Monday, October 15, 2018
U.S. stock futures are lower, following weakness in Asia overnight though Europe has rebounded with several factors weighing on sentiment ahead of a busy week of corporate earnings, with Trump, Brexit, Saudi Arabia and EU/Italy budget concerns all among concerns leading stocks lower and defensive assets such as gold higher. President Donald Trump, in a CBS 60 Minute interview last night, threatened to impose another round of tariffs on China and warned that Chinese meddling in U.S. politics is a bigger problem than Russian involvement in the 2016 election. Also over the weekend, we saw a breakdown in Brexit with the EU/UK talks, the disappearance of dissident Saudi journalist Jamal Khashoggi leading to increased tensions between the US and Saudi Arabia as prominent individua’s have pulled out of a Saudi investment conference and the impasse over Italy’s budget. In Asian markets, The Nikkei Index dropped -423 points to settle at 22,271, the Shanghai Index dropped -38 points (1.5%) to finish at 2,568 and the Hang Seng Index declined -356 points to settle at 25,445. In Europe, the German DAX is up around 30 points at 11,560, while the FTSE 100 is flat trading around the 7,000 level. As for last week, the Dow Jones Industrial Average ended with a 4.2% loss, the S&P 500 fell 4.1%, while the Nasdaq booked a weekly skid of 3.7% (though marked its best single-day gain since March 26 on Friday).
Oil prices are firmly higher amid rising tensions between the U.S. and Saudi Arabia over a missing journalist. In an interview on Sunday, U.S. President Donald Trump threatened “severe punishment” if an investigation finds the kingdom in any way involved in the disappearance of dissident Saudi journalist Jamal Khashoggi, who was last seen entering the Saudi consulate in Istanbul on Oct. 2. Meanwhile, international backlash against the Saudis over the missing journalist was ramping up, as Ford Motor Co. (F)Chairman Bill Ford and JPMorgan Chase & Co. (JPM) CEO Jamie Dimon became the latest big names to drop out of a major investment conference in Saudi Arabia.
Market Closing Prices Yesterday
· The S&P 500 Index jumped 38.76 points, or 1.42%, to 2,767.13
· The Dow Jones Industrial Average rose 287.16 points, or 1.15%, to 25,339.99
· The Nasdaq Composite surged 167.83 points, or 2.29%, to 7,496.89
· The Russell 2000 Index advanced 1.30 points, or 0.08% to 1,546.68
· 8:30 AM EST Empire Manufacturing Index for Oct…est. 20.0
· 8:30 AM EST Retail Sales MoM for September…est. 0.6%
· 8:30 AM EST Retail Sales ex: autos MoM for September…est. 0.4%
· 10:00 AM EST Business Inventories for Aug…est. 0.5%
· Earnings Before the Open: BAC, SCHW
· Earnings After the Close: JBHT, QNTA, RIO
· Negotiations over the UK departure from the European Union suffered a setback Sunday as the two sides failed to resolve differences, chiefly over how to avoid the re-emergence of a physical border in Ireland. Both sides had hoped that a deal on a withdrawal agreement would be broadly settled when EU leaders meet at a summit starting Wednesday. The setback is likely to reawaken concerns of a no-deal Brexit as it reduced chances for a deal this week.
· Investors looking to protect their portfolios as interest rates rise and stocks turn volatile should sell stocks and bonds and hold more cash and assets such as gold, Barron’s reported
· Several high-profile individuals have pulled out of the Saudi investment conference the last few days, including JPMorgan (JPM) CEO Jamie Dimon, Ford (F) Chairman Bill Ford, BlackRock’s Larry Fink among them as in response to
· Saudi Arabia has begun an internal investigation into the disappearance of a prominent journalist at its Istanbul consulate and could hold people accountable if the evidence warrants it according to reports
· North and South Korea agreed on Monday to begin reconnecting rail and road links, another step in an improving relationship
Sector News Breakdown
· Sears Holdings Corp. (SHLD) filed for bankruptcy protection from creditors early Monday, reaching a deal with its lenders that will allow the company to keep hundreds of its stores open for now.
· Anheuser-Busch InBev (BUD) shares have dropped 24% drop this year to $84 per share, putting shares back where they were six years ago noted Barron’s (down from all-time high of $133 in Sept 2016). The decline could offer an opportunity for double-digit returns for patient, income-oriented investors,” making it a Barron’s Pick.
· American Eagle (AEO) and Lulu Lemon (LULU) were both upgraded to Outperform from Neutral at Wedbush
· U.S. oil benchmark gained for the session Friday, but posts weekly loss is first in five weeks
· Natural gas prices could be volatile going into the winter heating season said Barron’s, with U.S. supplies nearly 18% below the five-year average for this time of year — sending prices for the commodity to their highest levels since January. The United States National Gas Fund (UNG), which tracks the commodity, has reached a one-year high
· Bank of America (BAC) and Schwab (SCHW) are both expected to report earnings this morning
· There are ways for investors to take advantage of rising interest rates, including by buying bank stocks according to Barron’s. The three biggest consumer banks, JPMorgan Chase (JPM), Wells Fargo (WFC) and Bank of America (BAC), should benefit from higher rates because they’ve been growing deposits more quickly than the rest of the industry.
· Insurance sector: Residential and commercial properties in Florida sustained between $3 billion and $5 billion in damage, including from storm surge and wind, according to an estimate out late Friday from real estate data provider CoreLogic
· PayPal (PYPL) increased a Venmo fee to stem unit’s losses, prompting backlash from users on social media; Barron’s says investors will be searching for strong fundamental indicators as tech companies report earnings
Industrials & Materials
· Harris (HRS) and L3 Technologies Inc. (LLL) announced plans to combine in the largest-ever defense merger, reacting to Pentagon efforts to get companies to boost investment and speed the development of weapons
· L3 Technologies (LLL) Q3 EPS $2.85/$2.5B vs. est. $2.41/$2.5B; raises FY18 adjusted EPS view to $10.20-$10.30 from $9.80-$10.00 and sees FY18 revenue between $10B-$10.2B vs. est. $10.17B
· Harris (HRS) Q1 adjusted EPS $1.78/$1.5B vs est. $1.71/$1.52B; raises FY19 EPS $7.80-$7.90 vs est. $7.84 and sees FY19 revenue growth 6%-8%, in a range of $6.53B-$6.65B vs. est. $6.63B
· Steel stocks downgraded at Credit Suisse: the U.S. steel sector was cut to market weight and downgraded Cleveland-Cliffs (CLF), Steel Dynamics (STLD), and Nucor (NUE) to Neutral from Outperform
· Air Lease (AL) announced the delivery of one new Boeing (BA) 737-8 MAX aircraft on lease to S7 Airlines, operated by Globus Airlines
Technology, Media & Telecom
· Carl Icahn disclosed that he has boosted his stake in shares that track Dell Technologies Inc.’s (DVMT) interest in VMware Inc. (VMW) to 8.3%. He said in a letter that he plans to vote against Dell Technologies’ plan to buy the stock https://on.mktw.net/2yDecGx
· Walt Disney (DIS) has offered concessions in an attempt to allay EU antitrust concerns over its $71.3 billion bid for Twenty-First Century Fox Inc’s (FOXA) entertainment assets, the European Commission said
· Barron’s noted Dell’s $21.7 billion offer for a “tracking stock” is running into resistance from high-profile investors including BlackRock, Paul Singer and Carl Icahn. Closely held Dell Technologies received an 81% interest in VMware (VMW) when it bought EMC in 2016, and offered the tracker to EMC holders as compensation. VMware is now valued at $60 billion
· Photronics (PLT) announces $25M share repurchase program