Weekly Market Report / July 9-13, 2018

The  GENERAL MARKET

 

U.S. Stocks End Strong On Friday The 13th

U.S. stocks flexed its muscles on Friday the 13th and it was a good time as any to show strength and keep the bears at bay. The three main benchmarks gained in all but one trading session for the week and six in the last seven trading sessions.

Main Benchmarks as of 07/13/2018

       

The Dow Jones Industrial Average, in particular, posted three triple-digit gains (Monday, Tuesday, and Thursday) and advanced 95.52 points on Friday. But what is more important is that the blue-chip climbed over the 25,000 threshold once more.

The S&P 500 index gained 3.02 points but it was enough to squeak past and first finish above the 2,800 mark since February 1. Stocks in the energy and industrials sector carried the broad index.  While the Nasdaq Composite Index added just 2.06 points on Friday, the tech-heavy index managed to end at a fresh all-time high.

Wall Street was lifted by the stocks of the internet and technology heavyweights on Thursday after a tumultuous mid-week. The tech rally overshadowed the continuing uncertainties over trade. It also underlines the uptrend that has been driven by signs of economic strength and solid quarterly earnings.

For the week, the Dow Jones is up 2.3%, the S&P 500 is up 1.5%, and the Nasdaq is 1.8% higher. This is the second straight weekly advance for the three main U.S. benchmarks. It was also the best week for the Dow since early June.

https://www.marketwatch.com/story/us-stocks-poised-for-upbeat-session-as-bank-earnings-steal-center-stage-2018-07-13

The Week’s Biggest Headlines

 

New Tariffs on China Halt U.S. Stocks’ 4-day win streak

The U.S. stocks were on a roll since coming back from the July 4th celebration. However, the 4-day win streak ended on Wednesday when the Trump administration raised the stakes in the trade tiff with China.

United States President Donald Trump threatened to impose 10% tariffs on $200 billion worth of Chinese goods. Beijing described Washington’s action as typically bullying. They felt the need for a counter-attack but there was no mention of how the country would retaliate.

Chinese officials said they would hit back against the escalating tariff measures through “qualitative measures” that could impact on U.S. businesses in China.

Trump criticizes UK PM May

In his interview with THE Sun newspaper upon arrival in the U.K. on Thursday, Trump criticized British Prime Minister Theresa May. The U.S. President said May’s plans for a “soft” Brexit would “kill” any potential trade deal between the U.S. and the U.K.

China’s Trade Surplus with the U.S. Swells to Record High

The trade dispute between Washington and Beijing is likely to intensify. Data in June showed that China’s trade surplus with the U.S. swelled to a record. Overall exports grew at a solid pace. Exporters rushed their shipments before the tariffs took effect in the first week of this month.

Analysts say the sudden spike was just a one-off but it’s going to be an unfavorable trade balance for China in the coming months. Duties on exports will begin to bite by then. China’s trade surplus with the U.S. widened from $24.58 billion in May to a record monthly high of $28.97 billion in June.

Citigroup Prepares for Investment Flows in Asia

As concerns about the impact of the U.S.-China trade war is mounting, Citigroup Inc. (C) is preparing for more business. The bank will be setting up a China business desk in India. They foresee a pickup in investment flows within the year toward the Asian region.

Citigroup’s Asia-Pacific corporate banking head, Gerald Keefe, said Citi plans to establish the desk in Mumbai. It will provide services such as trade finance, corporate loans, cash management and investment banking. A similar business desk is operating in South Korea.

Comcast Makes Swift Counter-Offer for Sky

After 21st Century Fox Inc. (FOXA) raised its offer to 14.00 pounds per share for pan- European group Sky, Comcast Corp. (CMCSA) made a swift counter-offer. The world’s biggest entertainment group raised its offer to 14.75 per pound sixteen hours later.

The swift response of CEO Brian Roberts showed how determined Comcast is to buy the group which has a presence in 23 million homes across Europe. The intense battle developing between Comcast and Fox pushed the price of Sky’s shares higher to 15.38 pounds (+3.0%) on Thursday in London.

U.S. Lifts Ban on ZTE

China’s 2nd largest telecom equipment maker ZTE Corp. can resume doing business with U.S. companies. The Commerce Department said that the ban has been lifted after ZTE complied and paid the $1 billion penalty. $400 million was also placed in a U.S. bank escrow account as part of the settlement.

Financials Sector Highlights

 

Banks Kick Off Earnings Season

Corporate America is expected to deliver one of the strongest second-quarter earnings season in almost a decade. Total earnings for the S&P 500 companies in the second quarter are estimated to improve 19.1% from the same period last year on 8.2% higher revenues.

The highly-anticipated Q2 earnings season got underway on Friday with Wall Street banks representing the financials sector kicking off the reporting.

JPMorgan Chase & Co. (JPM) $106.36

The largest U.S. bank by asset size sprung a surprise as it reported an 18.3% rise in quarterly profit. The bank attributed the rise to tax gains, a rise in interest rates, and higher trading revenue.

JPM outperformed expectations as net income rose from $7.03 billion a year earlier to $8.32 billion in the second quarter ended June 30. Speaking of strong, JPMorgan Chase & Co. epitomizes strong.

Citigroup Inc. (C) $67.00

Citigroup also beat analyst estimates in both earnings and revenues during the second-quarter. The report of the third-largest U.S. bank by asset size showed a bottom line figure of $1.62 versus last quarter’s $1.54 per share.

Looking at the top, revenue rose from $18.4 billion to $18.5 billion. This is the fifth straight time Citigroup beat earnings estimates. It was an impressive performance given that last year, earnings were $1.28 per share.

PNC Financial Services Group Inc. (PNC) $138.32

The Pittsburgh-based is often overshadowed by the larger-cap banks but it posted remarkable earnings and revenues numbers as well. For Q2, PNC’s quarterly revenues reached $2.72 per share on $4.35 billion.

PNC handily bested the $2.58 per share and $4.25 billion estimates. This is the bank’s larger beat, hitting a trailing 4-quarter average of +2.6%, with net margins up year-on-year.

Wells Fargo & Co. (WFC) $55.36

Of the four big Wall Street banks reporting, only Wells Fargo disappointed investors. The bank posted mixed results in its June quarter – $1.08 per share versus the $1.12 earnings estimate, on $21.6 billion in revenues that edged out the expected $21.5 billion.

Revenues remained generally in-line but average deposits fell 2% year over year. WFC is still recovering from its reputational issues that are impacting negatively and costing them money in targeted sales and marketing objectives.

https://www.zacks.com/stock/news/311495/diving-into-q2-earnings-season-jpm-wfc-c-and-pnc

Healthcare Sector Highlights

 

Growth Stocks in the Health Sector

With the U.S. stock market displaying resiliency, growth stocks are emerging. They are posting new highs but do not belong to the technology sector. The healthcare space has them. Following are the stocks that sizzled this week.

United Health Group Inc. (UNH)

United Health is a member of the elite Dow Jones index. Their stock registered a new high after a recent breakout over the $250 threshold. The health insurer will report its Q2 earnings on Tuesday yet it already finished at an all-time high of $258.70 last Friday.

United Health boasts of three straight quarters of accelerating revenue growth and two quarters in a row of double-digit revenue growth. Their Optum health services unit is the growth driver. The unit provides pharmacy benefits management and technology services to health insurers and medical providers.

Vertex Pharmaceuticals Inc. (VRTX)

VRTX ended at $174.16 on Monday but by closing time on Friday, the stock is up 3.64% to $180.50.

The biotech tasted its first annual profit in 2016 but since then, growth has been steady. In 2018, annual earnings are projected to soar by 64%. By 2019, annual profit is seen rising by 43%. Its portfolio of cystic fibrosis drugs has been fueling the company’s growth. Vertex will report quarterly earnings on July 25.

Bio Rad Laboratories Inc. (BIO)

This major player in the clinical diagnostics market  has again climbed past the $300 mark since it last breached on June 14. The stock traded at an all-time high of $306.39 at one point on Friday before settling at a fresh record of $303.95.

The stock of the maker of automated test systems used for the life science research continues to trade tightly near its 10-week moving average. The breakout happened at the $279.69 level.

Bio Rad’s sales growth has accelerated for three straight quarters that analysts are predicting the stock to jump by 15.1% to $350.00 from its current price.

https://www.investors.com/stock-lists/new-highs/growth-stocks-new-highs-biotech-vertex/

Information Technology Sector Highlights

 

Tech Stocks Lift U.S. Benchmarks

The three main U.S. stocks closed higher on Thursday on the strength of the rally in the information technology sector. The sector climbed 1.8% to post its biggest one-day percentage gain since June 1.

Microsoft Corp. (MFST) $105.43 as of 07/13/2018 (+23.25% YTD)

 

The shares of the software giant surged to an all-time high on Thursday but ended the week at a higher fresh record of $105.43. Microsoft is scheduled to report its June-quarter earnings on July 19.

Zacks Investment Research predicts that the Redmond, Washington-based company would report sales of $29.17 billion, which is about a 9% year-over-year growth.

Should Microsoft meet the consensus estimates, it would mark its fastest quarterly sales growth in four years. But earnings per share are also forecasted to decelerate after five straight quarters of double-digit percentage gains.

https://www.investors.com/news/technology/microsoft-stock-record-high/

Intel Corp. (INTC) $52.22 as of 07/13/2018 (+13.13% YTD)

 

Shares of the chip giant rallied on Thursday and rose to $52.35 before settling at $52.22 on Friday.

Moving forward, bigger things await Intel. It can be recalled that the company’s scored its first big win in 2016 when Apple Inc. (AAPL) decided to use its XMM 7360 LTE modem to provide the cellular capabilities for a portion of its iPhone 7-series devices.

This time, Intel won again after securing a deal with Apple. The company will fill a portion of Apple’s modem orders for the current iPhone 8-series and iPhone X device with its XMM 7480. An even bigger deal is if Intel can win the entire modem orders of Apple for the coming iPhone product cycle. Their latest XMM 7560 modem is far superior to any modem in the market.

https://www.nasdaq.com/article/intel-could-win-all-of-apples-modem-orders-this-year-cm991466

Veeva Systems Inc. (VEEV) $82.53 as of 07/13/2018 (+49.29% YTD)

Veeva Systems Inc. is the leading cloud service provider in the life science industry. VEEV hit the $80 again this week and finished at $82.53 on Friday. S&P Global Market Intelligence reported that the stock rose 39% during the first half of 2018. It is now up +49.29 % YTD.

The picture is rosy for Veeva Systems especially because of the company’s successful launch of their Vault service. VEEV surged after reporting a strong finish in fiscal 2018 which ended in January. The revenue from subscription climbed 28% year over year to $554.4 million.

During the three months ended in April, Veeva’s Vault revenue comprised 44% of the top line. The service is up from 37% during the same period last year. Veeva is sharing revenue with com, a customer relationship management (CRM) service provider.

Veeva is growing with all moving pieces in the right places. But profit margins in Vault are increasing. As of the fiscal second quarter, the company reported a 32% operating margin that beat the previously issued guidance.

https://www.nasdaq.com/article/heres-what-pushed-veeva-systems-inc-up-39-in-the-first-half-of-2018-cm991459

The WEEK AHEAD

 

What the first half of 2018 is reminding investors is the value of diversification. A diversified portfolio is the buffering against stock market volatility. The pace of economic growth is expected to average about 3% this year.

Solid job growth combined with individual tax cuts should continue to spur consumer spending which contributes to almost 70% of U.S. economic growth. Further, higher business confidence is boosting business investment while housing construction is increasing. Higher government spending in the next two years also points to better economic growth in 2019.

More earnings report will be presented next week to be led by video-streaming giant Netflix, Inc. (NFLX), Goldman Sachs (GS), and Morgan Stanley (MS) among the big names. Along with the earnings report, important economic data due on Monday is retail sales to be followed by housing on Wednesday.

https://www.edwardjones.com/market-news-guidance/recent-news/weekly-recap.html

 

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