THE GENERAL MARKET
Main U.S. Benchmarks Finish The Week On A High Note
Last July 27, the three main U.S. stock market benchmarks ended the week on a sour note. On Friday, all of them finished in green territory as the S&P 500 and Dow Jones recorded a fifth weekly gain in a row. Wall Street was carried by solid earnings reports throughout the entire week as it shook off a drop in employment and trade-war concerns.
Main Benchmarks as of 08/03/2018
The Dow Jones Industrial Average +0.54% climbed 136.42 points (+0.54%) while the S&P 500 Index gained 13.13 points (+0.46%). The broader index saw 10 of its 11 primary sectors closing higher.
The Nasdaq Composite Index advanced 9.33 points (+0.12%) to book gains as the shares of Apple Inc. extended its record rise. The tech-heavy index ended the week 1% higher and recovered after two straight weeks of losses.
The U.S. Labor Department reported on Friday that 157,000 new jobs were created in July. The figure fell short of the 190,000 jobs projected by economists. In June, 213,000 new jobs were added. Nonetheless, there was a subdued reaction from investors.
Trump Proposes Higher Tariffs on Chinese Goods
United States President Donald Trump directed U.S. Trade Representative Robert Lighthizer on Wednesday to increase the proposed 10% duty on $200 billion worth of Chinese imports to 25%. The White House is exerting pressure on China for trade concessions by proposing a higher tariff percentage.
Trump wants Beijing to make fundamental changes to its policies on intellectual property protection, technology transfers and subsidies for high technology industries. China refuses to meet U.S. demands and has instead imposed retaliatory tariffs on U.S. goods.
Federal Reserve Maintains Status Quo on Rates
The Federal Open Market Committee (FOMC) concluded its two-day meeting on Wednesday. The central bank’s policy-making body decided to forego an increase in interest rate and instead voted unanimously to keep the target range for its benchmark rate at 1.75% to 2.0%.
However, two more rate increases are imminent this year which could happen in September and December. The Feds also upgraded their assessment of the U.S. economy.
The central bank cited the economic activity that has been rising at a strong rate and the labor market has continued to strengthen. Business fixed investment and household spending have likewise grown strongly.
China Loses Rank as the World’s Second-Largest Stock Market
The Financial Times reported on Friday that Japan is now the world’s second-largest stock market after unseating China. As of Thursday, Japanese shares had a total market value of $6.16 trillion. Meanwhile, the report showed that the total worth of Chinese stocks at the market close on the same day was $6.09 trillion.
China’s sudden drop in rank came after the Asian markets declined prior to Friday. Also, the news that the Trump administration was considering raising the proposed tariff on $200 billion in Chinese goods to 25% impacted on the Chinese market.
Tesla Posts Record Loss
Tesla Inc. (TSLA) reported a record $717.5 million loss for the second quarter of 2018 but CEO Elon Musk appeared to have restored investor confidence with an apologetic gesture during the analyst call.
Interestingly, TSLA even soared more than 9% in after-hours trading on Wednesday despite the huge loss. The electric carmaker registered $4 billion in revenue and forecast additional increases to its production capacity and profitability in the second half of 2018.
Musk said, “We believe we can be sustainably profitable from the third-quarter onwards.” He also boasted of “viral growth” of sales and a “mind-blowing leap forward” in vehicle production. Tesla produced 53,339 vehicles in the quarter and delivered 40,768.
Information Technology Sector Highlights
Historic Week at Wall Street
Apple Inc. (AAPL) $207.99 as of 08/03/2018 (+22.90% YTD)
Tech giant Apple Inc. became the world’s first $1 trillion dollar company on Thursday, August 2. The record-breaking feat is opposite the unenviable record posted bFacebook Inc. (FB) last week. About $120 billion was wiped out from the social media giant’s market value to mark the single worst day in stock market history.
This time, the mobile giant and computing company broke all historical records of any former company when its shares hit $207.05. When com Inc. (AMZN) reported strong earnings last week, many analysts believed it would reach the $1 trillion threshold ahead of Apple.
Amazon tops Apple in terms of shares worldwide but the iPhone maker could not be denied the distinction. As of Thursday, Amazon’s market capitalization was estimated to be $873 billion. Alphabet Inc. (GOOGL) followed with $849 million and Microsoft Corp. (MSFT) trailing at $818 billion.
Apple did not only beat Amazon but also set a historical record after their shares hit $207.05. The price of AAPL has grown 2,000% since Tim Cook replaced Jobs as chief executive back in 2011. Still, founders Steve Wozniak and Steve Jobs deserve credit for putting up the company 42 years ago. Today, Apple Inc. is one of the largest selling mobile and computing companies in the world.
Surprisingly, Huawei Technologies also reached a major milestone this week as it overtook Apple to become the world’s second largest smartphone seller. The Chinese smartphone maker beat the U.S. tech giant in smartphone sales for the first time.
Huawei also narrows the gap with market leader Samsung. The sales of the South Korean smartphone fell 10% in the last quarter.
Healthcare Sector Highlights
Here are three stocks that are showing strong buy signals.
Amarin Corporation PLC (AMRN) $2.67 as of 08/03/2018 (-33.42% YTD)
Investors looking for life-changing gains should watch out for this small-cap biotech. AMRN has the potential to deliver eye-popping windfall. In about 60 days, Amarin would be unveiling the top-line results for the cardiovascular outcomes study known as Reduce-It.
Analysts are already forecasting a 280.2% increase to $10.00 from Thursday’s closing price of $2.63. There is a reward waiting because of a favorable future.
The objective of this five-year-long clinical trial is to evaluate the ability of its highly refined fish oil pill Vascepa to lower the rates of serious cardiovascular events, like a heart attack or stroke, when used in conjunction with statins.
The Food and Drug Administration (FDA) has already approved Vascepa as a treatment for patients with exceptionally high triglyceride levels. The market is relatively small at the present with only about 4 million people in the U.S. The successful outcome of Reduce-It could open the door to a bigger market.
Amarin is hoping FDA would agree to broaden Vascepa’s label to include patients who are still having trouble controlling their triglyceride levels, even after taking statins. According to EvaluatePharma, if that happens, Amarin would instantly have an addressable market of about 75 million people in the U.S. alone.
Kala Pharmaceuticals Inc. (KALA) $12.62 as of 08/03/2018 (-31.75% YTD)
KALA has a potential upside of 272.7% to $47.00 from where the stock is currently trading. There is news that the company’s third phase 3 trial (STRIDE 3) of KPI-121 0.25% for the treatment of dry eye disease (DED), had dosed its first patient.
But the real key catalyst for KALA this summer is its lead asset INVELTYS (KPI-121 1%), designed to treat patients with post-surgical ocular inflammation and pain. KALA’s INVELTYS has a PDUFA date set for August 24. Analysts see an 85% chance that the treatment gets will secure approval. If approved, INVELTYS would be the first FDA-approved corticosteroid eye drop with a twice-daily dosing regimen.
DURECT Corp. (DRRX) $1.41 as of 08/03/2018 (+52.96% YTD)
Durect Corp. is having a good year so far. The stock has been steady and comfortably up +52.96% year-to-date. Analysts forecast a +69.5% increase for DRRX to $2.50 from $1.41. But a $3.00 price target is not far off.
Another catalyst is that Durect partner Indivior received FDA approval for PERSERIS. It is the first once-monthly subcutaneous risperidone-containing, a long-acting injectable for the treatment of schizophrenia in adults.
Beverages (Non-Alcoholic) Sector Highlights
Finding A Cannabis Partner
The world’s seventh largest brewer by volume joined the cannabis industry to partner with one of the leading cannabis producers in Canada. On Wednesday, August 1, Molson Coors Brewing Co. announced that the company entered into an agreement with Hydropothecary Corporation to form a joint-venture.
The objective of the JV is to pursue opportunities to develop non-alcoholic, cannabis-infused beverages for the Canadian market following the legalization of marijuana.
Molson Coors Brewing Co. (TAP) $69.20 as of 08/03/2018 (-15.66% YTD)
Under the joint venture arrangement, Molson Coors will own 57.5% while HEXO will own 42.5%. A stand-alone company will be formed and the transaction is expected to be sealed before September 30, during Molson Coors’ Q3 2018.
Investors welcomed the news and reacted favorably as TAP climbed 3.47% to $69.33. Analysts are now setting a target price of $85.00 or a 22.8% increase from Friday’s closing of $69.20.
The maker of Coors Light Beer is the second large alcohol company to invest in the cannabis market. Constellation Brands (STZ), makers of Corona beer and Svedka vodka, bought a minority stake in Canopy Growth Corporation (CGC) in 2017. The Canadian market will see more cannabis-infused beverages when the government legalizes pot drinks in 2019.
Global beer volumes declined in the latest quarter. Sales volume in the United States dropped 4.8% as consumers are shifting to craft beers and wine. According to Spiros Malandrakis, head of alcoholic drinks at Euromonitor. “There is a paradigm shift underway and cannabis has the potential to provide answers to the alcoholic drinks industry’s existential questions.
Meanwhile, the shares of Constellation Brands jumped +2.92% on Friday to $214.01 but is down -6.37% year-to-date. The shares of Canopy Growth, their cannabis partner, finished the week at $26.09 and are up +10.29% year-to-date.
Hydropothecary Corp. (OTC: HYYDF) $3.62 as of 08/03/2018 (+11.08% YTD)
The Hydropothecary Corporation, also known as HEXO in the cannabis industry, is the ideal partner for Molson Coors. The deal boosted HYYDF as it jumped 13.96% to $3.74. More importantly, this new partnership is likely to have a broader impact on other Canadian marijuana stocks.
Canadian firms Aurora Cannabis Inc. (OTC: ACBFF) and Aphria Inc. (OTC: APHQF) are the prospective candidates to partner with Molson Coors. Although both are bigger in terms of market cap, HEXO eventually won out. The key factor why Molson Coors picked them is their “track record of innovation.”
Hydropothecary Corp. was the first Canadian marijuana grower to market cannabis peppermint oil sublingual mists and oral marijuana powder products. In addition, the company has “shared values when it comes to doing business the right way and earning the trust of consumers.” Both Molson Coors and HEXO share a track record of excellent practices, as well as respect for law and regulations.
The Week Ahead
The acceleration of earnings growth in the second quarter improved investor sentiment. Nearly 81% of the companies in the S&P 500 have reported second-quarter earnings. It is interesting to note that earnings of 80% of the companies that have reported surpassed expectations. Corporate profits are up 24% versus 2017 and are on track for a second consecutive quarter above 20%.
While the Labor Department’s July’s jobs report showed only 157,000 new jobs added, the trend in job growth is still satisfactory. Through 2018, job gains have averaged 215,000 monthly which reflects a healthy labor market. The U.S. Federal Reserve has provided fresh insights into the economy and its projected path for short-term interest rates.
The earnings season will be winding down starting next week and investors will be digesting the earnings of the remaining companies. The inflation report scheduled for Friday morning will be the only economic data to be released next week.