foxex: Stuck in the Middle

The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Thursday's Headlines

1. Market Mixed as G20 Approaches

2. Huawei is Stuck in the Middle of Trade Talks
3. Boeing's Woes Continue
4. Apple's Ive to Leave
5. Nike Earnings Trip

6. Semiconductors Surge

Markets Closed

Dow
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S&P
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Nasdaq
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VIX
15.96 -1.54%

Bitcoin
$10,808.60 -18.78%

US 10-Yr Yield
2.005 -2.15%

U.S. Markets Mixed as G20 Approaches

G20 leaders are gathering in Osaka, Japan for two days of talks
China's Huawei stuck in the middle

Mixed results for U.S. markets today as investors brace for the G20 summit this weekend. Bank stocks led the charge (for a change) as investors cheered the results of the Federal Reserve's latest round of stress tests, which showed that major financial institutions have sufficient capital reserves and processes in place to sustain a recession or worse. Only the U.S. division of Credit Suisse was flagged for inadequate capital planning processes. For the banks that scored well, which include JPMorgan and Bank of America, they get to boost their dividends and share buybacks with this nice report card in hand.

All eyes are on Osaka, Japan as leaders of the G20 gather for the annual summit. The focus will be on the anticipated meeting between Presidents Trump and Xi and progress on the U.S. China trade war. There are plenty of other important topics on the agenda, as we have noted, but investors are keenly focused on this outcome, and all G20 nations are impacted by the China-U.S. relationship.

The WSJ reported that China is bringing conditions to the summit, namely that "the U.S. remove its ban on the sale of U.S. technology to Chinese telecommunications giant Huawei Technologies. Beijing also wants the U.S. to lift all punitive tariffs and drop efforts to get China to buy even more U.S. exports than Beijing said it would when the two leaders last met in December."

Lifting the Huawei ban is a particularly sensitive subject, given that the U.S. has accused the Chinese tech giant of intellectual property theft and it has become the poster-child for forced technology transfer.

There are good reasons why Huawei has become one of the focal points of the trade war. It is a leader in A.I., it is building a massive 5G network, and it has become a dominant force among phone makers - second only to Samsung.

chart courtesy TechCrunch via Gartner

Another Setback for Boeing

New software issues delay of 737 MAX re-release
Airlines cancel orders into October
Boeing shares fall 3%

Boeing disclosed that it found yet another software bug that will impact the rollout of its beleaguered 737 MAX jet until at least October. Southwest Airlines, which has 34 of the 737 MAX jets in its fleet and dozens more on order, was among several airlines to say it is delaying the reintroduction of the airplane until at least then.

American Airlines and United had delayed the reintroduction until at least September, but they may have to extend their timelines pending Boeing's ability to fix the software and get recertification from the FAA.

The 737 MAX was the jet behind two fatal crashes for both Ethiopian Airlines and Lion Air.

Boeing, a DJIA component, fell 3% on Thursday, following the news of the delays, which were first reported late Wednesday. Shares of Boeing are down nearly 14% since the Ethiopian Airlines crash that killed all 157 people aboard.

Reuters reported that families of the victims of the Lion Air crash last October are near a settlement with Boeing, but the families of victims of the Ethiopian Air crash are not.

BA since March 11, 2019 courtesy www.koyfin.com

Ive to Leave Apple

Top design executive responsible for the Mac and iPhone
Launching his own firm with Apple as a top client
Brought Steve Jobs vision to reality

It's rare that the departure of a top executive that is not the CEO or Chairperson is a material event for a public company, but Sir Jony Ive is not your ordinary senior executive. Ive, who spent more than 20 years at Apple, is leaving the company to start his own design firm called Loveform.

photo courtesy apple

In a statement, Apple's CEO Tim Cook said:

"Jony is a singular figure in the design world and his role in Apple's revival cannot be overstated, from 1998's groundbreaking iMac to the iPhone and the unprecedented ambition of Apple Park, where recently he has been putting so much of his energy and care," Apple will continue to benefit from Jony's talents by working directly with him on exclusive projects, and through the ongoing work of the brilliant and passionate design team he has built."

It's rare that product designers get any recognition outside of their teams. I know...I work with some terrific ones and they don't get the credit they deserve. But Ive is in a different class. He was knighted by the Queen of England and was one of the steadying influences at Apple through Steve Jobs' years at the company and his eventual passing.

The next time you grab your iPhone out of your back pocket and whip open an app, you can think Jony for the way it feels and functions.

Here's the evolution of the revolutionary product over the past 12 years.

photo courtesy bankmycell.com

Nike Trips on Earnings Miss

Profit falls short of analyst estimates
Sales were higher than forecast, despite tariffs
Big push to go direct-to-consumer

Nike reported its fiscal fourth quarter and fiscal 2019 results today after the close. The results were generally in line with analysts estimates for both periods, although there were a little light on earnings per share, which caused the stock to drop 4% in after-hours.

If you want the hard numbers, click here, but the short of it is that Nike pulled in $10.2 billion for the quarter (up 4% y/y) and $39.1 billion for the year (up 7% y/y). Not bad given the trade war and its exposure to Asian markets.

The takeaway for us is that Nike is trying hard to become a direct-to-consumer apparel company, and not just one you encounter in stores. Nike has seen the success of upstarts like LuLuLemon, Adidas and Puma, which have built strong direct businesses, reignited their brands and grown market share as a result. They're following suit.

Since the 1980s, Nike has been the dominant sports brand in North America and grown its brand and business around the world. But it has not been able to integrate its brand and products into people's lives in the way that Apple has, for example.

That's why it is spending billions of dollars on building a direct-to-consumer business and launching apps like NikeFit, which will recommend the right shoe size and shoe for you based on your tracked performance on its app.

In case you didn't think Nike was serious about becoming a deeper part of its customers lives, here's the cover page of its Investor Relations section on its site.

More News:

What To Expect From JPMorgan Earnings

3 Markets to Watch After Trump Meets Xi

Will Rite Aid's Rally Be Enough to Break Its Downtrend?

chart courtesy www.koyfin.com

CenturyLink is up today more than 7%, as Wells Fargo upgraded the stock from market perform to outperform. TripAdvisor was also up today (more than 5%) on a stock upgrade, as investment banker D.A. Davidson upgraded shares from neutral to buy. Shares of Walgreens were up more than 4% today on a quarterly earnings beat.

Conagra Brands was down more than 12% today on a disappointing fourth quarter earnings report. Boeing was down today on more news that the FAA had discovered 737s needed still more fixes.

Word of the Day

Group of 20 (G-20)

The G-20 Summit is this weekend. We've been talking about it quite a bit - it's a big deal. If you want some background on the group, we've got you covered.

"The Group of 20, also called the G-20, is a group of finance ministers and central bank governors from 19 of the world's largest economies, including those of many developing nations, along with the European Union. Formed in 1999, the G-20 has a mandate to promote global economic growth, international trade, and regulation of financial markets.

Because the G-20 is a forum, not a legislative body, its agreements and decisions have no legal impact, but they do influence countries' policies and global cooperation. Together, the economies of the G-20 countries represent about 90% of the gross world product (GWP), 80% of world trade, and two-thirds of the world population. After its inaugural leaders' summit in 2008, the leaders of the G-20 announced that the group would replace the G-8 as the main economic council of nations."

Today in History

June 27th, 1890 - Congress creates the first pension in which age is part of eligibility, as any veteran over age 65 becomes entitled to a monthly payment of between $6 and $12.

Dora L. Costa, The Evolution of Retirement: An American Economic History, 1880-1990 (Univ. of Chicago Press, Chicago, 1998), pp. 161, 200.

Chart of the Day: Semiconductor Sector Surges Amid U.S.-China Trade Uncertainties

Investors in semiconductor stocks are cautiously optimistic that a U.S.-China trade deal may be just around the corner, potentially on Saturday when Chinese President Xi and U.S. President Trump are scheduled to meet at the G-20 summit in Osaka, Japan. Semiconductor companies like Qualcomm, Intel, Broadcom, Micron, AMD, and the like, are highly dependent on Chinese customers to buy their products. Chinese consumption of semiconductors accounts for around 40-50% of the world's supply. With any prolonged U.S.-China trade conflict, that massive demand would be seriously threatened, as would the stock prices of key semiconductor companies.

The month of May saw a steep drop in the PHLX Semiconductor Sector Index (SOX) due in large part to fears of an escalating trade war between China and the U.S. Part of that involved U.S. government curbs on exports to Huawei, the Chinese telecommunications giant, which is a major customer of U.S. semiconductor companies. On Wednesday, however, Micron's CEO sounded an optimistic note, saying that his company had resumed limited shipments to Huawei and that much of the impact from tariffs had been mitigated. This resulted in a further surge for the semiconductor index.

As shown on the chart, SOX has risen and closed above its 50-day moving average once again. That and the fact that the 50-day average is well above the 200-day are bullish technical signs for the index. However, the directional bias for SOX will hinge largely upon what happens with the Trump-Xi meeting and whether a beneficial deal can be struck. If so, and tensions are significantly reduced, the index could begin to work its way back up to its 1600-area all-time highs. Conversely, if talks fail again, SOX could drop to revisit key support around the 1300 level.