This bill is part of what is being labeled a “tech lash” that has governments considering “ways to limit the economic and social power of the tech giants and public disquiet grows about the potential threats they pose to competition, privacy and civil liberties.”

Shares of Wynn Resorts (WYNN), MGM Resorts (MGM), Melco Entertainment (MLCO), Las Vegas Sands (LVS), and Studio City International (MSC) will once again be under the spotlight following Macau said it will shut its $40 billion casino industry for two weeks in a bid to counter the spread of the coronavirus.

Sony (SNE) boosted its outlook citing strong sales of smartphone image sensors as smartphone makers compete to adopt larger image sensors and multiple lenses on embedded cameras for the improved picture quality but warned of an impact from the Wuhan coronavirus on its global supply chain. The company shared its sensor shipments could be disrupted if the spread of the coronavirus forces its smartphone customers to suspend their assembly plants in China for a prolonged period.

Yesterday Alphabet gained nearly 4% during normal trading hours only to reverse those gains to end down 1.3% in extended trading after the company reported an earnings beat that was 23% above expectations, but revenue and operating income missed expectations. For the first time, the company broke out cloud and YouTube revenues but didn't reveal what percentage of YouTube revenue goes to its content creators. Cloud revenue rose 53% from the same quarter last year but operating income came in below expectations as did capex. 

Tesla (TSLA) shares are trading higher in pre-market action following Panasonic (PCRFFreporting the first quarterly profit in its U.S. battery business with Tesla, which followed years of production troubles and delays. This follows yesterday’s 20% gain in TSLA shares that continued the sharp move higher since the company reports its most recent quarterly results last week. The company’s market cap has reached $141 billion which is more than the combined market caps of Nissan Motor Corp (NSANF), General Motors (GM), Ford Motor Co (F), and Fiat Chrysler (FCAU) which have conversely all declined YTD, -7.7%, -7.5%, -3.6% and -11.6% respectively. One the other hand, of the top ten largest auto manufacturers, Tesla has only 2% of total revenues. Yesterday’s traded value as of roughly mid-afternoon yesterday was more than 205 of the traded value for all the stocks in the S&P 500. We don’t think there is a sufficient superlative word this what this stock has done recently.

This one goes into the “you cannot make this stuff up” category. Twitter (TWTR) took down the meme-sharing accounts created by Planters, a division of Kraft Heinz (KHC) for its new “Baby Nut” mascot which was unveiled during the Super Bowl. Kraft reported that the suspensions occurred despite having consulted with Twitter before the public even knew about Baby Nut. The nut got cut.

Zoom Video Communications (ZM) rose nearly 15% yesterday and is now up 28.6% year-to-date as coronavirus fears have investors looking to alternatives in a world increasingly anxious about travel… even to the office in some cases. 

Peloton (PTONand Flywheel Sports have settled their legal disputes over alleged technology theft and patents. Flywheel, which also produces stationary bikes with connected training programs, will stop using the so-called leaderboard technology that Peloton claims to have invented. In exchange for dropping its challenge to the validity of Peloton's patents, Peloton will dismiss litigation against Flywheel.

After today’s US equity markets close, we’ll be hearing from Disney (DIS), which saw the launch of the company's new streaming platform Disney+ during the quarter being reported. Expectations are for the service to have attracted around 25 million paid subscribers by calendar year-end.  In response to the coronavirus, Disney shuttered its Shanghai theme park indefinitely on Jan. 25, and theaters may remain closed in the region due to the outbreak. Investors will be looking for any clarity on that as well as an update of the companies 2020 and beyond box office schedule. Overnight it was reported Disney will bring Hamilton to the big screen in 2021. 

Chipotle Mexican Grill (CMG) is also expected to report after today's close with investors looking not only at the top and bottom-line results but also at the growth of digital sales and plans for the company's drive-through concept dubbed “Chipotlanes.”

We’ll also be hearing from FordGilead (GILD), and Royal Caribbean (RCL) - who will likely have to discuss the potential coronavirus impact after yesterday's revelation that a passenger who had disembarked in Hong Kong from a Carnival (CCL) cruise had tested positive for the virus.

For those wanting a deep dive into upcoming earnings, we suggest visiting Nasdaq’s earnings calendar page

On the Horizon

    • Upcoming IPOs:
        • Health and wellness company Avadim Health (AHI) is looking to price 5 million shares within a price range of $14-$16;
        • Arcutis Biotherapeutics (ARQT) aims to price $7.8 million shares between $15-$17;
        • Casper Sleep (CSPR), the company that popularized the bed-in-a-box trend, plans to offer 8.4 million shares in a price range of $17-$19.
        • Drug discovery software company Schrödinger (SDGR) will offer 10 million shares priced between $14 to $16;
        • For a complete list of upcoming IPOs by month, please visit the Nasdaq IPO Calendar.
    • Dates to mark:
        • Feb. 24-27: Mobile World Congress
        • May 12-14: Google I/O Developer Conference

Thoughts for the Day

“We cannot change anything unless we accept it.” ~ Carl Jung

"Lead me not into temptation; I can find the way myself." ~ Rita Mae Brown

Disclosures

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Chris Versace

Christopher (Chris) Versace is the Chief Investment Officer and thematic strategist at Tematica Research. The proprietary thematic investing framework that he’s developed over the last decade leverages changing economic, demographic, psychographic and technology landscapes to identify pronounced, multi-year structural changes. This framework sits at the heart of Tematica’s investment themes and indices and builds on his more than 25 years analyzing industries, companies and their business models as well as financial statements. Versace is the co-author of “Cocktail Investing: Distilling Everyday Noise into Clear Investing Signals” and hosts the Thematic Signals podcast. He is also an Assistant Professor at NJCU School of Business, where he developed the NJCU New Jersey 50 Index.

Read Chris's Bio

Lenore Elle Hawkins

Lenore Elle Hawkins serves as the Chief Macro Strategist for Tematica Research. With over 20 years of experience in finance, her focus is on macroeconomic influences that create investing headwinds or tailwinds. Lenore co-authored the book Cocktail Investing and in addition to her Tematica work, provides M&A consulting services for companies in Europe looking to expand globally. She holds a degree in Mathematics and Economics from Claremont McKenna College, an MBA in Finance from the Anderson School at UCLA and is a member of the Mont Pelerin Society.

Read Lenore's Bio