Daily Markets: Earnings Start Pouring In; What Direction Will Markets Take?

Stocks - Dimas Ardian / Bloomberg
Credit: Dimas Ardian / Bloomberg

Today’s Big Picture

Asian markets ended trading on a higher note following reports South Korea and China held their first defense talks in five years, and rising optimism that the US and China can reach some sort of trade agreement. President Trump's chief economic advisor Larry Kudlow told Fox Business he believes it is possible that the threatened December tariff hikes could be canceled if talks go well. Chinese Vice Foreign Minister Le Yucheng reported that progress is being made and that if mutual respect is maintained, resolutions to the trade disputes are possible. Japanese markets were closed for a public holiday.

After ending a 3-day losing streak yesterday, European markets are little changed as British Members of Parliament (MPs) begin a 3-day debate over Prime Minister Boris Johnson’s plan. Also,  the European Commission reviewed draft budgets for 2020, finding that Italy, France, Belgium, Portugal, and Spain breached recommendations. And as we get ready for the US stock market to open today, US futures are pointing to a positive open.

Looking at the bigger picture, recently we have seen a weaker dollar, rising yields (the 10-year Treasury closed about 1.8% for the first time in over a month) and higher industrial commodity prices which often indicate a more positive outlook for both the domestic and global economy. While this indicates companies have been able to weather the slowing global economy and trade war, Wall Street has started to trim its 2020 EPS expectations for the S&P 500. So far this earnings season, the majority of reports have been positive, particularly for financials, which were among the first to report. But for those companies that miss quarterly expectations or slash their outlook, there has been a swift move to the downside in their shares.

Data Download

Today is a fairly light day for economic data, both domestic and international. Today the US Department of Commerce will release the weekly Johnson Redbook index, which measures growth in US retail sales based on data from around 9,000 of the largest general merchandise retailers. We’ll also hear from the National Association of Realtors on September Existing-Home Sales, which after the increase in sales in August of 1.3%, expectations are for a pull-back of -0.2%. The Richmond Fed will release its Manufacturing Index this morning. We’ll be looking to see for any change in the dour data we’ve been seeing in this part of the economy. Expectations are looking for pick up of sorts with a read of -6, compared to September’s read of -9. 

The trend for global deflation continues with South Korea’s PPI for September coming in at a -0.7% year-over-year decline, matching expectations and decelerating from the -0.6% in August.

In the UK where companies are scrambling to deal with all the uncertainty around Brexit, Factory Orders fell 37% in October, accelerating the decline compared to the 28% drop in September. That sustained sharp drop is explained in part by the continued free fall in UK Business Confidence that fell to -44 for 4Q 2019 from -32 in 3Q 2019. For context, this metric averaged -3.84 from 1958 until 2019, and the reading of the last two quarters reveals the degree of uncertainty surrounding Brexit and global trade wars are having on UK businesses.

Yesterday Justin Trudeau, 47,  narrowly won a second term as Canada's prime minister in the nation’s federal election and will now lead a minority government that will be forced to work with other parties to govern. In 2015 he won in a landslide victory. Yesterday’s results showed the deep division in the country (imagine that) which not one Liberal elected in the western Prairie provinces where the Conservatives enjoyed a solid sweep.

Stocks to Watch

Earnings-Palooza continues with 122 of the S&P 500's constituent shares reporting this week. So far with about 20% of the S&P 500 market cap reporting, companies have exceeded EPS by 4.7% on average with 77% beating expectations, according to findings from Credit Suisse. The consensus estimate is for September quarter EPS calls for a decline of -2.3%, the third consecutive quarter of contracting earnings.

September quarter earnings before today’s stock market open include:

  • Kimberly Clark (KMB): Wall Street is looking for EPS of $1.79 on revenue of $4.66 billion
  • Lockheed Martin (LMT): Consensus EPS is $5.06 on revenue of $14.9 billion
  • McDonald’s (MCD): Expectations are for the company to serve EPS of $2.21 on revenue of $5.5 billion - that's a lot of burgers, fries, and shakes!

Proctor & Gamble (PG) reported Non-GAAP EPS of $1.37 was $0.13 ahead of the Wall Street consensus. Revenue rose 6.7% year over year, beating expectations. Organic sales were up 7%, led by a 10% gain in the beauty segment and a 9% gain in the health care segment.

UPS (UPS) delivered Non-GAAP EPS of $2.07, $0.01 ahead of expectations on revenue that rose 5.0% year over year, but modestly missed expectations. On the company’s earnings conference call, investors will be assessing the impact of digital shopping to be had on the upcoming holiday shopping season.

JetBlue Airways (JBLU) beat Non-GAAP EPS expectations by $0.07 on in-line September quarter revenue. Shares are trading down in pre-market trading as the company now sees its revenue per available seat mile (RASM) falling 3.5%-0.5% in the current quarter. 

Hasbro (HAS) shares are falling in pre-market trading following September quarter results that missed on both the top and bottom line. The company chalked the sharp bottom line miss to rising expenses as well as sales headwinds associated with tariffs and currency. Hasbro indicated it is seeing strong indications in its line of Disney's (DIS) Frozen 2 and Star Wars: The Rise of Skywalker products for the upcoming holiday season.

Sticking with Star Wars: The Rise of Skywalker, the film sold 45% more tickets during its first hour on Atom Tickets than Avengers: Endgame did during its first hour. Need we remind you, Avengers: Endgame turned out to be the highest-grossing film of all time ... for now?

Under Armour (UAA) named Chief Operating Officer Patrik Frisk to replace Kevin Plank as CEO, effective January 1, 2020. Plank will transition to executive chairman and brand chief.

A year away from the 2020 US presidential elections, Facebook (FB) announced several new measures to better serve the democratic process with initiatives including fighting foreign interference, increasing transparency and reducing misinformation. With Facebook Chairman and CEO Mark Zuckerberg set to testify tomorrow before the House Financial Services Committee, odds are this will be a hot topic alongside questions over Facebook’s Libra cryptocurrency. 

NVIDIA (NVDA) has announced two partnerships for the 5G market. One with IBM’s (IBM) Red Hat (RHT) for software-defined 5G wireless infrastructure and the other with Ericsson (ERICfor virtualized 5G radio access networks. 

Shares of Stamps.com (STMP) jumped in the aftermarket, surging more than 18%, trading last night following news UPS (UPS) will provide Stamps.com customers access to specially discounted UPS shipping rates. Shares of Stamps.com have lost more than 50% in 2019.

Del Taco (TACO) missed September quarter expectations last night and reduced its 2019 EPS outlook to $0.44-0.47 from $0.47-0.52, which sank shares in aftermarket trading. 

Howard Hughes Corp. (HHC) shares lost around 18.2% in after-hours trading following the company announcement that it's replacing its CEO and embarking on a transformation plan.

Citing the uncertainty of the timing for Boeing’s (BA) 737 MAX aircraft returning to service, after last night’s market close, composites company Hexcel (HXL) cut its September quarter EPS guidance and did the same for its 2019 revenue forecast.

Chinese investor, Harbin Pharmaceutical Group, is reportedly considering a bid to take U.S. vitamin and supplement retailer GNC Holdings (GNC) private. 

Expected earnings reports after today’s market close include:

  • Chipotle Mexican Grill (CMG): EPS of $3.22 on revenue of $1.38 billion
  • Discover Financial Services (DFS): EPS of $2.27 on revenue of $2.9 billion
  • Skechers USA (SKX): EPS of $0.69 on revenue of $1.34 billion
  • Snap (SNAP): EPS of -$0.05 on revenue of $436 million
  • USANA (USNA): EPS of $0.87 on revenue of $256 million
  • Whirlpool (WHR): EPS of $3.90 on revenue of $5.1 billion

On the Horizon

Upcoming IPOs this week:

  • Aesthetic Medical International Holdings (AIH), headquartered in Shenzhen, China, is a provider of aesthetic medical services in China including surgical aesthetic treatments such as eye surgery, rhinoplasty, breast augmentation, and liposuction as well as non-surgical treatments such as laser and cosmetic dentistry. The company plans to offer 2.5 million shares priced between $11 and $13 and list on Nasdaq. 
  • BRP Group (BRP), a Florida-based independent insurance broker also known as Baldwin Risk Partners, plans to offer 16.4 million shares priced between $14 and $16 per share, listing on Nasdaq on Thursday.
  • Happiness Biotech Group Ltd (HAPP) will issue 2 million shares at $5.50 Thursday on the Nasdaq. The offering represents 8% of outstanding shares and is expected to raise $11 million. Founded in 2005, the Chinese company manufactures traditional health supplements.
  • OneWater Marine (ONEW), a recreational boat retailer operating 63 stores in 11 states, plans to offer 3.2 million shares priced between $18 and $20 per share, listing on Nasdaq Global Market on Thursday.
  • Phathom Pharmaceuticals (PHAT), which focuses on gastrointestinal diseases, plans to sell 7.9 million shares priced between $18 and $20 and list on Nasdaq.
  • Progyny (PGNY), a fertility benefits management company, plans to sell 6.7 million shares priced between $14 and $16 and list on Nasdaq Friday.
  • Youdao (DAO), the education unit of Nasdaq-listed Chinese internet technology company NetEase Inc(NTES)plans to offer 5.6 million American Depositary Shares ( ADS) priced between $15 and $18 and list on NYSE Friday.

Dates to mark:

    • October 23 - Facebook (FB) CEO Mark Zuckerberg is due to testify before the House Financial Services Committee
    • October 24: IHS Markit October Flash PMI for Japan, France, Germany, the Eurozone, and the US
    • October 24: ECB Monetary Policy Meeting
    • October 24: Durable Goods Orders from the US Commerce Department
    • October 25: University of Michigan Consumer Sentiment Survey will be of particular importance after the disappointing September retails sales.
    • October 29-30: Federal Reserve monetary policy meeting where expectations for a rate cut are currently over 93%.
    • October 31: Brexit?
    • November 1: October Caixin China General Manufacturing PMI
    • November 4: Tokyo Stock Exchange Closed

Thoughts for the Day

“There is an optical illusion about every person we meet.” - Ralph Waldo Emerson

“The same boiling water that softens the potato hardens the egg. It's about what you're made of, not the circumstances.” - Mel Robbins

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.

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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.

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