‘Fee-Fi-Fo-Fum.’ Giant Tremors Risk Spooking Trend: Taking Stock

(Bloomberg) -- Well that escalated quickly.

Wednesday’s middling early performance in equities became a torrent of activity as the flood gates opened above the crucial 2,800 level. Bulls then stampeded, with the help of broad cyclical sector participation (even the lagging healthcare sector assisted) toward the prior late-October- high at 2,817 in the S&P. I somehow feel as though I’ve written those same words before, but the difference this time is the intraday highs were actually broken. Unimpressively, however, the closely-watched closing price failed to even breach the November highs, much less October, that have acted like a wet blanket for months.

Futures early this morning are following the same flattish script as the days before, though the difference is that starting point. Its almost scary how much focus there has been on the 2,817 level, and one can just feel the dripping investor salivation over a possible break. A few challenges exist to overcome in today’s trade, and some rather large roadblocks at that (not least of which is recent reports that the U.S. and China are said to have delayed their trade agreement to April at the earliest).

‘Fee-Fi-Fo-Fum.’ Giant Tremors Risk Spooking Trend: Taking Stock

Boeing was briefly indicated higher this morning as the FAA 737 Max grounding late yesterday removed one of the last overhangs in the stock amid what felt like a constant downpour of dropping shoes. The criminal investigation into Facebook’s data deals, broke by the New York Times last night, poses another giant threat, as shares are down more than 2%. And if that doesn’t cheer you up, GE’s outlook call today started off with a bang with year EPS forecasts well below consensus. The industrial giant also put a number on those free cash flow concerns first voiced in March, and it doesn’t look pretty. Shares had recovered about half of the losses seen since and through Wednesday’s close, but now seem poised to head back down and test levels below $10/shr. You can see a small preview from earlier in the week here.

Tech-Tonic

A pair of cloud and database names resulted in a few billions gained and lost on paper last night, as database software name MongoDB soared more than 16% as its losses came in below forecast (short interest sits at more than 21% of float, according to financial analytics firm S3 Partners), while Cloudera, flagged in yesterday’s Taking Stock, plummeted on what appears to be its first disappointment in guidance for the Street following its merger and after having an otherwise unblemished record. But the true giants await later today, and they have a real opportunity to throw their weight around.

‘Fee-Fi-Fo-Fum.’ Giant Tremors Risk Spooking Trend: Taking Stock

$190 billion Oracle, $130 billion Adobe, and $105 billion Broadcom are all on the docket post market and hold the fate of the software and semiconductor indexes (which were on 3-day winning streaks with the greater market) in their hands. Broadcom for one accounts for nearly 10% of the Philadelphia Semiconductor index weight and sports a large and bullish stable of analysts. Equal-weight rated Morgan Stanley however flagged a "number of headwinds" that the semiconductor name needs to deal with, as fundamentals in some of their key markets have "deteriorated further" from their last earnings print. Analysts cite "the most challenging backdrop" in the last decade for the name. Shares as of Wednesday’s close added nearly $3 billion in market value this week.

Oracle (representing nearly 10% of the S&P 500 Software Index [S5SOFT]) has also been on quite the run, broadly escaping much of the severe damage done to the greater market in the fourth quarter selloff, fully recovering and setting new all time highs yesterday. JPMorgan analysts have tempered some of their enthusiasm for the megacap given it has recently broached their price target and the metrics the analysts follow are suggesting "low levels of growth." They become more sanguine on the name assuming organic growth can move beyond the 2% seen recently.

Adobe, though not like the others, has still benefited from a strong showing in tech, sitting just 4% below its all time highs set in September. BofAML analysts "expect a good quarter," and with options pricing in a 4.5% move (below its historical avg. absolute price range around earnings, according to data compiled by Bloomberg), a new all-time high could be in the offing. Analysts led by Kash Rangan raised their price target ahead of results, expecting strength in ARPU from the U.S. and Japan from the "unique" company that is "cloud like" in its growth profile, while more "legacy" when it comes to margins.


Notes From the Sell Side

General Mills was “finally” upgraded to buy at Deutsche Bank, which wrote that the company’s core U.S. business “seems to have stabilized,” and that “the opportunity with Blue Buffalo remains underappreciated” by investors. The target was lifted to $54 from $43. Analyst Rob Dickerson noted there was “some reluctance” to buy the stock, given “years of subpar growth and missed guidance expectations” – he added that “pressure still exists in the company’s snack bar and soup categories” – but he still forecasts upside. A stable base business, along with a positive margin mix from Blue, “implies not only that the top line could accelerate,” but also that “consensuses could simply be too low.”

Microsoft was named a Top Pick at Mizuho, which started coverage on the software stalwart with a buy rating and $135 target. In particular, analyst Gregg Moskowitz cited the company’s cloud-computing assets, which he wrote “should continue to drive strong overall growth for a company its size.” He added that investor concerns about a deceleration in Microsoft’s Azure were “overblown,” and that internal checks were still pointing to both high demand and more long-term contracts. The call was part of a broader initiation of software coverage; Mizuho also started Salesforce.com with a buy rating, citing its “best-in-class cloud platform, along with ServiceNow (“the platform of now, and the future”), and Splunk (where a “massive opportunity remains”). VMware and LogMeIn were both started at neutral.

Sectors in Focus Today

  • Apparel and brand holding names (PVH, COLM, OXM) after Tailored Brands (owner of Men’s Wearhouse) shares sank more than 20% in early trading
  • A major overhang for Boeing looks to be lifted after the U.S. FAA joined the rest of the world in grounding the 737 Max on safety precautions. Plane suppliers and airlines (LUV, ALK, UAL) will continue to see volume as the crash continues to be investigated
  • E&P and oil servicer names as WTI crude pushed out to new 2019 highs (though has since erased the gains as China and the U.S. are said to have delayed their trade agreement)

Tick-by-Tick Guide to Today’s Actionable Events

  • JPMorgan Gaming, Lodging, Restaurant Forum (SHAK, ERI, BJRI, DIN)
  • 8:30am -- Initial Jobless Claims, Continuing Claims
  • 8:30am -- GE to host an outlook call
  • 10:00am -- New Home Sales
  • 4:00pm -- ADBE, AVGO, DOCU, ORCL, PVTL earnings post-market
  • 4:03pm -- ULTA earnings
  • 5pm -- ULTA earnings call
  • 4:30pm -- DOCU earnings call
  • 5pm -- ADBE, AVGO, PVTL and ORCL earnings calls

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