28 Jan Capital 19 Catch-Up – Jan 28th

The major indices posted their first losses for 2020 last week as a new potential threat rode into Wall St. For the first few weeks of the year, we had a cease-fire in the trade war, albeit a temporary one, we had interest rates finally down where we wanted them, and the earnings season was set for a respectable if not stunning quarter as analysts set the bar nice and low for the majority of S&P500 components.

We were destined for a cruisy start to the year. What could possibly go wrong? Well, a little black swan called the Coronavirus, that’s what. And no I’m not describing how sick you get when you drink too many Coronas. It’s another one of those animal infections from the same people who brought you the Sars virus. It causes pneumonia which can’t be treated by antibiotics or flu based drugs because it is viral. It then leaves anyone with a weak immune system at serious risk.

It’s certainly not something we saw coming a few weeks ago. And in its early stages, it is really difficult to tell how much of an impact it will really have on the global economy. We know that the Sars virus back in 2002 adversely affected the stock market for around three months but the effects were only temporary and the market was back to its previous levels just a short while later.

At this stage, the coronavirus is not in the same league as the sars virus. Not to say that it won’t reach those levels, but there’s little to be gained in speculating. We’ll leave that to the smart people who deal with these things on a daily basis. What we do know is that systems and equipment to deal with these situations were massively improved in China after the Sars virus. Here’s hoping they have more success in containing this one and we see only minor impacts on our economies – and stock markets.

In Davos, we saw President Trump blame the Fed, Boeing (BA), and the General Motors (GM) strike for the reason the US economy wasn’t performing better.  It expanded at approximately 2% for 2020, but Don thinks it would’ve been at 4% if it wasn’t for Jerome Powell and his cronies. No mention of the trade war having any effect though. Apparently, American companies having to pay 25% on incoming products hasn’t taken any money out of the hands of consumers.

Speaking of Boeing, they had another tough week when they claimed they didn’t expect regulators to clear the troubled 737 Max until the middle of the year. They also managed to secure a sizable $12 billion loan to shore up the balance sheet in the wake of the crisis. The funds have been provided by more than a dozen US banks. The share price tanked almost 5% on the 737 news but managed to fight its way back to only finish 2% lower.  We’ll find out more about the full impact the ban has had when they announce earnings on Thursday.

Of the earnings from last week, American Express (AXP) was the most notable. Credit card companies, namely Visa (V) and Mastercard (MA) have been leading the wider market for years now and are two of our favourite stocks to own at Capital 19. But Amex isn’t far behind and blew away expectations in the last quarter as well as beating guidance numbers. It jumped around 3% for the Thursday session but fell back to where it started the day before after the Coronavirus falls on Friday.

You could do worse than to pick up some AXP for your portfolio at these prices. It’s p/e ratio is one-third of its bigger competitors suggesting it is highly undervalued at the moment. It’s been continually beating expectations since 2016 and doesn’t look like missing anytime soon. The 1.27% dividend is just an added bonus. Don’t leave home without picking yourself up a cheap stock!

Intel (INTC) was also impressive, gaining more than 8% after announcing a revenue rise of 8.3% and profits of $1.58 per share, well above expectations. Client computing and Data service centres brought about much of the success, as the company pointed to strong PC demand for the quarter. The numbers bode well for competitor Advanced Micro Devices (AMD) who reports their earnings tonight.

So far we have seen 16% of S&P500 companies report their earnings. And the success rating still stands at 70%, the same as it was last week. It’s still a touch down on average but it is early days. More than half of the Dow reports this week, along with many of the big guns in the tech sector, with names you may have heard of such as Apple (AAPL), Facebook (FB), Amazon (AMZN), eBay (EBAY), Microsoft (MSFT), McDonald’s (MCD), Pfizer (PFE), Tesla (TLSA), Mastercard (MA), Coca-Cola (KO), Starbucks (SBUX), Chevron (CVX), and Exxon-Mobil (XOM) all reporting.

Elsewhere we’ll be keeping a close eye on the Coronavirus situation. The Fed will also hold their first meeting for the year, although no one is expecting a move of any sort. And Nike (NKE) will be hanging on a World Athletics Body ruling which may ban its super-successful Vaporfly shoe brand which has been responsible for setting multiple world records but is also accused of having a spring-like effect on athletes.

Interestingly, many are predicting just the media attention that such a ban will create could be a bonanza for shoe sales. Marathon record holder Eliud Kipchoge might have to stop wearing the Vaporfly in his events, but it won’t stop your ordinary Joe from lining up to get themselves a cheeky advantage. NKE can also be picked up at around the $100 for the first time in 2020. The earnings boost could pick up as early as next quarter.