Daily Markets: Taking Stock of Earnings and The Coronavirus

Today’s Big Picture

The major US equity indices all closed in the red yesterday on the news that the Center for Disease Control identified the first case of coronavirus in the US - a traveler from China was diagnosed in Seattle. Shares of Wynn Resorts (WYNN) and Las Vegas Sands (LVS) lost 6.2% and 5.3% respectively on concerns that the increasingly global outbreak could negatively impact international travel. Following reports China has taken steps to contain the coronavirus, Asian equities finished the trading day higher. At the same time, however, Chinese officials announced that more than 400 cases of the new coronavirus have now been identified with the death toll hitting nine, and the virus is “adapting and mutating.” We suspect we have not heard the last of this and we expect investors will closely monitor coronavirus developments to be had and assess implications for airline, gaming, hotel, and other travel-related companies. The World Health Organization is expected to issue a formal statement on the matter later today. 

The US Senate will hear opening arguments in President Donald Trump’s impeachment trial today, followed by several days of presentations. So far the market has been completely disinterested as President Trump makes the rounds at the World Economic Forum in Davos. In interviews this morning, President Trump shared trade talks with the EU have begun and he would be "very surprised" if he had to implement auto tariffs; he expects to announce a "middle-class tax cut" over the next 90 days but acknowledges Republicans will need to win back the House in 2020 to pass that initiative, and his administration is developing a healthcare plan. 

As the day’s corporate earnings reports and early morning economic data are digested, European equities are mixed and US equity futures point to a positive market open. 

Data Download

We have another relatively quiet day on the economic data front. November Italian Industrial Orders fell 4.3% YoY, worse than the expected 2.4% drop, and CBI Industrial Trend Orders for the UK improved MoM to -22 in January vs. -28 in December and the forecasted -23 for the month. Meanwhile, the Confederation of British Industry’s quarterly gauge of manufacturing optimism rose to +23 in January from -44 in October, hitting its highest level since April 2014. Now to see how that post-election optimism translates into economic activity...

In the US, we have the usual weekly data, including the MBA Mortgage Applications Index and  Crude Inventory data, as well as a few pieces of December housing-related data and the December reading for the Chicago Fed National Activity Index. That National Activity Index hit 0.56 in November, its highest level since February 2018 and investors will be looking to see if the positive momentum continued into December. 

Stocks to Watch

The velocity of corporate earnings is starting to pick up today, with results from:

• Baker Hughes (BKR) - reported  December quarter EPS $0.27, $0.04 below the $0.31 consensus; 
• Teledyne (TDY) - reported December quarter EPS of $3.06, $0.34 better than the $2.72 consensus;
• Johnson & Johnson (JNJ) reported December quarter EPS of $1.88, $0.0.01 better than the $1.87 consensus;
• Semi-cap equipment company ASML (ASML) reported December quarter EPS of €2.70, €0.01 below the €2.71 consensus.

Specialty apparel company Express (EXPR) issued in-line guidance for its January quarter with EPS of $0.17-$0.19 vs. the $0.19 consensus. The company noted its comparable sales are expected to fall 3% and also unveiled a new corporate strategy.

Reports suggest Apple (AAPL) could offer a new low-cost iPhone model as soon as March. If true, the move would likely help shore up Apple’s position in the emerging markets, particularly India.

General Motors (GM) unveiled its all-electric “Cruise Origin,” which is expected to be used for the company’s planned autonomous ride-sharing service. In a potential step forward move, the Origin lacks a steering wheel and other manual driving controls.

Netflix (NFLX) reported fourth-quarter results yesterday, beating on both the top and bottom line, but gave disappointing guidance for the first quarter of 2020. Additional US paid subscribers were less thane expected but international beat expectations. While its subscriber base may be growing faster outside the US, reports suggest the profit margins are slimmer in those markets given lower price points vs. those in the US. And for those wondering about cash burn at Netflix, it is expected to continue in 2020, but fall to $2.5 billion vs. $3.3 billion in 2019. 

Shares of Beyond Meat (BYND), the alternative meat company, jumped 19.8% after Starbucks (SBUX) announced that it will add more plant-based items to its menu.

Boeing (BA) shares also took a hit yesterday on the news that the company doesn't expect regulators to sign off on the 737 Max until June of July. Trading was halted briefly after shares had lost over 5.5% and closed the day down 3.6%. Adding to Boeing's woes, the Financial Times is reporting pilot trust in the safety culture at Boeing is “at rock bottom." Investors will want to listen for follow-up comments from Southwest Airlines (LUV), American Airlines (AAL) and others that have previously pushed out their 737 Max return timetable. 

Costco (COST) shares gained 2.8% yesterday after being upgraded to outperform from market perform by Oppenheimer, who also raised the target price for shares to $335 from $300.

Shares of International Business Machines (IBM) jumped around 5% in extending trading when the company reported fourth-quarter results that beat across the board, from EPS to revenue to raising 2020 guidance.

Yesterday shares of Morgan Stanley (MS), the nation's fourth-largest bank, lost 2.8% after the shares were downgraded from buy to neutral by Citigroup based on the analysis that shares are currently fairly valued and there isn’t enough upside potential.

Shares of Tesla (TSLA) rose 7.2% yesterday after New Street Research increased its price target for the stock to $800 and reiterated its buy rating arguing that demand for vehicles remains strong and it believes management is executing well. The company also announced yesterday that it has reached a settlement with the state of Michigan to allow direct to consumer sales.

Uber (UBER) shares rose 6.9% yesterday on the news that the company sold its Eats business in India to the Indian restaurant aggregator and food delivery startup Zomato and will get a 9.99% stake in Zomato. Morgan Stanley (MS)announced yesterday that Uber is its top stock pick to 2020, arguing that shares could rally as much as 60% this year.

Vodafone (VOD) has become the eighth company to leave Facebook’s (FB) digital currency project Libra, following departures by Visa (V), Mastercard (MA), PayPal (PYPL), eBay (EBAY), Stripe, Booking Holdings (BKNG) and Mercado Pago.

After today’s market close, corporate earnings of interest will include:

• Citrix Systems (CTXS), which is expected to report EPS of $1.68 on $802.5 million in revenue;
• Consensus expectations have Las Vegas Sands (LVS) rolling in with EPS of $0.79 on revenue of $3.4 billion but the focus will be on the company’s Hong Kong facing comments;
• Texas Instruments (TXN) is expected to deliver EPS of $1.04 on revenue of $3.2 billion;
• For a more detailed look at upcoming earnings reports, we recommend checking in with Nasdaq’s earnings calendar page. 

And as we begin the march toward the Super Bowl LIV between the San Francisco 49ers and Kansas City Chiefs on Feb. 2, there will be a few companies buying their first-ever Super Bowl ad, including Little Caesars pizza chain, Facebook (FB) and running brand Saucony.  Reportedly, a 30-second commercial during the event comes with a $5.6 million price tag as these companies look to catch the attention of the viewers. Last year’s Super Bowl drew 98.2 million TV viewers. 

On the Horizon

• • Upcoming IPOs:
    • • For a complete list of upcoming IPOs by month, please visit the Nasdaq IPO Calendar.
  • Dates to mark:
    • • Jan. 22 - Jan 25: World Economic Forum
      • Jan 28-29: Federal Reserve FOMC Meeting
      • Jan 31: Brexit deadline

Thoughts for the Day

“Time is not refundable. Use it with purpose.” ~Anonymous

Disclosures

• IBM (IBM), Visa (V),  is a constituent in Tematica Research's Thematic Dividend All-Stars Index. 
• Beyond Meat (BYND) and Tesla (TSLA) are constituents in Tematica Research’s Cleaner Living Index. 
• IBM (IBM) 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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