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The Zacks Analyst Blog Highlights: Amazon, Ecopetrol SA and Arcelor Mittal

Zacks Equity Research
Best Buy (BBY) has an impressive earnings surprise history and currently possesses the right combination of the two key ingredients for a likely beat in its next quarterly report.

For Immediate Release

Chicago, IL – April 17, 2018 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Amazon AMZN, Ecopetrol SA EC and Arcelor Mittal MT.

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

Here are highlights from Monday’s Analyst Blog:

U.S. Earnings Season Dominates: Global Week Ahead

This Global Week Ahead is surely going to be dominated by U.S. quarterly earnings reports.

They will come from 60 major multi-national firms that make up the S&P 500 share index.

This is not ‘new’ news to anyone reading this stock market bulletin. And it may provide a welcome temporary respite from the intense U.S. political headlines.

However, I would expect there to be a potent amount of serious concern from those political headlines mixed into trader’s minds.

Deeper trader concerns, as a forward-looking backdrop, may keep this otherwise stellar earnings season -- at the end of our nose -- from reaping any strong share price rising potential.

Reuters and the Financial Times in London and S&P in New York provided their mixture of global market themes and U.S. insights this week.

I rank ordered them for you below.

(1) Critical U.S First Quarter Earnings Season Gets Moving

In the Global Week Ahead, 60 S&P 500 firms will release Q1 earnings.

The list includes names like Bank of America, Netflix, Goldman Sachs, Morgan Stanley, GE and State Street.

The estimated overall S&P 500 Q1 earnings growth rate is at +17.1%; 6% of actual results have already been reported.

The forward 12-month P/E ratio for the S&P 500 is 16.4. The five-year average is 16.1.

(2) Don’t Neglect European Earnings Season

There is nowhere near the same level of excitement for European earnings reports this time around.

The likes of Nestle, Unilever and Novartis will get that earnings season going this week.

European earnings are seen growing only +3.2% this quarter versus the same period in 2017 — a rise of +1.7%, excluding the energy sector.

The difference? U.S. companies are enjoying tailwinds from a robust economy and tax cuts passed late last year.

European firms, meanwhile, have had to contend with a stronger euro, which on a trade-weighted basis, has risen for four quarters in a row.

Want the other factor? Eurozone economic indicators are coming off. PMIs have been slipping off multi-year highs, and markets are starting to wonder whether Europe’s peak has been reached.

Either way, investors are taking note: this week they pulled $5.2 billion from European equity funds, the largest outflows since July 2016.    

(3) Watch Mainland China: Will It Put U.S. Treasury Holdings in Play?

Whether China is reducing its vast holdings of U.S. Treasury bonds is a persistent question in global markets.

The recent escalation in trade tensions between the world’s two largest economies means the question is increasingly on investors’ minds.

On Monday, the U.S. Treasury’s latest report on international capital flows will provide an answer, albeit an imperfect one given the data’s two-month lag.

China has indeed been trimming its cache of U.S. Treasuries. In January, the latest reading, it held nearly $1.17 trillion worth of U.S. debt – the largest of any foreign creditor – down from around $1.2 trillion in August.

A more current dataset suggests worries about China cutting U.S. Treasury holdings may be misplaced. The Fed’s weekly “custody holdings” data, which measures dollar assets of foreign central banks on deposit at the Fed, shot to a record high in mid-March, and latest figures, released on Thursday, were only fractionally below that.

Since China began its big buildup of U.S. Treasuries about a decade ago, the trend in custody holding levels has been highly correlated with changes in China’s balance of U.S. Treasury holdings.

(4) IMF and World Bank Spring Meetings Kick Off

The IMF and World Bank Spring meetings kick off.

It will be held against a backdrop of concern that a U.S.-China trade spat will hurt a world economy already losing momentum after a strong 2017.

Financial markets have been roiled in recent weeks by threats of tit-for-tat trade tariffs worth tens of billions of dollars between the Trump administration and China. If implemented, these will very likely damage world growth and raise consumer prices.

IMF Chief Christine Lagarde said in February the global economy was showing broad-based growth, but warned the landscape was shifting, with heightened risks of trade disputes, monetary policy normalization and technological change.

In addition, economic growth in major economies appears to be stuttering. China’s March exports unexpectedly fell 2.7 percent from a year earlier, the first drop since February 2017 and factory gate inflation there has cooled to a 17-month low. German exports also plunged unexpectedly in February.

And Citigroup’s economic surprise index for G10 economies is at its lowest level since mid-2017 — not the brightest of settings for a gathering of world central bank and finance chiefs.

(5) The Russians Will Retaliate for Tough U.S. Sanctions

Investors are strapping themselves in tight and bracing for another ride on the Russian rollercoaster next week after turbulent trading in the wake of new U.S. sanctions and a spike in tensions over Syria.

The rouble plunged to levels not seen since 2016 before regaining some ground later in the week, while Russian sovereign dollar bond yield spreads leapt almost 50 basis points mid-week, before coming off the boil.

But Russian lawmakers are drafting a list of U.S. imports that could be banned in retaliation for the sanctions and Moscow has warned the West against attacking Syrian President Bashar al-Assad.

So emerging market investors who have Russia as one of their most popular overweights are fearful the situation will deteriorate, leading to another leg down in markets.

Meanwhile, currency options markets suggest more pain is ahead for the rouble.

Top Zacks Rank #1 (STRONG BUY) Stocks—

(1) Amazon: Yes, it is at the top of the list this week, U.S. presidential tweets notwithstanding. The company’s estimate revisions are rising. The Value Score of F never concerns traders of this stock. Tech momentum stocks keep the S&P 500 aloft, not Value stocks.

(2) Ecopetrol SA: You may not have heard of this Latin American oil company. It is Columbia-based. Its $44B market cap stock is worth checking out. Oil prices are rising with the Syrian conflict heating up over the weekend. The long-term Zacks VGM score here is A.

(3) Arcelor Mittal: This is the big global steel producer. This week, we get Mainland China’s GDP report. The fact this big steel stock is a Zacks #1 Rank is a “tell.” That Asian country is still buying plenty of raw materials. Furthermore, it appears U.S. steel producer tariffs are not a major factor in the global market.

Most retail investors won’t care about top Zacks #1 Rank and top Value rated stocks like EC and MT, since they are found in the international stock picking space, until the train has already left the station.

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1 Stock of the Day pick for free.

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