Plus, earnings report came with some mixed results today, the market says there’s a 97% chance the Fed cuts rates again tomorrow, and Lockheed Martin just landed a massive Pentagon contract.
The major indexes traded around the flatline Tuesday morning with the Dow adding just 4 points, or 0.1%. The S&P 500 opened -0.1% lower, while the Nasdaq dipped -0.3%.
The S&P 500 may have hit its highest-ever level yesterday, but the index struggled this morning after a slew of mixed earnings results. Google-parent Alphabet reported Monday after the closing bell, disappointing the Street after its quarterly earnings results were dented by a heavy investment in Google’s cloud-computing business. This morning, BP Plc reported a profit beat as strong refining performance offset the impact of lower oil and natural gas prices, and GM managed to beat expectations despite the cost of the recent UAW strike costing the automaker $3.8 billion. Then there was Beyond Meat and Grubhub, with the former’s shares plunging nearly -20% as insiders rushed out of the stock, and the latter dropping over -40% after delivering disappointing earnings and a dismal forward guidance.
Stocks then fell rapidly later in the morning after Reuters reported that the phase one trade deal between the U.S. and China may not be signed next month in Chile, as previously expected. A U.S. administration official said that if the deal isn’t signed next month, it just means the two parties need more time to move forward. “If it’s not signed in Chile, that doesn’t mean that it falls apart. It just means that it’s not ready. Our goal is to sign it in Chile. But sometimes texts aren’t ready. But good progress is being made and we expect to sign the agreement in Chile.” This comes just a day after President Trump said that he expects to sign a significant part of the trade deal with China ahead of schedule. “We are looking probably to be ahead of schedule to sign a very big portion of the China deal, we’ll call it Phase One but it’s a very big portion,” Trump told reporters at Joint Base Andrews on Monday.
The House will take its first vote to support the impeachment inquiry of President Donald Trump on Thursday as Democrats seek to nullify the argument that the process is illegitimate. “This week, we will bring a resolution to the Floor that affirms the ongoing, existing investigation that is currently being conducted by our committees as part of this impeachment inquiry,” said House Speaker Nancy Pelosi in a letter to colleagues. Today, the committees running the probe will see testimony from Alexander Vindman, the National Security Council’s director for European affairs who listened to Trump’s July phone call with Ukrainian president Volodymyr Zelenskiy and was so disturbed by the call that he reported it to the NSC’s legal counsel. Trump unleaded a barrage of angry tweets this morning, saying of the witness, “Supposedly, according to the Corrupt Media, the Ukraine call ‘concerned’ today’s Never Trumper witness. Was he on the same call that I was? Can’t be possible! Please ask him to read the Transcript of the call. Witch Hunt!” Following that tweet, Wyoming Representative Liz Cheney, a member of the Republican leadership, pushed back on Trump and others who have questioned the motives and allegiances of career public servants like Vindman who have testified in the closed-door impeachment hearings. “We’re talking about decorated veterans who have served this nation who put their lives on the line and it is shameful to question their patriotism.”
Investors widely expect the Federal Reserve to reduce rates once again Wednesday with the chance of a quarter-point reduction now at 97.3%, but BTIG’s Julian Emanuel wrote in a note to clients that what the Fed says will be far more important than what the Fed does tomorrow. According to Emanuel, Fed Chairman Jerome Powell “has the opportunity to ‘take back the narrative’ from markets and politicians at a time when the efficacy of low and lower interest rates is being questioned by the [European Central Bank], the [Bank of England], and others as credit conditions, inflation trends and the overall state of the U.S. economy remain healthy. For the Fed, the priority has become liquidity management in the money markets which, if done properly—and the Fed is very focused on this—will keep financial conditions easy.” Haverford Trust Co. director of fixed income John Donaldson agrees saying, “After the next cut, the fed funds rate would re-enter the zone where there is no evidence that further cuts help the economy. If ultra-low rates and negative rates are such a panacea, why aren’t Japan and Germany growing at 6% rather than teetering on recessions?”
Lockheed Martin landed a massive Pentagon contract. This morning, the Pentagon announced that the defense giant had won a $34 billion F-35 contract for delivery of 478 of the aircraft. The F-35 is Lockheed’s crown jewel and has become one of the most challenged programs in the history of the Department of Defense as the program has faced multiple setbacks, including faulty ejection seats, software delays, and significant helmet safety issues. But the Pentagon says this new contract comes with reduced costs and a quicker timetable. “This agreement achieves an average 12.7% cost reduction across all three variants and gets us below $80 million for USAF F-35A by Lot 13 – one lot earlier than planned,” said Air Force Lt. Gen. Eric Fick, the F-35 program’s executive officer. Ellen Lord, the undersecretary of defense for acquisition and sustainment, reiterated the Department’s commitment to the F-35 program. “I have full faith and confidence in the F-35 program and our ability to deliver F-35 combat capability anywhere in the world. Make no mistake, the F-35 is the world’s most advanced, lethal and interoperable aircraft ever developed.”
Stocks We’re Watching
Roku (NASDAQ: ROKU): Roku shares jumped roughly 10% on Monday after Bank of America Merrill Lynch analyst analyst Ziv Israel said in a note that the decline in the video-streaming hardware maker was overdone. The stock is down -17% from its all time high reached last month, but the analyst rates the stock a buy. “The recent decline in the stock price was likely driven by the announcement of new streaming offerings by Comcast and Facebook,” Israel wrote. “We view the market reaction as excessively punitive, as total cost of ownership for both products is significantly higher than for the Roku device. Furthermore, Roku’s TV OS is the most significant driver of account generation, reducing the importance of device sales to its growth trajectory. … As a neutral provider with a large installed base, Roku benefits from risking competition among streaming services such as Netflix, Disney+, HBO, and Amazon Prime Video.”
TG Therapeutics (NASDAQ: TGTX): Shares of this autoimmune biotech surged 18% higher yesterday on news that it had unveiled data from its Phase II PI3Kδ trial that showed effectiveness against follicular lymphoma without the severe adverse effects that have plagued other PI3Kδ treatments to date. TG said that 40-50% of the 118 follicular lymphoma patients treated with umbralisib responded to the treatment. “At 40-50% we have a drug that is active and will provide benefit to patients,” said TG CEO Michael Weiss, who also noted that the study was specifically designed to model the studies that brought accelerated FDA approval for other PI3Kδ drugs and said that he would be speaking to the FDA as soon as possible about approval options. “We’re talking about chronic patients,” Weiss continued. “You need to be able to treat them for a long period of time. It’s not all about hitting them with some very aggressive therapy. In fact, I think the more mild therapy is the advantage in this area.”