Today’s Big Picture

The major equity indices in Asia closed mostly in the green today. Trading in Hong Kong was suspended due to Typhoon Nangka – because it is still 2020. China’s Shenzhen Component rose 0.7%, Japan’s Nikkei closed up 0.2%, South Korea’s Kospi closed slightly below flat, and Australia’s S&P/ASX 200 rose 1.0%. By midday trading, European equities were mostly in the red, and U.S. equity futures point to a mixed session at the open.

Investors have a full plate ahead of them today that includes a helping of corporate earnings as the September quarter earnings season gets underway and the two high profile events that are Apple’s (AAPL) “Hi, Speed” event and Amazon’s (AMZN) 2020 Prime Day event. The accompanying side dishes for this full course will be the Supreme Court confirmation hearing for Amy Coney Barrett, potential new pandemic restrictions, and fiscal stimulus conversations in Washington.

Data Download

Coronavirus

The big news today concerning the pandemic came from Johnson & Johnson (JNJ), which announced that it has paused all trials of its experimental Covid-19 vaccine after one participant developed an “adverse reaction,” the details of which have not yet been released. Serious adverse events are not unusual during clinical trials, and this participant’s reaction is being reviewed by an independent safety monitoring board in conjunction with the company’s own doctors. Last month JNJ became the first leading drug company to test a single-dose Covid-19 vaccine, launching a phase 3 trials that it to include up to 60,000 participants across three continents. This vaccine uses an adenovirus vector, as does AstraZeneca’s (AZN), the trials for which were stopped briefly last month after a participant developed unexplained neurological symptoms and have resume everywhere except in the U.S.

Adding to the “Argh” of the day (technical term), an 89-year old Dutch woman has become the first known person to have died from a coronavirus reinfection. The woman was initially admitted to the hospital with a fever, severe cough, and low white blood cells and tested positive for SARS-CoV-2. She was discharged after five days having no symptoms outside of general fatigue. Nearly two months after, she developed a fever, cough, and shortness of breath, and died two weeks later. 

This supports a recent report of a 25-year old man in Nevada who initially tested positive for SARS-CoV-2 with only moderate symptoms, recovered, then became much more seriously ill following a second Covid-19 infection two and a half months later, requiring oxygen therapy. For the Nevada man, the differences between the two genetic fingerprints of the coronavirus in his system were more than could be explained by a prolonged illness, which indicates a second infection from a different strain of SARS-CoV2. While still fairly unique situations, these events call into question the efficacy of herd immunity and even a vaccine.

On a much more positive note, yesterday the U.S. reported its smallest increase in deaths from Covid-19 in two weeks. More concerning is that yesterday the number of hospitalizations for Covid-19 in the U.S. rose to the highest level since September 2.

International Economy

The Zew poll of German investors found their sentiment has fallen to its lowest level in five months as pandemic restrictions are tightening, but after falling 21.3 points to 56.1, it remains well above the deeply negative levels as the pandemic began in March. Inflation in September in the country sat at -0.2% YoY, as expected.

Sales of electric vehicles in China rose 60% in September YoY while sales of passenger cars rose 8% YoY, according to the China Association of Automobile Manufacturers. Overall auto sales rose 13% YoY, driven by a 40% YoY increase in sales of trucks, buses, and commercial vehicles. Imports in China rose at their fastest pace for 2020 in September, up 13.2% YoY in US dollar terms. Exports rose 9.9% YoY.

India’s Industrial Output declined 8% YoY in August but is an improvement over the 10.4% contraction in July. In the first five months of the current financial year, industrial output in the nation was 25% below year-ago levels. Inflation rose to an 8-month high of 7.3% in September. 

Japan’s Tankan Index, a monthly survey of a panel of 200 leading Japanese manufacturers and 200 Japanese non-manufacturers, rose to -26 in October from -29 in September, its fourth consecutive monthly improvement.

Domestic Economy

This morning the NFIB Business Optimism Index rose to 104 from 100.2 in August, handily beating expectations for an increase to 100.9. Nine of the index’s ten sub-components improved on the month, the strongest of which was the 13 point improvement in business owners’ assessment of earnings trends.

Once investors digest this morning’s corporate earnings reports, they’ll have several pieces of economic data to dig through including the Consumer Price Index which is expected to rise to 1.4% YoY from 1.3% in August, and the Treasury Budget. In terms of October data, the IBD/TIPP Economic Optimism Index will be published at 10 AM ET

Markets

Despite the bond markets being closed yesterday, or maybe because they were, the domestic stock market went on a bull rampage. The Nasdaq 100 rose over 3%, its best one-day performance since April. Within the S&P 500 the Tech and Communication Services sectors both rose over 3% with consumer Discretionary gained more than 2%. The S&P 500 rose 1.6% and the Nasdaq Composite gained 2.5%. The Nasdaq and the S&P 500 are now just 1.5% and 1.3% below their September record highs. WTI crude dropped below $40 a barrel again and gold rose slightly to $1,928 an ounce. 

Stocks to Watch

At its “Hi, Speed” event that will start at 1 PM ET today, Apple is expected to unveil its latest array of iPhones. Given Apple’s position in the smartphone market – 14% market share in the first half of 2020 with 77.5 million units shipped but roughly two-thirds of smartphone market profits according to Counterpoint Research – the launch of its 5G iPhone is arguably the start of the 5G smartphone upgrade cycle. 

Amazon’s 2020 Prime Day event that spans today and tomorrow began this morning, and estimates from JPMorgan and others putting the company’s revenue from the event between $7.0-$7.5 billion, up from $5.3 billion in 2019. We’d note the timing of this year’s Prime Day event serves to jumpstart the consumer spending push that typically begins with Halloween and lasts through the New Year’s holiday. 

BlackRock (BLK) reported better than expected September quarter non-GAAP EPS as revenue for the quarter rose 18.4% YoY topping the consensus forecast. During the quarter, the company’s total net inflows totaled $129 billion, which represented a 9% annualized organic base fee growth.

Johnson & Johnson reported September quarter EPS of $2.20, $0.22 better than the consensus. Revenue for the quarter rose 1.7% YoY to $21.08 billion, a touch better than the $20.15 billion consensus. The company now sees 2020 EPS of $7.95-8.05 vs. the $7.89 consensus, and its prior guidance of $7.75-$7.95.

JPMorgan Chase (JPM) also reported better than expected September quarter results with EPS of $2.92 vs. the $2.24 consensus. Year over year, revenue for the quarter was largely unchanged at $29.9 billion vs. the $28.2 billion consensus. Of note, the company’s provision for credit losses was $611 million, down $903 million from the prior year while net charge-offs of $1.2 billion were down $191 million YoY; average loans were up 1%, average deposits rose 30%, and credit card sales volume was down 8%.

New Oriental Education & Technology (EDU) reported August quarter earnings of $1.15 per share, $0.10 better than the consensus as revenues topped expectations despite falling 8.0% YoY. The company issued upside guidance for the current quarter, with revenue in the range of $863.7-887.3 million vs. the $850.2 million consensus.

Ethan Allen (ETH) now sees adjusted EPS for its 1Q 21 quarter of $0.34-$0.36 vs. the ($0.03) consensus with revenue of ~$151.1 million vs. the $137.5 consensus. The company’s retail segment written orders continued to accelerate with growth of 10.8% over the prior year, which offset the 0.4% decline at for Wholesale segment orders.

According to Redfin Corp. (RDFN), U.S. luxury home sales increased 41.5% YoY in 3Q 2020, while medium-prices home sales rose 3% YoY and sales of affordable homes are down 4.2%.

Walt Disney (DIS) announced a strategic reorganization of its media and entertainment businesses that will focus on developing and producing original content for the company’s streaming services, as well as for legacy platforms. Under the new structure, the company’s three content groups will be responsible and accountable for producing and delivering content for theatrical, linear, and streaming, with the primary focus being the company’s streaming services. While the new structure is effective immediately, Disney expects to transition to financial reporting under this structure in the first quarter of FY21. We suspect far more details on this shift and what it means going forward will be shared on December 10 when Disney holds a virtual Investor Day.

According to the International Energy Agency’s annual World Energy Outlook report, renewables will take “starring roles” and solar will take “center stage” due to supportive government policies and declining costs. This likely bodes well for shares of companies like First Solar (FSLR), Next Era Energy (NEP), and JinkoSolar (JNKO).

Bloomberg reports Exelon Corp. is considering a breakup that would involve separating its non-utility assets

After today’s market close, there are no expected earnings reports to be had. Investors that wish to get ready for the sea of earnings reports to be had in the coming days should visit Nasdaq’s earnings calendar page

On the Horizon

    • October 14: MBA Mortgage Applications, PPI
    • October 15: Initial Jobless Claims, Bloomberg Comfort, Empire Manufacturing, Import/Export Prices, Philly Fed Outlook
    • October 16: Options Expiration Day, Retail Sales, Industrial Production, Business Inventories, University of Michigan Consumer Sentiment, TIC Flows
    • October 19: Home Builder Sentiment
    • October 20: Building Permits and Housing Starts
    • October 21: MBA Mortgage Applications, Fed Beige Book
    • October 22: Initial Jobless Claims, Bloomberg Comfort, Leading Index, Existing Home Sales, Kansas City Manufacturing
    • October 23: Preliminary Markit PMIs
    • October 26: Chicago Fed Activity, New Homes Sales, Dallas Fed Manufacturing Activity
    • October 27: Durable/Capital Goods, FHFA Home Prices, Case-Shiller Home Prices, Consumer Confidence, Richmond Fed Manufacturing
    • October 28: MBA Mortgage Applications, Wholesale Inventories, Retail Inventories
    • October 28: Facebook (FB), Google (GOOGL), and Twitter (TWTR) testify before the Senate Commerce Committee
    • October 29: Initial Jobless Claims, Bloomberg Comfort, GDP, Personal Consumption, Pending Home Sales
    • October 30: Personal Income, Personal Spending, PCE Deflator, Employment Cost, MNI Chicago PMI, University of Michigan
    • October 31: Boo

Thought for the Day

“People are the best show in the world. And you don’t even pay for the ticket.” ~Charles Bukowski

Disclosures

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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