Daily Market Report | Oct. 28, 2020
US FINANCIAL MARKET
Wall Street slumps as surge in virus cases clouds recovery outlook – Reuters, 10/28/20
- Wall Street main indexes slumped on Wednesday as a surge in coronavirus cases in the United States and Europe dashed hopes of a quick global economic recovery.
- Shares of hotels, airlines and other companies sensitive to COVID-19-related curbs dropped with Wynn Resorts down 2% and the S&P 500 airlines index declining 3%. The energy index lost about 3% as oil prices fell on fears of lower fuel demand.
- New cases and hospitalizations set records in the U.S. Midwest, while concerns over a national lockdown in France and tighter restrictions in Germany sapped investor appetite for risk.
- A spiraling pandemic and a failure to reach a deal on a fresh round of U.S. fiscal stimulus before Nov. 3 elections have wiped off all of blue-chip Dow’s gains for October and pushed the benchmark S&P 500 to near four-week lows.
- Wall Street’s fear gauge jumped to its highest level in nearly two-months, also on concerns over a delay in counting the huge volume of mail-in ballots, meaning a winner might not be declared the night of Nov. 3, when polls close.
- Democratic challenger Biden leads President Donald Trump nationally by 10 percentage points, according to the Reuters/Ipsos poll, but the competition is tighter in swing states, which will decide the victor.
- Microsoft’s quarterly results surpassed analysts’ targets, benefiting from a pandemic-driven shift to working from home and online learning. Its shares, however, fell 2.6% after rising 35% so far this year.
- General Electric jumped 8.6% after it reported a surprise quarterly profit and a positive cash flow on the back of cost cuts and improvements in its power and renewable energy businesses.
- Boeing slipped 1.9% as it reported its fourth straight quarterly loss.
- Of the 170 S&P 500 companies that have reported third-quarter earnings so far, about 84% have topped expectations, according to Refinitiv data. Profit on average is expected to fall 16.4% from a year earlier.
Germany and France prepare new lockdowns as COVID sweeps Europe – Reuters, 10/28/20
- Germany and France were preparing to announce restrictions approaching the level of last spring’s blanket lockdowns on Wednesday as COVID deaths across Europe rose almost 40% in a week, while financial markets tumbled on fears of the likely economic costs.
- German Chancellor Angela Merkel was due to meet state premiers in a conference call to discuss closing restaurants and bars but keeping schools and nurseries open, while allowing people to go out in public only with members of their own household.
- In France, which has seen more than 50,000 new cases a day, President Emmanuel Macron will give a televised address in the evening and is expected to announce further curbs on movement following the curfew measures introduced across much of the country last week.
- News television BFM TV reported that the government was considering a month-long lockdown from midnight on Thursday, but there was no confirmation from Macron’s office.
- Italy, which pledged more than 5 billion euros ($5.9 billion) in new support measures for businesses hit by the latest restrictions, has seen repeated clashes between police and protesters in cities from Naples to Turin as well as bitter criticism from restaurant owners and business groups.
- Germany’s BGA, a lobby group for the services sector, said restaurant closures would inflict a “death blow” on many businesses and called instead for tighter measures to restrict contagion in people’s homes.
- The latest figures from the World Health Organization on Tuesday showed Europe reported 1.3 million new cases in the past seven days, nearly half the 2.9 million reported worldwide, with over 11,700 deaths, a 37% jump over the previous week.
Microsoft cloud business gathers steam as pandemic boosts growth – Reuters, 10/27/20
- Microsoft’s cloud computing business slightly re-accelerated and its Teams messaging and collaboration software won new users, as a pandemic-driven shift to working from home and online learning drove quarterly results ahead of investor targets.
- The company’s revenue rose 12% to $37.2 billion in the quarter ended Sept. 30, beating analysts’ estimates of $35.72 billion.
- Revenue from its personal computing division, which includes Windows software and Xbox gaming consoles, rose 6% to $11.8 billion.
- Microsoft said revenue in its “Intelligent Cloud” segment rose 20% to $13 billion in the most recent quarter.
- Analysts had expected revenue of $12.7 billion, according to IBES data from Refinitiv.
- Revenue growth for Azure, the company’s flagship cloud computing business, was 48%, up 1 percentage point from the previous quarter and ahead of Wall Street estimates of 43.45%, according to consensus data from Visible Alpha.
- Daily users of its Teams messaging and collaboration software have risen to 115 million from 75 million in April, the company said.
- Net income rose to $13.89 billion, or $1.82 per share, from $10.68 billion, or $1.38 per share, a year earlier.
- Analysts had expected a profit of $1.54 per share.
Boeing Cutting More Jobs in Response to Pandemic – Wall Street Journal, 10/28/20
- Boeing said it is reviewing jet production levels and plans to shed another 7,000 jobs by the end of next year in response to the mounting toll on the global airline industry from a fresh global surge in coronavirus cases.
- Boeing’s sales fell 29% in the latest quarter from a year ago and the company burned through $4.8 billion in cash, further evidence of the mounting financial cost from the MAX crisis and fallout from the coronavirus pandemic.
- Boeing handed over just 28 planes to customers in the September quarter compared with 62 a year earlier, and has become more reliant on its defense business to drive revenue and profit.
- Boeing’s commercial jetliner arm reported a loss of $1.4 billion in the quarter as sales fell 56%.
- The defense business produced a profit of $628 million, down 2% from a year ago, but executives said they were watching a potential slowdown.
- The plans came as the U.S. aerospace giant on Wednesday reported a third-quarter loss of $466 million and said it is focused on preserving cash ahead of the expected return to service of the 737 MAX as soon as next month, ending a protracted world-wide grounding after two crashes took 346 lives.
- The company expects to end next year with around 130,000 employees, having started 2020 with a workforce of 160,000, with the cuts including some layoffs.
- Boeing maintained its existing guidance to gradually increase MAX production through next year and reduce output of the 787 Dreamliner when it moves all assembly to South Carolina.
- However, Boeing executives said it could reduce output further if airlines are unable to take delivery because of a lack of demand or financing.
Mastercard shares fall as profit drops on virus-led travel slowdown – Reuters, 10/28/20
- Mastercard’s quarterly profit missed analyst estimates on Wednesday as the COVID-19 pandemic led to a slowdown in global travel and related spending, sending the payment processor’s shares more than 4% lower.
- Mastercard reported a 36% drop in cross-border volume on a local currency basis in the reported quarter.
- Gross dollar volume (GDV), the dollar value of transactions processed, rose 1% to $1.6 trillion.
- Cross-border volumes have continued to fall since the quarter ended, with all first three weeks of October clocking declines of more than 30%, according to an investor presentation.
- Mastercard’s total operating expenses fell 4% to $1.7 billion in the quarter.
- Net income fell 28% to $1.5 billion, or $1.51 per share, in the third quarter ended Sept. 30.
UPS tops profit target but shares sink on e-commerce margin squeeze – Reuters, 10/28/20
- United Parcel Service beat profit expectations on Wednesday, but shares sank 5.7% as investors fretted over a margin squeeze from pandemic-fueled e-commerce deliveries.
- Revenue jumped 15.9% to $21.24 billion.
- Third-quarter average daily volume jumped 13.8% the key UPS domestic segment, which has been inundated with residential deliveries of everything from exercise equipment to snacks.
- Operating profit in the company’s domestic package unit fell 8.8% during the third quarter after it made more deliveries to far-flung – and less profitable – residential addresses and invested in expanding and speeding up service.
- Net income increased 11.8% to $1.96 billion, or $2.24 per share, during the quarter.
GE’s Cost Cuts Offset Troubles in Aviation Unit – Wall Street Journal, 10/28/20
- The troubled aviation industry continued to weigh on General Electric, which reported another quarter of shrinking revenue, but the conglomerate posted a smaller loss and was able to generate cash from its industrial operations.
- Overall, GE reported revenue of $19.42 billion, down 17% from a year ago.
- Excluding its stake in the Baker Hughes oil business and other assets it sold, industrial revenue fell 12% to $17.88 billion.
- GE’s aviation revenue fell to $4.92 billion in the third quarter from $8.11 billion a year ago. New orders dropped 54% from a year ago. The segment’s profit plunged 79% to $356 million.
- GE’s power unit, which makes turbines for power plants, reported revenue rose 3% to $4.03 billion and swung to a profit of $150 million.
- The renewable energy unit, which mostly makes wind turbines, basically broke even on a 2% rise in revenue to $4.53 billion.
- While orders for new equipment fell in several of its key businesses, the company said it generated $514 million in industrial free-cash flow in the quarter ended Sept. 30.
- On that basis, the company also predicted it would generate $2.5 billion in cash in the fourth quarter.
- The company had a net loss of $1.14 billion, before preferred stock dividends, compared with a loss of $9.42 billion a year ago when it booked hefty accounting charges on the Baker Hughes investment.
Anthem quarterly profit beats on deferred healthcare due to pandemic – Reuters, 10/28/20
- U.S. health insurer Anthem beat quarterly profit estimates on Wednesday, helped by lower medical costs as customers delayed non-essential medical care due to the COVID-19 pandemic.
- Sales grew nearly 17% to $31.16 billion, beating estimates of $29.81 billion.
- Operating revenue from Anthem’s top-earning business segment, which sells government-backed Medicare and Medicaid plans, jumped nearly 14% to $18.1 billion.
- Anthem’s pharmacy benefits business IngenioRx recorded operating revenue of $5.58 billion, compared with $1.92 billion a year ago.
- The company’s benefit-expense ratio, the share of premiums paid for medical services, improved to 86.8% in the third quarter from 87.2% a year earlier. Analysts on average had expected 86.9%, according to Refinitiv IBES estimates.
- Excluding items, the company earned $4.20 per share in the quarter ended Sept. 30, ahead of the average analysts’ estimate of $4.15.
General Dynamics third quarter profit drops amid aerospace headwinds, but margins rise – Reuters, 10/28/20
- Defense contractor General Dynamics reported an 8.7% fall in third-quarter earnings on Wednesday, sending its shares down as the coronavirus crisis continues to hit aerospace sales.
- Revenue at the Reston, Virginia-based company fell 3.4% to $9.4 billion.
- Revenue at the aerospace unit fell 20.8% to $1.95 billion compared with a year ago.
- Profit margins at the unit also fell to 14.3% from 15.8% in the same period last year.
- The Gulfstream business jet maker delivered 32 planes to customers, six fewer than the same period a year ago.
- Pandemic-related lockdowns have hindered deliveries of the jets since early in the year.
- The marine systems unit, which makes ships and submarines for the U.S. Navy, saw revenue up 7.6% compared with a year earlier.
- General Dynamics’ total order backlog at the end of the third quarter 2020 was $81.5 billion, up 21% from the year-ago quarter as the U.S. Department of Defense continues to place orders with U.S. defense contractors.
- Earnings fell to $287 million, or $2.90 per share, in the third quarter ended Sept. 27, from $291 million, or $3.14 per share, a year earlier.
Boston Scientific reports loss as COVID-19 slams demand for medical devices – Reuters, 10/28/20
- Boston Scientific swung to a loss in the third quarter from profit a year ago, as demand for its medical devices was hurt by the ongoing COVID-19 pandemic.
- Net sales fell 1.8% to $2.66 billion.
- The Marlborough, Massachusetts-based company said on Wednesday its sales of medical devices dropped 3.7% to $2.58 billion.
- Net loss attributable to Boston Scientific was $169 million, or 12 cents per share, in the quarter ended Sept 30, compared with net earnings of $126 million, or 9 cents per share, last year.
Visa’s Planned Purchase of Plaid Faces Antitrust Scrutiny at the Justice Department – Wall Street Journal, 10/27/20
- Visa’s $5.3 billion deal to buy a key player in the financial-technology space is in jeopardy because of antitrust concerns, according to people familiar with the matter.
- The Justice Department could decide soon whether it will sue to block Visa’s acquisition of Plaid Inc., a firm that provides the technological infrastructure underpinning an array of next-generation financial apps.
- After spending the better part of the year scrutinizing the deal, the department is concerned it could limit nascent competition in the payments sector, people familiar with the matter said.
- The Justice Department has been making preparations for potential litigation, including lining up potential witnesses for a trial, some of the people said. No final decision has been made.
Apple Faces Antitrust Complaint in France Over Privacy Changes in iPhones – Wall Street Journal, 10/28/20
- Advertising companies and publishers have filed a complaint against Apple with France’s competition authority, arguing that privacy changes the smartphone maker plans to roll out are anticompetitive.
- Starting in early 2021, Apple’s operating software will require apps to get opt-in permission from users to collect their advertising identifier, a key number used to deliver targeted ads and check how ad campaigns performed.
- The companies behind the complaint, brought through a group of trade associations, say few users will agree to be tracked, making it harder for companies from game-makers to news publishers to sell personalized ads and tough for the middlemen in those transactions.
- The case is one of the first legal challenges to online-privacy measures on antitrust grounds.
US ECONOMY & POLITICS
Record U.S. third-quarter growth assured as goods trade deficit falls, inventories rise – Reuters, 10/28/20
- The United States’ trade deficit in goods narrowed sharply in September and inventories at retailers surged, sealing expectations for record economic growth in the third quarter after the worst performance in at least 73 years.
- The goods trade deficit decreased 4.5% to $79.4 billion last month.
- Exports of goods increased 2.7% to $122 billion, led by a surge in shipments of foods, feeds and beverages.
- Imports fell 0.2% to $201.4 billion last month, pulled down imports of industrial supplies, consumer goods and other goods.
- Stocks at retailers jumped 1.6% last month after gaining 0.5% in August.
- Retail inventories excluding autos, which go into the calculation of GDP, rose 0.9%.
- The trade and retail inventory data put a upside risk to the third-quarter GDP growth estimate.
- According to a Reuters survey of economists, the economy likely grew at a 31% annualized rate in the July-September quarter.
- The government is scheduled to publish its advance GDP growth estimate for the third quarter on Thursday, five days ahead of the U.S. presidential election next Tuesday.
U.S. businesses splurge on insurance to protect against post-election chaos – Reuters, 10/28/20
- Retailers, pharmacies, liquor stores and other merchants across the United States are gobbling up insurance that protects buildings from damage caused by societal unrest, worried about possible street violence after the U.S. presidential election, insurers and brokers told Reuters.
- Sales of commercial policies that cover damage from societal unrest in the United States have already doubled in October from September levels, insurers and brokers said.
- That is partly because some providers, mainly in the Lloyd’s of London marketplace, stopped including “strikes, riots and civil commotion” coverage within general property policies for businesses such as retailers and pharmacies that were already hard-hit by civil commotion, forcing them to buy separate insurance, said a person familiar with the matter, who was not authorized to speak to the media about client policies.
- Many shops and offices are facing double-digit premium hikes for such policies but buying them anyway because the cost of not doing so might be higher, industry sources said.
EUROPE & WORLD
Sony raises FY profit outlook after record second-quarter on strong gaming, ‘Demon Slayer’ – Reuters, 10/28/20
- Sony raised its annual profit outlook on Wednesday after posting a record second-quarter profit, as its gaming business continued to capture “nesting” demand ahead of the launch of the next-generation PlayStation 5 (PS5) console next month.
- Sony raised its annual profit forecast by 13% to 700 billion yen ($6.7 billion), after reporting a surprise increase in July-September profit to 317.76 billion yen, a second-quarter record.
- The outlook is above the 672.33 billion yen consensus of 24 analysts compiled by Refinitiv.
- The firm now forecasts its gaming division will post an annual profit of 300 billion yen, up from the previously estimated 240 billion yen.
- Sony is targeting PS5 console sales of 7.6 million units or more in the year through March, chief financial officer Hiroki Totoki said at a briefing, citing the sales achieved for the PS4 when it was launched seven years ago.
- Sony pre-sold as many PS5 consoles in the first 12 hours in the United States as in the first 12 weeks for its predecessor PlayStation 4 device, Jim Ryan, CEO of Sony Interactive Entertainment, said in an interview.
- For its sensor business, Sony cut the profit outlook by 38% to 81 billion yen, further trimmed its three-year investment through March next year by 40 billion yen to 650 billion yen, and said it may slow a production ramp-up at a new plant in Nagasaki, southern Japan.
Profitable pickup trucks, Jeeps drive FCA back into black – Reuters, 10/28/20
- U.S. sales of high-margin pickup trucks and Jeeps hauled Fiat Chrysler back into the black in the third quarter following pandemic-related shutdowns, and the carmaker on Wednesday reinstated a profit forecast for 2020 that assumes no more disruption from a freshly resurgent COVID-19 outbreak.
- FCA on Wednesday posted adjusted earnings before interest and tax (EBIT) of 2.28 billion euros ($2.7 billion) for the July-September quarter, topping the 1.152 billion forecast by analysts polled by Reuters.
- Operating profit rose 26% to a record 2.544 billion euros in North America, with a record 13.8% margin versus 10.6% a year earlier.
- During a conference call with analysts, Chief Executive Officer Mike Manley said all the car maker’s plants are now operating near pre-pandemic production levels.
- The Italian-American company had industrial free cash flow of 6.7 billion euros during the quarter, which Manley described as a “nice turnaround” to the cash burn in the first half of the year due to the pandemic.
- FCA, which earlier this year withdrew its guidance for the year, forecast a 3-3.5 billion euro adjusted EBIT for 2020, but added that its new guidance assumed no further significant disruptions from COVID-19.
Peugeot maker PSA’s car revenue returns to growth after lockdowns – Reuters, 10/28/20
- Peugeot manufacturer PSA Group returned to revenue growth in its core autos division in the third quarter, recovering from a slump during coronavirus lockdowns, though the prospect of new restrictions hit French shares on Wednesday.
- PSA’s overall sales totaled 15.5 billion euros ($18.3 billion) in July-September, down 0.8% from a year earlier.
- But automotive revenue rose 1.2% to 12 billion euros, after ending the first half of the year down 35.5%.
- Car inventories were 25% lower year-on-year in the third quarter, as PSA tries to avoid getting stuck with excess stock.
- PSA’s car sales volumes fell in the third quarter, but this was offset by the popularity of higher priced models. New launches such as the SUV-style Peugeot 2008 helped, it said.
- The group’s $38 billion merger with FCA, set to create the world’s fourth largest carmaker under the name “Stellantis”, is due to close in the first quarter of 2021.
Heineken uncertain about year-end after summer recovery – Reuters, 10/28/20
- Heineken performed better than expected over the June-September quarter with a surprising increase in beer sales in the Americas, but said the COVID-19 pandemic was still too uncertain to provide a reliable 2020 outlook.
- Overall, Heineken’s beer volumes declined by 1.9% on a like-for-like basis in the third quarter.
- That compared with an average expected drop of 5.9% in a company-compiled poll.
- In the Americas, beer volumes were up 2.5%, with low teen percentage growth in the United States, where distributors replenished inventories, and Brazil, where Heineken is expanding after a 2017 acquisition made it the second largest player.
- Heineken said it would earn less money for a given volume in a shift from bar to store purchases, while costs were likely to be higher than a year earlier, with kegs cheaper to produce, re-use and ship than cans and bottles.
Carlsberg raises outlook on strong sales in China and Russia – Reuters, 10/28/20
- Danish brewer Carlsberg posted third-quarter underlying sales that beat expectations on Tuesday and raised its full-year earnings guidance thanks to strong sales in Russia and China.
- Carlsberg reported sales – excluding the effects of any acquisitions – between July and September of 17.3 billion Danish crowns ($2.8 billion), compared with an average forecast of 16.9 billion from analysts polled by the company.
- Volumes sold at bars and restaurants fell by a fifth in the third quarter compared with last year, it said.
- The world’s third-biggest brewer, whose brands also include Kronenbourg, Baltika and Holsten, now expects 2020 operating profit, excluding the effects of any acquisitions, to decline by a mid-single-digit percentage, compared with previous guidance of a high-single-digit decline.
- The upgrade was due to a strong performance in the third quarter, continued positive volume trends in Russia and China at the beginning of the fourth quarter, and the effects of planned cost reductions, Carlsberg said in a statement.
BASF confirms 2020 earnings outlook barring further lockdowns – Reuters, 10/28/20
- BASF on Wednesday reaffirmed its full-year earnings guidance issued earlier this month even though a surge in coronavirus infections is stoking fears of a renewed downturn.
- The German chemicals group said it still expects 2020 adjusted operating profit to fall to between 3 billion and 3.3 billion euros ($3.5-$3.9 billion), down from 4.5 billion euros last year.
- “BASF’s forecast assumes that severe restrictions on economic activity to contain the coronavirus pandemic, such as lockdowns, are not reintroduced,” it said.
GSK expects full-year earnings to be at lower end of its forecast – Reuters, 10/28/20
- Britain’s GSK said on Wednesday it expects full-year adjusted earnings to come in at the lower end of its forecast as the COVID-19 pandemic disrupts vaccination rates, especially for its blockbuster shingles vaccine.
- For the quarter, the company reported adjusted earnings of 35.6 pence per share and sales of 8.67 billion pounds.
- Analysts on average expected third-quarter adjusted earnings of 30.4 pence per share and sales of 8.77 billion pounds, according to a company-compiled consensus here of 16 analysts.
- Shingrix, the biggest driver of sales growth last year, saw its quarterly revenue fall 30% from a year earlier to 374 million pounds, coming in 18.5% below market expectations.
- GSK said it now expects 2020 profit to be at the lower end of its forecast of a 1%-4% drop, which did not include any potential impact from the coronavirus crisis.
Pandemic keep-fit drive boosts Puma sales in Americas, Europe – Reuters, 10/28/20
- German sportswear company Puma reported a rebound in third-quarter sales in the Americas and Europe as consumers keen to keep fit during the COVID-19 pandemic bought more online and at stores that reopened after lockdowns.
- However, Puma said consumer sentiment was turning negative again as infections rise and said it could not provide a reliable outlook for the full year despite its optimism about its medium and long-term perspectives.
- Quarterly sales rose by a currency-adjusted 13% to 1.58 billion euros ($1.87 billion) and operating profit by 17% to 190 million euros, beating average analyst forecasts for 1.56 billion and 174 million euros respectively.
- Sales jumped 20.7% in the Americas and 17.7% in the Europe, Middle East and Africa region, with categories such as basketball, motorsport, golf and team sports showing the highest growth rates. Online sales rose 61%.
- Sales fell 1.9% in Asia/Pacific, due to slower growth in greater China, and a decline in India, Korea and South East Asia, although Gulden said he was “pretty optimistic” about the fourth quarter in China.
Factmonster – TODAY in HISTORY
- Eli Whitney applied for a patent for the cotton gin. (1793)
- The Statue of Liberty was dedicated in New York Harbor by President Grover Cleveland. (1886)
- Congress passed the Volstead Act, or the National Prohibition Act, over President Woodrow Wilson’s veto. (1919)
- Benito Mussolini took control of the government of Italy. (1922)
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. Historical performance is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
All investing involves risk including loss of principal. No strategy assures success or protects against loss. Any economic forecasts set forth may not develop as predicted.
All company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services.
Material presented is excerpts derived from third party content and you may need a subscription to access the full the content. The views and opinions expressed are those of the authors and do not necessarily reflect the views of Pence Wealth Management or LPL Financial.
Prior to making any investment decision please consult your financial advisor regarding your specific situation.