Daily Markets: Why One Company Is Calling For Stormy Clouds Ahead
Today’s Big Picture
With the news earlier this week that third-quarter GDP was just 1.9%, not as bad as some expected, but certainly not robust and with the Federal Reserve signaling it is likely on hold for more cuts until "significant" signs of economic weakness emerge, the market will be primarily focused on today's October Jobs Report. We caution though that there will be an awful lot of "noise" in the report thanks to the strike at GM (GM). Today also brings two reports that will show how the US manufacturing economy fared during October, and much like the October Jobs Report, those two reports will probably feel the pinch of the recent GM strike. New order data contained inside those manufacturing PMI reports will likely shape domestic manufacturing expectations for the balance of the year, shaping GDP expectations along the way.
Yesterday was more trick and less treat as fears concerning lack of progress in the ongoing trade wars dominated the markets. Adding to geopolitical tension late yesterday, Secretary of State Mike Pompeo imposed new sanctions on Iran and extended nuclear restrictions. If you're thinking we could once again see some trade headlines later today and over the weekend, we are inclined to agree with you. The same goes for the US presidential impeachment inquiry. Stay tuned.
And with yesterday's market close, we shut the books for October. For the first month of the December quarter, all five major stock market indices marched higher. Leading the path was the Nasdaq 100 that rose 4.3%, and was followed by the Nasdaq Composite Index that climbed 3.7%. Rounding out the top three was the Russell 2000 and its 2.6% move for October, with the S&P 500 not too far behind with its 2.0% return while the Dow Jones Industrial Average limped behind, rising 0.5% for the month.
As we get underway for the month of November, Asian equity markets were mostly higher on the day following better than expected October manufacturing data in China (see below). Major European indices are looking to end the week on a higher note and US equity futures are pointing to a positive open ahead of the day’s economic data (again, see below).
Before we get to the data and other items that will shape today’s US markets, we’ll wish everyone a wonderful and restful weekend, especially those dealing with either the California wildfires or the fallout from last night’s severe thunderstorms that hit the US’s Eastern Seaboard. Why restful you ask? Because next week more than 1,200 companies will be reporting quarterly results.
Overnight the Jibun Bank Japan Manufacturing PMI for October came in slightly below expectations for 48.5 at 48.4 and 48.9 in September, hitting a 40-month low. This latest survey data pointed to a marked decline in new orders placed, which suggests a rebound in November is rather unlikely. South Korea also saw its Markit Manufacturing PMI weaker than the expected 48.5 at 48.4, up from September’s 48. September Retail Sales in Hong Kong fell 18.3% year over year as protesters continue to impact the economy and tourism.
China’s October Caixin General Manufacturing PMI came in 51.7 vs. expectations for 51.0 and September’s 51.4 reading. The report's new order subindex rose to its highest level since January 2013, which included a reported sharp increase in new export orders as well.
There are three major reports two for the domestic economy on tap today - the Labor Department’s October Jobs Report, the October Markit Manufacturing PMI and the ISM October Manufacturing PMI. US October Non-Farm payrolls are expected to fall from 136K in September to 75K-90K with the unemployment rate rising slightly to 3.6% from 3.5%. We’ll be focusing on hours worked and average weekly & hourly earnings to get a feel for how the all-important consumer is doing. The ISM Manufacturing PMI reading for October is forecasted to rebound to 48.9 from September’s 47.8, hitting a third consecutive month of contraction. In that report as well as the October Markit Manufacturing PMI, we’ll be focusing on new order activity as a gauge for what lies ahead for the domestic manufacturing economy.
As these reports and others from this week are digested by the market and investment community, investors will want to visit with Atlanta Fed and New York Fed to see how their respective December GDP forecasts may have changed. Heading into that data, the Atlanta Fed’s GDPNow reading for the December quarter is 1.5%, while the New York Fed’s Nowcast Report is forecasting 0.9%.
Stocks to Watch
While we have another pile of companies reporting this morning before the open, only one company, Credit Acceptance Corp (CACC) is expected to report after the close with analysts looks for EPS of $8.90 on revenue of $380.7 million.
Colgate-Palmolive (CL) beat Non-GAAP consensus EPS for the September quarter by $0.01, but modestly missed revenue expectations for the quarter despite rising 2.1% year over year. The company is the latest to bang the currency headwind drum sharing it continues to "expect 2019 net sales to be flat to up low-single-digits, with organic sales now expected to be up between 3% and 4%. And for all those players of Trivial Pursuit, Colgate remains a leader in the global toothpaste market with a self-reported market share of 41.2%.
Alibaba (BABA) beat top and bottom line September quarter expectations with EPS of RMB 13.10 vs. the consensus of RMB 10.68 and revenue that rose 39.8% year over year to RMB 119.02 billion vs the RMB 116.51 billion consensus. Annual active consumers reached 693 million, an increase of 19 million quarter over quarter. The number of mobile monthly active users (MAUs) on Alibaba’s China retail marketplaces hit 785 million exiting September, up 30 million over the three-month period.
Shares of global insurance company American International Group (AIG) are falling in pre-market trading after its September quarter results missed the lowest Wall Street forecast.
Chemical product and ammunition company Olin (OLN) missed September quarter expectations on both the top and bottom line and sees the challenging demand and price environment for its Chlor Alkali Products, and Vinyls and the Epoxy businesses continuing through the current quarter.
Electric gas and utility company Fortis (FTS) delivered September quarter earnings of $0.66 per share, $0.16 better than expected and shared it targets average annual dividend growth of roughly 6% through 2024.
The Macau Gaming Inspection and Coordination Bureau reported October gross revenue fell 3.2% year over year to HKD 26.4 billion. Casino and gaming stocks to watch on that news include Wynn Resorts (WYNN), Las Vegas Sands (LVS), Sands China Ltd. (SCHYY), Melco Resorts & Entertainment (MLCO) and MGM Resorts International (MGM).
Shares of Arista Networks (ANET) dropped more than 20% yesterday in after-hours trading after giving guidance on its 4th quarter revenue of $540 million to $560 million versus expectations for $686 million. The decline is attributed to a “sudden softening in Q4 with a specific cloud titan customer.” The customer was not specifically named. The news saw rival Cisco System (CSCO) shares fall nearly 2% in apparent sympathy.
Avis Budget Group (CAR) shares lost over 10% yesterday in after-hours trading after the company missed on both revenue and EPS and lowered revenue outlook. The company generated $2.75 billion in revenue, versus expectations for $2.85 billion, with EPS of $2.96 versus $3.64 expected. Full-year revenue outlook was $9 billion to $9.2 billion, below its prior $9.2-$9.5 billion target.
Shares of Chinese biotech Beigene (BGNE) rose more than 30% yesterday in after-hours trading after Amgen Inc (AMGN) announced that it is investing more than $2.7 billion in the company by paying BeiGene shareholders $172.85 per share, a 25% premium to Wednesday's closing price. Amgen's share price was unchanged on the news.
Oyster Point Pharma, Inc. (OYST), a clinical-stage biopharmaceutical company that is focused on the development of treatments for ocular surface disease started trading on Nasdaq Global yesterday with an initial share pricing of $16.
Pinterest (PINS) shares lost nearly 20% in after-hours trading yesterday, having already lost 3% during the trading day, after reporting disappointing September quarter results. EPS came in at $0.01 versus expectations for a loss of -$0.04with revenue of $279.7 million versus expectations for $280.6 million and average revenue per user of just $0.90 versus expectations for $0.91. The company's full-year 2019 guidance of $1.1 billion to $1.115 billion in sales was below expectations for $1.12 billion. The company's lockup period recently expired which may have also added to selling pressure.
Shares of technology and RF solutions company Qorvo (QRVO) traded higher in aftermarket trading last night following September quarter results that crushed EPS expectations as margins and revenue exceeded consensus forecasts. The company shared it is winning "significant content in 5G smartphones" and sees rising 5G infrastructure demand.
Rapt Therapeutics Inc (RAPT), a clinical-stage immunology-based biopharmaceutical company focused on discovering, developing and commercializing oral small molecule therapies for patients with significant unmet needs in oncology and inflammatory diseases began trading yesterday on the Nasdaq Global Market. Its initial public offering of 3,000,000 shares of common stock was initially priced at $12.00 per share.
Telephone and Data Systems (TDS) beat the higher-end September quarter revenue estimates
United States Steel Co (X) gained more than 4% in after-hours trading yesterday after beating on third-quarter earnings, reporting a loss of -$0.21 compared to expectations for a loss of -$0.29. Revenue was also a beat at $3.07 billion versus expectations for $3.05 billion.
On the Horizon
- Upcoming IPOs:
- Fangdd Network Group (DUO), an online real estate marketplace in China, is expected to offer 7 million shares at a price between $13 and $15 and expected to begin trading on the Nasdaq today.
- Finserv Acquisition Corp (FSRVU), a newly organized blank check company formed as a Delaware corporation for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses, is expected to offer 20 million shares at $10 a share and begin trading today on Nasdaq Capital.
- 89BIO, Inc (ETNB), a clinical-stage biopharmaceutical company focused on the development and commercialization of therapies for the treatment of liver and cardio-metabolic diseases, is expected to offer 4.3 million shares priced between $15 and $17 and begin trading on the Nasdaq Global on November 6th.
- Dates to mark:
- November 4: Tokyo Stock Exchange Closed
Thoughts for the Day
“Youth is like a long weekend on Friday night. Middle age is like a long weekend on Monday afternoon.” - Richard Nelson Bolles