This last week was a crazy end to the October selling craze being followed by a flood of stock buying this week prior to Friday’s major profit taking. Some of that buying is obviously being helped by corporations repurchasing their shares. And there had been some less-than-accurate reports that the U.S. and China were ready to draft a new trade program to ease economic tensions.
While the stock market tries to be a real-time judge of economic trends for the coming one to four quarters, we have all observed that the so-called “efficient market hypothesis” by and large has not worked. Friday morning’s hopped up China-trade-deal-hope went from a Dow that was +300 early on Friday down to over -100 points by lunchtime on Friday. Think about this for a high-low perspective after the October selling zenith: The Dow’s peak price of 25,578.98 (as of Friday morning) was a whopping 1,136 points higher at the peak than Monday’s closing bell price of 24,442.92. The yield on the 10-year Treasury was back up at 3.20% and the 30-year Treasury yield was back up at 3.43% late on Friday.
24/7 Wall St. has identified the top 20 top investor news items for the week ending Nov. 2. This includes groups of stocks, individual stocks with key news, and key economic trends you cannot ignore. Links back to each have been provided for more detail with some basic color included in this synopsis.
In economics, six key issues stood out that should sum up the week. There is no doubt that Friday’s payrolls report was as strong as a field of garlic with strong jobs and wage growth. That said, it’s also problematic for the markets in the sense that Jerome Powell and the Federal Reserve will continue to have cover for their interest-rate hike intentions heading into 2019.
This was just days after China’s PMI reading is showing that growth is now barely above zero — a bad sign for what has been considered the world’s top growth engine. European growth is also elusive, and that may lead to even more delays in Mario Draghi’s ambitions of raising interest rates at the European Central Bank.
While international backdrops are weak, U.S. consumer confidence is looking so strong that it’s growing harder and harder to not expect anything short of a massive retail win over this holiday season — and the continued online holidays sales trends are going to knock your socks off! That said, there is more observation that perhaps “peak housing trends” are continuing to weigh on the housing market.
In overall oversold stocks, there were two key issues that need to be considered during that 1100-point swing in the Dow this last week. 24/7 Wall St. identified 10 of the S&P stocks that were down 40% or more this year for potential buying-bait candidates. Just don’t be fooled into thinking some of these junky stocks are looking good ahead.
We also identified 25 large-cap stocks that looked grossly oversold in their own bear markets into the selling zenith, and many of these names have seen their shares come roaring back during this week’s bargain buying.
In corporate news, Apple Inc. (NASDAQ: AAPL) was the big story of the week. After all, it’s the world’s largest company by market value. Apple faced a disappointment with earnings and a future lack of clarity on individual unit sales. Apple was down 6.7% at $207.30 late on Friday, versus a 52-week range of $150.24 to $233.47. Apple analysts are also changing the amount of just how bullish they are on the company now.
The other major negative came from General Electric Company (NYSE: GE). Along with weak earnings trends and guidance, its new chief executive officer chopped GE’s common stock dividend down to a lousy 1-cent payout. That’s effectively like going back to 2008 and 2009, and GE shares were handily down under $10 at the end of the week. Amazingly, some analysts tried to call a bottom here with the baby being thrown out with the bath water.
Another big gaff came from a massive merger in technology. International Business machines Corp. (NYSE: IBM) is paying an unbelievable $34 billion to acquire Red Hat Inc. (NYSE: RHT). The price was a 68% premium and an all-time high for Red Hat, but our first look is that IBM might not ever be able to make its money back now that Red Hat’s growth might not be what it once was. If CEO Ginni Rometty is wrong about this transforming IBM as the number-one hybrid cloud provider, then she is going to be fired in an ugly manner. IBM was a $154 stock as recently as Oct. 3, but it was closer to $116 on Friday.
Three big points for Big Oil. Oil and gas giants saw a serious boost late in the week, but the problem for the oil and gas crowd is that oil prices have been backing off their highs from the last month or two. Chevron Corp. (NYSE: CVX) was up over 4% at $115.37 late on Friday after previously higher oil prices helped it beat earnings expectations. The larger rival Exxon Mobil Corp. (NYSE: XOM) rose as well after pleasing the market on its earnings report, but its shares were up just 1.2% at $81.65 late on Friday. This seems hard to imagine, but BP PLC (NYSE: BP) managed to double its earnings and its New York-listed ADSs were down almost 2% at $41.85 late on Friday and were barely higher than Monday’s lows.
Two more big points were seen in energy mergers. The more recent issue is that Encana Corporation (NYSE: ECA) may be paying too much for its $5.5 billion acquisition of Newfield Exploration Company (NYSE: NFX). The second issue in oil and gas mergers is that it seems possible here that Chesapeake Energy Corp. (NYSE: CHK) may be biting off more than it can (or should) chew in its $4 billion acquisition of WildHorse Resource Development Corp. (NYSE: WRD). Investors need to take note — consolidation trends in energy may only continue ahead.
Facebook Inc. (NASDAQ: FB) was a disappointment for social media investors thinking that the peak selling pressure was all way overdone. Mark Zuckerberg warned of continued pressure ahead on Facebook as the company deals with more fake news and privacy woes. The earnings report now shows that some 2 billion people are using at least one of Facebook’s services every day now. Facebook shares were at roughly $146 ahead of earnings and the stock was still floundering around the $150 mark late on Friday. The trend was for analysts to keep their buy and outperform ratings while trimming their 2019 stock price target expectations.
Three key issues were seen in the world of automobiles the week of Nov. 2. The top issue is that higher interest rates are starting to add in their dose of pouring salt on the wound by limiting car buyers on how much car they can buy (over $1,000 higher financing costs versus a year ago). That said, General Motors Co. (NYSE: GM) managed to deliver much better than expected earnings and its shares finally showed that they could rise again. Unfortunately, GM also signaled more “peak auto” concerns for longer as it is offering to buy out 18,000 employees out of their jobs.
Friday’s Top Analyst Upgrades and Downgrades included shares of Abiomed, Allscripts, Apple, Carbonite, Kraft Heinz, L3, Souther Copper, Starbucks, VeriSign, XPO and about a dozen more key companies.
That’s all for the 20 issues you should not have missed for the week of Oct. 29 to Nov. 2.
Next week may be another wild ride around the midterm elections as the country will find out the makeup of the next Congress. Stay tuned.