Markets

Daily Markets: Resurgent Covid in Europe Weighing on Equities

Bull and bear statues are pictured outside Frankfurt's stock exchange in Frankfurt, Germany
Credit: Ralph Orlowski - Reuters / stock.adobe.com

Today’s Big Picture

Equity indices in Asia finished the week mostly up as the Shanghai Composite, Nikkei 225, Korea KOSPI, and Taiwan TAIEX were up 0.78%, 1.10%, 1.58% and 2.10%, respectively while the Hang Seng was down -0.78% by Friday. By mid-day trading, equity indices in Europe are all down except for Switzerland and Copenhagen, and U.S. futures point to equities given back some of their recent gains. Weighing on equities is the resurgence in Covid-19 as Austria became the first country in Europe to reimpose a full coronavirus lockdown, stepping up its restrictive actions for only unvaccinated citizens. This follows surging cases in German and other parts of Europe that are leading to renewed restrictions.

While we have a quiet day on the corporate earnings and economic data front, in Washington, the House is trying to approve the $1.75 trillion Build Back Better economic package this week. The Senate plans to take up the legislation after it returns from a Thanksgiving recess. Also coming back to the forefront in Washington is the U.S. debt ceiling, given that the Treasury Department projects that the U.S. government can stave off a debt default until Dec. 15, which is just over three weeks away. And yes, Congress does have that Thanksgiving break which means the House and Senate won’t be back in session until Nov. 30. So, there's a bit of a tight timeline here.

As if DeFI was disruptive enough, a group calling itself “ConsitutionDAO”, after crowdfunding just over $40 million in about 72 hours (!) from 17,437 donors, was outbid in its effort to purchase an original copy of the U.S. Constitution at Sotheby’s. The group posted on Twitter (TWTR) that donors “will be able to get a refund of your pro rata amount (effectively minus gas fees) …” Given gas fees (transaction costs) these days we’d be interested to know just how much of that raised amount makes its way back to donors. Still, an impressive effort. Benjamin Franklin Gates was unavailable for comment.

We will be off next week, so we wish you and yours a wonderful Thanksgiving, full of laughter and love with family and friends and the most precious gift of all: appreciating just how precious the moments are with those we love most.

Data Download

Coronavirus

Germany saw a new all-time high of over 65,000 new coronavirus cases yesterday. Same thing in the Netherlands, where a third consecutive day of record high of new cases was reported, and France is seeing levels that were last seen around the end of August. Belgium has re-instituted work-from-home and indoor mask mandates.

International Economy

Japan’s headline inflation rate slowed to 0.1% YoY in October after rising 0.2% in September. Core inflation remained at 0.1% YoY, as was expected.

Retail Sales in the UK fell 1.3% YoY in October, the biggest decline in 8 months and compared to forecasts of a 2% decline. Ex-fuel, October retail sales fell 1.9% YoY, matching the same YoY drop in September.

France announced a third quarter unemployment rate of 8.1% outpacing the prior quarter’s 8.0% and 0.04% above consensus of 7.7%.

Domestic Economy

Initial weekly jobless claims were higher than expected yesterday at 268,000, slightly less than the prior week’s 269,000, but above expectations for a drop to 260,000. Continuing claims came in lower than expected at 2.08 million, down from the prior week’s 2.21 million, and well under the expected decline to 2.12 million.

The Philly Fed Manufacturing Index for November came in much stronger than expected at 39, up from the prior 23.8, and way above the expected slight increase to 24. The Prices Paid component rose again to 80 from 70.3, its third consecutive increase and just below June’s 42-year record high of 80.7. New Orders rose 17 points to 47.4 with 48 percent of respondents reporting an increase in new orders while less than 1 percent reported a decrease. Taking some of the air out that balloon, the Kansas Fed Composite Index dropped from 31 to 24 and the Manufacturing Index also fell from 25 to 17.

And speaking of Thanksgiving, the American Farm Bureau Federation says Thanksgiving dinner will cost U.S. consumers an average of 14% more this year, marking the biggest annual increase in 31 years.

There are no major economic reports scheduled for today.

Markets

Despite mostly better than expected results from this earnings reporting season, investors appear to be in wait and see mode, most likely, concerning who will be the next head of the Federal Reserve. President Biden has indicated that we will know his pick before Thanksgiving. The Dow fell 0.2%, the S&P 500 gained 0.3%, and the Nasdaq Composite added 0.5%.

The strongest sectors were Consumer Discretionary and Technology, rising 1.5$ and 1.0% respectively while the weakest sectors were Energy and Utilities, with both losing 0.5%.

Stocks to Watch

Shares of semiconductor capital equipment company Applied Materials (AMAT) are down in pre-market trading following mixed October quarter results and downside guidance for the current quarter. While EPS for the October quarter topped expectations, rising 55% YoY, revenue for the quarter that soared 30.5% YoY to $6.12 billion came up short vs. the $6.34 billion consensus forecast. The culprit fingered by management was -- you guessed it -- supply chain issues: "Demand for semiconductors and equipment continues to grow as the pandemic accelerates digital transformation of the economy, and currently, our supply chain cannot keep up." With those supply chain issues expected to “persist in the near-term,” Applied guided revenue for the current quarter to $5.9-$6.4 billion vs. the $6.45 billion consensus.

By comparison, Palo Alto Networks (PANW) reported October quarter results that topped top and bottom-line expectations and guided the current quarter in-line with consensus expectations. The company sees cybersecurity demand remaining strong and attention for cybersecurity remaining high as “customers not only grapple with familiar events like brands on where, and data breaches, but also new threats coming to light, light as they adopt cloud services.”

Despite once again shooting the quarterly lights out with its October quarter results and issuing upside guidance for the current quarter, shares of Williams-Sonoma (WSM) are off in pre-market trading. Comparable brand revenue growth was up 22.5% at West Elm at 22.5%, 15.9% at Pottery Barn at 15.9%, 16.9% at Pottery Barn Kids and Teen and 7.6% for the Williams Sonoma brand. E-commerce sales accounted for 67% of total revenue for the October quarter. The company noted that even though Viet Nam, has reopened it is still experiencing significant delays even as those factories ramp back up and Williams Sonoma shared it does not “expect full recovery of our inventory levels until the middle of 2022.”

Shares of Activision Blizzard (ATVI) took another tumble yesterday, dropping 2.4% as the company continues to struggle with the fallout over its CEO’s alleged mishandling of alleged sexual misconduct at the company. JPMorgan (JPM) downgraded the shares to neutral, advising investors to avoid its shares until this mess gets sorted.

Shares of Alibaba (BABA) closed 11.1% lower after reporting a miss on both top and bottom line and cut revenue guidance for its current fiscal year.

Sometimes it pays to break things up. Yesterday the former L Brands companies Bath and Body Works (BBWI) and Victoria’s Secret (VSCO) saw their shares close 5.1% and 14.7% higher, respectively, after reporting better than expected results.

Yesterday CVS Health Corp (CVS) announced plans to close around 900 stores in the next three years as it refocuses more of its efforts on digital growth and evolves its physical stores into destinations that offer a broad range of healthcare services from immunization shots to diagnostic testing. CVS shares closed up 2.9%.

Macy’s (M) shares closed up 21.1% after the company reported beats on both top and bottom line and an improvement on gross margins to 41.0% from 35.6% for the same quarter in 2020. The company shared that while it targets 10 store closures for January, it is reconsidering when it will close the roughly 60 remaining open stores out of a batch of 125 that were on track to go dark by 2023. The company recently announced opportunities for corporate employees to gain “valuable experience” working at retail locations starting Black Friday and through December.

Kohl’s (KSS) shares closed 10.6% higher yesterday after it reported solid beats on both top and bottom line and hiked its fully-year outlook for both sales and earnings.

Shares of Oatly (OTLY) closed the day 4.5% higher after Morgan Stanley (MS) upgraded its shares to overweight, arguing that the stock is underpriced given the strong consumer environment.

Shares of Sweetgreen (SG) spiked over 100% intraday yesterday in its first day of trading. The initial public offering was priced at $28 per share on Wednesday, above its marketed $23 to $25 range, then opened yesterday’s trading at $52 a share. The company sold 13 million shares and closed 76.8% higher with a market cap of around $5.3 billion at a share price of $49.95.

Dillard’s (DDS) announced a special dividend of $15.00 per share that is payable December 15 to shareholders of record as of November 29.

After Today’s Market Close

There are no companies expected to report their quarterly results. Yippee! Those looking for more on which companies are expected to report when should head on over to Nasdaq’s Earnings Calendar.

On the Horizon

  • November 22: Chicago Fed National Activity Index, Existing Home Sales
  • November 23: Markit Manufacturing and Service PMIs, API Crude Oil stock changes
  • November 24: FOMC Minutes, Durable Goods Orders, Wholesale Inventories, Retail Inventories, Corporate Profits, weekly jobless claims, 2nd estimate for GDP, Goods Trade Balance, Personal Income and Spending, New Home Sales, PCE Price Index, Michigan Consumer Sentiment
  • November 29: Pending Homes Sales, Dallas Fed Manufacturing Index
  • November 30: S&P/Case-Shiller Home Price Index, Chicago PMI, CB Consumer Conference

Thought for the Day

As we head into the Thanksgiving week, we focus on those people and things for which we ought to be most thankful: “There are only two ways to live your life. One is as though nothing is a miracle. The other is as though everything is a miracle.” — Albert Einstein

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.

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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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Mark Abssy

Mark Abssy is Head of Indexing at Tematica Research focused on index and Exchange Traded Product development. He has product development and management experience with Indexes, ETFs, ETNs, Mutual Funds and listed derivatives. In his 25 year career he has held product development and management positions at NYSE|ICE, ISE ETF Ventures, Morgan Stanley, Fidelity Investments and Loomis Sayles. He received a BSBA from Northeastern University with a focus in Finance and International Business.

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