Early Look

Monday, February 6, 2023

U.S. futures point to a lower open, building on Friday’s losses as investors weigh the prospect of further rate hikes by the Fed in response to Friday’s blowout payrolls number and as tensions ramp up between China and the US after a U.S. fighter jet shot down what the US believed to be a Chinese surveillance balloon off the coast of South Carolina on Saturday after the military had tracked its path across the continental United States, a response China described as an “obvious overreaction”. Investors also awaited more earnings and an important speech from Federal Reserve Chairman Jerome Powell on Tuesday. Investors were also taking some profits after the stock market’s hot start to the year. The S&P 500 is up more than 7% for 2023. The Nasdaq Composite is up the last five weeks in a row, rising nearly 15% YTD. Last week, the S&P 500 added 1.6%, the Nasdaq climbed 3.3%, and the Dow dipped 0.2%. Treasury yields rose last Friday/for the week as the 10-year yield ended at 3.531%, snapping a 3-day losing streak after finishing up 13.5-bps on Friday and the 2-yr jumped 9-bps on the week to 4.299%. There were a handful of M&A stories over the weekend in metals (NEM/Newcrest), Healthcare (DHR/CTLT), and REITS (PSA/LSI) heading into another very busy week of earnings. Charlie Bilello noted with 68% of companies reported, S&P 500 Q4 GAAP earnings are down 20% year-over-year, the 3rd straight quarter of negative YoY growth and the largest decline since Q2 2020. In Asian markets, The Nikkei Index rose 184 points to 27,693, the Shanghai Index fell -24 points to 3,238, and the Hang Seng Index dropped -438 points to 21,222. In Europe, the German DAX is down -178 points to 15,297, while the FTSE 100 slips -68 points to 7,832. A magnitude 7.7 earthquake occurred in Turkey near the Syrian border, with multiple aftershocks of a similar intensity reported.

Market Closing Prices Yesterday

·     The S&P 500 Index dropped -43.35 points, or 1.04%, to 4,136.41.

·     The Dow Jones Industrial Average fell -128.88 points, or 0.38%, to 33,925.06.

·     The Nasdaq Composite slumped -193.86 points, or 1.59%, to 12,006.96.

·     The Russell 2000 Index declined -15.68 points, or 0.78% to 1,985.54.

Economic Calendar for Today

·     No Major Economic Data Released

Earnings Calendar:

·     Earnings Before the Open: ALCO AMG CMI CNA DSKE ENR GHM IDXX L NBIX ON TKR TSN

·     Earnings After the Close: ACM ACT AMRK ATVI BRBR CHGG CNF DIOD FLXS GLAD GNW KE KFRC KMT LEG NOV PETS PINS POWI RMBS SAVE SKY SPG SRDX SSD SWKS TTWO UDR VRNS ZI

World News

·     China’s Foreign Ministry on Saturday said it “strongly disapproves of and protests” the U.S. decision to shoot down a spy balloon that had been in U.S. airspace for the last several days and warned that it may take unspecified “responses” to that action.

·     Japan’s government has sounded out Bank of Japan (BOJ) Deputy Governor Masayoshi Amamiya to succeed incumbent Haruhiko Kuroda as central bank governor, the Nikkei newspaper reported on Monday, citing anonymous government and ruling party sources – Reuters.

Sector News Breakdown

Consumer

·     Children’s Place (PLCE) lowers Q4 adjusted EPS view to ($4.02)-($4.41) from $0.50-$0.75 and lowers its Q4 revenue view to $454M-$456M from $460M-$470M saying they now expect to report a net loss in the range of ($52M)-($57M) for the Q4.

·     RH (RH) shares said late Friday that preliminary revenue for the fiscal year just ended came in at the “lower end” of its prior forecast range; noted errors on accounting for pretax loss on debt extinguishment; sees July 2022 qtr EPS cut by 83c.

·     Ulta Beauty Inc. (ULTA) mentioned positively in Barron’s saying the retailer could continue its outperformance this year, defying the slump among other pandemic-era winners. Despite inflation concerns, consumers are still buying beauty products such as lipstick and eyeliner.

·     A jury rejected investor claims that Tesla (TSLA) CEO Elon Musk violated federal securities law when he tweeted in 2018 about potentially taking Tesla Inc. private, handing him a major win.

·     Nissan (NSANY) and Renault (RNLSY) unveiled details of their redesigned alliance, with the Japanese car maker committing to buy a stake of up to 15% in Renault’s electric vehicles unit Ampere.

Energy, Industrials and Materials

·     Linde Plc (LIN) mentioned positively in Barron’s saying the world’s largest industrial-gas company is investing big in hydrogen, with a plant in Niagara Falls that will use hydroelectric power to make the gas set to open in 2025.

·     Newmont Mining (NEM) proposed acquiring Newcrest in a deal that would give shareholders 0.380 Newmont shares for each Newcrest share held. Newcrest said it rejected an earlier proposal from Newmont to buy the company for 0.363 Newmont shares. https://on.wsj.com/3YtevOi

·     Dow Chemical (DOW) and its peer LyondellBasell (LYB) upgraded to outperform at Credit Suisse, saying that both should benefit from investors looking optimistically toward 2024 for the US polyethylene market.

·     Turkey halted crude-oil flows to its Ceyhan export terminal on the Mediterranean coast as a precaution following an earthquake, an official with knowledge of the matter said.

Financials

·     Public Storage (PSA) made an $11 billion unsolicited offer for its smaller rival Life Storage Inc. (LSI) valued at $129 per share, ramping up an effort to buy its smaller rival after an earlier bid was rejected; holders of Life Storage shares and units would receive 0.4192 shares of Public Storage common stock https://on.mktw.net/3X50gOL

·     Wells Fargo Securities (WFC) was sued for allegedly triggering as much as $800 million in losses at Chicago-based hedge fund LJM Partners by forcing it to liquidate options contracts in 2018.

·     PayPal (PYPL) downgrade to market perform from outperform at Raymond James.

Healthcare

·     Danaher (DHR) has expressed takeover interest in contract manufacturer Catalent (CTLT) and overtures made in recent months valued Catalent at “a significant premium,” people familiar with the matter told Bloomberg https://bit.ly/3DHwbOh

·     Pfizer Inc. (PFE) mentioned positively in Barron’s noting the drugmaker trades for 13 times projected 2023 earnings and its 3.7% yield is more than double the S&P’s dividend rate, adding that the company’s drug pipeline is also stronger than what investors give it credit for.

·     Biogen (BIIB) and Sage Therapeutics (SAGE) announce FDA Accepts filing of new drug application and grants priority review of Zuranolone in the treatment of major depressive disorder and postpartum depression. Zuranolone is being evaluated as a potential 14-day, rapid-acting, once-daily, oral medication to treat major depressive disorder and postpartum depression.

·     Idexx Laboratories (IDXX) Q4 EPS $2.07 vs. est. $1.94; Q4 revenue $828.57M.

Technology, Media & Telecom

·     Dell Technologies Inc (DELL) said it would lay off about 5% of its workforce as it struggles with a slump in the personal computer market and braces for a potential recession.

·     Datadog (DDOG) downgraded to sector weight from overweight at KeyBanc Capital Markets.