THE GENERAL MARKET
Investors Pour $9 Billion into U.S. Equities
U.S. stocks closed mostly lower on Friday as the major benchmarks posted modest weekly declines. The lingering uncertainty over the outcome of the ongoing trade negotiations between the U.S. and China and bond yields that climbed to its highest level since 2011 caused the declines.
By mid-week, investors pumped in a total of $9 billion fresh funds into U.S. equities. The market has never been tentative after 2 years of uninterrupted gains. Stocks would climb after a series of impressive earnings reports then ends in red territory on the next trading session.
The Main Indexes Performance
The Dow Jones Industrial Average closed almost unchanged at 24,715.09, posting a 0.5% weekly loss. The broader S&P 500 Index shed 7.15 points to end the week with the same 0.5% loss. The tech-heavy Nasdaq Composite Index declined 28.13 points to register a 0.7% loss over the week. The Russell 2000 index comprising small-capitalization stocks rose by 0.2%, to 1,628.12 to post a third record close in a row.
Main Indexes closing 05/18/2018*
*points and percentage increase/decrease
An unexpected surge in oil prices
There was an unexpected surge in oil prices that most investors welcome. Economists, as well as investors, see a tug of war between rising gasoline prices affecting consumers and rising oil prices boosting capital spending. The rise in oil prices is also pushing yields higher as the 10-year rate climbed above 3.10% for the first time since 2011.
Trump Changes Stand on ZTE
U.S. President Donald Trump has a change of heart on China’s ZTE Corp. when he announced last Sunday that he is working to give the sanctioned Chinese equipment maker “a way to get back into business, fast.”
HSBC and ING Bank Goes Crypto
The multinational banks HSBC and ING Bank announced on Sunday that they have conducted their first trade transaction using the blockchain technology Corda.
Mainland Wants Big Chinese Tech Companies Back Home
China is devising a plan to lure its biggest companies back to their mainland. Some of the country’s leading tech companies like Alibaba (BABA) and Baidu (BIDU) chose to go public on the U.S. stock market. Tencent opted to list in the Hong Kong exchange.
Cambridge Analytica Files for Chapter 7 Bankruptcy in NY
Cambridge Analytica LLC filed for voluntary Chapter 7 bankruptcy in a New York court late Thursday. The sharp decline in business forced them to shut down operations and begin bankruptcy proceedings. The controversy involving the privacy data breach on Facebook Inc.’s (FB) users took a heavy toll.
RETAIL TRADE SECTOR HIGHLIGHTS
The Grocery War Intensifies
Amazon.com Inc. is playing its disruptive role to the hilt. This time, the e-commerce giant is igniting another price war. On Wednesday, Whole Foods Market unveiled its loyalty program that offers special discounts to Amazon Prime members.
This newly implemented loyalty strategy will gauge if Amazon’s $13.7 billion acquisition of Whole Foods would achieve its primary objective. Many feared that the deal and an intensified price war would mess up the $800 billion U.S. grocery industry. Rivals Costco Wholesale Corp., Kroger Co., and Walmart Inc. are ready and wants Amazon to bring it on.
Cost-Saving Strategy to Stave Off Rivals
Costco Wholesale Corp. (COST) $198.96 as of 05/18/2018 (+6.90 YTD)
- Costco has been outperforming Walmart and Kroger in the stock market with COST breaking out to fresh all-time highs. Amazon is up +34.62% year-to-date but its business is not confined to the grocery market, unlike
- Customers patronize Costco because they love the kind of price cuts they give. Many grocery shoppers still enjoy a good discount at Costco and now even investors are paying attention because it’s showing in the stock chart.
- The company is set to report earnings by end of May and investors are curious if Amazon’s rampage can muscle Costco’s business. Some analysts are saying that the COST stock is a bit pricey these days but the charts are indicating the price could become even more expensive in the weeks ahead. COST might be a buy option at this time.
Kroger Seals Landmark Deal with U.K. Online Supermarket
Kroger Co. (KR) $24.89 as of 05/18/2018 (-9.33% YTD)
- S. retailer Kroger Co. has sealed an exclusive deal with UK online supermarket Ocado. The British company will use Kroger’s automated warehouse technology in the United States.
- As part of the deal, Kroger will be investing $247 million that will translate to a 5% stake in Ocado. The U.K. online supermarket considers Kroger the best-positioned supermarket to succeed in the US online grocery market. Kroger is second only to Walmart in terms of US market share.
- Ocado could build as many as 20 robotic warehouses for Kroger in order to accelerate plans of becoming a global supplier of white-label online shopping technology.
Walmart Posts 33% Growth in Online Sales
Walmart Inc. (WMT) $83.64 as of 05/18/2018 (-15.30% YTD)
- The quarterly earnings report presented by Walmart Inc. on Thursday showed that the online sales of the world’s largest brick-and-mortar retailer are growing. It also indicated that Americans still flood to their stores.
- On Thursday, Walmart reported that their online sales grew by 33% during the previous quarter. CEO Doug McMillon is currently preparing Walmart for the digital era. The giant retailer expects online sales to increase further to 40% for the full year.
- Laura Kennedy, vice president of retail insights at Kantar Consulting, disclosed that the e-commerce business of Walmart is just 4% of total sales in the U.S. She said, “The real issue with Walmart is that most of what they sell is food and people don’t buy food online.”
BIOTECHNOLOGY SECTOR HIGHLIGHTS
Promising Outlook for Biotech Stocks
The negative trend of biotech stocks during the first half of 2018 drove its ranking to No. 27 out of 197 industry groups. According to by Investor’s Business Daily, the group ranked fifth 13 weeks ago. The ranking of pharmaceutical companies also dropped from No. 51 to No. 78.
On Wednesday, analysts said the trend is likely to reverse because AbbVie Inc., Celgene Corp., and Regeneron Pharmaceuticals Inc. could spike in the second half of 2018. An accelerating number of drug approvals and launches are forthcoming.
AbbVie Inc. (ABBV) $105.98 as of 05/18/2018 (+9.59% YTD)
- The highly anticipated report data of AbbVie on its study of upadacitinib, the drug as a treatment for forms of arthritis, will be out soon.
- The Food and Drug Administration (FDA) will soon decide on whether to approve AbbVie’s drug called Elagolix. The drug is a treatment for endometriosis which is a condition of the female reproductive system. The FDA will also decide the fate of another AbbVie drug named Venclexta which is a treatment for a form of leukemia.
Regeneron Pharma Inc. (REGN) $301.81 as of 05/18/2018 (-19.72% YTD)
- The FDA is about ready to render its decision on Regeneron and Sanofi‘s (SNY) drug for asthma treatment. Dupixent is already being administered by physicians for the treatment of eczema. The two companies also collaborated on cemiplimab which the FDA is considering as a drug to treat an advanced form of skin cancer.
Celgene Corp. (CELG) $78.37 as of 05/18/2018 (-24.90% YTD)
- Investors and stock market traders are anticipating a major turnaround for Celgene when it unveils data from late-stage studies of Revlimid which is their major cancer drug. Celgene partnered with Acceleron Pharma (XLRN) on luspatercept which is a drug for two blood diseases. The results of their studies can be expected anytime soon.
- Celgene will also reveal more information regarding its acquisition of Juno Therapeutics. The company is moving into a class of cancer therapy known as ‘chimeric antigen receptor T-cell’ therapy or CAR-T. Their main rivals in CAR-T are Gilead Sciences Inc. (GILD) and Novartis AG (NVS).
- Analysts from Leerink said in a note to clients that investors should expect a more exciting biotech and pharma stocks come the second half of 2018. There was a dearth of clinical study results to validate their pipelines and re-price stocks during the first half. The second half promises to be more vibrant due to a number of significant clinical events on the horizon.
Dividend Stocks Versus Treasury Bonds
Now that the ten-year U.S. Treasury notes are yielding more than 3%, it becomes more attractive to higher income-seeking investors. However, if you’re looking for higher yields, there are dividend stocks that pay higher than treasury bonds.
The so-called S&P 500 Dividend Aristocrats Index is made up of 53 companies belonging to the S&P 500. The only qualification to be included in the list is that the company has increased regular dividend payouts for at least 25 consecutive years.
It is interesting to note that over the past 10 years, this index has greatly outperformed the S&P 500 and the Dow Jones Industrial Average with dividends.
Check the link below to see comparison chart as well as the latest update on the TOP and WORST Dividend Stocks.
So far in 2018, 27 of the stocks listed in the Dividend Aristocrats Index are down. The four worst performers are in the consumer-staples sector namely: Clorox Co. (CLX)(-19% / 3.24%); Proctor & Gamble (PG)(-19% / 3.90%); PepsiCo Inc. (PEP)(-18% / 3.82%); and Colgate-Palmolive Co. (CL)(-17% / 2.71%).
Investors are worried about the worst-performing dividend stocks because they are well-known consumer brands. They might be losing their pricing power already. One important element is that when interest rates are rising, the market values of income-producing securities tend to fall over the short term. On the overall, there are about 43 S&P 500 stocks with dividend yields of 4% or higher and therefore better than treasury bonds.
If you are in the market for common stocks with higher dividend yields, find out if the investment is safe based on the company’s regular dividend payments. Determine if there’s a chance the company may cut the dividend. Listed companies are cautious when it comes to raising dividend payouts. A sharp drop in the stock price may ensue if the company decides to lower dividends.
THE WEEK AHEAD
Even is U.S. stocks appear tentative last week, they’re still 5.1% higher than this year’s low. Other key measures have risen as well to lend market support. The leading economic index (LEI) that measures 10 key economic trends, such as unemployment claims, new manufacturing orders, and stock prices has risen for the seven straight months.
In particular, this week’s readings on retail sales also showed an increase, reflecting positive labor market conditions and elevated consumer confidence. Thus, the view is that the economy will remain on sound footing and positioned to expand in 2018.
This coming week, investors will be looking out for data on New Home Sales Wednesday, Existing Home Sales on Thursday, and Consumer Sentiment on Friday.