Capital 19 Catch-Up – April 2

Last Friday’s session brought to an end the first quarter of 2019, and what a quarter it turned out to be. After following on from one of the sharpest and quickest downturns we had seen at the end of December 2018, the markets have come roaring back into life to start out the new year, with all of the major indices locking in their best quarters in years.

In a starring role, the S&P500 managed a 1.8% gain for the month of March, and had its best quarter in almost a decade, locking in a 13.07% rise for the first three months of the year. It was its best effort since the final quarter of 2009.

The Dow struggled during the month of March, no doubt held back by the poor performance of its most overweighted component Boeing (BA). It made only 0.1% for the month, but still managed a quarterly gain of 12.4%. It’s best first quarter performance since 2013.

The Nasdaq was the standout as technology stocks led the fightback. It made 2.6% in March and clocked up an impressive 17.4% gain for the first quarter. Big names led the way as Facebook (FB) and Netflix (NFLX), who were both hammered from pillar to post in the second half of 2018, gained back lost ground with leaps of 27% and 33% respectively over the three months. Favourites Apple (AAPL) and Microsoft (MSFT)  also performed well, picking up 16% each.

The biggest winner in the tech industry, however, was your humble old printer and fax machine maker Xerox (XRX). It leapt more than 60% for the quarter, after impressing with its 2018 fourth-quarter earnings at the start of January, and then rising on the back of restructuring news where it said they would create a new holding company in an attempt to lower its tax bill, protect patents, and help the company to diversify. Xerox also had a horror 2018 but the first three months of this year has seen those losses almost fully recovered.

Despite its outstanding performance Xerox only managed to be the third-best performer on the S&P500 for the quarter. The top honour went to cosmetics maker Coty Inc (COTY) who made 75.3%. While old Catch Up favourite Chipotle Mexican Grill (CMG) jumped 64.5%. The worst performer was Kraft Heinz with a 24.1% loss, just beating out Biogen and CenturyLink for the wooden spoon with losses of 21.4% and 20.9% respectively.

While the S&P500 was up 13%, the US was only the fourth best performer globally. The best-performing country was Ireland, whose  Euronext Dublin was up 30.5% for the quarter. Greece and Italy also beat the US with 17.6% and 15.1% gains respectively. The ASX had its best quarter since September 2009, with the S&P/ASX 200 gaining 9.5%.

Oil also had an outstanding quarter with the price of West Texas crude up over 30%. This helped oil stocks such as Hess Corp (HES) and Devon Energy (DVN) rise more than 40% to start the year. The best commodity performer for the quarter, however, was actually Lean Hogs which gained 45.2%. Pork prices have skyrocketed as China’s output has been decimated by the scourge of African Swine Fever. ASF has taken out 17% of China’s national pig herd in the last year, and this has proved to be a boost for pork sales from competing countries.

There are a few headwinds for the price of pork, however. Firstly, trade negotiations between the US and China will be crucial to future prices. At the height of the spat pork and soybeans were China’s first targets and an unsuccessful trade deal will see the Chinese being driven away from US pork. On top of this Trumps threat to close down the US Mexico border late last week could deeply jeopardise pork trade between the two countries. Mexico is the US largest importer of pork, bringing in over $1.3 billion worth in 2018.

If the trade deal doesn’t get done with China and you add in a trade dispute with Mexico you could see the bottom fall out of the pork market. Sounds like a good trade brewing to me. It might be time to purchase some puts on pork futures. If you would like to know how to do this, get in contact with your advisor and see how easy it is to take a punt on pork futures falling.

Ridesharing outfit Lyft (LYFT) listed on Friday to much fanfare, beating it’s long term rival Uber to market. Lyft sold 32.5 million shares, pricing them at  $72 per share, which was at the top of its guidance range and raised a further $2.3 billion for the IPO. As you can imagine, trading in the stock was wild – and certainly not for the fainthearted – with the share price initially leaping as high as $87.24 before settling lower into the close at $78.29. The closing price gave LYFT a $22.2 billion valuation. It is likely that Uber, the number one ranked ride sharer to Lyfts number two, will go public at some stage during April or May. That’s when the fun will really begin.

Used car sales business CarMax (KMX) rose 8% on Friday on impressive last quarter earnings, setting off every major media organisation running a “Carmax revving higher” headline. The Catch-Up won’t stoop to such poor pun work of course. Earnings came in at $1.13 a share, better than the $1.04 expected by analysts. Revenue hit $4.79 per share, also above the $4.70 expectation. The results have CarMax firing on all cylinders……

Leisurewear maker Lululemon (LULU) also bounced after releasing their fourth-quarter earnings after the market close on Wednesday. The share price jumped more than 10%, thanks to strong holiday sales which tipped revenue above the $1 billion mark for the first time in its history.

Bed Bath & Beyond (BBBY), also had a healthy week, jumping more than 24% after activist investors Legion Partners, Macellum Advisors, and Ancora Advisors attempted to replace the BBBY board with their own nominees. BBBY is down more than 85% over the last four years, and investors have welcomed the prospective coup despite the current board’s protests.

Elsewhere, Celgene (CELG) jumped nearly 8% on Friday as shareholder advisory groups Institutional Shareholder Services and Glass Lewis gave their approval to the pharmaceuticals prospective merger with Bristol-Myers Squibb. Fashion house Ralph Lauren (RL) also enjoyed a nice bump of 4.4% on Wednesday as Wells Fargo (WFC) upgraded the stock to an “outperform” and raised its price target to $150. RL is up more than 25% so far in 2019. Wells Fargo is expecting China and European sales to increase, along with the company’s online offering, to increase the valuation.

The week ahead will see a large focus on any news coming out of the US-China trade talks. Earnings will be quiet as the big boys don’t start kicking off until the second or third week of April. However, we will be keeping an eye out for any profit warnings that are usually generated in the weeks preceding an earnings announcement.

It will be a big week for economic data with PMI results for China, the UK, the Eurozone and the US all being released. We’ll also have the all-important non-farm payroll numbers coming out on Friday. During the week we’ll also see a host of Fed Reserve members making public appearances, so keep a watch out for any interest rate news. Take a look below for a full list of all the economic data.

Have a great week.

Cheers, Paul.


Economic Data

  • Tuesday: Durable goods orders, Core capex orders, motor vehicle sales
  • Wednesday: ADP employment report, Markit Services PMI, ISM non-manufacturing index
  • Thursday: Weekly jobless claims
  • Friday: Nonfarm payrolls, Unemployment rate, Average hourly earnings, Consumer credit