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Daily Markets: Morgan Stanley (MS) to Buy E-Trade for $13 Billion

Morgan Stanley headquarters in NYC
Credit: Reuters / Shannon Stapleton - stock.adobe.com

Today's Big Picture

The main equity indices closed mostly in the green in Asia today after China cut its 1-year loan prime rate (LPR) by ten basis points and its 5-year by five basis points. This move comes after the People's Bank of China had earlier cut the rate on $28.65 billion worth of 1-year medium-term lending facility loans to financial institutions from 3.25% to 3.15% on Monday. The rate cut was widely anticipated and is another layer in China's efforts to limit the economic impact of the coronavirus.

As of yesterday, China's National Health Commission had reported an additional 114 deaths from COVID-19, and 394 confirmed new cases for a total of 2,118 deaths and 74,576 cases. The number of new cases dropped dramatically, giving investors hope that we may have seen the worst of it, a hope that was furthered by the announcement from Foxconn today that it is cautiously restarting production at its primary plants in China. The Hubei province has asked that work not resume before March 11 - suspension for many firms was previously due to end February 21. South Korea reported 22 new confirmed cases with a potential first death from the virus that remains under investigation.

Shares in Europe were modestly in the red as of midday trading with US futures pointing to a slightly lower open after the Nasdaq Composite and S&P 500 closed at new highs yesterday.

Data Download

The unemployment rate in Australia unexpectedly rose to 5.3% from 5.1%, higher than the expected 5.2%. The participation rate also rose to 66.1% from 66%, where it was expected to remain.

Outstanding Loans in China grew by the expected 12.1% YoY in January, down from the prior 12.3%. The nation's M2 Money Supply grew less than expected, up 8.4% YoY, down from the prior 8.7% and less than the expected 8.6% increase. Today S&P Global Ratings warned in a report that lenders could face over $1.1 trillion in questionable loans as COVID-19 ripples through China's economy.

Consumer Confidence in Germany dropped to 9.8, as expected from 9.9. PPI rose 0.2%, up from the prior -0.2% and well above the expected decline to -0.4%.

Inflation in France came in mostly as expected, with YoY for January remaining at 1.5% as expected. Harmonized inflation rose to 1.7% YoY, up from 1.6% and closer to the 2% goal.

Construction Output in Italy, whose economy is barely treading water, contracted 1.3% YoY, an improvement from the prior 3.4% contraction.

Retail Sales in the UK were better than expected, rising 0.8% YoY in January, down from the prior 0.9%, but better than the 0.7% expected. Retail sales ex-Fuel were even better, growing 1.2% YoY, up from the prior 0.7% and much better than the expected decline to 0.4% growth. Factory Orders in the UK may finally be turning around, falling 18% in February MoM, which is much better than the low point of a 37% decline in October 2019. With the Brexit yes/no question behind it, the details in front of it, perhaps we will see some optimistic growth in the coming months.

Given the shortened trading week, the weekly US Thursday economic data dance card is a tad fuller than usual with the latest Jobless Claims as well as Natural Gas and Oil inventory data. We also have the February Philly Fed Index on tap as well as the January Leading Indicators report.

Stocks to Watch

Apple (AAPL) iPhone maker Foxconn (2317.TW) said today it is restarting production at its primary plants in China but warned its 2020 revenue would be hurt by the coronavirus. The revelation shouldn't come as too much of a shock given Apple rescinded its March quarter guidance earlier this week. Still, it is a reminder that many workers in China cannot return to work given travel and quarantine restrictions. Given Foxconn's status as the largest contract manufacturer, odds are companies other than Apple will feel the sting of this pinch.

Goldman Sachs (GS) warned clients yesterday of a possible market correction because it believes investors are underestimating the risks of COVID-19. In the note, strategist Peter Oppenheimer wrote, "We believe the greater risk is that the impact of the coronavirus on earnings may well be underestimated in current stock prices, suggesting that the risks of a correction are high."

Morgan Stanley (MS) is buying E*Trade Financial Corp (ETFC) in an all-stock deal valued at $13 billion. E*Trade shares were halted premarket for the news after rising 25%. Under the terms of the agreement, E*Trade stockholders will receive 1.0432 Morgan Stanley shares for each E*Trade share, representing a per share consideration of $58.74 based on yesterday's closing price of MS shares. The combined platforms will be $3.1 trillion client assets, 8.2 million retail clients relationships and accounts, and 4.6 million stock plan participants. This will be the biggest deal by a US bank since the financial crisis. The announcement can be found here.

As if the recent casino shutdown in Macau wasn't enough, casino and hospitality company MGM Resorts (MGM) shared it was the victim of a data breach last year. According to ZDNet, personal details of more than 10.6 million guests who stayed at MGM Resorts hotels were published on a hacking forum this week. Details in the leaked files included information on celebrities, chief executives of technology companies, reporters, and government officials. MGM says that, like many facing the headwinds associated with the Foxberry Tematica Research Cybersecurity & Data Privacy Index, it upgraded its security network to "avoid" future breaches.

Troubled retailer L Brands (LB) is reportedly near a deal to sell 55% of Victoria's Secret to Sycamore Partners at a $1.1 billion valuation, with a public announcement coming as soon as today. Having sold off several brands in recent years, L Brands will be left with just the Bath & Body Works chain. Leslie Wexner, who currently owns about 17% of L Brands shares, is expected to step down from his roles as CEO and Chairman. As of yesterday's close, L Brands had a market cap of roughly $7 billion, far below its $29 billion peak in 2015.

There is no summer fun going on at Six Flags (SIX) today as the company not only missed December quarter expectations but also announced its Board cut its next quarterly dividend payment to $0.25 per share from the prior $0.83 per share. The odds are that will go over with investors like a tot that dropped their ice cream cone.

Shares of digital real estate company Zillow (ZG) surged last night following December quarter results that showcased more than a doubling in revenue YoY to $944 million vs. the expected $815 million. The company's revenue guidance for the current quarter for $1.02-$1.06 billion also topped expectations of $915 million.

Jack In The Box (JACK) served investors a mixed meal last night with EPS of $1.17 that missed expectations by $0.21 despite beating consensus revenue expectations. Same-store sales across the company rose 2.9% for the quarter, but we expect investors will dig into the ingredients behind the company's margin profile on the earnings conference call this morning.

Despite reporting quarterly revenue that rose just over 78% YoY, shares of Tivity Health (TVTYtraded off significantly last night as the company missed consensus expectations on both its top and bottom line. Weighing on the shares was the company's Nutrisystem acquisition as well as its 2020 revenue guidance that fell short of investor expectations.

Shares of Stamps.com (STMP) soared in aftermarket trading last night as the company more than delivered a revenue and EPS beat for the December quarter and guided 2020 EPS in the range of $4.00-$5.00 vs. the $3.31 consensus.

Despite topping December quarter expectations, shares of Hyatt Hotels (Htraded off in aftermarket trading last night following guidance that doesn't factor any impact of the coronavirus on its business because "such impact cannot be reasonably estimated at this time." A classic case of the market not embracing uncertainty when it hears it.

Using cash on hand, B&G Foods (BGS) announced it will acquire Farmwise, the company behind Veggie Fries, Veggie Tots, and Veggie Rings. Viewed through our thematic investing lens, we see the company looking to capture some of our Cleaner Living theme's tailwinds in its sails.

Shares of Qantas Airways (QUBSF) gained nearly 6% after the company announced today that it is adjusting its capacity to Asia until at least late May in response to the ongoing COVID-19 outbreak saying the situation is "unfolding, and the outlook is uncertain."

After the close of today's US equity market, investors will once again enjoy the Thursday earnings harangue as the afternoon complement of reports brings the day's tally to more than 200. Of those coming at us this afternoon, investors will likely be focused on those from Cardtronics (CATM), Dropbox (DBX), First Solar (FSLR), Pilgrim's Pride (PPC), RE/MAX Holdings (RMAX), Sprouts Farmers Market (SAFM), Texas Roadhouse (TXRH), True Car (TRUE), Universal Display (OLED), Zix Corp. (ZIXI) and Zscaler (ZS).

For more detailed information on these and other forthcoming earnings reports, we'd recommend a visit to Nasdaq's earnings calendar page.

On the Horizon

  • Upcoming IPOs:
  • Dates to mark:
    • March 3: 2020 Presidential Election Super Tuesday
    • March 5-6: OPEC meeting
    • March 12: European Central Bank rate decision
    • March 17-18: Federal Reserve FOMC meeting
    • April 28-29: Federal Reserve FOMC meeting
    • April 30: European Central Bank rate decision
    • May 12-14: Google I/O Developer Conference
    • May 25: US stock market closed for Memorial Day

Thoughts for the Day

"Common sense is a flower that doesn't grow in everyone's garden." ~ Anonymous.

Disclosures

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

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