Market Commentary

Capital 19 Catch-Up – Trump, Chinese Government, Apple and more.

Aaaand……. we’re back. After a few years in hiatus, the Capital Catch Up is back and ready for action. Albeit in a slightly different format. It will be coming to you on a weekly basis, most likely on a Monday, and we’ll see how it goes from there. We’ll hope to bring you a quick overview of the previous week’s trading, and what we can expect in the week ahead. All to help you navigate the markets in this wild, Trumpian led world we live in.

Speaking of Trump, he was dominating the news again last week. He loves the idea of this wall and is willing to shut down a fair portion of the government to do it. The government has been partially closed for over three weeks now, and as it happens, no-one has really noticed. Except for the poor workers who have been missing their pay cheques of course. Wall St stopped worrying about the shutdown about three days in, and stock prices have risen regardless.

It says a lot about the usefulness of government really. I expect that we’ll be seeing more to and fro between Trump and the Democrats in the weeks to come but I can’t see it having a major impact on markets. The ‘orange one” will be willing to call a national emergency shortly when the two opposing sides can’t come to an agreement. I’ll be surprised if it gets through the multiple court cases that will come from it though. Someone is going to have to back down sooner or later. Until then, grab the popcorn!

The two issues that seem to be determining market direction at the moment are the China trade talks and interest rates. Both were instrumental in the sell-off we saw in the last quarter of 2018, culminating in the worst December since the 1930s. Both, however, seem to be looking a little more positive in 2019.

Negotiations between the Chinese Government and Trump’s White House have looked promising in the last few days, with China’s main negotiator expected to visit the US by the end of the month. It’s in China’s best interest to sort this stuff out asap. They have more to lose than the US. And while they desperately cosy up to South East Asian and Transpacific trading nations, they know deep down it’s in their best interest to make their deal with the US a fairer one. They just need to find a way to do it without losing face.

Now for a bit of company news. And let’s be honest, it would be impossible for me to start the new incarnation of the Catch Up without talking about Apple (AAPL). It just goes to show that nothing has really changed. The “ex” largest company in the world has copped an absolute hammering of late. Starting with the tech sell-off that captured the vast majority of the tech industry, followed by Tim Cook’s call that revenue would be down by 5-9 billion in the latest quarter. iPhone sales are down across the board but surprisingly holding strong in China – although CEO Tim Cook has warned of a slowdown in their second largest market.

Apple is still great value, however. The company is actively shifting hard into services going forward, and while iPhone sales have slowed due to people hanging onto their phones for longer they are all still wrapped up tight in the Apple iTunes world. The company has a PE of 12 for goodness sake. The latest fall has just provided us all with a great buying opportunity. Get amongst it if you can.

The week ahead

While most eyes will be on Capitol Hill and the shutdown this week, earnings season will also get into full swing. So far 72 S&P500 companies have issued earnings warnings including Apple, Constellation Brands, FedEx and homemaker Lennar Corp. This sets the bar nice and low and leaves the door open for some strong earnings beats.

With the hammering stocks took in the last quarter of 2018, it would take some extra disappointing results to set stocks falling again. Alternatively, a relatively strong showing could consolidate price levels around this point and show traders the economy is plodding along nicely.

Some of the big names we’ll see produce earnings this week include Citigroup (C) on Monday night, Delta Airlines (DAL), Wells Fargo (WFC), and JPMorgan Chase (JPM) on Tuesday. Goldman Sachs (GS) and Bank of America (BAC) will show us their numbers on Wednesday, followed by Netflix (NFLX) and American Express (AXP) on Thursday.

On the economic data front, we’ll be seeing less than usual this week as the shutdown impacts certain departments. There’ll still be the Producer price index and Empire State index on Tuesday, the homebuilder’s index on Wednesday, weekly jobless claims and the Philly Fed on Thursday, and industrial production and consumer sentiment on Friday.

Less likely to impact US markets, but vital for the UK is the Brexit vote which occurs on Tuesday. If, as expected, the vote is lost on Tuesday, it gives PM Theresa May just three days to come up with an alternative plan. And with the EU being as stubborn as Trump over his wall, they say there will be no room for any further concessions. Things could get sticky and everything from a May resignation, to a rereferendum, to another general election is on the table here.

Have a great week everybody.

Regards, Paul.