Online brokerage stocks could be signaling trouble ahead for broader market, economy

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A sell-off in online brokerage stocks such as Charles Schwab and TD Ameritrade could be signaling trouble is ahead for the market and the economy. At the very least, they are indicating the Federal Reserve could be set to pause its interest rate increases, given the industry’s sensitivity to the central bank’s moves.

“They are early movers when it comes to a bear market or a recession,” said Richard Repetto, an analyst at Sandler O’Neill, in an interview.

“E-broker stocks generally price in Fed rate changes about 18 months in advance,” he added.

Charles Schwab shares are down 27 percent in the last six months, while TD Ameritrade and E*TRADE stocks are off by 18 percent and 31 percent respectively. Online broker stocks have dropped by 9 percent on average in December so far, compared to the 4 percent selloff in S&P 500.

If their moves are any guide to the direction of of the fed funds rate, they are predicting fewer rate hikes in the coming year, according to Repetto, who showed the correlation in a research note to clients. Since the Fed would reverse course in an economic slowdown, the group could be signaling more than just a pause in rate hikes.

Online brokers’ stock performance responds to rate changes because brokers usually profit directly form higher interest rates.

“Now all these guys have banks or bank-like structures. They earn a spread on the cash people leave on their account. When the fed funds rate goes up by 25 basis points, they only pay clients an extra 10 basis points and earn incrementally the extra 15 basis points,” Repetto explained.

Additionally, the margin loan rate investors pay to borrow from the brokerage also generally go up in line with the rising interest rates, he said.

To be sure, although markets have slashed their expectations following the stock market turmoil over the past two months, they are still foreseeing a 78 percent chance of a hike next week and a 38 percent probability of a rate increase in 2019, according to the CME’s tracker.


India Claims Top Ten Of World’s Fastest-Growing Cities, Surat Leads

India Claims Top Ten Of World's Fastest-Growing Cities, Surat Leads

When it comes to the top 10 cities for economic growth, India is set to dominate over the next two decades, according to Oxford Economics.

Surat, a diamond processing and trading center in Gujarat, will see the fastest expansion through 2035, averaging more than 9 per cent, Richard Holt, Oxford’s head of global cities research, wrote in a report. All of the 10 fastest over that period will be in India.

While economic output in many of those cities will remain rather small in comparison to the world’s biggest metropolises, aggregated gross domestic product of all Asian cities will exceed that of all North American and European urban centers combined in 2027. By 2035, it will be 17 per cent higher, with the largest contribution coming from Chinese cities.


Little will change at the top of the list of the world’s biggest cities between now and 2035.

New York, Tokyo, Los Angeles and London will defend their spots as Shanghai and Beijing — each boasting more than 20 million people — surpass Paris and Chicago. Guangzhou and Shenzhen in Southern China will also make the top 10, crowding out Hong Kong.

The fastest-growing African city is the Tanzanian port of Dar es Salaam, while the top spot in Europe is held by the Armenian capital of Yerevan, according to the report. San Jose — a proxy for Silicon Valley — will be best performer in North America.


Facebook has created ‘too many adversaries,’ says analyst who just downgraded the stock

Mark Zuckerberg, chief executive officer and founder of Facebook Inc., listens during the Viva Technology conference in Paris, France, on Thursday, May 24, 2018. 

Marlene Awaad | Bloomberg | Getty Images
Mark Zuckerberg, chief executive officer and founder of Facebook Inc., listens during the Viva Technology conference in Paris, France, on Thursday, May 24, 2018.

Stifel on Wednesday published a note saying it has lowered its rating for Facebook shares from “Buy” to “Hold,” saying political and regulatory blowback could restrict how the company operates in the long term.

“Facebook’s management team has created too many adversaries — politicians/ regulators, tech leaders, consumers, and employees — to not experience long-term negative ramifications on its business,” the firm said in a note.

The lower rating comes after a rough year in which Facebook has experienced numerous scandals, a 30-million user data breach, declining and stalling growth in key markets, an executive exodus and its worst stock performance since going public in 2012.

Stifel also published the latest results from an on-going survey of Facebook users.

The results showed 79 percent of those surveyed now believe Facebook’s impact on society is neutral or negative, compared to 73 percent in survey results published by the firm in January. The survey also found that 60 percent of respondents said they rarely or never used Facebook Stories, Marketplace or video, which are some of the company’s key new products.

Stifel said there is no downside to holding Facebook shares, but the firm no longer believes the company’s upside is what it once was.

“We believe Facebook will struggle to return to the company that it once was or that investors expected it to be in the long run,” the note reads. “We prefer Amazon, Alphabet, and Netflix, as U.S.-based mega caps with similar thematic trends and more stable operating environments.”

Facebook board: Sandberg's request to probe Soros 'entirely appropriate'

Sears Chairman Eddie Lampert submits $4.6 billion proposal to save Sears

A man walks by a Sears store.

Andy Clark | Reuters
A man walks by a Sears store.

The fund run by Sears Chairman Eddie Lampert, ESL Investments, submitted a $4.6 billion proposal on Thursday to help save the bankrupt retailer with the purchase of 500 stores.

Sears Holdings, which owns Sears department stores and Kmart, filed for bankruptcy on Oct. 15. In previous court filings, it has said it was in talks with ESL about a “going concern bid” that could help the company emerge from bankruptcy.

The offer outlined Thursday included up to $950 million in cash through an asset-based loan facility, a “credit bid” of $1.8 billion and the assumption of roughly $1.1 billion in liabilities. The liabilities assumed include gift cards, points from its Shop Your Way loyalty program and protection agreements from Sears Home Services. Other funds include additional cash, notes and the rollover of cash collateral.

NYT's Jim Stewart on his interview with former Sears CEO Eddie Lampert

NYT’s Jim Stewart on his interview with former Sears CEO Eddie Lampert¬†¬† 11:03 AM ET Fri, 19 Oct 2018 | 05:08

Should the offer be approved, it would help about 50,000 of Sears’ 68,000 employees retain their jobs, ESL said. The new company would reinstate the severance program it had in place prior to Sears’ bankruptcy filing, ESL also said.

“ESL Investments continues to believe in Sears Holdings’ immense potential to evolve and operate profitably as a going concern with a new capitalization and organizational structure,” ESL wrote in the letter.

ESL may face other competition in its bid for Sears. A “stalking horse bidder” will be named on Dec. 15 in bankruptcy court. That bidder will set the floor for other potential offers. It could not be immediately determined whether others are looking to buy the company.

The offer itself will not ensure Sears’ survival. ESL will need support from its creditors and approval from the bankruptcy court to proceed with its offer.

The company’s unsecured creditors have already said they would prefer the company liquidate rather than sell to ESL, believing it is more valuable in pieces than as a company under ESL’s ownership.

The use of existing debt to buy a company out of bankruptcy through a so-called credit bid is a controversial practice. Some view credit bids as giving investors who buy a distressed company’s debt at cheap prices an unfair path to ownership.


Lululemon earnings beat, but shares drop 3% on weak fourth-quarter outlook

A customer looks at sports bras inside a Lululemon Athletica store.

Xaume Olleros | Bloomberg | Getty Images
A customer looks at sports bras inside a Lululemon Athletica store.

Lululemon on Thursday reported quarterly earnings and revenue that beat analysts’ estimates, but its outlook for the fourth quarter was slightly weaker than expected.

Shares of the company dropped 3 percent in after-hours trading.

Here’s what the company reported compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:

  • Earnings per share: 75 cents, adjusted, vs. 70 cents expected
  • Revenue: $748 million vs. $737.5 million expected
  • Same-store sales: 18 percent increase vs. 13.8 percent expected

For its fourth and current quarter, the retailer expects to see revenue of as much as $1.13 billion and to earn $1.64 cents per share, numbers that disappointed investors who were expecting a busier holiday season.

The company said it experienced its biggest day ever for e-commerce on Thanksgiving, which was then surpassed on Black Friday. Less successful for web sales was Cyber Monday.

“Our guests shopped earlier and wanted to get a jump-start on the holiday season,” Lululemon’s COO Stuart Haselden told analysts on a conference call.

Lululemon fiscal third-quarter net income rose to $94.4 million, or 71 cents per share, from $58.9 million, or 43 cents per share, a year earlier.

Excluding items, the company earned 75 cents per share, higher than the 70 cents per share expected by analysts surveyed by Refinitiv.

Net sales rose 21 percent from fiscal year 2017 to $748 million, beating expectations of $737.5 million. Improvements to the retailer’s website have increased both online traffic as well as actual digital sales, one of the contributing factors for the strong sales overall. Haselden said web traffic has increased by more than 35 percent in the quarter.

The Vancouver-based company’s expansion into men’s apparel helped revenue growth, seeing the highest category increases overall. Lululemon said it is ahead of schedule to reach $1 billion in sales in 2020.

The retailer also credited its growth into outerwear for both men and women for the increase in sales.

Despite a weaker-than-expected outlook for the fourth quarter, Lululemon increased its revenue forecast for the fiscal year to a range of $3.24 billion to $3.25 billion, compared with a previous range of $3.19 billion to $3.24 billion. Earnings, excluding a tax reform-related expense, are expected to fall between $3.65 and $3.68 per share for the fiscal year, also up from a prior range of $3.45 to $3.53 per share.

The company’s same-store sales increased 18 percent, outpacing Wall Street estimates of 13.8 percent.


Alphabet’s self-driving car business, which just launched a commercial taxi service, could book $114 billion in revenue in 2030, says UBS

Source: Waymo

Waymo’s first commercial pilot may be small, but Wall Street has big projections for the company’s financial future.

Alphabet’s self-driving car unit could book $114 billion in revenue in 2030, according to a base-case estimate from investment bank UBS.

In its self-driving taxi test in the suburbs around Phoenix, Waymo will charge a small number of people fares competitive with rides Lyft and Uber. But as Waymo adds more cars and locations, it could also license its maps and an autonomous vehicle operating system to other service or car-markers, or monetize the eyeballs of riders through entertainment or advertising, UBS analyst Eric Sheridan writes in a note to clients on Thursday.

To put that $114 billion into perspective, Intel released a study in June of last year that projected that the self-driving space would generate $800 billion in cumulative revenue by 2035. UBS’s estimate only included Waymo’s revenue from robotaxi-related services, though Sheridan believes it has opportunities in logistics and commercial delivery as well.

Aside from Waymo, a host of other tech and auto companies are racing to launch their own self-driving taxi services, including GM’s Cruise and Uber. While Waymo’s technology is widely seen as the most advanced, as highlighted by its Wednesday launch, there are still a host of regulatory and safety concerns on the table. Waymo’s pilot will still include safety drivers to supervise rides, for example, at least initially.

Overall, UBS pegs Waymo’s total value between $25 and $135 billion, with a base case valuation of $75 billion. Morgan Stanley valued Waymo at $45 billion in August, with the potential to grow to $175 billion.