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Capital 19 Catch-Up – Mar 12

It was a tough 5 sessions for US markets last week as Wall St finally took a breather from the 2019 bounce back and investors decided to take profits after experiencing the lows of December. The market fell in every session, leaving the S&P500 and the Dow down 2.2% and the Nasdaq lower by 2.5%. It was by far the worst week of the year. And all in what was supposed to be the celebration of the 10-year anniversary of the bull market.

Of course, the headlines of this so-called 10th anniversary is at best debatable, and mostly a media beat up. We are not really in a ten-year bull market of course. The definition of which describes a market which has risen over an extended period of time, and where one or more of the major market averages has not fallen by more than 20% in this time.

So, on that definition, the three times in the last ten years that the market has fallen below 20%, (2011, 2016, 2018), would preclude us from such a ten-year anniversary. At best we are potentially three months into an entirely new bull run (the S&P500 had dropped more than 20% by the end of December last year), but that is yet to be determined and we’ll find out in good time no doubt.

Now you can argue over definitions of the term bull market, or over whether closing or intraday prices matter or over whether the sky is blue or purple. The fact is that in this last ten-year period the S&P500, the Nasdaq, and the Russell 2000 have all been down more than 20% at least twice. The only one that hasn’t is the Dow and since it only constitutes 30 stocks is hardly indicative of the entire stock market. I’d say the case is pretty clear.

So no, we are not in the longest bull market of all time. Anyone who has traded through this period and experienced the falls for themselves will know this to be true. It’s easier to remember the hard times when you have skin in the game. So, while the media pages talk about the ten-year bull run, I only need to remember back to December to know they’re telling porkies.

So, now that we have that covered – what halted the three-month bull run last week then? Well, global growth certainly seems to be a concern. China, Japan, and Europe were also down all of last week. Only our own ASX managed to sneak a very minor gain over the five days.

Data coming out of the major centres have certainly suggested a slowdown in recent times. It all culminated in the US’s non-farm payrolls on Friday which showed that the economy had only managed to add 20,000 jobs in February. But the news wasn’t all bad. Unemployment dropped under 4% again, and wage growth was the strongest we’ve seen in a decade. But it seems the number of hours worked is dropping. It was a mixed bag, and the market fell quite heavily on Friday before Wall St took stock and started to buy again by the end of the session.

We also saw a lack of news on the China-US trade front. After an encouraging week previously, we got little information on this supposed breakthrough. While we were led to believe that a deal was imminent, it seems it may not have been exactly the case. Must have been fake news. The two leaders Trump and Xi will only meet when a deal is pretty much done, and that seems like it may be a fair way off. They haven’t even arranged a meeting date yet.  The doubt over what is actually happening left markets a little skittish during the week. We’ll have to see how it goes.

We also had to deal with the odd scenes out of Hanoi in Vietnam, where Trump and Kim Jong Un were all set to sign a peace treaty but ended up leaving without a deal in place. The ceremony had been arranged, decorations were in place, the signing alter had been set up for the world media, but both the bride and the groom got cold feet. It may be a while before these two love birds can get back together. In the meantime, they’ll be back on “diplomacy Tinder” looking for new allies.

All in all, I think the market just needed to let off some steam. It’s been a pretty heady ride since those dark days of the last quarter and it was destined to have to take a breather at some point. When the market rises for a few months in a row people see dollar signs and want to take some of it off of the table. It’s entirely understandable.

In stock news, we saw Kohl’s (KSS) halt the run of bad results from shopping mall operators, jumping almost 7% after beating analyst estimates. Urban Outfitters (URBN) also impressed, while Target (TGT) posted its best results since 2005. Costco (COST) was also up 5% after sales jumped for the quarter, while headliner Ross Stores (ROST) wasn’t as lucky, falling 3.7% after announcing falling profits. Big Lots (BIG) was the big winner however, bouncing 13.63% on Friday after profit and revenue both impressed.

Now to the week ahead. Firstly, it’s important to know that New York changed into daylight saving time over the weekend. That means that the market will open an hour earlier for everyone here in Oz. And for those of us here on daylight saving hours, this will change again on the 7th of April when we go off daylight saving time. The US markets will then be open an hour earlier again.

It will be a big week for Boeing (BA), who on Sunday had to face the news of a second Boeing 737 Max crash within the space of six months. The Lion Air crash on October 29 saw a brief stock fall and a quick recovery, however, a second crash by Ethiopian Airlines in the same plane on the weekend may have future purchasers concerned over their safety. It will be crucial to see what the investigation into the cause of the crash will determine, and BA will be praying that it was human error.

Also, in the news will be chipmakers Intel (INTC) and Nvidia (NVDA). Both are vying for the right to buy out Mellanox Technologies (MLNX). It looks at this stage that Nvidia will win the battle, which will help it diversify from its computer game-based chips and into data-centre servers. Capital 19 had a great run with Nvidia in recent years. Up until it got way overpriced and we luckily jumped out of the way of it falling back down. At these new low prices and things starting to happen again for the company, it looks to be well worth jumping back on board again. The PE ratio is back down to a very respectable 22.72 and there could be an impressive next 6 months in the offering.

This week will be a little quieter on the earnings front as the quarter winds to a close in a few weeks’ time. We’ll still see results coming from retailer Dollar General (DG), tech companies such as Broadcom (AVGO), Oracle (ORCL) and Adobe (ADBE), while Dick’s Sporting Goods (DKS) will also get a run.

It will also be a quiet one for economic data. That of most interest will be the CPI data which comes in on Tuesday. As we all know inflation is key to interest rates so anything out of the box here may cause some market movements. We’ll be keeping a close eye on it. Take a look below for more earnings reports for the week ahead and a full list of the economic data.

Have a great week.

Cheers, Paul.

 

Earnings:

  • Tuesday: Clean Energy Fuels (CLNE), Dick’s Sporting Goods (DKS), Sunworks (SUNW)
  • Wednesday: Express Inc (EXPR), William-Sonoma (WSM)
  • Thursday: Adobe (ADBE), Broadcom (AVGA), Dollar General (DG), Oracle Corp (ORCL), Revlon (REV)
  • Friday: Terra Tech Corp (TRTC)

 

Economic Data:

  • Tuesday: Consumer Price Index, Core CPI
  • Wednesday: Durable goods orders, Core capital goods, Producer price index, Construction spending
  • Thursday: Weekly jobless claims, import prices, retail sales, new home sales, business inventories
  • Friday: Empire State manufacturing index, Industrial production, Capacity Utilisation, Job openings, Consumer sentiment

 

 

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