21 Jan Capital 19 Catch-Up – Jan 20th

The major indices continued hitting all-time highs last week as China and the US agreed to a phase one deal, and earnings season kicked off in full. Solid economic data also fueled the rally, while chances of conflict in the middle east eased as Iranians protested their governments’ unintentional shooting down of the Ukranian jetliner.

The big financial institutions led earnings week as all of the big players beat earnings expectations, roundly thanks to fixed income streams and an increase in bond trading across the board. JPMorgan (JPM), Citibank (C), Morgan Stanley (MS), Goldman Sachs (GS) all impressed and were rewarded with share price gains. The airline industry also got a boost as Delta Airlines (DAL) impressed thanks to a decrease in fuel costs and increased travel demand.

Other winners included Bank of America (BAC), United Health (UNH), and PNC Financial (PNC). While the news was not so good for retailer Target (TGT) who badly missed sales estimates for the holiday period, and forewarned of a poor next quarter. Target was a standout performer in 2019 so its disappointing finish to the year is a worry for the economy and fellow retailers. We’ll be watching the sector very closely over the next few weeks to see if we can spot any trading opportunities on the short side.

In the first real week of earnings, we have seen 8% of S&P500 companies report their numbers. 72% of these have beaten expectations, which is a little down on the average. Importantly though, all of the big names have been winners, which is what has been pushing the major indices higher. The bigger companies have a higher weighting and therefore bigger clout when it comes to the index performance.

Electric car maker Tesla (TSLA) cracked the $500 mark for the first time earlier in the week as analysts at Oppenheimer hiked their price target from $385 up to $612 per share stating Tesla’s “risk tolerance … and larger ambition than peers are beginning to pose an existential threat to transportation companies that are unable or unwilling to innovate at a faster pace”.

It would have been a terrible week for the Tesla short-sellers who had already lost an estimated $2.9 billion by the end of 2019. Last quarter the company hit a record number of new deliveries (112,000 cars) and started production at its brand new factory in China. Short interest is now at $12.79 billion with 26.74 million shares currently being shorted. Only Apple (AAPL) has more short interest, and their shorters are hurting too with Apple also at all-time highs.

FedEx (FDX) shareholders also had cause to celebrate last week as retail behemoth Amazon (AMZN) removed their ban from their delivery of Prime shipments. Amazon had recently claimed the service was too slow and was affecting their delivery times. The reversal is a massive boost to FedEx whose share price jumped almost 2% on the news.

Wall St was also boosted by positive economic reports both at home and abroad. China released its industrial production numbers for December which came in better than expectations at 6.9%. For the year growth in China finished at 6.1%, right on estimates, but its slowest performance since 1990. Domestically housing starts took off in December, up 17%, while weekly jobless claims beat expectations falling to 204,000 and dropping for the fifth straight week.

For the week ahead it will be all about earnings reports with another week stacked heavy with reports from S&P500 companies. Household names such as American Express (AXP), IBM (IBM), Intel (INTC), and Johnson & Johnson (JNJ) all report along with Dow components Procter & Gamble (PG), and Travelers (TRV).

One of the most anticipated reports will come from streaming giant Netflix (NFLX). We have stated recently that with the increased competition from Apple TV + and Disney Plus it may come under heavy pressure. So far the share price has held up but the impacts of the two new streaming competitions coming online in the final quarter of last year are only beginning to come into effect. I predict that this will be Netflix’s last real shot at some clear air before we see a slowing in subscriber numbers. If you’re a shareholder, hold onto your hats when the figures are announced on Tuesday. You can expect big swings in either direction depending on where the numbers fall.

Elsewhere the World Economic Forum will be held in the Swiss ski resort of Davos. It’s usually a snoozefest of epic proportions, but with Donald Trump jetting in over the weekend to deliver a speech in person we are almost certain to see or hear something out of the ordinary. Whether it’s good or bad we’ll have to wait and see.

Markets were closed on Monday for the Martin Luther King Jnr Public Holiday. Regular trading will resume Tuesday.