Daily Market Report | Oct. 21, 2020

US FINANCIAL MARKET

U.S. Stocks Climb Amid Stimulus Hopes, Earnings – Wall street Journal, 10/21/20

  • U.S. stocks rose early Wednesday as investors assessed prospects for a fresh stimulus bill and the health of major American businesses through their quarterly reports.
  • Democratic negotiators and the White House said they would press ahead with talks on the next coronavirus-relief package, setting aside a Tuesday deadline proposed by House Speaker Nancy Pelosi to hammer out the accord.
  • Mrs. Pelosi signaled there was progress after her conversation with Treasury Secretary Steven Mnuchin.
  • Any deal is likely to face deep opposition from Senate Republicans, especially if the proposed spending package approaches $2 trillion.
  • The number of daily coronavirus infections reported in the U.S. grew for a third straight day, with an indicator suggesting cases have been rising for more than two weeks.
  • Investors are also parsing third-quarter earnings reports to gauge how businesses are weathering the economic downturn.
  • Snap shares jumped 29% after its revenue grew by more than half, significantly exceeding analysts’ expectations.
  • Shares of other social-media companies also rose.
  • Netflix shares fell 5.4% after the company said subscriber growth slowed in the third quarter, highlighting the fresh challenges from competitors ramping up their own streaming services.
  • Swedish telecommunications company Ericsson saw its New York-listed shares rise 11% premarket after it reported third-quarter profits that beat analysts’ views.

New U.S. Coronavirus Cases Increase for Third Straight Day – Wall Street Journal, 10/21/20

  • The number of daily coronavirus infections reported in the U.S. grew again, with an indicator suggesting cases have been rising for more than two weeks.
  • The U.S. reported more than 60,000 new Covid-19 cases Tuesday, according to data compiled by Johns Hopkins University, up from 58,387 a day before and the third straight day the number of newly reported cases has increased.
  • The seven-day moving average of new cases, which smooths out irregularities in the data, was 58,397 Monday, and the 14-day moving average was 53,970, according to a Wall Street Journal analysis of Johns Hopkins data. When the seven-day average is higher than the 14-day average, it suggests infections are increasing.
  • Hospitalizations in the U.S. continue to rise as well. There were 39,230 people with the disease in hospitals as of Tuesday, according to the Covid Tracking Project. That is the most since Aug. 22 and the eighth consecutive daily increase.
  • U.K.: England added two more areas to its highest Tier-3 alert level: Greater Manchester and South Yorkshire, both in the North.
  • The measures limit social interactions, prohibiting people from separate households from meeting indoors and requiring some nonessential businesses to close. The restrictions take effect later this week.
  • The U.K. as a whole recorded more than 21,000 new Covid-19 cases Tuesday, an increase from nearly 19,000 the day before, with 241 deaths.
  • Russia: Health authorities reported a record daily high of 317 deaths Wednesday, along with around 15,700 new infections, as the virus continues to spread.
  • Iran: The country is now firmly in its third wave of infections as the government attempts to step up efforts to slow the virus’s spread. Authorities reported just over 5,000 new infections Tuesday, with deaths at 322.
  • A record 337 people were reported to have died from Covid-19 Monday.
  • India: It reported 54,044 new infections Wednesday, the third day in a row below 56,000, taking the total to 7.65 million, data from the Health Ministry showed.
  • South Korea: The country added 91 cases, bringing its total to 25,424.

Netflix Subscriber Growth Slows Amid Heightened Competition – Wall Street Journal, 10/20/20

  • Netflix said subscriber growth slowed in the third quarter, highlighting the fresh challenges the company faces from competitors ramping up their own streaming services as the coronavirus pandemic continues to disrupt the entertainment industry.
  • The company reported revenue of $6.44 billion, up from $5.25 billion a year earlier.
  • Analysts forecast $6.39 billion in revenue for the latest quarter.
  • For the latest quarter, it said it added one million subscribers in Asia, 760,000 in the region including Europe and the Middle East and 260,000 in Latin America.
  • In North America, the company gained 180,000 additional subscribers for the third quarter, down compared with the gain of more than 2.9 million in the second quarter.
  • Profit rose to $790 million, or $1.74 a share, from $665 million, or $1.47 a share, the year earlier.
  • Analysts had expected $2.13 a share, according to FactSet.
  • For the fourth quarter, Netflix expects to add six million subscribers, down 31% from the 8.8 million it added in the same period last year. It also anticipates the first six months of 2021 to be down.

Snap shares jump as user growth, revenue beat estimates – Reuters, 10/20/20

  • Shares of Snap rallied 23% on Tuesday after the Snapchat messaging app owner beat user growth and revenue forecasts as more people signed up to chat with friends and family during the coronavirus pandemic.
  • Revenue, mainly from selling ads on the app, jumped 52% to $679 million, widely beating analysts’ estimate of $555.9 million.
  • Daily active users (DAUs), a widely watched metric by investors and advertisers, rose 18% year-over-year to 249 million in the quarter ended Sept. 30, the company said in a statement.
  • Analysts had expected 244 million, according to IBES data from Refinitiv.
  • Average revenue per user was $2.73, up 28% from the year-ago quarter.
  • Snap’s net loss narrowed to $199.8 million, or 14 cents per share, from $227.37 million, or 16 cents per share, a year earlier.
  • The company said it expected continued momentum in user growth and forecast about 257 million daily active users in the fourth quarter, exceeding analysts’ current estimate of 249.81 million.

Texas Instruments posts rare revenue rise as consumers splurge on electronics – Reuters, 10/20/20

  • Texas Instruments reported its first quarterly revenue growth in nearly two years on Tuesday, a rebound the chipmaker credited to people stuck at home splurging on electronic gadgets for remote work and entertainment during the COVID-19 pandemic.
  • Revenue in the third quarter rose 1% to $3.82 billion, beating estimates of $3.45 billion.
  • The Dallas, Texas-based company said its sales also benefited from a notable rebound in demand from the automotive market, which grew 75% from the preceding quarter as North American and European vehicle assembly plants resumed operations.
  • TI said Huawei accounted for about 2% of its third-quarter sales. “We are in compliance with U.S. export restrictions and stopped shipping to them (Huawei) on Sept. 14, and they are not included in our fourth-quarter revenue guidance,” Pahl said.
  • TI expects fourth-quarter revenue of $3.41 billion to $3.69 billion, above expectations of $3.34 billion, according to IBES data from Refinitiv.

Verizon Holds Its Ground Ahead of iPhone 12 Release – Wall Street Journal, 10/21/20

  • Verizon Communications’ wireless and broadband businesses stabilized in the third quarter despite the lasting effects of the coronavirus pandemic, allowing the company to upgrade its profit target for the year.
  • Revenue fell 4.1% to $31.5 billion as the carrier sold fewer phones compared with the year-ago period, when the new iPhone models launched earlier. Wireless service revenue edged up 0.3% to $16.4 billion.
  • Sales in its media unit, which includes websites like AOL and Yahoo, slipped 7.4% to about $1.7 billion.
  • The country’s largest cellphone carrier in terms of subscribers added 283,000 postpaid phone connections during the three-month period ended Sept. 30, maintaining its lead over rivals T-Mobile and AT&T.
  • Verizon ended the third quarter with 120.3 million wireless connections, which include smartphones and other devices like watches and tablets.
  • The company posted a net gain of 110,000 broadband customers as installations of high-speed Fios service surged.
  • Quarterly net income attributable to Verizon still fell to $4.36 billion, or $1.05 a share, from a year-earlier $5.19 billion profit, or $1.25 a share.
  • The latest result included a $1.1 billion pretax accounting charge after the company readjusted its estimated pension liabilities.
  • Verizon on Wednesday raised its annual adjusted per-share profit target amid improving results over the past nine months. The company said it expects flat to 2% growth in that metric, narrowing the negative 2% to 2% range it issued earlier.

Pandemic-Era Shoppers Splurge on Vitamins, Boosting Nestlé Sales – Wall Street Journal, 10/21

  • Nestlé said the pandemic has increased consumers’ health consciousness, boosting its small but fast-growing health-sciences unit and contributing to better-than-expected overall sales at the world’s largest packaged-food maker.
  • Net sales fell 9.4%, to 61.91 billion Swiss francs, equivalent to $68.24 billion, dragged down by currency changes and divestitures.
  • Nestlé said organic sales, which strip out currency fluctuations, acquisitions and divestitures, grew 3.5% in the first nine months of the year, beating analysts’ estimates of 2.8%.
  • The company upgraded its guidance for the year, saying it now expects organic sales growth of around 3%, from a prior forecast of between 2% and 3%.

Baker Hughes posts third straight quarterly loss as demand still hurt – Reuters, 10/21/20

  • Baker Hughes reported a third straight quarterly loss on Wednesday, as a coronavirus-induced slump in commodity prices continued to hurt demand for equipment and services.
  • Revenue fell 14% to $5.05 billion, but beat analysts’ estimate of $4.78 billion.
  • Revenue from Baker Hughes’ oilfield services unit, which accounts for nearly 46% of its total sales, fell 31% to $2.31 billion in the third quarter.
  • Orders in Baker Hughes’ oilfield equipment business were down 58% year-over-year for the third quarter.
  • Net loss attributable to the company was $170 million, or 25 cents per share, in the three months ended Sept. 30, compared with a profit of $57 million, or 11 cents per share, a year earlier.
  • The company was on track to “right-sizing its business” and to achieve $700 million in cost savings by the year-end, Lorenzo Simonelli, Baker Hughes chairman and chief executive officer said on Wednesday.

AutoNation profit jumps as strong demand, tight inventory drive prices – Reuters, 10/21/20

  • U.S. auto dealer AutoNation’s quarterly profit nearly doubled on Wednesday as a stronger-than-expected recovery in demand and tight inventories helped drive more profit per vehicle just months after the pandemic slammed the economy.
  • Total revenue fell 1% to $5.4 billion as new vehicle sales were down 11% at 65,998 vehicles during the third quarter.
  • Used vehicle volume rose 1.6% to 64,587 units.
  • While overall revenue fell as the Fort Lauderdale-based company sold fewer vehicles, its gross profit per new vehicle jumped 58% to $2,533 during the quarter and rose about 45% to $1,994 for used vehicle.
  • AutoNation said it had 43-day supply of new vehicles in the third quarter compared with 55 a year earlier.
  • AutoNation’s net income rose to $182.6 million, or $2.05 per share, in the third quarter ended Sept. 30, from $99.5 million, or $1.10 per share, a year earlier.
  • Chief Executive Mike Jackson told Reuters he is optimistic looking ahead. Interest rates will be “very low for a long time,” he said.

Nasdaq beats estimates on non-trading business strength; CFO to retire – Reuters, 10/21/20

  • Nasdaq beat Wall Street estimates for third-quarter profit on Wednesday, boosted by strength in the transatlantic exchange operator’s non-trading businesses and a surge in trading volumes.
  • Excluding transaction-based expenses, revenue rose 13% to $715 million, above Refinitiv IBES estimates of $690.92 million.
  • Higher trading volumes helped boost the company’s market services unit, its biggest business.
  • Revenue in the segment jumped about 39% to $958 million.
  • Revenue from information services, Nasdaq’s biggest non-trading business, rose 20% to $238 million.
  • Net income attributable to the company rose to $264 million, or $1.58 per share, for the quarter ended Sept. 30, from $150 million, or 90 cents per share, a year earlier.

Abbott raises annual profit view, signals recovery in medical device sales – Reuters, 10/21/20

  • Abbott Laboratories raised its annual profit forecast on Wednesday and signaled a recovery in sales of its medical devices, while strong demand for its COVID-19 tests helped quarterly profit beat estimates, sending its shares up 1.5%.
  • Sales at the company’s biggest unit that houses products such as heart valve repair device MitraClip rose about 3% to $3.17 billion.
  • Meanwhile, the company’s COVID-19 tests brought in $881 million in the quarter, helping sales in its diagnostics unit jump nearly 39% to $2.64 billion.
  • Excluding items, it earned 98 cents per share, above the analysts’ average estimate of 91 cents per share, according to Refinitiv IBES data.
  • The company said it expects 2020 adjusted profit per share to be at least $3.55 from continuing operations, up from its prior estimate of at least $3.25 per share.

NextEra Energy beats quarterly profit estimates on cost cuts – Reuters, 10/21/20

  • NextEra Energy, the world’s largest producer of wind and solar energy, beat estimates for quarterly profit on Wednesday as investments in its Florida Power and Light Company paid off and cuts in expenses also helped.
  • The Juno Beach, Florida based company posted net income of $1.23 billion, or $2.50 per share, for the third quarter ended Sept. 30, from $879 million, or $1.81 per share, a year earlier.
  • On an adjusted basis, the company posted a profit of $2.66 per share, beating analysts’ estimates of $2.58 per share.
  • The company raised its full-year 2021 adjusted earnings per share estimates by $0.20 and now expects them to be in the range of $9.60 and $10.15.

States Prepare to File Own Antitrust Cases Against Google – Wall Street Journal, 10/21/20

  • More antitrust cases are likely to be filed against Alphabet’s Google soon by state attorneys general, even though partisan-tinged wrangling has clouded the path forward.
  • At least two separate though overlapping groups of attorneys general are investigating the company concurrently.
  • One effort, led by Texas Attorney General Ken Paxton, a Republican, focuses on online advertising and could lead to a lawsuit being filed within weeks, according to people familiar with the situation.
  • But in recent weeks fissures have emerged involving some of the Democratic and Republican attorneys general, the people said. Much of the disagreement has centered on whether to join in the Justice Department suit against Google filed Tuesday.
  • That divide was highlighted when attorneys general from 11 states signed on to the Justice Department lawsuit, all of them Republicans.

Uber Weighs California Overhaul if Ballot Measure on Workers Fails – Wall Street Journal, 10/21/20

  • Uber Technologies is considering an overhaul of its business in California if voters reject a ballot measure that would prevent the ride-hailing company’s drivers from being classified as employees.
  • “We are looking at all our options,” Uber Chief Executive Dara Khosrowshahi said, without elaborating, during The Wall Street Journal’s annual Tech Live conference, held remotely on Tuesday. “We will do our best to operate in California…Where in California we will operate is a question mark, and the size and scale of business will be a big question mark,” he said.
  • The state implemented a law on Jan. 1 that seeks to reclassify ride-share and food-delivery drivers as employees, making them eligible for minimum wage, sick days and health insurance.
  • Uber, Lyft, DoorDash and others have collectively raised around $200 million to promote a ballot measure—the most expensive in California’s history—on Election Day that asks voters exempt them from the law.
  • Uber has said it would be able to hire just a fraction of its more than 200,000 drivers.
  • Mr. Khosrowshahi on Tuesday said prices for consumers would rise between 25% and 100%.

U.S. railroad Amtrak sees travel down 70% in 2021: CEO – Reuters, 10/21/20

  • The chief executive of Amtrak will tell lawmakers on Wednesday the U.S. passenger railroad expects travel and revenue to fall by more than 70% from pre-coronavirus levels in 2021, as it considers more service and employee cuts.
  • The railroad projects just 9 million passenger trips and $598 million in revenue for the budget year that began Oct. 1, down from over 32 million trips and $2.35 billion in the 2019 budget year and $1.24 billion in the 2020 budget year that ended Sept. 30, according to testimony from Amtrak chief executive Bill Flynn reviewed by Reuters.
  • Ridership and revenue are still down more than 80% and Flynn will tell the Senate Commerce Committee on Wednesday that the budget forecasts assume “an effective and widely-distributed vaccine becoming available by the middle of next calendar year – which we know is not a guaranteed outcome.”

U.S. banks sweat regulatory exposure from pandemic loans – Reuters, 10/21/20

  • Banks that facilitated the U.S. government’s Paycheck Protection Program at first saw the effort as a small revenue booster with a patriotic bonus, shepherding $525 billion in loans to businesses slammed by the fallout of the COVID-19 pandemic.
  • But as taxpayers begin to take on the cost of forgiving those loans, lenders like JPMorgan Chase, Wells Fargo and Bank of America, are girding for what is likely to be years of regulatory scrutiny for their role in doling out the money, according to industry insiders, securities filings and government watchdogs.
  • Banks participating in the Paycheck Protection Program (PPP) issued more than 5.2 million loans, to be repaid by the government as long as borrowers demonstrated financial need and used most of the cash to make payroll.
  • There is increasing concern, though, that the lenders themselves will face legal challenges over PPP, already leading to internal compliance reviews, investor warnings and even the outright sale of loan portfolios, according to public statements and people familiar with the situation.
  • At least four banks have warned investors in shareholder filings about PPP regulatory and legal risk. Bank of America, for example, said in a July filing that its participation in government stimulus programs “could result in reputational harm and government actions and proceedings, and has resulted in, and may continue to result in, litigation, including class actions.”

US ECONOMY & POLITICS

Coronavirus Stimulus Talks Make Progress Despite Resistance – Wall Street Journal, 10/21/20

  • White House and Democratic negotiators said they would press ahead with efforts to reach a sweeping coronavirus relief deal after making progress Tuesday, even as the prospect of a roughly $2 trillion package sparked opposition from Senate Republicans.
  • After Tuesday’s discussion, both sides said they were willing to continue their discussions without decisively establishing whether a deal will be possible.
  • Any deal approaching $2 trillion would encounter deep resistance in the GOP-controlled Senate.
  • Senate Majority Leader Mitch McConnell (R., Ky.) told Senate Republicans at their weekly lunch Tuesday that he had advised the White House not to divide the Senate GOP right before the election and that a $2 trillion relief bill would split the caucus, according to people familiar with the comments.
  • At the root of Republicans’ resistance are their concerns that Mr. Mnuchin is ceding too much to Mrs. Pelosi and that a potential deal would contain few GOP policy victories while requiring trillions in new deficit spending, Republican aides said.
  • On Tuesday afternoon, Democrats blocked Senate GOP legislation to fund another round of forgivable, government-backed loans to small businesses under the Paycheck Protection Program. The bill would have provided $258 billion in funding for the PPP, whose authorization expired in August, allowing certain companies with no more than 300 employees to apply for a second loan.

Fed’s Quarles Says Market Turmoil Triggered by Covid-19 Revealed Fragile Nonbank System – Wall Street Journal, 10/20/20

  • The market turmoil triggered by the coronavirus pandemic early this year uncovered weaknesses in the U.S. financial system that regulators are seeking to fix, said Randal Quarles, the Federal Reserve’s vice chairman for supervision.
  • “While swift and decisive policy action succeeded in calming markets, this does not mean that our work is complete,” Mr. Quarles said in the text of a speech set for delivery on Tuesday. “The Covid event revealed a banking system that withstood this shock quite well with limited official sector support, and a nonbank system that was significantly more fragile.”
  • Among the Fed’s initiatives were programs to provide liquidity to money-market mutual funds, which large and small investors often use instead of bank accounts to park cash, and commercial-paper markets, which companies routinely tap for short-term loans.

New York Faces $59 Billion Revenue Shortfall – Wall Street Journal, 10/21/20

  • New York governments and authorities are projecting $59 billion of revenue shortfalls through 2022 because of the continuing coronavirus crisis, one of the deepest funding holes of any state.
  • Gov. Andrew Cuomo, a Democrat, said services will be cut and taxes will increase if Congress doesn’t pass another relief package—which Democrats say should include direct aid to states and cities hit by the pandemic.
  • Moody’s Investors Service is forecasting the fiscal shock to the state government will be $29 billion through the end of the 2022 fiscal year. That is 1.9% of gross state product, which is above the national average, said Moody’s economist Emily Mandel.

EUROPE & WORLD

Hospitals Brace for Europe’s Second Covid-19 Wave – Wall Street Journal, 10/21/20

  • Europe’s second wave of the coronavirus pandemic is reviving the pressure on hospitals in the worst-hit cities, and forcing health-care systems around the continent to devise contingency plans that draw on the lessons of this spring’s deadly first wave.
  • Infections are rising rapidly in most of Europe, but the pandemic’s second wave isn’t so far inflicting a death toll that is comparable with the continent’s lethal outbreaks in March and April. The rising wave of infections in Europe since the summer has affected many younger people, who are less likely to fall severely ill.
  • In the Lombardy region around Milan, health experts this week predicted that the number of coronavirus patients in intensive-care units would rise to 600 by the end of October, from around 120 currently.
  • In Madrid, one of the hot spots of Europe’s second wave, pressures are already visible in the hospitals.
  • Covid-19 patients occupy 20% of all hospital beds in the Madrid region, and 39% of intensive-care places.
  • England’s northwest is another of Europe’s pressure points.
  • Intensive-care beds in Liverpool, the worst-affected city, have been up to 95% occupied in recent days.

Ericsson tops forecast on margin gains and 5G in China – Reuters, 10/20/20

  • Telecoms equipment supplier Ericsson beat quarterly core earnings forecasts on Wednesday, helped by higher margins and China’s 5G rollout, and said it was “more confident” about meeting its 2020 targets.
  • Total revenue rose 1% to 57.5 billion crowns.
  • The company has now won 112 5G contracts, up from 99 at the end of the second quarter, as more telecoms operators build next-generation networks and U.S. diplomatic pressure pushes out market leader Huawei from more countries.
  • Adjusted operating earnings rose to 9.0 billion Swedish crowns ($1.0 billion) from 6.5 billion a year earlier, beating analysts’ mean forecast of 6.98 billion crowns, according to Refinitiv estimates.
  • The adjusted operating margin now stands at 11.1% for January-September, compared with Ericsson’s 2020 target of more than 10% and its goal of 12-14% for 2022.
  • Separately, the company announced a five-year, multibillion-crowns deal with Telia to upgrade its 4G networks across Sweden and Estonia.

Manchester United fall into the red as shutdown hits revenue – Reuters, 10/21/20

  • Manchester United slumped to a net loss of 23.2 million pounds ($30.3 million) in the last financial year as the coronavirus disrupted fixture schedules and forced soccer clubs to play matches behind closed doors.
  • United, who have made mixed start to the new English Premier League season on the pitch, said revenue in the year ended June 30 fell 19% to 509 million pounds, with some fixtures being delayed beyond that date.
  • The fresh spike in COVID-19 cases across Europe is likely to further delay the return of supporters, hurting income from matchday ticket and catering sales, as well as museum tours for the bigger clubs.
  • The club, controlled by the American Glazer family since a highly-leveraged takeover in 2005, said the net loss once the cost of debt financing was taken into account compares with profit of 18.9 million pounds a year earlier.
  • Net debt rose 10% to 474.1 million pounds at the end of June compared with the end of March.

Factmonster – TODAY in HISTORY

  • Thomas Edison invented a workable incandescent electric lamp. (1879)
  • The Solomon R. Guggenheim Museum of modern and contemporary art, designed by architect Frank Lloyd Wright, opened to the public in New York City. (1959)

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