1/28/2019
By Willie Walker, Senior Research Analyst

After a historic 35 day shutdown, President Trump announced a temporary deal to reopen the government till February 15 while to allow for a long term deal to be reached. 

Themes and thoughts on the week:

• Market indecisive on what direction it wants to go, seesaw action as it weighs earnings and economic data
• Breadth improving  
• Markets consolidated above 50 day moving averages
• Jobless claims dropped below 200,000
• Earnings season starts off strong
• Slowing global growth- China, Europe-Germany revised its growth forecast to 1.0% from 1.8%
• Government shutdown hurting growth for certain companies, airlines especially
• Friday afternoon President Donald Trump and congressional leaders have reached a deal that would reopen the government for three weeks 
• Speculation the Fed may pause or alter its quantitative tightening program at next weeks meeting   

Monday: Markets closed for MLK Day.

Tuesday:  News of slower economic growth overseas pressured U.S. futures premarket.  The Dow opened lower by 100 and moved lower, 285 points, from there.  The markets took another leg down after it was reported that the U.S. had rejected a Chinese offer for preparatory talks ahead of next week’s negotiations.  At the worst levels of the day, the Dow was lower by over 450 points. Buyers stepped in at the end of the day, the Dow closed lower by 300 points, 1.2%.              

China reported GDP increased 6.6%, which was the lowest in 28 years, markets are expecting more stimulus.

The International Monetary Fund (IMF) updated its global growth estimates with a big decline to 3.5% from 3.7%, as the euro area growth was lowered to 1.6% from October’s estimate of 1.9%. Germany is really taking a significant haircut to an 1.3% growth rate in 2019 from the 1.9% estimate just three months ago.  The United States and China’s growth estimates were unchanged 

Existing home sales decreased 6.4% month-over-month in December.  Total sales were 10.3% lower than the same period a year ago.

• Traveler’s (TRV) also beat on the top and bottom lines.
• EBay (EBAY) spiked on reports Elliott Management has taken a stake.
• Stanley Black & Decker (SWK) got drilled after guiding 2019 earnings well below consensus.  SWK dropped $21.19, 15.5%.     

Wednesday: Dow futures pointed to a 200-point gain pre-market on the back of earnings from Proctor Gamble (PG), IBM and UTX.  Markets drifted lower after the open with the Dow declining 100 points, finding support near Tuesdays low @ 24,307 before rallying into the close.  The Dow closed near where it started the day, higher by 171 points @ 24,575.    

• IBM beat earnings estimates and guided 2019 earnings above consensus.  IBM closed higher by 8.5%.   
• Proctor & Gamble (PG) beat on the top and bottom line and raised the high end of its sales guidance.  The company noted strength in its beauty business.  PG closed higher by 4.8%.  
• UTX beat on its top and bottom line estimates, but issued below consensus revenues for 2019.  UTX closed higher by 5.35%. 
• Waters (WAT) beat and guided 2019 EPS above consensus.  WAT closed higher by 12.5%. 
• Capital One (COF) reported disappointing earnings, missing on the bottom line. COF closed lower by 6.2%.

Thursday: The Dow opened flat and drifted lower throughout the day, finding support above its 50-day moving average (24,241). Markets were flat on the day.  Semiconductors and airlines were Thursday’s leaders.

Commerce Secretary Ross' contention that we are "miles and miles" from resolving China trade issues tried to spoke the market. ECB President Draghi's stated that significant stimulus is still needed, and the preliminary manufacturing PMI readings for January out of the eurozone and Japan that showed a slowdown from December.

Semiconductors were higher following stellar earnings from Xilinx (XLNX, +16.5%), Texas Instruments (TXN, +6.5%), Lam Research (LRCX, +15%), Teradyne (TER, +4.8%) and STMicroelectronics (STM, +11%)

Airlines were flying high on the tails of earnings from American Airlines (AAL, +4.9%), Southwest Air (LUV, +4.5%), and JetBlue (JBLU, +5.0%) all beat earnings estimates and provided better guidance.

McCormick (MKC, -13%) was the biggest loser, continuing a slide that actually began in December after the stock rallied 50% for 2018. 

The index of leading economic indicators (LEI) declined for the second time in three months.  Jobless claims fell below 200,000 for the first time in close to 50 years. 

Friday: Dow futures were indicated higher at the open, +100 points, among speculation the Fed may pause or alter its quantitative tightening program at next week’s policy meeting.   The Dow traded as high as 24,860, +300 points (1.22%), before running into resistance and profit taking heading into the weekend.  The Dow closed higher by 184 points, 0.75%, at 24,737.       

News that President Trump adviser, Roger Stone, was arrested and charged with seven counts sent the USD into a spiral.  A weaker dollar gave a bid to equities and metals.  Silver rallied over 2%, gold was higher by 1.4% and copper 3%.

• INTC missed revenue estimates and issued lowered guidance for the quarter, weak demand from China was blamed.  WSS closed this position, too many problems:
  • Data center
  • Memory
  • PC

The company's rationale doesn't jive with some other chip names that have reported. We would rather take the hit and find an idea that works quickly to make it up. 

• Resmed (RMD) missed revenue estimates by $25 million.  Cash flow by operating activities declined to $177.6 million from $226.5 million.  The company suspended it share repurchase program due to recent acquisitions.  The stock traded lower by @ 19%.    
• Starbucks (SBUX) beat on the top and bottom line.  Comparable store sales rose 4%. SBUX was higher by 3.4%.   

On the week:  Equities ended the week on a strong note.  It was a seesaw week that saw the markets end near where they started.  Investors are weighing upbeat earnings against the potential of slowing economic growth. 

Willie Walker
Wall Street Strategies

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