Early Look

Monday, January 27, 2020

U.S. stock markets are pointing to a sharply lower open, a day after equities slid to their lowest close in over a week last Friday (and the biggest one day loss for the S&P 500 since early October) as fears grew that China’s coronavirus would continue to spread, and may disrupt travel, trade while slowing global economic growth. The spread of the virus in China and to other countries rattled global markets, as the illness that infects the respiratory tract was responsible for at least 80 deaths in China, and rising cases of those infected now around 3,000. In the U.S., there are reports of five confirmed cases, with a handful of infections in other countries. Stocks and crude oil fell while demand for safe haven assets sent bond yields lower and gold prices up. Last week the Dow lost 1.2%, while the S&P 500 gave back 1% and the Nasdaq fell 0.8%. Outside of the virus fears, markets are bracing for a busy week with the FOMC interest rate meeting taking place midweek as well as busy onslaught of quarterly earnings, including results from Apple, Facebook, Boeing, Pfizer, McDonald’s, Starbucks and Caterpillar. In Asian markets, The Nikkei Index fell -483 points (2%) to settle at 23,343, the Shanghai Index remains closed as did the Hang Seng Index for holiday. In Europe, the German DAX is down over 300 points (2.25%) to 13,272, while the FTSE 100 is down near the lows, off 2.5% or 188 to drop below the 7,400 level. China extended this week’s Lunar New Year holiday and took increasingly drastic measures to halt the spread of the coronavirus, locking down 17 cities amid warnings it was growing more contagious. Treasury prices are surging, with the yield on the 10-year down to 1.61% while gold rises.

Market Closing Prices Yesterday

·     The S&P 500 Index dropped -30.07 points, or 0.90%, to 3,295.47

·     The Dow Jones Industrial Average fell -170.37 points, or 0.58%, to 28,989.73

·     The Nasdaq Composite slumped -87.57 points, or 0.93%, to 9,314.91

·     The Russell 2000 Index declined -22.23 points, or 1.32% to 1,662.23

Events Calendar for Today

·     10:00 AM EST    New Home Sales MoM for December

·     10:30 AM EST    Dallas Fed Manufacturing for January

Earnings Calendar:

·     Earnings Before the Open: ARLP, ARNC, BOH, DHI, HMST, NURO, OPB, RMBS, S, SALT

·     Earnings After the Close: ASH, BHLB, BRO, CR, CSFL, ELS, FFIV, FLXS, GGG, HTLF, JJSF, JNPR, LRN, PKI, SSB, TCF, WASH, WHR, WSBC

World News

·     German business confidence unexpectedly dropped in January as the Ifo Institute’s measure of executives’ outlook fell to 92.9, missing economist estimates for a gain

·     Former national security adviser John Bolton claimed in his new book that President Trump told him in August he wanted to continue freezing aid to Ukraine until its government investigated the Biden’s, the NYT reported

Sector News Breakdown

Consumer

·     Chipotle (CMG) upgraded to Neutral from Sell at UBS

·     D.R. Horton (DHI) Q1 EPS $1.16/$4B vs. est. 92c/$3.77B; Q1 homes closed increased 13% in both homes and value to 12,959 homes and $3.9B; Net sales orders increased 19% to 13,126 homes and 22% in value to $3.9B; narrows FY20 revenue view to $18.5B-$19.1B from $18.5B-$19B

·     Barron’s noted that the Super Bowl is the biggest day of the year for sports gambling and this year an increasing share of the wagering on the February 2 game between the San Francisco 49ers and the Kansas City Chiefs will be done legally. The Street’s enthusiasm is most evident in the surging stock price of Diamond Eagle Acquisition (DEAC), a special purpose acquisition company, or SPAC, that reached a deal in late December to buy DraftKings, the report adds. The other chief play on U.S. sports gambling is Flutter Entertainment (PDYPY), the top U.K. betting company that controls FanDuel, the main online U.S. sports wagering rival for DraftKings

·     Yum! Brands (YUM) raises quarterly dividend to 47c from 42c per share

Energy, Industrials & Materials

·     Oil prices headed sharply lower as the death toll and number of those infected rose with China’s deadly influenza spread over the weekend, raising fears that the illness could hurt global demand

·     AZZ Inc. (AZZ) Sees 2021 EPS of $2.65 to $3.15 and 2021 revenue $970 million to $1.06 billion saying they expect fiscal year 2021 earnings to continue to grow but revenue to be somewhat challenged due to our lower anticipated backlog for China as we enter fiscal 2021

Financials

·     KBW Inc. upgraded shares of Lazard (LAZ) and Moelis (MC) to outperform from market perform while downgrade Houlihan Lokey (HLI) to market perform

Healthcare

·     AbbVie (ABBV) said China is testing Aluvia, an HIV drug, to treat pneumonia caused by the new coronavirus, multiple media outlets have reported.

·     AstraZeneca PLC (AZN) said that it will take back the global rights to brazikumab after ending a license deal with Allergan PLC (AGN); AstraZeneca said Allergen will fund the costs of developing brazikumab, which is used for Crohn’s disease and ulcerative colitis

·     Roche (RHHBY) unit Genentech has completed a supplemental Biologics License Application (sBLA) submission to the FDA for Tecentriq (atezolizumab) in combination with Avastin (bevacizumab) for the treatment of people with unresectable hepatocellular carcinoma (HCC) who have not received prior systemic therapy.

Technology, Media & Telecom

·     T-Mobile US Inc. (TMUS) and Sprint Corp. (S) are waiting for a federal judge to rule on whether they can merge, but the companies face another hurdle even if they overcome that legal challenge: the California Public Utilities Commission as per Reuters noting the state utilities overseer is the only such body that hasn’t yet blessed the $26 billion deal

·     Investors can buy shares in the Atlanta Braves (BATRK) or Manchester United (MANU) and soon they will be able to do the same with the New York Knicks and New York Rangers after Madison Square Garden (MSG) splits off its entertainment businesses from its sports operations, which it may do sometime this year, according to Barron’s

·     Big tech companies, including Amazon (AMZN), Microsoft (MSFT), and Alphabet (GOOGL), are competing for a bigger slice of the esports live-streaming business, which could present an opportunity for investors, according to Barron’s