Spoilers or Spoils Imminent in Last FAANG Results: Taking Stock

(Bloomberg) -- S&P futures have yet to follow Europe and the rest of the world into the red despite oil prices acting as a key spoiler here early.

This after being a key factor behind the early part of last week’s equity strength. The precipitous selloff late Friday is continuing as President Trump repeated his calls for OPEC to lower oil prices. I suppose we should all have been wary of black gold’s recent run, given that equities failed to keep pace -- a potential sign investors were wary the prices would hold for the longer term.

The holding pattern in futures also comes as a big week for earnings is due to unfold in which General Motors, Alphabet and Apple will disclose quarterly results. Any real action may also be hamstrung by the FOMC overhang Wednesday, where the statement will be closely watched.

The week will also be heavy with semiconductor names (with the SOX index still riding high, within 4% of its record set Wednesday), including NXPI Semiconductors due later in the evening, while ON Semi’s conference call is scheduled for 9 a.m. after pushing out results on Saturday before lunchtime. The latter’s shares are already under pressure, indicated to open lower by 4%. Its forward outlook missed estimates -- something Keybanc analysts will be closely watching for in many other names such as NXPI, MXIM, SWKS and QCOM, among others. Analyst John Vinh wrote earlier that they were expected sub-seasonal guidance from the stocks, citing soft demand trends emanating from China and "elevated channel inventory."

The March Semiconductor Industry Association (SIA) data also may not help, as semi sales came in below Morgan Stanley estimates, with shipments to North America “notably weak,” analysts led by Joseph Moore wrote. The analysts still expect a “snapback” in memory shipments, however, though perhaps by not enough to offset the likelihood that prices will continue to fall on supply/demand issues. Moore lowered his industry forecast following the report.

Spoils, or Spoiler

Much has been written about the “winner-take-all” economy, and there’s no better symbol than the FAANG stocks. The two last in the grouping to report, Google-parent Alphabet, and Apple, happen to be most emblematic of the concept where spoils go to the victor. Though they could act as spoilers for the market this week if they fail to match growth and profitability forecasts.

The other three FAANGs beat Wall Street expectations for revenue and adjusted EPS, and just Netflix ended the day lower post-earnings. Even then it was only off by 1.3% -- and remains less than 2% from its highest levels of 2019. Alphabet results are due post-market, with consensus expectations for revenue to grow nearly 21% and adjusted EPS up 3.3% over last year. Shares are just 1% from its all-time highs set last July, with options players expecting a 3.3% move around results.

Your 63-Hour ICYMI

Tesla CEO Musk and the SEC reached a settlement over communications allowed with and without the co. lawyer’s approval; NY Giants draft pick Ballentine was injured and his college teammate killed in a shooting; Oliver North will likely not be in the running to remain president of the NRA after a purported falling out with the gun lobby’s chief executive over financial issues; Former CFTC Commissioner Bart Chilton has died at the age of 58; Bayer shareholders are growing frustrated after a vote of no-confidence in the CEO failed to lead to his ouster at the pharmaceutical giant; a bid to raise the smoking age to 21 may actually benefit the smoking industry, according to Politico, citing public health officials; Russian Maria Butina was sentenced to 18 months in jail for her attempts to infiltrate the NRA during the 2016 election cycle while not registering as a foreign agent; good Samaritans stepped in to stop a hatchet attack on the NYC subway, the NY post reported; the New York Yankees lost more players to injury after DJ LeMahieu and Gio Urshela left a game against the San Francisco Giants; Barron’s profiled investors and found a decline in bullish sentiment since last fall while those same investors still favor tech stocks; Barron’s was also out positive on XYL, citing RBC’s Deane Dray -- the magazine was also seemingly cautious on recent IPO Zoom Video, writing the offering could be seen as evidence that “crazy” bubbles could exist; Warriors, Raptors and Celtics both won their playoff series openers -- Warriors are followed by the Bucks and Rockets as favorites to win the championship according to Oddsshark; Sebastian Janikowski is retiring after 19 years in the NFL, according to the Bleacher Report

Sectors in Focus Today

• Boeing and its suppliers, once more as WSJ reported the planemaker failed to inform Southwest Airlines that a safety feature had been deactivated
• Movie theaters (AMC, CNK, IMAX) as Disney’s Avengers broke box office records in a record opening weekend
• Home rental and vacation stocks (HGV, EXPE, STAY, WYND) after the WSJ reported that Marriott will be starting a home-rental business aimed at AirBnB
• Music services, like Sirius XM after Spotify’s results and paid memberships were toward the high end of estimates
• E&Ps as oil continues its weakness from late Friday; also watch PE, NBL, FANG, PXD as the Anadarko M&A story develops. APC said it expects the OXY bid to constitute a superior proposal to the CVX one
• Semiconductor names as SIA data over the weekend was considered weak. This after chip names are reeling after Intel cut its forecast late last week (watch components of the SOX; NVDA, AMD, MU, WDC), and some suppliers, like FORM, SNPS, VSM, AMAT

Notes From the Sell Side

Adobe was upgraded to overweight at Morgan Stanley, which also lifted its price target to a Street-high view of $340, citing the company’s “durable” earnings potential. The company should sustain a 20%+ compound annual growth rate for its earnings over the next three years, “even if Digital Media growth begins to wane, given improving segment profitability and ramping Digital Experience growth,” analyst Keith Weiss wrote. He added that revenue growth and margin expansion would also support earnings, “which we think is not priced in at today’s valuation levels." Shares ended at a record on Friday.

Target Corp. was raised to overweight at Barclays, which cited the retailer’s ability to take market share, along with its traffic gains, which the firm wrote placed it “amongst the best retailers in the country." Analyst Matthew McClintock wrote that Target had a “minimum ~$140 billion sales opportunity for market share gains" from just its apparel and home furnishing categories, and that overall, its market share gains appear “sustainable over the investment horizon.” Barclays also shrugged off Amazon’s recent announcement that it would offer free one-day shipping for Prime members, something that pressured retailers on Friday; Target sank about 5.7%. That weakness "is a red herring and creates a buying opportunity" for Target, Barclays wrote. Target is “already ahead of Amazon in same day delivery,” and it “has built a supply chain that fulfills ecommerce primarily from stores (where next-day delivery is much easier), which stands in a stark contrast to most retailers.”

Tick-By-Tick to Today’s Actionable Events

• DOJ’s antitrust head Makan Delrahim at Milken Institute conference
• TW, NGM, SILK quiet periods expire, with broker initiations likely
• 8:00am -- SPOT earnings call
• 8:30am -- March Personal Income, Spending; March PCE Deflator
• 10:30am -- April Dallas Fed Mfg Activity
• 4:02pm -- GOOGL earnings
• 4:15pm -- APRN earnings
• 4:30pm -- RIG earnings; GOOGL earnings call
• 8:00pm -- NXPI earnings

--With assistance from Ryan Vlastelica.

To contact the reporter on this story: Brad Olesen in New York at bolesen3@bloomberg.net

To contact the editors responsible for this story: Courtney Dentch at cdentch1@bloomberg.net, Steven Fromm

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