The General Market
U.S. Stocks Move Between Gains and Losses
U.S. stocks were moving back and forth from green to red territory all week. They were bouncing between gains and losses to finally fall lighter before the Memorial Day weekend.
The Dow Jones Industrial Average advanced 298.20 points on Monday to post its highest close since March 12. The news that the United States and China declared a trade war truce boosted investor sentiments.
After advancing by nearly 300 points a day before, the blue-chip index fell 178.88 points on Tuesday to drop below 25,000 once more. Investors reacted to U.S. President Donald Trump’s comments that he was not satisfied with ongoing trade talks with China.
The Dow was lifted again mid-week and climbed 52.4 points to following the release of the minutes of the Federal Reserve’s meeting last May 2. Although a June rate hike is imminent, investors were assured that the central bank will not be too aggressive in raising interest rates.
The index then fell again 75.05 points on Thursday. On Friday, the drop in the stock prices of Chevron Corp. (CVX) and Exxon Mobil Corp. (XOM) pulled down the Dow. It was reported that the Organization of Petroleum Exporting Countries (OPEC) and Russia are discussing increasing petroleum supply.
The broader S&P 500 Index, as well as the Nasdaq Composite Index, followed the pattern of the Dow Jones. However, the S&P 500 Energy Index plunged more than 2.5% with oil posting its biggest decline in nearly a year. The oil minister from Saudi Arabia said that petroleum supply is likely to rise by the second half of 2018.
Meanwhile, the Nasdaq benchmark rose because the semiconductor stocks showed strength. Semiconductor stocks like Micron Technology Inc. (MU), NVIDIA Corp. (NVDA), and Broadcom Inc. (AVGO) were the red-hot stocks of the week.
Potential Increase in Agricultural Exports to China
The latest trade agreements between the U.S. and China would favor American exporters of beef, corn, and soybeans. There’s a potential increase of $60-90 billion agricultural imports by the Asian economic giant under the agreements.
China to Cut Tariffs on Imported Cars
Foreign automakers got a boost in the world’s largest market as China is cutting the tariffs it levies on imported cars. The Chinese Finance Ministry announced on Tuesday that starting July 1, import duties on passenger vehicles will be reduced from 25% to 15%.
Trump cancels U.S.-North Korea Summit
Citing “open hostility” from the country, U.S. President Donald Trump canceled a historic meeting with North Korea’s Kim Jong Un set for June 12. The White House said it would resume its maximum pressure campaign. New sanctions are likely although the administration expressed hope another meeting can be scheduled.
Comcast Makes Public its Bid for 21st Century Fox
The $52.4 billion all-stock offer of Walt Disney’s (DIS) for the assets of 21st Century Fox Inc. (FOXA) is under threat. Its nemesis is Comcast Corp. (CMCSA). The U.S. cable giant finally came out in the open on Wednesday to alert the public and Fox shareholders that a more lucrative offer is forthcoming.
GE Suffers Biggest Selloff in 9 Years
Wednesday saw the shares of General Electric Co. (GE) plunge and placed the stock on track for the biggest selloff nine years. From $15.29 on Tuesday, the stock price of the industrial conglomerate fell 7.26% to $14.18. CEO John Flannery said he couldn’t guarantee that GE would be able to keep paying dividends.
U.S. Jury Orders Samsung to Pay Apple $539 Million
A U.S. jury decided on Thursday then ordered Samsung Electronics Co Ltd. to pay Apple Inc. (AAPL) $539 million for copying their patented smartphone features. The world’s top smartphone rivals have been engaging in a legal battle over patents since 2011.
The Semiconductor Sector Highlights
Red-Hot Stocks in the Semiconductor Space
The strength of the semiconductor stocks was brought to light this week. There’s a big upside potential now that the United States and China have declared a trade war truce. Analysts gave some stocks in the sector a “strong buy” rating noting that their prices may be at bargain levels.
Micron Technology Inc. (MU)
- MU continued its rally from the previous week to close at $55.48 on Monday. The stock gained momentum and climbed in each of the trading session until Thursday to close at $61.49. MU finished the week slightly lower at $61.35.
- Micron surprised and made shareholders happy by announcing a $10 billion share buyback as well as a promising flash memory deal with Intel Corp. (INTC).
- The chipmaker also increased its financial guidance for its fiscal third quarter. CEO Sanjay Mehrotra said, “Our third quarter results are driven by focused execution of our strategy against a backdrop of healthy industry fundamentals.” Micron’s sales projections for the third quarter are higher – $7.7 billion to $7.8 billion from $7.2 billion to $7.6 billion. Earnings are now guided at $3.12 to $3.16 a share vs. the previous estimate of $2.76 to $2.90.
- Amid Daryanani from RBC Capital Markets said, “Micron offers a unique way for investors to gain exposure to DRAM and NAND markets at what we view as attractive valuations.” He sees big upside potential of 44% or shares to soar to $80 from the current price. MU is already up 49.20% year-to-date.
NVIDIA Corp. (NVDA)
- NVDA perked up mid-week rising nearly 2.0% to $247.54 from Tuesday’s $242.70. The stock price climbed higher to finally settle at $249.28 on Friday. The company showed strong first quarter results and impressive growth outlook last May 10. Investors are upbeat about NVIDIA Corp. whose stocks are up +28.23% year-to-date.
- Moving forward, Zack’s Consensus Estimates projects NVIDIA to report second-quarter revenues of $3.11 billion or a 39% climb from the prior-year quarter. For full-year projections, revenues would surge 36% and reach $13.18 billion.
In so far as bottom line projections, it is expected to expand by more than 81% in the second quarter to reach $1.83 per share. The full-year earnings could soar just over 60% to reach $7.90 per share. On the overall. NVIDIA is outpacing its industry’s 56% growth.
Broadcom Inc. (AVGO)
- Broadcom ended the week strong. AVGO demonstrated its strength too and rallied beginning on Wednesday. It jumped slightly to $238.49 on Tuesday before jumping 4.83% to finish Friday at $250.03.
- Top-rated Morgan Stanley analyst Craig Hettenbach gave Broadcom stock a ‘Buy’ rating, standing pat on a bullish price target of $320, indicating a big upside potential of 34%.
- Hettenbach said “The bad news is already out.” and Wall Street estimates have already been properly reset.” Of late, Broadcom experienced a drag on growth from a big shortfall in smartphones. It led to weak demand for its wireless chips.
- However, he added that 5 key factors can push AVGO prices higher: Broadcom confirming that the worst of the wireless cuts is over; investors gaining greater confidence that wireless has bottomed; progress towards operating margin targets; evidence of aggressive buybacks; and strong free cash flow growth- potentially leading to dividend increases.
The Energy Sector Highlights
Energy Sector Pulls Down Dow Jones
When crude-oil prices fell this week, a selloff in energy-related stocks ensued. The pressure on energy stocks was because of the news on Friday that OPEC and Russia plan to lift production by as many as $1 million barrels a day. The Saudi minister confirmed that petroleum supply is likely to rise by the second half of 2018.
As a result, U.S. crude-oil prices tumbled 4% to settle at $67.88 a barrel. The combined efforts of OPEC and Russia to curb supply have pushed oil prices to their highest since2014. Michael James, managing director of Wedbush Securities said, “It’s been a very rough week for oil, and that has weighed on energy names.”
Chevron Corp. (CVX) and Exxon Mobil Corp. (XOM) dropped 3.49% and 1.94% on Friday to pull down the Dow Jones Industrial Average on Friday. The two were the major decliners on the blue-chip index.
Chevron Corp. (CVX)
- The closing price of CVX on Monday was $129.37 and finished the week lower by 5.88% to $122.19. CVX and other stocks in the energy sector have benefited from higher crude prices which are up more than 12% thus far this year. If oil prices will further fall with the easing of production cuts, the energy sector would be gravely affected.
Exxon Mobil Corp. (XOM)
- XOM closed at $82.28 on Monday and slid -4.34% to $78.71 on Friday. Prior to the oil priced drop on Thursday, ExxonMobil gave detailed plans on Wednesday on how they intend to cut methane emissions by 15% by 2020.
- Climate activists blame the world’s largest public oil company and other greenhouse operators for using the powerful methane gas and contributing to global warming. Exxon is now pledging to significantly reduce its greenhouse gas emissions.
Energy Select Sector SPDR® Fund (XLE)
- The Energy Select Sector SPDR ETF its biggest daily percentage drop since early February on Friday. XLE dropped -2.6% to $74.58 from Thursday’s $76.57. The fund lost 4.5% for the week.
The Biotech Sector Highlights
FDA Approval at Last
Biomarin Pharmeceutical Inc. (BMRN)
- On Thursday, the FDA approved BioMarin’s drug Palynziq to treat phenylketonuria (PKU). It is the culmination of more than 10 years of perseverance by BioMarin employees dedicated to bringing treatments to PKU adult patients. BMRN rose 2.74% Thursday after the approval was announced with another rise of 4.8% in after-hours trading.
- BioMarin’s Chairman and CEO Jean-Jacques Bienaime said after securing the U.S. Food and Drug Administration (FDA) approval, “BioMarin is thrilled to be able to offer this important new therapy to adults with PKU who are unable to control their Phe levels with existing options.”
- PKU is a rare genetic disease. It is observed at birth and has a number of effects on the brain, which can cause seizures, and serious neurological and neuropsychiatric problems. Infants are screened at birth to guarantee an early diagnosis. The drug is being evaluated by the European Medicines Agency is also evaluating Palynziq.
- The biotech company has scheduled the commercial launching of the drug in the U.S. by the end of June. It will be available only through the Palynziq REMS, a restricted program under a Risk Evaluation and Mitigation Strategy (REMS).
New Development to Boost Stock
AstraZeneca PLC (AZN)
- AstraZeneca along with Medlmmune, its research-and-development unit announced positive overall survival (OS) data for its Phase III PACIFIC trial of Imfinzi (durvalumab) in patients with unresectable Stage III non-small cell lung cancer (NSCLC).
- AZN posted its all-time high of $37.05 on Tuesday but slid below $37.00 in the next two trading sessions. The stock topped the mark again to close the week at $37.04. On Friday, BMO Capital analyst Alex Arfaei gave a ‘buy’ rating to AstraZeneca and set a price target of $41.
- Sean Bohen, AstraZeneca’s executive vice president, Global Medicines Development, and chief medical officer said, “The readout of positive overall survival data at the interim analysis of the PACIFIC trial provides additional compelling evidence of the clinical benefit that Imfinzi can offer patients in this earlier stage of lung cancer.”
The Week Ahead
A broad range of factors affected the market this week. The ongoing trade negotiations between the United States and China have been characterized by progress and setbacks. The changing scenario prompted the swings between optimism and pessimism.
While a June rate hike is imminent, the minutes of Fed’s May 2 meeting indicated a path of gradually rising rates. The market volatility will emanate from the concerns on interest rates, oil prices, and the outcome of the trade negotiations.
Robust economic data are set to be released on Friday. The reports lined up are the May’s jobs report, the Purchasing Managers’ Index, and Construction Spending.