economics

We're Shrugging Off Another Batch of Ugly Earnings: Taking Stock

Why Investors Are Skittish Despite Strong U.S. Earnings Season

Stock futures are marginally higher this morning, though it remains relatively quiet aside from more China trade reports ("China Casts Doubt on Report of $200 Billion Trade Deficit Offer") and some disappointing earnings (Applied Materials, Deere, Nordstrom), which follows negative moves in bigwigs like Walmart and Cisco Thursday after their results didn’t sit well with the market.

We’ve basically been in consolidation mode for the entire week after that impressive rally in the prior six days, though the 10-year did make another higher high overnight, hitting 3.1262% before pulling back to ~3.10%, while the dollar continues to inch up.

Sectors to Watch Today

Semi equipment (AMAT -5.1%, LRCX -1.6%, KLAC -1.4%): Citi and Cowen each pumped the space earlier this week, so there could be some added pressure on names like LRCX and KLAC after AMAT’s revenue outlook disappointed. Goldman downgraded the stock to neutral on worse-than-feared display fundamentals (watch OLED on this) and an underwhelming market share outlook in the core biz.

Fintech (PYPL +1%, SQ -0.4%): The media reports on PYPL’s $2.2b deal for iZettle trickled out Thursday intraday, hitting shares of SQ by more than 3%, and it all became official after the close. Here’s the positive take (Cowen: "We view PYPL’s acquisition of iZettle favorably, allowing PYPL to expand and more effectively compete in the omnichannel world with the likes of SQ and potentially other merchant acquirers longer term") and the negative take (Mizuho: "We do not believe this was the acquisition shareholders were anticipating" and "the price paid appears expensive").

Ag machinery (DE -2.9%): Watch AGCO and CNHI for sympathy weakness as the reaction to DE’s miss appears to be negative off the bat, even though the net income forecast was bumped up

Retail (JWN -6.9%): We got another weak report in the retail space, after JCP and PLCE both got drilled yesterday, with JWN disappointing on the comps. We’ll get plenty more reports from the group next week (more on this below).

Focus for Next Week

Next week should be relatively quiet on the company-specific front, especially toward the latter part as vacations kick into gear ahead of the Memorial Day. But there are still some earnings -- consumer heavies like LOW and TGT with retailers BBY, ROST, GPS, URBN, and LB, as well as some health care with MDT and MCK, and homebuilder TOL -- and analyst meetings from PYPL (after just announcing a $2.2b purchase of IZettle), chip darling MU, and CELG, which boasts one of the uglier charts in large-cap biotech land.
There are also two huge conferences in the industrial space: 1) Electrical Products Group, or EPG for short, in Florida with GE, EMR, UTX, HON, and MMM all presenting, and 2) Wolfe Research’s transportation conference in NYC with a slew of rails, truckers, and airlines in the mix.

I’d have to think it will be standing room only at UBS’s oil and gas conference in Austin, Texas, given what’s been going on in energy lately (S&P 500 Energy index up 16% since the end of March vs S&P 500 up 3%), while it’ll be interesting to see what happens with the PJM annual capacity auction for utilities, which have been under pressure all year with the pop in 10-year yields (S&P 500 Utilities index down 3.4% in the same time frame mentioned above).

New Function Friday: QUIZ <GO>

Bringing attention to a brand new function that is making its debut today: QUIZ -- which allows you to test your knowledge of the week’s key news events. Each Friday, the Bloomberg News team posts 10 multiple-choice questions about the biggest stories in global business and geopolitics. After taking the quiz, you can see how you rank against your colleagues and other Bloomberg terminal users. Feedback welcome!

Notes From the Sell Side

It’s pretty quiet from the research departments, so just a couple things to mention so far.

Raymond James initiated SPOT with a strong buy and a price target of $190, or nearly $20 above the Street average, just days after a couple of bad beats: Loop initiated at sell on Tuesday, saying the company "is not Netflix yet," while shares dipped a smidge yesterday on news that YouTube would beef up its subscription music-streaming biz -- Morgan Stanley has a note out as well, keeping its overweight on SPOT, even while acknowleding that YouTube could have more success with premium music on Android platforms than Apple and Amazon have had historically.

Cowen analyst Matthew Ramsay, formerly of Canaccord Genuity, initiated on the semiconductors, calling AMD, AVGO, MPWR, and AMBA his top picks while also pinning NVDA with an outperform rating..

Tick-by-Tick Guide to Today’s Actionable Events

  • Today -- AZUL investor day
  • Today -- INSY FDA briefing documents for buprenorphine
  • 7:15am -- CPB earnings
  • 7:30am -- AINV earnings
  • 8:30am -- CPB earnings call
  • 8:30am -- IO investor day
  • 9:00am -- FAF investor day
  • 9:15am -- Fed’s Kaplan speaks in moderated Q&A
  • 9:15am -- Fed’s Brainard speaks about community reinvestment act
  • 10:00am -- DE earnings call
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