Today’s Big Picture
Equities in Asia finished the day’s trading mixed with Japan’s Nikkei and India’s Sensex unchanged while Hong Kong’s Hang Seng rose 0.7% and China’s Shanghai Composite fell 0.2%. The day’s latest Services data for China and Japan that showed a very different picture between the two countries — see Data Download for more — weighed on those markets. By mid-day trading in Europe, equities were mostly lower while U.S. futures were little changed.
While investors mull the latest on the surging coronavirus and wait for the latest data on the U.S. Services economy and weekly jobless claims, they are weighing the prospects for some movement on a new coronavirus stimulus bill and the likelihood for more turmoil when it comes to already tenuous U.S.-China trade relations. Following the House approving a bill that could prevent some Chinese companies from listing their shares on U.S. exchanges unless they adhere to U.S. auditing standards, President Donald Trump is expected to sign that bill. While shares of Alibaba (BABA), JD.com (JD), and others could come under pressure as that bill is signed, we’d note Chinese companies listed on U.S. exchanges would have three years to comply with U.S. auditing rules before being removed from U.S. markets.
On the coronavirus stimulus front, following calls by President-elect Joe Biden to Congress to find a bipartisan path forward, House Speaker Nancy Pelosi and Senate Democratic leader Chuck Schumer are pushing for a scaled-down $908 billion proposal vs. the prior $2.4 trillion package they had been pushing. This could be a new baseline for negotiations with congressional Republicans and the White House, and we’ll be watching to see how Senate Majority Leader Mitch McConnell responds. McConnell’s last stimulus plan, near $500 billion, was rejected by Democrats. We’d remind readers that the window for a stimulus package before year-end is closing and Congress also has to reach a deal to fund the federal government before December 11.
The number of patients hospitalized with Covid-19 in the U.S. rose above 100,000 for the first time ever yesterday, according to the Covid tracking project. Daily new cases were over 200,000 for the second time in less than a week yesterday, and the nation experienced a record-high 3,157 deaths, according to Johns Hopkins University. A total of 16 states reported their highest level ever of Covid-19 hospitalizations. California was the first state ever to report over 20,000 new cases in a single day; that is more than Hawaii has seen in total since this nightmare began.
Germany has decided to extend its partial lockdown that has been in force since the beginning of November through to January 10.
Italy is preparing strict rules to limit movement over the holiday period in a government decree that has yet to be finalized. Non-essential travel is expected to be banned between different regions from December 21 through January 6, with all residents required to stay in their municipality December 25-26 and January 1.
Australia’s Imports rose slightly in October, up 1.0% MoM, which is a vast improvement over the -6.5% in September. Exports rose 5.0% MoM, also up from the prior 2.6%.
Today brought a cornucopia of Service PMIs for November. Japan continues to struggle, but China is booming. Most of Europe is in fairly significant contraction, but optimistic about the future following the recent vaccine headlines.
- Japan remained in contraction but improved slightly to 47.8 from 47.7, beating expectations for a decline to 46.7.
- China rose to 57.8 from 56.8, the second-fastest growth in services activity in over ten years. New orders expanded for the seventh consecutive month, reaching the highest level since April 2010. New Export Orders hit the highest level since October 2010. Inflation pressures are becoming evident with Input Prices and prices that businesses charged both moving further into expansionary territory, hitting the highest levels since August 2010 and February 2010, respectively. Sentiment reached the highest level since April 2011.
- Italy fell even further into contraction, down to 39.4 from 46.7, well below the expected decline to 41.3 as the Composite index hit a 6-month low. This was the sharpest downturn in business activity since May. Job cuts were sharp and at the quickest pace since June. Inflationary pressures were non-existent. Business confidence remains subdued.
- Spain fell to 39.5 from 41.1, beating expectations for a more dramatic decline to 36.6, but reaching a 6-month low for the Composite Index. The recent news on the vaccine pushed business confidence to its highest level in 20 months.
- France dropped to 38.8 from 46.5, slightly better than the expected decline to 38.0, but was the third consecutive contraction in the service sector and the sharpest pace since May as the Composite index hit a 6-month low. New Orders, Export Sales, Output, and Employment all continued to decline sharply. Input prices fell for the first time in six months, and output charges fell the most since May. Sentiment strengthened on the vaccine news but remains subdued by historical standards.
- Germany fell to 46.0 from 49.5, slightly worse than expectations for a drop to 46.2. This was the sharpest contraction since (you guessed it) May, with the Composite index hitting a 5-month low. Demand from abroad was especially weak, but the vaccine news pushed expectations for activity over the next 12 months to the highest level since January, and employment actually rose for the fifth consecutive month.
- For the Eurozone as a whole, the decline was to 41.7 from 46.9, slightly better than the expected drop to 41.3 but a 5-month low for the Composite Index. This was the sharpest contraction since (big surprise here) May. Employment continued to fall, and outstanding business contracted sharply. Input prices rose slightly, but output prices fell as service providers responded to the difficult conditions by offering discounts.
- The UK fell to 47.6 from 51.4, slightly better than the expected 45.8. This was the steepest contraction since June (got you there), with the pace of job losses reaching the fastest pace since August. Input cost pressures eased, but margins were compressed as service providers were forced to offer discounts. The outlook reached the highest level since February.
Retail Sales in France rose 5.9% YoY in October, up from the previous 2.7% increase and the third consecutive month of YoY gains.
Yesterday the Fed released its final Beige Book of the year, a compendium of qualitative assessments of the U.S. economy based on informal surveys from the various Fed districts. Overall, most districts reported modest or moderate expansion, with four of the thirteen reporting “little or no growth” and five had activity that remained below pre-pandemic levels for at least some sectors. Four of the districts reported activity slowdowns following the surge in Covid-19 cases in November. Banks reported a “more widely anticipated” surge in delinquencies, and while outlooks “remained positive,” “optimism has waned.” The nearing end of moratoriums on evictions and foreclosures is garnering attention.
The ADP jobs report for November released yesterday came in much weaker than expected, with just 307,000 new jobs in the private sector versus expectations for 450,000 and well below last month’s 404,000.
For those that thought a new administration meant a different relationship with China, yesterday’s comments from President-elect Joe Biden over having no immediate plans to cancel the 25% tariff on Chinese imports was a dose of cold water. On top of that, yesterday the House unanimously (and when is anything on Capital Hill unanimous these days?) passed the Holding Foreign Companies Act, which threatens to delist Chinese companies such as JD.com (JD) and Alibaba Group (BABA) if U.S. regulators are not able to inspect their financial audits within three years.
Later today, we will get the following reports: the usual weekly jobless report, Markit Service PMI, ISM Non-Manufacturing, and the weekly EIA Natural Gas stocks.
Equity markets erased the early morning losses yesterday to close the day mostly in the green, with the S&P 500 adding 0.2% to close at another record high. The Dow Jones Industrial Average and Russell 2000 inched ahead while the Nasdaq Composite finished lower by 0.1%. The U.S. dollar index fell to new lows. We find it telling that on the day the first Western nation approves a Covid-19 vaccine, markets were utterly unimpressed. The vaccine good news has already been priced in.
What we find particularly interesting is that while tech has been this year’s darling, some seriously unloved stocks have been outperforming recently. Take the case of United States Steel Corp (X), which rose 6.6% in 2017 but lost 48.2% in 2018 and again lost 37.5% in 2019 compared to the Nasdaq 100, which rose 31.5%, fell 1.0%, and added 38.0% respectively, cumulatively outperforming U.S. Steel by over 140% over those three years. For the first six months of 2020, the Nasdaq 100 rose 16.3% versus U.S. Steel, which fell 36.7%, for an outperformance of 53%. Over the past three months, U.S. Steel has nearly doubled its share price while the Nasdaq 100 has been relatively flat – talk about a shift in dynamics!
Stocks to Watch
Amazon (AMZN) is in talks to buy the podcast publisher Wondrey, valuing the company at over $300 million. Amazon Web Services unveiled two new services at its Reinvent conference yesterday: ECS Anywhere and EKS Anywhere. They are designed to manage complex, large scale applications.
Online shopping has become so dominant in this everything-from-home-pandemic-lockdown year that United Parcel Service (UPS) has reportedly restricted shipping volumes for retailers including Nike (NKE), Gap (GPS), L.L. Bean Inc., Hot Topic Inc., Newegg Inc., and Macy’s Inc. (M).
Alphabet (GOOG) subsidiary Google Cloud announced yesterday that it had acquired the data management firm Actifio, which has nearly 400 employees and was last valued at $1.3 billion, according to Pitchbook.
Dollar General (DG) reported better than expected October quarter EPS of $2.31, well ahead of the $1.99 consensus even though revenue for the quarter came in modestly ahead of expectations. Same-store sales for the quarter rose 12.2% YoY, and the company shares its same-store sales for the October 31 to December 1 period rose 14% YoY.
Costco Wholesale (COST) reported its November comps rose +13.4% YoY (+14.6% excluding gas and foreign exchange) but came in a tad shy of the +13.8% consensus. E-commerce sales rose 71.3% during the month. For the thirteen weeks ended November 29, the company reported net sales of $46.33 billion, an increase of 16.0% YoY and well ahead of the $41.7 billion estimate.
PVH (PVH) reported better than expected October quarterly results and issued upside guidance for its current quarter but still sees revenue for the quarter falling ~20% vs. a year-ago levels. PVH anticipates its fourth-quarter revenue and earnings will continue to be negatively impacted by the COVID-19 pandemic.
The pandemic continues to take a toll on the wear-to-work market, as evidenced by the -30% comps sales for Express (EXPR) during the company’s October quarter that widely missed consensus expectations. Subsequent to quarter-end, the company completed a 10% workforce reduction at its corporate headquarters.
Buckle (BKE) reported its November same-store sales rose 8.4% Yoy, and net sales for the month climbed 8.1% YoY to $86.3 million.
Specialty retailer Five Below (FIVE) that focuses on the teen and pre-teen markets handily beat October quarter revenue and EPS expectations as comp sales for the quarter rose 12.8% YoY. During the quarter, the company opened 36 new stores and ended the quarter with 1,018 stores in 38 states.
Snowflake (SNOW) reported October quarter results that included better than expected revenue that rose 118.6% YoY to $159.6 million, handily beating the $147.7 million consensus. Product revenue for the quarter rose 115% YoY to $148.5 million. For the current quarter, Snowflake sees product revenue in the range of $162-167 million, up 97-103% YoY, and for FY21, its forecasting product revenue of $538-543 million.
Shares of cloud-based security company Zscaler (ZS) rose in aftermarket trading following October quarter results that sailed past consensus expectations, and the company issued better than expected guidance for the current quarter. For the January quarter, the company sees EPS of $0.07-$0.08 vs. $0.07 consensus with revenue in the range of $146-148 million vs. the $140.3 million consensus. Looking at 2021, Zscaler boosted its EPS outlook to $0.37-$0.38 from $0.28-$0.30 vs. $0.31 consensus and raised its 2021 revenue guidance to $608-$612 million from $580-$590 million vs. the $588.40 million consensus.
Shares of CrowdStrike (CRWD) jumped in aftermarket trading last night following the company reporting its October quarter revenue surged 86% YoY to $232.5 million vs. the $214.4 million consensus. Subscription revenue was $213.5 million, an 87% increase YoY. Annual Recurring Revenue (ARR) increased 81% YoY to $907.4 million, of which $116.8 million was net new ARR added during the quarter. During the quarter, the company added 1,186 net new subscription customers. CrowdStrike issued upside guidance for the current quarter with EPS of $0.08-0.09 vs. the $0.01 consensus and revenue in the range of $245.5-250.5 million vs. the $233.6 million consensus.
Shares of identity solutions company Okta (OKTA) also moved higher in aftermarket trading last night as the company also reported better than expected October quarter results and guided revenue for the current quarter above the consensus forecast. For the October quarter, subscription revenue for 43% YoY to $206.7 million, leading the company’s subscription revenue backlog 53% higher YoY. Billings during the quarter rose 43% YoY to $206.7 million. Total calculated billings were $252.4 million, an increase of 44% year-over-year. For the current quarter, Okta sees revenue in the range of $221-$222 million vs. the $216.6 million consensus.
October results at Splunk (SPLK) came in weaker than expected for both its top and bottom line, and the company issued downside guidance for the current quarter. Cloud ARR for the October quarter rose 71% YoY to $630 million, with total ARR for the quarter 44% YoY to $2.07 billion. For the current quarter, Splunk sees revenue in the range of $650-$700 million vs. the $783.7 million consensus,
XPO Logistics (XPO) announced its board of directors has unanimously approved a plan to pursue a spin-off of 100% of its logistics segment as a separate publicly-traded company. If completed, the spin-off will result in separate businesses with clearly delineated service offerings: XPORemainCo, a global provider of less-than-truckload and truck brokerage transportation services; and NewCo, the second-largest contract logistics provider in the world.
International Paper (IP) also announced a plan to pursue a spin-off of its Printing Papers segment into a standalone, publicly-traded company. The company expects the separation to be tax-free for the company’s shareholders and be completed in 3Q 2021. International Paper is expected to retain up to 19.99% of the shares of SpinCo at the time of the separation.
Asset management firm Waddell & Reed (WDR) entered into a merger agreement with Macquarie Asset Management, the asset management division of Macquarie Group, under which Macquarie would acquire all of the outstanding shares of Waddell & Reed for $25.00/share in cash, representing total consideration of $1.7 billion.
LIZHI (LIZI) announced Chinese electric vehicle company Xpeng Inc. (XPEV) will integrate LIZI’s in-car audio content product into Xpeng Motors’ in-car intelligent operating system.
Reports suggest a coalition of 40 U.S. states that have been investigating Facebook (FB) for potential antitrust violations plan to file a lawsuit against the company next week.
After today’s market close, Cloudera (CLDR), DocuSign (DOCU), Marvell (MRVL), Smith & Wesson Brands (SWBI), Ulta Beauty (ULTA), and Zuora (ZUO) will report their quarterly results. Investors looking to get a jump on such reports in the coming days should visit Nasdaq’s earnings calendar page.
On the Horizon
- December 4: Nonfarm Payrolls, Balance of Trade, Unemployment Rate
- December 8: Nonfarm Productivity, Unit Labor Costs, API Crude Oil Stocks
- December 9: Wholesale Inventories, JOLTs Report, EIA Crude Energy Stocks
- December 10: Inflation, Weekly jobless claims
- December 11: PPI, Michigan Sentiment, Federal government shutdown if no budget approval is achieved
- December 14: Electoral college votes and sends results to Congress
- December 15: Import and Export Prices, NY Empire State Manufacturing Index, Industrial Production, IBD/TIPP Economic Optimism, Overall Net Capital Flows, Net Long-Term TIC Flows
- December 16: Retail Sales, Markit Manufacturing PMI, Business Inventories, NAHB Housing Market Index, EIA Energy Stocks, FOMC Economic Projections & Press Conference
- December 17: Weekly jobless claims, Building Permits, Housing Starts
- December 21: Chicago Fed National Activity Index
- December 22: Corporate Profits Q3, GDP Q3 Final, Existing Home Sales, API Crude Oil Stocks
- December 23: Personal Income & Spending, PCE Price Index, New Home Sales, Michigan Consumer Sentiment EIA Energy Stocks
- December 24: Durable Goods, Weekly Jobless Claims, and markets close early
- December 25: Ho ho ho
- December 28: CB Consumer Confidence, Dallas Fed Manufacturing Index
- December 29: S&P/Case-Shiller Home Price Index, API Crude Oil Stocks
- December 30: Goods Trade Balance, Wholesale Inventories, Chicago PMI, Pending Home Sales, EIA Energy Stocks
- December 31: Weekly Jobless Claims and good riddance to 2020!
- January 6: Joint session of Congress counts electoral votes and declares results
- January 20: Chief Justice Roberts swears in the President
Thought for the Day
“Imagination is a force that can actually manifest a reality. Don’t put limitations on yourself. Others will do that for you.” ~ James Cameron
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.