Somehow, the second quarter of 2019 has come to an end and the year is now half way over. It also appears that the snap-back rally after the “Sell in May and Go Away” pressure abated and generated the best monthly June performance for stocks since 1938. The economy didn’t even feel hot in June’s numbers at all, but then again the market is now hoping for a Federal Reserve rate cut or two by Jerome Powell. And in the macroeconomic picture, Presidents Trump and Xi Jinping have just massively dialed down their trade rhetoric by halting new tariffs, resuming trade talks, and even allowing U.S. tech companies to sell back into China and to Huawei. Russia and Saudi Arabia have also reached a deal to cut oil production for six months ahead of the coming OPEC meeting.
24/7 Wall St. wanted to bring a recap of the week of June 28, 2019 via top news that we tracked and by bringing the most recent stock market predictions and analyst calls looking ahead. The Dow Jones Industrial Average is up 14% and the S&P 500 is up 17.3%. The tech-heavy NASDAQ Composite was last seen up 20.6% year-to-date. Gold is up about 9% this year and $58 per barrel crude oil is still up about 16% after the strong June recovery and despite selling off so much from the $66 or so highs.
With Friday marking the last day of the second quarter, whatever benchmarking is done will reflect Friday’s closing prices for the second quarter performance metrics. There were some oddball trading volume spikes on Friday with the flurry of stocks being added into or deleted from the annual Russell 1000, 2000 and 3000 rebalances (it creates billions of dollars worth of inflows and outflows each year).
Regardless of the China and oil seeing temporary resolutions, economists and investors alike better be braced for some rather lackluster gross domestic product (GDP) numbers for the second quarter. That figure will not be seen for another four weeks, but the Atlanta Fed’s GDPNow forecasting tool went down to just 1.5% GDP growth for Q2 on June 28 from a prior 1.9% forecast just 2 days earlier and down from 2.1% just a week earlier. The New York Fed’s ‘Nowcast’ has been weaker than the Atlanta Fed model, and it ticked down to just 1.3% GDP growth for Q2 on June 28 from 2.2% back in early May. We have seen much less robust economic readings in June and there are likely to be more weak retail spending trends for June, and we have to consider that consumer spending makes up about 70% of GDP. Also hurting or coinciding with weaker Q2 GDP expectations, The overall earnings trend of major companies seems weak with most investors hoping on trade resolutions and a Fed/Powell rate cut at the July FOMC meeting.
Before we get into the top news of the week and the analyst calls and forecasting for the second half of 2019 and into 2020, there are some companies holding the Dow back handily. Walgreens Boots Alliance, Inc. (NASDAQ: WBA) is the worst performing Dow stock with a 20% drop year-to date, but its earnings is signaling that perhaps a bottom is in. The Boeing Company (NYSE: BA) would seem to be the biggest harm on the Dow with software issues increasing around the 737 MAX and going outside of the MAX program (Boeing now may get very few deliveries if an at all the rest of 2019) – but it’s still up over 12% this year. 3M Co. (NYSE: MMM) is also a big drag with a 9% drop this year, but even this troubled conglomerate has bounced 8% from its lows. UnitedHealth Group Inc. (NYSE: UNH) is also a lag with a 2% drop this year due to more concerns about the “Medicare for All” pressure coming from the presidential election challengers for 2020.
Now it is time to look forward for the rest of 2019 and into 2020 for Wall Street investing ideas. Friday’s Top Analyst Upgrades and Downgrades were in shares of Aerojet Rocketdyne, Apple, Baidu, Biogen, Chesapeake Energy, Chipotle. McDonald’s, Nike, Procter & Gamble, Walgreens and many more. Thursday’s Top Analyst Upgrades and Downgrades were in shares of AMD, CenturyLink, Delphi, GM, Ford, Intel, KB Home, Micron, Nordstrom, Nvidia, Tesla, Zscaler and more. Wednesday’s top analyst calls were in shares of AbbVie, ADM, ConocoPhillips, Eiger Bio, FedEx, Fox, Kinder Morgan, Lennar, Micron, Slack, Virtu and many more.
Apple Set to be a China Beneficiary
Apple Inc. (NASDAQ: AAPL) is likely to be up handily of the China trade and nationalism risks are truly being eliminated (or delayed. That said, the unexpected departure of Apple’s to design head Jony Ive just knocked off billions of dollars from Apple’s value. Apple closed down 0.9% at $197.92 on Friday, and some investors and market pundits have suggested that an outright end of China trade woes could add $15 to $20 per share on the stock. Even that wouldn’t get Apple back to its 52-week high of $233.47 and Apple still faces some domestic issues here in the USA as its iPhone cycle has matured and as it tries to get deeper into services and ecosystem revenues. That said, here is a very plain and simple reason we think Tim Cook and his team have been negligent when it comes to its all-in bet with Foxconn and China manufacturing.
Banks Score a Huge Win
The Federal Reserve’s 2019 CCAR stress tests that allow top bank capital spending plans went off with flying colors on Thursday night. JPMorgan Chase & Company (NYSE: JPM) rose 2.7% to $111.80 on Friday after getting the Fed’s greenlight, and that is still down about 7% from its 52-week high. Wells Fargo & Co. (NYSE: WFC) even rose 2.2% to $47.32 on its capital outlays to investors getting approval. It turns out that Wells Fargo shares would have to rally over 25% just to hit their 52-week highs. Of the top 10 banks tracked by 24/7 Wall St., investors are going to see as much as $125 billion worth of stock buybacks over the next 12 months and investors are also going to collect $42 billion in bank stock dividends at the same time.
High-Yield Dividends & Recessions
We will not try to be the idiot who tells our readers that all stocks will hold up fine if that recession warning gets louder, and the reality is that a real recession in the wake of a trade truce probably just got delayed even further. Still, as long as the next downturn isn’t a disaster like a decade ago then the 6% yield of AT&T Inc. (NYSE: T) and the 6% yield of Ford Motor Company (NYSE: F) looks safe. Wells Fargo even told its clients this week, maybe even the fake accounts, to chase that 9% dividend yield from CenturyLink Inc. (NYSE: CTL) and its shares rallied handily on the call.
Safety & Value
If you still insist on worrying that a recession is closer than we and many others are calling on, here are 5 value stocks that Goldman Sachs is telling its rich clients and institutional clients to buy for safety. Credit Suisse even called Ford Motor Company (NYSE: F) and General Motors Company (NYSE: GM) as both being too cheap to ignore despite industry headwinds after “peak auto” continues.
Speculative Analyst Stock Picks (Some Very Speculative)
Analysts have 5 stocks under $10 with massive implied upside from this last week’s worth of coverage. Friday’s small cap biotech pick of the day was in Avid Bioservices, Inc. (NASDAQ: CDMO) after a 40% gain that was not anywhere close to a 52-week high and which occurred on about 25-times normal trading volume. Avid shares could still double if this analyst upgrade proves to be right. If you think the housing boom is ready to come back, one firm remains cautious about the sector but sees 4 top homebuilders having huge upside ahead. Jefferies sees some top growth stocks to buy for the rest of 2019, and all of them have upcoming catalysts expected to drive their shares higher.
Technology Lovers and Haters
Technology remains a sector where the growth is, and there are going to be some big moves on Monday with China no longer considered persona-non-grata. Advanced Micro Devices, Inc. (NASDAQ: AMD) and NVIDIA Corporation (NASDAQ: NVDA) were both recently given much stronger buy signals than Intel Corporation (NASDAQ: INTC) this last week. In fact, that analyst call sees substantial Intel downside ahead and sees caution in Micron, Seagate and Western Digital. Merrill Lynch likes 4 top technology stocks and their dividends to bolster investor returns, but after a 150% rally has fizzled in Shopify Inc. (NYSE: SHOP) there is at least one call that it’s time to pull the plug and sell after all of its analysts chased their Shopify targets higher and higher. Deutsche Bank was telling clients to buy battered semiconductor stocks earlier in the week. When it comes to the big post-earnings pop in Micron Technology Inc. (NASDAQ: MU), should a 39% sales decline really be reason to celebrate at a time when 2019/2020 metrics remain pressured?
IPO Glory Days Are Back
Used luxury clothing and accessories galore, and maybe even some knock-offs, took shares of The RealReal, Inc. (NASDAQ: REAL) up about 45% to $28.90 and almost 20 million shares traded hands on the first day. One biotech even magically doubled on its hot IPO.
Looking Onward & Outwards on Treasuries
There are some additional concerns for the U.S. and international markets to contend with. On top of global growth continuing to remain pressured, bond yields are low enough again that it is frightening some investors. The Treasury’s yield of 1.75% on the 2-year note implies that Jerome Powell and the FOMC are at least 2 rate-cuts behind the curve with Fed Funds still in a target of 2.25% to 2.50% — and Goldman Sachs’ Marcus and others have already lowered their own deposit rates ahead of the Fed’s actions. Still, Treasury yields of just 2.00% on the 10-year and 2.52% on the 30-year are concerning. Those yields are likely to rise again on Monday, but this last week we saw a Societe Generale fixed income strategy report predicting that the 10-year Treasury will end 2019 at 1.70% and will dribble even lower to 1.50% by mid-2020. Soc-Gen also sees Fed rate cuts in July and September just being the start with a total of 5 rate cuts (of 25 basis points) by the end of 2020. That is NOT encouraging for the domestic and global growth story, even if it would be supportive for stock valuations.
Crypto-Schmipto “Currencies” and Bitcoin
This may bring out the crypto-loving and crypto-hating trolls in droves, but that’s life. The crypto-bulls will say “yeah but it doubled off its lows!” here and that fact is impossible to deny. That said, bitcoin peaked at almost $14,000 this week but ended the week down under $12,000 and traded as low as just under $10,500 in between that peak and the weekly close. Let’s just all agree that this is not how a real currency or commodity acts (not even in Venezuela on a 72-hour period). Trying to justify the daily trading moves here on fundamentals, technicals, and even traditional inflows and outflows is just not possible. Facebook Inc. (NASDAQ: FB) may still have upside from its Libra if it is launched, but Facebook is also said to be launching it but then stepping away and letting it run on its own. Even Minn. Fed President Neel Kashkari, who is younger and supposed to be the “more hip” Fed-head doesn’t really get how Libra will work.
As of Friday, here is a sector glance for year-to-date gains and losses in dollar terms for the top market sectors and for international ETFs outside of the U.S. These year-to-date gains are as follows:
- ProShares S&P 500 Dividend Aristocrats (NOBL) 14.6% YTD
- S&P500 Buyback ETF (SPYB) 18.2% YTD
- SPDR EURO STOXX 50 ETF (FEZ) 15.1% YTD
- WisdomTree India Earnings Fund (EPI) 5.1% YTD
- iShares MSCI Canada ETF (EWC) 19.5% YTD
- iShares MSCI Japan ETF (EWJ) 7.7% YTD
- iShares MSCI Mexico Capped ETF (EWW) 5.3% YTD
- iShares China Large-Cap ETF (FXI) 9.4% YTD
- iShares MSCI Emerging Markets ETF (EEM) 9.9% YTD
- VanEck Vectors Gold Miners ETF (GDX) 21.2% YTD
- iShares Nasdaq Biotechnology ETF (IBB) 13.1% YTD
- Health Care Select Sector SPDR Fund (XLV) 7.1% YTD
- VanEck Vectors Oil Services ETF (OIH) 5.6% YTD
- VanEck Vectors Semiconductor ETF (SMH) 26.2% YTD
- Financial Select Sector SPDR Fund (XLF) 15.9% YTD
- Technology Select Sector SPDR Fund (XLK) 25.9% YTD
- Utilities Select Sector SPDR Fund (XLU) 12.7% YTD
Get ready for a choppy work week ahead with the 4th of July on Thursday and everyone taking a fake sick day on Friday (although we gave our whole team the day off for next Friday for a super-long weekend). It’s going to be a short week for sure, but Friday is the unemployment reading and payrolls report that may move the markets but may not ever be seen by most of Americans as they will be out of pocket.
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