Daily Markets: Spiking Coronavirus Cases Has Investors Concerned

Today’s Big Picture

After yesterday’s mixed close in the U.S., shares in Asia-Pacific were also mixed today. Japan’s Nikkei and Hong Kong’s Hang Seng both lost 0.3% while China’s Shanghai Composite finished 0.5% higher. By mid-day trading, European equities were down across the board and U.S. futures point to those equities opening lower later this morning. The worsening pandemic has investors concerned, and areas of the market that are insulated from stay-at-home orders are once again outperforming, and those more sensitive to life-as-we-used-to-know it getting hit hard again. Today we will hear from 41 S&P 500 companies with another 39 reports coming tomorrow.

The week’s flurry of corporate earnings reports, which included 12% YoY revenue and 32% YoY EPS growth but also softer than expected guidance from Microsoft (MSFT), is being overshadowed by rising COVID-19 case counts and a growing number of fresh restrictions in Europe. German Chancellor Angela Merkel is reportedly pushing for tougher pandemic related restrictions, including closing bars, restaurants, and leisure facilities through the end of November. In the U.S., 36 states have reported rising coronavirus case counts leading to a new record number of cases and an increase in the number of hospitalized patients. As we move through the balance of the current earnings season, we see a strong likelihood this resurgence in the virus and restrictions will play a role in forward guidance for those companies choosing to issue it.

Data Download

International Economy

Inflation continues to be elusive in most nations.

• In Q3, inflation in Australia rose as expected to 0.7% YoY from -0.3% previously.
• In Germany, import prices fell 4.3% YoY in September, accelerating down from the prior -4.0%, but not as fast at the -4.8% expected.
• In Italy, Producer Prices (PPI) declined 3.1% YoY in September after a 3% decline in August. This was the fourteenth consecutive month of declines.

Consumer Confidence in France declined slightly to 94 from 95, versus expectations for a deeper drop to 93, remaining well below the long-term average of 100. The standard of living in the next 12 months is seen deteriorating (-54 vs -47) and unemployment is seen higher (73 vs 71).

Retail Sales in Spain declined 3.3% YoY in September, accelerating down from -2.9% in August. Spain is expected to experience the sharpest economic contraction in 2020 of any major European nation.

Domestic Economy

Yesterday’s release of the Case-Shiller indices for home prices in August revealed that home prices rose 14.2% on an annualized basis. For reference, only 3.2% of the months since the series began in 1987 have seen better results, and all but one of those was during the peak of the housing bubble. Gains have widely varied across the nation with the West Coast enjoying the largest gains, San Diego standing out as the strongest, with prices rising 20.6% over the past two months (annualized). Seattle, San Francisco, and Los Angeles take up the second, third, and fourth place with gains of 19.8%, 18.3%, and 17.7%, respectively. New York was the weakest, gaining just 1.2%, Chicago next at 3.8%, and Minneapolis at 6.8%.

Yesterday’s Richmond Fed data for October hit a record high for the headline index of 29 (going back to 1993) versus 18 expected and with all the regional reports in, their aggregate current Shipments and New Orders are both in the 99th percentile of all reporting periods. The current work week is in the 98th percentile and Delivery Time is in the 94th percentile. Inventory levels are in the 9th percentile (very low) with Prices Paid in the 60th and Prices Received in the 45th. The outlook numbers are less enthusiastic. Shipments and New Orders are in the 62nd and 60th percentiles, respectively. Inventory jumped up to the 86th percentile and Unfilled Orders drops to the 42nd percentile from the 86th percentile for the current situation.

The U.S. Census released preliminary durable goods industry data on New Orders, Sales, and Inventories, which were overall stronger than expected. Total durable goods orders are still below the 2016 peak but have recovered most of the crash from earlier this year. Non-defense capital goods are at levels not seen since the early 2010s shale boom and have even exceeded pre-pandemic levels.

Later today in the U.S. we will get the Advanced Good Trade Balance, Wholesale Inventories, and the usual weekly EIA energy stock reports.

Markets

Yesterday was all about tech as the Nasdaq 100 gained 0.8%, while the S&P 500 traded in a fairly tight range, unable to push above its 50-day moving average and closed down 0.3%, near the day’s low. Breadth was weak with 3 large caps falling for every 1 that gained on the day. The Dow also fell on the day, losing 0.8%. The small-cap Russell 2000 fell 0.9% while the VIX rose 6.2% to reach 35.4, the highest level since June.

Stocks to Watch

Microsoft reported better than expected September quarter EPS on revenue that rose 12.4% YoY to $37.15 billion vs. the $35.78 billion consensus. Segment revenue for the quarter was as follows: Productivity and Business Processes, up 11% YoY; Office Commercial, up 9% YoY; LinkedIn up 16% YoY; Dynamics products and cloud services climbed 19% YoY; Intelligent Cloud jumped 20% to $13.0 billion; Server products and cloud services rose 22% YoY driven by Azure revenue growth of 48% YoY; More Personal Computing segment, up 6%; Windows OEM revenue fell 5%; Windows Commercial products and cloud services revenue increased 13%; Xbox content and services revenue increased 30%; Surface revenue increased 37%; Search advertising revenue excluding traffic acquisition costs decreased 10%. On its earnings call, Microsoft guided December quarter revenue slightly below the consensus forecast to $39.5-$40.4 billion vs. the $40.5 billion consensus.

Brinker (EAT) reported September results that topped consensus expectations despite the 5.8% YoY drop in revenue for the quarter. For the current quarter, the company sees EPS in the range of $0.40-$0.60 vs. the $0.47 consensus with comparable restaurant sales are expected to be in the negative mid-single-digit range.

Six Flags (SIX) reported a greater than expected bottom-line loss for the September quarter as revenue fell 79.7% YoY to $126 million, missing the $142.7 million consensus.

Attendance for the quarter totaled 2.6 million guests, a decline of 11.4 million guests YoY.

UPS (UPS) reported better than expected September quarter results but did not provide forward guidance. Consolidated average daily volume increased 13.5% year over year.

Sony (SNE) reported better than expected quarterly results and guided 2021 above consensus expectations. For 2021 the company expects sales of ¥8.5 trillion vs. its prior forecast of ¥8.3 trillion with operating income of ¥700 billion up from the prior ¥600 billion. The upward revision was primarily driven by the company's Game and Network Services business.

Visa Inc. (V) signed a definitive agreement to acquire YellowPepper, a fintech pioneer with proprietary technology and partnerships supporting leading financial institutions and startups in Latin America and the Caribbean.

Caesars Entertainment (CZR) announced a definitive agreement to sell Tropicana Evansville to Gaming and Leisure Properties (GLPI) and Twin River Worldwide Holdings (TRWH) for $480 million in cash. The transaction is expected to close in mid-2021.

Callaway Golf (ELY) confirmed it has entered into a definitive merger agreement with Topgolf with the two companies combining in an all-stock transaction. The combined company will have a highly diversified revenue mix, including Golf Equipment, 30%; Topgolf, 46%; and Softgoods, 24%. Upon completion of the merger, Callaway shareholders will own approx. 51.5% and Topgolf shareholders (excluding Callaway) will own ~ 48.5% of the combined company on a fully diluted basis.

Insurance technology company Root, Inc (ROOT) priced its 26.8 million share IPO at $27.00 per share vs. the expected $22-$25 price range.

After today’s market close, CACI International (CACI), eBay (EBAY), Equinix (EQIX), Fastly (FSLY), GrubHub (GRUB), Sprouts Farmers Market (SFM), Visa (V), Yum China (YUMC) , and several dozen other companies will report their quarterly results. Investors looking to get a jump on these and other similar reports in the coming days should visit Nasdaq’s earnings calendar page.

On the Horizon

• • October 28: MBA Mortgage Applications, Wholesale Inventories, Retail Inventories
  • October 28: Facebook (FB), Google (GOOGL), and Twitter (TWTR) testify before the Senate Commerce Committee
  • October 29: Initial Jobless Claims, Bloomberg Comfort, GDP, Personal Consumption, Pending Home Sales
  • October 30: Personal Income, Personal Spending, PCE Deflator, Employment Cost, MNI Chicago PMI, University of Michigan
  • October 31: Boo!
  • November 3: Election Day in the US
  • November 17: Facebook (FB) CEO Mark Zuckerberg and Twitter CEO Jack Dorsey appear before the Senate Judiciary Committee.

Thought for the Day

“Never trust anything that can think for itself if you can’t see where it keeps its brain.” – JK Rowling

Disclosures

• Equinix (EQIX), Fastly (FSLY) are constituents in the Tematica BITA Digital Infrastructure and Connectivity Index.
• Microsoft (MSFT), Visa (V) are constituents in Tematica Research's Thematic Dividend All-Stars Index.
• Sprouts Farmers Market (SFM) is a constituent in Tematica Research’s Cleaner Living Index.

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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