May 19th 2021: Market Overview; Pre Opening Bell #30

Everything you need to know to get your day started on the market

Equity Markets

US Equity Market

• S&P 500 fell 0.9% on Tuesday, as sellers first reined in the value/cyclical stocks then targeted the technology stocks late in the day.

• Nasdaq Composite declined 0.6%, Dow Jones Industrial Average declined 0.8% and the Russell 2000 declined 0.7%.

• Volumes c.27% below the YTD average it seems markets are struggling to find conviction as evidenced by mixed messages with retail favourites +170bp despite crypto weakness and ARKK +143bp despite

• Cyclical energy (-2.6%), industrials (-1.5%), financials (-1.4%), and materials (-1.1%) sectors were among the bug underperformers. Investors positioned defensively toward the health care (+0.1%) and real estate (+0.2%) sectors, which were the only sectors that closed higher

• The cyclical stocks were arguably vulnerable to profit-taking. Information technology sector (-0.8%), which gave up an early leadership position and turned negative late in the day. 

• The "peak growth" narrative was a main talking point in the morning after April housing starts fell 9.5% m/m to a seasonally adjusted annual rate of 1.569 million units (vs consensus 1.715 million). 

• Home Depot (HD) -1.0% and Macy's (M) -0.4% were unable to key off their earnings reports, which featured impressive y/y revenue growth

• Walmart (WMT) +2.2% a fared better following a strong earnings report and upbeat guidance.

• Buy the dip investors efforts were fleeting, therefore keeping a lid on risk sentiment and keeping the S&P 500 within a consolidation trend. 

• S&P futures -33, or -0.8%, vs prior close

(Source: FinViz)

European Equity Markets lower

• European equity markets  broadly lower, which follows  a weak Asian equities session

• Inflation expectations, supply chain pressures and labour shortages continue to dominate headlines, fuelling concerns about a taper tantrum and putting more focus on stretched market valuations.

• Markets looking for any commentary around taper timing from Fed in tonight's April meeting minutes, but some note calculus has changed given recent weaker data.

• Outperformers:

  • Telecom (0.37%), Utilities (0.59%), Real Estate(0.66%), Banks (0.68%), Food & Beverage (0.71%), Retail (0.74%), Financial Svcs (0.82%), Insurance (0.92%), Persnl & HHold Goods (1.00%), Health Care (0.98%), Autos & Parts (1.03%), Construct & Mtls (0.98%)

• Underperformers:

  • Basic Resources (2.23%), Technology (1.88%), Travel & Leisure (1.70%), Oil & Gas (1.57%), Media (1.43%), Ind Goods & Svcs (1.18%), Chemicals (1.09%)

Asia Equity Markets lower

• Asian equities mostly lower Wednesday.

• Japan finished down although off lows of the day,

• Australia down sharply as commodity prices take a breather, ended at six-week lows.

• Mainland China shares mixed, tech outperforming but main board lower

• Taiwan flat following yesterday's gains.

• South Korea and Hong Kong closed for holiday. 

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News Stories Moving the Markets

• WarnerMedia, Discovery new entity starting to market series of loans worth $41.5B to help fund deal - Bloomberg

  • The article reports that the facilities include a $31.5B 364-day bridge loan, which is expected to be refinanced with longer-term bonds prior to maturity, and a $10B term loan in two tranches

  •  The  new company has split the term loan into a $3B 18-month tranche and a $7B three-year portion, while it is also syndicating a $6B five-year revolving credit facility

  • According to the sources, pricing on the bridge loan consists of a 17.5 basis point ticking fee, a fee of 137.5 bps over the London interbank offered rate if drawn, and a duration fee of 50, 75, and then 100 bps every 90 days the loan is outstanding

  • In addition, the 18-month term loan has an upfront fee of 5.25 bps and a drawn margin of 125 bps over Libor, the three-year tranche has an upfront fee of 10.5 bps and a drawn margin of 137.5 bps over Libor, while the revolver has a 17.5 basis point commitment fee and a 137.5 bps over Libor drawn margin

  • The article notes that the debt will replace the $41.5B in financing commitments already received from Goldman Sachs and JPMorgan Chase, with the loans being marketed to other banks that will join the transaction

• Netflix looking to expand its podcasts - Android Authority (2020)

  • People familiar with the plans tell the LA Times that Netflix is taking pitches from outside producers for new show ideas; the article notes that Netflix currently offers some 30 podcasts that are mainly aimed at promoting its TV shows and movies.

  •  An agent representing numerous podcast producers tells the LA Times that more companies buying original audio content is a good thing.

  • Citing an online posting, the LA Times reports that the company has been advertising for an executive to lead "the vision and implementation for Netflix's growth in the podcast space" since at least March.

  • The article notes that Netflix has been reported to be looking at new technology that would allow it to deliver audio content and offer "N-Plus," an online space for podcasts.

    Noom receives funding from Silver Lake ahead of planned IPO - Bloomberg

  • The article reports that the company reached a value of about $4B in the funding round, which also included other investors

  • the sources add that the company has met with potential advisers to discuss an IPO that could happen this year or early next year, and note that the company is aiming to be valued at around $10B when it goes public depending on market conditions

  • The article notes that Noom is backed by investors including Sequoia Capital, Kleiner Perkins, RRE Ventures, Qualcomm Ventures, WhatsApp co-founder Jan Koum and Serena Williams

    JPMorgan board has asked Jamie Dimon to remain CEO for "significant number" of years - Wall Street Journal

  • People familiar with the matter tell the WSJ that the "significant number" is thought to be five to seven years.

  •  The information appears in an article discussing the appointments of Marianne Lake and Jennifer Piepszak as co-heads of CCB; the article describes the women as potential successors to Dimon, but colleagues tell the WSJ that the Lake and Piepszak are friends who dismiss talk of a race to fill Dimon's position.

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Earnings Calendar

Overnight

Walmart Q1 Earnings

• Total Comp +6.2% vs Consensus +1.4%

  • Walmart US ex-fuel +6.0% vs CONS +0.9%

    • Transaction (3.2%)

    • Ticket +9.5%

    • E-commerce benefit x bps 360

  • Sam's Club ex-fuel +7.2% vs CONS +1.2%

    • Transaction +2.2%

    • Ticket +4.9%

    • E-commerce benefit x bps 310

• Revenue $138.30B vs Consensus $132.10B

  • Walmart US $93.17B vs CONS $89.67B

  • International $27.30B vs CONS $25.54B

  • Sam's Club $16.69B vs CONS $15.38B

  • Membership income $1.15B vs CONS $968.6M

• U.S. eCommerce sales +37%

• Segment Income

  • Walmart US $5.46B vs CONS $4.45B

  • International $1.19B vs CONS $651.2M

  • Sam's Club $575M vs CONS $504.8M

• Gross margin (on net sales) 24.7% vs CONS 24.2% and year-ago 23.7%

• SG&A (on total revenue) 20.3% vs CONS 20.7% and year-ago 20.3%

• Adjusted operating margin (on total revenue) 5.0% vs CONS 3.9%

• EPS $1.69 ex-items vs Consensus $1.21

• Merchandise inventories $46.38B, +12.5% y/y - note sales growth was +2.7% y/y in the quarter

• Guides Q2:

  • Comps: Walmart U.S., up low single-digits, excluding fuel

  • Consolidated operating income decline low-to-mid single-digits vs prior guidance decline mid-to-high single-digits

  • EPS decline low single-digits vs prior guidance decline mid-to-high single-digits

• Additional FY Guidance (Jan 2022):

• Comp sales growth:

  • Walmart U.S., up low single-digits, ex. fuel (unchanged)

  • Sam's Club, up low single-digits, ex. fuel and tobacco (unchanged)

  • Consolidated operating income increase mid single-digits in constant currency vs prior guidance decline slightly in constant currency

This morning

• No notable earnings this morning

Today

• Before Market Open

  • FUTU

  • Lowes

• After Market Close

  • Cisco

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Notable After-Hours Market Movements

Positive Movements

• 3.3% TTWO (Take-Two Interactive) - earnings

Negative Movements

• -8.8% IOVA (Iovance Biotherapeutics) - lifleucel update

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Notable Analyst Upgrades/Downgrades

Initiations

• No notable initiation reports

Upgrades

• CRM (Salesforce) – upgraded to overweight from equal-weight at Morgan Stanley

Downgrades

• WFC (Wells Fargo) – downgraded to neutral from buy at UBS

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Economic News

US

• Bullish sentiment decreases to 54.5% from 58.6% in the latest US Investor's Intelligence poll

  • Bearish sentiment is unchanged at 17.2%

  • Those expecting a market correction increases to 28.3% from 2

Europe

• Eurozone Apr CPI +1.6% y/y vs preliminary +1.6%

• UK April

  • CPI y/y +1.5% vs consensus +1.4% and prior +0.7%

  • Output PPI y/y +3.9% vs consensus +3.5% and prior revised to +2.3% from +1.9%

Asia

Japan

• March final industrial production +1.7% m/m vs preliminary +2.2% and  (1.3%) in prior month

  • Operating ratio +5.6% m/m vs (2.8%) in prior month

  • Production capacity (1.2%) y/y vs (1.2%) in prior month

Australia

• May Westpac-MI consumer sentiment 113.1 vs 118.1 in April

• Q1 wage price index +0.6% q/q vs consensus +0.5% and +0.6% in Q4

  • Wage price index +1.5% y/y vs consensus +1.4% and +1.4% in Q4

New Zealand

• Q1 PPI input +2.1% versus (0.1%) in prior quarter

• Q1 PPI output +1.2% versus +0.5% in prior quarter

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Capital Markets

(Source: Factset)

(Source: Factset)

(Source: Koyfin)

Crypto:

(Source: CoinMarketCap)