Daily Markets: 2020 Looks to Begin the Way 2019 Ended

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Today’s Big Picture

Welcome to the first day of trading in 2020! Equity markets in Asia finished the day mixed with markets in Japan and New Zealand closed. The major stock indices in Europe were mostly in the green by midday trading except for Switzerland and Russia while US equity futures indicate positive moves at the open. Even though several pieces of global economic data will be had today, market activity will likely remain on the quiet side today and tomorrow as we round out New Year's week.

Like reading a map it's usually best to understand where you've been to see where you are going. With that in mind, looking back at 2019, the Nasdaq 100 was the strongest performing index, gaining 38%, with the Nasdaq Composite a close second at 35.2%. The Dow Jones Industrial Average gained 22.3% thanks in large part to Apple (AAPL), which rose 85% over the year, generating nearly 18% of the Dow’s gains. Apple was also the biggest contributor (at 2.7%) to the S&P 500’s 28.8% gain for 2019. Microsoft (MSFT) was the second biggest contributor at 1.8%. 

Given the gains in both Apple and Microsoft shares, it’s not so surprising the strongest S&P 500 sector in 2019 was technology, which gained 49.7% for the year. By comparison, the weakest sector was energy, which rose 11.2%. Internationally, Russia’s equity market enjoyed the greatest gains despite the pain in the energy market, rising 51.4%. It’s bond market also was the strongest performer, up 24.6%.  The weakest equity market was in Argentina, which lost 20.7%, primarily thanks to the collapsing peso which ironically resulted in it delivering the strongest performing currency thanks to interest returns, gaining 26.8%. The worst bond market was in Sweden, down 0.9%. The best performing commodity was unleaded gasoline, which gained 45.3% while natural gas was the weakest, falling 37.2%. 

Turning back to the new year, early this morning The People's Bank of China announced that its reserve requirement ratio will be lowered by 50 bps on Jan. 6, a move likely aimed at re-inflating China’s economy (See today’s Data Download for more on that). 

We could see some tax-related selling and profit-taking in early January, particularly given the December quarter move that saw the major US stock market indices climb 6%-13%. President Trump tweeted over the holidays that he intends to sign phase one of a trade deal with China on January 15, traveling to Beijing later for further negotiations. Despite the apparent progress on the trade front, we expect to see geopolitical news continuing to dominate headlines in the near-term.

Over the holidays Iraqi protesters stormed part of the American embassy in Baghdad. The attackers were demonstrating against unilateral U.S. airstrikes in Iraq and Syria that killed more than two dozen fighters belonging to the Iranian-backed militia Kataib Hezbollah. Thus it is believed that same militia was behind the move against the embassy, which led to President Trump warning that Tehran will be held "fully responsible for lives lost.” Iran's Supreme Leader Ayatollah Khamenei taunted Trump in response. TBD if this latest flair up in the region is just a flash in the pan or the beginnings of something that will spook today's already mostly overvalued equity markets.

Data Download

As we begin trading in the new year, this morning has already brought a fresh heap of global economic data courtesy of IHS Markit and its December PMI reports. And as much as these data points will be used to refine 2019 global GDP forecasts, the order data will be used to refine those expectations for the March 2020 quarter. So what did we learn? Here we go:

The December Caixin China General Manufacturing PMI fell to 51.5 from 51.8 in the previous month, missing forecasts for an unchanged figure. While there was a modest increase in export orders, overall new order growth slowed, hitting a three-month low. 

The December IHS Markit Eurozone Manufacturing PMI came in at 46.3, better than the mid-December flash reading of 45.9 but weaker than Novembers’s 46.9. This marked the 11th consecutive month the data set was below the 50 no-change mark and in contraction territory. The year-end softening was broad-based as seven of the eight surveyed countries reported a month over month drop in respective PMI figures. Per the report, "Germany was again the weakest-performing country, whilst the deteriorations seen in Italy and the Netherlands were the sharpest in over six-and-a-half years." Overall, new orders declined further and job shedding was the sharpest recorded by the survey since the start of 2013. Backlogs of work also declined for a sixteenth successive month.

Before the first day of US stock market trading commences, we will get the initial jobless claims for the final full week of December with expectations for 225k, up from the prior week’s 222k. Soon after the open, we will also get the December IHS Markit Purchasing US Manufacturing PMI. The flash reading from mid-December suggests today's reading will come in around 52.5 versus 52.6 previously. Similar to what we shared above, the internal of the report, particularly new orders, and job creation will be key line items to watch.

Stocks to Watch

Boeing’s (BA) 737 MAX woes led Airbus (EADSY) to become the largest planemaker for the first time since 2011 as it delivered 863 aircraft in 2019. For the first 11 months of 2019, Boeing delivered 345 aircraft compared to 704 during the January-November 2018 period.

The Macau Gaming Inspection and Coordination Bureau reported December gross revenue fell 13.7% year over year to HKD 22.8 billion, a sharp reversal vs. the 16.6% year over year increase reported in December 2018. This marked the worst monthly decline since March 2016, and the December 2019 weakness along with other year over year declines in recent months led 2019 gaming revenue for the region to fall 3.4%. Companies that are likely to be of interest include Wynn Resorts (WYNN)Las Vegas Sands (LVS)Melco Resorts & Entertainment (MLCO)MGM Resorts International (MGM), and SJM Holdings (SJMHF).

As we kick off 2020, more than 250 drugs are expected to see their prices move higher according to data published by 3 Axis Advisors. On New Year’s Day, Bristol-Myers Squibb (BMY)Gilead Sciences (GILD), and Biogen (BIIBjoined Pfizer (PFE)GlaxoSmithKline (GSK), and Sanofi (SNY) in boosting drug prices. 

The National Highway Traffic Safety Administration is opening an inquiry into another deadly Tesla (TSLA) crash that occurred on December 29th involving the 2016 model that ran a red light and struck a 2006 Honda Civic, killing both people inside. 

Tiffany & Co (TIF) is expected to hold a special meeting on Feb. 4 to vote on the merger with LVMH Moet Hennessy Louis Vuitton (LVMHF)

After today’s US equity markets close the following companies are among those expected to report earnings:

  • Jefferies (JEF) is expected to report EPS of $0.25 on $993.7 million in sales.
  • Resources Connection (RECN) is expected to report EPS of $0.31 on revenue of $183 million.

For a fuller look at upcoming earnings reports, we recommend checking in with Nasdaq’s earnings calendar page

On the Horizon

    • Upcoming IPOs:
      • There are no IPOs scheduled for this week.
      • For a complete list of upcoming IPOs by month, please visit the Nasdaq IPO Calendar.
    • Dates to mark:
        • January 7-10: 2020 International CES
        • January 15: President Donald Trump tweeted that he will sign phase one of a trade deal with China on this day.

Thoughts for the Day

As the New Year begins and many of us are faced with working off the holiday treats, we thought we’d leave you today with these.

"The second day of a diet is always easier than the first. By the second day, you are off it." - Jackie Gleason

"In the Middle Ages, they had guillotines, stretch racks, whips, and chains. Nowadays, we have a much more effective torture device called the bathroom scale." — Stephen Phillips

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Chris Versace

Christopher (Chris) Versace is the Chief Investment Officer and thematic strategist at Tematica Research. The proprietary thematic investing framework that he’s developed over the last decade leverages changing economic, demographic, psychographic and technology landscapes to identify pronounced, multi-year structural changes. This framework sits at the heart of Tematica’s investment themes and indices and builds on his more than 25 years analyzing industries, companies and their business models as well as financial statements. Versace is the co-author of “Cocktail Investing: Distilling Everyday Noise into Clear Investing Signals” and hosts the Thematic Signals podcast. He is also an Assistant Professor at NJCU School of Business, where he developed the NJCU New Jersey 50 Index.

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Lenore Elle Hawkins

Lenore Elle Hawkins has, for over a decade, served as a founding partner of Calit Advisors, a boutique advisory firm specializing in mergers and acquisitions, private capital raise, and corporate finance with offices in Italy, Ireland, and California. She has previously served as the Chief Macro Strategist for Tematica Research, which primarily develops indices for Exchange Traded Products, co-authored the book Cocktail Investing, and is a regular guest on a variety of national and international investing-oriented television programs. She holds a degree in Mathematics and Economics from Claremont McKenna College, an MBA in Finance from the Anderson School at UCLA and is a member of the Mont Pelerin Society.

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