Stock futures are reeling from a rash of troubling news in the tech space, most notably FB in the spotlight over reports of a data
breach with shares down 3.5% pre-market (more on this below). Separately, AAPL suppliers in Asia came under pressure after our
reporting that the company is developing its own device displays for the first time (OLED plunging 7.6% so far) while TSLA is falling almost 2% after Goldman
warns on deliveries for the first quarter.
We also received some concerning news out of D.C., along with the usual mountain of noise, from the McCabe firing to the speculation of Mueller’s job security, the growing possibility of U.S. withdrawal from the Iran deal, and a blunder in regards to economic dialogue with China.
This follows a week where the news flow seemed to skewed negative and the SPX closed in the red four out of five days for its longest losing streak this year. We had confirmation of Tillerson getting the boot and constant noise over who is next to get whacked, as well as the Mueller subpoena and giant numbers being thrown around in regards to China tariffs.
We also had some disappointing eco data (retail sales, Europe industrial production), worries over Boeing’s quarter (BA has become a quasi-proxy for this market ever since the trade-war rhetoric ratcheted up), reverberations from the demise of Toys ’R’ Us, and some pain for the risk arbs (QCOM/AVGO block, MON/Bayer hurdles) and retail investors (MLPs trounced after FERC ruling). And yet, given all of that, the SPX only ended down 1.3% on the week, successfully testing its 50-day moving average 2,749 in the process.
How This Week Is Shaping Up
This week has its share of tradeable catalysts, though its likely that the happenings in D.C. will remain an overhang for the near future. Key events include the FOMC rate decision, the G-20 meeting, some big earnings in tech (ORCL, MU, Tencent) as well as consumer (NKE, GIS, CCL) and transports (FDX), several analyst days (DPS may get the most attention) and conferences (BofAML industrials, Telsey consumer, NYU REIT, and Sohn Geneva) and the Dropbox IPO.
What Strategists Are Saying About This Market:
- Morgan Stanley’s Michael Wilson: January was the top for sentiment, if not prices, for the year; “with volatility moving higher we think it will be difficult for institutional clients to gross up to or beyond the January peaks”
- Goldman’s David Kostin: Narrow valuation dispersion suggests recent growth stock outperformance will continue; health care contains the best opportunity for value investing
- Credit Suisse’s Jonathan Golub: Remains overweight tech (favorite sector on fundamentals and valuation on FCF basis), financials and consumer discretionary and underweight on energy as well as the bond proxies of utilities, telecom and REITs
- Deutsche Bank’s head of European equity strategy Sebastian Raedler expects
cyclicals to underperform defensive peers by ~10% through mid-year
Another Black Eye for Facebook
FB is down 3.6% pre-market — the Cambridge Analytica case that blew up over the weekend, which seems to have involved data on ~50 million Facebook profiles switching hands, is the latest in a string of hits to the company’s image and has put the company in defense mode once again over how it may have inadvertently helped Trump win the 2016 election. How apropos that this comes in the same month that Wired put a bruised and battered Zuckerberg on the cover of its magazine.
The stock has been bogged down by these concerns, among others like how the shift to its news feed will impact its advertising biz as well as worries over declining app usage. In turn, we’ve seen shares lag the recent rally in tech and the stock is now the worst performer in the FAANG complex year-to-date (FB +4.9% vs NFLX +66%, AMZN +34%, S5INFT +10%, GOOGL +7.7%, AAPL +5.2%). One
analyst is already out saying that the new data breach news reveals “more systemic problems” for Facebook.
Tick-by Tick Guide to Today’s Actionable Event
- Today — G-20 meets in Buenos Aires through tomorrow
- Today — TWX/T DoJ trial starts
- Today — DESP, BSTI and ZLAB IPO lockup expiry
- 1:00pm — AHAM appliance report
- 4:00pm — ORCL earnings