ART HOGAN – Week in Review – August 2, 2019

Week in Review – August 2, 2019

 

Markets faced a number of catalysts this week with 160 S&P 500 companies reporting earnings, the FOMC cutting rates, and the July Jobs number reported, but it was the unscheduled catalyst that moved the markets the most.

In a series of tweets just before 2:00 PM ET on Thursday the president announced – “Our representatives have just returned from China where they had constructive talks having to do with a future Trade Deal. We thought we had a deal with China three months ago, but sadly, China decided to re-negotiate the deal prior to signing. More recently, China agreed to buy agricultural product from the U.S. in large quantities, but did not do so. Additionally, my friend President Xi said that he would stop the sale of Fentanyl to the United States – this never happened, and many Americans continue to die! Trade talks are continuing, and during the talks the U.S. will start, on September 1st, putting a small additional Tariff of 10% on the remaining 300 Billion Dollars of goods and products coming from China into our Country. This does not include the 250 Billion Dollars Already Tariffed at 25%.”

China’s foreign ministry pushed back against Trump’s latest tariff threat on Friday morning, reportedly saying the world’s largest economy should give up its illusions, shoulder some responsibility and come back to the right track on resolving the trade war. China’s spokesperson at the foreign ministry, Hua Chunying, said at a daily press briefing that Beijing would have to take countermeasures if the U.S. was committed to putting more tariffs on Chinese goods,

The new US-China trade escalation was enough to send the S&P 500 to its longest losing streak since March, and its worst week of 2019. For the week we saw the Dow Jones Industrials down 2.60%, the S&P 500 lower by 3.1% and the Nasdaq down 3.92%. The Transports were down 3.73% while the Russell shed 2.87%. The tip of the sword in the US-China trade war, the semiconductors were down 6.61%.

In other asset classes we saw WTI oil down 2% and Brent crude off 3.3% for the week.  Gold was higher by 1.6%. The yield on the US 10-year ended the week at 1.84, down 20 basis points for the week. The CBOE Volatility Index (VIX) shot up from 12.12 on Monday to end the week at 17.61, or about 45%.

We will get the tail end of earnings next week with about 60 of the S&P 500 reporting results. As is always the, the economic data calendar slows down a bit the week after the monthly jobs report. We will get Markit Services PMI; Ism Non-Manufacturing; JOLTS; Jobless Claims; and the July PPI.

Highlights for the Week

 

The Fed held it’s long awaited and much anticipated July meeting and cut the Fed Funds target rate 25 basis points, matching market expectations. The Fed statement went on to say it will “act as appropriate to sustain the expansion,” leaving the door open to future cuts. The rate cut saw two dissents, with Fed presidents Esther L. George of Kansas City and Eric Rosengren of Boston casting no votes, in line with expectations. The central bank also ended its balance sheet reduction two months earlier than planned, exceeding expectations. To justify the rate cut at this meeting the Fed cited implications of global developments for the economic outlook as well as muted inflation pressures.” The committee called the current state of growth “moderate” and the labor market “strong.”

The Institute for Supply Management’s index eased to 51.2 last month from 51.7 in June, according to data released Thursday.

Initial Jobless Claims came in at 215k for the week vs 207k last week, in line with estimates.

Nonfarm Payrolls for July came in at 164k vs 165k estimate and 193k in June

Pending home sales in June jumped 2.8% m/o/m which was well better than the estimate of up .5%. Growth was seen in all 4 regions, particularly out West with a 5.4% m/o/m increase. The overall index has improved to the best level since December 2017

The Conference Board’s July Consumer Confidence index bounced to 135.7 from a revised 124.3 in June (which was down 7 pts from May) and that about 10 pts better than expected. This increase puts confidence at the best level since November.

July vehicle sales totaled 16.82mm at a SAAR, below the estimate of 16.9mm, down from 17.3mm in June and it’s the slowest pace since April.

Square Inc. is selling its Caviar food-delivery app to DoorDash Inc. for $410 million, as the money-losing payments company searches for profits. The sale was disclosed as part of Square’s quarterly financial report Thursday, which failed to impress investors. The stock fell as much as 9% in extended trading. The San Francisco-based company gave a third-quarter profit forecast of 18 cents to 20 cents a share, trailing the average analyst estimate of 22 cents. It said adjusted revenue in the period will be $590 million to $600 million, compared with estimates of $599.5 million.

Apple reported earnings that were above expectations and its best third quarter ever EPS: $2.18 vs. $2.10 estimate. Revenue: $53.8 billion vs. $53.39B estimate. Q4 Revenue guidance: $61 billion to $64 billion versus $60.98 billion estimate.

London Stock Exchange Group’s investors backed its proposed $27 billion deal to acquire Refinitiv, the financial data and trading platform provider.

The direction of Brexit at this point with Boris Johnson now taking control looks more and more uncertain. The pound falls almost 2% on the week. The BoE is left powerless and paralyzed.

Pfizer Inc. is combining its business line of older blockbuster medicines with generic drug maker Mylan NV in a deal that will reshape the brand-name and off-patent pharmaceutical industries. Under the all-stock deal, Mylan investors would get 43% of the new entity and Pfizer investors the rest. The company will have sales of about $19 billion to $20 billion in 2020, the companies said in a statement.

Next Week’s Catalysts

Just about 60 S&P 500 companies report in the coming week, including media names like Disney, News Corp. and Viacom.

Monday

Earnings: Marriott, Shake Shack, Diamond Offshore, Avis Budget, Continental Resources, Solar Capital, Tenet Healthcare, Caesars Entertainment, Loews, CNA Financial, HSBC, Tyson Foods, Cabot, WPX Energy

8:30 a.m. Services PMI
10:00 a.m. ISM nonmanufacturing 2:00 p.m. Senior loan officers survey

Tuesday

Earnings: Disney, Bausch Health, Discovery, Regeneron, Match Group, Wynn Resorts, Hertz Global, Weight Watchers, Zoetis, Blue Apron, Host Hotels, Pioneer Natural Resources, Plains All American, American Financial Group, Planet Fitness, Papa John’s Icahn Enterprises, Chesapeake Energy, Pitney Bowes, Tenneco

10:00 a.m. JOLTS

Wednesday

Earnings: CVS, AIG, IAC/InterActive, Fox Corp, TripAdvisor, Roku, Zillow, Softbank, Teva Pharma, Capri Holdings, Cedar Fair, Wendy’s, NY Times, Hostess Brands, Switch, Eventbrite, Liberty Global, CenterPoint, NRG Energy, Royal Ahold

9:30 a.m. Chicago Fed President Charles Evans
3:00 p.m. Consumer credit

Thursday

Earnings: News Corp, Liberty Media, Viacom, Axa Equitable, TrueCar, Axon, Wheaton Precious Metals, Activision Blizzard, CBS, Dropbox, Yelp, Keurig Dr. Pepper, Adidas, Norwegian Cruise Line, AMC Entertainment, Lions Gate, Murphy Oil, Fiverr International

8:30 a.m. Jobless claims
10:00 a.m. Wholesale trade

Friday

Earnings: Tribune Media, WPP Group, Novo Nordisk, Diplomat Pharmacy

8:30 a.m. PPI

The views and opinions expressed herein are those of the analyst Arthur Hogan and are current as of this report’s posting date. This commentary is general in nature and should not be construed as investment advice. Opinions are subject to change with market conditions. Neither Art Hogan nor National Securities Corporation is affiliated with the issuers mentioned herein, and no part of this analyst’s compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the analyst in the report. The views & and strategies may not be suitable for all investors and is are not intended to be relied on for legal or tax advice. Please note that any investment involves risk including loss of principal