For Immediate Release
Chicago, IL – May 7, 2019 – 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: Comcast CMCSA, Southern Copper Corp. SCCO and Autohome ATHM.
Here are highlights from Monday’s Analyst Blog:
Hardball Trade Negotiations: Global Week Ahead
The Global Week Ahead is going to be dominated by U.S.-China trade war headlines.
Writing that seems stupid. You clearly read and/or heard about what happened on Sunday. The global risk markets — and surely the Chinese trade delegation — were blindsided by a Trump tweet.
Just last week, I could pluck this U.S.-China trade negotiation quote for you—
“U.S.-China trade negotiations recommence on Wednesday in Washington. It is thought to be plausible that a deal may be announced as soon as the end of next week and a Xi-Trump summit could be held soon thereafter.
The usual ‘people familiar with the negotiations’ have indicated that a deal is in the works to phase out some of the bilateral tariffs.” - Scotiabank
That all went down the drain, after a Sunday tweet by President Trump.
He went public with a long-standing threat to lift tariffs on $200B of China imports to the US from 10% to 25%. This is to happen on the coming Friday.
Is this a hardball negotiation tactic? Yes. Does it have the ability to work? That’s anyone’s guess.
Here is what we got from President Trump first thing on Monday morning—
“The United States has been losing, for many years, 600 to 800 Billion Dollars a year on Trade. With China we lose 500 Billion Dollars. Sorry, we’re not going to be doing that anymore!”
Next are five big Reuters world market themes likely to dominate thinking of investors and traders in the Global Week Ahead.
I force ranked them for equity markets.
(1) Sell in May and Go Away (in 2019?)
With cross-asset volatility at record lows, it’s a great backdrop for investors to load up on risk.
- Reams have been written on the reasons for falling volatility, but logic attributes it first to major central banks’ recent tilt back into dovishness, and second to the global economy’s tepid but steady expansion with few inflation surprises.
- So low is cross-asset volume that a gauge compiled by brokerage INTL FcStone stands 3.6 standard deviations below the mean. In other words, it deems that a “vol” surge has less a 0.02 percent probability of occurring.
- And with that has come willingness to go short — safe assets such as gold or Treasuries, and on protective hedges such as the VIX. (The latter is a measure of how much S&P500 options are expected to fluctuate, essentially a vol gauge).
- Outstanding shorts on VIX futures have reached record highs, CFTC data shows, surpassing the build-up seen before last February’s “Volmageddon” blowup.
Unsurprisingly, some market watchers advise caution.
As “Volmageddon” showed, vol can spike spectacularly in a quiet market, sometimes driven by just one unexpected data point.
After all, if the old adage holds, some people may be looking to sell in May and go away.
(2) Big Tech Earnings – in the U.S. and China
Forecast-smashing results from Facebook, Amazon and Apple have laid to rest any short-term worries about the so-called FAANG group of tech titans. Google and Netflix, the other members of the cohort, were less sweet but not disastrous.
Hopes now are that Asian Big Tech will confirm the comeback signals — mid-May is when China’s Baidu, Alibaba and Tencent update us on their earnings.
For MSCI’s global tech index, net earnings revisions are at their strongest in over six months. With 60 percent of IT companies having reported so far, almost 90 percent have beaten expectations, according to UBS. Coming after a string of downgrades before March, that’s a relief.
However, global tech earnings growth is expected to slow, compared with 2018. But after two years of double-digit growth, a pullback may represent a return to normal rather than a worrying drop. It’s more than likely that growth-hungry investors will return to backing big tech.
(3) The Latest U.S. Consumer and Producer Inflation Numbers Come Out
This month’s Fed meeting saw Chairman Jerome Powell play down recent weakness in U.S. inflation as “transitory” and declare the policy stance “appropriate.”
His failure to give any hints that the central bank was weighing interest-rate cuts disappointed the S&P500 and pushed money markets to slash rate-cut bets for this year to around 40 percent from over 60 percent. It will also have earned Powell the ire of President Trump, who has slammed the Fed boss for not doing more to support the economy.
So, is Powell right in his view of inflation?
Some recent indicators, from first-quarter growth to factory orders to productivity, have been pretty strong. The flip side is manufacturing is growing more slowly and inventories are building.
So, we’ll need to see whether consumer and producer inflation figures due May 9 and 10 confirm the inflation backdrop is indeed transient.
(4) Watch Out for a Raft of Global Macro Data This Week
Data: more important than usual these days as markets try to decide whether the green shoots cropping up in some places are the real deal.
Take the Eurozone: Growth was faster than expected in the first quarter, after slumping in the second half of 2018. U.S. and Chinese first-quarter GDP surpassed expectations, too, while the Bank of England has just raised growth forecasts for 2019.
So will upcoming data — U.S. and Chinese trade numbers — surprise to the upside as well? Germany releases industrial orders figures on Tuesday, and Friday brings a raft of British data, including first-quarter GDP.
For sure, one week of brighter data isn’t enough to shift entrenched pessimism. So while Citi’s economic surprise indexes for Europe and United States have started ticking higher, they remain in negative territory. Nor have brighter growth numbers managed to lift German 10-year bond yields much above zero percent yet. But keep watching that data.
(5) Australia and New Zealand Hold Monetary Policy Meetings
Who will cut interest rates first – Adrian Orr or Philip Lowe? The Reserve Bank of Australia, run by Lowe, meets on May 7, followed by the Reserve Bank of New Zealand, headed by Orr, a day later. Both have the same story to tell: low inflation, strong labor markets and limited room to cut interest rates. Both economies have strong links with China, where growth is slowing.
Lowe has the added complication of a federal election in May. Orr will be dealing with a new monetary policy committee that now includes external members.
The rising Aussie-kiwi exchange rate suggests investors see a greater chance of a cut in New Zealand. If the RBA, which has held policy steady for 29 meetings, cuts on Tuesday, the RBNZ would have more reason to do so.
Three other Asian central banks also meet — Malaysia, Thailand and the Philippines. The last says rate cuts are inevitable. But many expect the other two to deliver easing signals as well.
Top Zacks #1 Rank (STRONG BUY) Stocks—
Comcast: This is the behemoth $201B market cap cable company. Streaming over-the-top content doesn’t seem to be hurting them. The Zacks Value score is another attraction, at B.
Southern Copper Corp.: This is a $29B market cap copper mining stock. Copper is the ‘canary in the coal mine’ on global GDP growth. 89% of this conglomerate is owned by Grupo Mexico. Seeing the stock now on our #1 list is heartening.
Autohome: This is an Internet Services stock with a $14B market cap. It offers an online destination for auto consumers in Mainland China. The Zacks VGM score is B, led by an A on Zacks Growth. These high-beta sectors are likely to get killed in any trade war fallout this week.
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