US stocks posted their third straight day of losses yesterday, with every day of third-quarter earnings season so far ending in the red. Pharmaceutical and biotech names made up the bulk of the S&P 500’s worst performers of the day, with Vertex Pharmaceuticals at the bottom of the pile with a 20.7% loss after announcing it is stopping the development of a key experimental liver drug. United Airlines was also amongst the worst performers, closing the day 3.8% lower in reaction to the $1.8bn loss it reported in its earnings report after the market closed on Wednesday.
Elsewhere, there were some bright spots in corporate earnings. Following the record profits Goldman Sachs posted, Morgan Stanley announced it grew profits 25% year-over-year in Q3. CEO James Gorman argued that the firm should be allowed to resume share buybacks given its strong position, after a ban on major banks doing so due to the Covid-19 downturn was recently extended to the end of the year.
In the UK, Boris Johnson will today set out his response to the EU’s request for concessions in the Brexit deal. This will precede London entering a new stricter phase of lockdown at midnight tonight following a resurgence in cases. Despite this, the FTSE 100 is up a touch over 1% as a weaker GBP helps exporters.
Walgreens Boots jumps after profit forecast improves
Of the three major US stock indices, the Nasdaq Composite fell furthest yesterday at -0.5%, but still remains up more than 30% year-to-date. The Dow Jones Industrial Average had the best day, closing close to flat, boosted by a 4.8% jump in Walgreens Boots’ share price following its earnings report. The drugstore giant beat analyst profit expectations and management forecasted that it expects to grow profits by single digits in 2021.
One factor impacting investor sentiment yesterday was a rise in US initial weekly jobless claims – a measure of new claimants signing up for unemployment benefits. The figure has been stuck in the 800,000 to 900,000 range since mid-August, but Thursday’s 898,000 was the highest reading in that period.
S&P 500: -0.2% Thursday, +7.8% YTD
Dow Jones Industrial Average: -0.1% Thursday, -0.2% YTD
Nasdaq Composite: -0.5% Thursday, +30.6% YTD
FTSE 100 falls sharply
The FTSE 100 suffered a painful Thursday with a 1.7% loss, which takes its year-to-date loss to -22.7%. In the past three months, names such as International Consolidated Airlines Group, BP, and Rolls Royce have been among the biggest losers in the index. On Thursday, there was no one individual stock that sold off heavily, but 17 companies lost more than 3% of their value. Packaging firm Mondi, education publisher Pearson and fashion house Burberry each fell more than 4%.
In the FTSE 250, which shed 0.6% on Thursday, Domino’s Pizza Group (a separate company to US-listed Domino’s) and Cineworld were the biggest drags. The pair closed out the day 8.6% and 7.9% lower respectively; Domino’s selloff was prompted by the company revealing a slump in sales.
FTSE 100: -1.7% Thursday, -22.7% YTD
FTSE 250: -0.6% Thursday, -18.5% YTD
What to watch
BNY Mellon: Continuing the run of earnings reports this week from major US banks, Bank of New York Mellon delivers its own quarterly earnings update on Friday. The company is down 26% year-to-date, behind the broader financial sector’s 18.9% drop but ahead of the 34.5% loss suffered by banks specifically. In recent months the company has gone through a number of leadership changes, with a new chief financial officer in Emily Portney and a new CEO of its investment management division in Hanneke Smits, following the appointment of Thomas Gibbons as permanent CEO in March. Thanks to all of that, the strategic direction of the firm is likely to be a key point to watch on today’s earnings call. Currently, analysts are split almost evenly between buy and hold ratings on the stock.
VF Corporation: Clothing firm VF sits behind brands including The North Face, Vans, Timberland and more. The company’s share price is down 22% year-to-date after a 24.7% rally over the past three months driven by success in its digital sales channels and the reopening of stores internationally. Continued progress in these areas will be a key focus for analysts when the firm delivers its latest quarterly earnings update on Friday. Zacks Equity Research noted that promotional pricing to clear excess inventory, and the impact of stores being forced to shut down again in parts of the USA, are other points to watch.
US retail sales and consumer sentiment: Data on US retail sales in September and October consumer sentiment will be reported today. The preliminary Michigan Consumer Sentiment Index is expected to come in close to flat or slightly below September’s level, according to Trading Economics. Stalling consumer sentiment or a fall back would be another point to suggest the US economic recovery is faltering.
Crypto corner: Creation of cryptoasset ETFs being actively reviewed by US authorities
The Securities and Exchange Commission has said it is actively working on regulations that might one day allow cryptoasset versions of ETFs, chairman Jay Clayton has said.
According to reports, Clayton told a conference on innovation and regulation of digital assets that the agency was working with other financial regulators to map out how such products might work.
The SEC is working with the Office of the Comptroller of the Currency and the Commodity Futures Trading Commission, among others, to determine who has regulatory jurisdiction over different cryptoasset products.
Tokenisation of assets like shares is being explored by numerous parties in the fund management world, and tokenised funds would, supporters claim, be more efficient and more liquid, and have clearer audit trails.
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