Q-Week In Review: US Stocks Stable, Europe and China Tank
Aug 17, 2018
US Equity Markets
The S&P (+66bps), Russell 2000 (+40bps) and Nasdaq (-23bps) are essentially flat for the week. The lagging DOW is up over 1%.
Strong growth in retail sales and consumer spending supported US markets despite a serious political-economic confrontation between Turkey and the United States and continuing fears of slowing Chinese economic growth, triggered by tariff disputes, disappointing Chinese corporate earnings and a material YoY decline in Chinese fixed capital spending. The strength in retail spending suggests underlying economic momentum that may carry the strong growth of second quarter GDP into the third quarter.
The S&P is up 1.44% in the first half of August and 8.00% YTD; The Russell 2000 is up 1.38% MTD and 11.06% YTD; the Nasdaq is up 1.98% in the first half of August and 14.02% YTD; the DOW is up 1.20% MTD and still lagging materially YTD at +5.36%.
The tale of the tape is quite different in Europe and Asia. Fears of Erdogan’s hardening stance toward US tariffs and sanctions has exacerbated European concerns of contagion from the Turkish crisis, especially as it affects European banks which have material exposures to Turkey.
The Euro Stox 600 is down 2.47% in August and is up 0.68% YTD. The mighty DAX was the loser of the month at -4.65% in August and posted a -5.47% YTD return, among the worst in Europe. The FTSE 100 is -2.21% for the month but has eeked out a 0.58% YTD return. The CAC 40 was down -3.02% MTD but is relatively the best performer for the year at +3.25%.
Chinese markets are afflicted, at the moment, with uncertain expectations caused by rising qualms that the Chinese economy has hit a wall, particularly after national champion Tencent’s disappointing earnings and sharp declines in YoY fixed capital investments. FCI accounts for over 40% of Chinese GDP growth. These concerns may abate as China has reported that it will send a trade negotiations team to Washington led by Wang Shouwen, Vice Minister of Commerce.
Any potential slow-down in China has direct implications for Japan: China is the largest export market for Japan. Japanese exports to China are 20% higher than exports to the United States and represent approximately 30% of Japan’s total exports.
Chinese indices sharply declined in the past week with the Hang Seng China Enterprise Index down 4.63% MTD in August and -7.00% YTD. The Hang Seng is down 4.67% MTD and -6.67% YTD. The Nikkei 225 has done relatively better with a -1.26% decline in August and a -1.18% YTD return.
In addition to our 17 Global Top Picks models, we highlighted a number of our Top Buys this week. Click on any name for detailed information:
Activision Blizzard (ATVI) - Top Buy - US Information Technology
Brooks Automation (BRKS) - Top Buy - US SMID-Cap and US Information Technology
CME Group Inc (CME) - Top Buy - US Large-Cap
Denny's Corporation (DENN) - Top Buy - US SMID-Cap and US Consumer Discretionary
Las Vegas Sands (LVS) - Top Buy - US Consumer Discretionary
Micron Technology (MU) - Top Buy - US Information Technology
Planet Fitness (PLNT) - Top Buy - US Consumer Discretionary
Rocky Brands Inc (RCKY) - Top Buy - US SMID-Cap
Shire Plc (LSE:SHP) - Top Buy- European Large-Cap and United Kingdom All-Cap
TJX Companies (TJX) - Top Buy - US Large-Cap and US Consumer Discretionary
UnitedHealth Group (UNH) - Top Buy - US Large-Cap
Vail Resorts (MTN) - Top Buy - US Large Cap and US Consumer Discretionary
Volvo AB (OM:VOLV B) - Top Buy - European Large-Cap
Western Digital Corp (WDC) - Top Buy - US Information Technology
This week, we closed a number of Q-Options*:
AbbVie Inc (ABBV) -- Long Call Spread -- +43.79% return on premium
California Resources Co (CRC) -- Call Write -- +85.00% return on premium
Devon Energy Corporation (DVN) -- Call Write -- +81.05% return on premium
Hess (HES) -- Call Write -- +86.09% return on premium
PNC Financial Services Group (PNC) -- Short Strangle -- +23.69% return on premium
*Returns are not annualized
We also published the following trade ideas this week:
Activision Blizzard (ATVI) - Yield Enhancement - Short Strangle
Adobe Systems (ADBE) - Bullish - Call Spread Collar
California Resources Co (CRC) - Bearish/Yield Enhancement - Call Write
PG&E Corporation (PCG) - Bullish/Yield Enhancement - Put Write
Red Hat (RHT) - Yield Enhancement - Short Strangle
Skyworks Solutions (SWKS) - Yield Enhancement - Short Strangle
The Sherwin-Williams Company (SHW) - Bullish/Yield Enhancement - Put Write
Universal Display (OLED) - Bearish/Yield Enhancement - Call Write
Please note Option trade ideas should be executed on the days they are released – changes in underlying price and implied volatility will significantly affect strike and tenor. Also, please watch for closing trade notifications which are published daily.
This week, a new Crypto QuantShot was published which examines the difference between "Air Drops" and "Smart Drops" when raising capital for new ICOs.
Our crypto signals have been updated twice this week, most recently on Thursday, August 16th. Bitcoin's trading signal was "Do Not Own" earlier in the week, which avoided a small downdraft. It was upgraded to a "Buy" on Thursday morning, and participated in the recent price increase. Highlights of our most recent signals are:
- Bitcoin (BTC) -- Buy with an accuracy rate of 63.62%
- Bitcoin Cash (BCH) -- Do Not Own with an accuracy rate of 65.88%
- Ethereum (ETH) -- Do Not Own with an accuracy rate of 64.12%
- Litecoin (LTC) -- Do Not Own with an accuracy rate of 63.83%
- Ripple (XRP) -- Do Not Own with an accuracy rate of 63.52%