- Update readers on the latest news from Ukraine, with Russia having opened a new front.
- Discuss a new headwind for the banks with the latest round of cyber attacks.
- Highlight the poor guidance from Williams-Sonoma last night and how this could spell trouble for other home goods retailers.
US markets are lower at the open this morning as the market's focus has shifted from 2,000 on the S&P 500 back to Ukraine and Russia's ongoing battle. With news of a new front opened against the Ukrainian forces in eastern Ukraine by forces which crossed the border, the common thinking is that Russia is now looking to secure an area in southeastern Ukraine to potentially connect current Russia to Crimea. The latest move is troubling to the West, especially as new intelligence is showing that these forces are most likely Russian as the equipment is not hardware that the Ukrainian armed forces used and the training required to operate would not yet be completed if the Russians had agreed to train the separatists.
The sad thing is that the Russians and Ukrainians were meeting to attempt to reach a ceasefire, but it seems that the West will have to step up diplomatic efforts if they believe that Ukraine is worth saving (or that it is necessary to stop Russia early on in their quest to increase their borders). The US has quite a few chips that it could play, including supporting Russia's ally in Syria and teaming up to take out ISIS so long as Ukraine is spared, or even inserting the proposed European missile shield back into the conversation. If one is afraid of Russian expansionism, it is necessary to recognize what scares the Russians, and that is having a sophisticated anti-missile system that would take away one of Russia's strategic deterrents.
Chart of the Day:
One of the big, consistent winners we have talked about this year, the Financial Select Sector SPDR (NYSEARCA:XLF) has outperformed the S&P 500 and is once again breaking out. There are headwinds developing, which we talk about later in the article, but the move this year, especially off of the lows, has been impressive.
Source: Yahoo Finance
We have economic news today, and it is as follows:
- Initial Claims (8:30 a.m. EST): Est.: 302k Act: 298k
- Continuing Claims (8:30 a.m. EST): Est.: 2520k Act: 2527k
- GDP - 2nd Estimate (8:30 a.m. EST): Est.: 4.0% Act: 4.2%
- GDP Deflator - 2nd Est. (8:30 a.m. EST): Est.: 2.0% Act: 2.1%
- Pending Home Sales (10:00 a.m. EST): Est.: 0.5%
- Crude Inventories (10:30 a.m. EST): Est.: N/A
The Asian markets are lower today:
- All Ordinaries - down 0.47%
- Shanghai Composite - down 0.62%
- Nikkei 225 - down 0.48%
- NZSE 50 - down 0.12%
- Seoul Composite - up 0.04%
In Europe, the markets are lower this morning:
- CAC 40 - down 0.70%
- DAX - down 1.39%
- FTSE 100 - down 0.34%
- OSE - down 1.00%
Financial Firms Facing Cyber Attacks
The financial sector as a whole has been a winner over the past year, with the last month seeing strong gains after a brief pullback. The Financial Select Sector SPDR has been in an uptrend during the last year, carried by the performance of the insurance companies as the banks sat on the sidelines. Interest rates have remained stubbornly low and forced investors to wait for the banking stocks to provide the next leg up.
While interest rates are the main focus for investors at this point, cyber attacks could very well become an anchor for the banking industry if they continue at this rate. While the most recent reports name JP Morgan Chase (NYSE:JPM) as a hacking victim, the other four banks have not been named and there is the potential that more than four other financial firms experienced the same type of attacks.
In recent years we have seen hacking attacks against financial institutions increase, with the motives ranging from financial theft to political/foreign affairs. The attacks from Iranian hackers in the last year which aimed to overload banks' servers in an effort to crash them (known as DDoS attacks) were directed at numerous banks, including regionals such as BB&T (NYSE:BBT). We are interested in seeing what the investigation by the FBI, Secret Service and NSA turn up, but all of these recent attacks indicate that we have entered a new era where security costs could be the fastest growing expense for financial institutions over the next decade or two.
Home Goods Retailer Disappoints
Although Williams-Sonoma (NYSE:WSM) met the current quarter EPS and revenue analyst consensus estimates, the guidance for next quarter was much weaker than investors and Wall Street pros were anticipating. While the revenue numbers were not adjusted downward that much, with the high range now being equal to the consensus analyst estimate, the EPS range was revised down to between $0.58-$0.63/share.
Last night's release was a total surprise to investors as Williams-Sonoma had hit fresh 52-week highs on the session.
Source: Yahoo Finance
With the other brands that Williams-Sonoma owns, such as Pottery Barn and West Elm, we have always thought that one can gain some insight into the consumer from Williams-Sonoma. With the current state of retail and the weakness the company is now expecting, this could indicate further trouble for Bed, Bath & Beyond (NASDAQ:BBBY) moving forward. It is tough to get excited about the prospects for Bed, Bath & Beyond right now, and with many in the industry seeing their businesses coming under pressure from new competitors and a fickle consumer one has to be prepared for contrarian calls on the sector to take longer than expected to pay off. And with the sell-off that will occur today in Williams-Sonoma stock and Bed, Bath & Beyond shares having been so weak lately, there shall be many contrarian bets having been placed.
Additional disclosure: BBT, JPM & XLF have all previously been recommended.