Monday 7/1/19=DJIA +117 NASDAQ +85
The market blasted off at the open, then it sold off, and then it finished strong. But first, here is how June ended.
- Stocks closed out a stellar June on a winning note, boosted by gains from big bank stocks after they raised their dividend payouts and share repurchase plans.
- The S&P 500 rose 6.9% for the month, marking its best June performance since 1955, and 4.5% for the quarter; halfway through 2019, the S&P has surged 17.4%, its best first half of the year since 1997.
- End-of-quarter rebalancing likely factored into today's action, but investors' top focus was the Trump-Xi meeting scheduled for tonight, with the consensus view that the two sides will agree to keep talking and withhold any additional tariffs.
- All 11 S&P sectors ended higher, but the financials group (+1.4%) was the biggest winners, rising on the back of bank stocks after the Fed did not object to the capital plans of 18 of the largest banking institutions, which prompted the dividend and buyback moves.
- U.S. Treasury prices ended little changed, with the two-year yield staying flat at 1.74% and the 10-year yield shedding one basis point to 2.00%.
- WTI crude fell 1.6% to $58.47/bbl following news that several EU nations set up a trade channel with Iran to avoid U.S. sanctions.
Here was the mood of the market as we started a new week and a new month.
- Stock market futures point to strong gains when U.S. markets open, following advances in Asia and Europe.
- Futures on the tech-heavy Nasdaq jump 1.7%, while the S&P futures gain 1.1% and Dow futures point to a 274-point, or 1.0% advance.
- The moves reflect investors' relief after a U.S.-China trade truce was reached this weekend.
- The Stoxx Europe 600 Index rises 0.8% in morning trading.
- In Japan, the Nikkei 300 Index closed up 2.0% and the Shanghai Composite Index rose 2.2%.
- Crude oil rises 2.8% to $60.90 per barrel after Russia and Saudi Arabia agreed to extend by 6-to-9 months the OPEC+ oil supply cut deal.
- 10-year Treasury yield rises 2 basis points to 2.024%.
- Dollar Index rises 0.4% to 96.51.
Here is what got the market going at the open.
- The U.S. will restart trade negotiations with China after President Trump met with Xi Jinping during the Group of 20 summit in Japan.
- Trump said he agreed the U.S. would pull back on restrictions on Huawei and delay slapping new tariffs on Chinese goods with negotiations ramping back up, while China is expected to buy large quantities of U.S. agricultural products.
There was also some progress with North Korea over the weekend.
- At a quickly arranged meeting between President Trump and North Korean leader Kim Jong Un in the demilitarized zone, the two leaders agreed to restart nuclear talks.
- They agreed to designate nuclear negotiating teams that will begin work over the next several weeks, Trump said.
- U.S. Secretary of State Mike Pompeo said that the U.S. special representative for North Korea, Stephen Biegun, would probably start the new working-level talks with North Korean counterparts in the middle of July at a location yet to be determined.
- Pompeo said the two sides don't have a common definition of denuclearization, but adds that they're "not at square one."
I could not agree more!
- "Monetary policy can no longer be the main engine of economic growth, and other policy drivers need to kick in to ensure the global economy achieves sustainable momentum," the Bank of International Settlements warns in its Annual Economic Report.
- The BIS calls for better balance among monetary policy, structural reforms, fiscal policy, and macroprudential measures to shift from the "debt-fueled growth model that risks turbulence ahead."
- The comments echo statements made by European Central Bank President Mario Draghi earlier this month, saying that structural reforms need to be stepped up to support economic growth in EU markets.
- The BIS is owned by 60 central banks that represent countries that together account for ~95% of world GDP.
U.S. economy still going strong.
- US PMI Manufacturing Index 50.6 vs. 50.1 consensus, 50.5 prior.
Big deal in the railroad sector to start the week.
- Genesee & Wyoming (NYSE:GWR) stockholders will get $112 in cash per share of common stock, representing a premium of 39.5% to G&W's unaffected per share price on March 8, 2019.
- Deal is expected to close by year end or early 2020.
- Brookfield Infrastructure's (NYSE:BIP) investment will be ~$500M of equity. The remainder of the business will be owned by Brookfield's institutional partners and GIC.
- Brookfield Infrastructure's investment will be funded from existing liquidity, which totaled ~$1.9B at June 30, 2019.
- Applied Materials (NASDAQ:AMAT) to acquire all outstanding shares of Kokusai Electric Corporation for $2.2B in cash from global investment firm KKR.
- Kokusai Electric is a leading company in providing high-productivity batch processing systems and services for memory, foundry and logic customers.
- Kokusai Electric will operate as a business unit of Applied’s Semiconductor Products Group and is expected to be immediately accretive to companys non-GAAP EPS at close.
- The transaction will be funded using a combination of balance sheet cash and a term loan facility.
- The transaction is expected to close within ~12 months.
- AMAT +3.58% premarket.
Apple finally breaks through $200 per share.
- Wedbush estimates that the US-China trade truce could add $20 to $25 to Apple (NASDAQ:AAPL) shares.
- Last week, the WSJ reported that Apple planned to offshore its US-assembled Mac Pro line to China. The Mac Pro is the only major Apple device assembled in the States.
- Apple shares are up 2.8% pre-market to $203.40.
Semis take off.
- Semi names are showing pre-market strength after Presidents Trump and Xi agreed to a US-China trade truce.
- Early movers include NeoPhotonics (NYSE:NPTN) +21%, Lumentum (NASDAQ:LITE) +7.7%, Micron (NASDAQ:MU) +6.3%, and Nvidia (NASDAQ:NVDA) +4.7%.
- Related: Western Digital is gaining on the truce and a Mizuho upgrade.
More bad news for Boeing.
- Boeing's (BA) 737 MAX jets likely will be grounded until late this year in light of the new problem that emerged with the plane's in-flight control chip, a company official says.
- “We’re expecting a September time frame for a full software package to fix both MCAS and this new issue,” the official says. “We believe additional items will be remedied by a software fix.”
- Once the software package is submitted, it could take at least another two months before the planes are flying again; the Federal Aviation Administration will need time to re-certify the planes, Boeing will need to reach agreement with airlines and pilots unions on how much extra training pilots will need, and the airlines will need time to complete necessary maintenance checks.
- Federal prosecutors have subpoenaed records from Boeing (NYSE:BA) relating to its 787 Dreamliner and employees at the company's South Carolina manufacturing plant, according to the Seattle Times.
- The subpoena was issued by the U.S. Department of Justice, which is also conducting a criminal investigation into the certification and design of Boeing's 737 MAX after two deadly crashes.
- It's not yet clear, however, if the subpoena was issued by the same prosecutors overseeing the 737 MAX investigation.
- Interesting weekend read: Check out 'Boeing's 737 Max Software Outsourced to $9-an-Hour Engineers' by Bloomberg's Peter Robison and come back here to comment.
I sent out tweets on the following stocks today: RUN, ASML, RARX, TDOC, RUBI, IDXX, CSGP, COUP, ADBE, ABMD & AAPL.