Daily Markets: Getting Ready for Apple, Amazon to Report Earnings

Today’s Big Picture

It was red across the board today for the major equity indices in Asia-Pacific, led by China’s Shanghai Composite, which fell 1.2%. Japan’s Nikkei 225 dropped 1.0%, South Korea’s Kospi lost 0.5%, Hong Kong’s Hang Seng closed 0.3% lower, and Australia’s ASX 200 lost 0.3%. By midday trading, the major European equity indices were mixed, and U.S. equity futures point to modest gains at the open.

This morning brings a sea of quarterly earnings reports across a wide swath of sectors, giving investors a clearer picture as to how supply chain bottlenecks, shortages, and rising input costs are impacting corporate bottom lines. Soon after the market opens, we’ll get the first look at 3Q 2021 GDP, and as we discuss below, forecasts are all over the map. With the Fed’s next monetary policy meeting on deck next week, and expectations for it to announce the start of bond tapering, the 3Q 2021 GDP print is likely to be a factor in determining how large its initial move will be. After the market close, it’s more earnings fun from heavy-hitters like Amazon (AMZN) and Apple (AAPL). Lucky for everyone, tomorrow is Friday, and the weekend is in sight!

Data Download

International Economy

The big news for today on the international front will be the European Central Bank’s policy decisions coming out later this morning which are expected to see a slightly slower pace of net asset purchases while keeping rates steady.

Japan’s Retail Sales in September declined less than expected at a -0.6% YoY pace after falling 3.2% YoY in August and compared to expectations for a -2.3% YoY contraction. The Bank of Japan left its key short-term interest rate unchanged at -0.1% and left the 10-year government bond yield target at around 0% during its October meeting, as was expected. The central bank cut its projected growth for the economy for the current fiscal year to 3.4% from forecasts of 3.8% back in July. Inflation was also revised downward to fit from earlier forecasts of 0.6%. For FY 2022, the Bank of Japan revised its GDP expectations from 2.7% to 2.9% as vaccinations accelerate and left consumer inflation unchanged at 0.9%.

Spain’s preliminary inflation rate for October rose to 5.5% from 4% in September, blowing away expectations for an increase to 4.5%. The nation’s unemployment rate in Q3 dropped less than expected to 14.6% from 15.3% in Q2, versus expectations for a decline to 14.2%.

Germany’s unemployment rate in October fell as expected to 5.4% from 5.5% in September.

Italy’s Consumer Confidence in October fell slightly more than expected to 118.4 from 119.6 in September, from which it was expected to slow to 118.5. Business Confidence, on the other hand, came in stronger than expected, rising to 114.9 from 113, from which it was expected to drop to 112.2.

Consumer Confidence in the Eurozone in October fell as expected to -4.8 from -4 in September, from which it was expected to worsen to -4.8. The region’s Economic Confidence Indicator came in stronger than expected at 118.6 for October vs. the expected drop to 116.8 and September’s 117.8 reading.

This morning the UK and Europe got some welcome news from Russian President Putin, who ordered the state-run Gazprom to begin filling natural gas storage on the European continent starting November 8. His announcement led the UK benchmark for natural gas prices for both November and December delivery to drop nearly 10%. Earlier this week the FT reported that Gazprom’s largest storage site in Germany, which is also one of the biggest on the European continent, is less than 10% full while its largest facility in Austria is only around 20% full.

Domestic Economy

Yesterday’s Durable Goods Orders fell less than expected, declining 0.4% MoM in September, down from the 1.3% gain in August, but less than the expected -1.1% decline. Core capital good expenditures led the charge are at a record high, and rising at an 11.3% annualized pace year-to-date. Ex Transports orders were up 0.4% MoM, as expected, after August’s 0.3% pace. If we average out 2020 and 2021, they have seen a faster sales pace than any of the years on record, and 2021 is even stronger than 2020.

Yesterday, the U.S. Census Bureau reported advance retail inventories and the goods trade balance. Imports of consumer goods have fallen 5.3% from the March peak and are down sequentially with retail inventories down 0.2% in September versus expectations for a 0.2% increase. On the other end of the spectrum, imports of capital goods are at record highs and up sequentially.

The Senate Democrats' plan to impose a tax on billionaires collapsed yesterday, further threatening negotiations over President Biden’s now $2 trillion spending package. The White House and Congressional Democrats are reportedly now looking at other ways to tax the wealthiest households, including a 3% surtax from those earning $10+ million. President Biden is expected to announce framework agreement for budget reconciliation bill today as well as meet with House Democrats to try to convince House progressives to vote for a bipartisan infrastructure bill.

The National Retail Federation forecasts U.S. holiday sales to increase 8.5%-10.5% to $843.4 -$859 billion during November and December this year compared with a previous high of $777.3 billion last year.

Later today we will get the first estimate for Q3 GDP, Weekly Jobless Claims, and Pending Home Sales. The consensus estimate puts Q3 at 4% growth following the 6.7% pace in Q2, but the Atlanta Fed’s GDPNow puts it at 0.2%. This quarter the range of estimates is one of the widest we’ve seen in a while, a testament to the truly unique nature of the current economy.

Markets

Yesterday stocks struggled to hold onto their gains. The Nasdaq 100 managed to close with a 0.25% gain and the Nasdaq Composite closed up by less than 1 basis point, but the S&P 500, Dow, and Russell 2000 all ended the day in the red, down 0.5%, 0.7%, and 1.9% respectively. The Nasdaq Composite has been on a solid winning streak, closing in positive territory nine of the last eleven trading days. Energy was the worst-performing sector as crude oil dropped 2.4%, its worst day since early August. Consumer Discretionary was the only S&P 500 sector to close in positive territory.

The yield curve is flattening, putting pressure on financials and the Dow as the 2-year U.S. Treasury yield rose to 0.491%, a new 52-week high, but the 10-year yield dropped 7 basis points to 1.528%, its biggest 1-day drop since July. Gold rose 0.3% and bitcoin dropped below $59,000 late in the day.

Stocks to Watch

In reaction to its third-quarter earnings, a multi-decade rivalry is back on. Microsoft (MSFT) shares rose 4.2% yesterday, threatening to replace Apple as the world’s largest company. As of yesterday’s close, Apple’s market cap sits at $2.46 trillion versus Microsoft at $2.43 trillion.

Earnings Announcements & Guidance

Before U.S. equity markets open this morning, Caterpillar (CAT), Check Point Software (CHKP), Comcast (CMCSA), Hershey Foods (HSY), Mastercard (MA), Northrop Grumman (NOC), Shopify (SHOP), and Yum! Brands (YUM) will be among those reporting their quarterly results.

Yesterday Ford (F) announced results that beat the highest EPS estimate by a whopping 21% and reported automotive revenue that was 5.2% higher than forecasts. The company also raised the full-year EBIT guidance by 16% and announced its dividend would be reinstated for Q4. While commenting that semiconductor supplies remain challenging, the company did say that the situation had markedly improved from Q2. Ford also shared it sees a $3+$3.5 billion headwind this year due to commodity prices, primarily for steel and aluminum, with up to another $1.5 billion headwind in 2022. It also sees the chip shortage extending through 2022 and possibly into 2023.

In contrast to Ford’s results, Volkswagen (VLKAF) reported pre-tax profits that took a nearly €500 million hit thanks to the semiconductor crisis. Profits fell nearly 15% in Q3, to €3.1 billion versus slightly more than €3.6 billion in. Q3 2019.

Teladoc (TDOC), a major beneficiary of the lockdowns, reported a 1% beat on revenue that was up 81% YoY in the third quarter and adjusted EBITDA that came in a touch above forecast. On the downside, the company’s guidance for EBITDA in Q4 was 9% below expectations.

The world’s largest brewer Anheuser-Busch InBev (BUD) rose past pre-pandemic levels in the third quarter as consumers opted for the company’s more expensive brands. The combinations of the volume of drinks sold rising 3.4%, versus an expected decline, on top of the switch to more premium brands saw revenues rise 7.9%. The company raised guidance for the year with a 6.1% increase in profits to $1.7 billion for the quarter. Management opted to forgo paying out an interim dividend in favor of paying off debt and building up reserves to counter any further pandemic hits.

Dan Loeb’s Third Point activity hedge fund is pressuring Royal Dutch Shell (RDS.A), in which it has built a $750 million stake, to break itself up, accusing the company of having an incoherent strategy. Loeb is looking for the company to split into multiple standalone companies that include a legacy oil and gas business that could slow Capex even further than what has already been planned. The company reported lower than expected earnings for the third quarter despite soaring fossil fuel prices. Adjusted net profit for the company’s third-quarter fell to $4.1 billion for the prior quarter’s $5.5 billion. Cash flow from operations, excluding working capital, hit a record $17.5 billion, the company’s highest ever, driven by the company’s integrated gas business and commodity derivatives. The company pledge to reduce absolute emissions from operations by 50% by 2030 compared to 2016 levels.

Hertz Global Holdings (HTZZ) shared it is linking up with Uber Technologies (UBER) to make 50,000 Tesla (TSLA) EVs available in Uber’s ride-sharing network by 2023.

IPOs

Yesterday semiconductor chipmaker GlobalFoundries (GFS) raised nearly $2.6 billion in its IPO, selling 55 million shares priced at the top of the marketed range $42-$47 range, giving it a market cap of over $25 billion. This was the third biggest IPO on a US exchange this year, excluding black-check and similar companies. The company is the result of the manufacturing operations of Advance Micro Devices (AMD), purchased in 2009 and later combined with Singapore’s Chartered Semiconductor.

AirSculpt Technologies (AIRS) cuts the size of its IPO offering to 7.0 million shares and reduced its targeted price range to $11-$12. The offering originally was set for 10 million shares in the $15-$17 range.

For more, visit Nasdaq’s Latest & Upcoming IPOs page.

M&A Activity

FirstCash (FCFS) entered into a definitive agreement to acquire American First Finance, a virtual lease-to-own and retail finance provider focused on underserved, non-prime customers.

After Today’s Market Close

Hang onto your hats! Amazon (AMZN), Apple (AAPL), Deckers Outdoor (DECK), Gilead Sciences (GILD), Skechers USA (SKX), Starbucks (SBUX), US Steel (X), and a slew of others are slated to report their quarterly results. Those looking to get a jump on the earnings reports to be had in the coming days should visit Nasdaq’s earnings calendar page.

On the Horizon

• October 29: Personal Income & Spending, PCE Price Index, Employment Cost Q3, Chicago PMI, Michigan Consumer Sentiment
• November 1: Markit and ISM Manufacturing PMIs, Construction Spending
• November 2: Total Vehicle Sales, IBD/TIPP Economic Optimism, API Crude Oil Stock
• November 3: ADP Employment Change, Markit Services & Composite PMIs, ISM Non-Manufacturing & Composite PMIs, Factory Orders, Federal Reserve Interest Rate decision
• November 4: Balance of Trade, Unit Labor Costs, Nonfarm Productivity, weekly jobless claims
• November 5: Non-Farm Payrolls, Unemployment Rate
• November 9: PPI, API Crude Oil stock change
• November 10: Inflation, Weekly jobless claims, Wholesale inventories, EIA Crude and Gasoline stocks, Monthly budget statement
• November 12: JOLTs report, Michigan Consumer Sentiment

Thought for the Day

“A person should always choose a costume which is in direct contrast to her own personality.” – Lucy Van Pelt in It’s the Great Pumpkin, Charlie Brown

Disclosures

• Check Point Software (CHKP) is a constituent of the Foxberry Tematica Research Cybersecurity & Data Privacy Index
• XXX is a constituent of the Foxberry Tematica Research Sustainable Future of Food Index
• Tesla (TSLA) is a constituent of the Tematica BITA Cleaner Living Index
• Tesla (TSLA) is a constituent of the Tematica BITA Cleaner Living Sustainability Screened Index
• Mastercard(MA) is a constituent of the Tematica BITA Digital Payments & Fintech Sustainability Screened Index
• Microsoft (MSFT) is a constituent of the 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.

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