Plus, the Fed is monitoring the coronavirus outbreak’s impact on the global economy, Victoria’s Secret is going private, and Domino’s delivered an earnings beat.
Stocks were little changed to start Thursday with the Dow falling 16 points, or 0.1%. The S&P 500 and the Nasdaq both traded around the flatline.
Cases of the coronavirus now top 75,700, while total deaths from the virus are now at least 2,130. The number of new cases reported in Hubei province, the center of the coronavirus outbreak, dropped after China changed how it officially reports the number of infections for the second time this month, raising questions over the reliability of data from epicenter. Japan reported two deaths due to the virus among those infected aboard the Diamond Princess cruise ship quarantined there, while South Korea recorded its first confirmed fatality from a person infected with the coronavirus as its verified cases more than tripled within a day. Apple supplier Foxconn said the virus outbreak will impact 2020 revenue, while Norwegian Cruise Line said it is canceling or modifying 40 voyages in Asia due to the outbreak, hurting projected earnings. And Goldman Sachs sounded the alarm in a note to clients yesterday warning about a possible correction in the stock market due to investors underestimating how big of a risk the COVID-19 outbreak truly is. “We believe the greater risk is that the impact of the coronavirus on earnings may well be underestimated in current stock prices, suggesting that the risks of a correction are high,” wrote strategist Peter Oppenheimer in the note. “Equity markets are looking increasingly exposed to near-term downward surprises to earnings growth. While a sustained bear market does not look likely, a near-term correction is looking much more probable.”
Federal Reserve officials expressed concern about the potential economic impact of the coronavirus outbreak at its January meeting, minutes show. “The threat of the coronavirus, in addition to its human toll, had emerged as a new risk to the global growth outlook, which participants agreed warranted close watching,” the minutes from the FOMC’s January 28 – 29 meeting read, as policymakers questioned whether “a pickup in growth in China and some other Asian economies” was sustainable given the virus outbreak. Despite the risk, the Fed expects “economic growth to continue at a moderate pace, supported by accommodative monetary and financial conditions. In addition; some trade uncertainties had diminished recently, and there were some signs of stabilization in global growth. Nonetheless, uncertainties about the outlook remained, including those posed by the outbreak of the coronavirus.” Fed Vice Chairman Richard Clarida reiterated that the “fundamentals in the U.S. are strong” in an interview with CNBC this morning, though he noted that central bank officials are monitoring risks, including the coronavirus. “It’s obviously something that is probably going to have a noticeable impact on Chinese growth in the first quarter,” Clarida said. “What we would be looking for is some body of evidence that suggests that we need to make a material reassessment of our outlook, and certainly we have not done that yet. But we are monitoring, because China is a huge part of our economy.”
Morgan Stanley is delving deeper into the retail market with its $13 billion takeover of discount brokerage E*Trade Financial Corp. The all-stock takeover adds E*Trade’s $360 billion of client assets to Morgan Stanley’s $2.7 trillion, while Morgan Stanley will also get E*Trade’s direct-to-consumer and digital capabilities to complement its full-service, advisory-focused brokerage. “E*Trade represents an extraordinary growth opportunity for our Wealth Management business and a leap forward in our Wealth Management strategy,” Morgan Stanley CEO James Gorman said in a statement. “In addition, this continues the decade-long transition of our Firm to a more balance sheet light business mix, emphasizing more durable sources of revenue.”
L Brands is selling control of its struggling Victoria’s Secret brand. Private equity firm Sycamore Partners will acquire a 55% stake in Victoria’s Secret from L Brands for $525 million, taking the lingerie brand private. Upon close of the deal, embattled L Brands founder Les Wexner will step down as chairman and CEO. The sale of Victoria’s Secret will allow Bath & Body Works, another L Brands business, to continue to grow as a standalone “and receive its appropriate market valuation,” Wexner said. When the Victoria’s Secret deal is closed, Bed Bath & Beyond CEO Andrew Meslow will succeed Wexner as L Brands CEO.
Domino’s Pizza shares are up nearly 24% this morning after the pizza chain reported Q4 earnings and revenue that topped analysts’ expectations. Domino’s reported adjusted earnings per share of $3.13 on revenue of $1.15 billion, compared to Wall Street consensus estimates for earnings per share of $2.98 on revenue of $1.13 billion. “Our relentless focus on our customers, our franchisees and the long-term growth and profitability of the Domino’s business model helped us deliver a solid 2019 in the face of unique competitive headwinds,” said CEO Ritch Allison. The pizza chain also reaffirmed its two-to-three year outlook, saying it expects U.S. same-store sales growth in a range of 2% to 5%, and global sales growth of 7% to 10%.
Stocks We’re Watching
Molecular Templates Inc (NASDAQ: MTEM): Molecular Templates shares popped as much as 10% yesterday after the company announced the initiation of dosing in its Phase I study investigating its TAK-169 drug candidate in patients with relapsed/refractory multiple myeloma. “TAK-169, which leverages MTEM’s second generation, de-immunized ETB technology, represents a promising therapeutic approach for multiple myeloma patients with significant unmet medical needs. We are pleased that dosing is underway in the Phase I study,” said Eric Poma, Ph.D., Molecular Templates’ CEO and Scientific Officer. “This product candidate is designed to deliver a potent, direct, cell-killing mechanism to cells that express CD38, a receptor that is known to be central to myeloma disease.”