CSX ( CSX) reported better-than-expected third-quarter earnings after the close Tuesday, with growth accelerating for a fourth straight quarter. CSX stock was volatile late but moved higher. Rail peers Canadian Pacific ( CP) and Kansas City Southern ( KSU) report later this week.
Estimates: CSX earnings per share to vault 84% to 94 cents as revenue grows to $3.039 billion, according to Zacks Investment Research.
Results: CSX earnings jumped 106% to $1.05 a share, the fourth straight quarter of accelerating growth. Revenue climbed 14% to $3.13 billion.
Expenses declined 2% year over year to $1.84 billion, as CSX continues to improve operational efficiency. Its operating ratio was a record 58.7% vs. 68.4% a year earlier.
CSX stock was up and down late, but moved to a 2.5% gain at 74. Shares closed up 1.9% to 72.20 on the stock market today, their third straight advance.
The after-hours action suggests CSX stock will retake its 50-day moving average after plunging below that support on Oct. 10. Before the drop, CSX had been hovering just below a 76.34 buy point.
CSX stock still has a superior IBD Composite Rating of 97, reflecting in part its turnaround in profit and sales growth. Its relative strength line, which tracks a stock's performance against the S&P 500, continues to look bullish despite the recent tumble.
Top Rail Transportation Stock
CSX stock sits atop the rising Transportation-Rail industry group.
Shares of the railroad company flew higher in July after it stomped estimates in its last quarterly report.
Since then, CSX has climbed higher on continued signs of a robust economy and hopes for a U.S.-Mexico-Canada trade deal that updates Nafta, though Congress must OK the new agreement.
CSX stock fell far harder than the S&P 500 on a brutal day for the stock market on Oct. 10, amid global growth concerns.
The highly rated railroad sets the stage for railroad industry earnings this week. When Canadian Pacific reports Thursday after the close, analysts expect EPS to soar 37% to $3.16.
For Kansas City Southern on Friday, they foresee EPS of $1.58, up 18%.
Semiconductor equipment vendor Lam Research ( LRCX) late Tuesday beat Wall Street's targets for its fiscal first quarter and guided higher for the current quarter. Lam Research stock jumped in extended trading.
The Fremont, Calif.-based company earned an adjusted $3.36 a share on sales of $2.33 billion in the quarter ended Sept. 23. Analysts expected Lam to earn $3.22 a share on sales of $2.31 billion. On a year-over-year basis, earnings per share dipped 3% while revenue fell 6%.
Lam Research stock popped 4.6% higher, near 152, in after-hours trading on the stock market today. During the regular session, Lam Research stock climbed 1.9% to 145.27.
For the current quarter, Lam expects to earn an adjusted $3.65 a share on sales of $2.5 billion. Wall Street was modeling earnings of $3.35 a share on sales of $2.38 billion. In the year-earlier quarter, Lam earned an adjusted $4.34 a share on sales of $2.58 billion.
"We are pleased to report September-quarter results that modestly exceed expectations and forecast a stronger December quarter sequentially," Lam Chief Executive Martin Anstice said in a news release.
He added, "More importantly, central to the Lam outperformance aspiration is our commitment to investing in innovation and close collaboration with our customers to address the technical and economic challenges of device and systems performance scaling. We remain focused on creating and capturing value for our customers in the world of emerging data economy opportunity."
Lam is the first semiconductor equipment maker to report results for the calendar third quarter. Chipmakers have cut back on capital equipment spending amid elevated inventories, especially for memory chips.
Next up is ASML Holding ( ASML), which is scheduled to post Q3 results on Wednesday. Wall Street expects the Dutch chip gear firm to earn $1.80 a share on sales of $3.18 billion in the September quarter. If it hits those numbers, it would mean year-over-year growth of 18% in earnings per share and 11% in sales.
United Airlines ( UAL) stock jumped late Tuesday, after the carrier raised its full-year earnings per share estimates and said it expected to make up for nearly all of the rising jet-fuel costs that have threatened airline profits this year.
United said it expects full-year earnings per share of $8.00-$8.75, well above expectations for $8.16. The forecast compares to a prior outlook for 2018 earnings per share of between $7.25 and $8.75.
The company also said it expected to recoup around 90% of what it said was a $2.5 billion spike in fuel costs this year.
Even as a strong economy makes for healthy air-travel demand, investors this year have worried that higher fuel costs would crimp airline profits. Airline stocks have suffered in the process.
But Delta Air Lines ( DAL), when it reported third-quarter earnings last week, said it had recovered around 85% of those fuel costs during the third quarter. A broader selection of seating types, with different degrees of pricing and amenities, helped drive sales.
Shares jumped on that news last week. United helped extend the rally on Tuesday, gaining 4.8% higher after-hours in the stock market today.
United said on Tuesday that its three-year growth plan — in which it will offer more flights between its hubs in Chicago, Denver and Houston and smaller cities — "has been essential to our success." The carrier's third quarter unit revenue, a measure of sales by way of an airline's overall flight capacity, rose 6.1%. That was above earlier expectations for a 4%-6% gain.
"Our stand-out third-quarter performance, which produced double-digit revenue growth as we more than offset the steep increase in fuel costs, is proof that United is building momentum," CEO Oscar Munoz said in a statement.
United Airlines Earnings
Wall Street shrugged off what was a lackluster quarter on the top and bottom line. United Airlines reported third-quarter earnings per share of $3.06, a 36% jump. That missed views for $3.09. Revenue rose 12% to $11.003 billion, compared to estimates for $10.956 billion.
United forecast a 3%-5% unit revenue gain for the fourth quarter. It sees a 5%-6% expansion in its flight capacity for Q4, and adjusted pretax margin of 5%-7%.
For the year, United expects its capacity to rise by around 4.9%. In July, the company forecast a 4.5%-5% gain.
Airline Stocks Follow
Delta Air Lines ( DAL) was up 1.7%. American Airlines ( AAL), which reports on Oct. 25, picked up 1.6%. Southwest ( LUV) was up 0.6%.
Fuel, Other Costs Hitting United Airlines Earnings
Delta, when it reported last week, indicated that its efforts to pack premium seats into the flight cabin appeared to have paid off. Premium-class ticket sales jumped 19%, a trend that could continue as it brings new jets into its fleet. Sales from corporate travel rose 12%.
As for United, Cowen analyst Helane Becker said in a research note, Wall Street could be looking for similar results from the carrier's corporate and premium revenues. The carrier could offer more detail on its earnings conference call, set for Wednesday.
The carrier sees its three-year strategy, announced in January, as key to regaining relevance and a travel market it let other carriers take over. Investors could also be watching for any tweaks to United's midcontinent plans as a result, Becker said.
"We believe revenue continues to improve as airlines raise fares and fees to cover rising costs," she said. "In our view, it's not just fuel costs rising; labor costs, landing fees, depreciation and other operating costs are also rising, so there is pressure on airlines to raise revenue to maintain margins."
IBM ( IBM) reported third-quarter results after the market close Tuesday that beat analyst estimates on adjusted earnings but missed revenue expectations.
IBM reported revenue of $18.75 billion, missing views for $19.1 billion. It reported adjusted earnings of $3.42, beating predictions for $3.39.
After the IBM earnings report, shares fell 4.3%, near 138.85, during after-hours trading on the stock market today.
IBM has been undergoing a business transition for several years, focusing on cloud computing, data analytics, mobile technology, social media and security. The collection of new business units is what IBM refers to as strategic imperatives.
In its IBM earnings report, the company presents revenue from strategic imperatives on a 12-month basis. It said strategic imperatives revenue of $39.5 billion over the last 12 months was up 13% from the prior 12-month period. The group now represents 49% of total IBM revenue over the last 12 months, it said.
Cloud revenue of $19 billion over the last 12 months was up 20%.
IBM Earnings Expectations
IBM said it expects to meet key 2018 expectations. Among them are adjusted earnings of at least $13.80 per share and $40 billion in strategic imperatives revenue for the full year. It also expects free cash flow of $12 billion.
"In the quarter, we again expanded our overall operating pretax income margin year to year, and produced our strongest year-to-year gross margin performance in three years," said James Kavanaugh, IBM senior vice president and chief financial officer, in prepared remarks.
He added: "At the same time, with our strong cash generation, we increased our capital investment in the business through the first three quarters and continued to return capital to shareholders."
IBM ended the third quarter with $14.7 billion of cash on hand. Debt totaled $46.9 billion, including global financing debt of $30.4 billion.
Interactive Brokers ( IBKR) beat earnings forecasts but missed on revenue late Tuesday, after rival Charles Schwab ( CP) narrowly beat.
Interactive Brokers Earnings
Estimates: Interactive Brokers earnings should rise 14% to 49 cents per share, with revenue up 6.3% to $453 million, according to Zacks Investment Research.
Results: EPS of 51 cents on revenue of $439 million. Electronic brokerage revenue increased 21% to $444 million. Net revenue per average account dipped 4% to $3,109.
Q3 saw a 34% gain in net interest income, as interest rates rose and customers traded more on margin. Trading commission revenue rose 2%. Market-making income before taxes dropped 36%.
Customer equity grew 23% to $142.5 billion and customer debits increased 22% to $30.7 billion. Customer accounts increased 26% to about 576,000. Daily average revenue trades increased 10% to about 763,000.
Interactive Brokers Stock
Shares fell 2.75% in late trading, after closing up 3.3% at 54.61 in afternoon trade on the stock market today. Interactive Brokers stock is trying to break a downtrend after hitting an 11-month low on Oct. 11.
Rival online brokers E-Trade Financial ( ETFC) and TD Ameritrade ( KSU) gear up for their own reports.
Top Online Broker Stocks
Interactive Brokers took a spot on IBD's sixth annual survey of the best online brokers.
Rival Charles Schwab reported strong earnings Monday but felt the impact of fee cuts in 2017. Average revenue per user also disappointed some analysts.
Interactive Brokers results may reflect pricing pressure on trading commissions, offsetting rate hikes.
Interactive Brokers, Charles Schwab, TD Ameritrade and E-Trade Financial stocks sank Aug. 21 on a JPMorgan Chase ( JPM) plan to offer free stock trading. The financial giant's move further threatens an industry roiled by Robinhood, the free stock trading app, free options trading app and free crypto trading app.
Meanwhile, Robinhood enhanced its zero-trade platform and announced strong user growth. The fintech startup surpassed E-Trade in user numbers in May and now says it has over 6 million users. Its momentum is being closely watched by both Wall Street analysts and the established discount brokers.
Analysts expect E-Trade's earnings to show a 51% gain to 83 cents a share with revenue up 19% to $715 million.
TD Ameritrade earnings are due Oct. 23.
Charles Schwab stock rose 0.7% Tuesday afternoon after earlier falling intraday to its worst level since last November. Shares fell 2.8% Monday following Schwab earnings. E-Trade stock advanced 1.2% Tuesday and TD Ameritrade 1.8%, but both are near 2018 lows.
Starting on Wednesday, Canadians will be able to buy marijuana just for fun. Recreational legalization marks a major coming-of-age for the cannabis industry. But it could also usher in a reality check after a year in which marijuana stocks have scorched higher.
Recreational legalization in Canada will give investors a sense of how a large, national market will function, even as each province crafts different rules surrounding production and sales.
"This will be the first test of it on a massive nationwide scale," said Kris Krane, president of 4Front, a cannabis-focused branding development company.
Analysts generally say that recreational legalization has been priced into marijuana stocks like Tilray ( TLRY), Cronos Group ( CRON) and Canopy Growth ( CGC). Canada's government approved recreational legalization in June, so the arrival of Oct. 17 isn't a surprise.
Basically it's anyone's guess how marijuana stocks will react on Wednesday. Tilray closed down 4.4% in the stock market today, Canopy Growth fell 6.8%, and Cronos lost 1.9%.
Here are four things to watch in the weeks and months ahead.
Not Enough Weed
The Canadian government has signaled it is ready for the recreational tidal wave. Companies like Aurora Cannabis, which has been buying and investing in companies to muscle up ahead of legalization, have said they're more than ready for recreational demand.
But Vic Neufeld, CEO of Canadian cannabis company Aphria, said to expect "Sold Out" signs in the short term, warning of "supply-chain issues abounding everywhere" across the provinces in the opening weeks of legalization, as large pot producers work to get equipment approved.
Researchers at the C.D. Howe Institute and the University of Waterloo estimated that the amount of legal cannabis available will " at most" meet 30%-60% of demand in the first year of Canada's legalization.
"This is simply because a sufficient number of producers were not licensed a year ago," they said in an op-ed published in the Globe and Mail on Monday. "It takes six to nine months for a licensed producer to be able to supply the retail market."
"Out of the gate, I think it's going to be a little bit messy," Cowen analyst Vivien Azer said.
Not Enough Stores, Either
Even as e-commerce eats away at other modes of retail, the physical store has endured in the marijuana industry.
Azer added that there won't be enough physical stores either to accommodate demand. Ontario accounts for 40% of Canada's population. But it could take until April for the first physical, privately-run marijuana shops to begin selling recreationally. Until then, customers can buy recreational marijuana in an online government-run retailer.
"I think that will keep some potential participants either on the sidelines, or continuing to participate in the illicit market, where they can buy from one of these pop-up dispensaries the same day as opposed to having to wait three to four days to get it mailed to them from a regulated channel," Canaccord analyst Matt Bottomley said.
Gotta Wait For Most-Anticipated Products
Dry buds, joints, tinctures and gel caps will be recreationally legal in Canada starting Wednesday. But the cannabis products getting more attention won't be available to recreational customers until next year. Those products include vaping, and infused drinks that all the big beverage companies say they're paying close attention to.
Vaping has become more popular because many users see it as more discreet: vaporized cannabis oil doesn't carry the conspicuous odor of, say, a bong rip. In the U.S., sales of vaping products nearly doubled in Colorado, Washington and Oregon last year, according to a report from BDS Analytics and ArcView research in September.
The report forecasts total sales of U.S. cannabis concentrates — which include vaping devices and waxes — to reach $8.4 billion by 2022. The firms expect vape sales to account for $6.5 billion of that.
"It's going to be very modest product forms compared to what you'd see in Colorado and California," Bottomley said.
Good Metrics For Marijuana Stocks Are Lacking
Bottomley said the cannabis industry had yet to settle on any reliable financial metrics by which to gauge the industry.
There's no standardized way to calculate cost of production, he said. Registered-patient tallies only apply to the medical market, but he said those figures weren't highly regulated. Purchase orders from the provinces, as well as retail and international licenses, could emerge as important gauges.
A Canadian regulator said last week that publicly traded marijuana companies had work to do on their financial transparency. Analysts and some executives generally say the industry might need a few quarters under its belt before financials become more important.
But Micah Tapman, managing director at Canopy Ventures, said in an interview last month that investors could be looking for results as soon as the first quarter of 2019. Marijuana stocks, he said, could quickly head south.
"I think when those numbers come out and they're really small," he said, "and the revenue numbers look pretty horrendous, the investors are essentially gonna say this is a bad idea and I'm gonna take my money back and try to sell."
Amgen ( AMGN) and Novartis ( NVS) launched rival versions of AbbVie's ( ABBV) most important drug, Humira, in Europe on Tuesday — kicking off a fight for more than $6 billion in international sales.
Top biotech Amgen is launching its Humira biosimilar, called Amgevita, across Europe. Novartis' Sandoz unit resolved its patent battle with AbbVie last week. The pharma said it would roll out its copycat, Hyrimoz, to most countries in the European Union on Tuesday.
Both drugs are nearly identical copies of AbbVie's Humira, called biosimilars. Biosimilars must stand up to additional testing to show they are biologically equivalent to the branded counterpart.
Humira and its biosimilars treat several forms of arthritis, plaque psoriasis and Crohn's disease. It's also the biggest target for biosimilar copycats, bringing in $18.4 billion in global sales in 2017. Of that, $6.07 billion came from outside the U.S.
Mylan and Biogen ( BIIB)/Samsung also have agreements with AbbVie allowing them to launch Humira biosimilars soon in Europe. In each of the four deals for Humira biosimilars, AbbVie has said its rivals will pay royalties on those sales.
But the U.S. versions of Humira will have to wait until 2023 to launch. AbbVie generated $12.36 billion in U.S. Humira sales in 2017. Humira, in total, accounted for nearly two-thirds of AbbVie's revenue for the year.
On the stock market today, Amgen stock rose 3.5%, to 202.34. Novartis and AbbVie stocks advanced 3.1% apiece, to 85.72 and 91.91, respectively.
For the quarter, J&J reported adjusted income of $2.05 per share on $20.3 billion in sales, rising a respective 7.9% and 3.6% year over year. The consensus of analysts polled by Zacks Investment Research was for adjusted profit of $2.03 per share on $19.91 billion in sales.
J&J also raised its guidance for the year. It now sees adjusted profit of $8.13-$8.18 a share on $81 billion to $81.4 billion in sales. At the midpoint of its outlook, the medical giant beat the consensus for $8.14 and $81.13 billion, respectively.
J&J Stock Helped By Pharmaceutical Sales
RBC Capital Markets analyst Glenn Novarro credited J&J's pharmaceutical unit for its beat. U.S. sales grew 4.8% on a reported basis to nearly $6.1 billion, beating Novarro's view by $150 million. Internationally, sales were $4.25 billion, rising 9.5% to top by $260 million.
"The strong international growth observed in 2018 is a healthy sign for the pharma business as it faces potential generic competition for (cancer treatment) Zytiga next year," he said in a report to clients.
Zytiga treats castration-resistant prostate cancer. During the quarter, oncology sales were the biggest source of pharmaceutical upside. Cancer treatments Imbruvica and Darzalex came in particularly strong, Novarro said.
But sales of blood thinner Xarelto disappointed. Revenue fell 3.6% to $612 million. Xarelto is only sold in the U.S. J&J attributed the Xarelto pitfall to higher discounts and rebates, Novarro said.
Medical Devices Stabilizing
Medical device sales appeared stable, though, Novarro said. Revenue in that unit declined a fraction on a reported basis to $6.59 billion.
Interventional solutions posted the best growth in the quarter, rising 18.1% on a reported basis to $653 million. Advanced surgery revenue grew 5.7% to $976 million. Revenue from contact lenses also had strong growth, rising 4.4% to $835 million.
But diabetes device sales toppled 22.2% to $315 million and orthopedic sales of $2.1 billion declined 4.2% on a reported basis. In the latter unit, the biggest decline came from sales of spinal devices, though trauma sales also lagged on share losses to Stryker ( SYK), Novarro said.
"J&J continues to lose worldwide spine share, which is a slight positive for pure plays (NuVasive ( NUVA) and Globus Medical ( GMED))," he said. "However, J&J's spine performance did improve sequentially for the second straight quarter."
Electrophysiology sales popped about 23%, accelerating from 17% and 15% year-over-year growth in the prior two quarters, Novarro said. This is a good indication for rivals Boston Scientific ( BSX), Medtronic ( MDT) and Abbott Laboratories ( ABT), he said.
The study pitted Dupixent against a placebo in treating nasal polyps in patients suffering chronic sinus infections. This could be the third use for Dupixent, Leerink analyst Geoffrey Porges said. It had Food and Drug Administration approval as an eczema treatment and is under consideration as an asthma drug.
But Porges noted Dupixent faces adoption hurdles in treating nasal polyps. Dupixent costs about $36,000 a year and is a biweekly injection. Nasal polyps generally are treated with corticosteroids or nasal surgery.
"To the extent some of these patients are identified and in the care of allergists already, they may be more accessible for Dupixent, but surgeons are likely to be slower converters to injectable treatment," Porges said in a note to clients.
Two Late-Stage Tests Show Promise
Regeneron and partner Sanofi ( SNY) tested Dupixent for nasal polyps in two Phase 3 studies. At 24 weeks, patients treated with Dupixent experienced a 51% and 57% improvement in their nasal congestion/obstruction severity compared, respectively, with 15% and 19% placebo improvements.
Dupixent-treated patients had a 27% and 33% reduction in their nasal polyps compared with a 4% and 7% increase for patients who received the placebo. Dupixent also cut the need for corticosteroids or surgery, and improved sinus infection symptoms and sense of smell.
The drug targets underlying inflammatory and allergic conditions of several diseases, said Regeneron Chief Scientific Officer George Yancopoulos. Regeneron also is looking at Dupixent in treating peanut and grass allergies, as well as a condition affecting the esophagus.
"With these data, Dupixent has now been shown to address this inflammation across the complete airway, which manifests in the upper respiratory tract as polyps and congestion, and in the lower airway as asthma," he said.
Dupixent Sales Expectations
Porges forecasts Dupixent sales of $921 million in 2018 growing to $4.7 billion in 2022. That doesn't include his expectations for revenue from Dupixent in treating nasal polyps. The consensus models $904 million in 2018 and $4.1 billion in 2022 in total Dupixent sales.
RBC Capital Markets analyst Kennen MacKay models peak sales of about $100 million for Dupixent in treating nasal polyps. This would make it the smallest potential use for Dupixent behind $2.4 billion for eczema and $1.2 billion for asthma, he said in a note to clients.
"The nasal polyps market is there, but we see this as a challenging commercial setting," he said. Nasal polyps treatment "represents a potential large market (but) we anticipate significant payer push back/access impediments given generic steroidal standard of care."
Digital media software maker Adobe Systems ( ADBE) on Tuesday received positive reviews for announcements at the company's Adobe Max creativity conference in Los Angeles. Adobe stock got price-target hikes from at least two Wall Street analysts.
Adobe stock soared 9.5% to close at 260.67 on the stock market today. It found support above its 200-day moving average during the recent stock market sell-off and retook its 50-day moving average on Tuesday.
Late Monday, Adobe reaffirmed its fiscal fourth-quarter guidance. It expects to earn an adjusted $1.87 a share on sales of $2.42 billion. Wall Street predicts $1.89 in adjusted earnings per share and $2.43 billion in revenue. Adobe is scheduled to report fiscal fourth-quarter results on Dec. 13.
Adobe also provided preliminary growth targets for its fiscal 2019, which starts Dec. 1. It forecast 20% year-over-year growth in total revenue, vs. the consensus estimate for 19%.
Adobe sees subscription bookings in its Digital Experience marketing software business rising 25% year over year. It also said its total addressable market will grow to about $108 billion by 2021.
Adobe Sees 'Continued Momentum'
"Our strategy of empowering people to create and transforming how businesses compete is leading to larger addressable market opportunities and the potential for accelerated revenue and earnings growth," Adobe Chief Executive Shantanu Narayen said in a news release. "Our 2019 growth targets reflect our continued momentum and market leadership."
Barclays analyst Saket Kalia raised his price target on Adobe stock to 304 from 297. He kept his overweight rating.
Adobe's forecast for annualized recurring revenue in its Digital Media business was better than expected, he said. Also, its Experience Cloud business is poised for accelerating growth, Kalia said in a note to clients.
Cowen analyst Derrick Wood upped his price target on Adobe stock to 300 from 295 and reiterated his outperform rating.
"We remain impressed with the durability of its high-margin Digital Media business and think guide could be conservative based on Adobe's outperformance in fiscal 2018," Wood said in a report. "Digital Experience subscription bookings guide of 25% (growth), an acceleration from 20%, was also a positive surprise."
Adobe Stock Called 'Top Pick'
Piper Jaffray analyst Alex Zukin said Adobe's guidance shows that the company is in "full growth mode."
Zukin reiterated his overweight rating on Adobe stock with a price target of 310.
"With the current market volatility, Adobe remains one of our top picks for durable, hyper-efficient growth," he said in a note to clients.
At the Adobe Max conference, the company announced the next generation of its core Creative Cloud offering. It unveiled updates to its flagship applications for creative professionals, including Photoshop and Illustrator.
Tesla ( TSLA) Chief Executive Elon Musk issued a series of tweets Tuesday saying its new chip called "Autopilot" that boosts the self-driving performance of its vehicles will be available in about six months.
Also on Tuesday, a judge approved Musk's settlement with the Securities and Exchange Commission, first reported by Bloomberg. That settled allegations that Musk committed fraud when he said he had the funding needed to take the electric carmaker private.
As part of the SEC settlement, Tesla pays $20 million and Musk pays an additional $20 million. The deal resolves government claims that Musk misled the public with a flurry of tweets in August on plans to take the company private. As part of the SEC settlement, Musk retains his position as chief executive. But he must relinquish his role as chairman and appoint two new independent directors.
In a series of tweets Tuesday, Musk said the Autopilot chip will improve the self-driving performance of Tesla vehicles between "500% and 2,000%."
Musk said Tesla plans to offer Autopilot as an upgrade on all of the company's new production cars when it's available.
Tesla's Autopilot Chip Cost
Existing customers who ordered the full self-driving package with their vehicles will be able to get the Autopilot chip installed in their vehicle for free. For those customers who did not order the self-driving package, installation of the chip will cost $5,000.
Autopilot is an advanced driver-assistance system. It provides lane centering and changing assistance, self-parking ability, adaptive cruise controls and other features.
Race To Autonomy
All makers of electric vehicles are in a race to develop the best driver-assistance technology. It's a critical selling feature for consumers.
Macquarie Research analyst Maynard Um in a report last week said Tesla is uniquely positioned, given its lead in software integration into its electric vehicles and its position in autonomous driving. Um set a price target of 430.
One of the crown jewels of the Amazon ( AMZN) e-commerce empire is its Amazon Prime membership plan, and for good reason.
Amazon Prime members, on average, spend more than double what non-Prime members spend per year. And the difference is widening, according to a report by Consumer Intelligence Research Partners out Tuesday.
Based on a survey of 500 users, CIRP estimates that Amazon Prime members in the U.S. spend an average of $1,400 per year on the site. That compares with $600 per year for customers without a Prime membership. Last year, CIRP said Amazon Prime members spent about $1,300 per year, vs. about $700 per year for nonmembers.
Amazon Prime members get free shipping and free streaming of movies, TV shows and music. The package includes exclusive shopping deals and other benefits. But it comes with a fee. In June, Amazon raised the annual price of Prime membership to $119 per year, up from $99.99. Monthly Prime members continue to pay $12.99 per month. Students pay a rate of $59 per year, or $6.49 per month.
The CIRP report said Prime members shop at Amazon.com an average of 26 times per year, compared with an average of 14 times for customers without a Prime membership. Prime members also spend about $55 per visit, vs. $42 for customers without a Prime membership.
How Many Amazon Prime Members?
As of Sept. 30, CIRP estimates that, in the U.S., 61% of Amazon customers are Prime members. Based on this, CIRP estimates that, in the U.S., Amazon Prime has 97 million members. Though the number is wider when members outside the U.S. are added in.
In April, Amazon Chief Executive Jeff Bezos released his annual letter to shareholders, revealing for the first time the number of subscribers to the company's Prime membership program.
Investment banks Goldman Sachs ( GS) and Morgan Stanley ( MS) reported better-than-expected third-quarter earnings Tuesday. Goldman stock and Morgan Stanley stock rose early Tuesday. But they and other big bank stocks have stumbled amid a broader market sell-off and earnings reports.
Goldman Sachs Earnings
Estimates: Wall Street expects Goldman Sachs earnings per share to grow 8% to $5.42. Revenue should creep 0.6% higher to $8.37 billion.
Results: Goldman Sachs earnings jumped to $6.28 a share as revenue climbed to $8.646 billion. Investment banking revenue topped expectations. Fixed-income trading revenue was light.
Shares: Goldman Sachs stock rose 3% to 221.70 in the stock market today. The stock is below its 50-day and 200-day lines.
Morgan Stanley Earnings
Estimates: Q3 EPS was seen rising 7.5% to $1, on a 4% revenue gain to $9.53 billion.
Results: Morgan Stanley earnings came in at $1.17 per share with revenue climbing to $9.872 billion. Investment banking revenue was better than expected.
Shares: Morgan Stanley stock jumped 5.7% to 45.94 Tuesday. Shares of the bank are also below their 50-day and 200-day lines.
The banks' results follow assurances from JPMorgan Chase ( JPM) executives on Friday that the U.S. economy was strong enough to outlast worries about higher borrowing costs and trade tensions that gripped the market last week. But JPMorgan stock fell on Friday and edged lower Monday.
Zacks, in commentary posted online on Friday, said that Goldman Sachs client activity was subdued in the third quarter, potentially quieting business in Goldman's large trading desk.
"Though higher inflation expectation, tightening of monetary policy by the Fed, the U.S.-China trade war and a sharp sell-off in the tech sector induced volatility in the first half of the year, uncertainty mainly related to the rising trade-war fears and some other geopolitical tensions in the (September)-end quarter failed to significantly boost client activity," the firm said.
Quarterly trading results were also down for Bank of America ( BAC), which reported Monday, and JPMorgan Chase ( JPM), which reported Friday. Citigroup ( C) results rose during the quarter.
Other Bank Stocks
Bank of America rose 2.2% Tuesday after falling 1.9% Monday. JPMorgan stock advanced 2.1%. Citigroup stock gained 0.7% and Wells Fargo ( WFC) climbed 0.8%.
Domino's Pizza ( DPZ) reported third-quarter earnings that topped forecasts, but revenue and same-store sales just missed estimates, sending shares tumbling early Tuesday.
Domino's Pizza Earnings
Estimates: Wall Street expected Domino's earnings of $1.73 per share, according to Zacks Investment Research. Revenue was seen spiking 23% to $790 million. Consensus Metrix forecast same-store sales growth of 6.5%.
Results: Domino's Pizza earnings came in at $1.95 a share on revenue of $786 million. Domestic same-store sales grew 6.3% with company-owned comps up 4.9% and franchise comps up 6.4%. International comps rose 3.3% excluding currency effects.
"In particular, our U.S. business once again executed at extremely high levels in the third quarter," said CEO Ritch Allison. "Our global business, driven by strong retail sales growth and franchisee economics that outperformed the industry, continued its strong momentum."
Domino's also may be benefiting from Papa John's ( PZZA) fight between the board and John Schnatter, who is its founder and top shareholder. Papa John's stock rose 0.6% but is in a downtrend going back to the end of 2016.
How Analysts Are Slicing Domino's Pizza
Wells Fargo analyst Jon Tower, who rates the stock as market perform, was cautious heading into Domino's earnings. Domino's stock is trading above his price target of 260.
"While we continue to believe DPZ shares deserve a premium valuation relative to global quick-service peers ... given long-term systemwide sales growth predicated on HSD franchise unit growth, we are concerned that the risk/reward for investors at current levels is skewed to the downside in the near term, particularly if key metrics (i.e., U.S. SSS, global unit growth) come up shy of relatively high expectations," he said in a research note.
However Stephens analyst Will Slabaugh rates the stock as overweight with a 310 price target. He credits the firm's success to its Mix and Match menu, its platform's ability to drive add-on sales and its Piece of the Pie loyalty program.
"We continue to believe that DPZ's industry-leading fundamentals will maintain/widen its gap vs. the industry and support its premium valuation," he said in a research note.
Slabaugh expected domestic same-store sales to jump 6.5% and for adjusted EPS to hit $1.78.
UnitedHealth Group ( UNH), the nation's largest insurer, reported earnings before the open on Tuesday that exceeded Wall Street expectations. UnitedHealth stock rose in early trade, giving a boost to Dow Jones futures.
Estimates: Analysts expected UnitedHealth earnings per share to climb 24% to $3.30 while revenue grew 12% to $56.34 billion, according to Zacks Investment Research.
Results: UnitedHealth earnings rose to $3.41 a share, the third straight quarter of 28% year-over-year growth. Revenue climbed 12% to $56.56 billion.
Outlook: UnitedHealth now expects adjusted EPS to "approach $12.80" vs. its prior range of $12.50-$12.75. Analysts expected $12.70, though that was before Q3's 12-cent beat.
Shares of the Dow Jones industrial average component jumped 4.6% to 272.24 on the stock market today, hitting a new all-time high.
UnitedHealth stock gapped back above its 50-day moving average after slicing through that key support last week. The relative strength line, which tracks a stock's performance vs. the S&P 500 index, moved to record highs even before Tuesday.
UnitedHealth said it slowed stock buybacks to 1.9 million shares in the third quarter, bringing year-to-date purchases to 15.7 million shares for $3.65 billion.
Centene stock rose 5.05% to 146.46, retaking its 50-day line and nearing a 148.34 flat-base buy point.
The managed care group is about to undergo major change with Cigna ( CI) poised to finalize its buyout of Express Scripts ( ESRX) and CVS Health ( CVS) close to wrapping up its purchase of Aetna ( AET).
The UnitedHealth Model
While the entry of Amazon.com ( AMZN) into the pharmacy business may have been a factor in the megamergers, analysts have credited UnitedHealth's success as the biggest reason.
After earlier mergers of Anthem ( ANTM) with Cigna and Aetna with Humana ( HUM) were blocked by courts on antitrust grounds, the industry has decided to follow UnitedHealth's lead by getting bigger via an expansion into providing health services. UnitedHealth's Optum health services division has been the internal driver of earnings growth, with operating profit up 19.7% from a year ago in the third quarter.
Optum's health services, prescription benefit management and technology outsourcing and consulting accounted for 43% of operating profit in Q3, up from 41% a year earlier.
UnitedHealthcare, the company's managed-care division, has seen growth driven by an expansion of its Medicare Advantage and Medicaid business. In Q3, Medicare Advantage customers rose 125,000 from Q2 and 525,000 from a year ago. Medicaid customers rose by 255,000 from a year ago but slipped by 80,000 in the quarter due to a planned divestiture.
Walmart ( WMT) cut its earnings guidance Tuesday to include the purchase of a majority stake in Indian e-commerce giant Flipkart and announced a partnership with Advance Auto Parts ( AAP).
After spending $16 billion on Flipkart earlier this year, Walmart earnings in the current fiscal year are now seen at $4.65-$4.80 per share, below the Wall Street consensus for $4.90 and down from a prior outlook of $4.90 to $5.05.
Walmart also downgraded its 2020 U.S. comparable sales outlook and now sees it growing 2.5%-3% vs. the 3% gain it predicted earlier this year.
Shares recovered from earlier losses and rose 2.1% to 95.81 on the stock market today. Target ( TGT) and Costco ( COST) both rose 1.4%.
Walmart is hosting its annual investors meeting Tuesday, where CEO Doug McMillon plans to discuss e-commerce gains, investments and sales improvement. Walmart earnings for Q3 will come out Nov. 15.
Walmart-Advance Auto Parts Deal
Also Tuesday, Walmart announced a partnership with Advance Auto Parts to sell products online and in stores. The deal will include home delivery and same-day pickup at both retailers.
"This year, we've been incredibly focused on building our offering on Walmart.com to ensure we have the specialty assortment that our customers are looking for," said Phillip Oaks, vice president of retail merchandising at Walmart e-commerce, according to CNBC.
The deal comes as Walmart looks to enhance its online services to better compete with Amazon.com ( AMZN).
Advance Auto Parts shares rose 0.9% to 168.36. Amazon was up 3.35%.
Cannabis companies that sell both medicinal weed and recreational pot. Marijuana stocks to buy and watch. Marijuana mergers and acquisitions. Dispensary data analytics. Upcoming marijuana IPOs.
Those phrases have become increasingly common as marijuana legalization spreads across U.S. states and Canada. And investor interest in the industry continues to rise as leading pot players continue to chew away at legal barriers, where the federal government still outlaws cannabis.
Currently, nine states and Washington, D.C., have legalized recreational marijuana, while 29 states have legalized medical weed.
Canadian pot producer Canopy Growth Corp. ( CGC) in May began trading on the New York Stock Exchange. The Canopy IPO followed the debut of Cronos Group ( CRON) on the Nasdaq in February. MedMen, a U.S. marijuana company valued at $1.65 billion, had its IPO in Canada in May as well. Still, the industry remains volatile, and inconsistent regulations could make expansion difficult.
Marijuana Vs. Beer And Tobacco
Big money is pouring into the legal cannabis market, potentially steering more U.S. consumers toward weed. Struggling beer and tobacco companies are using that trend to find new business. One approach is to look for opportunities within the increasingly popular products in MedMen's stores. For example, the cannabis drinks stacked in a refrigerator near the corner, or the sleek vaping devices and tins of prerolled joints. Read More
The retail landscape is rapidly changing, with Amazon ( AMZN) and other e-commerce sites upending traditional brick and mortar retailers such as Macy's ( M) and Target ( TGT).
How do you keep track of the broad industry trends affecting retailers and restaurants, especially for the current and emerging leaders? IBD keeps all the key sector news here, from company earnings and expansions to monthly retail sales and features about the future of malls and online shopping.
Expect to find news on Home Depot ( HD), McDonald's ( MCD), Wal-Mart ( WMT), eBay ( EBAY) and General Motors ( GM) sales here. IBD will also highlight the best-performing retailers, including fundamental and technical analysis.
After a wave of mergers, the airline industry's consolidation appears to have slowed the trend of rising capacity and damaging fare wars. Even once-skeptical investors like Berkshire Hathaway's ( BRKB) Warren Buffett see the advantages that U.S. carriers now enjoy and have taken large positions in Delta Air Lines ( DAL), American Airlines ( AAL) and United Airlines ( UAL).
But challenges to the sector remain, including the aggressive expansion of low-cost competitors and the proliferation of cheap flights in the lucrative trans-Atlantic market. There have also been some signs that airlines' discipline on holding capacity in check is eroding.
Collectively known as the FANG stocks, Facebook ( FB), Amazon.com ( AMZN), Netflix ( NFLX) and Google parent Alphabet ( GOOGL) are among the tech titans of our time.
Facebook and Google alone capture the lion's share of all global online advertising, including in the fast-growing mobile format, while Amazon dominates e-commerce and cloud services with its Amazon Web Services business.
And although Netflix is facing increasing competition from Hulu and fellow FANG stocks — particularly Amazon and YouTube owner Google — its original programming and massive global expansion have cemented its leadership in the streaming industry.
Check this page regularly for ongoing coverage of the FANG stocks, including potential buy and sell signals.
After spending nearly a decade wallowing in ultralow interest rates, JPMorgan Chase ( JPM), Bank of America ( BAC), Wells Fargo ( WFC) and the banking sector as a whole got a boost from Federal Reserve rate hikes and Donald Trump's win in November.
A faster pace of tightening is expected as well as a rollback of post-financial crisis regulations, potentially adding momentum to lenders. But challenges remain as much-anticipated tax reform looks less ambitious and cracks worsen in certain consumer markets, such as auto loans.
Meanwhile, international political volatility such as fallout from Brexit and the backlash against trade could lift activity at banks like JPMorgan, Goldman Sachs ( GS) and Morgan Stanley ( MS), but lending at banks with more international exposure like Citigroup ( C) could see headwinds.
Bookmark this page to stay on top of the latest bank stock and financial sector news.
Goldman Sachs, Morgan Stanley Earnings Easily BeatInvestment banks Goldman Sachs and Morgan Stanley reported better-than-expected third-quarter earnings Tuesday. Goldman stock and Morgan Stanley stock rose early Tuesday. But they and other big bank stocks have stumbled amid a broader... Read More
There was a mixed picture across global stock markets on Tuesday as investors awaited the next wave of corporate earnings and further developments across a host of geopolitical issues.
The Stoxx Europe 600 Index edged higher and futures on the S&P 500 pointed to a firmer open as Netflix ( NFLX) becomes the first large technology company to report results after today's close. Japan's shares outperformed Asian equities, with Hong Kong and Chinese shares retreating. The yen declined, while the dollar edged up from close to a two-week low ahead of a U.S. Treasury currency-manipulation report expected this week. Oil fluctuated amid tensions between Saudi Arabia and the U.S. over the disappearance of a prominent journalist, while gold held gains.
While the bid for haven assets appears to have ebbed somewhat, caution is still on display as investors look for any signal from corporates hinting of a slowdown or stronger growth that could affect the pace of Federal Reserve rate hikes. Earnings from Goldman Sachs ( GS), Morgan Stanley ( MS) and Netflix are all due Tuesday, while minutes from the latest Fed meeting should offer more clues a day later. In the background, traders are still grappling with continuing U.S.-China trade war rhetoric and geopolitical strains.
Elsewhere, the pound held steady as leaders struck a conciliatory tone a day after Brexit negotiations broke down. The Turkish lira retreated after seven days of gains after the country released U.S. pastor Andrew Brunson on Friday.
Here are some key events coming up this week:
APEC finance ministers meet in Port Moresby, Papua New Guinea. China's new yuan loans may have risen to 1.36 trillion yuan ($196 billion) in September from August's 1.28 trillion yuan as officials sought to buoy economic growth. Third-quarter GDP for China comes Friday, with headline growth forecast to slow to 6.6 percent year on year from 6.7 percent, in addition to last month's retail sales and factory output. Minutes from the Federal Reserve's latest policy meeting are due on Wednesday, with investors focused on projections for further interest rate rises. Goldman Sachs, Morgan Stanley and Netflix are among companies reporting this week. Euro-area governments, Italy, must turn in fiscal budget proposals to the European Commission by midnightMonday.
These are the main moves in markets:
The Stoxx Europe 600 Index climbed 0.1 percent as of 8:09 a.m. London time. Futures on the S&P 500 Index climbed 0.3 percent. The U.K.'s FTSE 100 Index dipped 0.1 percent. Germany's DAX Index rose less than 0.05 percent. The MSCI Emerging Market Index gained 0.1 percent. The MSCI Asia Pacific Index jumped 0.3 percent.
The Bloomberg Dollar Spot Index increased 0.1 percent. The euro decreased 0.1 percent to $1.1573. The British pound rose less than 0.05 percent to $1.3158. The Japanese yen fell 0.3 percent to 112.08 per dollar, the biggest fall in almost two weeks.
The yield on 10-year Treasuries increased one basis point to 3.17 percent, the highest in a week. Germany's 10-year yield fell less than one basis point to 0.50 percent. Britain's 10-year yield decreased one basis point to 1.603 percent, the lowest in almost two weeks. Italy's 10-year yield declined two basis points to 3.522 percent.
West Texas Intermediate crude decreased 0.4 percent to $71.49 a barrel. Gold rose 0.1 percent to $1,228.09 an ounce, the highest in almost 12 weeks.
J.B. Hunt ( JBHT) earnings topped views in Q3, but the freight shipping and trucking company faces a shortage of truckers boosted costs.
J.B. Hunt Earnings
Estimates: Analysts expect J.B. Hunt earnings to jump 54% to $1.40 a share. Wall Street expects third-quarter sales to climb 20% to $2.203 billion.
Results: EPS of $1.47 after excluding after-tax charges of 28 cents, on revenue of $2.21 billion, though some estimates were for $2.22 billion. Intermodal revenue grew 16% to $1.22 billion despite network and the service disruptions from Hurricane Florence. Dedicated contract services revenue rose 24% to $543 million. Integrated capacity solutions revenue increased 28% to $346 million. JBT revenue climbed 14% to $106 million.
An increase in operating income was partly offset by increases in driver wages and recruiting costs, higher-than-normal implementation expenses for new long-term DCS contracts, increased rail purchase transportation, higher technology spending on new applications and legacy operating systems.
Fuel expenses and taxes jumped 35.6% to $118 million, though J.B. Hunt collected fuel surcharge revenue of $273.1 million.
J.B. Hunt Stock
Shares were up 0.7% in late trading, after closing up 2% at 111.53 on the stock market today. That follows a four-day sell-off in J.B. Hunt stock last week. Old Dominion Freight Line ( ODFL), another freight company, lost 0.7% after crumbling last week as well.
XPO Logistics ( XPO), a transportation logistics company, rose 1%.
J.B. Hunt: Intermodal Giant
J.B. Hunt operates a big intermodal business — that is, the usage multiple modes of transportation, like rail and truck, to ship something. The company has access to a large rail and truckload service network in the U.S.
It has also been investing in its digital freight management platform, J.B. Hunt 360. Those investments are similar to others in the transportation and logistics space, as online retailer Amazon ( AMZN) broadens its own logistics resources.
J.B. Hunt earnings arrived as the costs to ship products from businesses to customers becomes more expensive.
Not only have fuel costs climbed, the supply of available trucks, and truckers, has been tight, pushing prices higher as e-commerce helps drive deliveries.
That's in part because fewer people are interested in driving trucks, pushing pay for the drivers willing to do the work but posing recruitment difficulties for the industry and its bottom line.
Eric McGee, executive vice president of highway services at J.B. Hunt, said at a conference in September that "the drivers that we have are staying, and turnover is doing really well. But it's becoming very, very hard to attract the new drivers in."
Rail stocks have fared better than trucking peers in recent weeks, though they also lost ground last week. CSX ( CSX) reports earnings late Tuesday.
Krystal tested its gene therapy, KB103, as a skin disease treatment for two patients, age 35 and 28. The patients have a genetic disorder that makes them more susceptible to skin blistering. The biotech company's gene therapy is a topical solution.
The study pitted the gene therapy against a placebo. Wounds treated with the gene therapy closed in two weeks and stayed closed. Similarly sized placebo-treated wounds took 10 weeks to close in one patient and didn't close completely in the other patient.
The results "suggest that KB103 can afford a simple, convenient, painless way to administer treatment for patients suffering with this debilitating disease," Peter Marinkovich said in a written statement. Marinkovich is a Stanford University associate professor who led the study.
Wounds treated with the gene therapy remain closed to date, Krystal said in a news release. In the first patient, the wound has been closed for 4-1/2 months. The patient has now stopped bandaging the wound. In the second patient, the wound has been closed for 3-1/2 months.
Gilead Sciences ( GILD) and Amgen ( AMGN) are poised to top third-quarter views, but biotech companies will broadly face sequential declines on currency headwinds, an analyst predicted Monday.
"Fortunately, consensus appears to have conservative expectations already baked in despite strong results in the second quarter," Leerink analyst Geoffrey Porges said in a report to clients. "We expect that most of the companies in the group will modestly beat consensus."
Most biotech companies hiked the prices on key drugs in January or February, he said. That puts the onus for third-quarter revenue growth on volume. The exception is Celgene ( CELG) which raised its prices on cancer treatments Revlimid and Pomalyst in July.
"With declining net positive price, few changes in channel inventories and flat or declining shipping days, third-quarter results will rely more heavily on organic demand than has been required in past quarters and years," he said.
Exchange rates are also likely to depress revenue compared to the second quarter "which is likely to accentuate the apparent slowdown in growth and anemic sequential trend in third-quarter prescription volumes," he predicted.
Third-Quarter Views In Biotech
Celgene and Biogen could offer third-quarter disappointment. But Vertex Pharmaceuticals ( VRTX) could surprise to the upside on expanded uses for its cystic fibrosis medicines. Further, U.S. sales of Regeneron Pharmaceuticals' ( REGN) eye drug Eylea and eczema drug Dupixent look strong.
Porges expects Gilead to offer a third-quarter beat on strong sales of HIV treatments and better-than-expected hepatitis C drug sales. Meanwhile, Amgen's bone-marrow stimulating drug, Neulasta, seems to be holding up against competition from biosimilars, he said.
Despite hiking the prices of two key drugs in July, prescription trends suggest Celgene's sales could lag by more than 1%, Porges said. On adjusted earnings, he calls for Regeneron and Gilead to outperform the consensus with Vertex most at risk to miss.
For Vertex, it's possible analysts could underestimate "the heavy investment required for its geographic expansion and expanded suite of Phase 3 trials," Porges said. "We also note that we have decreased our revenue and EPS estimates for Biogen by 2%."
Amazon ( AMZN) on Monday said it plans to be an official online retail partner for products seen on "Shark Tank," the TV show that funds startups and entrepreneurs.
The new Amazon Launchpad Shark Tank Collection features more than 70 products that successfully received funding from seasons one through nine on "Shark Tank." The e-commerce giant plans to feature new products from the current season, its 10th, and beyond.
"The Amazon Launchpad program is all about empowering creators and inventors, enabling them to reach hundreds of millions of customers," Amazon Vice President Jim Adkins said in prepared remarks. "We're making it easy for fans of the show to discover a wide variety of unique innovations and products."
The Amazon Launchpad program plans to offer a $15,000 credit for cloud-computing services to each eligible "Shark Tank" entrepreneur.
Amazon's Close Look At New Products
The "Shark Tank" partnership provides Amazon an up-close look at which products are potential consumer hits.
Video doorbell startup Ring was among the startups that presented its product to the "Shark Tank" panel. It got no funding, but Amazon acquired the company in February for $1 billion. Products developed by Ring were part of a bevy of new smart-home devices Amazon introduced last month.
The Amazon Launchpad is one of several experiments for the company. It has delved into various forms of retailing, including physical retail stores. Last month, Amazon opened a store in New York where everything for sale rates highly on its e-commerce website.
The Amazon store, called Amazon 4-star, boasts that everything for sale either rates four stars or above, is a top seller, or trends on its website.
Two Wall Street firms on Monday cut their price targets on Netflix stock ahead of the internet television network's third-quarter earnings report. Netflix ( NFLX) is scheduled to report September-quarter results after the market close Tuesday.
Goldman Sachs kept its buy rating on Netflix stock, but lowered its 12-month price target to 430 from 470. Raymond James reiterated its outperform rating on Netflix, but cut its price target to 400 from 445.
Netflix stock fell 1.9% to 333.13 on the stock market today. The stock has been consolidating for the past 16 weeks after hitting a record high of 423.21 on June 21.
"While third-party data has most investors anticipating net subscriber additions beyond management's July guidance, we believe that has been balanced by expectations for more conservative Q4 guidance," Goldman analyst Heath Terry said in a report to clients.
In July, Netflix said it expected to add 5 million new subscribers in the third quarter, bringing its total to 135.14 million worldwide. Netflix guided to 650,000 new subscribers in the U.S. and 4.35 million in international markets.
For the fourth quarter, Wall Street is modeling Netflix to add 7.18 million new subscribers. Analysts are forecasting 1.64 million new domestic subscribers and 5.54 million new international subscribers.
Netflix Results Take Backseat To Macro Trends
"Longer term, we continue to believe consensus forecasts significantly underestimate Netflix's future growth given its content, distribution and data advantages," Terry said. Netflix also is at the early stage of growth in most of its markets, he said.
News reports about major competitors entering the streaming video business have pressured Netflix stock recently. Those rivals include Apple ( AAPL), AT&T's ( T) Warner Media, Walmart ( WMT) and Walt Disney ( DIS).
Raymond James analyst Justin Patterson said Netflix's results will take "a back seat to macro trends" while the stock market is in correction.
Any upside in Netflix's third-quarter results could be tempered by tough year-over-year comparisons in the fourth quarter, Patterson said.
Wall Street is modeling Netflix to earn 68 cents a share on sales of $4 billion in the September quarter. In the year-earlier quarter, Netflix earned 29 cents a share on sales of $2.98 billion.
Patterson also lowered his price target on subscription streaming music leader Spotify ( SPOT). He kept his strong buy rating on Spotify, but cut his price target to 200 from 220. Spotify rose 0.5% to 159.25 on Monday.
Video game publisher Activision Blizzard ( ATVI) on Monday said its highly anticipated "Call of Duty: Black Ops 4" is off to a fast start. The latest title in the long-running "Call of Duty" franchise launched Friday and set records for digital downloads.
The Santa Monica, Calif.-based publisher said the game set a new launch-day digital sales record for the company. It topped "Call of Duty: WWII" from last year. It also set a franchise high for launch-day PC digital sales, Activision said. The game also set records for Day One digital sales on Sony's ( SNE) PlayStation Store and Microsoft's ( MSFT) Xbox One console, Activision said.
Plus, the number of online players for "Black Ops 4" on its first day increased from last year's release, Activision said.
" 'Black Ops 4' is an incredible game, and the community's response to it has been amazing," Rob Kostich, executive vice president and general manager for "Call of Duty," said in a news release. "We have shattered multiple digital Day One sales records, and the number of people who connected online on Day One to play has grown year on year."
"Black Ops 4" is a first-person shooter game and features online multiplayer, battle royale and zombie modes. The standard edition of the game costs $59.99.
Activision Scores Stock Rating Upgrade
Investment bank Barclays upgraded Activision stock to overweight from equal weight on the initial sales report. It raised its price target to 86 from 79.
However, Activision fell 2.9% to 75.67 on the stock market today. It notched a record high of 84.68 on Oct. 1.
Baird analyst Colin Sebastian reiterated his outperform rating on Activision with a price target of 85.
"We view record digital unit sales of 'Call of Duty' on launch day as a positive development, given the higher margins of downloads vs. disc sales, and limited apparent impact from Fortnite's ongoing success," he said in a report.
Some investors might be concerned that total sales are lagging last year's release, Sebastian said. Activision made no mention about sales of physical copies of the game. Activision likely doesn't have a full view of the weekend's retail sales, Sebastian said.
"Black Ops 4" sales could be hurt by the lack of a single-player campaign mode in the game, Sebastian said.
Arista Networks ( ANET) has won a large Pentagon contract for upgrading military computer-networking gear at the expense of archrival Cisco Systems ( CSCO), says an analyst.
"We recently learned from a federal VAR (value added reseller) contact that Arista has won a multiyear award with the Department of Defense for the unclassified piece of the Pentagon network, which encompasses 80,000 ports across multiple facilities," William Blair analyst Jason Ader said in a note to clients.
"Our contact estimates the size of the contract at roughly $100 million over multiple years," Ader went on to say. "We note that the contract win was a competitive displacement of Cisco. (The contract) includes Arista for core switching and routing, and Aruba for edge switching. The award is currently under protest by Cisco."
Ader added that the Pentagon contract could "open many new doors in the future for Arista, both in DoD and other government agencies."
Arista stock could use a new catalyst. Shares in the maker of cloud computing gear have dropped 28% since Aug. 24. The pullback accelerated amid the early October broad sell-off in technology stocks.
Will Cisco Gain On Arista In Cloud Computing?
Arista stock slipped 0.7% to close at 220.83 on the stock market today. The rise of cloud computing has been a big driver of the company's growth.
Arista sells network switches that speed up communications among racks of computer servers packed into high-performance, "hyperscale" data centers. Its top customers include Microsoft ( MSFT), Facebook ( FB) and Amazon.com ( AMZN).
Cisco, though, could gain as cloud customers shift to 400 gigabit-per-second network switches from 100-gigabit technology, analysts say.
Shares in Arista jumped in late August after the maker of computer networking gear joined the S&P 500 index. Its stock has been consolidating since February after management lowered expectations for revenue growth. After a long run, the company recently fell out of the IBD 50 roster of fast-growing companies.
PayPal Holdings ( PYPL) is raising fees on its Venmo service, a potentially risky move as bank-supported rival Zelle gains momentum.
PayPal, which reports third-quarter earnings on Thursday, will increase Venmo's fee starting Nov. 6, Bloomberg reported. The move spurred a backlash from users on social media.
PayPal said it will charge 1% when Venmo account holders transfer money quickly to their bank accounts. When the feature was first rolled out, there was a 25-cent fee on the transactions. Users will still be able to do standard bank transfers for free but those take one to three days, rather than roughly 30 minutes for the other method.
Bank of America ( BAC), meanwhile, reported third-quarter earnings on Monday morning and discussed its own Zelle results. Bank of America is one of 30 banks that launched Zelle, a person-to-person mobile payment service, in 2017. Others include JPMorgan ( JPM), Wells Fargo ( WFC) and Citigroup ( C), none of which disclosed their Zelle operating metrics when they reported last week.
Zelle Payment Growth A Venmo Concern
"If the 100% volume growth (to $12 billion) reported by BofA today is an indication of overall volume trends for Zelle, consumer adoption of Zelle could be at an inflection point, and pose a threat to PayPal's Venmo P2P service," Mizuho Securities analyst Thomas McCrohan said in a note to clients.
BofA said Monday that it has 4.3 million Zelle users. Market researcher eMarketer has estimated that overall Zelle users will climb to 27.4 million users in 2018, up from 15.8 million last year.
PayPal's Venmo will have 22.9 million users vs. 17.3 million a year earlier, eMarketer says.
Apple ( AAPL) and Square ( SQ) also have launched P2P services that target millennials.
PayPal stock dropped 2.3% to close at 77.23 on the stock market today. PayPal stock has climbed 15% from a year ago. But shares have sold off from an intraday high of 93.44 set on Sept. 4.
Infosys reports fiscal second-quarter earnings early Tuesday, with analysts looking for more signs of revenue growth amid higher investments in digital technology by new chief executive Salil Parekh.
Analysts estimate that Infosys ( INFY) will report 6.8% revenue growth to $2.91 billion. Earnings will be flat from a year earlier at 13 cents per share, analysts predict.
"For September quarter earnings, investors are likely to be focused on the magnitude of revenue growth acceleration, which will be critical to maintain full-year guidance," said Arvind Ramnani, a Keybanc Capital Markets analyst in a report.
Canadian pot company Canopy Growth ( CGC) is gobbling up U.S. hemp research firm Ebbu in the latest example of marijuana industry merger munchies. Canopy stock and other marijuana stocks soared Monday, with Canada's recreational legalization this week.
Canopy Growth has agreed to pay $19.2 million in cash, as well as issue 6.22 million common shares to Ebbu in exchange for the assets being acquired. The deal is still subject to regulatory approval.
In addition, a further $76.8 million in purchase price will be payable if certain scientific-related milestones are achieved within two years after the close of the deal.
Ahead of the legalization of recreational cannabis in Canada on Wednesday, there has been a spate of M&A activity in the marijuana industry, with big players keen to snap up attractive rivals.
Last week, MedMen Enterprises agreed to buy medical cannabis provider PharmaCann in a $682 million deal that creates the biggest U.S. weed company. And in Canada, TSX-listed Aurora Cannabis has been a big mover. So far it has announced 15 acquisitions in the past two years.
Beverage Boost For Canopy Growth
Canopy Growth said Ebbu has intellectual property and R&D advancements which apply directly to its hemp and THC-rich cannabis genetic-breeding program, as well as its potentially lucrative cannabis-infused beverage capabilities.
Ebbu's IP portfolio is also expected to contribute to the Canopy Health Innovations' formulations program.
Management believes it can potentially vastly reduce the cost of CBD production by applying Ebbu's IP. Canopy Growth operates a field-scale hemp operation based in the Canadian province of Saskatchewan.
"We collectively believe consumer trust is achieved by driving the scientific agenda needed to build predictable, repeatable outcomes and layering on brand power," Canopy Growth Co-CEO Mark Zekulin said.
Canopy Growth said the deal will be in accordance with current U.S. federal law. A newly formed subsidiary will utilize Ebbu's assets and personnel to conduct R&D. In addition, there will be no production or sale of products resulting from the R&D in the U.S. until it is federally legal to do so.
Marijuana Stocks Skyrocket
Canopy Growth stock jumped 14% to 56.89 on the stock market today on heavy volume, vaulting to a new high. Its relative strength line is looking strong. Among other marijuana stocks, Tilray ( TLRY) was up nearly 12% to 165.64. Cronos Group ( CRON) rallied 19% to 11.74.
Marijuana stocks have plunged since making huge gains, and now appear to be consolidating. With recreational cannabis due to become legal in Canada on Wednesday, it could be a key week for the sector.
Canopy Growth cleared a five-week consolidation, too short for a proper base.
Canopy could be best placed for an entry into the potentially lucrative cannabis-infused beverage space. Last year, Corona parent Constellation Brands ( STZ) took a nearly 10% stake in Canopy, and earlier this year agreed to sharply boost its stake with a $4 billion investment.
Tilray has dramatically plunged from its record high of 300, but it has been trading tightly for the past three weeks, and if this continues it could soon offer up a potential entry. Meanwhile, Cronos Group pulled back sharply, but found support at its 50-day line recently before spiking Monday.
Marijuana-focused exchange-traded fund ETFMG Alternative Harvest ( MJ) popped 8.3%. AdvisorShares Vice ETF ( ACT), which also has exposure to cannabis, edged up 0.1%.
Three major semiconductor industry players will provide an early read on the health of the chip sector when they report third-quarter results this week. ASML Holding ( ASML), Lam Research ( LRCX) and Taiwan Semiconductor Manufacturing ( TSM) will kick off the earnings season for the sector.
Reports of slowing demand, especially for memory chips, have battered semiconductor stocks in recent months.
IBD's Semiconductor Equipment industry group ranks No. 193 out of 197 groups. It is one of three chip sector groups. IBD's Semiconductor Manufacturing group ranks No. 168 and Semiconductor Fabless ranks No. 107.
Chip-gear makers Lam and ASML report September-quarter earnings on Tuesday and Wednesday, respectively. Chip foundry Taiwan Semiconductor Manufacturing, known as TSMC, follows on Thursday.
Lam Research On Path For 7% EPS, Sales Growth
Wall Street expects Lam Research to earn $3.21 a share on sales of $2.31 billion in the September quarter. That would translate to year-over-year growth of 7% each in earnings per share and sales for the Fremont, Calif.-based company.
Netherlands-based ASML is seen earning $1.80 a share, up 18% year over year, on sales of $3.18 billion, up 11%.
Wall Street expects chip foundry TSMC to earn 56 cents a share, down 3%, on sales of $8.4 billion, up 1%.
Investors Looking For Trough Quarter
Morgan Stanley analyst Joseph Moore said he doesn't foresee any major surprises from Lam's quarterly report. But he thinks expectations for the company in calendar 2019 are too high.
"While we would expect any recovery in the December quarter to be muted given ongoing erosion in memory supply/demand dynamics (and perhaps below our estimate) we still would expect small sequential improvement given the severity of the Q3 declines," he said in a note to clients Monday.
The focus for investors is on when the trough quarter will be for earnings in the semiconductor equipment group, RBC analyst Mitch Steves said in his note. Most investors seem to think it will be in the March or June quarter next year, he said.
"Overall, sentiment in the group is negative and given this dynamic we think the stocks will remain flattish through year-end," Steves said. "Until we see signs of flattening EPS (vs. expected declines quarter to quarter) we think investors will remain on the sidelines."
Meanwhile, D.A. Davidson analyst Thomas Diffely lowered his price target on Lam Research to 225 from 275 to reflect near-term caution. But he kept his buy rating on the stock.
Lam fell 0.8% to close at 142.51 on the stock market today. ASML dipped 0.5% to 173.35 while TSMC dropped 2.3% to 38.75.
'Meaningful Reset' Coming For Chip-Gear Stocks
Elsewhere, Evercore ISI analyst C.J. Muse on Monday downgraded chip-gear maker KLA-Tencor ( KLAC) to in-line from outperform.
He sees a "meaningful reset" to expectations ahead for KLA-Tencor as well as Lam and Applied Materials ( AMAT). That's based on declining spending for wafer fabrication equipment, Muse said.
"The obvious culprit is memory, led by excess DRAM inventory at cloud customers and improving 64-layer yields driving NAND oversupply," he said in a report.
Muse cut his price targets on Applied Materials, KLA-Tencor and Lam Research. He said ASML is likely to be a bright spot in the current down cycle.
General Electric ( GE) has completed initial designs for an engine that will power the world's first supersonic business jet, which could take flight in five years and slash trans-Atlantic travel times by several hours.
GE Aviation is designing the engine for the AS2 supersonic jet, which will seat just 12 passengers. Nevada-based startup Aerion is building the jet with Lockheed Martin ( LMT), and the collaboration expanded to include Honeywell ( HON) this year.
Lockheed is helping design and produce Aerion's supersonic jet, with Honeywell developing advanced cockpit systems.
"We're on track to fly in 2023, and before that year is out cross the Atlantic at supersonic speed, which will be the first supersonic crossing since the Concorde's retirement 20 years earlier," Aerion said in a statement.
The jet is scheduled to enter service in 2025.
GE stock closed down 1.4% at 12.15 on the stock market today, falling further below its 50-day line. Lockheed shares rose 1.1%, and Honeywell ended flat.
Aerion Supersonic Jet Vs. Concorde
The Aerion supersonic jet contrasts with the Concorde, which seated 92-128 passengers and was the first supersonic jet to enter commercial service.
With the AS2 supersonic jet, Aerion hopes to address the limitations of the Concorde: limited range, noisy flight and high fuel consumption.
Unlike the Concorde's delta-shaped wings, the Aerion wing design has a modestly swept leading edge, which reduces drag over the wing by as much 60%.
Lower drag means that the plane can use smaller, more efficient engines and still achieve top speeds above water of up to Mach 1.4, 40% faster than the speed of sound, or about 1,000 miles per hour. However, the Concorde's maximum speed was more than twice the speed of sound, at Mach 2.04.
Above land, the AS2's special design could allow it to break the sound barrier without a sonic boom — the loud sound set off by shock waves caused by an aircraft traveling faster than the speed of sound — reaching the ground.
Many countries banned breaking the sound barrier because of sonic booms. Those booms and engine noise led in part to the end of the Concorde supersonic jet.
The AS2 jet is being designed to save as much as three hours across the Atlantic and more than five hours across the Pacific.
Since 2003, Aerion Supersonic has been working on new technologies to make supersonic flight practical and efficient.
It describes AS2 as a steppingstone to larger and faster jets for both business aviation and commercial airliners.
Charles Schwab ( SCHW) reported strong earnings that edged past estimates but it's feeling the sting of price wars. Meanwhile, BlackRock ( BLK), E-Trade Financial ( ETFC) and Interactive Brokers ( IBKR) await their turn later this week.
Charles Schwab Earnings
Charles Schwab saw earnings soar 55% to 65 cents a share, beating estimates by a penny. Revenue rose 19% to $2.579 billion, just below views for $2.588 billion.
Net interest revenue grew 41% year over year to a record $1.5 billion "due to larger client cash sweep balances, as well as the cumulative effect of the Fed's rate normalization," Schwab said.
Trading revenue increased 17% to $176 million, thanks to record trading activity by clients.
But asset management and administration fees declined 6% to $809 million, reflecting in part fee cuts in 2017 amid an industry price war. Fellow asset manager BlackRock reports Tuesday. Like Schwab, BlackRock could see fee-based revenue come under pressure from pricing pressure on fund fees and trading commissions.
Clients opened 369,000 brokerage accounts in Q3. Revenue trades rose 22% to 382,000, but average revenue per trade dipped 6% to $7.27. Total interest-earnings assets climbed 20.5% to $258.3 billion.
Charles Schwab Stock
Shares fell 2.8% to 47.65 on the stock market today, hitting their lowest levels since late November. Schwab stock is below the 50- and 200-day moving averages.
Charles Schwab stock has a solid IBD Composite Rating of 93, hinting at its track record of double-digit earnings growth over the past three to five years. It also boasts rising profit estimates for 2018 and 2019.
Online Brokers Confront Free Investing Apps
Online brokers including Charles Schwab stock tumbled in August after JPMorgan Chase ( JPM) announced a free investing app.
Bank of America ( BAC) on Monday reported better-than-expected third-quarter earnings, after a slump in bank stocks and the general market last week.
Bank Of America Earnings
Estimates: Analysts expected Bank of America earnings to jump 29% to 62 cents a share. Revenue was seen rising 3% to $22.591 billion.
Results: Bank of America earnings came in at 66 cents a share, up 37.5%, with revenue at $22.78 billion. Lending and deposits rose modestly while net charge-offs decreased.
Fixed-income trading revenue decreased 5% to $2.1 billion, due to lower client activity in rates
products and a weaker environment for municipal bonds. Equity trading revenue rose 3% to $1 billion, driven by increased client activity in financing.
Bank Of America Stock
Shares closed down 1.9% at 27.92 in the stock market today. On Friday, Bank of America stock slid 1.5%, as anxieties over global trade tensions and higher borrowing costs from rising interest rates spread across U.S. markets. Bank of America shares on Friday also broke through the floor of a flat base with a 32.01 buy point.
Keefe, Bruyette & Woods earlier this month cut its earnings-per-share forecast for Bank of America and the other big banks. The firm cited weaker net interest margins, loan growth and trading revenues.
Some analysts have said that business loan growth has slowed due in part to an abundance of caution amid the possibility of a drawn-out, Trump-induced trade war.
Others say businesses can get financing through the bond markets or expand using the cash they already have. Corporations are flush with cash in the wake of the GOP's tax cuts, CFRA analyst Ken Leon noted in an interview last week.
Other Bank Stocks
JPMorgan Chase ( JPM) dipped 0.6% Monday after reporting strong third-quarter earnings on Friday. Citigroup ( C), which rose Friday on its mixed results, slipped 0.9% Monday. Wells Fargo ( WFC), which missed on profit Friday, advanced 2.2%.
JPMorgan finished lower on Friday after guiding net interest revenue low. The stock was trying to form a saucer base with a 119.43 buy point. Citigroup on Friday was working on a 75.34 handle entry. Wells Fargo was in a flat base.
Management for JPMorgan and Citigroup deflected the concerns that rattled markets last week, pointing to a strong economy characterized by high levels of business confidence.
"The economy is still very strong, and that's across wages, job creation, capital expenditure, consumer credit," JPMorgan CEO Jamie Dimon said on Friday. "It's pretty broad-based, and it's not going to be diminished immediately."
Airbus ( EADSY) scored a victory after a string of defeats from old foe Boeing ( BA) by winning an order for eight A330neos from Kuwait Airways.
The European plane maker lost out earlier this year when Hawaiian Airlines ( HA) canceled an A330neo order and bought Boeing 787 Dreamliners instead.
Kuwait Airways announced Monday it has inked a deal to buy the planes following five months of negotiations. Deliveries are scheduled for March 2019 and the end of 2026.
Airbus has finally secured a customer for the smaller variant of the A330 after several setbacks. But Kuwait Air also halved its commitment for the larger A350 to five aircraft.
"Under this Agreement, Kuwait Airways has made savings in the capital costs of the fleet in its new configuration, as well as the upgrading of aircraft operating costs," the firm said in a tweet.
Airbus shares fell 2.8% to 26.26 on the stock market today. Airbus stock is near the bottom of a flat base, below its 50-day and 200-day moving averages.
Boeing stock dipped 0.3%, with the Dow Jones component holding just above its 50-day line. General Electric ( GE), which was snubbed as a potential engine supplier for the A330neo, retreated 1.4%.
Tough Year For Airbus
As well as losing out on its Hawaiian Air deal, American Airlines ( AAL) also picked the 787 over the A350 and A330neo.
Losing out on the latter deal was especially tough for Airbus, as American Airlines also canceled an Airbus order placed by US Airways before being acquired by American.
Airbus has only sold 214 A330neos to 13 customers. But President Donald Trump's withdrawal from the Iran nuclear deal puts the sale of nearly 30 A330neos to Iran Air in jeopardy.
United Airlines ( UAL) also has been leaning toward buying 787s to replace up to 50 of its aging 767s over the A330neo. Last month it placed an order for nine 787-9 Dreamliners. United Airlines will report third-quarter earnings late Tuesday.
Eight initial public offerings set for this week look to raise a combined $1.6 billion in proceeds, with the largest from SolarWinds ( SWI), a provider of software for information technology management.
The SolarWinds IPO plans to raise $756 million. It offers 42 million shares at a price range of 17 to 19. For the six months ended June 30, it reported revenue of $398.6 million, up 17% from the year-ago period, and a net loss of $86.9 million.
SolarWinds plans its first trades Friday on the New York Stock Exchange under the ticker SWI. Silver Lake Partners and Thoma Bravo took the company private in 2015 in a leveraged buyout for $4.5 billion.
The other technology IPO this week is London-based Valtech ( VTEC), expected to raise $100 million. Valtech, a provider of information technology services, plans to list on the Nasdaq under the ticker VTEC, trading Thursday.
Health Care Initial Public Offerings
Three firms in the health care sector expect to debut as well. LogicBio Therapeutics ( LOGC), a genome editing company, plans to raise $75 million. It will trade Friday on the Nasdaq under the ticker LOGC.
Si-Bone ( SIBN) a maker of spinal implants, plans to raise $84 million. It trades Thursday on the Nasdaq under the symbol SIBN.
PhaseBio Pharmaceuticals ( PHAS) looks to raise $65 million. The biotech company develops treatments for orphan diseases. It will trade Thursday on the Nasdaq under the symbol PHAS.
Also planned for debut this week is electric-scooter developer Niu Technologies ( NIU). The China-based company seeks to raise $95 million. Niu will trade Friday on the Nasdaq under the ticker NIU.
One Casino IPO
Studio City International ( MSC), a Macau-based entertainment resort and casino being spun out of Melco ( MLCO), looks to raise $331 million. It will trade Thursday on the NYSE under the ticker MSC.
Riley Exploration Permian ( REPX), which is focused on fracking in the Permian Basin, plans to raise $100 million. It will trade Wednesday on the NYSE under the ticker REPX.
The biggest stock market winners typically make their major price moves within a few months or years of their initial public offering. So it pays to identify and track companies getting ready to go — or have recently gone — public.
The Pentagon has lifted a suspension on flights for most of Lockheed Martin's ( LMT) F-35s after the jet's first crash prompted inspections of the fleet.
"After completing inspections, more than 80% of operational F-35s have been cleared and returned to flight operations," the Defense Department's F-35 program office said Monday in a statement. "All U.S. services and international partners have resumed flying with their cleared aircraft."
Flights had been suspended last week for inspections of a fuel line that investigators believe may have contributed to the crash of an F-35B, the Marine Corps model of the plane, near Beaufort, South Carolina, on Sept. 28.
Replacement fuel lines are available for about half of the remaining planes and others "are expected to be cleared for flight over the coming weeks," according to the statement.
Lockheed rose 1.1% to $331.32.
Lockheed F-35 Is Global
More than 320 F-35s are already operating from 15 bases worldwide, although the Pentagon and Lockheed continue to wrestle with resolving more than 900 deficiencies, including flaws in the plane's complex software.
The Lockheed F-35 is the costliest U.S. weapons system with a procurement price tag of about $400 billion.
Started in 1896 with 12 stocks, the Dow Jones industrial average (DJIA) now includes 30 of America's largest companies from a wide range of industries, including Apple ( AAPL), Exxon Mobil ( XOM), Intel ( INTC), Nike ( NKE) and Goldman Sachs ( GS).
General Electric ( GE), which had been the only remaining original Dow stock, was recently replaced by Walgreens Boots Alliance ( WBA).
In conjunction with the Nasdaq Composite and S&P 500, the Dow Jones index and the 30 Dow stocks serve as a bellwether for the general market and the American economy, helping investors gauge the current environment and future outlook.
Bookmark this page for ongoing coverage of Dow stocks and the benchmark index.
Scroll down to see a list of the 30 component stocks on the Dow Jones industrial average index.
Strong consumer spending has helped give the economy a head of steam, helped by tax cuts and accelerating wage gains. Continued strength in retail sales could keep the Fed on track to raise interest rates again in December.
Despite that tough combination of headwinds, retail industry groups held up better than the broad market during the latest bout of selling. In fact, three retail groups are among the top 10 of 197 IBD industry groups based on stock performance.
September sales at department stores fell 0.8% on the month and decreased 1.5% from a year ago. Nonstore retailers, including Amazon, saw robust sales growth of 11.4% from a year ago, with a 1.1% gain from August.
However, spending at restaurants and bars tumbled 1.8%, the biggest drop in nearly two years.
The list of market leading IBD 50 stocks from the retail sector expanded recently, with Dollar General ( DG), Sprout Farmers Market ( SFM) and Dave & Busters ( PLAY) joining Five Below ( FIVE), Lululemon Athletica ( LULU), Wingstop ( WING) and Ulta Beauty ( ULTA).
Sears Holdings ( SHLD), parent of Sears and Kmart stores, filed for bankruptcy protection, an expected move for the long-suffering discount retailer.
Sears Holdings ( SHLD), the 125-year-old retailer that became an icon for generations of American shoppers, filed for bankruptcy, saddled with billions of dollars of debt racked up as it struggled to adjust to the rapid shift toward online consumption.
The company filed for Chapter 11 protection from creditors with the U.S. Bankruptcy Court in White Plains, New York, early Monday and said Eddie Lampert is stepping down immediately as chief executive officer. At the same time, Lampert's ESL Investments Inc. is negotiating a financing deal while also discussing buying "a large portion of the company's store base," Sears said in a statement.
The retailer, for years called Sears, Roebuck & Co. and famous for its massive catalog, boomed in the decades after World War II along with a growing middle class. But it wasn't able to keep up with shifting consumer habits as online rivals including Amazon.com Inc. siphoned off shoppers, while turnaround efforts were hobbled by mountains of debt.
Sears, which sold everything from Craftsman tools to Kenmore appliances, lost its footing in the 1980s with expansions into financial products such as banking, mortgages, insurance and credit cards. Walmart Inc. supplanted Sears as the biggest retailer in the early 1990s.
The retailer listed more than $10 billion in debts and more than $1 billion in assets in its filing, and said it is seeking to reorganize around a smaller base of profitable stores. Sears and Kmart stores will remain open with help from $600 million in new loans, but the company will shut 142 unprofitable outlets near the end of the year, on top of 46 unprofitable stores already slated for closure by November.
For now, Sears will be run by an Office of the CEO, and independent directors will oversee the restructuring. Lampert, who is Sears's biggest shareholder and will remain as chairman, acknowledged in the statement that turnaround efforts so far have fallen short.
"While we have made progress, the plan has yet to deliver the results we have desired, and addressing the company's immediate liquidity needs has impacted our efforts to become a profitable and more competitive retailer," Lampert said.
The company already has commitments for $300 million of debtor-in-possession financing from its senior secured asset-based revolving lenders, according to the statement, and it's negotiating a $300 million subordinated DIP financing with ESL. The hedge fund held about $2.5 billion in Sears debt as of September, the result of multiple attempts to keep the chain afloat.
ESL said in April it would be open to buying some of the company's assets and urged the department store to put the businesses on the block. It said in a statement Monday it had proposed as recently as September a strategic plan that would include selling assets, including those ESL was seeking to purchase.
"While a comprehensive out-of-court resolution was ESL's preferred approach, it did not prove possible to achieve this outside the framework of a Chapter 11 process," ESL said.
Lampert tried multiple strategies to revive Sears since using the Kmart chain to acquire Sears in 2005, sometimes with his own money. He's shuttered hundreds of money-losing stores, cut more than $1 billion in annual expenses, and spun off units such as Lands' End.
Parts of Sears have already been through bankruptcy. Sears Canada Inc. liquidated a year ago and about 12,000 people lost their jobs. Lampert partially spun off the company from its parent in 2012 and was Sears Canada's biggest shareholder.
The company was started by Richard Sears, a train station agent in Minnesota who began selling watches by mail in 1886, according to the company's website. He soon partnered with watch repairman Alvah Roebuck.
The Sears catalog eventually sold products ranging from hardware and automobiles to kits for building an entire house. Sears opened its first store in 1925 in Chicago, and the Sears Tower in that city, now known as the Willis Tower, was the world's tallest building when it opened in 1973. The headquarters later moved to Hoffman Estates, Illinois.
At various times, Sears brands have included Allstate Insurance, Coldwell Banker real estate and Discover Card. The company has said it's the nation's largest provider of home services, with more than 11 million service calls a year.
Judge Robert Drain will oversee the bankruptcy, with Sears represented by the law firm Weil Gotshal & Manges, according to court documents.
A rebound in global equities Friday saw no traction at the start of the week, with markets in Asia dropping on Monday and futures on European and U.S. stocks sliding. The pound slipped as a Brexit deal hung in the balance with just days to go until a critical deadline.
Equities in Japan and Hong Kong suffered among the biggest declines as a risk-off mood returned, following a weekend of warnings on global economic fragility from finance chiefs meeting at an annual IMF gathering. China's stocks touched a four-year low. International Monetary Fund Managing Director Christine Lagarde advised to be ready for more market volatility, speaking after the worst sell-off in global stocks since February. China's ambassador to the U.S., in a rare American Sunday TV appearance, said his nation didn't want a trade war but will respond. Meanwhile, U.S. President Donald Trump threatened to impose another round of tariffs on China.
Treasuries nudged higher amid the cautious tone in markets, with the yield on the 10-year benchmark slipping to 3.15 percent. The yen pushed higher alongside gold prices. Oil climbed amid rising tensions between the U.S. and Saudi Arabia over a missing journalist.
The gloomy remarks over the weekend contrasted with the modest recovery in stocks that was staged Friday when news on U.S. bank earnings helped cool anxiety that corporate profits might not live up to lofty expectations. Goldman Sachs ( GS), Morgan Stanley ( MS) and Netflix ( NFLX) are among those reporting this week. Also to come: minutes from the Federal Reserve's latest policy meeting due on Wednesday, with investors keen to follow the debate on projections for further interest rate rises.
"Investors are now trying to decide how they should accurately price growth," Fabiana Fedeli, Robeco's global head of fundamental equities, said on Bloomberg TV in Hong Kong. "Now the key question investors are having is 'am I really paying the right price for this growth because we think earnings are fantastic, but what's going to happen ahead, are they still going up to the extent valuations would imply?"'
The pound fell as a surprise Sunday visit to Brussels by U.K. Brexit Secretary Dominic Raab failed to break the deadlock. People familiar with the situation said there were signs of progress, but officials on both sides played the chances of an imminent agreement and denied a Politico report that a deal was done.
Here are some key events coming up this week:
On Monday, the U.S. retail sales report will give clues about consumer sentiment in September. Consensus sees healthy pick-ups in both the core and headline readings. APEC finance ministers meet in Port Moresby, Papua New Guinea China's new yuan loans may have risen to 1.36 trillion yuan ($196 billion) in September from August's 1.28 trillion yuan as officials sought to buoy economic growth. On Tuesday, consensus is for CPI to pick up to 2.5 percent and PPI to slow to 3.6 percent. Third-quarter GDP for China comes Friday, with headline growth forecast to slow to 6.6 percent year on year from 6.7 percent, in addition to last month's retail sales and factory output.
These are the main moves in markets:
Japan's Topix index fell 1.6 percent at the 3 p.m. close in Tokyo. Australia's S&P/ASX 200 Index slid 1 percent. South Korea's Kospi index lost 0.9 percent. Hong Kong's Hang Seng Index fell 1.3 percent. The Shanghai Composite Index sank 1 percent. Futures on the S&P 500 Index fell 0.4 percent. The benchmark tumbled 4.1 percent last week. Euro Stoxx 50 futures were 0.3 percent. The MSCI Asia Pacific Index lost 1.2 percent.
The yen rose 0.3 percent to 111.92 per dollar. The offshore yuan was at 6.9158 per dollar. The Bloomberg Dollar Spot Index was flat after dropping 0.3 percent last week. The euro was little changed at $1.1556. The British pound fell 0.2 percent to $1.3123.
The yield on 10-year Treasuries ticked about one basis point lower to around 3.15 percent after closing Friday at 3.16 percent, about 7 basis points on the week. Australia's 10-year bond yield fell six basis points to 2.69 percent.
West Texas Intermediate crude rose 0.8 percent to $71.90 a barrel. Gold rose 0.5 percent to $1,222.79 an ounce.
Facebook ( FB) Chief Executive Mark Zuckerberg likes to say his company was designed to bring people together, but recent U.S. election interference showed it also could drive a wedge between them.
The dark side of social media came to light after the 2016 presidential contest. Probes revealed that the social media platforms of Facebook, Twitter ( TWTR) and the YouTube unit of Alphabet ( GOOGL) were used to conduct misinformation campaigns by Russian state actors. Designed to create confusion and discord among U.S. voters, the moves polarized, agitated and misled.
Now, as the midterm elections near, Facebook, YouTube and Twitter are spending huge amounts of time and money to stop election interference. They aim to halt operatives in Russia, China and Iran bent on disrupting U.S. elections.
But they're probably too late, some experts believe. A slow-footed response in the U.S. after 2016 means Russia et al will continue to freely use social media platforms to sow dissent, they contend. And it's not clear the companies believe they can control it enough to keep lawmakers from regulating the industry.
Indeed, instances of potential trouble keep popping up. This week, Facebook announced it deleted more than 800 publishers and accounts from its site for delivering political messages that violated spam policies.
Change Not Easy
"Required changes won't be fast or easy," Twitter Chief Executive Jack Dorsey recently told a congressional hearing.
"We know that Russians and other bad actors are going to continue to try to abuse our platform, before the midterms, probably during the midterms, after the midterms, and around other events and elections," Nathaniel Gleicher, Facebook's head of cybersecurity policy, said in a recent media conference call.
Alex Stamos, former head of security for Facebook, is even less merciful in his assessment of election interference.
"America's adversaries believe that it is still both safe and effective to attack U.S. democracy using American technologies and the freedoms we cherish," Stamos wrote in a recent blog post. "Stymied by a lack of shared understanding of what happened, the government's sclerotic response has left the United States profoundly vulnerable to future attacks."
Election Interference: How To Stop It?
It's unclear what role the government — struggling itself to keep up with technology — can play to stop election meddling. While Congress has threatened social media companies with new rules, no regulatory specifics are ready for release.
Further hampering the effort is that social networks were caught off guard and slow to respond. After the election, further abuses surfaced, thus causing social networks to respond more aggressively. Only after the industry reacted did the government respond with investigations and hearings.
So for now, social media companies police themselves to tamp down election interference. Facebook Chief Operating Officer Sheryl Sandberg told Congress recently the company continuously searches to identify false news and fake accounts.
Sandberg said Facebook has built a force of 20,000 people devoted to the task. She estimates that 3% to 4% of its 2.3 billion monthly active users are fake.
To weed out bad actors, Facebook said it disabled 1.27 billion fake accounts from October 2017 to March 2018. Facebook excised the accounts partly with the help of artificial intelligence.
Twitter's 10 Million Accounts
Twitter says it scours up to 10 million accounts each week, looking for misuse. Each day it stops around 500,000 bot accounts from logging in. Twitter has removed millions of fake or suspicious accounts, including bots and trolls. It uses artificial intelligence and similar tools to curtail and suppress state-sponsored misinformation campaigns.
Alphabet also has been aggressively culling its network to prevent election interference. In late August, Google deleted 58 accounts with ties to Iran from its YouTube unit and other sites.
"In recent months, we've detected and blocked attempts by state-sponsored actors in various countries to target political campaigns, journalists, activists, and academics located around the world," Kent Walker, vice president for global affairs, said in a blog post.
But social media companies are caught in a quandary. Some users criticize them for allowing abusive posts, while others blast them for removing content and curtailing free speech.
Election Interference: Zuckerberg Weighs In
Zuckerberg, in a 3,000-word essay published last month, weighed in on how the Facebook platform was manipulated during the 2016 election interference. He cautioned that hackers are formidable.
Zuckerberg said Facebook hadn't expected foreign actors to launch coordinated information operations with networks of fake accounts spreading division and misinformation.
"While we've made steady progress, we face sophisticated, well-funded adversaries," he wrote. "They won't give up, and they will keep evolving. We need to constantly improve and stay one step ahead."
Zuckerberg said Facebook has now built systems that block millions of fake accounts every day. The company takes down the vast majority within minutes of their creation, he said.
"Like most security issues, this is an arms race. The numbers are so large because our adversaries use computers to create fake accounts in bulk," he wrote.
Starting With A Web Brigade
The trouble began in 2015 with a well-funded Russian web brigade, called the Internet Research Agency. The group reportedly had 400 employees and was based in St. Petersburg, Russia. It used Facebook and Twitter to disseminate an onslaught of politically charged, false content in an attempt to influence the 2016 presidential election.
Using fake stories, advertisements and tweets, they targeted candidates and causes. They fostered distrust in political institutions, and spread discord.
Those concerns flared when data political consultant Cambridge Analytica commandeered information from 87 million Facebook user accounts. The data mining firm got a national reputation during the 2016 elections. Its client list included the Trump presidential campaign.
As many as 126 million people saw Russian-generated propaganda, Facebook said in a Senate hearing last November.
U.S. intelligence agencies last year said they had "high confidence" that Russian President Vladimir Putin ordered the activity, which he denies.
Election Meddling Goes Viral
Some say the election interference problem has gone viral. Stamos, the former Facebook security chief, wrote an article, " How the U.S. Has Failed to Protect the 2018 Election," for the Lawfare blog site. In it, he said the attacks by Russia set an example that other countries like Iran and China now follow.
Recent history has shown that once a large, powerful nation-state demonstrates that a technique works, others rush in. They follow up with cheaper, often more nimble versions of the same capability, he said.
"This underlines a sobering reality," he said. "Their proven playbook is now 'in the wild' for anyone to use."
The problem seems to be spreading. Before France's presidential election in early 2017, Facebook deleted 30,000 fake accounts. It also took down "tens of thousands" of accounts before Germany's national elections last fall.
How To Combat World Powers
Last month, all three companies scrubbed their networks of fake accounts tied to Iran's state broadcasting arm. The disclosures widened concerns about how foreign governments are using social media to foster election interference and advance their geopolitical aims.
Christopher Porter, the chief intelligence strategist of cybersecurity company FireEye ( FEYE), said his company has identified a suspected influence operation. It appears to originate from Iran and targets audiences in the U.S., U.K., Latin America and the Middle East.
World-class cyberwarfare exhibited by Russia, China and Iran also is emerging in Southeast Asia and Latin America.
"The activity we have uncovered highlights that multiple actors continue to engage in and experiment with online, social media-driven influence operations as a means of shaping political discourse," Porter wrote in a blog post in late August. "Despite increased government attention and private-sector focus, cyberattacks are increasing along every dimension."
Congress Threatens Facebook, Twitter
Both Republicans and Democrats in Congress have threatened the social media companies with regulations if they don't halt the election meddling assault. Lawmakers want assurances the tech industry is prepared for the November midterm elections.
Facebook and Twitter have testified four times before Congress. Lawmakers grilled them on foreign interference in U.S. elections and how they plan to prevent it. They want offensive, harmful or misleading content taken down more quickly.
"The era of the Wild West in social media is coming to an end," said Sen. Mark Warner of Virginia, the top Democrat on the Senate Intelligence Committee, at a hearing early last month. "Where we go from here is an open question."
At the committee hearing, Twitter's Dorsey and Facebook's Sandberg maintained that they are better prepared now to combat foreign interference. But they acknowledge they need to do more work.
Facebook, Twitter Fake Accounts
"We were too slow to spot this and too slow to act," Sandberg told the panel. "This interference was completely unacceptable and we will keep fighting."
Dorsey referred to Twitter as a public square. He said his company also was unprepared for the problems initially faced.
"Abuse, harassment, troll armies, propaganda through bots and human coordination, disinformation campaigns and divisive filter bubbles, that's not a healthy public square," Dorsey told the committee.
"We've learned about how vulnerable social media is to corruption and misuse," Sen. Richard Burr, R-N.C., chairman of the Senate Intelligence Committee, said at the hearing. "The very worst examples of this are absolutely chilling and a threat to our democracy."
The Dow Jones, S&P 500 and Nasdaq composite plunged through their 200-day moving averages, though the Dow and S&P 500 did regain that key level on Friday. Still a stock market correction is underway. Most leading stocks that had been holding up also broke through at least their 50-day moving averages, including Apple ( AAPL), AMD ( AMD) and Nvidia ( NVDA). Stocks did bounce Friday, but a. JPMorgan Chase ( JPM) and Delta Air Lines ( DAL) rallied after earnings reports.
Stocks Plunge In Roller-Coaster Ride
The Nasdaq composite fell 3.7%, tumbling through its 200-day moving average. The Dow Jones and S&P 500 fell 4.2% and 4.1%, respectively, but regained their 200-day averages on Friday. Growth stocks, which have been under pressure all month, continued to tumble, though they pared losses Friday. A stock market correction is underway.
Delta Earnings Beat, Guidance Solid
Delta Air Lines ( DAL) reported Q3 earnings per share that beat expectations, while offering a solid Q4 revenue outlook and more restrained expansion plans for next year. Tickets for premium cabin seats helped, as did its airport hubs in Atlanta, Minneapolis and Detroit. Delta said it had recouped some 85% of the higher fuel costs that have dogged airline stocks all year. Delta stock bounced Thursday after falling for nine straight sessions. Earlier, American Airlines ( AAL) sank after warning of higher-than-expected Q3 fuel costs.
Big Bank Earnings Kick Off
JPMorgan Chase ( JPM) reported better-than-expected third-quarter earnings. The Dow Jones banking giant remained optimistic about the economy despite market concerns over geopolitical and trade tensions and the potential fallout of higher borrowing costs. Management indicated that the Fed would have to raise interest rates a lot further for it to cause problems for the bank. Citigroup ( C) topped EPS, missed on revenue, while Wells Fargo ( WFC) fell short on profit. JPMorgan dipped Friday while Citi and Wells rose modestly. All three bank stocks tumbled for the week.
Inflation Tame, Consumers Upbeat
Consumer prices came in surprisingly soft in September for the second straight month. Core prices, excluding food and energy, rose just 0.1% on the month, as the annual rate held at 2.2%, down from July's 2.4%. Headline CPI inflation slipped to an annualized 2.3%, continuing to ease from July's six-year high 2.9%. A 3% dive in used car prices explained the softness, the continuing story is that there's no sign of an acceleration in inflation. Still, contained inflation doesn't change the outlook for more Fed rate hikes, with wage hikes accelerating and the economy on a roll.
The overall IBD/TIPP Economic Optimism Index registered 57.8 at the start of October, up 1.9 points on the month and just two-tenths of a point off August's 14-year high. Americans are more upbeat about their own financial outlook than at any time since the IBD/TIPP Poll began in 2001. Confidence in federal economic policies is high.
Crude Supply Gains, Weaker Demand Outlook
U.S. crude futures fell 4% to $71.34 a barrel on swelling U.S. supplies, demand weakening due to high prices and the overall global financial market retreat. "Expensive energy is back … And it poses a threat to economic growth," the International Energy Agency said in its monthly report. The group cut its demand growth outlook for 2018 and 2019. OPEC also cut its global demand growth estimates for this year and next. U.S. weekly crude inventories rose by 5.987 million barrels, the Energy Information Administration said, well above forecasts. Domestic production hit a record high of 11.2 million bpd.
Marijuana Firms Active Ahead of Canada Legalization
Canadian marijuana producer Aurora Cannabis said it hopes to trade under the ticker ACB on the New York Stock Exchange. Canopy Growth ( CGC) said it exported medical marijuana into the U.S., and later said it expanded its production capacity by around 1.1 million square feet. U.S. marijuana retailer and cultivator MedMen agreed to buy PharmaCann, a medical marijuana company, in a $682 million deal that would create a company spanning 12 U.S. states. Canada legalizes recreational cannabis use on Oct. 17.
Google Unveils New Pixels, Shutters Google+
Core Alphabet ( GOOGL) unit Google is becoming the low-priced vendor as it battles Apple ( AAPL), Amazon.com ( AMZN) and others in consumer electronics. Google took the wraps off a pair of new Pixel smartphones, a tablet computer and a smart home hub equipped with a video screen. Google, meanwhile, faced a new data privacy outcry. It said it will shut down its Google+ social network for consumers following a belated disclosure of a software glitch that exposed user's personal data to developers. The FTC may look into the matter.
Walgreens Earnings, Outlook Solid
Walgreens Boots Alliance registered 13% profit growth to $1.48 a share on 11% revenue gains to $33.44 billion, beating EPS views for $1.44 but below sales goals of $33.68 billion in sales. The drugstore giant's full-year profit guidance midpoint of $6.55 is ahead of estimates. Walgreens recently inked deals with Alibaba ( BABA), Kroger ( KR) and beauty company Birchbox as it tests out various retail strategies. Meanwhile, CVS Health ( CVS) got the DOJ OK on its merger with insurance giant Aetna ( AET).
Walmart, Costco Push Into Video
Walmart ( WMT) announced a joint venture with interactive video technology developer Eko to make original content for the retailer that could include cooking shows and interactive toy catalogs. That follows reports of Walmart teaming up with MGM studios to create original series for the company's Vudu videoservice. Separately, Costco ( COST)is considering offering free streaming video to its executive-level members, according to The Information. No deal is guaranteed, but Costco has reportedly spoken with at least two streaming video providers. Separately, Apple reportedly will offer its video content for free.
News In Brief
Private equity firm Thoma Bravo agreed to buy cybersecurity firm Imperva ( IMPV) for $2.1 billion. Thoma Bravo earlier last year bought Barracuda Networks. In July, it took a majority stake in Centrify, a rival of CyberArk Software ( CYBR).
Boeing ( BA) delivered 61 737s in September, up from 48 737s in August and just 29 in July, as the aerospace giant works though supply chain issues. Overall Q3 deliveries hit 190 commercial jets, including 138 737s and 34 787s. That's down from 202 total aircraft in Q3 2017, when 145 737s and 35 787s were delivered. But Boeing stock fell sharply for the week.
Robinhood unveiled a self-clearing system, dubbed Clearing, which should lower costs for users and fuel revenue for the startup as it eyes an IPO. The zero-fee stock-trading app now has 6 million customers, up from 5 million in July.
A GE Capital unit will sell a portfolio of energy equity investments worth $1 billion to Apollo Global Management ( APO). A shrinking General Electric ( GE) plans to unload $25 billion in assets at GE Capital by 2020 as it de-risks the lending and leasing arm, which is under scrutiny. GE stock hit resistance at its 200-day line and reversed lower.
TransDigm ( TDG) will buy F-35 and 787 parts maker Esterline ( ESL) for $122.50 per share or about $4 billion. It'll finance the deal via cash on hand and a $2 billion loan. Earlier this year, Boeing was reportedly interested in the buying Esterline's avionics business.
Late Wednesday, the FDA lifted a clinical hold barring Crispr Therapeutics ( CRSP) from beginning an in-human study of its CRISPR gene-editing therapy in sickle cell disease. The biotech is now on track to begin its U.S. test by year end. On Thursday, shares of Crispr and fellow gene-editing biotechs Editas Medicine ( EDIT) and Intellia Therapeutics ( NTLA) popped on the news.
Facebook ( FB) jumped into the booming market for smart speakers with two devices that put an emphasis on video-based calling, pitting it against Amazon ( AMZN) and Google ( GOOGL).
Netflix ( NFLX) is buying its first production studio complex, a facility with eight sound stages in Albuquerque, New Mexico.
Apple ( AAPL) has signed a $600 million technology licensing and supply agreement with U.K.-based Dialog Semiconductor. Apple will pay Dialog $300 million for R&D facilities and resources and prepay $300 million for Dialog components to be delivered over the next three years.
Sears Holdings ( SHLD) reportedly is near a bankruptcy filing, but that's complicated by CEO and Chairman Eddie Lampert, who's also the top shareholder and creditor. The parent of Sears and Kmart has seen declining sales for several years.
"With some sell-off already in the sector going into the broader market correction, biotech stocks — particularly large-caps — look fundamentally and relatively cheap," Abrahams said in a report to clients.
On the stock market today, shares of biotech companies rose more than 2%, posting gains for the first time in seven trading days. Shares of biotech companies have ended the day in the red for seven of the past 10 sessions.
Catalysts For Biotech Companies
In general, the SPDR S&P Biotech ( XBI) index and iShares Nasdaq Biotechnology Index ( IBB) aren't any harder hit than the S&P 500 during market corrections, Abrahams said. An exception includes a sell-off in 2016, he noted.
"This could be due to the competing forces of biotechs being perceived as both volatile but also defensive, effectively offsetting one another," he said.
Abrahams calls for biotech companies to have a steady third-quarterearnings season and for rising interest rates to only impact cash-flow opportunities or noncommercial stage biotech companies. Meanwhile, the drug-pricing debate is likely to grab some election attention.
"We acknowledge that concerns about drug pricing could escalate as campaign rhetoric likely increases into midterm elections and a Democratic majority in Congress remains possible," he said. "In any case, we believe any draconian changes remain unlikely to be implemented."
Further, shares of biotech companies could see upside if the GOP wins the House. They also could benefit from a mixed House and Senate, Abrahams said.
Strong Fundamentals In Large Caps
Still, the broader market correction is likely to send investors seeking biotech companies with good fundamentals and growth potential. In this environment, Gilead, Celgene and Incyte look promising, Abrahams said.
Gilead stock continues to trade at a modest discount vs. slow-growing large pharmas, he said.
"We expect positive pull-through from strong commercial execution and underappreciated pipeline progress that should finally be realized in the coming months once a new CEO (chief executive officer) is named and it becomes perceived as more investable," he said.
Celgene remains a growth leader in the space. Abrahams expects Celgene to see regulatory and commercial success in 2019. He calls for the biotech company to beat third-quarter earnings views. The firm is also on track to file for approval of multiple sclerosis drug ozanimod.
Also among large-cap biotech companies, Abrahams sees Incyte as interesting and near a bottom. He see investors now accounting only for sales of cancer treatment Jakafi and other products in their valuation. He says it's possible Incyte could unlock some value through other strategic options.
"There is little downside to Incyte's current valuation and any pipeline success or strategic initiative is likely to drive upside from here," Abrahams said.
Small-Cap Biotech Stories
Among small- and mid-cap biotech companies, he sees some potential in Sage Therapeutics ( SAGE), Sarepta Therapeutics ( SRPT), Dynavax Technologies ( DVAX) and Alder Biopharmaceuticals ( ALDR). All four biotech companies have near-term catalysts that could help their stocks turn around.
For Sarepta, Abrahams looks ahead to the first quarter of 2019. Then, the biotech company is likely to unveil the results of a study in a form of muscular dystrophy. The results are expected to be positive as Sarepta's gene therapy has had good results in another form of the disease.
And like Incyte, Dynavax stock appears to be near a bottom, Abrahams said. This creates a catalyst for its immunotherapy cancer treatment. Dynavax will likely have data next week for this drug.
It's not the first time Musk has displayed outside-the-box antics. With the advent of his tunnel-digging company Boring Co., in January the Boring website began offering fire-shooting flamethrowers for $500 each. All 20,000 flamethrowers sold, reaping $10 million.
When the zombie apocalypse happens, you’ll be glad you bought a flamethrower. Works against hordes of the undead or your money back!
In July, Tesla began selling a limited edition of 200 surfboards for $1,500 each. They sold out in one day.
In addition to running Tesla, Musk is the founder and chief executive of rocket-ship maker SpaceX. In addition to launching satellites and ferrying supplies to the International Space Station, SpaceX is also planning on taking paying customers to the Moon.
IBD 50'sIllumina ( ILMN) stock popped Friday after England and Nevada announced broad genome-sequencing plans — which one analyst called a surefire boost for the biggest company that "reads" DNA.
On the stock market today, Illumina stock jumped 4.6%, to 321.69, rising for the second day running after a broad downturn for medical-research stocks. Illumina stock lost nearly 17% over eight days. Medical-research stocks broadly plunged 10.5% over the same time period.
Canaccord analyst Mark Massaro kept his buy rating and 375 price target on Illumina stock. Illumina stock hit a record above 372 last month before pulling back. As the biggest genome-sequencing company, Illumina benefits from a growing push to better understand DNA.
"We would buy Illumina right here," Massaro said in a note to clients. "As Illumina, the dominant leader in sequencing, is powering huge population sequencing projects around the world at a scale never seen before."
England's Genome-Sequencing Project
Last week, health officials in England announced a plan to sequence 5 million genomes over the next five years. The genome is the entire map of a human's DNA. Better understanding of the genome can lead to quicker diagnoses of disease and more targeted treatment.
England's new target is a "50-fold increase compared to the 100,000 Genomes Project," he said. More than 87,000 genomes have been sequenced, up from 36,000 in October 2017.
Starting in 2019, the National Health Service of England will offer whole genome analysis for all seriously ill children who might have a genetic disorder, Massaro said. An estimated 10,000 diseases are due to defects in a single gene.
Genetic Testing In The U.S.
Further, the Healthy Nevada Project announced a 10-fold expansion of its genetic-testing goal. It will now offer genetic testing to 250,000 additional people in Nevada and other communities across the U.S.
The project launched in September 2016 to examine personal health care, environmental data and socioeconomic issues to help address complex health problems, Massaro said. The pilot program enrolled 10,000 participants in less than two days.
More broadly, the All of Us program in the U.S. will receive $376 million in funds from the National Institutes of Health, up $86 million year over year. The project aims to provide genome-sequencing to more than 1 million Americans.
IBM ( IBM) earnings are set to arrive after the market close Tuesday, with expectations for flat revenue growth as the company keeps a sharp focus on new business initiatives.
The consensus estimate for the third-quarter looks for IBM to post revenue of $19.1 billion. That compares with $19.15 billion in the year-ago period. The consensus on adjusted earnings per share is $3.39, up 3%.
IBM has been undergoing a business transition for several years, focusing on cloud computing, data analytics, mobile technology, social media and security. The collection of new business units is what IBM refers to as strategic imperatives.
During the multiyear transition, IBM revenue growth slowed quarter after quarter. Revenue growth finally resumed when IBM reported fourth-quarter results last year.
"Strong IT spending, continued cloud growth, and improving backlog should keep IBM's trajectory on track," Kvaal wrote. "A stronger dollar does pressure revenue growth, although we expect offsets from earlier restructuring."
KeyBanc Capital Markets analyst Arvind Ramnani in a research note Thursday said investor interest in IBM has incrementally increased with the recent stock pullback.
"Bulls are optimistic that third-quarter earnings will be driven by continued growth in strategic imperatives," Ramnani wrote. "Bulls are optimistic that revenue growth momentum from the second quarter will continue through the second half, driven by growth in strategic imperatives."
IBM expects revenue from strategic imperatives to reach $40 billion this year.
After losing nearly a quarter of its value, Netflix stock is too attractive to pass up, a Wall Street analyst said Friday.
Citigroup analyst Mark May upgraded Netflix ( NFLX) to buy from neutral and reiterated a price target of 375. He called it an "opportunistic upgrade."
Netflix stock jumped 5.8% to close at 339.56 on the stock market today. The stock fell below its 200-day moving average on Thursday. It remains below its 50-day moving average following the recent tech rout.
After hitting a record high of 423.21 on June 21, Netflix stock fell 24% through Thursday's close.
The internet television network forecast that it added 5 million new subscribers in the September quarter, which would bring its total to 135.14 million worldwide. Netflix guided to 650,000 new subscribers in the U.S. and 4.35 million in international markets.
Wall Street is modeling Netflix to earn 68 cents a share on sales of $4 billion in the September quarter. In the year-earlier quarter, Netflix earned 29 cents a share on sales of $2.98 billion.
The key driver for Netflix stock in the near term will be "the company's ability to hit or beat its next quarter subscriber guide," B. Riley FBR analyst Barton Crockett said in a report Friday. He reiterated his neutral rating on the stock with a price target of 313.
Apple ( AAPL) reportedly plans to offer original video content for free to users of its devices rather than start a paid subscription service to compete with Netflix ( NFLX) and others. That's the right strategy for it to take, according to a longtime company analyst and current venture capitalist.
"CNBC reported that Apple plans to give away some of its forthcoming original video content to Apple device owners as a part of a new digital TV strategy (likely starting in mid-2019)," Gene Munster, managing partner with Loup Ventures, said in a blog post Friday. "We cannot confirm if this is, in fact, part of Apple's strategy but we believe it's the right approach for the company, because it advances their mission as a services company."
Munster and associate Will Thompson cited four reasons why giving away content makes sense for the tech giant. First, it's a way to quickly build awareness of Apple's video content with its roughly 1 billion device users. Second, it would increase hardware retention.
Third, it would drive usage of the company's preinstalled TV app. That allows users to sign up for third-party subscriptions from which it takes a cut of revenue. And fourth, it would build a loyal viewer base to which it could upsell a range of paid options.
Apple has two dozen original shows in production and development, according to media reports. CNBC reported Wednesday that Apple will initially offer its shows for free while it looks to launch a paid service somewhere down the road.
In the meantime, Apple will promote third-party video services such as HBO, Netflix and Starz. Apple charges a 30% commission on all app sales and in-app purchases, including subscription services. It takes a 15% commission on subscriptions maintained for over a year.
Video Subscriptions Through Apple Up 100%
Apple Chief Executive Tim Cook boasted about the company's subscription offerings on a July 31 conference call with analysts.
"Paid subscriptions from Apple and third parties have now surpassed 300 million, an increase of more than 60% in the past year alone," Cook said. "Revenue from subscriptions accounts for a significant and increasing percentage of our overall services business. What's more, the number of apps offering subscriptions also continues to grow. There are almost 30,000 available in the App Store today."
Growth in third-party video subscriptions through the company's App Store is about 100% year over year, Cook said.
The iPhone maker could be taking a page from Amazon.com's ( AMZN) playbook by offering free video, Munster said. Amazon Prime Video is a free extra to subscribers of Amazon's Prime membership program, which offers free two-day shipping on millions of items.
Bristol-Myers Squibb's ( BMY) Opdivo likely will retain an accelerated approval to treat a form of lung cancer despite the failure of a late-stage study, an analyst said Friday.
In August, Bristol's Opdivo gained accelerated approval to treat small cell lung cancer patients who relapsed after other treatments. Regulators can approve a drug that treats an unmet need on an accelerated basis. But the benefit must be confirmed in later studies.
Evercore analyst Umer Raffat doesn't expect U.S. regulators to withdraw Opdivo's go-ahead in this group of patients. Bristol's study, called Checkmate-331, wasn't the only study designed to confirm its benefit, he said in a report to clients.
"We saw a similar situation with Roche ( RHHBY)," he said. Roche's Tecentriq gained accelerated approval following an advanced bladder cancer study, but the confirming test failed. "But now, about 1.5 years later, (advanced bladder cancer) remains on the label."
Hard-To-Treat Lung Cancer
In Bristol's study, the pharmaceutical company tested cancer treatment Opdivo against the standard of care, chemotherapy. Opdivo didn't improve overall survival vs. chemo in patients who relapsed after at least one round of chemo.
"Small cell lung cancer is a highly aggressive disease in which significant unmet need remains," Sabine Maier, Bristol's development lead for thoracic cancer, said in a written statement. She noted Bristol is still researching lung cancer treatments.
Bristol is also studying Opdivo plus fellow cancer treatment Yervoy vs. Opdivo alone as a maintenance treatment for small cell lung cancer patients whose cancer didn't relapse after chemotherapy. That test is called Checkmate-451.
Evercore's Raffat noted several issues with Bristol's failed study. The initial test was in 480 patients. For most of 2017, the National Library of Medicine's ClinicalTrials.gov showed about 560 patients. This August, that rose to about 800.
"It's unclear whether we should have read into the trial upsizing," Raffat said.
Further, other pharmaceutical companies are looking at their rival cancer treatments in chemotherapy combinations that tackle small cell lung cancer. Unlike its rivals, Bristol isn't testing its cancer treatment in never-before-treated patients.
"I think Bristol has put itself at a competitive disadvantage by not having a clear (first treatment) trial," he said. "Notice that Checkmate-451 is a maintenance trial, whereas Merck ( MRK), Roche and AstraZeneca ( AZN) are going right into treatment-naive SCLC."
Shares of cloud software company Anaplan ( PLAN) soared Friday, with an initial public offering that priced at the high end of its range and raised $263.5 million.
The Anaplan IPO priced 15.5 million shares at 17. That was the high end of its upwardly revised price range of 15 to 17, suggesting strong interest from institutional investors. Anaplan initially set a price range of 13 to 15.
In the Anaplan IPO prospectus, the San Francisco-based company calls itself a pioneer in a category it calls connected planning, helping companies make better and faster decisions.
"Connected Planning enables dynamic, collaborative, and intelligent planning across all areas of an organization, including finance, sales, and supply chain, and other corporate functions such as marketing, human resources, and operations," the company said in its prospectus.
Anaplan uses a subscription based software-as-a-service subscription business model.
As of July 31, Anaplan had 979 customers using its platform. Customers include Coca-Cola ( KO), VMware ( VMW) and HP Inc. ( HPQ)
The Anaplan IPO is to trade on the New York Stock Exchange Friday morning under the symbol PLAN.
For the six-month period ended July 31, Anaplan reported revenue of $109.4 billion, up 41% from the year-ago period. It reported a net loss of $47.2 million in the period vs. a $16 million loss.
Among other IPOs, Equillum ( EQ) priced 4.7 million shares at 14, the low end of its price range, raising $66 million. The company is developing therapies for severe immuno-inflammatory disorders. Shares closed at 14.
The biggest stock market winners typically make their major price moves within a few months or years of their initial public offering. So it pays to identify and track companies getting ready to go — or have recently gone — public.
An extra-long-range Airbus ( EADSY) A320 neo could be on the market before Boeing's ( BA) proposed new "797" new midmarket airplane.
For years, Boeing has been mulling a new midrange plane, which analysts have dubbed the Boeing 797, to counter market-share gains made by the Airbus 320 neo.
If Boeing decides to move forward with it, management has said it wouldn't reach the market until 2025. Now Airbus' countermove to Boeing's countermove could actually come first.
An extra-long-range Airbus A320 neo could be ready by 2023, Air Transat, a Canadian low-cost airline, told Bloomberg.
Air Transat CEO Jean-Francois Lemay said aircraft-leasing giant AerCap ( AER) has also been briefed by Airbus about the potential extra-long-range Airbus A320 neo.
While few details are known about the possible plane, Lemay said the proposed Airbus jet could reach Croatia from Air Transat's hub in Montreal, Quebec. With that range, it could be a replacement for aging Boeing 757s and 767s.
Airbus' U.S.-listed shares jumped 3.6% to close at 29.09, on the stock market today. Boeing rose 0.6% to 360.11.
Boeing 797 vs. Airbus A320
Boeing is already facing heavy competition from the Airbus A320 neo. A longer-range version would put even more pressure on the American aerospace giant to commit to a new midrange plane.
The company is reportedly considering development of two twin-aisle, midrange planes for the Boeing 797: the NMA-6X would seat 228 passengers and have a range of 5,000 nautical miles, and the NMA-7X, which would seat 267 in two classes but its range would be 800 nautical miles shorter.
CEO Dennis Muilenburg said earlier this year that the company won't make a decision on a Boeing 797 until 2019. The company still needs to complete a review of the business case for a new, clean-sheet-design aircraft class. Analysts estimate that Boeing would need to invest $100 billion to build it.
JPMorgan Chase ( JPM) tried to ease fears about rising interest rates as well as its own warning about "geopolitical uncertainties" as a rush of bank earnings Friday showed mixed results.
The rising rates that have shaken markets this week are nowhere near heights necessary to create problems for the bank, the company said during a call with reporters to discuss the bank's third-quarter results, which beat estimates.
"The economy is still very strong, and that's across wages, job creation, capital expenditure, consumer credit," CEO Jamie Dimon said. "It's pretty broad-based, and it's not going to be diminished immediately."
Still, he cited an array of international tensions — Brexit, President Donald Trump's tariff and trade skirmishes, turmoil in Italy, Turkey, Argentina and Saudi Arabia — as possible drags on the economy. When pressed on the matter during the media call, Dimon said that he was simply pointing out that the strife was intensifying.
"It just seems to be deteriorating a little bit," he said. "That's all."
In JPMorgan's earnings release, Dimon had said: "The U.S. and the global economy continue to show strength, despite increasing economic and geopolitical uncertainties, which at some point in the future may have negative effects on the economy."
But during the media call, Dimon said that the lines of communication between the business community and the Trump administration were still open and solid. He said the tariffs were a negotiating tactic that would hurt some individual companies but wouldn't have a dramatic effect on the economy. A trade deal with China was likely, eventually, he said, but it could take some time.
Then the company disclosed in a filing that it sees 2018 net interest income of $55.5 million and noninterest revenue growth of 7%-8%, with both stopping short of some estimates.
Shares of JPMorgan reversed lower, closing down 1.1% at 106.95 on the stock market today, after earlier rising as much as 2.5%. The stock is forming a saucer base with a 119.43 buy point. Meanwhile, Citigroup ( C), which beat earnings forecasts, rallied 2.1% 69.84, forming a handle on a cup base with a 75.34 entry. Wells Fargo ( WFC), which missed profit expectations, rose 1.3% to 52.11, working on a flat base with a 59.62 buy point.
'A Little Too Cute'
When asked how he felt about Trump's recent criticism of the Federal Reserve's rate hikes, Dimon said: "I've never seen a president who wanted interest rates to go up."
Trump, a day earlier, said the Federal Reserve was "getting a little too cute." He added: "It's ridiculous what they're doing."
Investors have unloaded stocks this week amid concerns over higher borrowing costs and global turmoil. The Federal Reserve's decision to dial short-term rates higher has the potential to push up interest rates on other loans. Rate hikes are one of the Fed's primary tools to keep the economy from overheating, as the rate hikes make borrowing more expensive and discourage businesses and people from borrowing too much.
As more investors and economists try to call the market top, Dimon said he saw nothing that indicated the U.S. was at a plateau. And management still saw resilience in the housing market, even as mortgage rates rise.
"Housing data is softer and things are more expensive," CFO Marianne Lake said. "But I would say the purchase market is still holding up quite well."
Later in the morning, during the call with analysts, Dimon said that people shouldn't be surprised by rising interest rates. "I'm always surprised when people are surprised," he said.
And Lake said rates, while higher, aren't an obstacle.
"The level of rates is not surprisingly high," she said. "From our vantage point we're not seeing anything in terms of looking at our client dialogue or credit trends that would suggest this is problematic."
Bank Earnings: JPMorgan
Q3 earnings came in at $2.34 a share, above estimates for $2.24. Revenue of $27.82 billion beat expectations for $27.2 billion.
But fixed-income trading revenue fell 10%. Competition in that area has increased, the bank said, but it saw no evidence that it was shedding market share. Still, the weakness in fixed-income trading sent overall markets revenue 2% lower. Equity markets revenue rose 17% to $1.6 billion. Average core loans rose 6%.
Corporate and investment banking revenue rose 2% to $8.8 billion. Commercial banking revenue grew 6% to $2.27 billion. Asset and wealth management revenue climbed 3% to $3.56 billion. Consumer and community banking revenue jumped 10% to $13.29 billion.
Bank Earnings: Citigroup
Citigroup reported earnings per share of $1.73, beating estimates for $1.67. Revenue of $18.39 billion was just shy of views for $18.43 billion.
Consumer banking revenue rose 2% to $8.65 billion, though North America retail banking and branded card revenues fell. Institutional clients revenue dipped 2% to $9.24 billion, with fixed income revenue up 9% to $3.2 billion and equity revenue up 1% to $792 million. Investment banking revenue fell 8% to $1.2 billion.
Bank Earnings: Wells Fargo
Wells Fargo reported earnings per share of $1.13, missing estimates for $1.17. Revenue of $21.9 billion was roughly in line with expectations for $21.897 billion.
Net interest income edged up 1% to $12.6 billion. Community banking revenue rose 2.6% to $11.82 billion though mortgage banking was weak, while wholesale banking revenue slipped 2.7% to $7.3 billion. Wealth management revenue dipped less than 1% to $4.23 billion.
Average deposits were down 3% at $1.3 trillion, and average loans were down 1% at $939.5 billion.
"We saw positive business trends in the third quarter, including growth in primary consumer checking customers, increased debit and credit card usage, and higher year-over-year loan originations in auto, small business, home equity and personal loans and lines," CFO John Shrewsberry said in a statement.
The results for the banks came amid concerns over when the strong U.S. economy might break down and when loan portfolios might get a lift from the GOP's tax-cut legislation.
The 10-year Treasury yield had risen to seven-year highs before pulling back amid the sharp stock market sell-off. Short-term yields also have jumped to multiyear highs, but the spread between short- and long-term rates had widened slightly from post-crisis lows. Banks profit from a wider yield spread, as they borrow short and lend long.
Ford Motor's ( F) China auto sales tanked in September, far outpacing the overall sales decline that was the largest drop in seven years.
Ford joins General Motors ( GM) in reporting a major slowdown as the world's largest auto market cools, with President Trump's China trade war threatening economic growth.
Ford's China sales totaled 64,383 vehicles in September, tumbling 43% year over year. Year to date, sales of 585,000 units marked a 30% decline.
Sales of vehicles that Ford imports into China sank 16% last month, led by a 71% drop for the Mustang. Monthly sales for Ford's Changan joint venture slid 55%, while its Jiangling JV saw sales fall 15%. The Lincoln brand saw sales climb 1% in September, as the luxury car market in China continues to hold up.
Ford Focus sales in China were down 61% in September and are down 51% year to date.
Overall China auto sales sank 12% to 2.39 million units last month, the third straight drop, according to the China Association of Automobile Manufacturers. China's car sales fell the most in nearly seven years in September, Reuters said.
GM China Auto Sales
Rival GM is also seeing declines in China auto sales but not as bad as Ford's. On Monday, GM and its JVs reported delivering 835,934 vehicles in China in the third quarter. Sales shrank 15% from a year earlier "due to the softening vehicle market," they said.
GM's quarterly sales in China decreased for the first time in more than a year. Year to date, GM China auto sales are down 2.5%.
Ford stock fell 1.9% to 8.64 on the stock market today, hitting its worst level since November 2009. GM slid 1.6%, Fiat Chrysler ( FCAU) dipped 0.2% and Tesla ( TSLA) jumped 2.6%. Recent IPO and China electric-car maker Nio ( NIO) bounced 3.6%.
Ford, GM China Turnaround Plans
Both Ford and GM highlighted comeback strategies for the crucial Chinese market.
"We are intensely focused on our sales turnaround plan in China, which includes an aggressive cadence of product introductions to meet the needs of our Chinese customers, including the launch of the highly anticipated all-new Ford Focus," said Peter Fleet, CEO of Ford China.
GM reported that it's "building market resilience through an improved product mix, with a focus on SUVs, MPVs (multipurpose vehicles) and luxury vehicles — the segments with the strongest demand."
It launched four new models in Q3 and plans two more launches in Q4.
Cloud computing offers investors a wide range of opportunities that span internet infrastructure, as well as consumer and business services delivered via fast connections to the web. The industry leaders and top cloud stocks cover a similarly wide range, from Amazon.com ( AMZN) and Google parent Alphabet ( GOOGL) to Microsoft ( MSFT), Alibaba ( BABA) and Oracle ( ORCL).
To visualize the internet cloud, think of warehouse-sized data centers packed with computer servers and data storage systems. Then think of the cloud supply chain.
Companies such as Intel ( INTC), artificial intelligence (AI) leaderNvidia ( NVDA) and Micron Technology ( MU) sell chips built into servers. Fiber-optic device makers sell parts for high-speed communications networks. Seagate Technology sells solid-state data storage systems. Arista Networks ( ANET) and Cisco Systems ( CSCO) sell specialized network switches and routers that make the cloud superfast.
The biggest buyers of data center infrastructure are Amazon Web Services, Microsoft's Azure and Alphabet's Google, as well as consumer-facing companies like Apple ( AAPL) and Facebook ( FB).
Cloud computing services are new growth engines for AWS, Microsoft and Google. Companies rent their powerful computers and software platforms to process business workloads remotely via the web. Apple relies on cloud infrastructure for its fast-growing services business, whisking music and other content to iPhones.
Companies like Salesforce.com ( CRM) that offer subscription-based software-as-a-services (SaaS) arrived before the term cloud computing was coined. Many SaaS companies are now working with AWS and other cloud vendors to reach new markets.
The automotive industry is undergoing a rapid transformation, with automakers and technology giants such as General Motors ( GM), Alphabet ( GOOGL) and Tesla ( TSLA) racing with and against each other to develop electric cars, autonomous vehicles and mobility services.
Bookmark this page to stay on top of the latest auto-sector trends and technology, with ongoing coverage of industry leaders and disruptors, including General Motors, Ford ( F), Fiat Chrysler ( FCAU), Toyota Motor ( TM), Delphi ( DLPH), Alphabet's Waymo and ride-hailing services pioneer Uber.
Advisors help clients make smart investments. So it figures that they practice what they preach.
Successful advisors don't just manage portfolios wisely and try to pick winning stocks. In a broader sense, they invest in themselves and their business so that they can deliver better service and accelerate their growth.
Like true entrepreneurs, advisors who launch their own firm must manage cash flow and squeeze the most value from every dollar they plow back into the business. And if they join a larger company, many still opt to invest in their education to sharpen their expertise.
For Monica Dwyer, earning her certified financial planner designation propelled her career. Seeking to expand her knowledge and establish herself in her field, she passed the CFP exam in 2009.
"It was a huge commitment," said Dwyer, an advisor in West Chester, Ohio. "At the time, I was working at Fidelity and I wanted to make myself as marketable as possible."
She estimates that she invested around $4,000 to get her CFP, although her employer reimbursed her for some of it. In terms of time, she spent parts of nearly nine months in the classroom followed by three months of additional studying for the test.
"It was intense," she recalled. "But it was a much better investment than my undergraduate degree, even though you need an undergraduate degree to get a CFP."
The experience also proved an eye-opener for Dwyer. Through her course of study, she gained a fuller understanding of how she could assist clients on a range of financial issues.
"It taught me there's this whole world out there with all these different areas I could pursue, from taxes to estate planning to trusts," she said.
Blaze Your Own Path
Some advisors enjoy long careers working for large financial institutions. Others reach a point where they decide to branch out on their own.
Tom Balcom, a certified financial planner in Lauderdale-by-the-Sea, Fla., spent over a decade in private wealth management before he launched his firm in 2010. He calls that move his best professional investment.
"It was a risk to go from a nice, stable paycheck to no stable paycheck," he said. "You go from certainty to uncertainty. But it improved my quality of life in so many ways."
Because Balcom had already earned an MBA degree, he knew how to write a business plan and project his expenses. Such diligent planning mitigated his risk.
"I created a budget that included rent, overhead and how much I'd need to charge to survive," he recalled. "I set aside emergency savings for cash flow and made sure I could pay all my bills."
After persevering through what he calls a "scary" first year, he knew that he'd succeed over the long term. Today, he raves about all the benefits of running his own shop: the flexibility to work with a variety of clients, the freedom to make his own investment decisions and the financial rewards of growing the business.
Upgrade Your Tech
For advisors who are always on the lookout for ways to improve their business operation, technology can prove a pivotal investment. Finding better ways to access and deliver information can pay off in spades.
Sean Curley, a certified financial planner in Greenwood Village, Colo., says one of the best investments over his nearly 25-year career as an advisor occurred just last year when he switched to an all-in-one technology platform. Previously, he says he grappled with at least three separate systems.
"There were pain points, including the complexity of the software and the lack of integration," he said. "We had this disjointed patchwork of systems."
He says the new, unified platform costs $14,000 a year, which is roughly 20% less than what he was paying previously for multiple systems. But the cost savings is only icing on the cake for Curley.
"Ease of use is the biggest savings," he said. "We now have a very intuitive user interface" that ties in cloud-based performance reporting, document storage, client web portal management and customer relationship management features such as taking and archiving notes on client communications.
Curley hails the new platform for helping enhance his client service. His staff can work more efficiently as well, allowing him to devote more time to clients and less time hassling with tech issues.
"With the prior systems, if a client called we had a five- to 10-minute process to get their performance history up on the screen," he said. "Now, we press a button and it's instantaneously there. So we can be more responsive to clients."
Medical-technology giants like Medtronic ( MDT), Stryker ( SYK) and Boston Scientific ( BSX) are in the mood for mergers — simply because they're getting easier.
Over the past 10 months, the three have announced deals worth a total of nearly $5 billion amid a "hot" streak in heart valves, robotic surgery and diabetic instruments.
Innovation helps. But so does cash. Just before Christmas Day 2017, President Donald Trump signed into law a sweeping overhaul of the U.S. tax code, slashing the corporate tax rate to 21% from 35%. The changes also made it temporarily easier for companies to repatriate cash from overseas. After medtech companies kicked a few tires, they decided to use their cash to add growth, Needham analyst Mike Matson said.
"Strong companies with good growth and good gross margins are likely to get acquired," Matson said.
PNC Capital Advisors analyst Luyi Guo says there have been more tuck-in deals this year. Boston has been the most acquisitive, with Stryker's activity in line, she said.
"Some companies, such as Boston, have been very active this year, but not all have been as active, so we would expect M&A activities to continue to be robust because of the need to enter growth areas and access innovative and disruptive technologies," Guo told IBD via email.
Medtech-Technology Stocks Fly
Meanwhile, medical-technology stocks are nearing record highs.
IBD's 118-company Medical-Products industry group rocketed nearly 29% over the first nine months of 2018. Since then, shares have pulled back almost 6%. But that's done little to wipe out the group's gains. It's now ranked fifth out of 197 groups IBD tracks.
At the same time, the medical research and medical systems groups climbed a respective 32% and 39% through the end of September. Both have pulled back thus far in October, but are still ranked No. 9 and No. 11, respectively.
Jeremie Capron, director of research and managing partner for Robo Global, says a number of factors are lining up nicely for medtech. Robo Global is an index and advisory form specializing in robotic and artificial intelligence investments.
Robotic surgery benefits from a widespread belief that it's "the next technological revolution," he told IBD. So many companies will try to "acquire their way into it." There have been more than 40 deals announced by 87 members of the Robo Index thus far in 2018, Capron said.
Broadly, medical technology benefits from a recently streamlined Food and Drug Administration approval process, and a now twice-delayed 2.3% tax on device sales, said Scott Whitaker, chief executive of the Advanced Medical Technology Association, or AdvaMed, a trade group.
"The regulatory environment in the U.S. is just much better than it was a few years ago," he told IBD. "And the predictability that comes with that around your planning-and-review cycle makes a huge difference."
Whitaker says medtech is entering a "golden era" in which medical devices and technology are aligning. That's resulted in innovations like continuous monitoring insulin pumps for diabetics, he said. The biggest hurdle remains government coverage and reimbursement of devices.
Innovation 'Strong,' 'Breathtaking'
Medical-technology innovation has been "very strong and almost breathtaking" of late, Edward Jones analyst John Boylan told IBD. He doesn't see a sudden spike in medtech acquisitions, but rather says it's an ongoing trend for the segment.
The research and development cycles tend to turn over faster in medtech, he said. So companies either have to innovate or acquire. He lists transcatheter aortic heart valves — from the likes of Medtronic, Boston and Edwards Lifesciences ( EW) — as among recent innovations. The devices can replace faulty heart valves via catheter without surgery.
Further, diabetes products coming out now are seemingly "better than what we've seen in the market in years," he said. Abbott Laboratories ( ABT) is among the leaders in diabetes products. He calls for the "growth and innovation to continue in the foreseeable future."
Other medtech companies will look for the holes in their portfolios, he said. Medical-technology players that find themselves lacking in certain areas can make takeovers to support their existing businesses or add new ones, he said.
"When companies look at themselves strategically, it does come back to whether there's a tech hole they need to fill or adjacent areas they need to leverage," he said. "The more fruit you have in the cart to sell is a good thing. The fact there are tax cuts and repatriation, that's just icing."
Could J&J Be Hungry?
Among the most notorious potential acquirers out there is Dow Jones component Johnson & Johnson ( JNJ). In fact, tuck-in acquisitions — smaller and easier to meld into existing business — are a part of the stated strategy for J&J and Stryker, PNC's Guo said.
Wells Fargo analyst Lawrence Biegelsen says J&J has been pruning its medtech portfolio over the past six years to better focus on pharmaceuticals. But now the fundamentals look better in medical technology. Even J&J Chief Executive Alex Gorsky has acknowledged medtech strength.
During the Wells Fargo Healthcare Conference in September, Gorsky noted regulators seem to have eased up on devices in recent years, Biegelsen said in a recent report. Later in the month, Gorsky said "science and technology is becoming more encouraging" in medical technology, Biegelsen reported.
"We believe these two statements regarding a more favorable regulatory environment combined with more encouraging science and technology will lead J&J to pursue more inorganic opportunities in devices than they have in recent years," Biegelsen said.
But Boston and Edwards could be pricey. Attaching a 30% premium to closing prices on Sept. 14, Boston could cost $73 billion and Edwards could run up to $42 billion, Biegelsen said. He sees the former as the better strategic fit for J&J.
Matson notes a correction could derail medtech buying.
"You have to be in this sweet spot where the acquirers don't think the targets are overvalued and the targets don't think they're being undervalued either," he said. "If the buyer thinks everything is too expensive, or the value is too cheap, (a company) won't be willing to sell."
Right now, medtech is seemingly in that sweet spot. He lists Medtronic, Stryker, J&J and Abbott among potential buyers. Larger potential takeouts include Abiomed ( ABMD), Masimo ( MASI) and Wright Medical Group ( WMGI).
Robo Global's Capron, too, expects acquisitions to continue on robotic surgery side of medtech. He notes the biggest obstacle now appears to be interest rates, which have been on the rise.
"It means capital is going to become more expensive," he said. "So we're seeing that already playing out in the residential construction housing market that gets hurt first. Other sectors get hurt one after another. That's something we need to watch that could stop this boom."
Workplace learning that bridges the gap between employee skills and company needs is critical to every firm. Knowing what talents workers bring to the table currently and predicting which skills a company will need to succeed in the future is tricky. Experts say focus on reducing the impact of automation. How? Help workers develop soft skills such as communication, adaptability and critical thinking.
"The skills gap is a very real thing, and if (leaders) are not encouraging employees to learn, it might not happen," Palmer told IBD. "Simply sending employees to class alone is not working."
Creating a workplace learning culture. Apple's ( AAPL) senior vice president of retail Angela Ahrendts wants to move 10% of the company's retail employees to other stores around the world to provide more learning and development opportunities, according to Palmer's book.
Starbucks ( SBUX) offers to pay full tuition to employees seeking a bachelor's degree at Arizona State University, if they work at least 20 hours a week. The goal: reduce high turnover.
Offering programs is not enough. A recent LinkedIn survey found that the No. 1 challenge facing talent development in 2018 is getting workers to make time for learning.
"Yet, 94% of employees say that they would stay at a company longer if it invested in their career development," the study stated. "The modern organization needs to meet learners where they already are — aligning development opportunities with employee aspirations, and engaging them through the platforms where they are already spending their time."
Understand power of peers. Your co-workers are often the best workplace learning resources, Palmer says.
"This idea that there is a central group that has all the knowledge is outdated," she said. "We have a wealth of knowledge from people who are learning these new skills within our company."
As a result, he came up with a list of articles, videos, classes and book chapters he found most helpful.
"Your employees become part of the curator group," Palmer said.
Combat content overload. There are thousands of online learning sources. You can easily become overwhelmed. Company leaders must guide employees. Curate the myriad resources. Help employees decide what they need to learn. Managing content overload also makes workplace learning efficient and cost-effective.
In their book, Palmer and Blake describe Mastercard's approach. As a client of Degreed.com, a learning portal of which Blake is a founder, Mastercard ( MA) lets employees search, curate, share and track learning resources on thousands of topics in various formats. The results: More employees signed up to learn new skills, less time was spent developing content and costs decreased.
Drill down. While a focus on learning soft skills can minimize the impact of automation, employers should also zero in on hard skills that will be in demand.
Key to addressing the hard skills gap is getting an accurate read of workers' current skills vs. what a company knows it will need. Palmer and Blake's clients measure with a Skills Quotient (SQ). SQ measures the skills required against the skills needed for individuals, teams and the entire company. It reflects the skill level and gap any person, team or organization has.
LinkedIn's survey says talent developers are working hardest on creating a robust workforce in cloud computing, data mining, integration software, web architecture and user interface designing. Not surprisingly, they're looking to boost hard skills in engineering, computer programming and data analysis.
For workers, the fast-changing needs of employers means one thing: Develop an ability to learn quickly.
"Learning agility is key," Palmer said. "If you can adapt and learn on the job, you will succeed."
Most Asian stocks recovered Friday after the biggest sell-off in global equities since February, as U.S. stock futures extended gains and Treasury yields ticked higher. The dollar steadied and the yen gave back some of its recent gains.
The MSCI Asia Pacific Index climbed from the lowest level since May 2017, with shares in Hong Kong and South Korea leading the way. While benchmarks in Tokyo struggled for traction, shares in Shanghai staged a modest rally and European equity futures climbed. The yuan retreated and was the worst-performing currency in Asia Friday after a weaker-than-forecast daily fixing. That followed a Bloomberg report that U.S. Treasury staff concluded that China isn't manipulating its exchange rate.
On Thursday in the U.S., tech shares, which bore the brunt of the selling Wednesday, fared less badly as key benchmarks tumbled in excess of 2 percent for a second day.
Investors ascribed a number of reasons for the retreat in equities this week, including worries over the U.S.-China trade war and increasing preoccupation with the risk the American economy is nearing the end of an extraordinarily prolonged expansion. Remarks by Federal Reserve Chairman Jerome Powell last week that the central bank is "a long way" from a neutral level of interest rates also fed into sentiment.
"Folks are re-rating whether the Fed is going to tighten too much — I think that's the fear," said Michael Arone, chief investment strategist at State Street Global Advisors in Boston. Even so, "nothing's really changed in terms of the Fed's path, and I think the economy continues to be quite strong," Arone said, concluding that investors "have had a violent overreaction."
President Donald Trump made clear in remarks over the past two days that his take is the Fed is to blame for sending the S&P 500 to a three-month low. Next up for investors will be to assess corporate earnings for the third quarter. JPMorganChase ( JPM), Citigroup ( C) and Wells Fargo ( WFC) kick off the season for U.S. banks on Friday.
Back in Asia, Singapore's dollar advanced after the central bank tightened its policy stance as anticipated on Friday. Traders will be watching the yuan after the report that U.S. Treasury staff advised Secretary Steven Mnuchin that China isn't manipulating the currency, as the Trump administration prepares to issue a closely watched report on foreign currencies.
Elsewhere, West Texas oil recovered, while still heading for the biggest weekly drop since July.
These are the main moves in markets:
The MSCI Asia Pacific Index jumped 1.1 percent as of 3:18 p.m. Tokyo time. Topix index rose less than 0.05 percent. Hong Kong's Hang Seng Index surged 1.8 percent. Kospi index surged 1.5 percent. Australia's S&P/ASX 200 Index gained 0.2 percent. Futures on the S&P 500 Index rose 1.1 percent to 2,775.75.
The Japanese yen fell 0.2 percent to 112.35 per dollar. The offshore yuan fell 0.3 percent to 6.899 per dollar. The euro fell less than 0.05 percent to $1.1591. The Bloomberg Dollar Spot Index was little changed at 1,184.63.
The yield on 10-year Treasuries gained two basis points to 3.17 percent. Australia's 10-year yield climbed 2 basis points to 2.75 percent.
West Texas Intermediate crude increased 1.1 percent to $71.72 a barrel. Gold fell 0.5 percent to $1,218.55 an ounce. LME copper rose 0.8 percent to $6,291.50 per metric ton.
Ralph Roberts, who became a pioneer of the modern cable television industry, didn't think that much of cable TV at first.
The future founder of cable TV, media and technology giant Comcast ( CMCSA) was 43 years old and thought the business lacked the seasonal and holiday marketing opportunities of his previous retail venture, men's fashion accessories. But Roberts' entrepreneurial curiosity led him to give cable a closer look
"I realized the cable business was the best of all the ones I had invested in and decided to go forward full boat," Roberts (1920-2015) told The Cable Center in an oral history interview. "It was exciting once we realized you got to develop programming and you could do other things that would make people want to buy. ... people loved cable television because more is better." Roberts also liked the steady residual cash flow that cable provided.
Dan Aaron, who was Comcast's head of operations, said in William Novak's "An Incredible Dream: Ralph Roberts and the Story of Comcast," that Roberts mulled over things endlessly until it was time to strike. Then, "once he goes into action, sparks fly."
"Once I make up my mind about something," Roberts said, "I like to stay the course."
And he did. Roberts was Comcast's president from 1969 to 1990, when he was succeeded by son Brian, and chairman of the board from 1969 to 2002. He then was chairman emeritus until his death at 95. Under Ralph Roberts' leadership Comcast became one of the largest global media and technology companies in the world. Its 2017 revenue was over $84.5 billion and it's the largest provider of home internet service in the U.S.
"In a big company you need certain fundamentals to believe in," Roberts said. "Around here, everyone knows that integrity comes first."
Aaron said that even when the company was just a speck on the map "(Roberts) expected that someday Comcast would be the General Motors ( GM) of the cable industry ... and everything he did was to prepare for that day." Aaron recalled that in 1969 Roberts was drawing up an organization chart — for the year 2000.
Roberts' son and current Comcast CEO Brian Roberts told IBD his father "had an incredible optimism, a risk-taking mentality, and a vision to build and go for it."
Because his father had a deep caring for his employees, "people would just walk on hot coals for him," Brian Roberts said. "He didn't ask for anything, he just supported and mentored you.
Ralph Roberts encouraged a supportive atmosphere where new ideas could be presented without fear of criticism. He said decision making was collective. "Everyone has the right to speak" with the goal to "make everyone feel involved."
"My father also listened better than anyone I know," Brian Roberts said. "He was in the moment, looked you in the eye and made you feel that you were most important person in the world to him."
Born in Manhattan and raised on Long Island, Ralph Roberts was the son of Russian immigrants. His father Robert, who passed along a burning desire to young Ralph to eventually be his own boss, went to pharmacy school and then owned a chain of drugstores in the New York City area.
But the Great Depression took its toll on the business, and tragedy came to the family when Ralph was 12, when his father died suddenly from a heart attack at 42.
Roberts recalled how his mother took charge: "She kept us strong, too. She didn't fall apart and bemoan her fate. She told us we could survive, and that we shouldn't feel sorry for ourselves."
Roberts' entrepreneurial spirit then emerged: "I was always thinking, 'How could I earn a little money by doing something nobody else has ever done?'" Ingenuity and drive created part-time moneymaking opportunities to help put himself through college. And in 1940, in the fall of his senior year at the Wharton School of the University of Pennsylvania, the school announced an officer-recruitment program that promised a Navy commission. War loomed and Roberts joined up.
Roberts graduated in Spring 1941, and when the U.S. entered World War II that December he asked for a Navy combat assignment but was deemed more valuable to the war effort by utilizing his business skills. He was a lieutenant assigned as a materiel superintendent in the Philadelphia Navy Yard where warships were built and repaired. He went on to become a liaison officer with other Navy yards.
He wed aspiring actress Suzanne Fleisher in 1942, and the couple had five children.
After the war and his discharge from the Navy, Roberts partnered with an engineer in 1946 to develop products to manufacture. One was a golf putter that sold 100,000 units. Sales got a boost when Roberts got backstage where Bob Hope was entertaining and asked the legendary entertainer to pose for a picture with the putter. Roberts used the photo as marketing material.
"Everything was doing fine until one day, while I was swinging a recently made putter, it bent almost in half," Roberts recalled. "I grabbed the phone and called my partner: 'What happened? The shafts are bending like pretzels!' " It turned out to be a major manufacturing error, and Roberts decided it was time to find another business.
He found work as a copy writer in a Philadelphia advertising agency where one of his accounts was the Muzak Corp. and in 1951 he was offered a position as marketing and advertising director for that company.
After 2-1/2 years of commuting from Philadelphia to Muzak's New York City office, Roberts took a job in charge of marketing and advertising at Philadelphia-based Pioneer Suspender Co. — the nation's second largest manufacturer of men's fashion accessories such as belts, cuff links, tie tacks and suspenders. Roberts asked for a right of first refusal if the owners ever decided to sell, and when they did in 1955, he bought the company.
Roberts got needed financing from the Philadelphia National Bank by convincing the lender that if the business was sold to someone who moved it out of Philadelphia, 200 to 300 jobs would leave with it.
In 1961 Roberts, suspecting that trends in men's fashion such as beltless slacks did not bode well for his business, sold Pioneer and became a venture capitalist. That led to his meeting Dan Aaron, a cable television veteran who was brokering cable systems.
Aaron pitched Roberts on buying a small community-antenna TV system in Tupelo, Miss., in 1963 that had around 1,200 subscribers. Roberts agreed, provided that Aaron would run it, since Roberts knew nothing about the cable TV business. But Roberts saw a similarity to the operation of Muzak, where he eventually became a partner in several of its franchises: "You put in the equipment and every month they send you money."
"Ralph is not one to go into anything (in) which he didn't have expert partners," Julian Brodsky, who was Comcast's head of financing, said in 1999.
Ever the marketer, Roberts desired a new name for his company, then called American Cable Systems. He wanted an invented word like Xerox ( XRX) or Kodak ( KODK) so it could be registered as a trademark. "A name that isn't an actual word is easier to remember and to advertise," Roberts said. He created the name Comcast in 1969 and incorporated it in Pennsylvania.
Roberts and Aaron expanded Comcast by acquiring several cable systems throughout the United States. But Roberts insisted that each new entity be responsible for its own financing obligations. That way if a cable system failed it didn't affect the rest of the company.
Comcast went public in 1972 and by 1988 became the nation's fifth-largest cable-TV company with more than 2 million subscribers. With the onset of the digital age in the 1990s, Microsoft ( MSFT) founder Bill Gates made a billion-dollar investment in Comcast. Meanwhile, Comcast invested in content such the Golf Channel and QVC.
Under the direction of Ralph and Brian Roberts, Comcast bought AT&T's ( T) Broadband cable systems for $45 billion in 2002. The purchase made Comcast the nation's largest cable operator with 21 million customers.
In 2011, Comcast and General Electric ( GE) completed a $6.5 billion transaction that formed NBCUniversal, creating a global media and technology company. Comcast had a 51% ownership stake and picked up the other 49% in 2013 for $16.7 billion.
Through it all, Roberts, a dedicated family man, strove to infuse a family atmosphere into Comcast and set an example of kindness and compassion.
Comcast Chief Communications Officer D'Arcy Rudnay, who worked with Roberts for 12 years, said, "I never heard Ralph raise his voice, ever. Ralph was a most respectful and gentle human being and an extraordinary leader."
"How do you maintain a family culture when the company is so big?" Ralph Roberts said. "By being warm and friendly. … I urge employees to get to know the people in their own part of the company. That's your immediate family. Be kind, do favors, and offer help to those who may be having problems."
Among Ralph Roberts' numerous honors: He was inducted into the Cable Hall of Fame in 2000. In 2003 he received the Steven J. Ross Humanitarian Award given by the UJA-Federation.
In 2009 Ralph Roberts and his family established the Roberts Proton Therapy Center to treat cancer patients.
Ralph Roberts' Keys
Founder of Comcast who served as its president, 1969-1970, chairman of the board, 1969-2002, and chairman emeritus, 2002-2015. Under Roberts it became one of the largest broadcasting and cable television companies in the world.
Overcame: Unfamiliarity with the cable TV business.
Lesson: It's not what you know; it's what you learn.
"I used to tell our people, 'It's OK to make mistakes. I make them every day because I'm doing too much, too fast. We all are. But let's learn from our mistakes and try to make sure they're not too big.' "
Adobe Systems ( ADBE), ServiceNow ( NOW), Salesforce.com ( CRM) gained on Thursday as some top software stocks found support at their 200-day moving average, aiming to claw back from a broad sell-off in technology stocks.
Adobe stock gained 0.3% to 238.59 on the stock market today. ServiceNow rose 1.6% to 174.97. Salesforce.com added 1% to 139.24. Workday ( WDAY) stock edged up 0.4% to 124.75.
While the FANG stocks — Facebook ( FB), Amazon.com ( AMZN), Netflix ( NFLX) and Google ( GOOGL) — have weakened since the summer, software makers have been hammered amid the October sell-off in technology stocks.
Morgan Stanley, in a report published on Thursday, says software stocks could be volatile when companies report September-quarter earnings. Billings, a sales growth metric, as well as operating margins, are key financial metrics.
Upcoming Earnings Reports Leave Little Room For Error
"Software seems to be priced for perfection, although margin risk is low," the report said.
Strong corporate spending on digital projects amid a strong economy has been a plus for software makers.
"Software has cyclical exposure given its dependence on business confidence, capital spending, upselling and seat growth," Morgan Stanley said.
Amid this week's technology sell-off, ServiceNow stock was down 16% from an intraday high of 206 set on Sept. 13. Adobe stock fell 13% from a high of 277 set on Oct. 2. Salesforce.com stock had declined 14% from a high of 160 on Sept. 27.
Shares of Adobe, Salesforce.com and ServiceNow found support near or at their 200-day moving average on Thursday.
Veeva Systems ( VEEV) slipped 0.2% to 89.20. Atlassian ( TEAM) fell 0.4% to 78.34. Palo Alto Networks ( PANW) was up 0.4% to 203.17. Paycom Software ( PAYC) was down 1.9% to 126.12.
While software stocks have been hammered, the FANG stocks are also bloodied. Facebook has dived 29% from late July, while Alphabet's Google has shed 13%. Netflix is down 22% from early July. Amazon has lost 15% since the start of October. Amazon and Netflix slipped Thursday, while Google and Facebook were up.
Three public cable TV companies will sit out a government 5G spectrum auction while satellite TV broadcaster Dish Network ( DISH) and three national wireless firms have registered as bidders.
The Federal Communications Commission plans to hold the 5G spectrum auction on Nov. 14. The high-frequency airwaves, suitable for next-generation 5G wireless services, exist mostly in rural areas. The largest single market with airwaves available in the 5G spectrum auction is Honolulu, says a Morgan Stanley report.
The FCC released the potential bidder list for the upcoming auction of 24-gigahertz and 28-gigahertz spectrum late Wednesday.
"It's difficult to handicap how active bidders plan to be in this auction as wireless operators' upfront payments have not been disclosed," BTIG Research analyst Walter Piecyk said in a note to clients.
AT&T ( T) and Verizon Communications ( VZ), which already have amassed high-frequency airwaves for next-generation 5G services, have registered to take part in the FCC auction.
So has T-Mobile US ( TMUS), which is seeking approval to merge with Sprint ( S).
Most Big Cable TV Firms Out
Dish Network is expected to participate through a partner, Crestone Wireless.
Cable TV firms Comcast ( CMCSA), Charter Communications ( CHTR) and Altice ( ATUS) did not register for the auction. Privately held Cox Communications, the third-biggest cable TV firm, did sign up.
The available radio spectrum covers only one-quarter of the U.S. territory. Cable TV companies operate in mostly urban and suburban markets, less so in rural areas.
Verizon Already Owns 5G Airwaves
Verizon already owns much of the spectrum in 24-gigahertz and 28-gigahertz bands through its acquisition of XO Communications in early 2017. New York-based Verizon has been testing 5G video services to homes using high frequency radio spectrum.
With the potential bidders known, the FCC has set a quiet period that prevents participating companies from negotiating on wireless matters.
"We would expect Dish to be opportunistic, but they are unlikely to spend much given their existing holdings and their balance sheet constraints," said Jonathan Chaplin, analyst at New Street Research, in a report.
Dish already owns mid-frequency spectrum but has been unable to partner with one of the big four national wireless firms. Dish stock fell 3.6% to 31.87 on the stock market today.
Apple ( AAPL) on Thursday signed a $600 million technology licensing and supply agreement with U.K.-based Dialog Semiconductor.
Under the agreement, the iPhone maker will license Dialog's power management technologies. Apple also will acquire certain assets and over 300 employees from Dialog to support chip research and development. Apple will pay $300 million in cash for the transaction and prepay $300 million for Dialog products to be delivered over the next three years, Dialog said in a news release.
Dialog Semiconductor received a broad range of new contracts from Apple under the supply agreement. They cover chips for power management, audio subsystem, charging and other mixed-signal integrated circuits. Dialog will realize revenue from the new contracts starting next year and accelerating in 2020 and 2021.
The more than 300 Dialog engineers and other employees going to Apple represent about 16% of Dialog's total workforce. As part of the arrangement, Apple also will take over certain Dialog facilities in Germany, Italy and the U.K.
Deal Expected To Close In Early 2019
"Dialog has deep expertise in chip development, and we are thrilled to have this talented group of engineers who've long supported our products now working directly for Apple," Johny Srouji, Apple's senior vice president of hardware technologies, said in a statement. "Our relationship with Dialog goes all the way back to the early iPhones, and we look forward to continuing this long-standing relationship with them."
The companies expect to complete the transaction in the first half of 2019. The deal is subject to regulatory approvals and customary closing conditions.
Dialog Semiconductor said the deal will lower its operating expenses by about $35 million on an annualized basis.
Dialog said it plans to accelerate its efforts to diversify from power management chips. It seeks to become a leading provider of custom and configurable mixed-signal integrated circuits in the Internet of Things, mobile, automotive, computing and storage markets.
Square stock plunged Thursday after its chief financial officer — viewed by some as a successor to Chief Executive Jack Dorsey — abruptly stepped down.
Square ( SQ) stock tanked by 10.9% to 69.03 on the stock market today, marking a second straight day of double-digit losses. The Square sell-off intensified after the digital payments processor announced late Wednesday that CFO Sarah Friar will leave to become the chief executive of Nextdoor, a social network startup focused on local communities. Square shares already had dropped 10% during Wednesday's market sell-off.
Credit Suisse analyst Paul Condra said in a note to clients Thursday that Friar might have had a long wait to ascend the Square throne.
"While it had often been remarked that Ms. Friar might one day become Square's CEO, we believe current CEO Jack Dorsey intends to remain in his position for the foreseeable future and will continue to lead the company on its current path," Condra wrote.
Twitter ( TWTR) and Square share the same CEO in Dorsey. Analysts have praised Friar for helping to run Square and diversify its business. Friar earlier worked at Goldman Sachs ( GS) and Salesforce.com ( CRM).
Square CFO Part Of Company Success
"Friar has clearly been an integral part of Square's success over the last several years, and the news of her departure is certainly a negative development," Stifel analyst Scott Devitt said in his note. "However, we expect Square will ultimately hire a candidate who embraces the company's long-term vision of building a uniquely positioned small- and medium business ecosystem with a continued focus on product/services innovation."
BTIG Research's Mark Palmer maintains a sell rating. "Friar's pending departure from Square introduces a significant new element of uncertainty into the company's story that may further weigh on its valuation," Palmer said in a report.
"As Square's CFO, Sarah steered us through an IPO and helped build a growing ecosystem of businesses that will scale into the future," Dorsey said in a statement.
Dorsey Sold Square Stock
Shares in Square met resistance in early October as shares topped 100 after a big run-up. Dorsey on Oct. 3 sold $10.1 million of Square stock, with shares priced at 97.67.
San Francisco-based Square makes credit card readers that plug into mobile phones and tablets. In addition, the company provides software for point-of-sale systems and back offices in order to manage inventory and other tasks. It also offers customer relationship management software.
Square has expanded from serving micro-merchants such as farm-stand vendors, hairstylists and coffee shops. It's now targeting bigger businesses with a broader product platform.
With Snap stock down about 49% since the company reported second-quarter results two months ago, a Wall Street analyst on Thursday slashed his price target on shares but reiterated a buy rating on hopes of a turnaround similar to what Twitter ( TWTR) achieved.
Goldman Sachs analyst Heath Terry cut his price target on Snap ( SNAP) to 11, from 17. But Snap stock has hit a succession of record lows since dropping below its 50-day moving average two months ago. A price target of 11 is still a 63% premium from where the stock currently trades.
Shares of Snap closed at 6.81, up 3.3% on the stock market today. Snap stock has been in gradual decline ever since the company held its initial public offering in March 2017. Snap is the operator of Snapchat, a multimedia messaging app that competes primarily with the Instagram app owned by Facebook ( FB).
"While we clearly have been wrong on Snap's ability to execute, we continue to believe that a Twitter-like turnaround is possible, particularly as its new Android app comes out later this quarter," Terry wrote in a research note to clients.
Terry noted that, from mid-2015 through the end of 2017, Twitter saw significant management turnover, declining user growth and monetization issues. That resembles some of the issues at Snap, he wrote.
Twitter Stock Rose On Turnaround
A series of efforts by Twitter to turn the company around worked. That was evident by its fourth-quarter earnings report in 2017 that easily beat estimates. Twitter stock soared as a result, ultimately climbing 77% to hit a record high of 47.79 on June 15. From that peak, however, Twitter stock has pulled back sharply.
But don't expect a turnaround at Snap to kick in anytime soon. Terry expects Snap to report a drop of 3 million daily active users when it reports third-quarter results.
"Longer term, we continue to believe there is considerable monetization potential in Snap's existing audience," Terry wrote. He also believes the Snap platform is under-reflected in the stock's current price. He says re-accelerating user growth is possible if Snap's new team can execute on its product and content efforts.
"We believe the risk/reward (returns) at these levels are attractive though we expect most investors will wait for evidence of positive user growth before re-engaging," he wrote.
Snap Stock: Rivalry With Instagram
Snap's main competition — a main reason for its troubles — is Facebook's Instagram platform. As Snap loses users, Instagram gains. Another problem for Snap: Its redesign of its app in February was a major flop.
Platforms like Instagram will continue to present a significant competitive risk to Snap's user base, Terry wrote. But he thinks Snap will regain its footing with accelerating user growth.
"While we have significantly overestimated Snap's ability to grow users and monetization in the 6 quarters since the company went public, we do believe that the company's largely new management team and their renewed focus on monetizing the platform is more likely to execute on this plan."
Video game headset maker Turtle Beach ( HEAR) on Thursday signaled continuing strong sales thanks to "battle royale" games like "Fortnite" and upcoming console games like Activision Blizzard's ( ATVI) "Call of Duty: Black Ops 4."
The San Diego-based company announced preliminary results for the third quarter that were well above expectations. It also expressed confidence in robust sales of headsets for new game releases as well as replacement headsets.
Turtle Beach expects to report third-quarter sales of $73 million to $74 million, compared with its prior guidance of $65 million. At the midpoint, its sales would be up 104% year over year.
It forecast earnings per share of 74 cents to 78 cents for the quarter ended Sept. 30. That would be a major improvement from the year-earlier period when it lost 4 cents a share. The company has not fixed a date for final release of Q3 earnings results.
Wall Street was modeling Turtle Beach to earn 46 cents a share on sales of $65.6 million in the third quarter.
Turtle Beach Jumps On Earnings Surprise
Turtle Beach stock jumped 4.7% to close at 18.01 on the stock market today. It had been trending down over concerns that it would be impacted by the declining popularity of "Fortnite."
"The momentum we built in the first half of the year continued through the third quarter," Chief Executive Juergen Stark said in a news release. "The strong increase in demand for gaming headsets that occurred with the rise of the 'battle royale' genre has continued, drawing new gamers into the market, leading veteran gamers to upgrade their gear, and increasing the overall usage rate and installed base of gaming headsets."
The launches of "Black Ops 4" and Take-Two Interactive Software's ( TTWO) "Red Dead Redemption 2" "should provide another set of high headset usage games," Stark said. "Black Ops 4" is set for release on Friday. "Red Dead" is due out Oct. 26.
Stark noted that gamers on average replace their headset every 20 to 24 months.
Regeneron Pharmaceuticals' ( REGN) potential blockbuster drug, Dupixent, has a shot at grabbing a broad approval in asthma treatment, an analyst said Thursday.
And even though it will be the fifth biologic asthma treatment — behind drugs from Roche ( RHHBY), GlaxoSmithKline ( GSK), AstraZeneca ( AZN) and Teva Pharmaceutical ( TEVA) — it will be the best, Piper Jaffray analyst Christopher Raymond said in a report to clients.
"Better (effectiveness), better safety, better convenience," he said. "While Dupixent would be the fifth approved biologic in this setting, by our read of the data, it will be the best — by a long shot — as (effectiveness), safety and convenience all position the drug as the best option."
On the stock market today, Regeneron stock dipped 2.7%, to 371.67, as shares of other biotech companies lost more than 1%. Shares of partner Sanofi ( SNY), ended the regular session flat, at 43.68.
Dupixent In Asthma Treatment
Dupixent already is an eczema treatment. On Oct. 20, the Food and Drug Administration could consider approving Dupixent as an asthma treatment. The drug works by interacting with a cytokine known to play a role in some immune disorders, like eczema and asthma.
Some worry Dupixent might only grab approval in a small group of asthma patients. Dupixent improves lung function, but it doesn't lower eosinophils, a type of white blood cell associated with asthma. In Phase 2 testing, Dupixent improved lung function despite eosinophil count.
"Phase 3 saw some controversy as this benefit was driven by mostly high eosinophil patients," Piper Jaffray's Raymond said. "Also driving concern — other approved biologics are limited to high eosinophil patients as they were mostly studied in that population."
Regeneron is hesitant to comment on the issue, but partner Sanofi is bullish, he said. A broad label would allow the drug to treat asthma regardless of eosinophil count. An estimated half of patients with severe asthma have high eosinophil counts.
Buy-Rated On Regeneron Stock
Piper Jaffray's Raymond expects Dupixent to grab the broader label as an asthma treatment. He models $439 million in Dupixent sales as an asthma treatment in 2019. That could grow to $1.07 billion, $1.42 billion and $1.68 billion in 2020-22, respectively, he said.
"We think the chances for a broad asthma label are high, and would be buyers (of Regeneron stock) into the Oct. 20 (potential approval) date," he said.
Raymond kept his overweight rating and 450 price target on Regeneron stock.
Facebook ( FB) deleted more than 800 U.S. publishers and accounts for delivering a flood of political messages that consistently violated spam policies, the company announced Thursday.
The social media giant said the removal came not because of the type of content they posted, but because of the behavior in which they engaged. This included the creation of fake profiles and the spamming of Facebook groups. They did not appear to have ties to Russia, the company said.
"Today, we're removing 559 Pages and 251 accounts that have consistently broken our rules against spam and coordinated inauthentic behavior," Nathaniel Gleicher, the company's head of cybersecurity policy, said in a blog post.
Gleicher said many used fake accounts or multiple accounts with the same names. They posted massive amounts of content across a network of groups and pages to drive traffic to their websites.
Some were ad farms that used Facebook to lure people into bogus forums for legitimate political debate. The accounts and pages were probably domestic actors using clickbait headlines and spam tactics. The key was to pull users to websites to target them with ads, the company said.
Dow Jones component Merck ( MRK) could seek a megamerger with Amgen ( AMGN) or AstraZeneca ( AZN) to diversify from blockbuster cancer treatment Keytruda, an analyst suggested Thursday.
Keytruda excitement has sent Merck stock flying 25.2% this year. But its second biggest product, a diabetes drug called Januvia, will lose patent protection in mid-2022. And Merck's internal pipeline is "underwhelming," Credit Suisse analyst Vamil Divan said.
"Intriguing BD (business development) possibilities remain for the team to consider, in addition to the possibility of separating the Animal Health business as another way to generate shareholder value," Divan said in a report to clients.
Although Merck is more likely to engage in smaller, bolt-on acquisitions, investors are keenly interested in a "large, transformational deal," Divan said. The biggest rumors circle around U.K. giant AstraZeneca and Amgen, the biggest biotech by market cap.
Keytruda In Cancer Treatment
Combining with AstraZeneca would boost Merck's oncology presence. Keytruda is an immunotherapy cancer treatment known as a PD-1 inhibitor. AstraZeneca sells a similar drug, Imfinzi, a PD-L1 inhibitor.
Further, Merck would gain full control of Lynparza, a PARP inhibitor approved in ovarian cancer, as well as fellow cancer treatments Tagrisso and Calquence, Divan said. It would also add another immunotherapy cancer treatment called tremelimumab.
Tremelimumab blocks a protein called CTLA-4, and would rival Bristol-Myers Squibb's ( BMY) Yervoy. This could act as a "hedge against Yervoy, should Bristol succeed in further establishing CTLA-4 as an important combination agent in immuno-oncology."
"Given how much both companies are currently investing in R&D in immunotherapy-oncology, we would assume there would be room for significant synergies in this area," Divan said.
The two companies also have extensive diabetes treatment portfolios. A merger with AstraZeneca would give Merck access to a more established SGLT2-class drug than its own, as well as what's known as a GLP-1 agonist.
But Merck would likely face a reluctant AstraZeneca board. Dow Jones' component Pfizer ( PFE) also tried to buy AstraZeneca in 2014. Divan notes "there may be strong political resistance to a U.S. company acquiring AstraZeneca, especially in the current Brexit environment."
Merging With Biotech Companies
A merger with Amgen would also be "disruptive, but could boost oncology presence and biologic capabilities," Divan said.
He notes a number of Amgen alumni now work at Merck, including Roger Perlmutter, president of Merck Research Laboratories. Before his current role, Perlmutter was the head of research and development for Amgen.
But merging with Amgen would require a vast amount of capital. Merck has a market cap around $184 billion. Amgen's market cap is just north of $127 billion. This would be "the largest of possible deals for Merck in the traditional biotech space."
From a product perspective, the two companies would overlap in cancer treatments and cardiovascular disease drugs. This could also help Merck in developing biosimilars, nearly identical copies of branded biologic drugs.
Other M&A opportunities among biotech companies include Vertex Pharmaceuticals ( VRTX), Alexion Pharmaceuticals ( ALXN) and BioMarin Pharmaceutical ( BMRN). Each of these biotech companies would help move Merck into rare diseases, Divan said.
These wouldn't offer as many synergies, but would "limit the amount of disruption that the deal would bring, while still providing new innovation and helping diversify the company away from Keytruda and oncology to some extent," Divan said.
Merck Stock Gets Price Boost
Divan raised his price target on Merck stock to 81 from 71 and reiterated his outperform rating. Expectations for immunotherapy Keytruda are particularly bullish with the consensus modeling $14 billion in global sales in 2022.
On the stock market today, Merck stock dipped 3%, to 68.37, in line with broader pharmaceutical stocks.
Amazon ( AMZN) has filed a patent for its virtual assistant Echo, designed to detect if a user is sick and then offer up suggestions to help the person feel better.
The patent describes software used by the Amazon Echo device, also known as Alexa, to analyze speech and identify signs of illness, reports the U.K.'s Daily Telegraph, which viewed the filing.
An example in the patent shows a woman coughing and sniffling while she speaks to her Amazon Echo device. It first suggests some chicken soup to cure her cold, and then offers to order cough drops on Amazon and have them delivered within an hour.
The Amazon Echo communicates through Alexa, the name given to the female voice for the artificially intelligent smart speaker. She responds to questions and requests and lives in the Amazon cloud.
The Amazon patent filing also covers a skill to track emotions. Alexa would be able to detect boredom or fatigue in the user's voice and make suggestions of things to do.
Amazon's Health Care Expansion
Health care is an area that Amazon has been focusing on in recent years. In June Amazon announced the acquisition of PillPack, an online pharmacy the delivers prescriptions, for a reported price of just under $1 billion. Amazon also has plans to open primary care clinics at its Seattle headquarters.
Alexa was initially used for common things like playing music, keeping lists and answering questions. It since has become a smart-home utility. Amazon is spending millions on improving Alexa's list of applications, which it calls skills.
Shares of Amazon closed at 1,719.36 down 2%, during afternoon trading on the stock market today.
Netflix peaked at 423.21 on June 21. It retreated to its 200-day moving average during Wednesday's stock market bloodbath. Netflix cut below that key support level on Thursday. It fell an additional 1.5% to 321.10 on the stock market today.
The internet television network said it expects to add 5 million new subscribers in the current quarter, bringing its total to 135.14 million worldwide. Netflix guided to 650,000 new subscribers in the U.S. and 4.35 million in international markets.
It forecast earnings per share of 68 cents on sales of $3.99 billion in the September quarter. Wall Street's consensus estimates are in line with that guidance. In the year-earlier quarter, Netflix earned 29 cents a share on sales of $2.98 billion.
Rival Video Services Preparing To Join The Fray
Netflix's latest earnings report comes as a host of major companies are gearing up for rival streaming video services. Those competitors include Apple ( AAPL), AT&T's ( T) Warner Media, Walmart ( WMT) and Walt Disney ( DIS). They will join current competitors Amazon.com ( AMZN), Hulu and more.
CNBC reported Wednesday that Apple plans to offer original video content for free to users of its hardware products. At the same time, it will push paid subscriptions to digital video services from legacy media companies through its TV application for iOS devices, such as the iPhone, iPad and Apple TV set-top box. Apple will debut its original video and revised TV app early next year, CNBC said.
Apple also is looking for "tent-pole" franchises that could serve as linchpins to a paid Netflix-like subscription service sometime later, CNBC said.
Warner Media already has a major subscription video-on-demand service in HBO, but is planning to launch another streaming video service in fourth quarter 2019. It will feature Warner Bros. movies and TV shows. The company announced the new service on Wednesday, but was light on details.
Retailer Walmart has teamed with movie studio MGM to create original series for Walmart's Vudu streaming video platform. Variety reported Sunday that Walmart will use the original content for a free, ad-supported video service.
Media giant Disney plans to launch its direct-to-consumer video service in late 2019. It will feature new and catalog Disney, Pixar, Marvel and "Star Wars" content.
As airlines battle for passengers on the high end and the low end, Delta Air Lines ( DAL) on Thursday said business hadn't been affected by American Airlines' ( AAL) decision last month to allow its Basic Economy fliers to bring a free carry-on aboard flights.
The remarks were in response to a question from a reporter during the carrier's conference call to discuss third-quarter earnings.
"We don't sell an incredible amount of basic economy," Delta Air Lines CEO Ed Bastian said during the call, "because most of our customer base chooses ... to sell up into the main cabin. It's a very small percentage of our total sales and we haven't seen a change in that since American's new policy."
The big U.S. airlines have introduced cheap "basic economy" fares that carry enough restrictions — on when passengers can board and what they can bring aboard — that passengers will pay more to avoid those limitations.
At the same time, airlines have carved up their flight cabins to offer different fares that offer differing degrees of amenities on domestic and international flights.
On one end, basic economy seats test what restrictions passengers will tolerate for a cheap seat. Meanwhile, on some flights, premium seats on airlines come with lie-flat seats. Some offer champagne, toothbrush-and-comb kits and meals that do a reasonable imitation of restaurant quality.
'Most Humane' Basic Economy
Amid that so-called cabin segmentation, Delta Air Lines said its basic economy was the "most humane" in the airline industry. Delta's basic economy fares allow a free carry-on. But seats get assigned after check-in. No upgrades are allowed. Basic economy passengers on Delta flights still receive the legroom and amenities of other main-cabin passengers. Those include free snacks and drinks.
American announced its carry-on plans in July, when the company reported second-quarter earnings. The carrier said removing the bag restriction would make it more competitive.
"Basic Economy is working well in the markets where we offer it, and we continue to see more than 60 percent of customers buy up to Main Cabin when offered a choice," American Airlines President Robert Isom said in the carrier's second-quarter earnings release.
Delta Air Lines Stock, Other Airline Stocks Rebound
Delta jumped 3.6% to close at 51.48 in the stock market today. American Airlines fell 1.1%, and United Airlines ( UAL) rose 1.5%.
Marijuana stock Pyxus International ( PYX) buzzed higher after being backed long by infamous short-seller Citron Research.
The share price rocketed after Citron, which had questioned the performance of rival stock Cronos ( CRON) and shorted Tilray ( TLRY) in recent weeks, said Pyxus stock is up to snuff.
"$PYX would not short ... speculative long. Real management and tight float," Citron said in a tweet. "The stock could double from here as long as investors are Cannabis crazy. Our favorite hire ... and it wasn't last week."
The last sentence tweet referred to the hiring of Bryan Mazur, a former executive vice president at Dr Pepper Snapple Group. Cannabis-infused beverages are seen as a big opportunity, with Coca-Cola ( KO) admitting it is watching the space closely.
Pyxus shares rose 4.1% to 41.69 on the stock market today. Recent marijuana IPO Tilray stock fell 3.55%. Canopy Growth ( CGC) dipped 1.5%, while Cronos stock lost 5.7%.
Despite being backed by short-seller Citron, many other investors are betting against it. Short interest in the stock as a percentage of float has jumped above 18%, according to Markit. This compares with less than 5% in June.
Marijuana Stock Pyxus Has 'Material Upside'
But Citron, which is led by activist investor Andrew Left, gave a more detailed explanation of its position in a research note.
It said Pyxus is the only U.S.-listed marijuana stock with a "material upside," and that both its provincial supply agreement and its production capacity had been overlooked by the market. Citron also said the fact that it has a smaller float than Tilray is a plus point.
"In the last 12 months, CGC, TLRY and CRON have generated slightly over $100 million in combined revenue while PYX alone generated almost $2 billion," Citron said in a research note. "Despite this large discrepancy, PYX only has a market cap of about $350 million while the others each have multibillion-dollar valuations."
It also pointed out the marijuana stock has an adjusted net debt of $709 million, giving it an enterprise value of about $1 billion.
Citron also took the opportunity to have another jab at Cronos stock, which Left on Aug. 31 said is "out of whack with the rest of the industry."
"PYX previously announced a supply agreement with the province of Prince Edward Island for 1,000 kilograms equivalent of cannabis products. This supply agreement was the SAME size as one awarded to CGC," the research note said. "TLRY and CRON were also selected to supply the region but did NOT disclose the size of the agreement. It's noteworthy that CRON has NOT disclosed the size of any agreement while PYX has."
Citron also said the expansion plans laid out by management of the marijuana stock will see it grow to around the same size as Tilray with a tenth of the market cap.
Pyxus International Fundamentals
Pyxus is a North Carolina-based tobacco company with a small marijuana business that's now gained prominence.
The company has better fundamentals than Tilray. Pyxus stock has a so-so IBD Composite Rating of 73, while Tilray is at just 58.
However, Pyxus' woeful EPS Rating of 25, which reflects a company's earnings-per-share growth on both a current and annual basis, should also give investors pause.
Citron also claimed Pyxus International has excellent institutional investment. The stock boasts an IBD Accumulation/Distribution Rating of A+.
It is wise to remember that investors should always treat the proclamations of short sellers with skepticism. They attempt to make money by betting against a company, and they share research they claim supports their thesis. They borrow and sell shares they do not own, in the hope of later buying them back at a lower price. However, they can rack up massive losses when they have to return their borrowed shares if the stock appreciates in value.
President Donald Trump's charge that the 'loco' Fed is to blame for the stock market sell-off is bad news for Wall Street. Blaming Fed rate hikes absolves Trump tariffs and the China trade war of any responsibility for the stock market swoon.
Here's the problem: The Fed is highly unlikely to respond to Trump taunts. Even after the stock market took a dive over the past week, financial markets were pricing in 80% odds of another Fed rate hike in December. Yet as long as the president has a fall guy and won't come to terms with the disruptive potential of Trump tariffs, he's unlikely to stop escalating his China trade war.
Trump Has A Point On Fed Rate Hikes
There's a good case to be made that Trump is right and the Fed is wrong about the risk of excessive monetary tightening, but policymakers are sincere in their belief that their path of gradual Fed rate hikes is the right path to extend the economic expansion. In fact, Fed Chair Jerome Powell laid out in fairly clear terms two weeks ago how big of a stock-market correction would be needed to get the Fed to shift gears.
For the Fed to react to financial market weakness, there would have to be a "significant correction and lasting correction," Powell said at the Sept. 26 press conference following the Fed's most recent rate hike.
So a sell-off similar to the one that followed the interim stock market peak at the end of January likely wouldn't grab the Fed's attention. That correction saw a 13% drop in the S&P 500, but stocks soon rebounded from lows and rallied to all-time highs within eight months.
The Fed wouldn't want to take a break due to a correction, then get caught flat-footed as animal spirits revived. Bottom line: Before prompting the Fed to pause, the correction would likely have to hit a bear market decline of 20%. That would mean an S&P 500 level of about 2350, down from the 2941 record high on Sept. 21 and still about 14% below Thursday's close on the stock market today.
Trump Tariffs' Economic Impact
Powell's "significant and lasting"correction construction seems to imply that December is too soon for a change in the Fed's course. Yet evidence of a bigger-than-expected economic cost from Trump tariffs might still prompt the Fed to reconsider. To be sure, most economists expect minimal impact from the latest wave of 10% Trump tariffs on $200 billion in Chinese imports. UBS is an exception, projecting just 1.2% annualized GDP growth in Q4 as smaller manufacturers struggle with supply-chain disruption.
Those Trump tariffs went into effect on Sept. 24 and are due to automatically escalate to 25% on Jan. 1 if there's no thaw in the China trade war before then. So what would it take for Trump to de-escalate that conflict?
UBS has explained that Section 301 rules used by the Trump administration to justify the tariffs make a near-term deal very unlikely. Either the Trump administration will escalate the Trump tariffs as planned, or else certify that the intellectual property harm used to justify the Section 301 tariffs has been remediated.
The deep divisions with China over its state-driven economy, market restrictions and Made in 2025 technological ambitions would seem to preclude Trump giving China a clean slate. Meanwhile, Beijing has made clear that standing up to Trump is a matter of national honor, even if it is coming at a significant economic cost.
The White House is reportedly planning for a Trump meeting with Chinese President Xi Jinping at the Group of 20 meeting in late November. That creates some hope for a near-term deal to avert a divorce in the world's most important economic relationship. But earnings season and a resurgence of corporate stock buybacks are a much better reason for Wall Street portfolio managers to buy this dip. However, any rally may prove fleeting as long as Trump tariffs and Fed rate hikes continue to escalate.
Russia grounded all space flights after a Soyuz rocket failure Thursday, putting the International Space Station at risk and adding pressure on Boeing ( BA) and SpaceX to get their rockets ready for NASA service.
U.S. astronaut Nick Hague and Russian cosmonaut Alexei Ovchinin landed safely in Kazakhstan after their Soyuz rocket failed as the first and second stages of the rocket were separating. It's unclear how long the Soyuz will be grounded while the problem is investigated but it could take months.
The crew already on the space station can use a Soyuz capsule attached to the ISS to return to Earth. But the capsule has been docked since June and only has a 200-day life span, according to Space News. And leaving the ISS unmanned increases the risk of losing it.
Since NASA retired the space shuttle fleet in 2011, the Soyuz has been the only way to reach the International Space Station. U.S. astronauts have had to hitch rides with Russia until NASA develops its own way to get there.
In 2014, NASA awarded Boeing a $4.2 billion contract and SpaceX a $2.6 billion contract to develop spacecraft for missions to the International Space Station.
Now, the Soyuz failure puts even more pressure on Boeing and SpaceX to stick to their schedules for crewed missions, which have already seen multiple delays.
Here's the updated schedule NASA released last week:
SpaceX's International Space Station Schedule
SpaceX's Crew Dragon's first unmanned test is now scheduled for January, a slip from a prior forecast for a November launch. SpaceX initially estimated an April 2018 uncrewed launch.
The first crewed test will now be June 2019 vs. April 2019 in previous schedules.
Despite the change, SpaceX is still likely to beat Boeing to become the first private company to deliver an astronaut into space.
Boeing's International Space Station Schedule
NASA said Boeing's first uncrewed Starliner test flight will be in March 2019 vs. prior plans for a late 2018 or early 2019 launch.
The first crewed test is now set for August 2019 vs. earlier estimates for a launch for mid-2019.
If Boeing and SpaceX are able to stick to the new schedule, NASA said it could fly the first regular mission to the International Space Station in August 2019 with a second in December.
Shares of Boeing, which also has a contract with NASA to manage the ISS, closed down 2.55% at 358.11 on the stock market today as the Dow sank again.
Marijuana stocks were down Thursday after retailer and cultivator MedMen agreed to buy medical cannabis provider PharmaCann in a $682 million deal that creates the biggest U.S. weed company.
The combined company will have licenses in 12 U.S. states that will allow it to operate 79 cannabis facilities. The all-stock transaction is the latest case of merger munchies, with the marijuana industry seeing a spate of deals both in Canada, where recreational use becomes legal next week, and the U.S.
MedMen CEO Adam Bierman touted the revenue synergies he believes the PharmaCann deal will produce. He also claimed the agreements shows how far the marijuana industry has come in the U.S.
"This is a transformative acquisition that will create the largest U.S. cannabis company in the world's largest cannabis market," he said in a news release. "The transaction adds tremendous scale to our vertically integrated business model by expanding our U.S. retail footprint across important growth markets while strengthening our cultivation and production capabilities."
Among marijuana stocks trading in the U.S., Tilray ( TLRY) was down 3.55% on the stock market today and is headed for its first weekly loss since its July IPO. Canopy Growth ( CGC) fell 1.5% Thursday and Cronos Group ( CRON) sold off 5.7%. Both are also on pace for down weeks.
For now, MedMen hasn't disclosed a plan to list on a U.S. exchange, as marijuana is still illegal in the U.S. on a federal level. But more Canadian companies, including Aurora Cannabis and Aleafia Health, are set to join the expanding tally of U.S.-listed marijuana stocks.
MedMen currently operates 14 retail stores in California, Nevada and New York. It also recently acquired a license to open and operate 30 retail stores in Florida. The firm has cultivation and production facilities in Nevada and New York. It is building facilities in Desert Hot Springs, Calif., and outside Orlando, Fla.
In addition, MedMen has agreements to acquire an operating retail store in Illinois, cultivation and retail operations in Arizona, and an additional nonoperating retail license in California.
PharmaCann currently operates 10 retail stores and three cultivation and production facilities across multiple states, including New York, Maryland and Massachusetts. In Illinois it is the largest holder of medical cannabis licenses. It is licensed for 18 retail stores in eight states and eight cultivation and production facilities in seven states.
MedMen Weeds Out Deals
It has been a big week so far for MedMen. On Wednesday it announced that it's acquiring its first dispensary in the San Francisco Bay Area. It will be located in Emeryville, in the East Bay near Oakland.
And on Tuesday the company said it had hired Ben Cook as its new chief operating officer. He has 15 years of logistics experience working for the likes of Sam's Club, Target ( TGT) and Apple ( AAPL).
And last month MadMen reached a deal with Canadian investors to raise $57 million in financing. It also snapped up "prime retail locations" in Florida. Under the so-called "bought deal," Canadian investment companies agreed to buy around 13.6 million units of MedMen. The agreed price is 5.50 Canadian dollars ($4.17).
In a bought deal, an investment bank agrees to purchase a company's entire offering. MedMen said it will use the money to add more retail locations to "attractive" cannabis markets. It will also build out its cultivation and production resources.
MedMen gave underwriters an option to buy up to an extra 15% of the units at that price. If exercised in full, MedMen would raise 11.25 million Canadian dollars extra, or around $8.5 million.
Energy stocks and crude oil futures continued to fall Thursday amid a volatile stock market and lower crude futures as OPEC cut its demand outlook while U.S. supplies and production rose.
Crude Inventory, Production Data
U.S. crude inventories rose by 5.987 million barrels last week, the Energy Information Administration said. Analysts polled by S&P Global Platts expect crude supplies to increase by 1.61 million barrels. But late Wednesday, the American Petroleum Institute, an industry group, said stockpiles rose by 9.7 million barrels.
Gasoline supplies grew by 951,000 barrels.
U.S. crude production hit a new record high of 11.2 million barrels per day, up from 11.1 million bpd last week.
OPEC Oil Demand Forecast Cut
In its latest oil monthly oil market report, OPEC forecast global oil demand rising by 1.54 million barrels per day in 2018, a reduction of about 80,000 bpd from its August report. OPEC sees demand growth rising by 1.36 million bpd next year, or 50,000 bpd less than in its August report.
"While growth in the major OECD economies remains well supported, decelerating trends have become visible in some emerging markets and developing countries," OPEC said in the report.
On the supply side, OPEC sees output from outside the cartel rising by 200,000 bpd to 2.22 million bpd this year. But it sees non-OPEC supply growth of 2.12 million bpd in 2019, or 30,000 bpd less than in its prior report.
The cartel produced 32.76 million bpd in September, up by 132,000 bpd from August. Saudi Arabia's output jumped by 108,000 bpd to 10.5 million bpd.
Iran's production fell by 150,000 bpd to 3.4 million bpd, according to secondary sources cited in the report. But Iran still claims it's pumping just shy of 3.8 million bpd.
Crude Futures Fall
Brent tumbled 3.4% to $80.26 per barrel and U.S. crude fell 3% to $70.97. Both are still near four-year highs.
OPEC Secretary General Mohammed Barkindo warned that geopolitical factors and supply shortage worries outside OPEC's control are "overwhelming" the oil market, according to the Financial Times.
"Extraneous, non-fundamental events can hurt stability efforts," Barkindo said at the Oil & Money conference in London. "We are working hard to mitigate these compound effects and uncertainties."
Oil Stocks Retreat
Exxon Mobil ( XOM) shares fell 3.45% to 81.60 on the stock market today, plunging through its 50-day moving average and below a recent buy point.
Chevron ( CVX) fell 3.4% to 118.43. The Dow stock is forming a cup with handle with a 131.18 entry point.
Diamondback Energy ( FANG) was down 3.6% to 124.63. The shale exploration and and production company is in sell range.
Marathon Oil ( MRO) plunged 5.7% to 19.96, now in sell territory from a failed breakout.
Energy stock losses weighed on the Dow Jones and S&P 500 index.
The purveyor of household supplies and affordable clothes might next bring us interactive toy catalogs and cooking shows. Walmart ( WMT) said Thursday that it is building out its video entertainment options through a joint venture with interactive video technology developer Eko to make original Walmart video content and products.
Walmart Video Efforts
Previously funded by Sequoia Capital, Intel Capital, Samsung, Walmart and other entities, Eko sees the future of video as interactive. According to Variety, Walmart has invested $250 million in Eko.
"At Eko, our mission is to evolve past basic personalization and partnering with Walmart will accelerate that evolution," said Eko CEO Yoni Bloch. "We're working alongside some of the most creative people from Hollywood and around the world, and we invite others to join us in making great interactive content."
The partnership, W*E Interactive Ventures, follows Sunday news that Walmart would join forces with movie studio MGM to create original series for the Walmart video platform, Vudu.
Vudu Product and Ad-Supported VOD VP Scott Blanksteen told Variety that it will be a "great source of family-friendly, advertiser-friendly content" that won't be available anywhere else.
It's not unusual for retailers to turn to entertainment, particularly in the wake of the Amazon ( AMZN) build-out of its critically acclaimed TV and movie library for Prime members. The Information reported Wednesday that Costco ( COST) is mulling a free streaming video service for executive-level members of the retail warehouse.
Walmart video offerings will likely not fully rival Amazon or Netflix's anytime soon, however, as company sources have told Reuters that is not the plan.
Amid a volatile session, the Dow Jones component closed down 1.9% at 93.92 in the stock market today. Walmart stock found support at its 50-day moving average this week as it rides the momentum from its August earnings report.
Amazon sank 2%, continuing its sharp drop after Wednesday's sell-off.
Costco stock rose 0.35% but remains below its key 50-day line after sinking on earnings last week. Late Wednesday, Costco reported that October same-store sales grew 8.4% vs. a year earlier.
BMW ( BMWYY) will take control of its main China joint venture, becoming the first foreign carmaker to take advantage of looser ownership rules in the country's auto sector. It comes as the German luxury-car maker faces Beijing's rising import tariffs amid President Trump's China trade war.
BMW will pay $4.2 billion to hike its stake in Brilliance China Automotive Holdings from 50% to 75%. The pact also extends the joint venture contract from 2028 to 2040.
The joint venture simultaneously said it will expand its production capacity in Shenyang in northeast China over the coming years.
BMW won't boost its ownership stake until 2022. In April, Beijing eased auto regulations that limited global automakers to owning 50% at most of a joint venture with a local partner. But for most carmakers that will kick in as of 2022. BMW imports key vehicles, such as its luxury X5 SUV, from the U.S. for the Chinese market.
Trump Trade War Hits BMW
The U.S.-China trade war has hit BMW especially hard. The carmaker imports many key vehicles from the U.S. for the Chinese market. Tuesday's move could offset some of the impact.
China cut import tariffs on cars from 25% to 15% in July. But it later slapped an additional 25% tariff on cars built in the U.S. in response to new Trump tariffs.
Other foreign automakers with significant Chinese joint ventures have said breaking up is complicated.
General Motors ( GM), Ford Motor ( F) and Fiat Chrysler ( FCAU) all manufacture in China via joint ventures. In fact, GM and its Chinese JVs sold a record 4 million vehicles in 2017.
Tesla ( TSLA) complained of punishing China tariffs in its recent Q3 deliveries report. Tesla plans to build a Shanghai plant, aiming to take advantage of new rules that let foreign automakers take full control of companies that build electric vehicles.
BMW shares edged up 0.5% to 28.68 on the stock market today, stemming a five-session slide to new lows. GM fell 0.9%, Fiat Chrysler rose 0.4% and Ford dipped 0.1%. Tesla retreated 1.8%. Recent IPO and China electric-car maker Nio ( NIO) sank 7.4%.
The U.S. Defense Department has temporarily suspended flight operations of Lockheed Martin's ( LMT) F-35 after its first crash prompted inspections of the fighter jet fleet.
The suspension by the Pentagon is to allow "a fleet-wide inspection of a fuel tube within the engine on all F-35 aircraft," the Defense Department said in a statement Thursday. The F-35 is the costliest U.S. weapons system.
The inspection is "is driven from initial data from the ongoing investigation of the F-35B that crashed in the vicinity of Beaufort, South Carolina" on Sept. 28, according to the statement. The F-35B is the Marine Corps version of the aircraft.
Joe DellaVedova, spokesman for the Pentagon's F-35 office said inspections "are expected to be completed within the next 24 to 48 hours."
"If suspect fuel tubes are installed, the part will be removed and replaced," he said. "If known good fuel tubes are already installed, then those aircraft will be returned to flight status."
More than 320 F-35s are already operating from 15 bases worldwide, although the Pentagon and Lockheed continue to wrestle with resolving more than 900 deficiencies, including flaws in the plane's complex software.
Telecom isn't a high earnings- or revenue-growth sector, even though wireless and broadband services are "must-haves" for U.S. consumers. Stocks often run up on merger and acquisition speculation, while tougher regulation can be a worry.
Big cap telecom stocks such as AT&T ( T) and Verizon Communications ( VZ) have attractive dividends. And, telecom stocks are sometimes viewed as a safe haven when stock markets turn volatile.
T-Mobile US ( TMUS) has grabbed subscriber and revenue market share amid speculation it'll be part of wireless industry consolidation. Comcast ( CMCSA)'s institutional ownership has been rising as it delivers growth from broadband services and media arm NBCUniversal.
Bookmark this page to stay on top of companies such as Charter Communications ( CHTR), Sprint ( S), Dish Network ( DISH), and CenturyLink ( CTL). Also note that telecom developments often impact media stocks such as Walt Disney ( DIS), Discovery Communications ( DISCA) and 21st Century Fox Entertainment ( FOX).
Core consumer prices, excluding food and energy, rose a softer-than-expected 0.1% in September, while the CPI core inflation rate held at 2.2%, the Labor Department reported on Thursday. Still, expect Fed rate hikes to continue, even with President Donald Trump calling policymakers "loco."
Wall Street expected the core CPI to rise 0.2% on the month and 2.3% from a year ago.
The overall consumer price index rose just 0.1% on the month and 2.3% from a year ago, vs. expectations of a 0.2% monthly and 2.4% annual gain. Higher costs for housing was the biggest contributor, while lower energy costs held down the overall CPI. Lower used-car prices helped curb core CPI.
After the CPI data, the S&P 500 index, Dow Jones industrial average and Nasdaq 100 futures pared signficant premarket losses on the stock market today, following Wednesday's wipe-out. The 10-year Treasury yield ticked lower to 3.17%.
Core inflation is close to the Fed's 2% goal and central bankers see a slim chance of a substantial acceleration from here. Yet Fed policymakers seem dead-set on keeping up their steady campaign of Fed rate hikes.
Yet there's a limit to how much of a price increase companies can pass to customers. JetBlue ( JBLU) and United Airlines ( UAL), which have struggled to raise air fares, recently raised fees for checked luggage. Amazon boosted Prime membership fees earlier this year.
The Fed remains worried that financial excesses will result from interest rates that are too low, even if those excesses don't show up in higher inflation.
Bayer ( BAYRY) shares surged after the company won a tentative ruling slashing a $289 million verdict in the first trial over claims that Roundup weed killer causes cancer, with a judge saying she's considering a new trial.
A San Francisco state judge indicated ahead of a hearing Wednesday on the company's challenge to the August verdict that she's inclined to set aside $250 million in punitive damages against Monsanto, which Bayer acquired this year. The judge said a comment by plaintiff's attorney Brent Wisner, who told jurors that Monsanto executives were putting "Champagne on ice" in anticipation of a modest damage award, was one reason.
The ruling could shift momentum in the company's favor as it defends against thousands of U.S. lawsuits. The German company's shares rose as much as 6.6 percent in Frankfurt trading, the biggest gain in almost seven years.
Superior Court Judge Suzanne Ramos Bolanos said that even if she doesn't vacate the punishment damages, she "would grant a new trial on grounds of insufficiency of the evidence to justify the award for punitive damages." She also questioned whether the evidence introduced at trial supports the jury's conclusion that Bayer was liable for plaintiff Lee Johnson's non-Hodgkin lymphoma based on his exposure to the key ingredient in Roundup, called glyphosate.
"A retrial would enable Bayer to revisit its arguments around the safety of its glyphosate-based products," Ian Hilliker, an analyst at Jefferies LLC in London, wrote in a note to clients. "On a best case scenario this obviously provides the company a possibility it could win the retrial. Even if it was to lose again, there is also the possibility any damages could be set at a more reasonable level."
If the company can persuade the judge to erase or slash the nine-figure verdict -- the first case to go to a jury among 8,700 people in the U.S. who blame the popular herbicide for their cancer -- legal experts say some plaintiffs may be less eager to pursue their claims.
Lawyers for the plaintiff and the company declined to comment on the tentative ruling ahead of Wednesday's hearing.
Champagne Remark May Cost Lawyer $289 Million Award From Bayer
Jonas Oxgaard, an analyst at Sanford C. Bernstein & Co., estimated that Bayer's market value was discounted by as much as $15 billion because the San Francisco verdict represents the larger cloud of Roundup liability trailing the company after it acquired Monsanto. More trials are scheduled for February.
"Getting the first ruling overturned would be huge for Bayer -- likely reversing most of the discount," Oxgaard said in a recent email.
The $289 million award was the second-largest of the year for a product defect case in the U.S. and the ninth-largest verdict overall. The punitive part of the award is so "excessive" that it "shocks the conscience," Monsanto argued in a court filing.
Bayer said in a statement on Thursday it "continues to believe that the evidence at trial does not support the verdict and the damage awards."
Besides dealing with some inherited legal challenges, the German company is scrutinizing its portfolio in the aftermath of the $63 billion Monsanto acquisition.
Bayer, which also makes prescription drugs and veterinary products, is considering a sale of its animal-health business as part of a broader review, people familiar with the company's plans said. A sale isn't imminent, said the people, who asked not to be named because the appraisal hasn't been made public. The business could be worth about 6 billion euros ($6.9 billion), which could be reinvested in the pharmaceutical operations, according to Hilliker.
Walgreens Boots Alliance ( WBA) stock plunged Thursday morning after the drugstore heavyweight reported mixed fourth-quarter results.
Estimates: Walgreens earnings growth of 10% to $1.44 per share on a 12% revenue gain to $33.68 billion.
Results: Walgreens earnings came in at $1.48 a share. Sales rose 10.9% to $33.4 billion.
Outlook: Walgreens sees fiscal 2019 EPS of $6.40-$6.70. Analysts expected $6.44.
Walgreens Boots Alliance shares tumbled 4.5% in premarket trading on the stock market today. The Dow Jones component has been on an upswing over the last month, with a 50-day moving average crossing above the 200-day moving average for the first time since June 2017. Walgreens stock is flattish in 2018.
CVS Health ( CVS) shares sank 1.3% early Thursday, but in light volume.
CVS Health will now be able to buy insurance company Aetna ( AET) in a $69 billion cash-and-stock deal. CVS is the largest retail pharmacy chain and a top pharmacy-benefit manager.
The merger comes after the Justice Department last month cleared the Cigna ( CI)-Express Scripts ( ESRX) deal, which is in part a reaction to Amazon ( AMZN) starting to enter the pharmacy and health care space.
Natixis SA is among companies exploring a potential combination with French payments processor Ingenico Group SA following a string of deals in the sector.
Natixis Payment Solutions has held preliminary talks with Ingenico, the French bank said Thursday, confirming a Bloomberg report that the two companies were discussing a deal. Edenred, a French provider of prepaid vouchers for products and services, has also indicated interest, according to people familiar with the matter.
Ingenico rose as much as 15 percent in Paris trading, the biggest jump in more than 15 years, while Natixis and Edenred declined amid a broader market selloff. Ingenico, in a separate statement, said it has received preliminary approaches, without naming potential bidders. An official for Edenred didn't immediately respond to requests for comment.
Paris-based Ingenico is one of the few large firms to remain independent in the rapidly consolidating payments industry in Europe. In one of the most notable transactions in recent months, Atos SE's Worldline agreed to buy SIX Group AG's payments business for about 2.3 billion euros ($2.7 billion) in May following a months-long bidding war for the Swiss asset. Natixis had also submitted a bid, people familiar with the matter said at the time.
For Natixis investors, "the potential size of a payments deal may come as something of a surprise," Bloomberg Intelligence analysts Jonathan Tyce and Georgi Gunchev wrote in a note. However, "the scale delivered will ultimately more than offset any initial concerns."
Natixis has bolstered its "war chest" to more than 2.5 billion euros through the recent sale of some retail businesses to its parent, Groupe BPCE, they wrote. That would have to be replenished should it be successful in taking over Ingenico, which has a market value of more than 4 billion euros.
Ingenico shares rose 13 percent as of 9:52 a.m. in Paris, while Natixis declined 3.9 percent and Edenred fell 1.7 percent. That leaves Natixis with a market capitalization of 17 billion euros, while Edenred's is about 7.4 billion euros.
Private equity firms flush with cash have been weighing a takeover of Ingenico, people familiar with the matter said in June. Potential suitors at that time included CVC Capital Partners, Hellman & Friedman and Bain Capital, they said.
Ingenico had fallen 29 percent this year through Wednesday, trailing rivals including Dutch payment firm Adyen NV, whose shares have more than doubled since its initial public offering in June.
Natixis said it would inform the market "if and when necessary" on further steps and that it remains committed to strong financial discipline.
Oil headed for the biggest two-day drop since July, with fuels from diesel to gasoline also declining as fears over a worsening trade war rattled markets across the board.
Futures dropped as much as 1.9 percent in New York, after sliding 2.4 percent Wednesday. As trade tensions between the U.S. and China escalate, investors are shunning risk assets from equities to oil on fears over slowing growth. The S&P 500 Index slumped the most since February while the Nasdaq 100 Index had its worst day in seven years. Meanwhile, Hurricane Michael became the strongest storm to hit the U.S. mainland since 1992 as it made landfall in Florida, slashing fuel demand in the Southeast.
"It's a typical spillover effect and oil's been hit by the widespread sell-off in risk assets as the intensifying trade row stokes concerns over sluggish global demand," Will Yun, a commodities analyst at Hyundai Futures Corp., said by phone. "If it were not for the trade dispute, the oil market probably would have kept its momentum on lingering supply risks."
Crude had surged to a four-year high earlier this month with impending American sanctions against Iran set to curtail exports from the OPEC's third-largest producer. U.S. President Donald Trump has repeatedly demanded the Organization of Petroleum Exporting Countries pump more to temper prices. While the rally has eased, traders continue to speculate whether the cartel and its allied producers can offset dwindling supplies from Iran to Venezuela.
West Texas Intermediate for November delivery declined as much as $1.37 to $71.80 a barrel on the New York Mercantile Exchange and was at $72.37 at 7:55 a.m. in London. Prices are on course for the worst two-day slide since July 17 after closing at the lowest level since Sept. 27 on Wednesday. Total volume traded was about 77 percent above the 100-day average.
Brent for December settlement was 93 cents lower at $82.16 a barrel on the London-based ICE Futures Europe exchange, after falling $1.91 on Wednesday. The global benchmark crude traded at a $9.90 premium to WTI for the same month.
In equity markets, both the S&P 500 Index and the Dow Jones Industrial Average slipped more than 3 percent, while the Nasdaq 100 Index fell as much as 4.5 percent. The rout continued into Asian hours, with equity benchmarks from Japan to Hong Kong plunging.
In the U.S., Hurricane Michael has curtailed 40 percent of offshore crude output in the Gulf of Mexico this week and is set to cause as much as $16 billion in damage. Gasoline futures dropped as much as 2 percent to $1.9808 a gallon, sliding for the third day. Demand for the motor fuel typically falls in the wake of a hurricane because roads become impassable and filling stations end up without power. Diesel slumped more than 1 percent.
The biggest stock slump since February rolled from the U.S. through Europe and Asia on Thursday, with benchmarks from Tokyo to London slumping as fresh fears for global trade added fuel to a recent selloff. Emerging markets were hit hard, while core European bonds gained and Treasuries were mostly steady.
The worst of the declines were in Asia, where China's Shanghai Composite gauge at one point tumbled more than 5 percent. Taiwan's technology-heavy TWSE Index plummeted more than 6 percent in the region's worst performance. By comparison, European losses were more contained; the Stoxx Europe 600 Index and Britain's FTSE 100 both slipped less than 2 percent at the open.
U.S. futures extended losses from Wednesday when the Nasdaq 100 Index tumbled more than 4 percent for its worst day in seven years. Treasuries, which helped trigger the stock decline when 10-year yields hit the highest since 2011, held most of their gains posted Wednesday.
Fresh news of damage to corporate earnings from the trade war, along with intensifying pressure from the global shift away from monetary stimulus, have combined to accelerate the recent decline in equities. In the latest developments, U.S. industrial and construction supplies distributor Fastenal Co. added to the angst that the trade conflict with China is raising materials costs that will crimp profit margins, while French luxury goods maker LVMH confirmed China is enforcing customs rules more strictly.
Treasury 10-year yields held at about 3.17 percent, down from the seven-year high of 3.26 percent reached on Tuesday. Rates have been climbing under the influence of a shrinking Federal Reserve bond portfolio and expectations for further interest-rate hikes. President Donald Trump, who has claimed credit for record U.S. stock levels, said after the U.S. market closed that the Fed is making a "mistake" and "has gone crazy."
"The sharp rise in U.S. 10-year yields has caused investors to suddenly reprice the impact of moving from post-crisis low yields to a rising rate environment," Eleanor Creagh, an Australian market strategist at Saxo Capital Markets in Sydney, said by email. "We have the global growth engines, the price of energy rising, the price of money rising and quantity of money falling combined with the ongoing trend of de-globalization which has started to impact markets and the cracks are showing."
Trump also said the stock's decline was "a correction that we've been waiting for for a long time," after being briefed on the market turmoil. Treasury Secretary Steve Mnuchin said he's not surprised the market is having "somewhat of a correction."
A gauge of equity volatility in Europe jumped to the highest in almost two months after Wall Street's "fear gauge," as the Cboe Volatility Index, or VIX, is known, soared the most since February.
"This is the new paradigm for all of us to get used to," Tom Essaye, founder of The Sevens Report, said on Bloomberg Radio. "Those of us who have been in the markets for a couple of decades now, you see the Dow down 1,000 points, you think 'my God, the Dow's down 1,000 points,' but we saw this at the beginning of the year, and this is the new market that we have. It's algo-driven. There are very few real people involved in these types of moves. As such we just have to get used to more volatility on these types of days."
Elsewhere, West Texas Intermediate crude fell back below $73 a barrel amid a broad decline in commodities.
Here are some key events coming up:
The U.S. Treasury is in the midst of $230 billion worth of debt auctions this week. The IMF and World Bank will hold meetings in Bali beginning Friday, where finance chiefs from around the world will gather. A closely watched gauge of U.S. consumer prices probably remained elevated in September and rose 2.3 percent from a year earlier, according to forecasts ahead of Thursday's release. JPMorgan Chase ( JPM), Citigroup ( C) and Wells Fargo ( WFC) kick off earnings season for U.S. banks on Friday.
These are the main moves in markets:
Futures on the S&P 500 Index fell 0.4 percent as of 8:09 a.m. London time, hitting the lowest in almost 14 weeks with its sixth consecutive decline. The Stoxx Europe 600 Index declined 1.6 percent to the lowest in more than 20 months. The U.K.'s FTSE 100 Index declined 1.5 percent to the lowest in about six months on the largest drop in eight weeks. Germany's DAX Index decreased 1.1 percent to the lowest in 20 months. The MSCI Asia Pacific Index dipped 3.6 percent, hitting the lowest in about 17 months with its ninth consecutive decline and the largest decrease in more than two years. The MSCI Emerging Market Index dipped 3.5 percent, reaching the lowest in 19 months on its sixth straight decline and the biggest decrease in more than two years.
The Bloomberg Dollar Spot Index dipped 0.1 percent to the lowest in more than a week. The euro gained 0.2 percent to $1.1539, the strongest in more than a week. The British pound fell less than 0.05 percent to $1.3195. The Japanese yen climbed less than 0.05 percent to 112.22 per dollar, reaching the strongest in more than three weeks on its sixth straight advance.
The yield on 10-year Treasuries advanced less than one basis point to 3.16 percent. Germany's 10-year yield decreased four basis points to 0.51 percent, the lowest in more than a week. Britain's 10-year yield dipped five basis points to 1.682 percent. The spread of Italy's 10-year bonds over Germany's rose eight basis points to 3.0359 percentage points.
West Texas Intermediate crude decreased 1 percent to $72.45 a barrel, the lowest in two weeks. Gold advanced 0.1 percent to $1,195.89 an ounce.
The Air Force awarded Launch Service Agreement (LSA) contracts late Wednesday to United Launch Alliance, Northrop Grumman ( NOC) and Blue Origin, which will develop rockets that end U.S. reliance on Russian engines.
But SpaceX, founded by Tesla's ( TSLA) Elon Musk, was shut out despite being seen as one of the frontrunners.
With the Air Force deals, United Launch Alliance, a Boeing ( BA)-Lockheed Martin ( LMT) joint venture, will continue development of its Vulcan Centaur launch system. Northrop's Orbital Sciences will push its OmegA rocket further along, and Blue Origin, which was founded by Amazon ( AMZN) CEO Jeff Bezos, will get more money for its New Glenn.
Each company gets an initial $181 million, though the Air Force has allocated $500 million for Blue Origin, $792 million for Northrop and $967 million for ULA. But the companies will only receive the total funding value from the Pentagon if they win a contact in the second phase.
Air Force acquisition chief William Roper told reporters at the Pengaton Wednesday, that the Pentagon saved billions by holding the competition but wouldn't disclose exactly how much.
The emergence of Blue Origin added a twist to the LSA contest. The LSA contract award was reportedly delayed from July until September to have more time to evaluate Blue Origin's design submission, Space News has reported.
The Pentagon said in a statement that the public-private partnerships will help ensure the U.S. has at least two domestic launch service providers and "without reliance on non-allied rocket propulsion systems."
Shares of Boeing dipped 0.7% in late trading after closing down 4.7% on the stock market today, while Lockheed and Northrop were flat late, after losing 3% and 1.6%, respectively.
The goal is to meet a congressional deadline of 2022 for phasing out Russian-made RD-180 engines, which are used in the Atlas 5 rocket by United Launch Alliance.
In 2016, the Air Force awarded initial contracts to SpaceX, Orbital ATK, ULA and Aerojet Rocketdyne ( AJRD) to develop U.S.-made propulsion systems. The upcoming LSA contracts, each of which could be worth a billion dollars over the next several years, will be for development of the overall rocket.
The next step is to narrow down the selection field further to just two by fiscal 2020 at the earliest. Those two space companies will then launch a combined total of up to six rockets per year for the military. A draft request for proposal for the next phase is expected by the end of this calendar year.
Missing out on the LSA rocket contract doesn't leave SpaceX out in the cold completely. Losing the Air Force contract just means SpaceX won't receive Pentagon funding to develop a rocket. SpaceX can still develop a rocket with its own money and late compete for launch services.
Roper stressed Wednesday that SpaceX is still a important launch provider for the Defense Department, with seven launches already contracted with its Falcon 9 and Falcon Heavy rockets.
Here's how the space companies competing for the LSA matched up:
United Launch Alliance
With its Titan and Atlas rockets, ULA is the legacy launch provider for the Pentagon. But it has to develop a new rocket, the Vulcan Centaur, for future Air Force launches.
After the U.S. imposed sanctions on Russia following the invasion of Ukraine's Crimean peninsula in 2014, the Air Force couldn't use the Atlas 5 with its Russian-made engines.
ULA has been working with Blue Origin and Aerojet Rocketdyne on U.S.-made engines to power the Vulcan.
ULA picked Aerojet earlier this year to supply engines for the Vulcan's upper stage. But it selected Blue Origin's BE-4 engine for the lower stage, beating out Aerojet's AR1 engine.
Northrop's OmegA rocket will include Aerojet's RL10 engine for the third stage engine, while the first two stages are powered by the company's own Castor engines.
The OmegA began under Orbital ATK. But following Northrop's acquisition of Orbital in 2017, Jefferies analysts predicted their combined scale and space expertise could make the OmegA a formidable competitor.
"The company's OmegA rocket is starting at a high level of technology readiness given its leverage of current components," the analysts said in April.
Blue Origin's New Glenn rocket hasn't taken off yet, but the Air Force LSA contract will help fund the rocket's development.
That won't be the only infusion of money it receives. Bezos said last month that he plans put in more than $1 billion of his own money into the New Glenn's development.
The New Glenn is using seven reusable BE-4 engines for the first stage, a BE-4U re-ignitable engine for the second stage, and BE-3U engines for the third stage.
SpaceX already launches Air Force payloads with its Falcon 9 rocket, powered by its U.S.-made Merlin engines, ending ULA's virtual monopoly on military launches.
The 2016 Air Force contract that SpaceX received helped pay for development of its Raptor engine, which will be used on the upcoming Big Falcon Rocket.
That massive spacecraft is envisioned traveling to Mars and beyond and is also seen bringing payloads into Earth orbit. But SpaceX hinted last year that the Raptor engine could eventually find its way on the Falcon 9.
SpaceX also has the Falcon Heavy, which is powered by 27 Merlin engines. The Air Force has already picked it for launches, including the classified Air Force Space Command-52 satellite due to launch by September 2020.
Cutting Out Russia
The Pentagon isn't alone in ending its reliance on Russia's space program. NASA has contracts with Boeing and SpaceX to ferry astronauts to and from the International Space Station.
Since NASA retired the space shuttle fleet in 2011, U.S. astronauts have had to hitch rides on Russian Soyuz spacecraft. But SpaceX and Boeing will launch their first crewed test flights next year.
Private equity firm Thoma Bravo on Tuesday agreed to buy cybersecurity firm Imperva ( IMPV) for $2.1 billion. The acquisition further builds up Thoma Bravo's computer security holdings.
Imperva shareholders will get $55.75 a share in cash. Imperva stock closed up 28% to 55.11 on the stock market today. Shares in Imperva had dropped 24% from a high of 57 set on July 20.
Imperva in 2016 hired Qatalyst Partners to explore strategic options. Silver Lake Management also reportedly had an interest in Imperva.
In a release, the cybersecurity firm said it expects September quarter revenue of $91 million, topping analyst estimates of $88 million.
Imperva Adds To Cybersecurity Assets
Thoma Bravo last year acquired security software maker Barracuda Networks for $1.6 billion. Thoma Bravo in July took a majority stake in Centrify. It's a rival of CyberArk Software ( CYBR).
Hackers often target employees or management with administrative access to company computer systems. CyberArk's software monitors and manages privileged accounts. CyberArk ranks No. 27 in the IBD 50 roster of fast-growing companies.
Square ( SQ) late Wednesday said its chief financial officer would step down, sending shares in the digital payments processor down sharply in after-hours trading. Square stock fell more than 7% in after-hours action, in the wake of crumbling another 10% during Wednesday's brutal regular session.
Company CFO Sarah Friar will leave to become the chief executive of Nextdoor, a social network startup focused on local communities, the company said in a release.
Twitter ( TWTR) and Square share the same CEO in Jack Dorsey. Analysts have praised Friar for helping to run Square and diversify its business. Friar earlier worked at Goldman Sachs ( GS) and Salesforce.com ( CRM).
"As Square's CFO, Sarah steered us through an IPO and helped build a growing ecosystem of businesses that will scale into the future," Dorsey said in a statement.
Square Stock Buckles After Run-Up
Square stock lost 7.6% to 71.58 in recent after-hours trading on the stock market today. Shares plunged 10.1% during the regular session to 77.45.
Shares in Square met resistance in early October as shares topped 100 after a big run-up. Dorsey on Oct. 3 sold $10.1 million of Square stock, with shares priced at 97.67.
San Francisco-based Square makes credit card readers that plug into mobile phones and tablets. In addition, the company provides software for point-of-sale systems and back offices in order to manage inventory and other tasks. It also offers customer relationship management software.
Square has expanded from serving micro-merchants such as farm-stand vendors, hairstylists and coffee shops. It's now targeting bigger businesses with a broader product platform.
Crispr Therapeutics ( CRSP) rocketed after hours Wednesday as the Food and Drug Administration lifted a clinical hold barring a study of its gene-editing therapy with Vertex Pharmaceuticals ( VRTX).
In after-hours trading on the stock market today, Crispr stock flew 13.5%, near 41.60, after losing a fraction at the closing bell, to 36.64. Vertex stock, on the other hand, sank 1.4%. That added onto a 5% loss at the close, where it ended the regular session at 176.43.
The two biotech companies said the FDA lifted a clinical hold preventing a study of their gene-editing therapy, CTX001, an experimental sickle cell disease treatment. U.S. regulators also accepted the biotech companies' application to begin a clinical study of the gene-editing therapy.
Crispr and Vertex remain on track to begin a clinical study in sickle cell disease by the end of 2018. The biotech companies are also enrolling patients in a study in Europe in beta-thalassemia, another blood disorder.
Abbott Laboratories' ( ABT) "string of strong quarterly results" is likely to continue next week, an analyst said Wednesday ahead of the medical giant's third-quarter report.
"Tougher comparisons makes a repeat of first-half 2018 organic growth (up 7.5% year over year) difficult in the third quarter, but upside to (estimates) remains a distinct possibility," RBC Capital Markets analyst Glenn Novarro said in a note to clients.
Novarro boosted his price target on Abbott stock to 77 from 70, and kept his outperform rating. On the stock market today, Abbott stock toppled 3.3%, to 68.92 amid a broad downturn. Abbott stock hit its highest point in more than two decades earlier this month.
Abbott's Third-Quarter Looms
Abbott is set to report its third-quarter earnings next Wednesday. Novarro calls for sales of $7.63 billion and adjusted profit of 75 cents a share. Analysts polled by Zacks Investment Research is more bullish on sales at $7.67 billion. But its earnings call lags Novarro by a penny.
Diabetes care is expected to post the strongest growth, up 35% year over year, excluding the impact of exchange rates. Medical devices, which comprise 42% of Novarro's total revenue estimate, could tack on 9% growth in the quarter. That matches a tough comparison for the first half of 2018.
Three segments — diabetes care, electrophysiology and structural heart — will contribute nearly all of the growth in medical devices, Novarro predicted. They will overcome sluggish growth, or even a decline, in rhythm management and vascular sales, he said.
Freestyle Libre is a glucose-monitoring medical device for diabetic patients. That could bring in $270 million in worldwide third-quarter sales, up 80%. In 2018, Novarro calls for the diabetes medical device to generate $1.07 billion in sales, doubling year over year.
Guidance Expected To Narrow
After strong third-quarter earnings, Novarro expects Abbott to narrow its 2018 guidance to the high end of its previous outlook. He expects the medical giant to guide to 7%-7.5% organic sales growth and adjusted earnings of $2.89-$2.91 per share.
In comparison, Novarro models $30.8 billion in full-year sales, representing 7.2% organic growth, and adjusted profit of $2.89 per share. The average of analysts polled by Zacks is for $30.78 billion in sales and adjusted earnings of $2.88 a share.
Novarro has a more optimistic view for structural heart, diabetes care and diagnostics in 2019. Structural heart benefits from MitraClip, a medical device for leaky heart valves known as mitral regurgitation. Abbott recently showed MitraClip can work in hard-to-treat patients.
Wall Street analysts cut their price targets on a host of chip stocks on Wednesday as concerns grow that the semiconductor market is in a down cycle.
Susquehanna Financial Group lowered its targets on six chip stocks. It cut its target on Cypress Semiconductor ( CY) to 18 from 21, on Microchip Technology ( MCHP) to 85 from 112, and on Maxim Integrated Products ( MXIM) to 62 from 70. It also trimmed its target on ON Semiconductor ( ON) to 22 from 28, and on Texas Instruments ( TXN) to 120 from 135. However, it kept its positive ratings on those five stocks.
Susquehanna also cut its price target on neutral-rated Power Integrations ( POWI) to 65 from 70.
"While not precipitous, semiconductor lead-times contracted in the month of September for the first time after two years of expansion," Susquehanna analyst Christopher Rolland said in a report to clients. He cut his price targets "to reflect cyclical risks and increased likelihood of weaker Q4 guidance."
Chip Stocks Fall Broadly
On the stock market today, Cypress dropped 2.5% to 13.20. Microchip slid 1.4% to 66.44. Maxim lost 3.9% to 50.78. ON Semi fell 4.3% to 16.12. Texas Instruments gave up 3.5% to 99.24. Power Integrations dipped 3.5% to 55.70.
Elsewhere on Wall Street, Morgan Stanley cut its price target on Microchip Technology to 75 from 95 and kept its equal-weight rating.
Morgan Stanley analyst Craig Hettenbach said the price-target cut reflects Microchip's weak balance sheet and high leverage, as well as cycle concerns. He noted that Microchip has underperformed since its fiscal first-quarter earnings report.
B. Riley FBR cut its price target on Marvell Technology Group ( MRVL) to 26 from 30, but maintained its buy rating. Analyst Craig Ellis said the new price target reflects the multiple contraction in the broader semiconductor sector.
Bright Spots Among Chip Stocks
Some analysts see bright spots in the sector.
Rosenblatt Securities raised its price target on Xilinx ( XLNX) to 100 from 86. It sees Xilinx benefiting from data center and artificial intelligence inference applications. It also will get a boost from chip sales for 5G wireless base stations, Rosenblatt analyst Hans Mosesmann said in a report.
Jefferies initiated coverage of Tower Semiconductor ( TSEM), aka TowerJazz, with a buy rating. It set a price target of 30 on the stock. Jefferies analyst Mark Lipacis called Tower Semiconductor "the leading analog foundry play."