Daily Markets: Stocks Kick Into High-Gear Risk-On Mode

Today’s Big Picture

Stocks continued to shrug off concerns over the coronavirus and kicked into high-gear risk-on mode. The Nasdaq 100 and Nasdaq Composite both hit new all-time highs. The VIX dropped 10% yesterday alone and the yield on the US 10-year rose 7 basis points. Absent from the party were WTI crude, which fell another 1% to hit a new 52-week low, and Utilities, the only sector to finish the day lower.

That risk-on mode continued today in Asian equities, which moved higher including those in China despite the number of confirmed coronavirus cases in China exceeding 24,000 and the death count approaching 500. While the World Health Organization said this morning that there is still no known treatment at this time, there were reports that scientists are making breakthroughs with a vaccine for the coronavirus. Speculation continues to point to further stimulus moves by the People's Bank of China as it looks to offset the impact of the coronavirus, including lowering its loan prime rate on Feb. 20, and cut banks' reserve requirement ratios in the coming weeks.

We think we can safely place "don't fight the PBoC" alongside the popular investor mantra that is "don't fight the Fed."

Improving investor sentiment spilled over into European equities, which along with better than expected January economic data, is leading them higher across the board today. In the US, equity futures once again point to a positive market open that could see the Down Jones Industrial Average cross the 29,000 level. As much as we, along with other investors, enjoy the market's rebound, the sobering reminder is in the coming weeks we will receive data that should help clarify the impact of the coronavirus, and odds are those revisions for global growth and corporate earnings will be to the downside.

And we agree with Capri Holdings (CPRI) that the swing factors for those revisions are “the duration and intensity of the disruption,” both of which are still uncertain at this time – see more on Capri’s coronavirus comments in Stocks to Watch. Rest assured we haven’t heard the last of this.

Data Download

China's January Caixin Services PMI fell to 51.8 from 52.5 in December, missing the expected 52.6 for the month. Japan’s January Services PMI rebounded to 51.0 from 49.4 in December but fell short of the expected 52.1. 

The IHS Markit Eurozone Services PMI for January was revised higher to 52.5 from its Flash reading of 52.2 but slipped vs. December’s 52.8 reading. Gains in the Service sector in several countries, including Germany and Italy, were offset by slower growth in France and Spain, while all other nations registered stronger expansion. Matched with the January IHS Markit Eurozone Manufacturing PMI that continued to contract, the combined January Composite PMI for the Eurozone rose to 51.3, a five-month high, up from 50.9 in December. 

December Retail Sales for the Eurozone rose 1.3% YoY, which was a step down from the 2.3% YoY increase in November. On a sequential basis, December Retail Sales fell 1.6%, the sharpest decline since March 2008, and well below the expected fall of 0.9%.  

In the US, at 8:15 am ET this morning the ADP National Employment Report is expected to show that US private payrolls added 153,000 in January, less than December’s 202,000. 

Later this morning we will get data on US Exports and Imports. Recall that the 8.7% annualized decline in the later in Q4 contributed a positive 1.3% to GDP, so we will be watching this data closely. This morning will also bring the January Markit Services PMI and ISM Non-Manufacturing data as well as the usual weekly EIA data on crude oil, gasoline, heating oil, and distillates.

Stocks to Watch

The Wall Street Journal is reporting that as part of its antitrust probe of Google (GOOGL), the Justice Department is focusing on the company’s online ad tools and as part of this process has reached out to publishers, advertising technology firms and advertising agencies.

Fashion company Capri Holdings reported better than expected top and bottom-line results for the December quarter but issued weaker than expected guidance for the current quarter due to the impact of the coronavirus. Per the company's earnings press release, "As of February 5, 2020, approximately 150 of the company's 225 stores in mainland China are closed. Additionally, most of the stores that remain open are operating with reduced hours and experiencing significant declines in customer traffic. While this global health emergency is expected to be temporary, the duration and intensity of the disruption are uncertain, including potential broader impact outside of China if travel and tourist traffic is further restricted and there is a resulting decline in Chinese tourist spending in other regions. Given the dynamic nature of these circumstances, the company currently expects the situation in China to reduce revenue by approximately $100 million and earnings per share by $0.40 to $0.45 for the fourth quarter and full-year...."

Fragrance, cosmetics, and body care company Coty (COTY) shares are up in pre-market trading following better than expected December quarter results that included revenue falling less than expected YoY. The company cited continuing momentum across its Luxury brands business, including Burberry, Gucci, Tiffany, and Hugo Boss, while continuing to expand its footprint in Luxury color cosmetics. Unlike Capri Holdings, Coty didn't call out specifics on its China business and the coronavirus impact it sees in its earnings press release, and we suspect it will be a hot topic on the corresponding earnings conference call.

Healthcare company Merck (MRK) reported better than expected December quarter results and guided 2020 EPS above consensus expectations. In tandem with these quarterly results, the company also announced it is planning on spinning out its Women's Health, Biosimilar drugs, and Legacy Brands into a new publicly-traded company while Merk retains cancer drugs, vaccines, hospital, and animal health businesses. The transaction is expected to be completed in the first half of 2021, and Merck targets $1.5 billion in operating efficiencies by 2024.

Not be outdone, GlaxoSmithKline (GSK) also announced it will separate its consumer healthcare business into a standalone company. The “new” GSK will be a biopharma company with an R&D approach focused on science related to “the immune system, use of genetics and new technologies.”

Streaming service Spotify (SPOT) missed top and bottom-line expectations for the December quarter and exited 2019 with 271 million total monthly active users (MAUs) and 124 million Premiums Subscribers vs. 207 million and 96 million, respectively, at the end of 2018. One interesting call-out was the call out to growth in podcast hours, which saw consumption hours rise ~200% YoY and was cited as a driver behind rising engagement and retention. For 2020, the company sees revenue in the range of EUR 8.08-8.48 billion vs. the EUR 8.45 billion consensus with total MAUs of 328-348 million and Total Premium Subscribers in the range of 143-153 million. Spotify also announced it will acquire The Ringer, a creator of sports, entertainment, and pop culture content. 

Princess Cruises, a division of Carnival Corp (CCL), reported yesterday that 3,700 of its passengers and crew were placed under mandatory quarantine for two weeks after ten passengers aboard one of its cruise ships in Yokohama, Japan tested positive for the coronavirus. A previous passenger who had no symptoms while onboard, tested positive for the virus Saturday, six days after disembarking.

Chipotle Mexican Grill (CMG) reported revenue that was in-line for the December quarter with EPS and same-store sales that beat expectations. The company said it estimates is may pay $25 million to settle the US Attorney’s investigation into the food-borne illness outbreaks that began four years ago at its restaurants. Looking forward, the company plans to add 150 to 165 new restaurants in 2020, half of which will include a drive-thru land for digital-only orders. Shares rose 3.1% and hit a new all-time high yesterday.

Disney (DIS) reported a beat yesterday on both top and bottom lines which left shares in after-hours trading within 1% of the closing price. The company reported having 26.5 million subscribers during the quarter, well above the 20.8 estimated by analysts. As of Monday the subscriber base had grown to 28.6 million, which is a bit less than half of the 61 million in the US for Netflix (NFLX). That said, around 20% of those aren’t paying anything as they came in through Verizon, which is offering a free year of the service to its customers. The company did not update guidance for the new service.

The owner of the New York Stock Exchange, Intercontinental Exchange (ICE) made an offer for online marketplace eBay (EBAY) for more than $30 billion. Shares of ICE lost 7.5% while EBAY gained 8.4% yesterday.

Nike (NKE) reported that around half of its Nike-owned stores in China have been temporarily closed due to the coronavirus outbreak with similar numbers for its partner stores. For those remaining open, the company plans to reduce operating hours to deal with the lower-than-expected retail traffic. Shares traded down just 1% from the prior day’s close.

While Tesla (TSLA) has seen its share price double in just over a month, Ford (F) shares were down as much as 11% during extended trading yesterday after the company reported a GAAP loss for its fourth quarter, missing adjusted profit expectations. Earlier in the day, Tesla passed Ford as the No. 1 carmaker in the US in terms of enterprise value.

Tesla’s share price has gone beyond parabolic into ludicrous speed, up 14.8% yesterday and up 114.7% since the start of the year as of yesterday’s close. Take that bitcoin!

Goldman Sachs (GS) is reportedly nearing a deal with Amazon (AMZN) to offer loans to small and medium-sized businesses through Amazon's platform. The offerings could launch as early as the end of March, early April.

Macy’s (M) announced plans to close 25% (or 125) of its stores and cut about 9% (around 2,000) of its workforce as part of its restructuring plans. Shares fell -0.2% yesterday.

There wasn’t much love in the air yesterday for Match Group Inc (MTCH), which saw shares lose 5.7% when the company reported fourth-quarter results that missed estimates for both revenue and earnings along with particularly disappointing Tinder mobile app growth. Swiping is sliding.

Oh, Snap Inc (SNAP)! Shares fell sharply in after-hours trading yesterday, ending the day 7.4% below the prior day's close when the company reported revenue of $561 million, well above the guidance range of $540 to $560, but below the Street's consensus estimate of $563 million coupled with disappointing guidance. This follows the weaker-than-expected performance from both Alphabet (GOOG) and Facebook (FB).

Both United Airlines (UAL) and American Airlines (AAL) announced yesterday that they will suspend service to Hong Kong.

After today's US equity markets close, quarterly reports are expected from AvalonBay (AVB), Cognizant Tech (CTSH), FireEye (FEYE), Flowers Foods (FLO), Fox Corporation (FOXA), GoPro (GPRO), GrubHub (GRUB), iRobot (IRBT), Lincoln National (LNC), MetLife (MET), O'Reilly Auto (ORLY), Peloton (PTON), Qualcomm (QCOM), Sonos (SONO), and Zynga (ZNGA) among many others. For more on who is reporting when we suggest visiting Nasdaq’s earnings calendar page. 

On the Horizon

• • Upcoming IPOs:
    • • Casper Sleep (CSPR), the company that popularized the bed-in-a-box trend, plans to offer 8.4 million shares in a price range of $17-$19.
      • Premium recreation boat retailer OneWater Marine (ONEW) is expected to offer 4.6 million shares with a target IPO price range of $12-$14;
      • Drug development services company PPD (PPD) looks to offer 60 million shares in a price range of $24-$27;
      • Drug discovery software company Schrödinger (SDGR) will offer 10 million shares priced between $14 to $16;
      • For a complete list of upcoming IPOs by month, please visit the Nasdaq IPO Calendar.
  • Dates to mark:
    • • Feb. 24-27: Mobile World Congress
      • May 12-14: Google I/O Developer Conference

Thoughts for the Day

“Thinking is difficult, that’s why most people judge.” ~ Carl Jung

Disclosures

• Qualcomm (QCOM) is a constituent in Tematica Research’s Thematic Dividend All-Stars Index. 
• Chipotle Mexican Grill (CMG), Tesla (TSLA) are constituents in Tematica Research’s Cleaner Living Index. 
• FireEye (FEYE) is a constituent in the Foxberry Tematica Research Cybersecurity & Data Privacy 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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