Daily Markets: Trade Hopes Surge; December Earnings Forecasts Cut Again

Donald Trump and Xi Jinping shaking hands
Credit: Qilai Shen/Bloomberg

Today’s Big Picture

Global equities are moving higher today on reports of potentially meaningful progress on a US-China “phase-one” trade agreement. Early today, China's Ministry of Commerce spokesperson Gao Feng said: "the leaders of China and the United States have carefully resolved their core concerns in the past two weeks and have carried out serious constructive discussion, agreeing to cancel the tariff increase in stages with the progress of the agreement."

Alongside that comment, China's state news agency Xinhua reported the Chinese customs and the Ministry of Agriculture are considering removing restrictions on U.S. poultry imports., which have been banned since January 2015 following an avian influenza outbreak.

These latest developments soften reports yesterday that a meeting between President Donald Trump and Chinese President Xi Jinping could be postponed until December. And while we have yet to hear from the Trump administration in response to Feng’s comments, we note China's state media is reporting that if tariffs are not removed there will no "phase-one” trade deal. 

As the stock market trades higher on the trade-related news, we would be remiss if we didn't mention that roughly 80% of the S&P 500 has reported September quarter earnings and updated their respective outlooks. Aggregating that data, December quarter earnings for the S&P 500 are now forecasted to rise just 0.8% year over year, well below the 4.1% called for at the start of October and a far cry from the 7.2% increase forecasted back in July.

We suspect some investors will look through those revisions, instead focusing on the potential trade deal to be had. While we remain hopeful and optimistic on the trade front and what it could mean for the global economy, given recent economic and earnings data, in our view, it will be the final details, note headlines for any "phase-one" agreement as well as subsequent ones that matter when assessing what lies ahead.

Asian equities rose across the board, however, given the timing of Feng’s comments today we are seeing a more pronounced impact on European equities, which have marched higher on that trade news. US futures point to a strong market open. 

Data Download

September Industrial Production in Germany missed expectations coming in at -0.6%, below the forecasted -0.4%and +0.4% in August. Examining the data on a year over year basis, we see industrial output shrank 4.3% in September, contracting further compared to the revised reading of -3.9% for August. September Retail Sales for Italy rebounded compared to August, rising 0.7% but fell short of the expected 1.1% gain. Year-on-year, retail rose 0.9% in September, from an upwardly revised 0.8% in August but less than the market consensus forecast of 1.0%.

Thirty-five days before Britain’s snap election, the Bank of England’s Monetary Policy Committee voted to hold interest rates at 0.75%

In the US, in addition to the weekly data for jobless claims and EIA natural gas inventories, today brings the September Consumer Credit report. As we gear up for the holiday shopping season, investors will be examining consumer balance sheets and debt levels to see how realistic holiday shopping forecasts are for 2019. Depending on the forecast source, holiday shopping is expected to rise  3%-5% year over year, with digital shopping continuing to gain consumer wallet share.

Stocks to Watch

There is no celebrating at Party City (PRTY) as its shares are slumping more than 35% in response to September quarter results that missed across the board and contained a cut to 2019 expectations. 

Residential real estate services company Realogy (RLGY) missed September quarter forecasts by $0.22 and missed on revenue expectations as well. The company revised its 2019 EBITDA guidance to the low end of its target range and announced the company will no longer pay a cash dividend. 

Animal healthcare company Zoetis (ZTS) reported September quarter EPS of $0.94, $0.06 better than expected. The company boosted its 2019 EPS forecast to $3.57-3.62 from the prior $3.53-3.60.

Norwegian Cruise Line (NCLH) reported better than expected September quarter results on the top and bottom line but issued downside EPS guidance for the current quarter of $0.69 vs. the consensus forecast of $0.79.

California is investigating privacy practices at Facebook (FB) in a lawsuit that accuses the company of failing to adequately comply with information requests.

Bloomin’ Brands Inc. (BLMN), the company behind Carrabba’s Italian Grill, Bonefish Grill, Fleming’s Prime Steakhouse & Wine Bar and Outback Steakhouse, announced it is considering “strategic alternatives” including a possible sale.

Centogene B.V. (CNTG), a commercial-stage company focused on rare diseases that transforms real-world clinical and genetic data into actionable information, priced its 4 million share IPO at $14, the low end of the $14-$16 price range. 

Galera Therapeutics, Inc (GRTX), a clinical-stage biopharmaceutical company focused on developing and commercializing a pipeline of novel, proprietary therapeutics that have the potential to transform radiotherapy in cancer,  priced 5 million shares at $12 below the $14-$16 price range.

CVS Health Corp (CVS) disclosed in a regulatory filing yesterday that it intends to close 22 under-performing drugstores next year in addition to the 46 stores it already closed earlier this year.

DexCom (DXCM) shares were up over 20% at one point during after-hours trading yesterday after the company beat on both its top and bottom line and raised revenue guidance for the fourth quarter.

Expedia (EXPE) share fell more than 10% yesterday in after-hours trading after the company missed on both revenue and EPS.

Fossil Group (FOSL) group shares were down over 28% after the company reported a loss of -$0.15 per share on revenue of $539.5 million, missing expectations for EPS of $0.15 and revenue of $553.5 million, as well as issuing disappointing guidance for a drop in revenue of between 5% and 10% in the fourth quarter.

Qualcomm (QCOM) shares gained more than 5% when it reported better than expected revenue and earnings.

Roku (ROKU) shares were down as much as 15% in after-hours trading yesterday after the company reported earnings and revenue beat, a 36% year-over-year increase in active users and boosted its revenue outlook - it was that kind of a day.

TripAdvisor (TRIP) dropped  7% in after-hours trading yesterday after reporting a miss on both earnings and revenue.

Yesterday was the first day Uber (UBER) pre-IPO investors could sell stock which saw an enormous bump in trading volume of roughly 10x the monthly average share volumes.

After today’s market close, investors will be focused on the following earnings reports:

  • Axon Enterprises (AAXN) is expected to report EPS of $0.26 on revenue of $122.7 million.
  • Activision Blizzard (ATVI) is expected to deliver EPS of $0.23 and revenue of $1,154.5 million.
  • Booking Holdings (BKNG) is expected to report EPS of $44.44 on revenue of $5,072.5 million.
  • Dropbox (DBX) is expected to report EPS of $0.11 on revenue of $423.5 million.
  • GoPro (GPRO) is expected to deliver EPS of -$0.48 and revenue of $126.4 million.
  • J&J Snack Foods (JJSF) is expected to report EPS of $1.46 and revenue of $309.5 million.
  • Lions Gate Entertainment (LGF/A) is expected to report EPS of $0.21 and revenue of $908.4 million.
  • Medifast (MED) is expected to deliver EPS of $1.33 on revenue of $194.7 million.
  • Monster Beverage (MNST) is expected to report EPS of $0.54 and revenue of $1,110.8 million.
  • NCR Corp (NCR) is expected to deliver EPS of $0.68 on revenue of $1,622.4 million.
  • News Corp. (NWSA) is expected to report EPS of $0.08 and revenue of $2,393 million.
  • (OSTK) is expected to deliver EPS of -$0.58 on revenue of $376.2 million.
  • PetIQ (PETQ) is expected to report EPS of $0.35 and revenue of $173.2 million.
  • Planet Fitness (PLNT) is expected to deliver EPS of $0.36 on revenue of $162.3 million.
  • (STMP) is expected to deliver EPS of $0.74 and revenue of $123.9 million.
  • TiVo (TIVO) is expected to report EPS of $0.15 on revenue of $149.7 million.
  • TrueCar (TRUE) is expected to report a loss of -$0.03 on revenue of $88 million.
  • Take-Two Interactive (TTWO) is expected to report EPS of $1.70 on revenue of $926.1 million.
  • The Trade Desk (TTD) is expected to deliver EPS of $0.66 and revenue of $164 million.
  • Walt Disney (DIS) is expected to report EPS of $0.97 on revenue of $19,011.1 million.

A complete list of expected earnings reports can be found on Nasdaq’s earnings calendar page

On the Horizon

  • Upcoming IPOs:
    • 36KR Holdings (KRKR), a brand and a pioneering platform dedicated to serving New Economy participants in China. The company has expanded its offerings to business services, including online advertising services, enterprise value-added services, and subscription services.
    • Silvergate Capital Corp (SI), the holding company for Silvergate bank, is expected to price November 7th between $13 and $15 and begin trading on NYSE.
    • GFL Environmental Holdings, Inc (GFL), the fourth largest diversified environmental services company in North America as measured by revenue and its North American operating footprint, is expected to price between $20 and $24 and trade on NYSE.
    • Saudi Aramco (ARMCO) - which is expected to be the largest IPO in history, produces about 1/10th of the world’s crude and is the world’s most profitable company - is set to being trading on the Saudi stock market in early December with the IPO prospectus released on November 10th. 
  • Dates to mark:
      • November 8 - Shenandoah Telecommunications (SHEN) will replace Genomic Health (GHDX) that is being acquired by Exact Sciences in the S&P SmallCap 600 index before the market open. 
      • November 15 - US Retail Sales for October
      • November 19 - Huawei compliance deadline for US companies
      • November 28 - US Stock Market Closed for Thanksgiving Holiday
      • November 29 - Black Friday; US stock market closes at 1 PM ET
      • December 2 - Cyber Monday
      • December 5-6 - OPEC meeting

Thoughts for the Day 

“Don’t sell yourself short.” – Bruce Springsteen

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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