Today’s Big Picture
The S&P 500 set a new intraday high and the Nasdaq Composite Index closed at a record high yesterday as investors breathed a sigh of relief and unclenched following President Trump's statement that he would tighten sanctions on Iran - which would remain in place "until Iran changes its behavior" — rather than use military force. The de-escalation rally that ensued saw nine of the 11 S&P 500 sectors move higher yesterday, was followed across the globe with Asian equities closing the day higher. Lending a helping hand to the market’s mood today was China’s confirmation Vice Premier Liu He will sign a "Phase 1" deal next week in Washington.
European markets are trading higher across the board, shrugging off renewed timing concerns over the UK’s exiting the European Union. While Boris Johnson’s position is the U.K. won't extend its transition period beyond 2020, and that he wants a Canada-style trade accord (under which 98% of goods traded are free of tariffs), European Commission President Ursula von der Leyen has said it is “basically impossible” to negotiate all aspects of its future relationship with the EU by the end of 2020. Did anyone really expect drama around Brexit to not follow us into 2020?
Despite mixed retail comp sales reports being had this morning, US equity futures continue to ride the de-escalation wave and point to a positive open.
Data Download
November Industrial Production for Germany rose 1.1% MoM in November, coming in ahead of the expected 0.7% increase. We’d note the November results marked the first increase in the country's industrial production since August, but before we break out the celebration glasses, we’d remind investors that one data point a trend does not make.
The November Unemployment Rate in the Eurozone remained at 7.5%, unchanged vs. October 2019 and in line with market expectations. Of note inside the report, Germany had the lowest unemployment rate at 3.1% while Spain topped out at 14.1%.
In terms of US-facing economic data today, it's a relatively quiet docket with just the usual weekly Thursday data — Jobless Claims and EIA Natural Gas Inventories — to be had. For those feeling a little shortchanged on the data front, there are several Fed head speeches to be had today including ones from Fed Vice Chair Richard Clarida, President of the Federal Reserve Bank of Minneapolis Neel Kashkari, New York Fed President John Williams and Chicago Fed President Charles Evans. Interspersed among them will be one from Philip Lane, who is a member of the Executive Board of the European Central Bank. In all of those speeches, investors will be looking for comments on the pace of the global economy and the outlook for monetary policy as well as how the respective central banks view the geopolitical events of the last few days.
Late tonight, the November Household Spending data for Japan will be published and it is expected to rebound on a YoY basis after falling 5.1% in October.
Stocks to Watch
L Brands (LB), the company behind Victoria's Secret and Bath & Body Works, issued downside guidance for its January 2020 quarter with EPS now expected to be around $1.85 vs. the prior guidance of roughly $2.00 and the $1.99 consensus forecast. The company also shared its comparable sales decreased 3% YoY for the nine weeks ended Jan. 4, 2020.
It seems L Brands wasn’t the only company to see comp sales fall this holiday season. J. C. Penney (JCP) reports its holiday comparable-store sales fell roughly 7.5%, and fashion specialty retailer Cato (CATO) reported December comp sales that were flat with total December sales down 2% YoY.
Shares of Bed Bath & Beyond (BBBY) tumbled in after-market trading last night following the 8.3% drop in comp sales for the company’s latest quarter. As it works on a "go-forward strategic plan" and absorbs the changes in leadership, the company has suspended guidance, which in our collective experience is never a good sign.
Costco (COST) reported net sales of $17.04 billion for the retail month of December, the five weeks ended January 5, 2020, an increase of 10.5% YoY. Comparable sales for the five-week period rose 9.0% YoY. Excluding the impact of currency and foreign exchange, comp sales for the period rose 7.8% YoY with gains in all geographies. Per the company, its e-commerce sales in December were positively impacted by an estimated 20 percentage points, due to Thanksgiving/Black Friday/Cyber Monday occurring a week later this year versus last year.
Constellation Brands (STZ) is now looking to diversify past cannabis and its stake in Canopy Growth (CGC) as it looks to spend more than $40 million in marketing alone on a line of Corona hard seltzers as it looks to replicate the success of White Claw and Anheuser Busch InBev’s (BUD) SpikedSletzer.
In its latest investor update Citi Global TMT West, AT&T (T) CFO John Stephens said AT&T expects some forex pressure in some international operations and there will be about $500 million worth of pressure from investments in HBO Max (via new content production, foregone licensing and platform costs). Stephens went on to reiterate the company’s 2020 guidance, including EPS of $3.60-3.70, revenue growth of 1-2%, stable EBITDA margins, free cash flow around $28B and dividend payout ratio in the low 50% range.
And we have to say we didn't see this application coming inside of our Disruptive Innovator's investing theme, but AT&T's Warner Brothers inked a deal with Cinelytic to use its artificial intelligence (AI) system to analyze potential movies and choose which ones to put into development. According to the report, the AI platform can "assess the value of a star in any territory and how much a film is expected to make in theaters and on other ancillary streams." Movie stars and their agents, you are on notice!
HP (HPQ) has sent a “thanks, but no thanks” response to Xerox (XRX), saying its takeover proposal "significantly" undervalues the company. In the reply, HP CEO Enrique Lores and Chairman Chip Bergh said the proposed offer "does not address the key issue – that Xerox’s proposal significantly undervalues HP – and is not a basis for discussion…" Now to see if Xerox ups its bid in response or walks away.
Procter & Gamble (PG) will acquire body care company Billie Inc, a subscription-based, direct-to-consumer brand focused on providing women with quality shaving supplies and premium body care products. The deal complements P&G's female grooming portfolio and positions it against Harry’s, owned by Edgewell Personal Care (EPC), and Unilever’s (UL) Dollar Shave Club.
GrubHub (GRUB) climbed nearly 13% yesterday following a Wall Street Journal report the company is pursuing strategic options, including a possible sale.
With the launch of its Simple Truth Emerge: Plant Based Fresh Meats brand, Kroger (KR) is joining the plant-based fray and sees the brand introducing an additional 50 plant-based foods items this year.
After today’s US equity markets close today, investors will have a handful of quarterly earnings reports to digest:
- KB Home (KBH) is expected to report EPS of $1.30 on revenue of $1.6 billion.
- Consensus expectations have PriceSmart (PSMT) delivering EPS of $0.69 on revenue of $827.3 million.
- Synnex (SNX) is expected to report EPS of $3.52 on revenue of $5.99 billion.
- Consensus expectations have WD-40 (WDFC) squeaking by with EPS of $0.99 on revenue of $104 million.
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.
- 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.
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- Upcoming IPOs:
Thoughts for the Day
“To see the world, things dangerous to come to, to see behind walls, draw closer, to find each other, and to feel. That is the purpose of life.” ― The Secret Life of Walter Mitty
Disclosures
AT&T (T) 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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