foxex: Tariffs at Midnight

The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Thursday's Headlines

1. Industrials Fall as New Tariffs Approach

2. No Inflation for Producers

3. Uber Prices Low

Markets Closed

Dow
25,828.36 -0.54%

S&P
2,870.72 -0.30%

Nasdaq
7,910.59 -0.41%

VIX
19.1 -1.01%

INV Anxiety Index
94.47 Low

US 10-Yr Yield
2.457 -1.01%

U.S. Markets Slip as new Tariffs are set to Kick in

Stocks recovered from steep losses as investors dealt with conflicting signals out of the White House as to whether or not there will be a trade deal tomorrow. Still, the DJIA dropped 0.5% as industrial stocks are bearing the brunt of the tariff concerns. We've been in this limbo for months, but the intensity and volatility have ratcheted up this week since President Trump's Sunday tweets about new tariffs the U.S. will impose on China come Friday at 12:01 AM, ET.

U.S. Trade Deficit Widens in March

The U.S. Commerce Dept. released the trade deficit numbers for March which showed a slight widening, as imports slightly outweighed exports for the month. The trade deficit rose 1.5% from February to a seasonally adjusted $50 billion in March, as the U.S imported more oil and petroleum based product. These month-to-month numbers fluctuate within a pretty narrow range, but with the trade negotiations in extreme focus, they take on a larger significance at this time. It's also worth noting that the deficit has dropped since its December high, which was actually a ten-year high for the gap.

The trade deficit is just one of the data points the Trump Administration has cited as it has attempted to renegotiate trade deals including NAFTA. Trump has also threatened to pull the U.S. out of the World Trade Organization, which he says treats the U.S. unfairly.

As part of the U.S.-China trade negotiations, Trump has said that China has committed to buying 'substantially more' U.S. products, which could substantially change the range of the trade deficit going forward. Here's a look at the U.S. trade deficit for the first three months of 2019

chart courtesy USCommerce Dept.

What Products are Impacted by New Tariffs?

The first round of tariffs, targeting $200 billion worth of Chinese imports were aimed at a wide swath of products including aluminum, steel, soy, fish and other agricultural products. This round will likely include consumer products, since there isn't much else to target. While the White House has said that the Chinese will pay for the tariff increases, the truth is that those price increases are passed down to consumers. The Peterson Institute listed the array of imports likely to be included in this new round. Zoom in to see the fine print.

chart courtesy: Piee.com

Producer Prices Tick Up

U.S. Producer Prices rose just a bit in April, but there were a few signs that inflation pressures in the manufacturing sector are starting to creep up.

The Labor Department reported that the producer price index for final demand increased 0.2 percent last month after jumping 0.6 percent in March. Producer prices measure the average change over time in the selling prices received by domestic producers for their output. Are producers able to charge more for what they make? If so, it's a sign that there is economic strength. If not, there may be broader weakness in the domestic and global economy.

In the 12 months through April, the PPI increased 2.2 percent, matching March's rise, but still nowhere near the inflation danger zone. Producer prices exclude food, energy and trade services, leaving out the products that impact consumers and consumer spending. That is measured in the Consumer Price Index (CPI). As we know from the latest Federal Reserve meeting on interest rates, those prices are staying below the Fed's 2% target range for inflation.

Bottom line: Inflation is not a factor for businesses or consumers at this time, which makes the Fed's decision to keep interest rates right where they are pretty sensible. Looking at a chart of producer prices for the past ten years shows us that we are in a low inflation environment.

chart courtesy US Labor Dept.

Uber Prices at $45 per Share

As expected, Uber prices its shares at $45 apiece this afternoon - the lower end of the range it provided to the SEC - ahead of its trading debut tomorrow. At $45 per share, Uber has an implied market valuation of $82.4 billion, making it one of the largest IPOs of all time. It initially sought a valuation of $120 billion but had to lower its IPO price to attract enough demand from institutional investors.

Uber has never turned a profit and can't say when it will. In 2018, Uber's revenue reached $11.3 billion for the year, up 43% from 2017. It also reported adjusted losses of $1.8 billion, an improvement over losses of $2.2 billion in 2017.

Uber will IPO at the New York Stock Exchange under the ticker symbol UBER.

More News:

Why Tech IPOs are a Losing Bet for Investors

8 Retail Stocks Face Rising Risk As Trade War Escalates

Roku Stock Breaks Out After Strong Earnings

Charts courtesy of www.koyfin.com

They say breaking up is hard to do. But Chevron just got $1 billion for a break-up fee once Anadarko Petroleum spurned its offer in favor of Occidental Petroleum's $38 billion bid, with backing from Warren Buffett. Nothing like a $1 billion check to smooth things over.

Meanwhile, investors are starting to think that Occidental may have overpaid for Anadarko, all of a sudden. They sold off the stock before the two even went out on their first date.

Word of the Day

Lock-Up Period

A lock-up period is a window of time when investors in a hedge fund or another closely held investment vehicle are not allowed to redeem or sell shares. The lock-up period helps portfolio managers avoid liquidity problems while capital is put to work in sometimes illiquid investments.

The initial public offering (IPO) lock-up is a typical lock-up period in the equities market used for newly issued public shares. It typically lasts anywhere from 90 to 180 days after the first day of trading so that fund managers can keep a lower amount of cash on hand.

Given Uber's IPO tomorrow, keep an eye on the calendar three and six months out. That's when executives and inside investors can sell their IPO shares on the open market. Look out below.

photo : MOAF.org

Today in History

May 9, 1894: Benjamin Grossbaum is born in London, England, to a homemaker and an importer of Austrian china. His family later changes its surname to Graham, and he becomes the founder of securities analysis and value investing.

Graham was a professor and mentor to Warren Buffett, among others. His seminal book, "The Intelligent Investor", is widely recognized as one of the most important investing books every written.

Source: Benjamin Graham, The Memoirs of the Dean of Wall Street (McGraw-Hill, New York, 1996), pp. 1-2.