For Immediate Release
Chicago, IL – May 12, 2020 – 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 Amcor PLC AMCR, The JM Smucker Company SJM and Pinterest PINS.
Here are highlights from Monday’s Analyst Blog:
Newton's Third Law of Motion: Global Week Ahead
One of the salient and surprising features of the Spring pandemic rally was the amount of bullish speculation going on.
For example, Bitcoin outperformed gold, stocks and U.S. Treasuries.
Who would have thought that would happen? Traders in the unprecedented WTI oil contango maybe.
They drove front month prices to a negative -$37.63 a barrel cross on April 20th. WTI front month futures then spun around. They traded at $25 a barrel three weeks later.
Once a price gets that low, it must bounce back. Torrid selling will beget torrid buying. For every action, there is an equal and opposite reaction.
Consistent with that concept borrowed from physics, known as Newton’s third law of motion? A trading extreme underpinned Spring stock action. It was going to reverse.
A record spike in stock options volatility set the scene up well for longs.
- On February 21st, the VIX stock option volatility index traded at 17.1.
- On March 16th, the VIX index hit the 82.7 mark. A new record.
- The VIX closed last Friday, May 8th at 28.0.
A falling VIX is a recognizable pattern. Predictable bounciness is what short-term traders like to see. They stepped in, as panicked longer-term investors stepped back, and forced program selling happened.
Fundamentals (including the wager on a future earnings snapback) played very little into their thinking.
Next are Reuters’ five world market themes, reordered for equity traders—
(1) A Bitcoin Rally Shows: the Power of Speculation Lives On
For the third time in its short life, bitcoin is about to undergo a “halving” — when the number of new coins awarded to miners of the digital currency is slashed by half. Given previous halvings propelled huge bitcoin rallies, many are wondering what the effect might be this time as the COVID-19 crisis rages.
The first halving occurred in November 2012, from 50 bitcoins to 25 and bitcoin rallied 10,000% between late-2012 and 2014. It was then cut in July 2016 to 12.5 bitcoins and prices rose roughly 2,500% from mid-2016 to record highs in December 2017 of just below $20,000.
Year-to-date, bitcoin has risen nearly 40%. It stands around $10,000 ahead of the upcoming halving that will take the reward to 6.25. Some doubt the scintillating rallies of the past two halvings can be repeated.
Others reckon, however, that bitcoin, representing a hedge of sorts against the chaos, is well positioned to outperform. They note that during this pandemic its returns have beaten gold, stocks and U.S. Treasuries.
(2) More Tough U.S. Macro Data Coming
Having defied reams of poor economic data, U.S. stock markets must contend over the coming week with more evidence of how the pandemic is devastating the economy.
With swaths of the economy locked down, economists polled by Reuters expect retail sales tumbled 10% in April, surpassing the record 8.4% drop in March. And with factories shuttered, industrial production is forecast to have dropped 11.6% after slipping 5.4% in March. We also get a peek at numbers related to consumer sentiment and inflation.
Will these numbers finally derail the rally in the S&P 500, which has lifted it more than 30% off March lows? Perhaps not; after all, data showing the loss of more than 30 million jobs during the past six weeks has not managed to do that.
(3) Here’s Hoping There Isn’t Another U.S.-China Trade War Battle
China’s exports rebound has been quickly overshadowed by dire predictions of Trade War II between the world’s two biggest economies.
Markets are hoping President Trump’s threats to penalize China for COVID-19 are pandering to Americans’ fear of China during an election year. After all, neither side can afford to further knock business confidence at a time when the world faces the worst economic contraction on record.
In response to U.S. talk of slapping on more tariffs, stopping U.S. pension money from investing in China and even stripping it of sovereign immunity, China has only offered verbal rejoinders so far. But could it decide to renege on its trade deal commitments to purchase U.S. agricultural products?
Beijing has been courting American companies such as Tesla and Starbucks, but it’s also looking more inwards for growth. While there were some signs the two countries’ trade negotiators were making progress, should Trump’s threats continue, trade war might take over from coronavirus as the main worry for markets.
(4) Less Developed Country Currencies Have Been Pummeled
The plummeting lira and Turkish accusations that foreign banks mounted a “manipulative attack” on the currency revived memories of the country’s 2018 crisis. The lira has slumped to record lows, the coronavirus is bringing deep recession and recent months have seen the central bank burn through a quarter of available forex reserves.
Will its troubles ensnare other emerging markets, many of which are only just resurfacing from under the rubble left by the COVID-19 rout? A degree of such contagion was seen in 2018 when lira weakness dragged on currencies in South Africa, Mexico and Russia.
This time Brazil’s real may be the weak link. It has tumbled to a record low through 5.80 per dollar after a large interest rate cut from the central bank.
South Africa’s rand and Mexico’s peso are also worth watching. Both have performed poorly this year, having lost 26% and 22% respectively.
(5) The Euro and the Euro Area Continue to Suffer More Losses
Having racked up the biggest weekly loss in more than a month, the euro looks headed for more weakness.
A German constitutional court told the European Central Bank to justify its bond-buying program or risk losing the Bundesbank’s participation in the scheme. That handed what is considered the only game in town for rescuing the Eurozone — the ECB — a setback that jeopardizes future bond buying.
Several banks swiftly downgraded their forecasts on the single currency after the May 5 ruling.
It’s unlikely economic data can offer respite — an advance reading of the Eurozone’s first-quarter gross domestic product on Friday is expected to show a contraction of almost 4% quarter-on-quarter, according to a Reuters poll. Perhaps European politicians might draw solace from Britain’s plight — the Bank of England reckons the UK economy may be headed for the biggest slump in more than 300 years.
Top Zacks Rank Stocks
Here are three popular U.S. based “Safe-at-Home” stocks.
(1) Amcor PLC: This is an ADR stock ticker tied to a Neenah, WI company named Bemis. This is a $14.4B market cap stock, pricing at just $9 a share, in the Paper and Packaging industry. I also see a Zacks A for Value, a Zacks B for Growth, and a Zacks D for Momentum.
Bemis Company is a major supplier of flexible and rigid plastic packaging used by leading food, consumer products, healthcare, and other companies worldwide.
(2) The JM Smucker Company:This is a $13.2B market cap stock, pricing at a hefty $116 a share. It is a venerable name in the Food industry. I see a Zacks A for Value, a Zacks C for Growth, and a Zacks C for Momentum.
Headquartered in Orrville, OH, the J.M. Smucker Company is a leading marketer and manufacturer of consumer food and beverage products and pet food and pet snacks in North America.
(3) Pinterest: This is a relatively new social media photography name. It prices around $20 a share and that delivers a $11.3B market cap. I see a Zacks F for Value, but a Zacks A for Growth and a Zacks A for Momentum.
Pinterest provides a visual discovery engine. Its platform allows users to discover ideas for daily activities, remodeling a house or training for a marathon, ongoing passions and planning a wedding or a dream vacation.
The company also provides
· Product Pins which make items shoppable with up-to-date pricing;
· Recipe Pins to cook a meal by bringing the relevant information; and
· Shop the Look, which enables pinners to shop for the individual products.
Pinterest is based in San Francisco, CA.
Key Global Macro
In terms of key events, trade tensions between the U.S. and China are resurfacing. There may be further developments in the Global Week Ahead.
There are two motivations, according to Scotiabank economists. One is that Trump is desperately looking to score points before his base that hates China ahead of the U.S. election in November. Second is that China is so far failing to materially live up to the ‘Phase 1’ purchase targets.
In terms of key data catalysts, trader will focus their eyes on tracking how consumer and business behavior is responding to reopening plans.
On Monday, Italy’s industrial production likely fell -20% m/m.
On Tuesday, the latest on the U.S. consumer price inflation rate (the CPI) comes out. In m/m terms, look for a -0.8% pullback. In y/y terms, it could be +0.4%. Remember, the incredibly low gasoline-at-the-pump prices?
The Bank of New Zealand holds a meeting. The 0.25% rate is not expected to move.
On Wednesday, Fed Chair Powell will briefly appear virtually for a half hour to deliver an ‘economic update’ at 9 am ET through the Peterson Institute.
We get the U.K.’s Q1 GDP reading. Look for -2.5%.
Australia may have lost 500K jobs last month. We will find out the actual number.
On Thursday, the central bank of Mexico (Banxico) last cut its policy rate in an emergency meeting on April 21st when it lowered it by 50 basis points to 5.5%. It is expected to cut by the same amount at a normally scheduled meeting.
How is mainland China’s economy? We shall find out. China will provide the latest industrial output (+1.5% is consensus), retail sales (-5.9%), jobless rate, and fixed asset management (-9.5%) for April.
We may get another 2.5M U.S. jobless claims. That’s called progress nowadays.
On Friday, U.S. retail sales data comes out. A 25% drop in auto sales and a 15% decline in chain store sales likely combine to drive headline retail sales lower by 15% m/m. Consensus is at -11.3%.
U.S. industrial production should decline -11.6% in April. The U.S. capacity utilization rate should be about 64%, given the latest April ISM manufacturing data.
University of Michigan sentiment will be about 68.
We get Eurozone Q1 employment figures. This may have risen 0.3 in that long-gone prosperous period.
We get Germany’s Q1 GDP reading. Look for -2.3%.
I will leave you with a Bitcoin tweet from long-time critic and economist Nouriel Roubini.
This one came out last Saturday.
“Bitcoin crashes by 15% in 7 minutes on NO news: a rigged, totally manipulated, whales-controlled market where most transactions (90%) volumes are false as exchanges pretend to have liquidity they don't have. Massive pump & dump, spoofing, front running, wash trading! Total Scam!”
That sort of sums it up. We watched spring turn to summer in quarantine, with physical grocery stores usually bereft of toilet paper.
Las Vegas was and is a ghost town.
Meanwhile, risk traders are happy to gamble it away at their trading screens.
Have a Great Trading Week!
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