Friday 8/23/19=DJIA -525 NASDAQ -206
War with China.
Daily Wrap: Everything was going just fine this A.M. The market was up and Jerome Powell told us that he had our backs. But then China escalated the trade war between us and them. The market was okay at first, but then came Trump’s tweet. Sometimes I wish that he would tie that twitter finger behind his back. The market did an almost immediate 500 point about face.
I have given this current change in the situation between us and China a lot of thought, and I have come to the conclusion that China is going to do everything possible to keep Trump from winning a second term. This has now turned into all-out war.
Trading: I had two huge winners in the market today in Intuit and Salesforce, but their gains were tempered greatly by the escalation of the trade war today. I dumped one stock out of my Ultra Growth Portfolio today. I replaced it with a more vibrant stock. Gold stocks and the bond market had a very good day. Inverse funds also did well. I have a few inverse holdings now in my Emerging Growth Portfolio.
Seeking Alpha, Stocktwits, Twitter: I was active on social media today. I sent out tweets on the following stocks: LPCN, RWM, TZA, HMY, EUM, BA, AGQ, AGG, AG, and AEM.
Here is the news that got the whole thing started…
China to impose tariffs on $75B more of U.S. goods
• China will levy retaliatory tariffs on another $75B of U.S. goods, Bloomberg reports, citing a statement on the Ministry of Finance website.
• It will also resume 25% tariffs on U.S. autos starting Dec. 15.
• Futures now indicate a lower open for the S&P, Nasdaq, and Dow.
• The U.S. Dollar Index, which had touched 98.45 slips to 98.34.
• ETFs: YINN, YANG, GXC, CYB, FXP, PGJ
Jerome Powell came through with good news in Jackson Hole.
All eyes on Jackson Hole
• The annual Jackson Hole symposium is in the spotlight again today. While the gathering in the Grand Tetons typically gravitates toward academic discussions on policy, this year's meeting has heightened political, trade and rate considerations swirling around it.
• Federal Reserve Chairman Jerome Powell will make his first public remarks since the Fed cut interest rates for the first time in over a decade. The stakes are high for Powell with disagreement within the Fed over the strength of the U.S. economy and the pace of rate cuts.
Maybe cooler heads will prevail?
G7 on tap
• World leaders will start arriving in Biarritz, France today for the G7 summit scheduled for August 24-26. The summit takes places amid growing concerns of a global economic slowdown and an escalation of the U.S.-China trade war.
• Expectations are running low that any sort of official coordinated statement will be issued from the event, although some of the one-on-one meetings could be dramatic.
• The meeting marks a changing of the guards of sorts. German Chancellor Angela Merkel has lost influence ahead of her departure, while Italy just saw its prime minister resign. Boris Johnson will rep Britain amid the Brexit turmoil and Donald Trump strolls in looking for allies in the fight against China trade practices.
A bad economic report.
New home sales plunge 12.8% from dramatically revised lower June
• July New Home Sales: 635K vs. 645K expected, 728K prior (revised from 646K).
Can you believe it?
Mortgage rates fall to lowest level since November 2006
• 30-year fixed-rate mortgage averages 3.55% for the week ending Aug. 22, 2019, down 5 basis points from 3.60% in the previous week and 4.51% at this time a year ago, according to the Freddie Mac Primary Mortgage Market Survey.
• “The benefit of lower mortgage rates is not only shoring up home sales, but also providing support to homeowner balance sheets via higher monthly cash flow and steadily rising home equity,” said Freddie Chief Economist Sam Khater.
• Lower mortgage rates are boosting refinancing activity. On Wednesday, the Mortgage Bankers Association reported that refinancing increased to 62.7% of total applications in the week ended Aug. 16, 2019 from 61.4% in the previous week.
• 15-year FRM averages 3.03% vs. 3.07% a week earlier and 3.98% at this time a year ago.
• 5-year Treasury-indexed hybrid adjustable-rate mortgage averages 3.32% vs. 3.35% a week earlier and 3.82% at this time a year ago.
More easing from the ECB.
ECB works on 'package' deal for easing - ECB minutes
• The European Central Bank's July 24-25 meeting minutes show the Governing Council is taking a "package" approach to monetary easing.
• "Experience had shown that a policy package – such as the combination of rate cuts and asset purchases – was more effective than a sequence of selective actions," according to the minutes.
• Adjusting to the longer-than-expected soft patch European economic growth, council members agreed it's important "to demonstrate its determination and capacity to act and to be prepared to ease the policy stance further by adjusting all of its instruments, as appropriate, to achieve its inflation aim."
No deal yet.
Japan, U.S. stretch talks after falling short of trade deal
• Negotiators for Japan and the United States failed to come to agreement on a bilateral trade deal after marathon talks, but will try again on Friday in an effort to bring something of substance before the weekend's Group of Seven summit.
• U.S. and Japanese leaders will meet on the sidelines of that gathering, and U.S. Trade Representative Robert Lighthizer and Japanese Economy Minister Tohimitsu Motegi are trying to narrow gaps on agriculture and automobiles before that.
• Motegi says he'll fly straight to France and might join a meeting between Prime Minister Shinzo Abe and President Trump.
Excellent report on the economy.
Leading indicators rose more than expected
• July Leading Indicators: +0.5% at 112.2 vs. +0.2% consensus, -0.1% prior (revised).
• Coincident Economic Index +0.2% to 106.2.
• Lagging Economic Index +0.6% at 108.5.
Boeing seems to be turning the corner.
Boeing seen resuming 737 MAX commercial flight by year's end, analyst says
• Boeing's (BA +4.3%) strong advance today, which is adding more than 100 points to the Dow Indsutrial index, may have been sparked by positive comments from Cowen analyst Cai von Rumohr, who reiterated his Buy recommendation and $460 price target for the stock.
• The analyst says the Federal Aviation Administration certification flight for the 737 MAX could take place in 4-6 weeks, which would be a "key milestone" in Boeing's efforts to return the line of jets to service.
• Von Rumohr thinks no news is good news, saying the timeline for bringing the grounded 737 MAX back into service has not changed, essentially because the company has not stated otherwise.
• Boeing "has updated MCAS software and is developing software for the flight control microprocessor," and the company is "also working in parallel with airlines and regulators on pilot workload issues," von Rumohr writes.
• Separately, Reuters reports the FAA plans to test next month how pilots with around one year of experience flying 737 jets handle new software on the MAX model.
• The tests could indicate the FAA is making progress in the re-approval process of the MAX for commercial flight.
• BA's average Sell Side Rating is Outperform, but both its Seeking Alpha Authors Rating and Quant Rating are Neutral.
Buckingham likes it here.
Boeing still tactical buying opportunity - Buckingham
• Buckingham analyst Richard Safran reiterates his view that Boeing (BA +2.4%) remains a tactical buying opportunity, saying the stock could go to $400-$450 driven primarily by a 9% free cash flow yield based on roughly $30/share in FCF in 2020.
• "There hasn't been a lot of news recently regarding the MAX return to service. However, one bit of recent news (hiring hundreds of staff at its Moses Lake facility) supports the idea that BA may come close to achieving its early Q$ guide for a MAX return to service."
More veggie patties coming.
Impossible Foods bid up in secondary market
• Recent transactions in the secondary market value Impossible Foods (IMPSBL) as high as $5B, according to The Wall Street Journal.
• Traders cite global interest in the meat alternative producer.
• The interest in Impossible Foods has increased since Beyond Meat (NASDAQ:BYND) went public.
• While the forecast for the plant-based meat market ranges as high as $140B by 2030, big players such as Tyson Foods (NYSE:TSN) and Nestle (OTCPK:NSRGY) are also active in the space.
I agree. The high-dividend yield (6.8%) is a sign of deteriorating fundamentals.
Loop Capital sees L Brands decline extending
• L Brands (NYSE:LB) is down 7.69% and traded at a nine-year low of $17.61 earlier, but Loop Capital isn't calling a bottom just yet.
• The firm pushes its price target to $15 to rep further downside of almost 20%.
• During today's earnings call, L Bands management highlighted that the September 1 tariff impact is included in the company's guidance.
• Previously: Light profit guidance from L Brands (Aug. 21)
Another bull. I have featured this stock many times on Best Stocks Now. It continues to be one.
Bull calls Workday Best Idea
• Guggenheim analyst Nandan Amladi sees "healthy trends " in Workday's (WDAY +1.2%) user growth, noting that financials customers continue to grow at 40%+ overall.
• The analyst names WDAY as a Best Idea and says it "should be a core holding in a growth portfolio."
• Guggenheim maintains a Buy rating and $235 price target on WDAY. Workday has an Outperform average Sell Side rating.
A worst stock now?
HP -6% after Q3 beats, new CEO
• HP (NYSE:HPQ) reverses its initial post-earnings gains to drop 6% after Q3 beats and announcing Enrique Lores as the new CEO, effective November 1.
• Current CEO Dion Weisler is leaving for a family health matter and will remain with HP through January 2020 to help with the transition. Weisler will remain on the board until the next annual meeting.
• In Q3, Personal Systems revenue beat estimates with $9.69B. Desktops beat with $3.11B versus the $3B consensus while Notebooks had a narrower win with $5.63B versus $5.62B. Total unit sales were up 5% in the quarter.
• Printing revenue was $4.91B, below the $5.07B consensus. Supplies missed with $3.16B compared to $3.33B, and Consumer Hardware missed by about $10M with $588M. Total hardware units were down 9% in the quarter.
Salesforce.com EPS beats by $0.19, beats on revenue
• Salesforce.com (NYSE:CRM): Q2 Non-GAAP EPS of $0.66 beats by $0.19; GAAP EPS of $0.11 beats by $0.17.
• Revenue of $4B (+22.0% Y/Y) beats by $40M.
• Shares +4%.
A very nice beat, but they picked a bad day to report. Big position at Gunderson Capital.
Intuit EPS beats by $0.05, beats on revenue
• Intuit (NASDAQ:INTU): Q4 Non-GAAP EPS of -$0.09 beats by $0.05; GAAP EPS of -$0.17 beats by $0.19.
• Revenue of $994M (+15.0% Y/Y) beats by $29.98M.
• Shares +1.01%.