foxex: Watch the Flow

The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Monday's Headlines

U.S. Markets Steady as Oil hits a 4 month high.

Markets Close

Dow
25,914.10 +0.25%

S&P
2,832.94 +0.37%

Nasdaq
7,714.48 +0.34%

VIX
13.1 +1.71%

INV Anxiety Index
99.98 Neutral

US 10-Yr Yield
2.602 +0.35%

Markets Steady as Busy Week Begins

U.S. markets ended the day in positive territory as a busy week begins. The Federal Reserve begins a two-day meeting tomorrow and will announce its interest rate decision on Wednesday. The overwhelming bet is that the Fed will keep interest rates right where they are and continue to exercise the patience that Fed Chair Jerome Powell has been promising for months.

We need to pay attention to his comments on U.S. economic growth, though, as forecasts are showing a more pronounced slowdown than anticipated. We saw a lot of softness in the February jobs report and we need to see if that was a seasonal aberration, or a harbinger of greater slowing ahead.

On Friday the Fed reported that U.S. manufacturing fell 0.4% for February against expectations of 0.3% growth. Not a huge miss, but if it's the beginning of a trend, the 2.4% GDP growth the Fed has forecast for 2019 is in jeopardy. Anything above 2% growth is respectable, but if hiring slows again in March given the abnormally weak February jobs report, the Fed may have to consider a potential rate cut in 2019.

Facebook and Boeing under Pressure

The two stocks that have missed the 5-day rally (Facebook and Boeing), could face even more pressure, for different reasons.

Today, an analyst at Needham & Co. downgraded Facebook shares given the recent exodus of top executives, including Chief Product Officer, Chris Cox. He also cited the regulatory pressure the social network is facing, which could lead to charges from the Dept. of Justice and heavy fines from the FCC and European regulators.

Shares of Facebook had their worst day of the year today, and are down 7% in the last 5 days.

Shares of Boeing fell another 1.8% today after two weekend reports questioned its safety certification process around the 737 Max Jet. The 737 has been involved in two fatal crashes in the past six months, and several countries, now including the U.S., Canada and China have grounded the aircraft pending further investigation. The 737 was one of Boeing's most popular jets and represented a large volume of current and future sales.

More News:

Market Wizards: Why Buffett, Shiller Models Are Bearish On Stocks

Why Chip Stocks Leading 2019 Rally Are About To Crash

Read This Before Investing in Uber and Lyft IPOs

Oil at a 4-Month High

On Friday we wrote about commodities leading the charge so far in 2019, with gold and oil at the head of the pack. Today, crude oil futures hit a 4-month high as the market is responding to inventory cuts which are keeping supply out of the market. (James has more on Oil's journey to recent highs in our daily chart, below). As we know, tighter supply increases demand, which pushes up prices. This is what OPEC wants, and while the cartel still controls the market with the support of China and Russia, this is what it gets.

At a certain level, however, higher prices start to take a bite out of operating margins for transportation companies, industrial manufacturers and airlines. We are not there yet, but it's something to keep an eye on.

Lyft files to go Public

As expected, Lyft, the ride-share company popular in the U.S. and Canada, filed to go public today. The company kicked off the investor road show for its initial public offering on Monday, targeting a valuation of up to $23 billion. The company said in a regulatory filing on Monday that it plans to sell a little more than 30 million class A shares, which have fewer voting rights than class B shares, at between $62 and $68 per share.

Like Uber, Lyft is losing a lot of money.

In 2018, Lyft's revenue was $2.16 billion, which was double that of 2017 and seven times higher than the $343 million it posted in 2016. It posted a loss of $911 million in 2018 versus $688 million in 2017.

By comparison, Uber lost $2.2 billion in fiscal 2018 on revenue of $11.3 billion.

Uber is reportedly planning an IPO of its own for some time this year, eyeing a valuation of $120 billion.

So... both companies are well established brands that are able to generate significant revenue, but have been unable or unwilling to turn a profit? Going public makes a ton of sense in that case! (That's some sarcasm.)

Before you consider putting money into either of these IPOs, please read this first:

Read before investing in Uber or Lyft.

Don't get me wrong, plenty of successful companies like Amazon and Netflix went public before they earned a profit, and it took them years as public companies to do so.

SNAP followed that same path too, by the way. It's stock has never traded above its IPO price.

Chart of the Day: Crude Oil Prices Surge to New 4-Month High

Crude oil (West Texas Intermediate) futures hit a new 4-month intraday high on Monday at $59.23, the highest level since mid-November of last year. OPEC's continued stance on curbing oil supply has largely been responsible for fueling the surge in crude oil prices since the late December lows.

On Monday, OPEC and its allied oil producers agreed to cancel a planned April meeting, which means that the group's oil production cuts will stay in place at least until June. This decision was made due to concerns that the global oversupply would last at least through the first half of 2019. Over the weekend, the group also indicated that member countries may extend the supply curb well past June. In January, OPEC and its allied producers initiated a second round of supply cuts as a reaction to the steep plunge in crude prices during the fourth quarter of 2018. Also helping to boost oil prices of late have been U.S.-led sanctions on Iran and Venezuela, both major OPEC producers.

The chart above shows the sharp climb in crude oil prices within the past three months. Currently, price is still below its 200-day moving average, but above its 50-day moving average and trending higher. The chart also shows a key technical chart pattern - an inverse head-and-shoulders formation, which is typically a bullish pattern.

Whether this bullishness plays out or not will depend in large part on the global supply situation and OPEC's next moves. Up this week, on Wednesday, is the weekly report on U.S. crude oil inventories. In the previous week, the U.S. Energy Information Administration (EIA) revealed a massive draw of 3.9 million barrels against previous expectations for an increase of 2.7 million barrels. Any additional downside surprise on Wednesday could lead to an extension of the recent crude oil rally.