Morning Market Update
Michael Mauboussin: Challenges and Opportunities in Active Management And Using BAIT #MICUS
Michael Mauboussin's notes from his presentation at the 2020 Morningstar Investment Conference, held on September 16th and 17th. Q2 2020 hedge fund letters, conferences and more Michael Mauboussin: Challenges and Opportunities in Active Management Michael Mauboussin is Head of Consilient Research at Counterpoint Global in New York. Previously, he was Director of Research BlueMountain Capital, Read More
* US: Dow: 13187.12 (-1.19%), S&P 500: 1417.62 (-1.13%), NASDAQ: 2986.06 (-1.02%)
* Europe: CAC: 3419.40 (-1.87%), DAX: 7203.69 (-1.73%), FTSE: 5809.85 (-1.26%).
* Asia-Pacific: Australia: 4543.10 (0.05%), China: 2114.45 (-0.87%), Hong Kong: 21697.55 (0.00%), India: 5691.40 (-0.45%), Japan: 9014.25 (0.04%).
* Metals: Gold: 1710.60 (-0.91%), Silver: 31.88 (-1.14%), Copper: 3.56 (-1.60%)
* Energy: Crude Oil: 86.81 (-2.08%), Natural Gas: 3.46 (0.46%)
* Commodities: Corn: 7.53 (-1.02%), Soya Bean: 15.33 (-1.02%), Wheat: 8.66 (-1.37%)
* Currency: EUR/USD: 1.2969 (-0.70%), GBP/USD: 1.5955 (-0.37%), USD/JPY: 79.8600 (-0.11%)
* 10 year US Treasury: 1.771% (-0.042)
Financial and Economic News Update
U.S. markets open lower: U.S. markets opened lower on Tuesday after three Dow components reported disappointing earnings and issued weak forecasts. Earnings from Europe and Asia also dashed hopes of a global economic recovery. The Dow Jones Industrial Average (INDEXDJX:.DJI), the S&P 500 (INDEXSP:.INX) and the NASDAQComposite (INDEXNASDAQ:.IXIC), were all trading more than a percent lower. Netflix, Inc. (NASDAQ:NFLX) is slated to report earnings after the closing bell.
European markets trading deep in the red: European markets are trading significantly lower on Tuesday with the German DAX (INDEXDB:DAX) down 1.7 percent at 7203.69, the FTSE 100 (INDEXFTSE:UKX) lost 1.3 percent to 5809.85 and the CAC 40 (INDEXEURO:PX1) tanked 1.9 percent to 3419.40. The euro zone blue-chip ESTX 50 PR.EUR (INDEXSTOXX:SX5E) (Euro Stoxx 50) was trading 1.8 percent lower.
Asian markets end mostly lower: Asian markets closed lower on Tuesday with the SSE Composite Index (SHA:000001) (Shanghai Composite Index) closing down 0.9
percent at 2,114.4 points. Japan’s NIKKEI 225 (INDEXNIKKEI:NI225) added 3.5 points to 9,014.25. The S&P/ASX 200 (INDEXASX:XJO) index ended up 0.05 percent at 4,543.1. The benchmark Indian 30-share BSE SENSITIVE (INDEXBOM:SENSEX) index lost 0.4 percent. HANG SENG INDEX (INDEXHANGSENG:HIS) was closed on Tuesday for a public holiday.
Company News Update
* 3M Co (NYSE:MMM) reported third-quarter earnings excluding items of $1.65 a share, on revenue of $7.5 billion. Analysts were expecting earnings excluding items of $1.65 a share on $7.63 billion in revenue. The company slashed its full-year guidance.
* United Technologies Corporation (NYSE:UTX) posted third-quarter earnings excluding items of $1.37 per share, on revenue of $15 billion. Analysts had projected earnings of $15.51 billion in revenue and earnings of $1.18 a share
* E. I. du Pont de Nemours and Co (NYSE:DD) posted third-quarter earnings excluding items of 44 cents per share, on revenue of $7.34 billion. Analysts had forecast earnings excluding items of 46 cents a share on $8.15 billion in revenue. The chemical maker also announced plans to cut 1,500 jobs, or about 2 percent of its workforce.
* United Parcel Service, Inc. (NYSE:UPS) reported third-quarter earnings excluding items of $1.06 a share, on revenue of $13.07 billion. Analysts were expecting earnings excluding items of $1.06 a share on $13.31 billion in revenue.
* Harley-Davidson, Inc. (NYSE:HOG) reported a 27 percent drop in third quarter profit to $134 million, or 59 cents a share, from $183.6 million, or 78 cents a share, a year earlier. Revenue decreased 12 percent to $1.09 billion. Analysts were expecting earnings of 58 cents on revenue of $1.12 billion.
* Illinois Tool Works Inc. (NYSE:ITW) reported third-quarter earnings excluding items of $1.09 a share that topped estimates of $1.06 a share. Revenue declined 1.7 percent to $4.5 billion.
* Coach, Inc. (NYSE:COH) said first quarter profit increased 3 percent to $221.4 million, or 77 cents per share, from $215 million, or 73 cents per share, in the same period last year. Revenue gained 11 percent to $1.16 billion in the quarter. Analysts had forecast earnings of 75 cents per share on 1.16 billion in revenue. The luxury accessories retailer said its board has authorized the repurchase of up to $1.5 billion of its outstanding stock.
* Toronto-Dominion Bank (USA) (NYSE:TD) (TSE:TD) has agreed to acquire Target Corporation (NYSE:TGT)’s existing U.S. credit-card portfolio for an undisclosed amount.
* Electronics chain RadioShack Corporation (NYSE:RSH) reported third quarter loss excluding certain items of 33 cents a share, on revenue of $1 billion. Analysts had projected a loss of 17 cents a share on revenue of $1.04 billion.
* Jakks Pacific, Inc. (NASDAQ:JAKK) reported third quarter earnings excluding items of $1.13 per share, on revenue of $314.5 million that missed estimates of $1.14 a share on sales of $320.7 million.
* CIT Group Inc. (NYSE:CIT) said third quarter loss widened to $304.9 million, or $1.52 per share, from $32.8 million, or 16 cents per share, in the y3ear-ago period. Analysts were expecting the small-business lender to post a loss of $1.32 per share.
* Lexmark International Inc (NYSE:LXK) reported third quarter earnings excluding certain items of 94 cents per share, above estimates of 78 cents per share. Sales declined 11 percent to $919.2 million. The printer maker provided current earnings outlook that trailed estimates.
* Celgene Corporation (NASDAQ:CELG) said its investigational treatment for multiple myeloma met primary endpoints in a Phase 3 study.
* Private equity firm Cerberus Capital Management is in talks with lenders to line up financing for a bid to acquire troubled supermarket operator Supervalu Inc. (NYSE:SVU), according to a Reuters report.
* Chesapeake Energy Corporation (NYSE:CHK) is planning to pay off more than half of a $4 billion bridge loan after receiving $2.8 billion in cash from the sale of some Permian Basin oil and gas properties.
* BE Aerospace, Inc. (NASDAQ:BEAV) reported third quarter earnings excluding certain items of 7 cents a share, 7 cents more than the consensus estimate. Revenue increased 21 percent to $766.7 million, also topping estimates of $765 million.
* Private-equity firm Evergreen Group Ventures LLC has agreed to buy Heelys, Inc. (NASDAQ:HLYS) for $13.9 million in cash.
* Whirlpool Corporation (NYSE:WHR) reported third quarter earnings excluding items of $1.80 a share that easily beat the average analysts’ estimate of $1.60 a share. Sales dipped 2.8 percent to $4.5 billion, trailing estimates of $4.58 billion. The home appliances company raised its full-year earnings outlook.
* Real-estate investment trust. Prologis Inc (NYSE:PLD) reported third quarter loss of $36.2 million, compared with a year-earlier profit of $65.8 million. Revenue increased 9.2 percent to $512.1 million.
* Insurer Centene Corp (NYSE:CNC) said third quarter profit plunged 87 percent to $3.82 million, or seven cents a share, from $28.99 million, or 55 cents a share, in the year-ago quarter. Revenue, however, jumped 88 percent to $2.45 billion. The company slashed its full-year earnings estimate, but raised its revenue forecast.
* Veeco Instruments Inc. (NASDAQ:VECO) said third quarter profit plunged 62 percent to $13.5 million, or 35 cents a share, from $35.9 million, or 91 cents a share, a year earlier. Revenue came in at $126.9 million. The company forecast full-year revenue that trailed most estimates.
* Rental furniture company Rent-A-Center Inc (NASDAQ:RCII) reported third-quarter profit of $39.9 million, or 67 cents per share, in line with estimates. Revenue gained 5 percent to $739.3 million, trailing estimates of $756.1 million
* British luxury handbag maker Mulberry Group PLC (LON:MUL) tumbled 25 percent after warnings that full-year profit will be lower than last year due to declining shipments to wholesale customers in Asia.
* Beleaguered Finnish mobile phone maker Nokia Corporation (ADR) (NYSE:NOK) will sell 750 million euros ($979.6 million) of convertible bonds to address approaching debt maturities.
* A group of BAE Systems plc (LON:BA) shareholders have called for the resignation of Chairman Dick Olver following the collapse of its proposed $45 billion merger with EADS NV (EPA:EADS) two weeks ago, according to a report in The Financial Times.
* Swiss agrochemicals company Syngenta AG (ADR) (NYSE:SYT) said it was confident of reaching record sales this year after third-quarter sales rose 1.3 percent, helped by strong performance in Latin America.
* Germany’s second biggest lender Commerzbank AG (ETR:CBK) (FRA:CBK) is exploring the sale of its custodian business that protects its clients’ financial assets, and is working with UBS AG (USA) (NYSE:UBS) to help find buyers.
* French car maker Peugeot SA (EPA:UG) fell 1 percent amid reports that its lending arm, Banque PSA Finance may seek state aid.
* British hotel and coffee shop operator Whitbread plc (LON:WTB) reported an 11 percent rise in first half profit to 193.4 million pounds, in line with estimates of 192.4 million pounds.
* French water and waste utility Veolia Environnement Ve SA (ADR) (NYSE:VE) (EPA:VIE) has agreed to reduce its stake in its Transdev transportation unit. State-owned bank Caisse des Depots et Consignations, which already owns a 50 percent stake, will increase its shareholding to 60 percent.
* British defense group Chemring Group plc (LON:CHG), which is in acquisition talks with U.S. private equity firm Carlyle Group LP (NASDAQ:CG), said Chief Executive Officer David Price will step down immediately.
* French tire maker Michelin SCA (EPA:ML) jumped 5 after third-quarter revenue rose 5.7 percent to 5.44 billion euros ($7.11 billion), from 5.14 billion euros a year earlier, beating the average analysts’ estimate of 5.31 billion euro euros.
* British credit scoring agency Experian plc (LON:EXPN) has agreed to buy a further 29.6 percent stake in its Brazilian affiliate Serasa S.A. for $1.5 billion in cash to take its holding to 99.6 percent.
* Korean steelmaker POSCO (ADR) (NYSE:PKX) said third quarter net profit more than tripled to 723 billion Korean won ($655 million) from 229 billion Korean won a year earlier. The world’s fourth-biggest steelmaker, however, cut its annual sales and investment outlooks, hit by a slowdown in the Chinese economy that has sapped demand for steel.
* Hong Kong-listed fashion retailer Esprit Holdings Limited (HKG:0330) is planning to raise as much as 5.2 billion Hong Kong dollars ($671 million) in a rights offer to help finance a long-planned multi-billion dollar restructuring.
* PepsiCo, Inc. (NYSE:PEP) has agreed to sell a 51 percent stake in its Vietnam beverage business to Japanese company Suntory Holdings Ltd, according to a Reuters report.
* Kansai Electric Power Co Inc (TYO:9503) tumbled 13 percent in Tokyo after the Nikkei business daily reported the electric utility won’t pay a year-end dividend for the first time since 1951.
* Cathay Fortune, the private equity group founded by Chinese billionaire Yong Yu announced an 824 million Australian dollars ($850 million) hostile takeover bid for Australia’s Discovery Metals Limited (ASX:DML).
* Taiwanese PC maker Acer Incorporated (TPE:2353) slid 3.5 percent after reporting third-quarter net income of 68 million New Taiwan Dollars ($2.3 million), well below the average analysts’ estimate of 503 million New Taiwan Dollars.
* Chinese automaker Dongfeng Motor Group Co. Ltd (HKG:0489) has announced a joint venture with Germany’s Getrag Group to develop advanced dual-clutch transmissions.
* Subaru maker Fuji Heavy Industries Ltd. (TYO:7270) hit a 20-month high in Tokyo trading after raising its first half operating profit forecast by 34 percent to 43 billion yen ($540 million).
* Oz Minerals Limited (ASX:OZL), Australia’s third-largest copper producer, closed 1.9 percent higher after saying that it is on track to meet its fiscal-year copper and gold output guidance.
* Japanese ketchup and tomato products maker Kagome Co., Ltd. (TYO:2811) plunged to a three-month low after slashing its full-year operating profit forecast to 9.4 billion yen ($118 million) from a previous forecast of 10 billion yen.
* Ten Network Holdings Limited (ASX:TEN) gained 1.7 percent after the struggling Australian broadcaster confirmed it has received a revised, lower offer for its outdoor advertising business Eye Corp from suitor Champ Private Equity.
* Air China Ltd. (HKG:0753) (SHA:601111) ended 1 percent lower after the Chinese flag carrier terminated a plan for a private share placement, citing adverse market conditions.
Economic Calendar for Tuesday, October 23, 2012:
07:45 A.M. ET: ICSC-Goldman Store Sales (Week ending Saturday, October 20, 2012)
08:55 A.M. ET: Redbook Index (YoY)
08:55 A.M. ET: Redbook Index (MoM)
10:00 A.M. ET: Richmond Fed Manufacturing Index (October)
11:30 A.M. ET: 4-Week Bill Auction
01:00 P.M. ET: 2-Yr Note Auction