All Eyes Are On The Fed As It Opens Its September Meeting

Plus, oil prices are dropping, WeWork is delaying its IPO, Home Depot shares are falling, and Adobe and Fedex report earnings today.

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The Dow opened down for the second day in a row this morning slipping 50 points, or 0.2%. The S&P 500 and Nasdaq both traded around the flatline.

“We’re right near that resistance level on the S&P 500,” Villere & Co partner Sandy Villere said. “We’re waiting for the markets to come back down a bit. Then we can buy some of the growthier names that have been beaten up over the last few days.”

The Federal Reserve kicks off its latest meeting today. The meeting will end Wednesday, when the central bank will announce its latest decision on interest rates. According to CME Group’s FedWatch, expectations of a quarter-point reduction are at 61% and the possibility of the Fed keeping rates unchanged has risen to 38.8%. “The drama is centered on just how strongly the Fed will signal that it’s going to cut rates again by the end of 2019,” The Sevens Report’s Tom Essaye wrote in a note. “It’ll be the ‘dots’ and statement that determine whether the Fed meets market expectations (and spurs a short-term rally) or if we see another ‘hawkish’ cut and uptick in volatility.”

Oil prices dropped nearly 7% Tuesday after Reuters reported that Saudi Arabia is close to restoring 70% of the oil production lost after this weekend’s attack on the kingdom’s key crude facility, Abqaiq, and full production will be restored in just two to three weeks instead of months as initially expected. The impact of the attacks on Saudi oil exports has been “minimal” due to ample storage, Reuters reported. Citi’s chief investment strategist Steven Wieting said in a note that “Geopolitical events have [an] historic tendency of exaggerated initial impact in markets, with a smaller economic and market impact emerging over a short period of time. … The degree of any escalation with Iran is the more critical issue for longer-lasting supply risks. Temporary disruptions for repairs inside Saudi are very different.” When asked if Iran was responsible for the attacks, President Trump said yesterday, “It’s certainly looking that way at this point. I don’t want war with anybody but we are prepared more than anybody … We have a lot of options but we are not looking at options right now. … That was a very large attack and it could be met with an attack many, many times larger very easily by our country, but we are going to find out who definitively did it first.”

Like watching a car wreck in slow motion… WeWork has pushed back its much-anticipated IPO amid growing concerns over the company’s governance, plummeting valuation, and business prospects. The office-rental unicorn was expected to begin its roadshow pitch to investors as early as this week, though now the IPO will be delayed until at least October. “The We Co. is looking forward to our upcoming IPO, which we expect to be completed by the end of the year,” the company said in a statement. Existing investors, including SoftBank, had asked the company to wait until next year to launch its IPO, though CNBC reported that the tension between WeWork and Softbank was not the central issue in the decision to delay the initial offering.

The U.K.’s Supreme Court starts three days of hearings over Prime Minister Boris Johnson’s decision to suspend Parliament effectively putting a halt to any debate and oversight on the Brexit process until mid-October, and the court’s decision is expected within a week. Johnson met with European Union President Jean-Claude Juncker on Monday one week after Parliament passed a law designed to block the possibility of a no-deal Brexit. Immediately following the meeting, the European Commission issued a press release that said Juncker had reminded Johnson that it was now up to the British government to “come forward with legally operational solutions that are compatible with the Withdrawal Agreement. … President Juncker underlined the Commission’s continued willingness and openness to examine whether such proposals meet the objectives of the backstop. Such proposals have not yet been made.” The prime minister’s officials have indicated that Johnson will defy a new law designed to force him to seek a delay to Brexit rather than allow the U.K. to exit the EU without a deal at the end of next month, and Johnson told Juncker he “would not request an extension and would take the U.K. out of the EU on the 31st October” with or without a deal.

Shares of Home Depot are down nearly -2% this morning after Guggenheim downgraded the home improvement store chain. Guggenheim downgraded the stock to neutral and removed its $230 price target citing HD’s $5.4 billion investment plan which the firm says could prevent margin expansion. “We find it difficult to see a path to EBIT margin expansion in 2020 as both a) investment spending and b) the associated D&A drag are poised to ramp,” Guggenheim analyst Steven Forbes wrote in a note to clients. “Bottom line, while we don’t necessarily expect HD to deliver a 2020E EBIT margin below the low-end of management’s stated guidance range, we do view current consensus expectations as aggressive given the potential impact.”

Coming up today, Israel’s Prime Minister Benjamin Netanyahu will fight to hang on to power in the country’s second election in less than six months. Polls suggest Netanyahu’s Likud party is running neck-and-neck with the centrist Blue and White party led by former military chief Benny Gantz, though neither party is expected to reach a majority. “It’s a referendum on the long-running prime minister, as was the April race,” said Eurasia Group senior analyst Henry Rome. Also today, Adobe and Fedex will report earnings after the bell. Adobe is expected to deliver another strong quarter with 20%-plus revenue growth and a 15% increase in profits, while analysts expect FedEx to report adjusted earnings of $3.16 per share on $17.06 billion in revenue.

Stocks We’re Watching

Cel-Sci (OTC: CVM): Shares of this small cap biotech are up 218% so far this year and 20% over the last week. Last week, CEO Geert Kersten presented at the Rodman & Renshaw 21st Annual Global Investment Conference and indicated that Cel-Sci’s phase 3 trial for its Multikine trial is nearing completion and the company is waiting for just a few more events to occur before wrapping up the yearslong trial. The Independent Data Monitoring Committee (IDMC) may unblind the phase 3 data this month, which could send the stock surging even higher.

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