Today’s Big Picture
The flight to safety trade reversed mid-day yesterday and is continuing this morning even though Bloomberg is reporting Iran considering thirteen response scenarios to the death of Qassem Soleimani. President Trump yesterday threatened 52 sites for retaliation against Iran, including some of cultural significance, and sanctions on Iraq. Mr. Market is back to being unimpressed.
Asian equities closed higher across the board led by the 1.6% climb in Japan’s Nikkei index despite the country’s December Services PMI falling into contraction territory (See today’s Data Download for more). European equities were also higher by mid-day trading and US equities imply a modest positive move when the market opens. Oil futures and gold are both down while the US Dollar index is marginally higher.
Despite yesterday’s negative start, the major equity indices managed to reverse their earlier losses. The Nasdaq 100 led the way, gaining 0.56% on the day despite intensifying rhetoric concerning Iran. Even the CBOE S&P 500 Volatility Index couldn’t maintain its gains, rising to 15.8 in the early hours of trading on the close at just 13.9. Perhaps the Fed’s $76.9 billion repo injection yesterday didn’t hurt?
Data Download
In contrast to the trend for stronger services PMI we’ve been seeing around the world, Japan’s Bank Services PMI for December was weaker than expected at 49.4 from 50.3 earlier, well below the expected increase to 50.6. Composite PMI was also weaker at 48.6 compared to the expected 49.8.
Core Inflation in the Eurozone (YoY Flash) came in as expected, remaining flat at 1.3%. Overall Flash Inflation rose as expected to 1.3% from 1% in November. Retail Sales in the region were stronger than expected, rising to 2.2% YoY in November from 1.7% previously, much better than the 1.3% expected. Retail Sales in France also improved, rising to 2.6% YoY in November from 1.6% previously. Italy's Harmonized Preliminary Inflation Rate rose as expected to 0.5% YoY from 0.2%.
Turning to the US, later today we’ll receive the November Factory Order data, which is expected to rebound compared to October, and the December ISM Non-Manufacturing PMI Index, for which the consensus calls for a month over month slowdown in the still growing service economy. Much like the monthly ISM Manufacturing Index, the December take on the services economy will be a meaningful factor in December 2019 quarter GDP revisions.
Stocks to Watch
With CES 2020 officially kicking off today, we expect a flurry of new product and service announcements to be had over the coming days. With technology bleeding out of traditional sectors and bleeding into ones like automotive, healthcare and banking, we are likely to see a more diverse set of announcements in the coming days compared to that from prior CES events. For example, chip company Qualcomm (QCOM) announced a new Car-to-Cloud service that helps car companies connect their cars to their cloud for updates and gathering analytics. Qualcomm also announced that it will continue its collaboration with General Motors (GM) for digital cockpits, telematics, and advanced driver-assistance systems on current and upcoming vehicles.
Separately, General Motors announced it will suffer a prolonged sales slowdown this year in China, the world's biggest auto market, as it contends with heightened competition in its key mid-priced SUV segment and trade war fallout. Meanwhile, Elon Musk was in China as Tesla (TSLA) delivered its first China-made Model 3 sedan.
After last night’s close, both Microchip (MCHP) and InterDigital (IDCC) boosted their December quarter expectations.
- InterDigital now sees December quarter revenue between $92-$100 million vs. the $88.3 million consensus forecast.
- Microchips updated forecast calls for quarterly revenue between $1.281-$1.288 billion, up from $1.244-$1.298 billion last month. The company cites better than expected December bookings and billings for the quarter as the reason for the improved outlook.
This morning fabless semiconductor company Himax Tech (HIMX) did the same as it boosted its December 2019 quarter revenue expectations. The company now sees December quarter revenue near $174.9 million vs. the $163.9 million consensus.
Following nine quarters of declining sales and unexpectedly reporting a same-store sales decline of 11.4% for its latest quarter, Pier 1 (PIR) has announced it will close up to 450 locations, nearly half of its 942 stores.
Beyond Meat (BYND) rival, Impossible Foods announced it will introduce meatless ground pork and sausage in 2020, which could improve its position in China, the largest market for pork consumption.
Starbucks (SBUX) is embracing aspects of Tematica’s Cleaner Living investment theme as it introduces oat milk to 1,300 locations in the Midwest. The company is also adding two dairy free drinks to its US and Canadian menu - the Almond Milk Honey Flat White and the Coconut Milk Latte.
The continued consumer adoption of nut milk and other alternatives, also part of the Tematica Cleaner Living theme, is taking its toll on the US dairy industry. In December Dean Foods (DFODQ) declared bankruptcy and yesterday Dallas based dairy producer Borden filed for Chapter 11 bankruptcy.
The impact from Boeing’s (BA) 737 MAX continues to be felt with Spirit AeroSystems (SPR) announcing voluntary layoffs due to the “ "clarity on the timing for resuming MAX production or a firm production rate schedule when it does resume."
Goldman Sachs (GS) has disclosed it will amend its reporting business segments with its December 2019 quarterly results. The company’s prior reporting structure was: Investment Banking, Institutional Client Services, Investing & Lending, and Investment Management. Beginning with the December 2019 quarterly results, the new segmentation will be: Investment Banking, Global Markets, Asset Management, and Consumer & Wealth Management. Investing & Lending results are now included across the four segments.
After today’s US equity markets close today, there are no expected earnings reports to be had. As we inch closer to the start of the December quarter earnings season next week, investors should be on watch for both positive as well as negative earnings pre-announcements.
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:
- There are no IPOs scheduled for this week but in the coming weeks
- For a complete list of upcoming IPOs by month, please visit the Nasdaq IPO Calendar.
- Dates to mark:
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- January 7-10: 2020 International CES
- January 15: President Donald Trump is expected to sign the phase one trade deal with China.
- February 11: Samsung Smartphone event
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- Upcoming IPOs:
Thoughts for the Day
“Resolve to keep happy, and your joy and you shall form an invincible host against difficulties.” - Helen Keller.
Disclosures
Beyond Meat (BYND) is a constituent in Tematica Research’s Cleaner Living Index. Qualcomm (QCOM) 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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