Weekly Market Report / September 10 -14, 2018

The General Market

Biggest Weekly Drop in ‘Fear Index’ Since April

 

Over the course of this week, Wall Street’s ‘Fear Index’ or the Cboe Volatility Index (VIX) was on track to fall nearly 19% which is the biggest weekly drop since April. Investors kept their focus on strong corporate profits and economic data. The Trump administration’s offer to China to hold new rounds of trade talk brought fresh optimism.

On Thursday, China’s Commerce Ministry confirmed that the two governments were discussing details for a new round of negotiations. However, Bloomberg reported that U.S. President Donald Trump gave instructions to proceed with the tariffs on $200 billion worth of Chinese goods.

At current levels, the S&P is 0.4% below its record close set in late August, while both the Dow and the Nasdaq are within 2% of their all-time highs.

Main Benchmarks* as of 09/14/2018*

*points & percentage decrease / increase

https://www.marketwatch.com/markets

For the week, the Dow Jones Industrial Average advanced 0.9%, its fourth positive week of the past five. The gains have taken the blue-chip benchmark it to its highest level since late January. The S&P 500 Index extended its win streak to 5 days on Friday and has risen 1.2% this week to post its ninth positive week of the past 11. The Nasdaq Composite Index gained 1.4% for the week, making it a third positive week of the past four.

https://www.marketwatch.com/story/stock-futures-higher-as-sp-500-takes-aim-at-a-record-2018-09-14

MARKET HEADLINES

 

The U.S. is now the World’s Largest Oil Producer

 

For the first time since 1973, the United States has reclaimed the throne to become the world’s largest producer of crude oil. The Energy Department published on Wednesday the preliminary estimates that show Russia and Saudi Arabia have been unseated.

According to the U.S. Energy Information Administration (EIA), production growth in the Permian Basin of West Texas in February was the reason why the U. S. has overtaken Saudi Arabia. It’s the first time it happened in more than two decades. The EIA sees the U.S. to remain atop the oil world through 2019.

Apple unveils new product lines

 

It was the biggest event of the year for Apple Inc. (AAPL) on Wednesday. The tech giant unveiled its new product lines, including its most important product – the iPhone.

The new iPhones are bigger, faster and more expensive. The model with a 6.5-inch screen, the iPhone XS Max, is Apple’s biggest iPhone ever and will start at $1,100. AAPL’s current price is $223.84 and is +32.27% up on a year-to-date basis.

Apple is also evolving its smartwatch into a clearly health-related device. The company showed off a new Apple Watch with an electronic heart sensor approved by the U.S. Food and Drug Administration (FDA). The watch could lead to new implications for health care and become a major selling point for a device that has played second fiddle to the iPhone.

Amazon to Announce Site of 2nd HQ before Year End

 

Amazon.com Inc.’s (AMZN) Chief Executive Jeff Bezos said on Thursday that the site for the company’s second headquarters will be known before the end of the year. Bezo’s disclosure was made during his speech before the Economic Club of Washington.

The CEO of the e-commerce giant gave no hint as to which site among the applicants is the favorite. There are 20 finalists in North America for its planned investment of $5 billion and 50,000 jobs. As of September 14, AMZN is up +68.47% year-to-date and but the stock closed lower on Friday at $1,970.19.

Walmart Moves to Boost Online Business in Latin America

 

Walmart Inc. (WMT) is set to acquire Latin American food delivery service Cornershop for $225 million. The deal was announced on Thursday as the company moves to ramp up its online grocery business in Mexico and Chile.

Walmart continues to grow its investments and tie-ups in online delivery services across the globe. They are aiming to compete with Amazon.com Inc. (AMZN) which is the world’s largest online retailer. WMT ended the week at $94.59 and is down -4.21% year-to-date.SpaceX Plans Trip around the Moon for TouristsSpaceX, the rocket firm run by Tesla Inc. (TSLA) CEO Elon Musk announced Thursday it is planning to launch a tourist on a trip around the moon. On its official Twitter handle, the company said, “SpaceX has signed the world’s first private passenger to fly around the Moon aboard our BFR launch vehicle—an important step toward enabling access for everyday people who dream of traveling to space.” It added, “Find out who’s flying and why on Monday, September 17.”

Recalling the fall of Lehman Brothers

 

This week marks the 10th year anniversary when Wall Street was distressed by the collapse of Lehman Brothers. On September 15, 2008, the investment bank filed for Chapter 11 bankruptcy which is the largest such filing in U.S. history. The U.S. government was forced to take unprecedented steps that reshaped the financial world.

Heavy investments, amounting to billions of dollars, were lost due to the collapsing U.S. subprime mortgage market. Lehman Brothers fought to survive but failed. The U.S. government infused $1.5 trillion in stimulus over a five-year period to help keep leading financial institutions afloat and maintain liquidity in financial markets.

Retail Trade Sector

 

Nike Did It and Hit an All-Time High!

Nike Inc. (NKE) $83.49 as of 0/14/2018 (+33.48% YTD)

 

Nike Inc. was able to ride out the concerns about consumer boycott when it signed and featured former NFL quarterback Colin Kaepernick in its latest ad. The said ad was part of the 30th-anniversary commemoration of the athletic apparel maker’s legendary slogan “Just Do It.”

The stock price of Nike reached an all-time high of $83.49 on Friday. At one point, NKE touched $83.84.Since Nike announced the marketing campaign on Labor Day, NKE went up about 4%. On a year-to-date basis, the stock has surged 33.48%.

According to Edison Trends, a digital commerce research company, online sales of Nike gear jumped 31% from Sept. 2 to Sept. 4 which is nearly double the company’s sales during the same period a year ago. Thus, it appears that the Kaepernick ad campaign was positive for Nike and its sales.

Sports retail analyst Matt Powell from market research firm NPD Group reported that two-thirds of the company’s sneaker customers are younger than 35. Hence, the campaign sent a clear, strong message to Nike’s core customers – millennials and younger men. The campaign also increased core customers’ loyalty to Nike and raised awareness for the brand.

Nike’s Instagram post featuring Kaepernick was the second-most-liked post in Nike’s history. The World Cup post is the most-liked. The company instantly gained 170,000 Instagram followers. NBA superstar and Nike endorser Lebron James took a dig at critics as well.

https://www.cbsnews.com/news/nike-stock-price-reaches-all-time-high-despite-colin-kaepernick-ad-boycott/

New Strategy for Victoria’s Secret Owner

L Brands Inc. (LB) $28.97 as of 09/14/2018 (-51.89% YTD)

 

L Brands Inc., the owner of Victoria’s Secret, announced on Thursday that their other brand, Henri Bendel, is closing its business after 123 years. The website and all of the 23 stores of the luxury retailer including the store’s iconic Fifth Avenue location in New York will cease to operate after January 2019. But a new set of merchandise is still arriving through the holiday season.

LB popped +5.57% to $28.97 on Friday after the company’s disclosure the previous day. Investors welcomed the news because the move indicates the company’s strategy to focus on other productive opportunities, especially the larger brands. It will certainly fuel efficiency and aid profitability.

https://money.cnn.com/quote/quote.html?symb=LB

L Brands has been engaging in cost containment, inventory management, and speed-to-market initiatives as well. Chairman and CEO Leslie Wexner said, “We have decided to stop operating Bendel to improve company profitability and focus on our larger brands that have greater growth potential.”

With the challenges facing L Brands lately, it’s a good sign that the retailer is taking serious steps in its quest for a better strategic direction. But the decision to shut down Henri Bendel operations is likely to dent overall profitability.

Investors gladly reciprocated when Unity Biotechnology’s CEO Keith Leonard boasted about the firm’s therapeutic approach to longevity and aging on Thursday. UBX soared 10% on Friday to close higher at $22.00.

 

https://www.zacks.com/stock/news/323197/l-brands-to-close-henri-bendel-stores-focus-on-other-areas?cid=CS-CNN-HL-323197

Biotechnology Sector

 

A Drug to Slow Down Aging

Unity Biotechnology Inc. (UBX) $22.00 as of 09/14/2018

 

Investors gladly reciprocated when Unity Biotechnology’s CEO Keith Leonard boasted about the firm’s therapeutic approach to longevity and aging on Thursday. UBX soared 10% on Friday to close higher at $22.00.

https://money.cnn.com/quote/quote.html?symb=UBX

According to Leonard, Unity Biotech wants to create drugs that slow, halt or even in some cases reverse specific diseases of aging, He is confident the company can “absolutely” do it. The CEO said, “The evidence is mounting, both in our company and outside, that you can intervene and you can change the course of these specific diseases.”

The company is targeting a “powerful biology” called cellular senescence, which is the aging of an individual cell and how it affects disease. By the first quarter of 2019, the results of a phase one trial for osteoarthritis, are expected to be released.

Other diseases that could eventually be treated include the loss of cardiac and pulmonary function as well as cognitive and vision function — “things we have come to accept as part of the normal course of aging,” Leonard said.

Unity Biotechnology went public last May and has a market cap of $916 million. Amazon.com Inc. (AMZN) founder Jeff Bezos and PayPal (PYPL) co-founder Peter Thiel are among the biotech’s top investors. The latest price target for UBX is a high of +50.4% or $33.00 and the buy signal has just been raised.

https://www.cnbc.com/2018/09/13/unity-biotech-we-can-create-drugs-that-halt-or-reverse-aging-diseases.html

FDA Approves Leukemia Drug

AstraZeneca PLC (AZN) $37.45 as of 09/14/2018 (+7.93% YTD)

Expect the shares of AstraZeneca to soar in the weeks ahead. The U.S. Food and Drug Administration (FDA) said on Thursday it granted approval to the company’s hairy cell leukemia, a slow-growing type of blood cancer. Analysts are forecasting that AZN could fly +45.1% to $54.35 from Friday’s closing of $37.45.

https://money.cnn.com/quote/quote.html?symb=AZN

The rare blood cancer drug will be marketed under the name Lumoxiti. Hairy cell leukemia is a rare form of blood cancer in which the bone marrow makes too many B cells, a type of white blood cell that fights infection.

https://www.reuters.com/article/us-astrazeneca-fda/fda-approves-astrazenecas-drug-for-rare-form-of-blood-cancer-idUSKCN1LT301

IPO Watch

 

There will be eight companies that are going public next week and could collectively raise an enormous $3.3 billion. Of the eight debutants, fast-growing ticketing platform Eventbrite is expected to generate the most excitement.

London-based Farfetch, a prominent player in nascent online luxury goods industry, will be the coming week’s third-largest IPO. Elanco Animal Health, a spin-out from Eli Lilly, is the biggest IPO of the bunch with a target to raise $1.35 billion.

Eventbrite (EB)

 

Many in the tech world believe Eventbrite could be among the best investor picks this year. The U.S.-based event management and ticketing website will face problems similar to what other tech companies and unicorns that went public this year encountered.

However, Eventbrite is in a prime position to take advantage of changing consumer tastes. The company has the potential to grow and has a reasonable valuation. The company will sell 10 million Class A shares priced at a range of $19 to $21. Eventbrite is looking to raise $200 million while aiming for a valuation of over $1.5 billion.

Farfetch (FTCH)

 

This London-based e-commerce platform for high fashion wants to be the pioneer and be ahead in the luxury brand industry’s shift to digital. This business segment has yet to fully embrace the online transition.

Farfetch has a base of just under 1,000 high-end retailers and brands on its online fashion marketplace. The company operates as a fee-based merchant with no inventory outside of their two London stores.

Since the platform is an asset-light business model, it will allow for low reinvestment rates and potentially attractive operating margins. However, there might be limited revenue growth given the current and potential competition.

This global online marketplace for luxury fashion brands and retailers plans to raise $600 million. The wealthy and affluent customers of Farfetch are regarded as the heavy lifters in the fashion economy. These customers want to get their hands on items that the masses can’t afford. Farfetch has already reached more than 2.3 million consumers in 190 countries.

Elanco Animal Health (ELAN)

 

Elanco Animal Health is actually a spin-off of Eli Lilly & Co.’s (LLY) global animal health medicines and vaccines business. Elanco plans to raise about $1.4 billion with its 62.9 million shares offering. The price range is $20.00 to $23.00.

The company was founded in 1954. It boasts of $3.0 billion in sales over the last 12 months. Goldman Sachs, J.P. Morgan, Morgan Stanley, and Barclays are the joint bookrunners of the Greenfield, IN-based company’s deal.

Rounding up the list are the following:

  • Zekelman Industries (ZEK), a family-owned company founded in 1877, is the largest independent US steel pipe and tube manufacturer. The Chicago, IL-based company plans to raise $752 million.

 

  • X Financial (XYF) was founded in 2014 and plans to raise $110 million by offering 11.0 million shares at a price range of $9.00 to $11.00. The company operates a peer-to-peer lending platform in China.

 

  • Remora Royalties (RRI) is an Austin, TX-based company which owns oil and gas mineral royalty interests underlying 600,000 acres across the US. The objective of the 7-year old firm is to raise $105 million.

 

  • Y-mAbs Therapeutics (YMAB), a New York, NY-based company, started operations in 2015. It is a phase 2 biotech developing monoclonal antibody therapies for pediatric cancers. The biotech firm is hoping to raise $80 million from its IPO.

 

  • Bank7 (BSVN), an Oklahoma City-based bank, hired Keefe Bruyette Woods and Stephens Inc. to be joint book runners on the deal that is expected to raise $65 million. The bank opened in 2004 and currently has seven branches in OK, TX and KS.

https://www.nasdaq.com/article/us-ipo-week-ahead-eventbrite-headlines-8-ipo-week-raising-33-billion-cm1023289

THE WEEK AHEAD

 

Trade tensions dominated the scene this week yet U.S. stocks finished higher, rebounding from the more than 1% decline from the previous week. Observers believe most of the threats to impose new tariffs are negotiation tactics. A resolution might be forthcoming soon and without a significant slowdown in global growth.

The month of September started off on a positive note with the labor market report showing strong job growth, unemployment rate at historical lows, and stronger wage growth. With the three factors combined, it can support and sustain GDP growth to form a sound foundation for the stock market.

Next week’s economic reports will focus on the housing market. The reports are as follows: Housing Starts and Building Permits on Wednesday and Existing Home Sales on Thursday.

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

 

 

 

 

 

 

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