Dow climbs in early Friday action as Wall Street attempts to cap tumultuous trading week with an upswing

Stock benchmarks on Friday rose modestly higher as investors looked to close out a volatile, holiday-shortened week that has the tech-heavy Nasdaq Composite on track for its biggest weekly loss since the height of the pandemic-induced market selloff in March.

How are major benchmarks trading?

The Dow Jones Industrial Average

rose 117 points, or 0.4%, to around 27,650, while the S&P 500

gained 14 points, or 0.4%, to trade at 3,353. The Nasdaq Composite Index

climbed 48 points, or 0.5%, at 10,952. But all three benchmarks were trading off their intraday peak near the open, highlighting the week’s choppy action.

The Dow on Thursday fell 405.89 points, or 1.5%, to close at 27,534.58, while the S&P 500 ended with a loss of 59.77 points, or 1.8%, at 3,339.19. The Nasdaq Composite fell 221.97 points, or 2%, to finish at 10,919.59. Through Thursday, the Dow was down 2.1% for the week, while the S&P 500 was off 2.6% and the Nasdaq was 3.5% lower; markets were closed Monday for Labor Day.

What’s driving the market?

A decline in the S&P 500 index for the week would mark the benchmark’s first back-to-back weekly drop since May.

“While monetary policy is set to remain supportive for several more quarters, valuations are high across assets and volatility is resurfacing,” said Elia Lattuga, co-head of strategy research at UniCredit Bank, in a note. “The breadth of the rally is still limited and the recovery uneven—hence developments in the economic outlook and political risks represent significant threats to risk appetite.”

Stocks were unable to follow through Thursday on a Wednesday bounce that saw equities recover somewhat from a three-day, tech-led rout that pushed the Nasdaq into correction territory, falling more than 10% from its record close set last week.

Weakness on Thursday was partly tied to the inability of U.S. politicians to agree on a new coronavirus rescue package after Democrats blocked a Republican bill on the Senate floor, leaving the way forward unclear, analysts said.

Meanwhile, investors have fretted that the sharp rally that took stocks from their March pandemic lows to new all-time highs had left valuations significantly stretched for the large-cap, tech-related stocks that had led the rally this year. Among those highfliers, shares of Apple Inc.

 and Netflix Inc.

 were on track for weekly declines of more than 6%, while Facebook Inc.

 is off more than 5%.

In U.S. economic news, the consumer-price index for August rose 0.4% last month, beating average economists’ estimates for a rise of 0.3% but falling below the past two months at 0.6%. On a year-over-year basis, the CPI increased 1.3% after gaining 1.0% in July, the Labor Department said on Friday

Looking ahead, Federal budget figures for August are due at 2 p.m. Eastern.

Which companies are in focus?
What are other markets doing?

The yield on the 10-year Treasury note

 rose 0.4 basis point to 0.687%. Bond prices move inversely to yields.

The ICE U.S. Dollar Index
which tracks the performance of the greenback against its major rivals, fell 0.1%.

Gold futures

were off 0.3% at $1,958 an ounce, threatening to snap a three-day winning streak. The U.S. crude oil benchmark

 fell 16 cents, or 0.5%, to $37.13 a barrel.

The Stoxx Europe 600 index

 was edging 0.1% lower, while the U.K.’s benchmark FTSE

rose 0.2%. In Asia, Hong Kong’s Hang Seng Index

and the Shanghai Composite Index

 both rose 0.8%, while Japan’s Nikkei

rose 0.7%.

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Citigroup’s Fraser shows Wall Street playing catch-up on woman CEOs By Reuters

© Reuters. Citigroup Latin America CEO Fraser addresses Brazil-U.S. Business forum

By Jessica DiNapoli

NEW YORK (Reuters) – Citigroup Inc’s (N:) appointment of Jane Fraser as its next chief executive on Thursday was celebrated on Wall Street as the first woman to lead one of the top U.S. banks. Yet this is a glass ceiling that corporate America shattered decades ago.

It was 1972 when the Washington Post, then a Fortune 500 company, named Katherine Graham (NYSE:) as its CEO. While progress for female leaders has been slow, 36 of the Fortune 500 companies are now run by women, including automaker General Motors Co (N:), chocolate maker Hershey Co (N:) and Northrop Grumman Corp (N:), according to corporate governance services firm BoardEx.

The male-dominated financial services industry has fared poorly. Even beyond the major banks, only four of the 200 largest public U.S. financial services companies – Synchrony Financial (N:), Franklin Resources Inc (N:), Nasdaq Inc (O:) and CIT Group Inc (N:) – have female CEOs, according to BoardEx.

“These are really positions that women have not pursued because of the work-life balance. We have seen years and years of struggle for women who have to choose,” said Charlotte Laurent-Ottomane, executive director of the Thirty Percent Coalition, which encourages diversity in corporate boardrooms.

CEO candidates typically come from roles in finance, operations or running a business line, where there are few women leaders, according to a study from accounting and consulting firm Deloitte.

Women have higher representation in roles that historically have not been heavily recruited for the top job, such as in legal or human resources departments, according to the study.

Fraser, 53, has been a rising star in the financial industry, with a career that spans investment banking, wealth management, troubled mortgage workouts and strategy in Latin America – a key business for Citigroup. She was being groomed for the top job after she was elevated to Citigroup president last year.

Among the Citigroup board directors who tapped Fraser as CEO, 8 of 17 are women, compared to about a quarter at most other U.S. banks.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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The Street Is Back On Board With Aptiv’s Above-Average Growth Potential (NYSE:APTV)

Such was the fear and panic earlier this year that investors bailed out of even the strongest long-term electrification stories, including Aptiv (APTV). In relatively short order, though, investors have flipped from, “Hey, why don’t you let me out here?” to a Blues Brothers-style “Hit it!,” with the Street once again firmly on board with the well above-average growth potential offered by Aptiv’s portfolios in vehicle electrification, safety, connectivity, and infotainment.

I liked Aptiv back in May, and the shares have done well since then – though not quite as well as BorgWarner (NYSE:BWA) or Valeo (OTCPK:VLEEY). At this point, unlike with BorgWarner or Valeo, it’s tough to argue that the Street is still overlooking some upside. I like the M&A optionality created by the capital raise in the summer, and I do like the company’s leverage to some of the most attractive growth areas in autos (and industrials), but even with my own expectations already above the sell-side, it’s tough to make the numbers work now.

Time To Go Shopping?

Aptiv management took advantage of the strong rally from March lows, deciding to raise over $2.2 billion in equity capital in June through a common and preferred stock offering (split 50/50). The company didn’t really need to do this, as the prior debt load was still manageable and I expected the company to remain free cash flow positive through the trough (on a full-year basis), but I can’t really fault opportunism.

With a cleaner balance sheet, it looks like management intends to go shopping, with management talking about the window of opportunity opening back up again in the second half of the year.

What Aptiv might buy is an interesting point of speculation. In terms of the auto portfolio, I could see the company looking to acquire more sensor assets. Looking at what the company wants to do in terms of autonomous driving and cabin infotainment, sensing is the one area that stands out as potentially benefiting from supplementary M&A. I could also see the company potentially looking for more connectivity assets, given the importance of those capabilities in both autonomous driving and infotainment.

I’d frankly be surprised if Aptiv went more in the direction of power electronics (for EV powertrains). I mean, that’s what Delphi (NYSE:DLPH) already had before the companies split, and there’s no shortage of competition in the EV powertrain space now, so I wonder what Aptiv could really do there.

One wildcard I see in play is that Aptiv could look to expand its capabilities outside of autos. Commercial vehicles represent a little less than 10% of the revenue mix and industrial sales are smaller still, but both could be areas of investment. Electrification and automation is relevant to commercial vehicles, both for on-highway commercial vehicles, as well as off-highway, where I’m thinking mostly of electrified and semi-autonomous to autonomous mining trucks produced by companies like Caterpillar (NYSE:CAT) and Komatsu (OTCPK:KMTUY). With companies like Deere (NYSE:DE) continuing to invest heavily in precision agriculture, maybe advanced electrification and automation for ag machinery is a possibility.

I also see potential in the industrial space. Aptiv has strong technology in areas like electrical distribution (with low-voltage and high-voltage capabilities), connectivity, and human-machine interfaces (or HMI) for applications like infotainment. With factory automation demanding more electrification, new forms of connectivity, and new HMIs, is it such a stretch to think that Aptiv could be looking at opportunities here?

Continuing To Outperform, Rain Or Shine

Looking back at Aptiv’s June quarter, the company certainly took a hit from the sharp decline in auto production, as revenue declined more than 44% overall in organic terms, but management pegged its outperformance versus underlying builds at 11 pts – a slowdown from the 14-point outperformance in the first quarter, but still quite good. What’s more, interest in high-voltage electrification remains strong, with that business up 3% within a Signal and Power Solutions business that was down 43%.

Management has also spent a little more effort highlighting the margin potential of the high-voltage opportunity. Aptiv can leverage its large existing low-voltage business (where the company has content on roughly one in every 3.5 vehicles) and believes it can break even at $350M in high-voltage revenue and produce equivalent margins at just $400M in revenue, helped by the fact that high-voltage products include meaningfully more connectors than low-voltage (50/50 with cabling versus 30/70) and those connectors produce significantly better margins. With high-voltage revenue already at around $350M in 2019 and Aptiv having guided to $1 billion or more in 2022, it’s not too hard to see some margin accretion potential here.

There are also longer-term attractive opportunities in areas like connectivity and infotainment. I actually think the name “infotainment” does the technology a disservice, as I expect that the cabin of autos is going to see a merging of instrumentation, navigation, climate control, and other functions into a more unified control platform. Whatever you call it, this business could leverage high single-digit to low double-digit underlying market growth, not to mention opportunities in advanced driver safety (up to and including autonomous driving).

The Outlook

I believe Aptiv will generate high single-digit to low double-digit annualized revenue growth off of the low starting point of 2020, driven by vehicle electrification, enhanced driver safety technologies, connectivity, and “infotainment.” Competition will be fierce, particularly in areas like safety, connectivity, and infotainment, but Aptiv has an impressive array of existing platform technologies. I also would not sleep on the possibility of non-auto sources of growth, including commercial vehicles and industrial applications of Aptiv’s core technologies.

The issue is what that’s worth. I’m actually more bullish than most of the Street on revenue growth, and I’m likewise more bullish on margin potential – the Street expects EBITDA margins to hit the 16%’s in 2022 and then flatten for a while, but I believe growth in high-voltage and more advanced safety, connectivity, and infotainment offerings could drive more margin upside.

The Bottom Line

Even with robust revenue growth and FCF margin expectations, I can’t get to a compelling fair value relative to today’s price. And then you have to consider issues like the risk of competition and the risk that the higher cost of these more advanced autos could delay adoption relative to current expectations. I do still see mid-to-high single-digit annualized return potential here, which isn’t bad, but I think it’s fair to say that Aptiv has regained its “darling” status with the Street, and it may be more challenging for the company to surpass the level of expectations that seems baked into today’s price.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Citi, JPMorgan and State Street back fintech startup Capitolis By Reuters

© Reuters. FILE PHOTO: A woman walks past a Citibank logo displayed outside the Citibank Plaza in Hong Kong


By Anna Irrera

LONDON (Reuters) – JPMorgan Chase & Co (N:), Citigroup Inc (N:) and State Street Corp (N:) have invested $11 million in Capitolis, a New York-based technology startup that seeks to help banks use capital more efficiently, the companies said.

Capitolis, which was founded by Gil Mandelzis, a former senior executive at ICAP (LON:) and former Thomson Reuters (NYSE:) Chief Executive Tom Glocer, will use the funding to grow its team and operations, the startup said. The company did not disclose its valuation.

Capitolis expects its team to grow to 90 people by the end of the year from 50 at start, Mandelzis said.

Founded in 2017, Capitolis has developed software to improve liquidity in capital markets by allowing banks to rapidly source capital needed for trades from other financial institutions with large balance sheets.

Regulations implemented following the 2008 financial crisis have increased the amount of capital banks must post as collateral for risky trades making it more costly for them to participate in some markets.

“Banks are constrained by the costs of capital, but there is a lot of capital in the world looking for returns,” Mandelzis said. “We are allowing the banks to tap into infinite sources of financing.”

Capitolis’ technology also allows banks to reduce the notional value of their derivatives portfolios by replacing multiple offsetting derivatives contracts with smaller residual trades. This frees up capital but is often done manually with spreadsheets and paperwork.

To date the company says it has eliminated $5 trillion in overall positions for more than 50 financial institutions including JPMorgan, Citi and State Street.

“We are happy to support them as they invest and build technology that helps free up capital creating greater efficiencies within the global markets industry,” Troy Rohrbaugh, Head of Global Markets at JPMorgan, said in a statement.

Capitolis’ existing investors include Spark Capital, Index Ventures and Sequoia Capital.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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Wall Street Breakfast: Race To The Bottom For Central Banks

Futures steady following big tech rebound

U.S. equity index futures are pausing for breath, with the Nasdaq nominally higher and the Dow and S&P 500 inching lower, after Wall Street snapped its tech losing streak on Wednesday. Tesla (NASDAQ:TSLA) shares rebounded nearly 11% after suffering their biggest one-day percentage drop in history, while Apple (NASDAQ:AAPL) gained 4% to bring its market cap back to $2T. On the economic calendar today is the release of U.S. weekly jobless claims as Congress remains deadlocked over a fresh coronavirus stimulus package. While Senate Republicans have united around a “skinny” bill, Democrats oppose the measure, and it isn’t expected to clear its first procedural hurdle in the Senate today.

Brexit is getting messy again

The EU and the U.K. are holding emergency talks after the latter published its Internal Market Bill, which would undercut parts of the Withdrawal Agreement agreed to in January. The news could also damage trade talks as both sides work to secure a new deal. Without an agreement, nearly $1T in trade could be thrown into chaos at the beginning of the year, but some say the “game of Brexit chicken” may be part of the negotiating strategy. Adding to the turmoil, U.S. House Speaker Nancy Pelosi said any potential U.S.-U.K. trade deal would not pass Congress if Britain undermines the Good Friday peace agreement.

Avoiding a full TikTok sale

TikTok owner ByteDance (BDNCE) and the U.S. government are in discussions over possible ways allowing for something less than a full sale of TikTok’s U.S. operations, WSJ reports. The talks follow acts by China’s government that throw some roadblocks at such a sale (like new restrictions on the export of AI technology) and with a nearing deadline for TikTok to agree to a sale or be shut down. ByteDance has been considering options that include a sale to a team of Microsoft (NASDAQ:MSFT) and Walmart (NYSE:WMT), or to a group including Oracle (NYSE:ORCL).

Hot year for listings in Hong Kong

The number of U.S.-listed Chinese companies securing secondary listings in Hong Kong is growing, as Yum China (NYSE:YUMC) joined the group after raising the equivalent of $2.2B by selling new stock. Nasdaq-listed hotelier Huazhu Group (NASDAQ:HTHT) has also started taking orders for a $970M stock sale ahead of its planned secondary listing in Hong Kong on Sept. 22. Why the alternative listings? The U.S. Senate passed a bill in June that could ban many Chinese companies from listing on American exchanges amid escalating tensions between the world’s two largest economies. A Hong Kong listing also means a company’s stock can be traded during Asian hours, broadening its investor base, while shares can be added to the Hong Kong Stock Connect, giving access to mainland investors
Go Deeper: Alibaba, and NetEase have also completed listings in Hong Kong.

BP takes first step into offshore wind

BP (NYSE:BP) is continuing its seismic strategy shift in abandoning the oil major business model, making its first venture into offshore wind power with a $1.1B purchase of U.S. assets from Norway’s Equinor (NYSE:EQNR). The British firm will receive a 50% stake in the Empire Wind and Beacon Wind developments off New York and Massachusetts, respectively, while Equinor will retain 50% in both, and continue to act as the operator. Just six months after taking the helm, BP CEO Bernard Looney said in August he’d shrink oil and gas output by 40% over the next decade and spend as much as $5B a year building one of the world’s largest renewable power businesses.

Walmart takes another page from the Amazon playbook

Partnering with end-to-end delivery firm Flytrex, Walmart (WMT) launched a pilot program this week to test using drones to deliver groceries and household essentials in Fayetteville, North Carolina. Even though it is expected to be a long time before drones are widely used for deliveries, the company hopes to gain insight by using the technology. Besides mirroring Amazon’s (NASDAQ:AMZN) Prime Air program, Walmart also announced its Walmart+ membership program last week that will take on Amazon Prime.

Rental market blues

There were more than 15,000 empty rental apartments in Manhattan in August, up from 5,600 a year ago, as more New Yorkers fled the city amid the coronavirus crisis, according to a report from Douglas Elliman and Miller Samuel. The inventory of empty units is the largest ever recorded since data started being collected 14 years ago, dashing hopes for a rebound in the fall or the end of 2020. While REITs and real estate companies have more access to capital, smaller landlords may have trouble paying their mortgages and property taxes, which could impact banks and lenders.

How many planes are needed to deliver a coronavirus vaccine?

Dubbing it the “largest single transport challenge ever,” the International Air Transport Association called on governments to start “careful planning with industry stakeholders” for the large-scale delivery of a coronavirus vaccine. “Just providing a single dose to 7.8B people would fill 8,000 (Boeing) 747 cargo aircraft,” according to the air transport body. The IATA also cautioned that “while there are still many unknowns (number of doses, temperature sensitivities, manufacturing locations, etc.), it is clear that the scale of activity will be vast, that cold chain facilities will be required and that delivery to every corner of the planet will be needed.”
Go Deeper: The end of COVID-19 airport screenings for international travelers?

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