What's new in U.S. markets? This brief rundown of September's pivotal market movement written by our North American research desk. It only takes five minutes to learn about the biggest movers, significant technical events, earnings preview and notable corporate news.
The S&P 500 declined 0.54% last week. The Dow was the laggard with a decline of 1.07% . The Nasdaq managed to gain 0.74%. We remain bullish on the S&P 500 with a cautious tone as the index sits at record highs inside a rising wedge pattern. Our stop-loss pivot is set at 2873 to match the previous record high set back in January. Our short term targets are set at 2971.75 and 3000. The rising wedge pattern is a warning sign of a possible market top forming. Look for a close below the 20-day simple moving average to confirm the bearish wedge pattern. A small pullback is warranted at these levels before a continuation higher beyond the record high. The RSI remains above its 50 level supported by a short-term rising trend line indicating positive momentum is still in play.
Regarding the sectors, the best performing stocks were in the Technology Hardware & Equipment (+2.14%), Retailing (+1.78%) and Media (+1.71%) sectors while the worst performing stocks were in the Automobiles & Components (-5.32%), Banks (-4.53%), Materials (-4.48%) sectors.
On a weekly chart, the index remains in an up trend after breaking above an ascending triangle bullish continuation pattern. The RSI remains bullish above its 50 level and trending higher. Our stop-loss remains at 2795 with targets of 3000 and 3080 in extension.
The number of S&P 500 stocks trading above their 50-day moving average declined to 55% from 70% last week. A level not seen since June.
The MSCI LatAm index has rebounded to the upside after breaking above its 50-day moving average. The RSI shows upside momentum indicating a possible test of August highs may be in play.
On the economic data front, initial jobless claims increased to 214k in week ended September 22nd (estimated 210k) from 202k in the previous week. MBA mortgage applications advanced by 2.9% in week ended September 21st from an improvement of 1.6% a week earlier. New home sales rose to 629k units in August (estimated 630k) compared to 608k in July. Pending home sales decreased by 1.8% MoM in August (estimated -0.5%) vs. -0.8% in July. In addition, the Bloomberg consumer comfort index improved to 61.2 in week ended September 23rd from 60.2 in the previous week. The University of Michigan sentiment index reached 100.1 in September (forecasted 100.6) vs. 96.2 a month ago. Also, the annualized GDP remained unchanged QoQ in a third estimate at 4.2%, as expected. Finally, the Federal Reserve decided to raise its federal funds rate for the third time this year to the range of 2-2.25%, as expected. The Fed shared their view that the economy is growing at a "strong" rate and may trigger "further gradual" rate increases.
Relative strength stock/S&P500 50D MA cross over: Chevron (CVX +0.61% to $123.37), McDonald's (MCD +1.9% to $166.41), Nvidia (NVDA +1.02% to $268.41), PayPal (PYPL +0.47% to $90.04), Raytheon (RTN +1.39% to $205.18).
Relative strength stock/S&P500 50D MA cross under: 3M (MMM -1.34% to $210.64), Altria (MO -0.57% to $60.71), IBM (IBM -0.75% to $148.91), Procter & Gamble (PG -1.36% to $83.12), UnitedHealth Group (UNH -1.44% to $263.51).
On the corporate front:
Tesla Motors (TSLA -11.48% WoW to $264.77) fell sharply as the SEC charged the Co's CEO, Elon Musk, with securities fraud after the latter misleaded investors by tweeting that he was considering to take the Co private adding "funding secured", reported the SEC.
Nvidia (NVDA +6.67% WoW to $281.02) gained momentum as Evercore boosted the Co's price target to $400 from $300.
Bed Bath & Beyond (BBBY -21.59% WoW to $15) reported 2Q diluted EPS of $0.36 (estimated $0.5) vs $0.37 a year ago on net sales held steady at $2.94B, lower than forecasts of $2.96B. Comparable sales declined by 0.6%, missing the estimate of 0.4% and sees full-year comparable sales to be relatively flat vs the previous year. Net income dropped by 48.4% YoY to $48.6M. Finally, the Co expects full-year EPS to reach $2 (vs $2.28 expected).
Conagra Foods (CAG -9.29% WoW to $33.97) announced 1Q adj. EPS from continuing operations of $0.47 (estimated $0.49) vs. $0.46 a year ago on net sales of $1.83B (forecasted $1.85B) from $1.8B in the previous year. Gross margin reached by 28.6%, in-line with expectations. The Co sees 2Q adj. EPS in a range of $0.57 - $0.60 (estimated $0.64) and expects FY net sales to grow between 0.5% and 1.5%.
WellCare Health Plans (WCG +5.32% WoW to $320.49) has purchased Aetna (AET -0.7% WoW to $202.85) entire "Medicare Part D prescription drug plan business", according to Bloomberg. Aetna believes this divestiture will facilitate the approval of the Department of Justice regarding CVS Health (CVS -1.09% WoW to $78.72) planned acquisition of health insurer Aetna.
Cintas (CTAS -6.56% WoW to $197.81) reported 1Q EPS from continuing operations of $1.89 vs. $1.45 a year ago on revenue up 5.4% YoY to $1.7B (forecasted $1.68B). The Co sees FY adj. EPS from continuing operations in a range of $7.19-$7.29 (expected $7.16) and expects FY revenue to reach $6.8B - $6.86B (estimated $6.81B).
Alexion Pharmaceuticals (ALXN +13.95% WoW to $139.01) has entered into a definitive agreement to acquire Syntimmune, "a clinical-stage biotechnology company developing antibody therapeutics targeting the neonatal Fc receptor (FcRn)", for a total value of up to $1.2B. The deal is expected to be finalized in 4Q2018.
Michael Kors (KORS -5.68% WoW to $68.56) has entered into a definitive agreement to acquire "Italian luxury fashion house" Gianni Versace for $2.12B (E1.83B). The transaction is expected to close in the Co's fourth quarter. Upon the closing of the acquisition, the Co will change its name to "Capri Holdings".
Comcast (CMCSA -6.57% WoW to $35.41) has won the bid for Sky Plc at £17.28 ($22.58) per share, the equivalent of nearly £30.6B ($40B). The Co said it hoped to complete the takeover by the end of October. In other news, the Co was cut to "market perform" from "outperform" at Oppenheimer.
U.S. Earnings Preview for next week
On Tuesday, PepsiCo is anticipated to unveil 1Q EPS of $0.655 vs. $0.62 last year on higher revenue of $850.4M from $816.8M in the previous year. The Co agreed to acquire SodaStream International, the "fizzy-drinks dispenser", for $144 a share in cash for a total of $3.2B. From a chartist point of view, the RSI is below 50 while the MACD is above its signal line and positive. The break above the 50 area on the RSI should trigger further gains. Moreover, the stock is trading under both its 20 and 50 day MA (respectively at 113.3 and 113.86). We are looking to reach a lower target of $107.7 with a stop-loss set at $116.8.
On same day, Lennar is awaited to post 3Q EPS of $1.19 vs. $1.04 last year on increased revenue of $5.6B compared to $3.3B in the prior year. The Co's long-term issuer default rating was upgraded to "BBB-" from "BB+" by Fitch. Looking at the chart, 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 share stands below its 20 and 50 day MA (respectively at 51.4 and 52). Finally, Lennar is trading below its lower daily Bollinger band (standing at 49.16). Lennar is currently trading near its 52 week low at 48.71 reached on 25/06/18. We expect the stock to hit our target of $45.1 with a stop-loss set at $50.9.
On Thursday, Constellation Brands is likely to report 2Q EPS of $2.6 vs. $2.47 a year ago on higher revenue of $2.3B from $2.1B a year earlier. In other news, Canadian marijuana producer Canopy Growth (CGC) approved the investment from the Co of $4B ahead of legalization in Canada due for October 17th. From a technical point of view, the RSI is above its neutrality area at 50 while the MACD is above its signal line and positive. The configuration is positive. Moreover, the stock is trading above both its 20 and 50 day MA (respectively at 213.22 and 211.76). We believe prices can reach higher levels towards $234.3.
On same day, Costco Wholesale is expected to announce 4Q EPS of $2.36 vs. $2.08 a year ago on revenue of $44.4B from $42.3B in the previous year. Recently, the Co was cut to "equal-weight" from "overweight" at Barclays. Technically speaking, the RSI is above its neutrality area at 50 while the MACD is positive and below its signal line. The stock could retrace in the short term. Moreover, the stock is below its 20 day MA (235.51) but above its 50 day MA (226.84). Costco Wholesale is currently trading near its 52 week high reached at 245.16 on 11/09/18. We are looking to reach a higher target of $247.2 with a stop-loss of $229.1.