2023-08-21 12:20:00 ET
Summary
- Johnson & Johnson's offer to exchange shares of its consumer health unit Kenvue for JNJ common stock was oversubscribed.
- Growth stocks helped as Nvidia strength continues into earnings later this week. The 10-year yield hits a 52-week high.
- European natural gas prices are surging due to a potential strike in Australia that could disrupt global LNG exports.
Listen below or on the go on Apple Podcasts and Spotify
J&J share swap offer for Kenvue is oversubscribed . (0:15) Nvidia (NVDA) leads chip stocks up again as its earnings approach and the 10-year yields hits a 52-week high . (1:26) See what J.P. Morgan’s AI sentiment model says . (4:06)
This is an abridged transcript of the podcast.
Our top story so far –
Johnson & Johnson ( JNJ ) says its offer to shareholders to exchange their shares of JNJ common stock with shares of its consumer health unit Kenvue ( KVUE ) was oversubscribed .
J&J says shareholders had validly tendered 802.7 million shares of its common stock when the exchange offer expired on August 18.
With the offer oversubscribed, the company has decided to accept only a portion of the tendered shares on a pro rata basis. But that’s not applicable to those with fewer than 100 shares of JNJ common stock, or an "odd lot."
Based on the total number of shares reported to be tendered before expiration, the company estimates that about 23.8% of the tendered shares of JNJ common stock will be exchanged. The final proration factor is expected on August 23, with J&J’s ownership in Kenvue seen dropping to 9.5%.
Now a look at today’s trading –
Growth stocks are rallying on the back of chip strength despite longer rates hitting highs.
The Nasdaq ( COMP.IND ) is up around 1%, with the S&P (SP500) up 0.3%. Both are coming off three-straight down weeks. The Dow ( DJI ) is down slightly.
Info Tech ( XLK ) and Consumer Discretionary ( XLY ) are the leading sectors. Chip and chip equipment stocks are higher with Nvidia’s ( NVDA ) earnings in view.
Nvidia rose as several Wall Street firms hiked price targets on the "Godfather of AI" ahead of its results on August 23. HSBC analyst Frank Lee, who has a Buy rating, boosted his price target to $780 from $600 arguing that despite the higher expectations, there is still earnings upside that is not fully priced in.The 10-year Treasury yield (US10Y) is up 9 basis point to 4.34%, matching a 52-week high . The steepening yield curve will be a big talking point at Jackson Hole later this week. Fed chief Jay Powell will speak there on Friday morning.
Steve Englander, strategist at Standard Chartered says Powell has two potential paths.
He “may want to send a message of policy continuity rather than a warning on future policy tightening as at the last few conferences." But “with inflation and activity likely slowing, he may see the sharp move at the long end of (Treasury yield) curve … as opening up more downside risk to asset markets than is needed now."
"He will avoid any indication that he is targeting long rates but may send a sufficiently ambivalent message on long yields” to bring them down, Englander added.
Among other active stocks --
Medical Properties Trust ( MPW ) announced on Monday actions, including cutting its dividend by almost half , to strengthen its balance sheet and reduce its cost of capital. MPW is declaring a quarterly cash dividend of $0.15 per share, compared with its previous dividend of $0.29.
Palo Alto Networks ( PANW ) rose after the cyber security company reported results. Wedbush analyst Dan Ives said after “much drama about a Friday afternoon release effectively putting the Street on edge in the cyber sector - with the murky macro backdrop - Palo Alto printed a relatively strong quarter ” and “confident” guidance.
In other news of note –
European natural gas prices are surging in volatile trading as a potential strike in Australia threatens to disrupt 10% of global liquefied natural gas exports. That would affect supplies ahead of the coming winter.
Prices of TTF, the European benchmark, rose as much as 9%.
Offshore Alliance, a group representing two labor unions, said workers at the North West Shelf gas facilities had endorsed giving Woodside Energy ( WDS ) seven working days notice if its claims are not resolved by close of business on Wednesday.
Meta Platforms ( META ) is planning to roll out a web version of Threads as soon as this week. That’s according to The Wall Street Journal.
Adam Mosseri, the head of Instagram, said the Threads web version was being tested internally and would be launched soon. "It's a little bit buggy right now , you don't want it just yet."
While some Threads posts can be viewed on the web, access is limited as the app has been designed primarily for mobile phone use.
In the Wall Street Research Corner –
J.P. Morgan released numbers from its proprietary AI quant model.
The JPM Quant Sentiment Indicators are based on a proprietary artificial intelligence/natural language processing engine. That then measures sentiment by scanning filings and transcripts.
Aggregate sentiment came in low, with a QSI score just above the 30th percentile.
Execs are sour on the Fed and financial conditions. The QSI on monetary policy is at a multi-year low around the 12th percentile, similar to levels last seen in 2008. On the cost of capital, the QSI came down at the 5th percentile, while credit risk was at the 13th percentile.
Looking to shareholder return, sentiment on buybacks "continues to fade and likely remains challenged” given already rich valuations, less incentive for debt funded share repurchases, high interest on balance sheet cash and a new buyback tax.
Companies with positive buyback sentiment include Virtu Financial (VIRT), Timken (TKR), Martin Marietta (MLM), Jack in the Box ( JACK ) and Marathon Oil (MRO).
Those "most concerned" on buybacks include ZipRecruiter (ZIP), Allstate (ALL), Union Pacific (UNP), Robinhood ( HOOD ) and Cleveland-Cliffs (CLF).
For further details see:
Wall Street Lunch: Big Kenvue Demand