Plus, earnings season marches on, Google is buying Fitbit, and Apple TV+ just launched.
Stocks rallied to start Friday with the Dow gaining 250 points, or 0.9%. The S&P 500 jumped to a fresh record high adding 0.8%, while the Nasdaq also hit a new all-time high with its gain of 0.9%.
The major indexes rallied in response to news that the U.S. job market was stronger than expected in October. Non-farm payrolls came in at 128,000 last month, while investors had expected around 85,000. “The October jobs report was very strong,” said PNC chief economist Gus Faucher. “Job growth slowed a bit because of the GM strike, but with the strike over it should bounce back in November.” But the skies weren’t totally clear this morning. The ISM report for October showed manufacturing contracting for the third straight month. The continuing contraction is indicative of the challenging environment for U.S. manufacturers amid the ongoing trade war between the U.S. and China, but it’s not all bad news on the manufacturing front. “The outlook for nation’s factories isn’t growing any worse and the manufacturing recession isn’t intensifying,” said Chris Rupkey, chief financial economist at MUFG. “There are even some green shoots for the manufacturing sector as orders are picking up and orders lead the way forward for production and output and jobs.”
The positive jobs data supports the Federal Reserve’s move to pause on further interest rate reductions and bolsters Fed Chairman Jerome Powell’s assessment that the U.S. economic outlook remains solid and the jobs market “strong,” even despite the persistent trade war and an increasingly dim global outlook. “Overall, the labor market is holding up very, very nicely,” said Michael Brown, principal U.S. economist at Visa USA Inc. “There’s no signs here the consumer is losing any momentum.” Brown added that the Fed will “probably hold on for a while.” “Today’s report certainly supports the Fed view that they have provided accommodation and they’ll take a little victory lap.”
The earnings season continued with oil giants Exxon and Chevron reporting this morning. Chevron reported a greater-than-expected -36% drop in Q3 earnings as lower oil and natural gas prices offset an increase in production. Exxon’s results were slightly better than what Wall Street was expecting at a -49% decline in Q3 earnings. Qorvo shares are up more than 18% today after the chipmaker reported earnings late Thursday. Qorvo reported Q2 revenue of $806.7 million, beating analysts’ estimates of $755 million. “Qorvo delivered another solid quarter, as our technology investments, portfolio management, and operational discipline continued to yield strong and consistent performance,” said Qorvo CEO Bob Bruggeworth in the earnings release. “We are especially pleased with 5G design activity and the trends we see toward increasing RF integration.” After the earnings beat, Piper Jaffray analyst Harsh Kumar reiterated his Overweight rating for Qorvo. “Qorvo reported a very strong September quarter, significantly above Street expectations,” Kumar wrote. “The strength was driven by strong share gains for 5G solutions at Samsung as well as top Chinese OEMs… We believe the company is executing well in the current environment.”
Google-parent Alphabet announced today that it is acquiring smartwatch maker Fitbit for $2.1 billion. The move could help to shore up the internet giant’s hardware business, and Google’s hardware chief Rick Osterloh explained how the acquisition can help advance its ambitions with Wear OS, its smartwatch software. “By working closely with Fitbit’s team of experts, and bringing together the best AI, software and hardware, we can help spur innovation in wearables and build products to benefit even more people around the world,” Osterloh wrote in a blog post. “Google also remains committed to Wear OS and our ecosystem partners, and we plan to work closely with Fitbit to combine the best of our respective smartwatch and fitness tracker platforms.”
Apple’s long-awaited Apple TV+ service finally went live this morning. The TV+ subscription service will cost consumers $4.99 per month and will feature original shows and movies bankrolled by the iPhone maker. But the service lacks what many other existing and upcoming streaming platforms will come with: an extensive back catalog of content. “The number of streaming households that go out of their way to subscribe to Apple TV+ will be fairly limited initially due to limited content,” said Piper Jaffray analyst Michael Olson. Olson added that a survey of 1,500 Netflix subscribers found that just 23% would subscribe to Apple’s new offering and that interest is “moderate, not overwhelmingly high” due to limited content.
Stocks We’re Watching
Communications Systems (NASDAQ: JCS): Shares of this enterprise network infrastructure stock are up 29% this week after it reported an earnings beat. Communications Systems reported earnings per share of $0.19, compared to consensus estimates of $0.07, representing an earnings surprise of 171.43%. “Our balance sheet continues to strengthen. At September 30, 2019, we had cash, cash equivalents, restricted cash, and investments of $20.8 million, working capital of $36.9 million and shareholders’ equity of $46.3 million,” said Communications Systems CEO Roger H.D. Lacey.