Stocks look set for a lower open this morning ahead of tomorrow’s inflation report following two days of big gains.
The S&P 500 has dropped 0.4% to 2646.96 at 10:15 a.m. today, while the Dow Jones Industrial Average has fallen 82.49 points, or 0.3%, to 24,518.78. The Nasdaq Composite has dipped 0.2% to 6968.90.
Of course, today’s weakness should probably be expected. Just as it takes some time for the nerves to settle after, say, nearly getting hit by a car, the market needs some time to calm down following its correction. Don’t be surprised if the S&P 500 tests 2730 on the upside and the low at 2533 in the coming weeks, as investors do just that, writes Strategas Research Partners’ Chris Verrone. “If last week was characterized by panicked selling, we want to see evidence of panicked buying on the way up,” he writes. “On that score, we still have some work to do.”
Tomorrow’s CPI is getting all the attention, but we pointed out yesterday that this morning’s NFIB small business survey would also be important in getting a sense of how quickly prices are rising. The index rose to 106.9 in January, above the consensus for 105.3. But more importantly, the net percentage of respondents report an increase in average selling price increased to 11 from 10, observes High Frequency Economics’ Jim O’Sullivan. “The selling price series has moved up a bit, suggesting some strengthening in the trend in inflation,” he writes.
And that’s not what the market wants to hear right now.
Earnings & Other News
3M (MMM) has risen 0.9% to $231.34 after getting upgraded to Buy from Hold at Deutsche Bank.
AmerisourceBergen (ABC) has soared 12% to $100.06 on reports Walgreens Boots Alliance (WBA) has approached it about a merger. Shares of Walgreens have fallen 1.6% to $67.36. “…drug distribution is, arguably, one of the least value-added channels in the healthcare ecosystem, raising the question of how transformational the transaction would be,” writes Guggenheim analyst John Heinbockel.
Blue Apron Holdings (APRN) has jumped 8.4% to $3.63 after reporting a loss of 20 cents a share, smaller than the 27-cent loss predicted by analysts.
Henry Schein (HSIC) has dropped 8.6% to $65.99 and Patterson Cos (PDCO) has slumped 8.1% to $30.26 after the FCC filed a complaint against them for conspiring not to give discounts to groups. “We view this news as being very serious, and could result in longer-term margin headwinds and multiple compression for HSIC,” writes Leerink analyst David Larsen.
McKesson (MCK) has dropped 3.4% to $144.01, Cardinal Health has fallen 3.4% to $65.75, and Owens & Minor (OMI) has slumped 4.8% to $14.95 on reports Amazon.com (AMZN) is taking steps to grow its medical supply business. Shares of Amazon have advanced 0.3% to $1,389.98.
PepsiCo (PEP) has declined 0.8% to $110.99 after reporting a profit of $1.31 a share on sales of $19.5 billion. Analysts had been predicting $1.30 a share on sales of $19.4 billion. Unfortunately, PepsiCo offered below-consensus guidance for the year.
Under Armour (UAA) has surged 13% to $16.02 after reporting a breakeven quarter on revenue of $1.37 billion. Analysts had been expecting breakeven on sales of $1.31 billion. “Despite the revenue beat, UAA was not able to beat Street EPS estimates/guidance,” writes Susquehanna analyst Sam Poser.
The View From Silicon Valley
There’s been a slow uprising among brands and advertising networks over the control that Facebook and Google wield. They dominate the $266 billion digital advertising market worldwide, with roughly half its sales, according to market researcher eMarketer.
“Advertisers and brands are waking up to the fact that the rise of Google and Facebook has come with a cost,” says Gil Elbaz, CEO of Factual, an information-sharing start-up. “The duopoly’s data is siloed and it limits marketers’ flexibility and control over media, and their ability to fine tune their strategies.”
Simmering frustrations boiled over Monday when Unilever, a British-Dutch conglomerate that owns Ben & Jerry’s, Lipton and Dove, threatened to pull ads from Facebook and Google.
“As one of the largest advertisers in the world, we cannot have an environment where our consumers don’t trust what they see online,” Keith Weed, Unilever’s chief marketing officer, told advertisers and tech firms at a conference in California.
“Fake news, racism, sexism, terrorists spreading messages of hate, toxic content directed at children – parts of the Internet we have ended up with is a million miles from where we thought it would take us,” Weed said.
While expressing dissatisfaction over Facebook’s increasingly tarnished image, Unilever may also be trying to exploit a weakness to negotiate a better deal, says Peter Reinhardt, Chief Executive Officer of customer-data platform Segment.
“Facebook is, and continues to be, an excellent channel,” Reinhardt said in a phone interview last night. “Content is a sore point (for Facebook),” he said. Brands may “use that for negotiating leverage and a small PR win” among consumers, he added.
Just another challenge for Facebook, as it negotiates some choppy waters among angry advertisers, ex-employees, consumers, regulators and celebrities (calling Jim Carrey). —Jon Swartz