16 Apr Capital 19 Catch-Up – April 16

Last week saw Wall St in a holding pattern as we waited patiently for more news out of the US-China trade negotiations, and for earnings season to kick off in full. The S&P500 moved 14.67 points higher for a 0.5% gain, the Dow lost 12.69 points to lock in a minuscule 0.1% fall, while the Nasdaq just beat out the other indices with a 0.6% gain over the five sessions.

Trade-wise there wasn’t much to report. Over the weekend Treasury Secretary Steven Mnuchin said he “hoped” that the two sides were close to coming to an agreement, offering a vague statement of  “I think we’re hopeful that we’re getting close to the final round of concluding issues”. He “thinks” they’re “hopeful”. They don’t sound like the words of a man who knows there’s a deal in the offing. I hope I’m wrong – but I just get that feeling we’re being led up the garden path here.

Speaking of China, they saw exports rise by 14.2% for March, almost doubling expectations, while imports were down 7.6%. Overall their trade surplus hit $32.64 billion, and the surplus with the US hit $20.5 billion. This will infuriate Trump, and possibly hinder the sensitive trade talks. The surplus continues to widen and has blown out from $14.72 billion in February. The widening gap is the reason Trump brought in tariffs in the first place.

Domestically, earnings season got underway with two of the big banks reporting on Friday. JPMorgan Chase (JPM) was the first to go and impressed with a beat on both profit and revenue. It jumped 4.69% to finish the day at $111.21. Its CEO Jamie Dimon also gave an enthusiastic outlook in his conference call suggesting the US economic expansion “could go on for years”.

Wells Fargo (WFC) had a very slight beat on earnings, however, produced a poor performance in its lending numbers which dragged its share price down 2.62% to $46.49. PNC Financial Services (PNC) also reported and saw profit in line with estimates and a win in revenue, gaining 3.09%.

All in all, a nice little start considering markets were expecting the worst. This week it will really come to a head, however, as a host of big names report earnings. It will be an important indicator of how the economy is really tracking. Two more financial behemoths start us off on Monday with Goldman Sachs (GS) and Citigroup (C) both reporting. They’ll be followed by Bank of America (BAC) the day after, who will be joined by IBM (IBM), Johnson & Johnson (JNJ), and Netflix (NFLX). On Wednesday there’ll be results from Pepsico (PEP), Morgan Stanley (MS) and Alcoa (AA). American Express (AXP) and Travelers (TRV) will report on Thursday. While Friday the markets will be closed for the Good Friday public holiday.

Back in early February, we suggested in the Catch Up that Walt Disney (DIS) had been a disappointment to us over the last five years or so, but we thought 2019 would finally be its breakout year. On Friday of last week, we finally saw the big move we had been waiting for, as Disney busted through important technical trading lines, jumping an impressive 11.54% to an all-time high of $130.06. It is now up 19.5% for the year, and I would suggest this is only the beginning.

The catalyst was the announcement of the company’s long-awaited streaming service, the details of which Wall Street lapped out with the enthusiasm of Scrooge McDuck diving into a pile full of money. Disney+ will launch in November with over 7,500 TV episodes, 500 movies, with 25 new original series, and 10 more original movies.  Content will include Disney classics, plus Marvel and Star Wars, Pixar, and all of the programming it acquired through the takeover of Fox – including all 30 seasons of the Simpsons. Sign me up now!

It will undercut Netflix (NFLX) on price, charging USD $6.99 per month or $69.99 for a yearly subscription. Spending on new programming will hit over $1 billion in its first year, and rise to $2 billion by 2024, and they aim to attract between 60-90 million subscribers in its first five years. Netflix in comparison has 139 million subscribers but currently spends $15 billion on new content. Disney’s back catalogue is a great advantage. Netflix dropped 4.5% on the news of its newest competitor.

Over in the commodities quarter, we saw the 11th biggest merger in the energy and power sectors history, with Chevron (CVX) agreeing to buy Anadarko Petroleum (APC) for a cash and stock deal worth $33 billion. The deal will make Chevron the second biggest oil producer in the world, putting into the same realm as the big three – Exxon Mobil, Royal Dutch Shell, and BP. Anadarko was up 33.6% after the deal was announced, with Chevron falling 4.7%.

Ridesharing company Lyft (LYFT) continues to have a tough time of it after debuting on the Nasdaq two weeks ago. It closed down at $59.90 on Friday after opening at $72 with its IPO, reaching a high of $88.60 in its first week, and a low of $57.66 on Friday night. We told you it would be volatile, but here we have seen a little more than the usual craziness.

It just goes to show how hard it is to value these new service companies that are stacked with competition, have huge operating expenses and tight margins, and are losing billions of dollars a year. It doesn’t bode well for the likes of Uber who plan to set their IPO for the end of the month. Right now I would imagine the leaders of the company had wished they had beaten Lyft to the punch and debuted first. We’ll talk more about the Uber IPO as we get closer to the date, no doubt.

So this week will be all about earnings again. But we’ll also have some economic data to keep us company. the Empire State Index on Monday and the Philly Fed on Thursday will be highlights of a shortened week. And the weekly jobless claims will be out on Thursday this week, instead of the usual Friday. Take a look down below for a more comprehensive list of earnings and economic data.

The Capital 19 office will be closed this Friday and again on Monday for the Easter holidays. The same goes for the Anzac day holiday next Thursday the 25th.

I hope you all have a great Easter break.

Cheers,

Paul

Earnings:

• Tuesday: Bank of America (BAC), Bank First National Corp (BFC), IBM (IBM), Johnson & Johnson (JNJ), Netflix (NFLX)< United Health Group (UNH)
• Wednesday: Abbott Laboratories (ABT), Alcoa (AA), Bank of New York Mellon (BK), Las Vegas Sands (LSV), Morgan Stanley (MS), Pepsico (PEP), US Bancorp (USB)
• Thursday:  American Express (AXP), Honeywell Int (HON), Intuitive Surgical (ISRG), Phillip Morris (PM), PPG Industries (PPG), Travelers Cos (TRV),
• Friday: None (Easter Friday)

Economic Data:

• Tuesday: Industrial Production, Capacity utilization, Home Builder’s index
• Wednesday: Trade Deficit, Wholesale Inventories, Beige Book
• Thursday: Weekly jobless claims, Retail sales, Philly Fed Index, Business inventories, Leading indicators.
• Friday: None (Easter Friday)