The rally US markets have been experiencing since the start of the year stalled last week as the major indices stopped to catch their breath after a long uphill run. The Nasdaq snuck through another winning week though, gaining by 0.9% and extended its winning streak to ten weeks. The S&P500 also edged 0.4% higher over the week, but the Dow Jones couldn’t compete suffering a small 0.1% loss and ending its own nine-week winning run – it’s longest since May 1995.

The week’s good news began with the hope of a China-US trade deal strengthening. Such news continued over the weekend but it’s hard to say whether the rumours are real or not. Trump just this week has pointed out he is willing to walk away from a deal if it isn’t what he wants – just like he did during his summit with Kim Jong Un earlier in the week. He can’t seem too keen to make a deal of course, but it would certainly be a much-needed win for his White House if he was able to get something tangible out of the talks. We’ll learn more this week if we’re actually closer to a deal or if all of the rumours are in fact just that.

A deal would, of course, send stock markets higher. I don’t think too much of this is already baked into prices. The Nasdaq would certainly be somewhere to put your money if you want to take advantage of a deal being made. A lot of the technology stocks on the exchange will benefit greatly if US companies get more freedom to trade in China. You could start by buying a Nasdaq ETF such as QQQ, otherwise known as “the Qubes”.

If you’re looking at individual companies who have large vested interests in China you can begin with Apple (AAPL), Starbucks (SBUX), and Boeing (BA). All rely heavily on China sales and will increasingly look there for future growth. As do most of the chipmakers such as Intel (INTC), Skyworks (SWKS), Marvell (MRVL), and Nvidia (NVDA). You can expect this sector will get a massive boost when/if a deal is finalised.

Trump has suggested he wants China to buy American shale and liquid natural gas, so some of the recently beaten-down oil and gas companies may get a boost. China is the largest importer of natural gas and the second largest importer of LNG in the world. And they are actively trying to switch away from dirty coal energy to a cleaner burning gas to help improve their horrid pollution problem. They currently have a five-year plan for their cities to reach “good” or “excellent” quality air standard. At the moment cities like Shanghai are considered “hazardous”.

The trade dispute has hit the US gas industry hard. In the last half of 2018 only six LNG ships made it to China. A far cry from the 25 ships in the same period the year before. And this was in a period where China increased its LNG purchases by over 40%. If a deal can get done companies such as Cheniere Energy (LNG) and Dominion Energy (D) will benefit greatly.

The agricultural sector is also on the Trump list of beneficiaries. If China promises to buy US farming products then you can expect share price boosts to companies such as Monsanto (MON), Deere & Co (DE), and Archer Daniels (ADM) amongst others.

Last week Home Depot (HD) missed earnings expectations on both profit and revenue and then hinted that 2019 sales may also struggle. They pointed to struggling home sales and “bad weather” for the results. The weather gets a bad rap in many earnings calls, but especially in the homebuilding sector.  It stands to reason that if it rains more during a quarter, less work gets done on home repairs. Competitor Lowe’s Companies (LOW) suffered the same fate with its results.

Mall operators Macy’s (M) and JC Penneys (JCP) also disappointed in further proof that the bricks and mortar retailers are suffering.  It was better news for Autozone (AZO), however, who beat market estimates for both profit and revenue. The auto parts retailer is now up an impressive 21% in the last twelve months. Best Buy (BBY) was also a winner, surging more than 15% after reporting its earnings, which showed increased sales in wearables, appliances, and smart home devices.

This week we see earnings releases slow down a little, but the focus will still be on retailers. We’ll have results from Ross Stores (ROST), Kohl’s (KSS), Target (TGT), Costco (COST), and BJ’s Wholesale (BJ). While food and beverage stocks United Natural Foods (UNFI) and National Beverage (FIZZ) will also report.

Check out below for a larger list of earnings results and all of the economic data to be released this week – including the non-farm payrolls on Friday.

Have a great week.

Cheers,

Paul

Earnings:

• Tuesday: Eagle Bulk Shipping (EGLE), Kohl’s Corp (KSS), Ross Stores (ROST), Target Corp (TGT), Urban Outfitters (URBN).
• Wednesday: American Eagle Outfitters (AEO), Dollar Tree (DLTR)
• Thursday: American Outdoor Brands (AOBC), Barnes and Noble (BKS), Costco (COST), GNC Holdings (GNC), Kroger (KR), Marvell Technology (MRVL), National Beverage Corp (FIZZ)
• Friday: Big Lots Inc (BIG), Vail Resorts (MTN)

Economic Data:

• Tuesday: Markit services PMI, New home sales, ISM nonmanufacturing, Federal budget
• Wednesday: ADP employment, Trade balance, Factory orders, Beige book
• Thursday: Weekly jobless claims, Productivity, Unit labour costs, Trade balance, Consumer credit
• Friday: Nonfarm payrolls, Unemployment rate, Average hourly earnings, Housing starts, Wholesale inventories.