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Strategic Insights

Volume 8, Edition 15 | April 22 - April 26, 2019

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Endgame? Not for Stocks

Doug_Walters Doug Walters | Articles

Read Time: 2:30 min | Video: 2:54

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The Avengers are storming the box office this weekend hoping to set a new high mark, while stocks breached new highs of their own. Those claiming last year’s declines were a sign of a pending economic endgame have been silenced thus far this year…

Contributed by Doug Walters , Max Berkovich , Aleksey Marchenko

Stocks have officially recovered from last year’s slide, with an epic 25% rebound since December. Corporate earnings and a strong GDP print were the heroes this week, helping to fend off the evils of negative sentiment. International stocks struggled to keep pace as the dollar weakened.

 

Headlines of the Week

  • America’s economy is still the global Captain, as first-quarter GDP came in significantly above expectations (3.2% versus a consensus of 2.0%). However, the beat came from volatile components of the economy, and personal consumption expenditure (a key economic indicator) was less robust.
  • Corporate “earnings” season is about halfway through. While earnings in aggregate have not impressed, revenue is still robust, with 5% year-on-year growth projected for the S&P 500 companies.
  • The stock rally, which began around Christmas time, continued with major U.S. indices finally recouping all of 2018’s losses and matching the September 2018 highs. Stocks are the real blockbuster of 2019, up around 25% from the December lows.
  • Disney hopes to shatter box office records with the release of Avengers: Endgame this week. The movie is the culmination of 11 years and 22 Marvel movies which grossed Disney over $18bn at the box office.

Spotlight: $18 billion+

Disney’s (DIS) 22-movie Marvel Cinematic Universe (MCU) franchise has already grossed over $18 billion at the box office culminating in Avengers: Endgame this weekend. While Endgame will bring to a conclusion some of the many intertwined Marvel storylines (so say my kids anyway), Disney shareholders will be happy to hear this is not the end of Disney’s MCU. More movies with new characters are already in the works and let’s not forget that Disney’s Star Wars franchise with the release of the conclusion to the original Star Wars series this December (The Rise of Skywalker).

Image result for disney mcu logo

The Week Ahead

  • The European Union will release its first Quarter GDP figures on Tuesday. Investors will be looking for signs of life in the stagnant regional economy.
  • The U.S. Federal Reserve has a rate decision to announce on Wednesday, and the Bank of England has one on Thursday.
  • All eyes will be on the Non-Farm Payroll report or “Jobs Report” on Friday. It is a volatile number to predict, which adds to the anticipation on the first Friday of every month.
  • Did we mention earnings? There are lots of them… Google (GOOG,GOOGL) on Monday night, a Super Tuesday with Merck (MRK), Pfizer (PFE), Phillips 66 (PSX), NXP Semiconductors (NXPI), Mondelez (MDLZ) all playing second fiddle to Apple (AAPL). Qualcomm (QCOM), Skyworks (SWKS), Cognizant (CTSH), Expedia (EXPE), Church & Dwight (CHD), Xylem (XYL), and CH Robinson (CHRW) round out a big week.

Stock Highlights from Max

Catching-Up

The past two weeks continued to be rough for Health Care, but the Energy sector was an even bigger laggard. The Communications sector has had a nice run, but not even close to the spectacular performance that Technology posted, thanks to an Incredible Hulk-like transformation from a long-dormant chip stock….

  • Qualcomm, Inc. (QCOM) settled its royalties dispute with fellow Strategic holding Apple Inc. (AAPL). This news has propelled the stock higher by nearly 50% over the past two weeks as analysts and investors can now shift their focus on the prospects of 5G communications.
  • Facebook Inc. (FB) was mostly responsible for a solid 2nd place from the Communications Services sector. The social media goliath reported solid quarterly numbers. The continued growth (daily active users was up 8%), helped soothe concerns that the recent privacy lapses would impact the company’s operations. While legal expenses are rising the company’s revenue growth seems to more than cover it.
  • To keep it balanced, we did have a villain as well. Playing the role of Thanos was Intel Corp. (INTC), which reduced its guidance as part of a cautious view for the year. This announcement is another hit to the company as it previously responded to the Apple-Qualcomm settlement by terminating its 5G smartphone modem program. Several Wall Street firms are out defending the company, sighting that the problem was in the previous two quarters and that the 2nd half should see improvement.
  • Lastly, in M&A land Occidental Petroleum (OXY) came in with a 20% higher offer to acquire Anadarko Petroleum (APC) topping our holding Chevron Corp.’s (CVX) previous bid. This move by APC is not the endgame in our opinion.  Will Chevron pony up and match the offer or try to acquire the new combined entity later? Stay tuned as this MCU-like drama plays out.

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