foxex: Martha Stewart's Cannabis Connection

The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Thursday's Headlines

1. Stocks slide despite Strong GDP report; Martha bakes up a partnership

Markets Close

Dow
25,916.00 -0.27%

S&P
2,784.49 -0.28%

Nasdaq
7,532.53 -0.29%

VIX
15.19 +3.33%

INV Anxiety Index
100.17 Neutral

US 10-Yr Yield
2.711 +0.67%

source: VH1

GDP

Stocks slipped on Thursday, making it three days in a row of losses for the S&P 500. This, despite a stronger than expected GDP report for the fourth quarter of 2018. Gross Domestic Product came in at 2.6%, higher than most economic forecasts, as business spending was more robust than expected. The concern is that the first quarter of 2019 will be weaker than expected as a slowdown in consumer spending in December - a key month for retailers, was more significant than anticipated. That slowdown has bled into the first two months of the year even though the stock market has been remarkably strong.

The strength in the stock market can be attributed to the about-face by the Federal Reserve, which went from a hawkish to dovish at the beginning of the year in reaction to the uncertainty surrounding the U.S. - China trade talks, Brexit, and the sharp correction in stocks at the end of 2018.

While the S&P 500 is up 19% since its lows hit on Christmas Eve, the strength is coming from individual stocks which have boosted the market weighted average, as opposed to widespread strength in the index, itself. This chart, from Bespoke Investments shows that while the S&P 500 is about 5% below its 52-week high, the average stock in the S&P 500 is down more than 14% from its 52-week high. As JC Parets likes to remind us, it's a 'market of stocks', not a just a stock market.

Martha Stewart to Advise Cannabis Company

I suppose it was only a matter of time, but Martha Stewart has taken her cooking and lifestyle skills to the cannabis patch. Stewart has teamed up with Canada's Canopy Growth (CGC), to market cannabidiol (CBD) products, according to a Thursday release from the company. She will join the company as an advisor to assist with "developing and positioning" the company's line of hemp-derived CBD products.

Why it Matters

It doesn't in the grand scheme of things. Cannabis stocks are still very risky securities backed by companies that are trying to earn real money and profits. Adding buzz-worthy spokespeople like Martha Stewart into the mix gets a lot of media attention - (we wrote about it too: Martha Stewart Blazes New Trail with Canopy Partnership).

That said, Canopy is an established company - albeit a money losing one, to date. It was one of the first Canadian cannabis companies to list its shares on the NYSE, and it has generated a lot of hype since its IPO. The stock is up more than 100% in the past year like a lot of marijuana companies - mostly because of the hype around them, legalization in Canada and in some U.S. states, and investors and traders looking for the next hot thing. That doesn't make it a great long-term investment, but it is interesting to watch how companies like Canopy and Tilray are positioning their brands, and with whom they are aligning themselves. Martha Stewart has already partnered with Snoop Dogg on a hilarious TV show, so she's no stranger to the wild world of weed.

Tesla Announces $35,000 Model 3

Tesla CEO Elon Musk has been promising a $35,000 Tesla for years, and today he delivered on that by announcing the launch of its long-awaited standard Model 3 starting at $35,000 and shifting all sales online. The base model of the Model 3 will have 220 miles of range, a top speed of 130 miles-per-hour and accelerate from 0 to 60 mph in 5.6 seconds. That's pretty fast for a $35,000 car. Musk also said customers can try the car out themselves and return it if they are not satisfied within seven days or 1000 miles. Musk told reporters he expects Tesla to sell 500,000 Model 3's per year. For a change, the tweet-happy CEO made this announcement to the media via conference call, rather than his twitter feed. Here's a picture of Model 3 from the company's website.

Chart of the Day: Crude Oil Prices Remain in Bullish Recovery

The price of U.S. crude oil (West Texas Intermediate) remained buoyant on Thursday, keeping its sharp rebound and recovery from late-December well intact. The recent strength in crude oil prices has been supported by a few different factors. On Wednesday, the U.S. Energy Information Administration (EIA) reported that U.S. crude oil supplies unexpectedly dropped by 8.6 million barrels last week against expectations for a rise of 2.8 million barrels. This prompted a substantial boost for crude prices, which pared losses from earlier in the week when President Trump tweeted at OPEC to "relax" on oil production cuts, as oil prices were "getting too high." Saudi Energy Minister Khalid al-Falih responded on Wednesday, making it apparent that OPEC would continue with its production cuts to stabilize and boost prices.

From a technical perspective, the late December trough bottomed at a key support level around $42.25 per barrel, which matches the lows in June 2017 and November 2016. Since December, the price of crude oil has gone on to breakout above its 50-day moving average and then form an inverted head-and-shoulders - a bullish reversal pattern.

The greatest risk to a continued recovery in crude oil prices is likely a potential slowing of global economic growth, especially in China, which would weigh on crude oil demand. Tied closely to this are the current and future trade negotiations between the U.S. and China. Any successful deal agreement in March will likely help boost crude oil further. But any failure to reach an agreement could exacerbate China's dimming growth prospects and weigh on crude prices. A price move back up around the $61 level would be the minimum needed to put U.S. crude oil back into its previous bullish trend.