Thursday 6/6/19=DJIA +181 NASDAQ +40
Thursday saw good follow through to the Jerome Powell bounce. This is now a three-day rally. Here is a rap of what took place on Wednesday.
- Stocks added to yesterday's gains on continued hopes that the Fed might cut interest rates and the possibility that Pres. Trump's threatened tariffs against Mexico might not happen after all.
- Today's advance follows Tuesday's massive rally that was sparked by supportive commentary from Fed officials on the prospect for rate cuts, while Senate Republicans have warned they may block the planned tariffs on Mexico.
- "Any whiff of positive development around trade will get you a positive response from the market," says Matt Miskin, market strategist at John Hancock Investment Management.
- Ten of the 11 S&P 500 sectors closed higher, led by the defensive real estate (+2.3%) and utilities (+2.1%) groups, while energy (-1.1%) was the lone loser as U.S. WTI crude oil settled 3.4% lower at $51.68/bbl, now more than 20% below its April 23 peak above $66/bbl.
- A weaker than expected May ADP employment report helped boost U.S. Treasury prices although demand waned during the day, with the two-year yield finishing 4 bps lower to 1.84% and the 10-year yield ending flat at 2.12%.
- The Fed funds futures market now sees a 71.8% implied likelihood of a rate cut at the July 30 FOMC meeting.
Here was to mood of the market at the beginning of Thursday:
- U.S. stock index futures are modestly higher after booking their second-largest two-day gain of the year on hopes of a near-term rate move from the Federal Reserve.
- Contracts tied to the DJIA are indicating a 71-point opening bell advance, while those linked to the S&P 500 and Nasdaq suggest a 0.3% bump.
- The move upward follows the latest trade war comments from President Trump. "Our talks with China, a lot of interesting things are happening. I could go up another at least $300B... But I think China wants to make a deal."
One of the main pillars of the economy is the jobs market-it still looks good:
- Initial Jobless Claims flat at 218K vs. +215K consensus, 218K prior (revised).
- Continuous Claims: +20K to 1.682M vs. 1.660M consensus, 1.662M prior (revised).
Guess what? The ECB is leaving rates alone. Germany still has negative rates:
- The euro rises 0.4% against the U.S. dollar after European Central Bank's Governing Council said it now expects ECB interest rates to stay at their current levels through at least the first half of 2020.
- That timeframe compares with its last statement that expected to keep rates unchanged through the rest of this year.
- ECB keeps the benchmark deposit facility interest rate at -0.40%.
- They'll keep the rates steady for "as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term," the statement said.
They even discussed a rate cut! Europe needs more than monetary policy alone to get their economy going again.
- The European Central Bank President Mario Draghi says there's no bias to hiking rates vs. cutting them, during his press conference following the Governing Council monetary policy decision to keep key ECB rates unchanged.
- "If contingencies materialize, we stand ready to act," he said.
Do you notice a trend here?
- Growth impulses have weakened significantly, the Reserve Bank of India said as it cut its benchmark interest rate for a third time this year.
- The widely-expected move saw the repurchase rate reduced by 25 basis points to 5.75%, the lowest in nine years, to support an economy growing at the slowest pace since 2014.
- The six-member Monetary Policy Committee voted unanimously for the cut and switched its stance to "accommodative" from neutral.
- Indian shares continued to trade lower on the news, with the Sensex down 1.2%, while 10-year bond yield fell and the rupee strengthened.
Update on the Mexico situation:
- "Progress is being made" in talks with Mexico, according to President Trump, but "not nearly enough!"
- Discussions will continue today, but "unless an agreement is reached a 5% tariff on Mexican goods would begin on Monday."
- The peso yesterday slid as much as 1.3% as credit ratings agency Fitch downgraded the nation’s sovereign debt near junk status - citing risks posed by heavily indebted oil company Pemex and trade tensions - while Moody's lowered its outlook to negative.
The war between the U.S. and China escalates.
- The Trump administration is pursuing the sale of more than $2B worth of tanks and weapons to Taiwan, including 108 General Dynamics (GD +1.8%) M1A2 Abrams tanks and anti-tank munitions, Reuters reports.
- Such a move likely would anger China's government amid the current trade war with the U.S.
- The U.S. is the sole arms supplier to Taiwan, which is seeking to refresh its existing U.S.-made battle tank inventory which includes M60 Patton tanks.
A BEAR hits oil:
- The WTI crude oil price has dropped more than 20% below its April peak after closing -3.4% at $51.68/bbl, slipping below the $53.04 level needed to push oil into another bear market.
- Global growth concerns have sent WTI sliding since cresting above $66/bbl on April 23, exacerbated today as a weekly rise of 6.8M barrels in domestic crude supplies lifted total stockpiles to their highest level in nearly two years.
Walmart’s answer to Bernie Sanders:
- Walmart (WMT +1.6%) CEO Doug McMillon reportedly asked Congress to raise the federal minimum wage during an appearance today at the retailer's annual general meeting.
- Any federal wage hike from $7.25 per hour would likely be below the $15 per hour rate being advocated for by many labor groups and could even be below Walmart's current minimum wage of $11 per hour. Walmart says it pays an equivalent average of $17.50 per hour in wages when bonuses and benefits to associates are factored in.
AMD continues to be one of my favorite stocks:
I remain long in my Premier Growth Portfolio.
- Morgan Stanley upgrades AMD (NASDAQ:AMD) from Underweight to Equal Weight and lifts the target from $17 to $28.
- Analyst Joseph Moore says being cautious on AMD "has obviously been the wrong call" but sees "too much short-term optimism" and sees H2 consensus estimates as too high.
- Moore sees AMD's table as "set well for 2020" with sustained profits from cloud gaming-related products as a key growth catalyst.
- AMD shares are up 2.3% pre-market to $30.18.
Their stock is breaking out.
Data from www.BestStocksNowApp.com
Two more “terminal” retail chains?
- Gross margin decreased 450 bps to 28.8%.
- Adjusted SG&A expense rate increased 210 bps to 24.8%.
- Adjusted operating margin rate down 570 bps to 3.4%.
- Total sales were down 9.1% during the quarter and comparable store sales fell off 10.7%. Store sales were impacted by negative store traffic and a decline in average ticket, which was partially offset by an improvement in conversion.
- Kirkland's reports a net loss of $8.9M for the quarter vs. -$0.9M a year ago.
I sent out tweets on the following stocks on Thursday: OESX, SHOP, ABT, IBDRY, AMD, POOL, EVBG, and ROKU