The NASDAQ and the S&P 500 ended up, riding the wave of Apple’s astronomic rise. The Dow, which is price-weighted, as opposed to weighted by market cap, ended negligibly off, without benefitting from the sheer strength of the iPhone maker. Hitting $1 trillion is a long-anticipated goal, a numbered few companies outpaced by Apple to the top. With Google, Amazon, and Microsoft not far behind, Apple has charged forward of late, driven by continued, strong iPhone sales, backed by its iPhone X, priced at a $1,000. The company, likewise, has seen service revenue soar, from apps to Apple Pay, while at the same time insulating itself from privacy concerns which have hampered of late other powerhouses like Facebook, Twitter, and Google. With issues about trade with China taking backseat to Apple, the NASDAQ and the S&P 500 got the green light to soar. Not the first $1 trillion company, globally, the others are partially if not fully governmentally owned, yet to go public, meaning that Apple’s feat is all the more impressive, for a company that lost over $2 billion in two-years in the mid-90’s. The company, catapulted higher by Job’s iPhone, has since blast past competitors, making it the world’s most valuable truly publicly traded company.
On the geopolitical front, we’re yet to see who is going to flinch first, Trump or Jinping. The Shanghai Composite Index, off 2% yesterday, has fallen 21% since January’s peak. Also, on Bloomberg, news broke yesterday that Japan had dethroned China as the country with the second largest stock market. China’s Yuan on a downtick, coupled by a decline in the stock market, Chinese investors have taken a hit, but by the same token, a devalued currency can fuel growth and offset part of tariffs’ bite.
And it would seem that on the Chinese front, given the Communist party rule, as well as hopes for a stronger market hereon in, that the country might ride out the storm and out-joust Trump. On the one hand, China may be more resilient that initially anticipated; on the other, with mid-terms around the corner and Trump’s base of farmers taking a hit, we may see Trump cave in a little, only to frame it as a victory.
First Shanghai Securitie’s Linus Yip, based in Hong Kong, noted, “The market will likely continue to hover at low levels for the next couple of months but there’s still a chance that China’s stock market will recover with total capitalization ascending to the world’s No. 2 place again. After all, the economic fundamentals are still stable and growth momentum will resume after a short-term downturn.”
On the macro-front, initial jobless claims were up 1,000 last week, but shy of expectations. Concomitantly, claims are near their lowest level since the 70’s, setting the stage for today’s crucial jobs report. Likewise, with Brexit negotiations facing one impasse after the next, the Bank of England, as expected, raised its main interest rate 25 basis point to 0.75%. On the U.S. front, 86% of reporting S&P 500 companies have beat earnings expectations. As of now, 60% of companies have reported. As for currency movement, the U.S. dollar continued to strengthen, the dollar index (DXY) up 0.5% to 94.127.
One of the prime stocks in yesterday’s trading was Tesla (TSLA), which has been killing short traders running to cover their positions. A day after reporting stronger than expected quarterly revenues, the electric carmaker soared 16%! While there is a fair amount of skepticism about the company, Musk stated that he expects Tesla to be profitable and cash-flow positive in the second half of the year. What should you watch with Tesla?! Musk’s tweets. Barclays PLC research analyst, Brian Johnson, stated way back when in June ’17, that the company’s price “seems to be more driven by ‘cult’ psychology and the flow of tweets,” coining in September of the same year the new term, “return on tweet.” Given the company’s here-to-date money losing operation, that could be a more apt metric than the typical profitability gauge, return on equity. So do watch for each and every tweet.
Another big mover was Teva Pharmaceutical (TEVA), which toppled 9.5%. Reporting top and bottom line numbers that beat the consensus, it was the decline in the sale of Copaxone that clobbered the company, along with numbers that point to a contracting market for generic drugs in the U.S.
More than anything we have to see how U.S. farmers fare with the ongoing trade war. Republican congressmen fearing for their seats, they have yet to spearhead any policy-oriented legislations quelling Trump’s executive powers, touted by the administration as a national security priority. With mid-terms nearing, we could see a backlash against Trump’s policy among his voter base if we don’t see progress made on the China front in the short-run. Given the multiplier effect, even though consumer spending has been strong, some business sectors are holding back on new investments given higher costs, and it could very well be that the GDP jump was short-lived given one-off attempts to make purchases before tariffs set in. At the same time, agricultural companies are looking for new shores in Latin America, where they can avoid tariffs.
On the IPO front, we’ve seen a big boost, a high profile offering yesterday, Sonos (SONO) trading far above its issue price. The company surged 33% on its first trading day. The Wall Street Journal, in a feature on the new issue, stated, “The IPO market has been booming this year, as 146 companies have raised $41.2 billion on U.S. exchanges, according to Dealogic. That is up more than 30% from last year’s dollar volume at this point in the year. Helping entice companies to go public, U.S.-listed shares that have debuted this year are up 14% on average.”
Market Summary: The Dow ended negligibly down. The S&P 500 rose 0.49% and the NASDAQ surged 1.24%. On the S&P 500, 7 of the r sectors ended up, tech leading the way with 1.4% gains. While consumer staples tacked on 1.1%, material and energy stocks were the biggest losers, ending 0.7% and 0.5% lower respectively. For the Dow, it was shares of Goldman Sachs (GS) and McDonalds (MCD) which offset the gains of Apple.
Economic Calendar: Nonfarm payrolls, the unemployment rate, average hourly earnings, and trade deficit numbers will be released at 8:30. Nonfarm payrolls will definitely move the market, given its utmost significance vis a vis Fed monetary policy. Then, at 9:45, the Markit Services Final PMI report will be released. The last key release will be the ISM Nonmanufacturing Index at 10:00.
Hot Stocks: TTWO, SYMC, AIG, SHAK, GPRO
Have a great trading day!