What's new in the U.S. Equity Market? This brief rundown of October's pivotal market movement written by our North American research desk. Learn about the biggest movers, significant technical events, earnings preview and notable corporate news.
On a daily chart, The S&P 500 remains bearish after confirming a rising wedge reversal pattern. The RSI remains in oversold territory below its 30 level and helps maintain our bearish bias. A hammer candlestick has been confirmed on the 200-day moving average which is a possible reversal signal which we will keep an eye on. Our stop-loss remains at 2792 to correspond with the resistance levels back in Feb, March and June. Our targets to the downside are 2700 (June lows) and 2630 in extension. The 2700 level is a key support test as it completes the measure move of the rising wedge pattern.
On a weekly chart, the SPX broke below a rising trend line and pierced below the 50-week moving average which is also the 50% fib retracement level from the Feb low to Sept record highs. 2873 is our stop loss which corresponds to January highs and the break of the recent rising supporting trend line. Look for a test of Feb lows at 2530 long-term.
The VIX remains elevated above 18.9 with targets of this months high at 29. A break below 18.9 would calm market fears as the SPX would most likely turn bullish.
Regarding the sectors, the worst performing stocks were in the Capital Goods (-6.92%), Materials (-6.59%) and Automobiles & Components (-6.47%) sectors. From a technical point of view, all 24 sectors in the S&P 500 have turned bearish
50D MA cross over: Apple (AAPL +3.57% to $222.11), ConocoPhillips (COP +1.43% to $73.83), Merck & Co (MRK +2.11% to $69.81).
50D MA cross under: Altria (MO -1.73% to $60.06), General Electric (GE -3.14% to $12.32).
Relative strength stock/S&P500 50D MA cross over: Mastercard (MA +4.99% to $204.22), UPS (UPS +1.65% to $115.64), Visa (V +4.73% to $140.06).
On the economic data front, CPI improved by 0.1% MoM in September (estimated 0.2%) from 0.2% in the prior month. In other news, initial jobless claims increased to 214k in week ended October 6th (forecasted 207k) from 207k in the previous week. MBA mortgage applications declined by 1.7% in week ended October 5th vs. a flat growth in the prior week. In addition, the University of Michigan sentiment index reached a preliminary estimate of 99 in October (estimated 100.5) from 100.1 in September. Finally, the Bloomberg consumer comfort index diminished to 59.5 in week ended October 7th vs. 61.6 in the prior week.
On the corporate front
Square (SQ -21.4% WoW to $73.97) announced that Sarah Friar would step down as CFO in December and be replaced by David Viniar. Sarah Friar will join Nexdoor, the private social network for neighborhoods, as CEO.
Delta Air Lines (DAL -1.23% WoW to $52.05) unveiled 3Q EPS of $1.8 (estimated $1.74) vs. $1.54 a year ago on operating revenue up 8% YoY to $11.95B. Net income improved by 13.2% YoY to $1.31B while the PRASM (Passenger Revenue per Available Seat Mile) advanced by 4.2% YoY. The Co sees 4Q system capacity to increase about 4% YoY and expects 4Q EPS in a range of $1.1 - $1.3 (forecasted $1.25) with revenue growing about 8% YoY (expected 5%).
CVS Health (CVS -5.2% WoW to $74.58) traded lower as Aetna (AET -1.33% WoW to $201.01) CFO, Shawn Guertin, decided to leave for personal reasons. He was supposed to become the CFO of the combined company after the merger but will now be replaced by Eva Boratto, the current Controller an Chief Accounting Officer of CVS Health.
L Brands (LB +10.26% WoW to $31.38) announced results for September (five weeks ended October 6th, 2018) with net sales increasing by 8% YoY to $1.058B while comparable sales expanded by 5% (forecasted 0.9%). The Co also announced that its is "pursuing all alternatives for its La Senza business".
Fastenal (FAST -7.82% WoW to $52.07) reported 3Q diluted EPS of $0.69 (estimated $0.67) vs. $0.50 last year on net sales up 13% YoY to $1.28B (expected $1.27B). Gross profit margin declined to 48.1% (forecasted 48.6%) vs. 49.1% a year earlier. Net earnings jumped 38% YoY to $197.6M.
Luxury stocks like Tiffany & Co (TIF -7.51% WoW to $112.84), Tapestry (TPR -8.63% WoW to $43.82) and Estee Lauder (EL -8.67% WoW to $126.32) fell as China is reportedly enforcing "customs rules more strongly on non-declared imports", according to Bloomberg. Tiffany & Co broke below its 200-day moving average, Tapestry its 100-day moving average and Estee Lauder its 50-day moving average.
PPG Industries (PPG -11.97% WoW to $95.09) unveiled its expectations for its 3Q results with adj. EPS from continuing operations anticipated to range between $1.41 and $1.45 with net sales reaching appx. $3.8B. The CEO, Michael McGarry, reported an increase in "raw material and elevating logistics cost" with a softer "overall demand in China. In addition, the impact "from weakening foreign currencies" results in a YoY decrease in income of appx. $15M.
General Electric (GE -6.53% WoW to $12.32) traded higher as it has entered in a definitive agreement with Apollo Global Management under which Apollo will acquire an equity portfolio from GE Capital worth appx. $1B with appx. 20 equity investments in energy assets. In other news, the Co was upgraded to "overweight" from "equal-weight" at Barclays.
PNC Financial Services (PNC -10.29% WoW to $124.26) unveiled 3Q diluted EPS of $2.82 (estimated $2.72) vs. $2.16 a year ago net income jumping 24.3% YoY to $1.4B. Provision for credit losses decreased to $88M, lower than estimates of $116.8M, from $130M in the previous year. ROE improved to 12.32% vs. 9.89% in 3Q17.
U.S. Earnings Preview for next week
On Tuesday after the market close, Netflix is expected to report 3Q EPS of $0.68 vs. $0.29 a year ago on revenue increasing to $4B from $3B a year earlier. In other news, the Co was raised to "buy" from "neutral" at Citi. Looking at the chart, the RSI is below 50 while the MACD is negative and below its signal line. The configuration is negative. Moreover, the stock is trading under both its 20 and 50 day MA (respectively at 362.51 and 354.36). Finally, NetFlix is trading below its lower daily Bollinger band (standing at 329.43). Our next target is set lower at $281 with a stop-loss at $351.
On Wednesday, Abbott Laboratories is likely to announce 3Q EPS of $0.744 vs. $0.66 last year on revenue of $7.7B compared to $6.8B in the prior year. The Co declared a quarterly common dividend of $0.28 per share payable on November 15th to shareholders of record at the close on October 15th. From a technical point of view, the RSI is below 50 while the MACD is positive and below its signal line. The MACD must penetrate its zero line to expect further downside. Moreover, the stock is below its 20 day MA (70.86) but above its 50 day MA (67.63). We believe the stock will reach a lower level of $65.3 with a stop-loss set at $72.8.
On Thursday, American Express is awaited to post 3Q EPS of $1.76 vs. $1.5 a year ago on higher revenue of $10.1B from $8.4B in the previous year. In other news, the Co appointed Mohammed Badi to lead the new position of Chief Strategy Officer, effective October 29th. Mr. Badi currently works as a senior partner at The Boston Consulting Group. From a chartist point of view, the RSI is below its neutrality area at 50 while the MACD is negative and below its signal line. The configuration is negative. Moreover, the stock is trading under both its 20 and 50 day MA (respectively at 108.41 and 105.92). Finally, American Express is trading below its lower daily Bollinger band (standing at 104.89). We are looking for prices to keep trading lower towards our target of $99.8 with a stop-loss set at $108.7.
On same day, PayPal is anticipated to unveil 3Q EPS of $0.541 vs. $0.46 last year on revenue increasing to $3.7B vs. $3.2B a year ago. In other news, the Co was initiated at "buy" at BMO Capital Markets. Technically speaking, the RSI is below 30. It could either mean that the stock is in a lasting downtrend or just oversold and therefore bound to retrace (look for bullish divergence in this case). The MACD is negative and below its signal line, therefore, the configuration is negative. Moreover, the stock is trading under both its 20 and 50 day MA (respectively at 88.61 and 87.97). Finally, PayPal has penetrated its lower daily Bollinger band (82.71). We expect to reach a lower target of $73.3 with a stop-loss set at $85.4.