morning-quant-ride

Morning Brief

Wake up to the Morning Quant Ride, your global markets update every morning!

Global euphoria persists with S&P 500 2% off its all time-high, US futures flat, looking for higher ground

Apr 02, 2019

Actionable and Transparent Quantitative ResearchActionable and Transparent Quantitative Research
Actionable and Transparent Quantitative ResearchActionable and Transparent Quantitative Research

 

 

Market data as of 7am EST

 

US Stocks Preview Ahead of the Open

  • Global markets are trying to push higher while US stocks index futures are flat with front-month Dow Jones minis +0.00%, S&P 500 minis +0.05% and Nasdaq 100 minis +0.05%
  • A delegation from China, led by Vice Premier Liu He, will arrive in Washington tomorrow to continue trade talks
  • Banks continue to raise their price expectation for oil, with the average price for Brent crude expected to be $68 in 2019 and WTI at $60, according to a WSJ poll of banks; the general expectation is for a rising price until June and then a pull-back towards the end of the year
  • US Durable Goods Orders for February will print today with a 1.8% drop expected
  • Trend-following traders, commonly referred to as CTAS, had their best quarter in 1Q since late May 2017.  Of course, the catch is that the average return was a paltry +1.9%!  What gives?  The reality is that many of the CTA strategies are systematic with the algorithms fitted to older data which is no longer relevant to current market conditions.  The industry had its worst outflows in over 10 years in CY2018.  OUCH! 
  • Bloomberg is out arguing this morning that the S&P500 will make a new all-time high sometime in the next 12-months.  A low interest rate environment should continue to fuel a rally in stocks given the fact that the discount rates for valuations will remain narrow.  However, this optimism is in contrast to analyst expectations for stocks, a good barometer of bottom-up valuation for the S&P 500.  Unless expectations for stocks continue to rise, any rally in the S&P 500 will take valuation multiples like the P/E to extremely high levels -- seems unrealistic.
  • Bitcoin has surged 20% this morning, briefly trading over $5,000, moving sharply after passing the $4,200 level
  • The VIX is flat this morning and is currently at 13.47 after closing at 13.4 yesterday
  •  iShares MSCI Emerging Markets ETF (EEM) May 17 OTM  Puts, Financial Select Sector SPDR Fund (XLF) April 18 & May 3 Calls and iShares China Large-Cap ETF (FXI) May 17 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 -2.14 basis points to 2.4795%
  • The US Treasury 2s-10s Spread has widened 0.48 basis points to 0.17%
  • WTI Crude is currently up 2.41% to USD$61.59/bbl with the Brent-WTI spread down USD$-2.4 to USD$7.41/bbl
  • Gold is currently little changed -0.05% to USD$1287.06/oz

Stocks Trending in the News

 

Click name for Q-Factor breakdown, latest price details, more financial info and sentiment data.

Global Consumer Stocks Trending in the News

  • Amazon (AMZN) intends to cut prices on hundreds of prices at its Whole Foods stores as it looks to change the high-cost image of the brand.  Amazon is cutting the price of over 500 items, according to a report in the WSJ.  The cuts are set to be made Wednesday and are the largest of its kind at the store, ever, with the average cut around 20%.  Amazon is looking to extend its reputation for low prices to its Whole Foods stores.  Amazon is rated “Neutral” in our US Large-Cap Global Top Stock Ideas and “Top Buy” in our US Information Technology Global Top Stock Ideas.
  • Lear Corp (LEA) said it will acquire Xevo Inc for $320 million.  Xevo is a maker of automotive software that connects drivers with food, fuel and parking establishments.  Lear expects to close the transaction in the second quarter and will pay for the acquisition through debt financing.  Lear said regulators will need to approve the deal.  Lear Corp is rated “Neutral” in our US Large-Cap Global Top Stock Ideas and “Attractive” in our US Consumer Discretionary Global Top Stock Ideas.
  • Tesco (LSE:TSCO) got further bad news with news that UK supermarket sales grew only 1.2% overall for the four weeks ending March 23rd.  This compares to 2.5% the previous month.  The uncertainty surrounding Brexit and the economy have caused shoppers to pull back from shopping at large chains and have shifted more purchases to discounters.  Tesco is rated “Neutral” in our United Kingdom Global Top Stock Ideas.
  • Walgreens Boots Alliance (WBA) reports weak results and slashes guidance.  Fiscal second quarter EPS of $1.64 came well below $1.72 consensus.  Walgreens posted sales of $34.53 billion came in line with $34.52.  Retail sales fell 3.8% while a 2.2% drop was expected.  Pharmacy sales grew 1.9%, below the 3.0% expected.  Walgreens now sees flat EPS growth this year, cutting its original guidance of 7-12% EPS growth.  Walgreens Boots Alliance is rated “Attractive” in our US Large-Cap Global Top Stock Ideas and “Neutral” in our US Consumer Staples Global Top Stock Ideas.
  • Walmart (WMT) announced customers will be able to order groceries through Alphabet’s Google (GOOGL) assistant by saying “Hey Google, talk to Walmart.”  This functionality comes from a partnership with Google that Walmart announced in 2017 but has yet to bear any fruit.  Shoppers only use voice assistants for about 4% of purchases presently but that is expected to increase significantly.  Walmart is rated “Top Buy” in our US Large-Cap Global Top Stock Ideas and “Attractive” in our US Consumer Staples Global Top Stock Ideas.  Alphabet is rated “Neutral” in our US Large-Cap Global Top Stock Ideas and “Neutral” in our US Information Technology Global Top Stock Ideas.

Global Information Technology and Communication Services Stocks Trending in the News

  • Comscore (SCOR) said both its CEO and President are resigning the company, prompting the stock to lose over a quarter of its value.  The announcement also caused a wave of downgrades as both executives were on the job barely a year.  CEO Bryan Wiener said he and the board “had irreconcilable differences on how to execute the company’s strategy.”  Comscore is rated “Neutral” in our US SMID-Cap Global Top Stock Ideas and “Neutral” in our US Information Technology Global Top Stock Ideas.
  • Tencent (TCEHY, SEHK:700) is planning to raise $5 billion in a dollar-denominated bond sale as soon as tomorrow.  Tencent has received approval for up to $6 billion to be sold, but reports are for a $5 billion sale.  Tencent will use $3 billion to pay maturing debt and the rest for operations.  Tencent plans to continue to spend heavily on content acquisition.  Tencent is rated “Neutral” in our China All-Cap Global Top Stock Ideas.

Global Industrials Stocks Trending in the News

  • Lyft (LYFT) shares plummeted in the second day of trading, closing well below its IPO price.  As research reports begin to emerge on the stock, analysts are questioning its growth strategy and the likelihood of a slowdown.  Of seven initiations of coverage, 5 are holds and only 2 are buys.  Lyft is not yet rated in our Global Top Stock Ideas.
  • Norfolk Southern (NSC) was upgraded by Bank of America Merrill Lynch to buy.  Bank of America also hiked the price target of Norfolk Southern to $205 from $190.  Norfolk Southern posts “continued gains” in its performance metrics of its Precision Schedule Rail division.  There is room for further upside improvement there, Bank of America notes.  Norfolk Southern traded at its highest level since July 1980.  Norfolk Southern is rated “Attractive” in our US Large-Cap Global Top Stock Ideas and “Neutral” in our US Industrials Global Top Stock Ideas.

Global Commodities & Power Stocks Trending in the News

  • ExxonMobil (XOM) is in talks to sell assets in Nigeria in both offshore and onshore businesses, according to Reuters.  ExxonMobil has held talks with local Nigerian companies about sales in assets that it has partnered with Nigeria’s national oil company NNPC.  Sales could raise up to $3 billion for ExxonMobil, Reuters notes.  ExxonMobil is rated “Unattractive” in our US Large-Cap Global Top Stock Ideas. 
  • Vale’s (VALE) curtailed mining operations is being felt more broadly as Brazil’s Ministry of Mines and Industry reports fell to 22.18 tons in March from 29.95 tons a year ago.  Vale had been whittling away at its inventory but going forward the lack of production will begin to be felt more.  Goldman Sachs raised its expectation for iron ore to $85 per ton.  Vale ha shuttered over 90 tons of production and for now is focused on safety and not restoring production.  Vale is rated “Neutral” in our Brazil All-Cap Global Top Stock Ideas.

Global Financial Stocks Trending in the News

  • BlackRock (BLK) is about to embark on a sweeping overhaul of its structure as it seek to maintain growth with its massive size.  BlackRock announced the effort in an internal memo.  BlackRock is reorganizing sales and moving a number of senior executives while adding responsibilities to 2 key executives that are in the running to succeed CEO Larry Fink.  BlackRock presently has over $6 trillion in asset under management and is looking to expand into new areas.  BlackRock is rated “Neutral” in our US Large-Cap Global Top Stock Ideas.
  • Deutsche Bank’s (DB:DBK) potential merge with Commerzbank (DB:CBK) got a push from Germany’s Finance Minister after he called for a “strong banks” in Germany that can funds its export-led economy.  Labor unions have been adamantly against the merger which will require the shedding of thousands of jobs.  Since announcing plans to merge in March, the government has been quiet with these comments the first since then.  Deutsche Bank’s CEO said a decision will be made by April 26th.   Deutsche Bank is rated “Neutral” in our European Large-Cap Global Top Picks.  Commerzbank is rated “Unattractive” in our European Large-Cap Global Top Stock Ideas.

 

Better Data for Better Investment DecisionsBetter Data for Better Investment Decisions
Better Data for Better Investment DecisionsBetter Data for Better Investment Decisions

International Stock Markets Recap

  • The Euro Stoxx 600 is currently up +0.25%, the FTSE 100 is higher by +0.71%, the DAX has risen +0.46%, and the CAC 40 is up +0.34%
  • Automobiles & Parts (+1.26%), Banks (+0.63%), and Insurance (+0.59%) stocks are the top performers in the Euro Stoxx 600 today
  • Telecommunications (-0.41%), Health Care (-0.36%), and Construction & Materials (-0.09%) 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 2.35x
  • 154 stocks in the Euro Stoxx 600 are at 4-week highs while 18 stocks are at 4-week lows
  • 61 stocks in the Euro Stoxx 600 are overbought while 10 stocks are oversold according to the 16-day RSI Measure
  • The Nikkei 225 finished down --0.02%, the Hang Seng ended up +0.21%, the Hang Seng China Enterprise declined -0.09%, and the CSI 300 was -0.07%
  • Investor sentiment for Japanese stocks finished positive with the advance/decline ratio for the Nikkei 225 closing at 1.3x
  • 49 stocks in the Nikkei 225 hit 4-week highs while 1 stock reached a 4-week low
  • 9 stocks in the Nikkei 225 closed overbought while 3 stocks closed oversold according to the 16-day RSI Measure
  • Investor sentiment for Hong Kong stocks finished neutral with the advance/decline ratio for the Hang Seng closing at 1x
  • 26 stocks in the Hang Seng hit 4-week highs while 1 stock reached a 4-week low
  • 16 stocks in the Hang Seng closed overbought while 0 stocks closed oversold according to the 16-day RSI Measure

 

Stock Model PortfoliosMulti-factor quantitatively optimized portfolios risk-adjusted to provide investors an ATTRACTIVERISK/RETURN TRADE-OFF
Stock Model PortfoliosMulti-factor quantitatively optimized portfolios risk-adjusted to provide investors an ATTRACTIVERISK/RETURN TRADE-OFF