Market Overview

Markets Mixed, NASDAQ Lower As Yellen Suggests Valuations Are Stretched

Related ALB
UPDATE: Deutsche Bank Reiterates On Albemarle On Fair Valuation
Earnings Scheduled For July 30, 2014

U.S. stocks were mixed with the NASDAQ index declining after the Fed's Chief Janet Yellen suggested that some sectors are characterized by "stretched" valuations.

In prepared remarks to the Senate Banking Committee, Yellen also claimed that interest rates could rise sooner and at a faster pace if the labor market continues to show strength.

"The Committee recognizes that low interest rates may provide incentives for some investors to 'reach for yield,' and those actions could increase vulnerabilities in the financial system to adverse events,” Yellen added. “While prices of real estate, equities, and corporate bonds have risen appreciably and valuation metrics have increased, they remain generally in line with historical norms. In some sectors, such as lower-rated corporate debt, valuations appear stretched and issuance has been brisk. Accordingly, we are closely monitoring developments in the leveraged loan market and are working to enhance the effectiveness of our supervisory guidance.”

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  • The Dow gained 0.03 percent, closing at 17,060.68.
  • The S&P 500 lost 0.19 percent, closing at 1,973.28.
  • The NASDAQ lost 0.54 percent, closing at 4,416.39.
  • Gold lost 0.83 percent, trading at $1,295.80 an ounce.
  • Oil lost 1.16 percent, trading at $99.74 a barrel.
  • Silver lost 0.64 percent, trading at $20.78 an ounce.

News Of Note

ICSC Retail Store Sales rose 0.1 percent week over week after rising 1.7 percent last week.

June Import Prices rose 0.1 percent month over month, below estimates of a 0.4 percent rise.

June Export Prices declined 0.4 percent month over month, below estimates of a 0.2 percent rise.

June Retail Sales rose 0.2 percent to $439.9 billion, below estimates of a 0.6 percent gain.

July Empire State Survey rose to 25.6 from 19.28 in May, topping expectations of 17.80.

Redbook Chain Store Sales rose 4.1 percent year over year after rising 6.0 percent last week.

Analyst Upgrades And Downgrades Of Note

Analysts at Barclays maintained an Overweight rating on Buffalo Wild Wings (NASDAQ: BWLD) with a price target raised to $190 from a previous $184. Shares lost 1.20 percent, closing at $154.63.

Analysts at Deutsche Bank maintained a Hold rating on CSX (NYSE: CSX) with a price target raised to $31 from a previous $27. Shares hit new 52-week highs of $31.22 before closing the day at $31.15, up 0.39 percent.

Analysts at Barclays maintained an Equal-weight rating on DirecTV (NYSE: DTV) with a price target raised to $95 from a previous $73. Shares gained 0.34 percent, closing at $86.49.

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Analysts at JMP Securities initiated coverage of GoPro (NASDAQ: GPRO) with a Market Outperform rating and $60 price target. Shares gained 13.0 percent, closing at $41.63.

Analysts at Barclays maintained an Equal-weight rating on Intel (NASDAQ: INTC) with a price target raised to $28 from a previous $26. Shares hit new 52-week highs of $31.80 before closing the day at $31.71, up 0.70 percent.

Analysts at Goldman Sachs downgraded Kellogg Company (NYSE: K) to Sell from Neutral with a price target lowered to $59 from a previous $64. Shares lost 0.97 percent, closing at $65.56.

Analysts at Maxim Group downgraded Michael Kors Holdings (NYSE: KORS) to Hold from Buy with a price target lowered to $85 from a previous $109. Meanwhile, analysts at Barclays maintained an Underweight rating on Kors with a price target lowered to $82 from a previous $85 while analysts at Citigroup maintained a Neutral rating on Kors with a price target lowered to $98 from a previous $107. Shares lost 7.27 percent, closing at $79.44.

Analysts at JPMorgan maintained an Overweight rating on SolarCity (NASDAQ: SCTY) with a price target raised to $77 from a previous $72. Shares lost 2.20 percent, closing at $65.37.

Analysts at Macquarie upgraded Twitter (NYSE: TWTR) to Neutral from Underperform. Shares lost 1.12 percent, closing at $37.88.

Analysts at FBR Capital initiated coverage of Yahoo! (NASDAQ: YHOO) with a Market Perform rating and a $37 price target. Shares lost 0.25 percent, closing at $35.61.

Equities-Specific News Of Note

America Movil (NYSE: AMX) plans to raise its ownership stake of Telekom Austria to 50.8 percent from 27 percent for $1 billion. Shares hit new 52-week highs of $23.85 before closing the day at $23.64, up 2.12 percent.

Novartis (NYSE: NVS) unit Alcon received the rights to license Google's (NASDAQ: GOOG) smart lens technology for ocular medical uses and create a "smart contact lens." Shares of Novartis lost 0.12 percent, closing at $90.14 while shares of Google lost 0.02 percent, closing at $584.78.

Lions Gate Entertainment (NYSE: LGF) plans to partner with Alibaba to launch a new streaming service in China that will be available through a set-top box. Shares of Lions Gate gained 3.27 percent, closing at $29.67.

Hewlett-Packard's (NYSE: HPQ) chairman Ralph Whitworth has resigned from the board of directors because of health reasons. Shares finished the day unchanged at $34.15.

Anadarko Petroleum (NYSE: APC) said that its oil and natural gas revenues totaled $675 million in 2013 and is trending higher in 2014. The company also established a new unsecured five-year credit facility and an issuance of senior notes. Shares gained 3.59 percent, closing at $109.72.

eBay's (NASDAQ: EBAY) Head of Advertising and Shopping.com Gautam Thaker said that he plans to leave the company to become the CEO of LivingSocial. Shares of eBay lost 0.68 percent, closing at $50.81.

Sprint (NYSE: S) and T-Mobile U.S. (NYSE: TMUS) will form a joint venture to raise $10 billion to spend on 2015's low-frequency spectrum auction. Shares of Sprint lost 3.91 percent, closing at $8.11, while shares of T-Mobile lost 2.79 percent, closing at $32.10.

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Royal Dutch Shell (NYSE: RDS.A) announced a discovery in the Gulf of Mexico with an expected resource base to contain 100 million barrels of energy. Shares lost 0.27 percent, closing at $82.00.

Darden Restaurants (NYSE: DRI) increased the size of its debt buyback to $610 million because of strong interest. Shares lost 0.65 percent, closing at $44.08.

Rackspace Hosting (NYSE: RAX) plans to offer two services tiers. The first would be a basic managed infrastructure tier that provides standard laaS services. The second would be a managed operations tier that includes a dedicated account manager, 24-hours-a-day, seven-days-a-week monitoring and response, and management of common operating systems and application stacks. Shares lost 1.43 percent, closing at $31.69.

Microsoft (NASDAQ: MSFT) plans to begin a new round of job cuts as the company wants to scale back and streamline its acquisition of Nokia's handset unit. Separately, Microsoft and Cisco (NASDAQ: CSCO) agreed to a three-year agreement that includes tech integration and sales and marketing partnerships. Shares of Microsoft hit new 52-week highs of $42.47 before closing the day at $42.45, up 0.74 percent. Shares of Cisco gained 0.90 percent, closing at $25.67.

Winners Of Note

Albemarle (NYSE: ALB) has agreed to acquire Rockwood Holdings (NYSE: ROC) for $6.2 billion, or $85.53 per share. The acquisition represents a roughly 13 percent premium to Rockwood Holdings' closing price. The newly formed company will combine two of the world's largest specialty chemical companies. According to Albemarle's CEO Luther Kissam the acquisition will result in a “broader customer reach, increased diversity across end markets, technologies and geographies, and more consistent and predictable earnings growth.” Shares of Albemarle hit new 52-week highs of $76.28 before turning negative and closing the day at $70.03, down 3.57 percent. However, shares of Rockwood Holdings hit new 52-week highs of $86.18 before closing the day at $83.14, up 9.83 percent.

Decliners Of Note

Reynolds American (NYSE: RAI) announced it will acquire Lorillard (NYSE: LO) for $50.50 in cash and 0.2909 a share of Reynolds, implying a total price tag of $68.88 per share, or $27.4 billion. As part of the deal, British American Tobacco (NYSE: BTI) will maintain its 42 percent stake of Reynolds. Reynolds and British American tobacco also came to terms on sharing technology and development costs on future tobacco products. Reynolds American also said that it will unload Kool, Salem, Winston, Maverick, and blu eCigs brands to Imperial Tobacco for $7.1 billion. Reynolds American said that the deal will be accretive within the first full year with a double-digit accretion rate in the second year and beyond. Shares of Reynolds American lost 6.87 percent, closing at $58.84 while shares of Lorillard lost 10.49 percent, closing at $60.17. Shares of British American Tobacco lost 1.88 percent, closing at $120.61.

Related: Lorillard Nosedives On 3-Way Deal Announcement

Earnings Of Note

This morning, JPMorgan Chase (NYSE: JPM) reported its second quarter results. The company announced an EPS of $1.59, beating the consensus estimate of $1.29. Revenue of $25.3 billion beat the consensus estimate of $23.76 billion. Net income for the quarter fell to $2.4 billion from $3.046 billion in the same quarter a year ago because of higher provision for credit losses and lower net revenue which was only partially offset by lower non-interest expenses. Consumer & Community Banking net income fell 21 percent year over year to $2.4 billion because of a slowdown in mortgage origination. Non-interest expense fell six percent year over year to $6.5 billion. Corporate & Investment Bank net income fell 25 percent year over year to $2 billion, while Banking revenue fell two percent year over year to $3.1 billion. Markets & Investor Services revenue fell 12 percent to $5.9 billion, while fixed income revenue fell 15 percent to $3.5 billion. The bank's CEO Jamie Dimon said that he is feeling great from his cancer treatment and plans to stay as CEO for three to seven years, but the board is preparing for a succession plan nevertheless. Shares gained 3.52 percent, closing at $58.27.

This morning, Goldman Sachs (NYSE: GS) reported its second quarter results. The company announced an EPS of $4.10, beating the consensus estimate of $3.05. Revenue of $9.13 billion beat the consensus estimate of $7.97 billion. Net earnings for the quarter rose to $2.037 billion from $2.033 billion in the same quarter a year ago as the bank benefited from a 15 percent year over year rise of Investment Banking revenue to $1.78 billion with underwriting revenue rising 20 percent to $1.28 billion. Institutional Client Services revenue fell 11 percent from a year ago to $3.83 billion but Investing & Lending revenue rose 46 percent year over year to $2.07 billion, and Investment Management revenue rose eight percent to $1.44 billion. Shares gained 1.30 percent, closing at $169.17.

This morning, Johnson & Johnson (NYSE: JNJ) reported its second quarter results. The company announced an EPS of $1.66, beating the consensus estimate of $1.55. Revenue of $19.49 billion beat the consensus estimate of $18.94 billion. Net earnings for the quarter rose to $4.33 billion from $3.83 billion in the same quarter a year ago as the company saw gains in its major categories. Pharmaceutical sales rose 21.1 percent year over year to $8.509 billion while Medical Devices & Diagnostics saw a 0.7 percent gain in revenue to $7.242 billion, while revenue from Consumer goods rose 2.4 percent to $3.74 billion. Johnson & Johnson saw its gross margin rate decline 0.4 percent to 69.0 percent. The company raised its full year EPS guidance to a range of $5.85 to $5.92 from a previous range of $5.80 to $5.90. Shares lost 1.99 percent, closing at $103.28.

After the market closed, Intel (NASDAQ: INTC) reported its second quarter results. The company announced an EPS of $0.55, beating the consensus estimate of $0.53. Revenue of $13.83 billion beat the consensus estimate of $13.69 billion. Shares were trading higher by 3.25 percent at $32.74 following the earnings report.

After the market closed, Yahoo! (NASDAQ: YHOO) reported its second quarter results. The company announced an EPS of $0.37, missing the consensus estimate of $0.38. Revenue of $1.04 billion missed the consensus estimate of $1.09 billion. Shares were trading higher by 1.29 percent at $36.06 following the earnings report.

Quote of the Day

"In sum, since the February Monetary Policy Report, further important progress has been made in restoring the economy to health and in strengthening the financial system. Yet too many Americans remain unemployed, inflation remains below our longer-run objective, and not all of the necessary financial reform initiatives have been completed. The Federal Reserve remains committed to employing all of its resources and tools to achieve its macroeconomic objectives and to foster a stronger and more resilient financial system." - Janet Yellen, in prepared remarks to the Senate Banking Committee.

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