The 30-year bond yield fell to an all-time low, a no-deal Brexit just got a whole lot more likely, Peloton released its IPO prospectus, and Costco made a big splash in China.
Stocks were little changed this morning, with the Dow down 59 points on the open. The S&P 500 slid less than 0.1%, with the Nasdaq fell just 0.3%.
“Risks to the global economy and markets have increased, following an escalation in the trade conflict between the US and China,” Mark Haefele, global chief investment officer at UBS Global Wealth Management, wrote in a note. “While central banks and governments may seek to limit the downside, the upside for stocks looks limited – barring an unexpected thawing of trade tensions.”
The closely watched spread between the 10-year and the 2-year Treasury yields briefly fell to negative 6 basis points this morning, extending the losses from Tuesday and registering the lowest level since 2007. The rate on the benchmark 30-year Treasury bond fell to an all-time low early Wednesday morning, dropping as low as 1.907%. The rate on the 30-year has since moved off those lows and is currently trading at 1.934%. “There’s just a huge Asian bid for any kind of yield,” Tom di Galoma, head of Treasury trading at Seaport Global Holdings, said. “It’s kind of my feeling that you just don’t have enough fixed income in the world to actually satisfy the demand. It’s kind of a one-way trade. But my feeling is that interest rates are telling you that there’s some very bad news down the road. We don’t know what that is, but that’s what’s being signaled to me.”
U.K. Prime Minister Boris Johnson suspended parliament Wednesday, increasing the likelihood of a no-deal Brexit. Johnson scheduled the formal reopening of parliament for October 14 in a highly-controversial move that restricts parliamentary time before the Brexit deadline on October 31. Opposition parties signaled on Tuesday that they would unite in creating a law to block Johnson from forcing a no-deal exit from the European Union as many believe such an exit could be damaging to Britain’s economy. Johnson is seeking to strike a renewed agreement with Brussels before the deadline, but the two parties have clashed over the Irish “backstop” issue, which is intended to maintain a seamless border on the island of Ireland. Speaker John Bercow called the move a “constitutional outrage,” while the prime minister said the government will put forward a “very exciting” domestic agenda and MPs will have “ample time” to debate Brexit after the suspension.
The company that’s bringing spin classes to living rooms just released its IPO prospectus. Peloton Interactive confidentially filed for its IPO back in June, and said in its prospectus—released yesterday—that is has seen more than 100% growth in the past year, which it attributes to the “growing awareness of the benefits of exercise and physical activity.” The company noted that over the past two decades, even in recessions, the fitness industry has grown in the U.S. and abroad, and it calls itself the “largest interactive fitness platform in the world” with more than 1.4 million account holders. However, the company isn’t profitable and lost -$245.7 million in its fiscal 2019, ended June 30, on $915 million in revenue, up from $435 million the prior year. The company will need to put more emphasis on profit margins as it looks to attract public market investors, but its market is limited as its flagship Peloton bike costs more than $2,200 for the most basic model, before the monthly class fees, excluding much of the public as customers. “These models are expensive and are excluding a lot of people,” said Iyah Romm, CEO of Cityblock Health, an urban health initiative focused on low-income communities. “And there’s the question of whether it’s even relatable to diverse populations.”
Tiffany’s posted earnings that beat expectations before the bell. The company earned $1.12 per share for its latest quarter, beating estimates by $0.08. At the same time, same-store sales fell -3% globally, excluding currency swings, while analysts had estimated a -1.5% drop. The company cited dramatically lower spending by international tourists to the U.S., which are a crucial source of sales for Tiffany’s stores including at its flagship shop in New York, while unrest in Hong Kong is threatening to crimp its outlook for the year. If “the ongoing unrest in Hong Kong persists much longer at its current rate, we may find ourselves toward the lower end of our full-year reported sales and EPS guidance range,” said CFO Mark Erceg on a call with analysts. Erceg went on to say that if the situation deteriorates or continues as is for the rest of the fiscal year, “we may find ourselves below the bottom end of our ranges.”
Other stocks making headlines: Autodesk was down as much as -12% early Wednesday after it reported adjusted quarterly profit of $0.65, beating estimates by $0.04, but also lowered its fiscal 2020 earnings forecast and narrowed its sales outlook, citing trade and economic uncertainty. “While we continue to execute well and are not materially impacted by current trade tensions and macro uncertainty, we are making a prudent stance to our second half fiscal 2020 outlook,” Autodesk’s CFO Scott Herren said in a statement. Hudson’s Bay announced this morning that it is selling its Lord & Taylor department store chain to clothing rental subscription service Le Tote for $100 million. And Deutsche Bank labeled JetBlue a “catalyst call,” recommending investors buy shares in the airline as its -15% pullback over the past three weeks is providing an attractive entry point, while also noting that JetBlue has a good balance sheet and solid market position.
Stocks We’re Watching
Costco Wholesale (NASDAQ: COST): Shares of the warehouse retailer are up more than 40% so far this year and jumped nearly 5% yesterday after it opened its first location in mainland China. The Shanghai Costco was forced to close several hours early on its first day after being overwhelmed by crowds, a three-hour long wait for customers to even enter the parking lot, and reported chaos in the roast chicken aisle. Morgan Stanley analyst Simeon Gutman attended the opening and wrote in a note that “China could usher in another phase” of growth for Costco, whose track record “can be replicated in China over time.”
Sears Hometown (NASDAQ: SHOS): Shares were up as much as 36% yesterday after the announcement that Liberty Tax will be acquiring Sears Hometown’s Outlet business as well as its Buddy’s Home Furnishing Stores in an all cash transaction valued at up to $132.9 million. Liberty Tax. Sears Hometown spun off from Sears Holding Co. in 2012. As of May 4 there were 126 Sears Outlet stores and 8 Buddy’s Home Furnishing stores. Liberty Tax also recently announced plans to buy The Vitamin Shoppe chain stores and had already bought the parent company of Buddy’s Home Furnishings.