13 Aug Capital 19 Catch-Up – Aug 13
It was a wild and woolly trading week last week as the major indices rollercoastered following the previous week’s heavy sell-off. The falls continued into Monday, stabilised a little on Tuesday, before earning the year’s best one-day comeback on Wednesday, rallying on Thursday, and dropping slightly again on Friday. It was enough to get me on the motion sickness tablets.
China’s retaliation resulting in the worst trading day of the year.
Trump had set the agenda the previous week when he imposed another 10% tariff on $300 billion worth of Chinese exports. China then retaliated on Monday by setting the Yuan above 7 per US dollar, its weakest level in over a decade. A weaker Chinese currency partially offsets the tariff rises by making Chinese goods cheaper to buy with the USD. It’s the only real ammunition China has in its trade war with the US, except for actual ammunition of course, but let’s hope it doesn’t get that far.
Trump then accused China of currency manipulation, citing it as a “major violation”. Before then imploring the Federal Reserve to do some manipulating of its own to the USD. He doesn’t have the same power to rule over the US currency as China has with their systematic currency setting, and it continues to be a major frustration for him.
China also stated they would place tariffs on recently purchased agricultural products while suspending all future purchases indefinitely. Which then led to arguments about what China had actually agreed to buy, and what purchases had actually been made. It’s all getting a bit ridiculous now and an agreement seems even more unlikely after the latest spat. Chances are that China will try and wait out Trump to see if he is beaten in the US election in 2020.
The whole argument resulted in the worst trading day of the year on Monday for all three of the major indices. Things were looking dark on Wednesday as well before stabilisation of falling bond yields saw the Dow come back from a 589 point bottom to only finish 22 points in the red. On Thursday the Yuan stabilised around the 7.05 mark, and China reported exports had risen more than expected in July, which saw a market rally on Thursday which pushed the S&P500 back above the 2900 mark.
All in all, the weekly result for Wall St wasn’t too bad at all. The Dow lost 0.75% after being down more than 3% earlier in the week. While the S&P500 and the Nasdaq lost 0.5% and 0.6% respectively, coming back from losses of 3% and 3.5%.
Shares in Advanced Micro Devices (AMD) continued their strong 2019 rally with a 16% jump on Thursday as both Google (GOOGL) and Twitter (TWTR) announced they were using the chip makers newest data centre processors. The stock is now up more than 80% for the year to date.
The second-generation chip was introduced at an industry event on Wednesday afternoon, and with it, AMD hopes to steal some of Intel’s business who dominate the sector with a 98% market share. The chip gives users a reduction in power usage helping to reduce overall cost. Microsoft (MSFT), Hewlett Packard (HPE), Lenovo, and Dell (DELL) are also users of the new technology. AMD hopes to take at least 25% of the market in the coming years.
Buying opportunity as Disney shares fall
Walt Disney (DIS), a favourite of the Catch up struggled earlier in the week as earnings missed expectations. The share price dropped 5% on Wednesday after increased outgoings helped pull back record revenues. The fall was largely an overreaction to what has been a stellar year so far for the media giant, and on Thursday they had already gained back half of the previous day’s losses.
Disney has been busy transitioning its theme parks to showcase some of its new products, such as Star Wars, as well as spending big to get its Disney Plus streaming service up and running by the end of the year. Revenue from its park sector increased by 7% to $6.6 billion, while its studio entertainment division benefitted from monster movie releases in the quarter including Avengers: Endgame, Aladdin, Captain Marvel, and Toy Story 4, which helped grow revenue by 33% to $3.8 billion.
To us, the brief fall on Wednesday set up a great buying opportunity. The story hasn’t changed from the start of the year, so while their transition continues from being a cable television company to a content provider, and is accompanied by an increase in spending, Disney will continue to outperform over the next few years and is a must-have in any US portfolio. Take any pullbacks as a chance to add some more to your holdings.
The week ahead
For the week ahead there will be some key data points being released. CPI inflation will be out on Tuesday and could throw a spanner in the works if the number comes out high. Investors hoping for another interest rate cut in the near future may be disappointed. Retail sales on Thursday will also be a key indicator of how the economy is tracking, and all reports suggest the number should be a satisfactory one.
Earnings season is starting to wind down this week, with over 90% of S&P500 companies and 26 out of the 30 Dow stocks already having reported, but there is still plenty of big names to watch. Another stock that we have spoken of fondly in the Catch Up is Walmart (WMT) and they report earnings on Thursday. It will be an interesting insight into how the world’s biggest retailer is managing to compete with the world’s biggest online retailer Amazon (AMZN). Keep an ear out for their earnings call where management will be grilled on their continuing e-commerce plans.
We’ll also have two of the biggest names in pot aiming “high” as Tilray (TLRY) report on Tuesday, followed by the world’s largest (in terms of market cap at least ) Canopy Growth (CGC) on Wednesday. There is some great info on the Capital 19 website about investing in the cannabis industry so I won’t reproduce it here – but you can find the comprehensive articles and e-book at the following page: https://capital19.com/category/investing-in-the-cannabis-industry/
It’s all a great read if you have the time and the inclination.
Another favourite, chipmaker Nvidia (NVDA) will be reporting on Thursday, with revenue expected to fall and data centre sales expected to be weak. I would love Nvidia to miss estimates here as it will send the share price falling and give us another great buying opportunity. The company is still a leader in gaming chips, and artificial intelligence, which is a growing industry thanks to enhances to cloud gaming and the future of self-driving cars. If we can pick it up for a discount it will be a great bonus.
No doubt there will be more action on the trade front. Investors will also be keeping a close eye on the seesawing bond yields and the movements of the Chinese Yuan. Take a look below for a more in-depth look at the week’s data and earnings releases.
Have a great week everybody.
- Tuesday: Famous Dave (DAVE), Tilray (TLRY)
- Wednesday: American Cannabis (AMM), Cisco Systems (CSCO), Macy’s (M), NetApp Inc (NTIP), United Cannabis (CNAB)
- Thursday: Applied Materials (AMAT), JC Penney (JCP), Koss Corp (KOSS), Nvidia (NVDA), Walmart (WMT), Williams-Sonoma (WSM), Canopy Growth (CGC, WEED)
- Friday: Deere & Co (DE)
- Tuesday: NFIB small business index, Consumer price index, Core CPI, Household debt
- Wednesday: Import price index
- Thursday: Weekly jobless claims, Retail sales, Productivity, Empire state index, Philly Fed index, Industrial production, Manufacturing output, Capacity Utilization, Business inventories, NAHB home builders index
Friday: Housing starts, Building permits, Consumer sentiment index