Jennifer Dowty
Jennifer Dowty, Chartered Financial Analyst, writes exclusively for Globe Unlimited subscribers. The Before the Bell report is updated throughout the premarket to reflect latest developments.
Good Friday morning to you on this final trading day of what has been a stellar month for equity markets.
Markets look to close the month on a relatively neutral note. In the U.S., Dow futures are up 18 points, S&P 500 futures are ahead by 3 points, and Nasdaq futures are up 6 points. In Canada, the S&P/TSX60 futures are down by less than 1 point.
This week, equity markets have been digesting the strong month-to-date gains. The S&P 500 Index and Dow Jones composite index are both up 9 per cent for October. The Nasdaq composite has climbed nearly 10 per cent. The S&P/TSX composite index has lagged U.S. equity markets but is still up a respectable 3.6 per cent, just above the five-year average return of 2.2 per cent. Small caps had a slight edge over large caps. The S&P/TSX Small Cap index is up 4.7 per cent month-to-date, while the S&P/TSX 60 index is higher by 3.8 per cent.
In overseas action in the Pacific Rim, major markets were down slightly, with the exception of Japan. In China, the Shanghai composite and Shenzhen composite closed down 0.1 per cent and up 0.02 per cent, respectively. In Korea, the Kospi declined 0.2 per cent. In Australia, the S&P/ASX 200 fell 0.5 per cent. Meanwhile, in Japan, the Nikkei 225 advanced 0.8 per cent. The Bank of Japan announced it will maintain its monetary policy program in order to support economic growth. The central bank reduced its economic growth expectations for the year to 1.2 per cent from 1.7 per cent, and cut its inflation forecast to 0.1 per cent from 0.7 per cent. September housing starts in Japan fell short of expectations, coming in at 2.6 per cent, below expectations of 5.8 per cent. The September unemployment rate was unchanged from the prior month at 3.4 per cent.
Looking at major European markets, it is a muted trading session. The U.K. FTSE is down 0.4 per cent, the German DAX and France's CAC are down 0.4 per cent and 0.2 per cent, respectively. Again, markets are consolidating and digesting the stellar monthly returns. The FTSE is up approximately 5 per cent month-to-date, while the DAX has rallied approximately 12 per cent. Dovish comments from the European Central Bank president, Mario Draghi, suggesting that further monetary policy easing measures may be announced at the December meeting, boosted major European markets in October.
In European economic news, Germany September retail sales were slightly below forecasts, coming in at 3.4 per cent year-over-year versus expectations of 4.1 per cent. Sales were unchanged on a month-over-month basis, below expectations of a 0.4 per cent gain. In Spain, third-quarter gross domestic product was 3.4 per cent, in-line with expectations.
Turning to North American earnings, we are more than halfway through this earnings season with 299 companies in the S&P 500 reporting quarterly results. According to Bloomberg, to-date, 43 per cent of companies reported better-than-expected sales and 76 per cent of companies reported positive earnings surprises. In terms of growth, 48 per cent of companies have reported positive year-over-year sales growth and 60 per cent of companies have reported positive year-over-year earnings growth. Last quarter, 74 per cent of companies in the index reported better-than-expected earnings and 59 per cent of companies reported positive earnings growth over the prior year.
There are 20 companies in the S&P 500 index reporting earnings today, including Weyerhaeuser, Chevron, Colgate-Palmolive, CVS Health, and Exxon Mobil. In Canada, there are eight companies in the S&P/TSX composite index slated to release earnings today. They include Eldorado Gold, Imperial Oil, TransAlta, Husky Energy, Progressive Waste Solutions, Norbord, Russel Metals, and Cameco.
Shares expected to move higher today include shares of LinkedIn, which are up nearly 13 per cent in German markets. The company reported quarterly results that handily beat expectations.
Shares of Valeant Pharmaceutical could be active today after management stated they will are terminating their relationship with Philidor. As well, hedge fund manager and activist, Bill Ackman, will be holding a conference call today to discuss Valeant. He has been a supporter of the company.
In commodity news, the price of West Texas Intermediate oil futures are holding near the $46 (U.S.) level, near its closing price on Thursday. The price of gold is holding near the $1,150 (U.S.) level, currently at $1,148.47. Lastly, natural gas futures may have put in a bottom just above $2.00 (U.S.) with the price stabilizing at $2.24. High inventory levels and unseasonal warm weather has put pressure on the price of natural gas. On Thursday, the temperate in New York city was over 20 degrees Celsius. In mid-November, temperatures are forecast to dip below seasonal levels.
Here's the bottom line. It's positive that markets have retained their gains over recent weeks. I believe markets will continue to climb the wall of worry higher and believe the recent pause in market momentum over the past week may set the markets up for a positive finish to the year. The S&P 50o is less than 50 points away, just under 2 per cent, from its record high. The Nasdaq index is less than 150 points away, or under 3 per cent, from its record high.
Next week could be a volatile week with U.S. non-farm payroll data to be released Friday. As well, Chinese October purchasing managers' index data as well as October trade data will be released.
Now, here is a closer look at major market, and corporate and economic news.
MARKET DATA:
Futures
S&P 500 +0.1 per cent; Dow +0.1 per cent; Nasdaq: +0.1 per cent
Equities
Hong Kong's Hang Seng -0.79 per cent
Shanghai composite index -0.13 per cent
Japan's Nikkei +0.78 per cent
London's FTSE 100 -0.37 per cent
Germany's DAX -0.39 per cent
France's CAC 40 -0.20 per cent
Stoxx 600 -0.19 per cent
Commodities
WTI crude oil (Nymex Dec) +0.24 per cent at $46.17 (U.S.) a barrel
Gold (Comex Dec) +0.06 per cent at $1,148.10 (U.S.) an ounce
Copper (Comex Dec) -0.15 per cent at $2.32 (U.S.) a pound
Currencies
Canadian dollar +0.07 at 76.03 cents (U.S.).
U.S. dollar index -0.24 at 96.97
Bonds
U.S. 10-year Treasury yield 2.15 per cent, -0.02
ECONOMIC INDICATORS:
Canada August GDP grows 0.1 per cent from July vs. an estimated 0.1 per cent rise.
U.S. labor costs accelerated in the third quarter as the jobs market continued to tighten, but remained well below levels that would push inflation closer to the Federal Reserve's 2 percent target. The Employment Cost Index, the broadest measure of labor costs, increased 0.6 percent after an unrevised 0.2 percent gain in the second quarter, the Labor Department said on Friday. The increase was in line with expectations.
When adjusted for inflation, U.S. consumer spending rose 0.2 per cent in September after increasing 0.4 per cent in August, suggesting consumption will continue to support the economy through the rest of the year. Personal income ticked up 0.1 per cent in September, the smallest rise since March, after increasing 0.4 per cent in the prior month.
CORPORATE NEWS:
Valeant Pharmaceuticals has cut ties with Philidor following accusations that it was a "phantom pharmacy" used solely to artificially boost sales. Valeant said Friday that the mail-order pharmacy has informed the company that it will shut down. The end of Philidor comes just hours after the nation's two largest pharmacy benefit providers, CVS Health and Express Scripts, said that they had ended all interactions with the mail-order pharmacy, citing questions over its business practices. Valeant Chairman and CEO J. Michael Pearson said the latest allegations prompted a loss of confidence in Philidor's operations. Meanwhile, activist investor Bill Ackman will hold a conference call with investors at 9 a.m. (ET) today to discuss his investment in Valeant. Shares were down about 7 per cent in the premarket.
Husky Energy swung to a quarterly loss due to a $3.8-billion (Canadian) after-tax impairment charge. The company said it has cut about 1,400 jobs till the end of the third quarter ended Sept. 30 and that it also wrote down $167 million related to legacy oil and natural gas assets in Western Canada. Husky reported a net loss of $4.1 billion, or $4.19 per share, for the third quarter, compared with a profit of $571 million, or 52 Canadian cents per share, a year earlier.
Imperial Oil reported Q3 EPS of 56 cents a share vs. a Street estimated 51 cents.
Progressive Waste Solutions reported a quarterly EPS of 35 cents (U.S.) vs. Street expectations of 29 cents.
CVS Health Corp. said its adjusted quarterly earnings came to $1.28 per share. The Street was expecting $1.30 a share. Revenue of $38.64-billion beat expectations of $37.76-billion, according to Zacks Investment research.
LinkedIn's shares shot up 12.8 per cent in the premarket after the company's quarterly results beat estimates.
Starbucks was down 1.5 per cent in the premraket after a disappointing profit forecast for the crucial holiday quarter.
AB InBev's U.S.-listed shares were up 2.2 per cent after the brewer gave positive view on revenue this year.
Other earnings include: AbbVie Inc; Aon PLC; Cameco Corp; Choice Hotels International Inc; Colgate-Palmolive Co; CVS Health Corp; Domtar Corp; Eldorado Gold Corp; Exelon Corp; Exxon Mobil Corp; Husky Energy Inc; Moody's Corp; Mylan NV; Norbord Inc; Phillips 66; Pinnacle West Capital Corp; Russel Metals Inc; Seagate Technology PLC; Strongco Corp; TransAlta Corp; Ur-Energy Inc; Valero Energy Partners LP
ANALYST ACTIONS:
Canaccord Genuity downgraded Bombardier to "hold" from "buy" and cut its price target to $1.35 (Canadian) from $2.75.
QUOTE OF THE DAY:
"Enjoyment is an incredible energizer to the human spirit." - John C. Maxwell
Jennifer Dowty