Stocks in holding pattern as earnings optimism offset by trade worries
Stocks continue in a holding pattern as investors weigh the latest batch of earnings reports against trade and Brexit related headlines. United Airlines (UAL) and Bank of America (BAC) are among the big names that issued better than expected reports since yesterday's close, though a U.S. sign of support for protesters in Hong Kong is being looked at as a potential landmine for the "phase one" trade deal struck with China last week that still needs to be formalized and signed.
ECONOMIC EVENTS: In the U.S., the retail sales report undershot estimates with September declines of 0.3% for the headline and 0.1% for the ex-auto measure. Business inventories were unchanged in August, with sales up 0.2%. The NAHB housing market index jumped 3 points to 71 in October, which was better than expected.
In trade news, China threatened "strong countermeasures" if the U.S. Congress follows through on legislation to back Hong Kong protesters.
TOP NEWS: Drug distributors were in focus after the Wall Street Journal reported yesterday that McKesson (MCK), AmerisourceBergen (ABC), and Cardinal Health (CAH) are in talks to pay $18B to settle sweeping litigation brought by state and local governments blaming the companies for fueling the opioid crisis. The Journal's Sara Randazzo said that the three distributors would collectively pay $18B over 18 years under the settlement deal currently on the table, noting that Johnson & Johnson (JNJ) is also involved in the talks to contribute additional money. Meanwhile, Bloomberg reported that, as part of the proposed settlement, Teva (TEVA) will offer $15B worth of free drugs, with J&J contributing about $4B to settle the litigation.
The UAW announced the achievement of a proposed tentative agreement with General Motors (GM) following "five weeks of intense negotiations" and a labor strike. The UAW GM National Council will meet and review details on October 17 in a private meeting, at which time they will vote on whether to recommend it to the full UAW-GM membership for ratification. Until the council reviews and votes to approve the proposed tentative agreement the strike will continue, the union noted.
On the earnings front, United Airlines shares rose 2.5% after the air carrier reported better than expected adjusted earnings for the third quarter and raised its earnings guidance for fiscal 2019. Of note, the company said on its quarterly conference call that any impact from the return of Boeing's (BA) 737 MAX won't affect its profit guidance.
Continuing the week of bank earnings was Bank of America, whose shares were 2% higher near noon after it reported better than expected quarterly earnings. Of note, the lender reported 10% year-over-year growth in active mobile banking users and consumer banking revenue of $9.72B.
In M&A news, MGM Resorts (MGM) agreed to sell the real estate assets of the Bellagio to Blackstone Real Estate Income Trust (BX) for $4.25B in a sale-leaseback transaction. As part of the deal, MGM Resorts will lease the property from the joint venture and continue to manage, operate and be responsible for all aspects of the property on a day-to-day basis. In addition, MGM Resorts announced an agreement to sell Circus Circus Las Vegas for $825M to an affiliate of Treasure Island owner Phil Ruffin.
MAJOR MOVERS: Among the noteworthy gainers was Achillion (ACHN), which surged 71% higher after it agreed to be acquired by Alexion Pharmaceuticals (ALXN) for $6.30 per share in cash. Alexion shares were 2% lower after the news. Also higher was Stitch Fix (SFIX), which gained 5x% after disclosing that director William Gurley bought 150,000 shares of common stock.
Among the notable losers was Workday (WDAY), which fell 12x% after analysts at RBC Capital, Stifel and Deutsche Bank lowered their price targets on the shares following the company's Analyst Day. Also lower was Sleep Number (SNBR), which slid 3% after reporting quarterly results.
INDEXES: Near midday, the Dow was up 26.47, or 0.10%, to 27,051.27, the Nasdaq was down 16.07, or 0.2%, to 8,132.63, and the S&P 500 was down 1.09, or 0.04%, to 2,994.59.