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US Stocks at 5-month High Ahead of Fed Decision on Wednesday

Mar 19, 2019

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Market data as of 7am EST

 

US Stock Market Preview Ahead of the Open

  • US stocks index futures are climbing this morning, even after the S&P 500 closed at a 5-year high with front-month Dow Jones minis +0.41%, S&P 500 minis +0.41% and Nasdaq 100 minis +0.40% 
  • The US Federal Reserve (the Fed) is set to release its decision on interest rates tomorrow after the conclusion of the 2-day FOMC meetings. 
  • The United States is set to announce final January durable goods orders growth at 10:00 AM. Analysts expect growth of +0.4%, in line with December’s durable goods orders growth of +0.4%. 
  • The United States will also announce factory orders growth in January at 10:00 AM today. Analysts expect growth of +0.1% while December saw higher factor orders growth of +0.3%.   
  • Oppenheimer technical analysis strategists argue that the current rally in low volatility stocks is positive for the US stock market in general.  While the S&P 500 Low Volatility index is up +17% since the S&P500 hit its lows on December 24th, it has underperformed the broader S&P 500.  The divergence in performance suggests that while low volatility stocks have performed well, it is simply a function of broader re-rating of the S&P 500. 
  • A weaker US Dollar will be needed to help boost the S&P 500 further according to Bloomberg.  Unless the Greenback weakens in the second half of CY2019, we may not see a strong recovery in tech and materials stocks earnings – the two sectors who saw the largest EPS declines in 1H.  
  • After another “no vote” on her BREXIT Plan in the UK Parliament, UK Prime Minister Theresa May is looking for another extension to the deadline for the UK exit of the European Union (EU). 
  • The VIX is little changed this morning and is currently at 13.1 after closing at 13.1 yesterday
  • iShares China Large-Cap ETF (FXI) April 18 OTM Calls and Coty (COTY) May 2019 OTM Calls & Puts are the most actively traded options contracts in US pre-market trading this morning. 
  • US 10-Year Treasury Bonds are higher with yields down -0.36 basis points to 2.5997%
  • The US Treasury 2s-10s Spread has widened 0.06 basis points to 0.15%
  • WTI Crude is currently up 0.97% to USD$59.09/bbl with the Brent-WTI spread little changed USD$0.05 to USD$8.5/bbl
  • Gold is currently up 0.36% to USD$1308.36/oz
  • Current global crude oil prices will need a further rally in the US stock market and sustained production cuts from OPEC according to analysis by Bloomberg.  While Saudi Arabia has recently cut production targets, The Kingdom continues to produce 1mm bbls/day above CY2014 production levels.  This would suggest the current production cuts only address last year’s excess capacity and do not properly confront the impact of decelerating global growth on oil demand.  

Stocks Trending in the News

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Global Consumer Stocks Trending in the News

  • Coty (COTY) could be completely acquired by JAB Holdings Ltd. (AIM:JBH) in the wake of its offer for about 60% of the outstanding shares of the company, according to Consumers Edge Research.  In a note Consumers Edge comments that it believes that JAB will eventually offer to acquire the rest of the shares.  A special committee of the board of Coty recommended shareholders accept the offer from JAB.  Coty is rated “Top Short” in our US Large-Cap Global Top Stock Ideas and “Neutral” in our US Consumer Staples Global Top Stock Ideas.  JAB is not rated in our Global Top Stock Ideas.
  • DSW (DSW) reported fourth quarter adjusted loss per share of 7 cents missing consensus of 3.2 cents per share earnings.  DSW saw same store sales growth of +5.4%, above 5% consensus.  DSW announced a 3-year plan for growth that is will detail on investors day.  DSQ will also provide forward guidance at that time.  DSW is rated “Top Short” in our US Large-Cap Global Top Stock Ideas and “Neutral” in our US Consumer Discretionary Global Top Stock Ideas.
  • Kraft-Heinz (KHC) announced it has not met the deadline for filing its 10-K with the US SEC.  It is likely the delay is being caused by the SEC investigation recently announced into Kraft-Heinz’s procurement practices.  Kraft did not say how long until it expects to make the filing.  S&P placed Kraft-Heinz on credit watch because of the delay since it needs the 10-K to stay current with its credit rating.  Kraft-Heinz is rated “Unattractive” in our US Large-Cap Global Top Stock Ideas and “Attractive” in our US Consumer Staples Global Top Stock Ideas.
  • Overstock.com (OSTK) provided first quarter guidance, saying revenues will fall 17-19% “as a result of our return to a disciplined approach to marketing.”  Overstock fourth quarter revenue of USD$452.5 million trailed the USD$483.5 million consensus with a loss per share of USD$1.39.  Overstock’s CEO said there will be further administrative cost reductions in 2019 and the company expects to return to profitability this calendar year.  Overstock.com is rated “Neutral” in our US Large-Cap Global Top Stock Ideas and “Top Short” in our US Consumer Staples Global Top Stock Ideas.
  • Revlon (REV) shares are suffering after telling the market that is delayed 10-K filing may reveal “a material weakness” in its financial controls.  Revlon said it is having a problem with its enterprise planning software and it will cost USD$54 million to fix the problems.  Revlon said the delayed 10-K will not cause any change in its reported results.  Revlon is rated “Top Buy” in our US SMID-Cap Global Top Stock Ideas and “Top Short” in our US Consumer Staples Global Top Stock Ideas.

Global Information Technology & Communication Services Stocks Trending in the News

  • Apple (AAPL) debuted a new mid-tier model of its iPad and an update to the iPad mini.  The new iPad model is called the iPad Air and features an 10.5-inch screen; this model was phased out a few years ago when the iPad Pro was introduced.  The iPad min saw the first update since 2015.  The announcements come a week before Apple is expected to introduce a media and entertainment bundle with TV and streaming, including Apple produced content.  Apple is rated “Neutral” in our US Large-Cap Global Top Stock Ideas and “Neutral” in our US Information Technology Global Top Stock Ideas.
  • China Telecom (SEHK:728) reported full year net income that beat consensus.  Full year net income of 21.2 billion yuan beat the 20.44 billion yuan consensus.  China Telecom full year dividend per share is 12.5 Hong Kong cents per share.  China Telecom said 80% of its customers are using 4G at the end of the quarter.  China Telecom is focused on 5G rollout.  China Telecom is rated “Top Buy” in our China All-Cap Global Top Stock Ideas.
  • Tencent (TCEHY, SEHK:700) is planning on pruning the bottom 10% of present managers, according to a report in Bloomberg.  Tencent is making the move as it confronts slower growth.  It is said the pruning will occur mainly because it has not been done before.  Tencent is set to report results Thursday with consensus expecting a 16% drop in profit.  Tencent is rated “Neutral” in our China All-Cap Global Top Stock Ideas.
  • Twitter (TWTR) is the subject of a USD$250 million from Congressman Devin Nunes charging defamation.  Twitter was orchestrating an effort to harm Nunes, according to his suit.  It alleges Twitter “intended to generate and proliferate false and defamatory statements” about Nunes in an effort to intimidate him.  The content in question violated Twitter’s the platform’s user guidelines, it is alleged.  Twitter is rated “Unattractive” in our US Large-Cap Global Top Stock Ideas and “Top Buy” in our US Information Technology Global Top Stock Ideas.
  • Xiaomi (SEHK:1810) reported fourth quarter operating profit of 3.2 billion yuan, handily beating consensus of 1.6 billion yuan.  Xiaomi saw the average selling price of its phones at 1,005 yuan in 2018, up from 824 yuan in 2017.  Internet services revenue grew 39% y/y and accounted for 9.1% of Xiaomi’s revenue.  Xiaomi is rated “Neutral” in our China All-Cap Global Top Stock Ideas.

Global Commodities & Power Stocks Trending in the News

  • Antofagasta (LSE:ANTO) declared another large dividend in the wake of record production.  Antofagasta declared a 37 cents per share dividend which brings the total annual dividend to 43.5 cents per share.  That represents a 60.5% payout, well above the minimum 35% payout that is the company’s policy.  Record production and tight copper markets are benefitting Antofagasta.  Antofagasta is rated "Top Short” in our United Kingdom Global Top Stock Ideas.
  • Norsk Hydro (OB:NHY) is suffering production outages in the US and Europe in the wake of a cyber attack on its systems.   Norsk Hydro has moved production processes to manual mode where possible and where it is not, production has come to a halt.  Norsk is not ready to give a timeline for a return to normal as it is still accessing the problem.  Norsk Hydro is rated “Unattractive” in our European SMID-Cap Global Top Stock Ideas.
  • Rio Tinto (LSE:RIO) must face a lawsuit from the US SEC regarding the company’s valuation of its coal assets in Mozambique, according to a ruling from a federal judge.  In 2017 the SEC filed suit alleging the coal assets’ value were inflated by Rio Tinto when acquired in 2017.  Rio Tinto had sought to dismiss the case from the SEC but the judge ruled it can proceed.  Rio Tinto is rated “Neutral” in our United Kingdom Global Top Stock Ideas. 

Global Industrial Stocks Trending in the News

  • Union Pacific (UNP) was downgraded to hold from buy at Lop Capital today.  Union Pacific’s price target was cut to USD$182 from USD$193.  Loop commented that the dual problems of the ice cold polar vortex and extensive flooding in the Midwest will weigh on near term results.  Union Pacific is rated “Top Buy” in our US Large-Cap Global Top Stock Ideas and “Attractive” in our US Industrials Global Top Stock Ideas.

 

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International Stock Markets Recap

  • The Euro Stoxx 600 is currently up +0.66%, the FTSE 100 is higher by +0.33%, the DAX has risen +0.86%, and the CAC 40 is up +0.46%
  • Automobiles & Parts (+2.5%), Basic Resources (+1.22%), and Retail (+1.02%) stocks are the top performers in the Euro Stoxx 600 today
  • Real Estate (+0.02%), Construction & Materials (+0.18%), and Insurance (+0.28%) stocks are the worst performers in the Euro Stoxx 600 today
  • Investor sentiment for European stocks is positive with the advance/decline ratio for the Euro Stoxx 600 currently at 3.96x
  • 161 stocks in the Euro Stoxx 600 are at 4-week highs while 12 stocks are at 4-week lows
  • 104 stocks in the Euro Stoxx 600 are overbought while 4 stocks are oversold according to the 16-day RSI Measure
  • The Nikkei 225 finished down --0.08%, the Hang Seng ended up +0.19%, the Hang Seng China Enterprise up +0.1%, and the CSI 300 was -0.46%
  • Investor sentiment for Japanese stocks finished negative with the advance/decline ratio for the Nikkei 225 closing at 0.92x
  • 33 stocks in the Nikkei 225 hit 4-week highs while 5 stocks reached 4-week lows
  • 13 stocks in the Nikkei 225 closed overbought while 2 stocks closed oversold according to the 16-day RSI Measure
  • Investor sentiment for Hong Kong stocks finished positive with the advance/decline ratio for the Hang Seng closing at 2.13x
  • 14 stocks in the Hang Seng hit 4-week highs while 1 stocks reached 4-week lows

 

*Data in Price Return and Updated Real-Time (with a delay), Source: StockDio

 

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