Picks of the Day December 28, 2017.
Stocks Eke out Gains
Buffett, more than anyone, perhaps is known for popularizing the idea of defining an economic moat. In his own words, “determining the competitive advantage of any given company and, above all, the durability of that advantage.” He’s said the more alligators and crocodiles, the better! Now, with all the hype around Apple, the question really is, “How powerful is their moat?” With allegations that Apple purposefully slowed down the operating system on some of its iPhones, the stock didn’t budge yesterday. Could the company ultimately lose some of its credibility – and could Samsung give it a fight for its money?! With a recent Bloomberg report highlighting the newly acquired wealth of the 500 richest people in the world (if you’re curious, they earned $1 trillion more last year!), attention is now also turning to whether Apple’s market cap will hit $1 trillion this year. Not only are the richest people in the world consolidating more and more wealth but the same could be said about the richest companies, Apple continuing to be the #1 company in the spotlight!
All-in-all, though the market ended up yesterday, halting a 2-day drop, activity was the slowest recorded for a full day this year. Stocks are on track to end up for the month. The Dow ended yesterday up 0.11%, the S&P 50 tacking on 0.08%. In brief, it was far from a Santa Claus rally. On the S&P 500, seven of eleven sectors ended up; real estate stocks and utilities tacked on 0.4%, industrial players up 0.3%. Crude fell 0.7%, energy stocks dropping 0.3% in turn.
On the Dow, the top winners were McDonalds (MCD) and Caterpillar (CAT), Goldman (GS) giving it its biggest losses. The tech-heavy NASDAQ edged up 0.04%, Microsoft (MSFT), Amazon (AMZN) and Facebook (FB) recording gains, but Google’s parent, Alphabet, falling more than half a percentage point.
One of the main focal points is whether valuations are too high now. Obviously, valuations are a function of expectations. The same way inflation is caused because people expect prices to rise, likewise, now, the big question is – whether they’re right or wrong – are investors too optimistic about the coming year? The answer, though, is complicated. Historical records show that when markets are overbought, they tend to rise even higher than when they’re not overbought! The latest AAII investor sentiment survey highlights that more than half of investors believe that the market will be trading higher in 6 months’ time, a high not seen in two years. The historical average for the survey is 38.5% of respondents expecting that outcome. Morgan Stanley couldn’t have said it better, noting that institutional investors were “loading the boat on risk,” likewise highlighting, “long/short net and gross leverage as high as we have ever seen it.”
LPL Financial’s chief investment strategist, John Lynch, noted, “Somewhat surprisingly, the future returns are actually stronger after such periods of overbought natures.” What does that mean for you? Lynch added, “For instance, a year after being overbought, the S&P 500 is up 12.8% on average versus the average gain of 8.8% and higher 12 out of 13 times, which suggests there may be a good chance for solid market returns next year.”
Now, on to the retail sphere. With Amazon (AMZN) and Walmart (WMT) going head-to-head, though Walmart is making up for lost digital ground, Amazon was the clear winner with between 45% and 50% of all online holiday retail sales. Amazon racked up for 38% of online sales last year. The crown jewel of Jeff Bezos’s empire, Amazon Prime, according to GBH Insights, now has 88 million accounts. Subscribers spent a whopping 22% more this holiday season than last season. GBH’s head of tech research, Daniel Ives, noted: “While Wal-mart is emerging as Amazon’s biggest sole competitor online, we believe customer overlap remains small today as Prime membership growth and Amazon’s ‘stronghold on e-commerce’ remain hard to penetrate as we expect this trend to play out in the near-term heading into 2018,” Ives wrote. In other words, Amazon’s moat seems invincible. While WMT is up 42.3% on the year, Amazon has seen jaw-dropping gains of 53.7%.
Celgene (CELG) was off 2.35% after being downgraded by Bernstein analysts. Tesla shed 1.8% after seemingly falling behind delivery projections once again; KeyBanc lowered its Model 3 Q4 delivery estimates. Boeing (BA) rose 0.1% after announcing that Morocco’s Royal Air Maroc had ordered four Dreamliners at list prices, for a total sale of $1.1 billion. Pareteum fell 11% after having rallied 120% on Tuesday when it announced that it was incorporating Blockchain support technology to its billing and settlement services. With blockchain technology seemingly having the Midas touch, pay attention to any announcement about a company incorporating the technology. Movement is sure to be extreme!
Today’s Economic Calendar: The good deficit report will be released at 8:30, with initial jobless claims at the same hour. The EIA Natural Gas Report will be released at 10:30, the EIA Petroleum Statues Report coming out at 11:00. The Fed Balance Sheet and money supply numbers will be released at 16:30.
Thursday’s Hot Stocks: DRAD, DIS, UNP, WMB, AAPL
Have a great trading day!
|Wednesday||9:00||S&P Corelogic Case-Shiller HPI||0.6 %||Medium|
|Wednesday||10:00||Pending Home Sales Index||0.6 %||Medium|
|Thursday||8:30||Jobless Claims||240 K||Medium|
|Thursday||11:00||Oil Inventories||0.4 %||Low|
New York Strategy Swing