Central Banks

Daily Markets: Why You Should Listen To What The Fed Says

Federal Reserve - Shutterstock photo
Credit: Shutterstock

Today’s Big Picture

Today all eyes will be on the Federal Reserve announcement at 2 PM ET following the conclusion of its two-day Open Markets Committee meeting even as political and geopolitical concerns vie for the center stage during the busiest week of earnings season. With the market seeing more than a 96% chance the Fed will cut interest rates for the third time this year following that meeting, the potential risk to be had will be in the comments on future monetary policy contained in either the issued policy statement or during Federal Reserve Chairman's post-meeting press conference. The latest CNBC Fed Survey showed that while nearly 80% of respondents believe the Fed will cut rates exiting its today, 63% believe the Fed will pause in its rate cuts for the remainder of the year.

In terms of how the domestic stock market has performed following three rate cuts of 25 basis points each, data from LPL offers a reason to be bullish - following three initial 25 basis point cuts in 1975, 1996, and 1998, the S&P 500 has been up 10% a half-year later and 20% over the ensuing twelve months. Granted, the current environment with the US-China trade war and tariffs on Eurozone goods makes this a somewhat different situation, but that historical result reminds us of that Wall Street saying - don’t fight the Fed.

We are seeing potential renewed US-China trade tension as President Trump's demand for China to commit to "big purchases” of US farm products is reportedly becoming a sticking point in phase-one negotiations. Those reports have re-ignited investor concerns that the initial trade agreement between the US and China may not be signed next month as was previously hoped.

As today's Fed day comes and goes, and the pace of September quarter earnings season dies down in the coming weeks, we expect US-China trade will once again be in the center spotlight. And for those that think there isn't enough going on these days, yesterday the House Democrats released an eight-page resolution outlining the process for conducting the impeachment probe into President Trump. So that one isn't going away.

Asian equity indices ended the day on a mostly lower note and ahead of the opening of US equity markets,  major European indices are mixed. Currently, US equity futures are little changed as the market digests the morning’s stream of September quarter earnings - more on that below!

Data Download

Japan's September Retail Sales rose +9.1% year over year, well ahead of the expected +6.9% increase and rebounded sharply compared to +1.8% in August. 

In the Eurozone, France’s September quarter GDP clocked in at 0.3%, modestly ahead of the expected 0.2% while September household Consumption fell 0.4%, missing the consensus forecast of +0.1%.  A mixed bag of data was had in Italy - October Business Confidence came in stronger than expected at 99.6 up from 99.0 in September, but Italian Consumer Confidence slipped in October to 111.7, in-line with expectations, but down from 112.2 in September.  

Looking at the Eurozone in full, October data this morning revealed Business Confidence remained in negative territory but inched up to -0.19 from -0.23 in September, while overall Economic Sentiment dipped to 100.8 from 101.7, missing the expected 101.1 mark. October Industrial Sentiment for the region came in weaker than expected falling to -9.5 from -8.9 the prior month, and October Services Sentiment hit 9.0 down from 9.5 in September. Consumer Confidence for the Eurozone fell 1.1 points month over month to -7.6 in October due to a strong deterioration in household expectations.

Before the US equity market opens today,  ADP will issue its October Employment Change report and the consensus range is calling for 95K-120K jobs to have been created during the month, down from September’s 135K. Soon after that report, the market will receive its first look at US GDP growth for the September quarter. The consensus expectation is 1.6%, down from 2.0% in the June quarter and 3.1% for the March one. 

Stocks to Watch

While investors will likely be waiting on the Fed and its comments to be had later today, here are some of the key earnings reports shaping today's US stock market:

Molson Coors Brewing (TAP) reported September quarter EPS of $1.48, missing the consensus by $0.03; revenue for the quarter fell short of expectations due to declines in all business segments.  The company also announced a restructuring that will see 2020 as a "transition year" that includes consolidating and reorganizing its office locations in a move that is expected to reduce headcount by 400-500 employees. We see this as further confirmation of the changing consumer preference contained inside our Guilty Pleasure investing theme to spirits, wine, and spiked seltzer products from beer.

Yum! Brands (YUM) reported worse than expected September quarter EPS of $0.80, $0.14 below the consensus forecast. Revenue for the quarter fell 3.7% year over year to $1.34 billion a hair below the consensus despite worldwide same-store sales rising 3% for the quarter. Currency was a clear headwind for the company during the quarter as worldwide system sales excluding foreign currency translation grew 8%, with KFC at 8%, Pizza Hut at 7% and Taco Bell at 7%. 

Tupperware (TUP) missed September quarter EPS expectations by $0.20, missed on quarterly revenue expectations and guided 2019 revenue and EPS below consensus forecasts. Local currency sales for full-year 2019 are expected to be down 8%-10% reflecting “difficult consumer trends in key markets.”

Sensor and control company Sensata Tech (ST) reported September quarter EPS of $0.90 per share, in-line with the consensus forecast.  Citing weakness in its end markets that include the automotive and off-road vehicles, Sensata issued downside guidance for the current quarter with EPS of $0.85-0.89 vs. the expected $1.02 and reset revenue expectations to $818-842 million vs. the $872.88 million consensus. Odds are this won’t be the only automotive supplier to roll back its outlook following the General Motors (GMstrike and slumping global automotive demand. 

General Electric (GE) beats expected quarterly EPS by $0.03 with $0.15 per share. Revenue for the quarter was little changed year over year, and the company’s backlog rose 14% year over year to $386 billion. GE reaffirmed its 2019 guidance for EPS of $0.55-$0.65 and boosted its free cash flow forecast to $0-$2 billion, up from -$1 to +$1 billion. 

Sony (SNE) reported September quarter earnings of YEN 148.60 per share, YEN 26.44 better than the YEN122.16 consensus; revenues fell 3.0% year over year to YEN 2122.26 billion, missing the YEN2164.56 billion consensus. Sony also announced it will shut its Playstation Due live television service on January 30, 2020, marking an early casualty as the streaming video service market heats up. 

Today’s the day S&P SmallCap 600 constituent FTI Consulting (FCN) will replace Medidata Solutions (MDSO) in the S&P MidCap 400, and KKR Real Estate Finance Trust (KREF) will replace FTI Consulting in the S&P SmallCap 600, effective before the open of trading.

After the market close, last night AT&T (T) unveiled its HBO Max streaming service that will launch in May 2020 and have a base price of $14.99 per month vs. Netflix (NFLXat $12.00 per month and Disney’s (DIS) Disney+ at 6.99 per month. The company will offer an initial bundle of HBO Max subscription video on demand with AT&T TV Live in 2020, and it will follow up less than a year later in 2021 with an ad-supported HBO Max. 

Citing production issues, Airbus (EADSY) now expects to deliver 860 commercial aircraft this year, still a company record, but below its prior forecast of 880 to 890 aircraft. Another factor investors in aerospace suppliers will need to include in their models and forecasts.

The CEO of Boeing (BA) testified before Congress yesterday and said what investors wanted to hear given shares gained over 2%.

Shares of Beyond Meat (BYND) lost over 18% yesterday, despite having reported bigger profit than expected and revenue that grew 250% from the same quarter last year, as investors anticipated a wave of insider selling as Tuesday was the first time since the IPO that insiders could sell shares. The stock had previously reached an intra-day high of $249.71 in July.

Oil major BP PLC (BP) reported yesterday a sharp drop in third-quarter earnings thanks to weaker oil prices and reduced production, which saw shares lose over 4%. 

Yesterday brought news that Fiat Chrysler Automobiles (FCAU) is talking with french carmaker PSA Group concerning a possible merger.

Trading in shares of Johnson & Johnson (JNJ) were halted late yesterday as the company, which had previously recalled 33,000 bottles of baby powder earlier this month after federal regulators reported finding trace amounts of asbestos, reported that it found no signs of asbestos in the bottles. Shares rose over 3% in after-hours trading.

Shares of Mattel (MATrose over 20% in after-hours trading yesterday after posting better-than-expected earnings and announced it will be hiring a new CFO. The company also reported that auditors have completed their investigation into allegations of accounting errors, finding that income tax expense was understated by $109 million in 3Q 2017 and overstated by the same amount in 4Q of 2017, therefore no full-year impact. The company will amend its 2018 annual report to reflect the changes made to 2017 and will identify the weaknesses that allowed for the errors.

After the closing bell today there will be another mountain of earnings reports:

  • Apple (AAPL) is expected to deliver EPS of $2.83 on revenue of $62.86 billion.
  • Apache (APA) is expected to report a negative EPS of -$0.19 on revenue of $1.433 billion.
  • American Water Works (AWK) is expected to report EPS of $1.30 on revenue of $1.01 billion.
  • Continental Resources (CLR) is expected to report EPS of $0.44 on revenue of $1.08 billion.
  • Columbia Sportswear (COLM) is expected to report EPS of $1.55 on revenue of $884.6.
  • Facebook (FB) is expected to report EPS of $1.86 and revenue of $17.35 billion.
  • Hyatt Hotels (H) is expected to report EPS of $0.33 on revenue of 1.165 billion.
  • Legg Mason (LM) is expected to deliver EPS of $086 on revenue of $721 million
  • Lincoln National (LNC) is expected to report EPS of $2.41 on revenue of $4.466 billion.
  • Lyft (LYFT) is expected to report a loss on EPS of -$0.74 and revenue of $915.2 million.
  • Metlife (MET) is expected to report EPS of $1.40 on revenue of $16.37 billion.
  • MGM Resorts (MGM) is expected to report EPS of $0.32 on revenue of $3.33 billion.
  • Motorola Solutions (MSI) is expected to report EPS of $1.96 on revenue of $1.99 billion
  • Universal Display (OLED) is expected to report EPS of $0.61 on revenue of $85.9 million.
  • Pilgrim’s Pride (PPC) is expected to EPS of $0.44 on revenue of $2.74 billion.
  • Reinsurance Group (RGA) is expected to report EPS of $3.50 on revenue of $3.45 billion.
  • Starbucks (SBUX) is expected to report EPS of $0.70 and revenue of $6.68 billion.
  • Sprouts Farmers Market (SFM) is expected to report EPS of $0.19 on revenue of $1.42 billion.
  • Suncor Energy (SU) is expected to report EPS of $0.71 on revenue of $9.23 billion.
  • LendingTree (TREE) is expected to report EPS of $1.62 on revenue of $295 million.
  • Western Digital (WDC) is expected to report EPS of $0.29 on revenue of $3.92 billion.
  • Zynga (ZNGA) is expected to report EPS of $0.05 on revenue of $331 million.

And that is just a sampling of companies reporting this afternoon!

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 will begin trading on the Nasdaq Friday.
    • LGL Systems Acquisition (DFNSU), a blank check company led by Marc Gabelli and the co-founder of L3 Technologies targeting the aerospace and defense industries, is expected to offer 12.5 million shares at $10 per share and will be trading on the Nasdaq.
    • Leaping Group Co., LTD (YZCM), a Shenyang, China-based multimedia service provider that operates the largest pre-movie advertising network in Heilongjiang and Liaoning, is expected to begin trading on Nasdaq Capital on October 31st at a share price of $5.00.
    • Merida Merger I (MCMJU), a blank check company formed by Merida Capital Partners targeting the cannabis industry, is expected to offer 10 million shares at $10 a share and will be trading on the Nasdaq.
    • Osprey Technology Acquisition (SFTW.U), a blank check company led by Edward and Johathan Cohen targeting the tech industry, is expected to begin trading on NYSE this week, offering 25 million shares to be priced at $10 a share.
    • Oyster Point Pharma, Inc. (OYST), a clinical-stage biopharmaceutical company that is focused on the development of treatments for ocular surface disease, is expected to start trading on Nasdaq Global on October 31st at a share price between $16 and $18.
  • Dates to mark:
      • October 30-31: Bank of Japan policy meeting
      • November 1: Monthly US Employment Report (likely a throw-away report given the impact of the GM strike will add a lot of noise to the numbers), ISM Manufacturing Report and October Caixin China General Manufacturing PMI
      • November 4: Tokyo Stock Exchange Closed

Thoughts for the Day 

In honor of this afternoon’s earnings release,  “Facebook just sounds like a drag, in my day seeing pictures of peoples vacations was considered a punishment.” – Betty White

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

In This Story

AAPL FB SBUX LYFT GM BA MAT

Other Topics

Markets Earnings

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' 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