The GENERAL MARKET
U.S. Stocks Hit New Highs on Strong Inflows
New highs were set on Thursday to place the U.S. stocks on track to beat Wall Street’s performance estimates this year. Both the Dow Jones Industrial Average and the S&P 500 Index posted milestones.
On Friday, Wall Street continued its record march with strong investor inflows and positive growth outlook for the U.S. economy driving the U.S. stock market. The Dow Jones notched its second straight all-time high, advancing 85.62 points (+0.32%) to finish the week with remarkable gains.
For the week, the blue-chip benchmark is up 2.3% and booked its biggest weekly percentage gain since July. The S&P 500 rose 0.9%. The Dow and S&P 500 posted their 10th positive week out of the last 12.
Although the Nasdaq Composite Index registered a -0.3% weekly decline, the tech-heavy index remains about 2% near record levels. Fund managers are also preparing for the major reclassification of key S&P 500 sectors on September 28 and meet the expiration of options contracts.
Some analysts are saying more milestones are coming. Karyn Cavanaugh, senior markets strategist at Voya Investment Management said, “Finally, the market has shrugged off all the trade war fears.” She added, “The robustness of the economy just won’t be put down.”
TOP MARKET HEADLINE – New Tariffs to Take Effect Next Week
The Chinese government announced on Tuesday their plans to impose new tariffs on $60 billion worth of U.S. goods. It is in retaliation to the Trump’s administration’s earlier announcement that it was proceeding with an additional $200 billion in duties on Chinese imports.
Trump warned that $257 billion worth of tariffs is forthcoming if China retaliates. The new tariffs from both sides will take effect on September 24.
Consumer Services Sector Highlights
Comcast Corp. (CMCSA) – Cable Giant Outbids Fox for Sky
In a rare move, the U.K. Takeover Panel held an auction on Saturday to end the long-running takeover battle for European broadcaster Sky. The Philadelphia-based Comcast Corp. outbid 21st Century Fox (FOX A) to take control of the British company for about $39 billion. The U.S. cable giant came out on top in a three-round auction by offering about $2 more per share.
Both Comcast and Fox want to take control of Sky to better compete with online streaming services Netflix Inc. (NFLX) and com Inc. (AMZN). In addition, what Comcast finds attractive in Sky is that it will provide a foothold in Europe and make them less dependent on the United States. Sky has 23 million subscribers and owns the rights to the English Premier League soccer games.
21st Century Fox is backed by Walt Disney Co. (DIS) but it was the American cable giant that lodged a winning bid of about $40 billion (£30.6 billion) for Sky. In the final round of the auction, each company submitted a “sealed” bid that was made public by the UK Takeover Panel on Saturday night.
Both companies are fighting to own 61% of Sky. Incidentally, 21st Century Fox already owns 39% of the company. Comcast’s offer was $22.57 (£17.28) per share while Fox’s offer was $20.46 (£15.67) per share.
October 11 deadline
The two contending companies must now make their bids official. Sky’s Independent Committee unanimously recommended Comcast’s offer to Sky shareholders. They were given until October 11 to accept the offer.
Sky is a prize catch for U.S. media companies that are seeking to expand their operations to Europe. That would also firm up their defenses against the juggernauts Netflix and Amazon. Sky also sells broadband and mobile phone services. From time-to-time, the UK broadcaster carries top original shows and valuable premium sports content.
The auction the media world witnessed could be the dramatic ending to Fox top honcho Rupert Murdoch’s long-running desire to buy out the entire Sky. For years, Fox has been attempting to take over the 61% of Sky it does not already own.
Health Technology Sector Highlights
Tilray Inc. (TLRY) – Wild Trading of the Weed Stock
Investors were captivated this week by Canadian pot grower Tilray Inc. Trading of the stock was halted twice on Wednesday on account of a rip-roaring rally and wild trading session.
TLRY soared 28.9% on Tuesday from $120.19 to $154.98 after the cannabis company’s announcement that it has secured DEA approval to import pot to the U.S for medical research. Tilray will work with the University of California San Diego Center for Medicinal Cannabis Research to study the efficacy of marijuana for a neurological disorder.
On Wednesday, the stock jumped by 38.1% to $214.05 and even touched a high of $300.00 or a 93.6% rise. Since debuting in Wall Street last July, TLRY has seen strong upward momentum. But in a way, DEA’s approval sent a strong signal to Wall Street that the agency is standing pat on its goal to improve resources and cannabis research.
A parallel to the Bitcoin craze
The market valuation of Tilray reached more than US$19 billion on Wednesday that it surpassed the market values of American Airlines Group Inc. (AAL), brewer Molson Coors Brewing Co. (TAP), and casino operator Wynn Resorts Ltd. (WYNN). Observers are saying that the astonishing rise of TLRY this week can be likened to the bitcoin craze of last year and it is bound to crash and burn.
Shares of Tilray dropped -17.6% to $176.35 on Thursday then fell sharply by -30.2% on Friday. TLRY ended its roller coaster week lower at $123.00. Despite the -42.5% drop from Wednesday, Tilray is still up 623.5% from its July IPO price of $17.00. However, TLRY was also the worst-performing stock in the ETFMG Alternative Harvest ETF (MJ) which fell 7%.
Followers of the cannabis industry believe that what Tilray demonstrated this week was a classic behavior of a stock going through a short squeeze – parabolic gains in a short period of time, a small number of shares available for trading, and high levels of short interest among skeptics on the stock’s long-term prospects.
Aurora Cannabis Inc. (ACBFF) – Talks with the Largest Beverage Company
Shares of Aurora Cannabis Inc. along with other weed stocks advanced on Monday following the news the Coca-Cola Co. (KO) is eyeing the cannabis drinks market. Coke is joining major alcohol makers and a cigarette company in the rush to test the cannabis market and find partners ahead of the launching of legal recreational marijuana in Canada on October 17.
ACBFF popped +17.79% to $7.68 on Monday then continued its rise to settle at a high of $9.22 on Friday. According to a report from BNN Bloomberg Television, Coca-Cola expressed interest in developing drinks infused with CBD — the non-psychoactive ingredient in marijuana that treats pain but doesn’t get you high.
In an e-mailed statement, Coca-Cola spokesman Kent Landers said, “We are closely watching the growth of non-psychoactive CBD as an ingredient in functional wellness beverages around the world.”
Coca-Cola has been in the news recently because of a series of new business ventures. With soda sales slowing down, the company is looking for alternative revenue sources. Both the beverage giant and the Canadian weed company confirmed they are in talks to develop CBD-infused drinks.
In separate news, Bruce Linton, co-founder, and CEO of Canopy Growth Corp. (CGC) made a strong pitch for the weed industry. He told CNN on Friday that he thinks the U.S. could relax on some of the laws prohibiting marijuana. S. marijuana sales are growing astronomically and the biggest beverage company of them all is eyeing to invest in weed.
Consumer Discretionary Sector Highlights
Consumer Discretionary Leads All Sectors in 2018
On Thursday, Bloomberg released its latest Consumer Comfort Index. The said index had risen to its highest level since 2001 and the leading economic indicators point to a strong second half of 2018. It also shows that the almost nine years of U.S. economic expansion is likely to continue.
With the robust economic growth, consumer products have been posting strong sales growth. Bloomberg summarized the performance of the 11 primary sectors of the S&P 500 and some interesting data emerged.
Consumer companies are showing the best sales growth. Further, the consumer discretionary sector leads all sectors in the broader index. Netflix Inc. (NFLX) and com Inc. (AMZN) areamong the sector’s high flyers of 2018. NLFX is up +88.16 YTD while AMZN is up +63.75% YTD.
Interestingly, the consumer staples sector is bringing up the rear. Several companies in the sector are vulnerable and losing market share in private-label brands.Finally, by combining the consumer discretionary and consumer staples sectors, here are the 10 S&P 500 companies deemed as the Consumer Sales Winners based on the largest increase in sales for their most recently reported quarters:
The list of topnotchers is a combination of the consumer discretionary and consumer staples sectors. Here are the 10 S&P 500 companies deemed as the Consumer Sales Winners based on the largest increase in sales for their most recently reported quarters:
The WEEK AHEAD
Once more, the U.S. stock market ascended to a new high this week which is nothing new. The total return this year has risen to 11% and more impressive 429% advance since this bull market began in early 2009.
More notably, the S&P 500 has now risen 15% from its low earlier this year when stocks had their first correction in two years. That should remind everyone that the favorable economic and earnings reports won’t prevent volatility. But pullbacks do open buying opportunities even in these later stages of the cycle.
Nonetheless, investors shouldn’t feel complacent even if it appears that the market is getting accustomed to trade tensions and rising interest rates. Wall Street must not ignore all risks to avoid knee-jerk market reactions.
The economic reports coming out next week are all important. The Federal Reserve’s short-term interest rate decision will be known on Wednesday. The Durable Goods Orders is set for Thursday while the Consumer Sentiment is due on Friday.