Traders and investors woke up Thursday morning to troubling news out of China. Chinese January HSBC flash PMI declined to 49.6 from a 50.5 in December.
The data is re-starting the Chinese slowdown debate and according to Reuters has “reinforced concerns about global growth, especially in commodity-sensitive emerging markets.”
A mixed-bag of corporate earnings is certainly not contributing to a bullish investor sentiment. The Dow closed at a five week low having lost more than 200 points in the afternoon. Both the S&P 500 and Nasdaq finished lower by more than half a percent.
The CBOE Volatility index rose 7.2 percent, marking the fourth straight day the "fear index" appreciated.
- The Dow lost 1.07 percent, closing at 16,197.35.
- The S&P 500 lost 0.89 percent, closing at 1,828.46.
- The Nasdaq lost 0.57 percent, closing at 4,218.87.
- Gold gained 1.91 percent, trading at $1,262.20 an ounce.
- Oil gained 0.56 percent, trading at $97.27 a barrel.
- Silver gained 0.86 percent, trading at $20.01.
News of Note
Initial Jobless Claims rose 1K to 326K, below the consensus of 330K. Continuing claims rose 34K to 3.06 million.
U.S. January PMI Manufacturing Flash index read 53.7, below the consensus of 55.0 and lower than the previous reading of 54.4.
December Existing Home Sales for December read 4.87 million, below the 4.90 million consensus.
The average rate for a 30 year fixed rate mortgage fell to 4.39 percent from 4.49 percent last week.
EIA Natural Gas Inventory declined 107bcf. Crude rose 1.0 million barrels.
Treasury Secretary Jack Lew said last night that Congress has until late February to lift the $16.7 trillion debt ceiling to avoid a default.
German flash manufacturing PMI has risen to a multi-year high of 56.3 in January from 54.3 in December.
Eurozone flash manufacturing PMI has also risen to a multi-year high of 53.9 in January from 52.7 in December.
Equities-Specific News of Note
Analysts at Needham noted that Carl Icahn's proposal of eBay EBAY spinning off PayPal is unlikely. The analysts reiterated a Hold rating citing the company's weakening fundamentals. Analysts at Susquehanna downgraded shares to Neutral from Buy with a $59 price target also noting that Icahn's scenario is unlikely. Analysts at Topeka also downgraded shares to Hold from Buy with a price target lowered to $60 from a previous $64. eBay founder Pierre Omidyar said “I and the rest of the board are fully aligned that eBay and PayPal are best together.” Shares gained 0.97 percent, closing at $54.94.
Analysts at Canaccord raised their price target on Boeing BA to $160 from a previous $150. The analysts noted “we expect a strong finish to 2013, but focus will be on initial 2014 guidance” and that “as we head into 2014, we believe better-than-expected execution will be the primary catalyst, specifically as the benefits of cost reductions start to flow into the commercial margins.” Shares lost 2.13 percent, closing at $141.30.
According to the Wall Street Journal, Apple AAPL plans to launch two larger iPhones in the second half of 2014. One version will have a 4.5 inch display, the other a five inch display. Both models will use metal casing instead of a plastic exterior used in previous iPhones. Separately, Carl Icahn tweeted that he has purchased an additional $500 million worth of shares today bringing his total holdings to $3.6 billion. Shares gained 0.85 percent, closing at $556.19.
Toyota TM retained the title of the world's largest car-maker for the second straight year. The company increased worldwide sales by two percent in 2013, delivering 9.98 million vehicles. Shares lost 1.91 percent, closing at $119.37.
General Motors' GM new CEO Mary Barra said that under her rule, the company will maintain a “fortress” balance sheet. Barra reiterated the company's mid-decade objective of achieving a profit rate of ten percent is still a top priority. Shares lost 0.95 percent, closing at $38.43.
Tesla TSLA has priced its Model S sedan in China at approximately $121,000. The fully electric car will be selling “much lower” than competitor models. CEO Elon Musk said that sales in China could reach the same level as the U.S. by 2015. Shares gained 1.65 percent, closing at $181.50.
Wal-Mart WMT said that it will be able to match Amazon.com's AMZN delivery capability within two years. Wal-Mart's global e-commerce CEO Neil Ashe said that the company is building out new warehouses across the country and said “with the wave of capacity we are building, we will not be at a disadvantage.” Shares of Wal-Mart lost 0.53 percent, closing at $74.95 while Amazon lost 1.14 percent, closing at $399.91.
The Department of Defense provided a statement that said that it has placed “absolutely no new orders for new BlackBerry devices” despite many media sources reporting otherwise over the past few days.
Target's TGT CFO John Mulligan will face questioning from a Senate committee on February 4 regarding the recent data breach. Shares lost 0.54 percent, closing at $58.66.
Teva Pharmaceuticals TEVA plans to cut the size of its board of directors and add directors with “global healthcare experience.” Shares lost 0.65 percent, closing at $44.02.
IBM IBM has agreed to sell its x86 server business to Lenovo LNVGY for $2 billion in stock and $0.3 billion in stock. Shares gained 0.31 percent, closing at $182.82.
Winners of Note
Netflix NFLX released its fourth quarter results which included an EPS and revenue beat. The company announced it had added 2.3 million domestic customers in the quarter and issued strong guidance for the coming quarter as it will add the finale episodes of Breaking Bad and the second season of House of Cards next month. The company also showed that its International business is showing clear signs of being able to replicate its domestic success in the future. Shares hit new 52 week highs of $395.54 before closing the day at $388.72, up 16.48 percent.
After the market closed yesterday, Fusion-io FIO beat the consensus estimates on both EPS and revenue. This morning, analysts at Craig Hallum upgraded shares from Hold to Buy with a price target increased to $18 from $12. The analysts noted that there is a 50 percent chance that the company will be acquired in the near term. Shares gained 13.56 percent, closing at $10.70.
Decliners of Note
This morning, Nokia NOK released its fourth quarter results. The company announced an EPS of 0.08 euros, beating the consensus of 0.05 euros. Revenue of 3.48 billion euros missed the consensus estimate 4.41 billion euros. Sales of the devices business declined 29 percent on year and 4.5 percent in the quarter. The company said that “strong momentum of competing smartphone platforms” and a difficult transition from Symbian phones to Lumia resulted in weaker smartphone sales. Shares lost 8.70 percent, closing at $7.03.
Pearson PSO updated investors and reported that it has spent 170 million pounds ($282 million) in reorganization costs throughout 2013. The company previously guided that its reorganization costs will total 150 million pounds. The company's CEO John Fallon said “Pearson made good progress on our strategic goals in 2013 but our trading and financial performance has been weaker than expected, particularly in North America. With trading conditions still challenging in 2014, this further underlines the importance of the work we started in 2013.” Shares lost 7.79 percent, closing at $19.88.
The Securities and Exchange Commission has barred the Chinese units of the “Big-four” accounting firms from auditing U.S. listed companies for six months. According to SEC Administrative Law Judge Cameron Elliot, the companies “willfully” failed to give U.S. regulators the audit work papers of certain Chinese companies under investigation for accounting fraud. Notable Chinese decliners include Baidu BIDU which lost 6.21 percent, closing at $163.60. SouFun Holdings SFUN lost 7.72 percent, closing at $87.39. YY YY lost 7.43 percent, closing at $63.77. Qihoo 360 QIHU reversed early steep losses following a report that said that Alibaba has reached a deal to acquire a stake in the company. Shares lost 2.56 percent, closing at $93.46 but traded as low as $86.00 this morning.
Analysts at Deutsche Bank DB downgraded 500.com WBAI to Sell from Hold with a price target of $26. The analysts noted “we believe the run-up in 500.com shares leaves it exposed to perennial issues around licensing and regulation. The Ministry of Finance, for instance, is likely close to issuing new sports lottery licenses.” Shares lost 10.64 percent, closing at $39.65.
After the market closed yesterday, American Eagle Outfitters AEO said that it will remove its current CEO, Robert Hanson. Analysts at Nomura said that it was a “surprising move” to replace the CEO now given that the company hasn't yet reported its fourth quarter results. Shares hit new 52 week lows of $12.80 before closing the day at $13.19, down 7.86 percent.
Senator Edward Markey has called for an investigation in to Herbalife HLF and has already sent letters to the SEC, FTC and to the company itself. In the letter, the Senator wrote “Herbalife claims that it is a multilevel marketing company, a type of entity in which the sales force receives compensation for both the sales they directly generate and the sales generated by a distributor's downline personnel. However, there have been suggestions that Herbalife may not, in fact, be organized as a multilevel marketing company, but instead may be a pyramid scheme, based on Herbalife's business operations.” Shares lost 10.38 percent, closing at $65.90.
Earnings of Note
This morning, Lockheed Martin LMT released its fourth quarter results. The company announced an EPS of $0.89, missing the consensus estimate of $1.33. Revenue of $11.5 billion beat the consensus estimate of $11.34 billion. Net profit from continuing operations fell by 14 percent to $488 million as the company was dragged down by restructuring and special charges. Shares lost 3.93 percent, closing at $150.49.
Also this morning, McDonald's MCD released its fourth quarter results. The company reported an EPS of $1.40, beating the consensus estimate of $1.39. Revenue of $7.09 billion fell short of the consensus estimate of $7.07 billion. Global comparable-store sales rose 0.1 percent in the quarter as foot traffic slowed down but average ticket sales increased. Comparable sales in the U.S. fell 1.4 percent. Analysts had foretasted comparable sales to fall only 0.5 percent. Shares gained 0.46 percent, closing at $95.32.
After the bell today, Microsoft MSFT released its second quarter results. The company reported an EPS of $0.78, beating the consensus estimate of $0.68. Revenue of $24.52 billion beat the consensus estimate of $23.67 billion.
Also ater the bell, Starbucks SBUX released its first quarter results. The company reported an EPS of $0.71, beating the consensus estimate of $0.69. Revenue of $4.24 billion missed the consensus estimate of $4.19 billion. Same store sales rose 5.0 percent in the quarter in the Americas, short of the 6.25 percent consensus. Global comparable store sales rose 5.0 percent in the quarter, short of the 5.7 percent consensus.
Quote of the Day
Bought another $500mil of $AAPL tday, bringing our total to $3.6 billion. If board doesn’t see AAPL’s ‘no brainer’ value we sure do.— Carl Icahn (@Carl_C_Icahn) January 23, 2014
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