Today’s Big Picture
Last Friday stocks gave back all their earlier gains to leave the major US equity indices lower on the day. The major indices took a hit on Friday in response to the December Employment Report from the Bureau of Labor Statistics that showed nonfarm payrolls rose just 145k in December, well below expectations for 160k with an additional 14k downward revision to the prior two months. Aside from the miss relative to expectations, what we find even more concerning is the retail sector reportedly added 41k new employees for the holiday season, which disappointed outside of online sales. We'll be looking closely for such a reversal in that category inside the January Employment Report.
For the first full week of trading in 2020, the Nasdaq 100 gained 2%, followed by the Nasdaq Composite's gain of 1.8% and the S&P 500's 1% move. Although the major equity indices all closed in the red last Friday, the Dow Jones Industrial Average managed to briefly make a new intraday high, breaking through 29,000. If the Dow can manage to hold that level today, it will be the third new thousand-level mark since the start of 2019.
From an economic data and earnings report perspective, today is poised to be a quiet one, however, several companies are issuing updated guidance ahead of conferences being held this week. We also have a few mergers and other M&A announcements that are leading US equity futures higher alongside Iran having acknowledged it accidentally shot down a Ukrainian passenger jet, which resulted in Iranian citizens protesting against their supreme leader.
Asian equities finished the day's trading on a mixed note, with Hong Kong's Hang Seng Index up 1.1% and China's Shanghai Composite up 0.5%. Those indices were led higher on the news China's Vice Premier Liu He is scheduled to arrive in Washington this week to officially sign the "phase one" trade deal. Despite what looks like a "go" for the signing slated for Jan. 15, President Trump commented, "he has the right" to reinstate tariffs against China if they do not fulfill their commitments. Odds are this is nothing more than last-minute bluster ahead of the ceremony, and we'd point to the positive news the US and China have agreed to semiannual talks to push for economic reform and resolve disputes. Markets in Japan were closed. European equities, as of mid-day trading were also mixed.
With several conferences being held this week (see Dates to mark below) and the velocity of corporate earnings slated to pick up tomorrow when Citigroup (C), JPMorgan Chase & Co (JPM) and Wells Fargo (WFC) report before the opening bell for US equity markets, enjoy what is likely to be the last quiet day in the markets for the near-term.
Data Download
Today is rather light on the economic data front. In Italy, Retail Sales for November fell by 0.2% MoM, missing market expectations for a 0.3% improvement. On a YoY basis, November Retail Sales in Italy rose 0.9%.
In the UK, November Industrial Production slumped 1.6% YoY (-1.2% MoM) a tad worse than the expected decline of 1.4%. Manufacturing Production in the UK dropped 2% on a YoY basis, missing the market forecast calling for -1.7%, marking the biggest annual decline in the data since December 2018. On a positive note, construction output in the UK rose 2% YoY, coming in well ahead of the expected 1.4% increase. The better than expected performance was driven by private industrial activity, housing and to a lesser extent infrastructure.
The only US economic data of note today will be Consumer Inflation Expectations for December from the New York Federal Reserve.
Stocks to Watch
Shares of lululemon athletica (LULU) are trading higher after the company boosted its January quarter EPS guidance to $2.22-2.25 from the prior $2.10-2.13 and the $2.15 consensus forecast. Revenue for the quarter is now expected to be $1.37-1.38, up from the prior guidance of 1.315-1.330 billion and the $1.35 billion consensus. Guidance for comparable sales for the quarter has been lifted to "the mid to high teens on a constant dollar basis" compared to the prior guidance of low double digits.
Full-service restaurant chain Denny's (DENN) reaffirmed its 2019 guidance for adjusted EBITDA in the range of $93-$96 million vs the $95 million consensus and shared its December quarter domestic system-wide same-store sales increased 1.7%. Same-store sales rose 0.5% at company restaurants and 1.8% at domestic franchised restaurants.
Teladoc Health (TDOC) announced it has entered into a definitive agreement to acquire InTouch Health, the leading provider of enterprise telehealth solutions for hospitals and health systems. Teladoc will hold a conference call at 12 PM ET to discuss the transaction.
Samsung Electronics (SSNLF) and Microsoft (MSFT) are set to bring Push to Talk technology back to the market with the Galaxy XCover Pro that will feature a button that initiates a chat using Microsoft's Teams app. We’d note this follows a similar initiative by Apple (AAPL) with its Walkie Talkie app for Apple Watch.
Supply chain management and logistics services company Wesco International (WCC) and Anixter International (AXE), a distributor of enterprise cabling, security, and electronic solutions, announced a merger in which share of Anixter common stock will be converted into the right to receive $70.00/share, 0.2397 shares of WESCO common stock and preferred stock consideration valued at $15.89.
Renewable solar and wind power generation company TerraForm Power (TERP) has received an unsolicited proposal from Brookfield Renewable Partners (BEP) to acquire the 38% of TerraForm's shares Brookfield currently does not own. TerraForm has formed a special committee to review the proposal that includes a BEP-to-TERP exchange ratio equivalent to 0.36.
A new report suggests Boeing (BA) faces some $8 billion in compensation for airlines whose 737 MAX aircraft are grounded or undelivered, with the bill rising by $1 billion every month. Over the weekend, Treasury Secretary Steven Mnuchin said Boeing’s issues could cut 0.5% off of GDP in 2020, putting GDP closer to the lower-end of his forecasted 2.5%-3.0% forecast for 2020.
Meanwhile, Airbus (EADSY) announced its 17th yearly production increase as it delivered 863 commercial aircraft in 2019, including 173 wide-body aircraft.
Hologic (HOLX) shared an updated outlook for its December 2019 quarter with revenues of ~$850.5M vs. its prior guidance of $839-4850 million and the consensus forecast of $839 million. Hologic also announced its Board of Directors approved a new, $500 million share repurchase authorization that will go into effect later this year.
Shaw Communications (SJR) is set to announce its earnings results before the market opens with expectations for EPS of C$0.35 per share for the quarter.
Woodward (WWD) agreed to merge with Hexcel (HXL) in an all-stock transaction that will create an aerospace and defense supplier with more than $5 billion in revenue and almost $1 billion of free cash flow in the first full year. Hexcel shareholders will get a 0.625 share of Woodward common stock for each share of Hexcel stock.
Last Friday Casper Sleep, the direct-to-consumer mattress company filed its initial public offering, seeking to list its common stock on the NYSE under the ticker "CSPR." The company's revenue has grown over 45% annually from 2016 to 2018, generating $358 million in sales in 2018, but its losses have also grown from $73 million in 2017 to $92 million in 2017.
After today's US equity markets close there are no market-moving earnings reports expected. For a more detailed look at upcoming earnings reports, we recommend checking in with Nasdaq’s earnings calendar page.
On the Horizon
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- Upcoming IPOs:
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- Clinical stage biopharmaceutical company I-MAB (IMAB) will offer 7.4 million shares in the $12-$15 range and trade on the NYSE.
- China-based mobile app developer LIZHI (LIZI) targets a 4.1 million share offering in the $11-$13 price range. After the IPO, the shares are slated to trade on the Nasdaq.
- Vertically integrated real estate finance company Velocity Financial (VEL) will look to offer 7.3 million shares in the $14-$16 range and trade on the Nasdaq.
- For a complete list of upcoming IPOs by month, please visit the Nasdaq IPO Calendar.
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- Dates to mark:
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- January 12-14: The National Retail Federation’s NRF 2020 conference
- January 13-16: ICR Conference 2020
- January 13-16: The JPMorgan Chase (JPM) Healthcare Conference
- January 15: President Donald Trump is expected to sign the phase one trade deal with China. While this is expected to be a non-event, if there are any surprises, it could affect the markets.
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- Upcoming IPOs:
Thoughts for the Day
“We won’t be distracted by comparison if we are captivated with purpose.” ~ Anonymous
Disclosures
lululemon athletica (LULU), TerraForm Power (TERP) and Brookfield Renewable Partners (BEP) are constituents in Tematica Research’s Cleaner Living Index.
Microsoft (MSFT) is a constituent in Tematica Research’s Thematic Dividend All Stars Index.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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 has, for over a decade, served as a founding partner of Calit Advisors, a boutique advisory firm specializing in mergers and acquisitions, private capital raise, and corporate finance with offices in Italy, Ireland, and California. She has previously served as the Chief Macro Strategist for Tematica Research, which primarily develops indices for Exchange Traded Products, co-authored the book Cocktail Investing, and is a regular guest on a variety of national and international investing-oriented television programs. 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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