foxex: Pushed Off

The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Wednesday's Headlines

1. U.S. markets sink on trade concerns and Fed's pause
2. Treasury Dept. partially lifts ban on sales to China's Huawei
3. Target hits the bullseye with earnings and outlook

4. A wide world of negative interest rates

Markets Closed

Dow
27,821.09 -0.40%

S&P
3,108.46 -0.38%

Nasdaq
8,526.73 -0.51%

VIX
12.84 -0.16%

Bitcoin
$8,023.09 -2.17%

US 10-Yr Yield
1.738 -2.69%

Markets Today

U.S. markets suffered their biggest drop since Halloween as hopes for a near term resolution to the trade war with China grow dimmer. In addition, the Federal Reserve indicated it may not lower interest rates again anytime soon. That's according to the Fed minutes from its last meeting in October. Target and Lowe's turned the tide of negative reports from retailers by reporting better than expected results for the past quarter and raising their outlooks for the rest of 2019. Still, the cooling off of trade talks overwhelmed investor sentiment today, and the sellers had the wheel. It's been awhile.

Headlines

There are growing signs that Phase One of the trade deal between the U.S. and China won't be implemented until 2020, according to various reports. A timeline for Phase Two is not even on the calendar as the two sides wrestle over issues like intellectual property theft, opening up Chinese financial markets, currency manipulation, and a reduction of existing tariffs.
In one sign of progress, the Trump Administration has lifted some restrictions on U.S. suppliers' sales of equipment to Huawei, China's telecom giant. Huawei has been blacklisted by the U.S. Treasury Dept. since May over national security concerns, including its alleged sale of products to Iran. On Monday, the Commerce Dept. allowed some imports from Huawei into the U.S. to service rural customers who use Huawei equipment.
China's central bank, the People's Bank of China, cut its benchmark 1-year loan prime rate on Wednesday. This follows a cut to its short term repurchase rate on Monday, the first such cut in 4 years. The rate cuts come as the Chinese government tries to stabilize slowing growth. Efforts to bolster the Chinese economy are complicated by recently rising inflation, driven by a spike in pork prices due to African swine fever.
In a federal lawsuit filed today in Detroit, General Motors (GM) accused Fiat Chrysler (FCAU) of manipulating contract negotiations with the autoworkers union to hurt G.M. The suit alleges that Fiat Chrysler bribed officials at the United Auto Workers union to gain competitive advantages in contract negotiation conducted in 2011 and 2015.
Alibaba (BABA) has reportedly priced its Hong Kong shares for institutional investors at HK$176 or $22.50 each, meaning it would raise at least HK$88 billion or $11.3 billion. This figure would rise to $12.9 billion if the greenshoe option is used. Shares will make their debut on November 26 under the auspicious "9988" ticker. (Reuters)
Microsoft (MSFT) says its workplace messaging tool Teams has over 20 million daily active users (DAU). This is a huge leap from the 13 million DAU it reported in July. Teams competes with Slack, which has around 12 million DAU, and yesterday's news sank the latter's stock by 8%.
Boeing (BA) has signed a deal with Emirates to sell Dubai's flagship carrier 30 Dreamliner 787-9 planes worth $8.8 billion. The largest 777 operator in the world, Emirates has also reduced its order for 777X planes to 126.

Target Nails It

A day after Home Depot and Kohl's reported disappointing quarterly results and a sanguine outlook for the rest of the year, Target (TGT) (and Lowe's, to a lesser degree), blew out earnings expectations and raised their forecasts for the rest of the year.

For its part, Target is sailing with the wind at its back. Shares of TGT hit an all-time high today as investors cheered the company's results and the fruits of its turnaround strategy. The retailer has revamped its stores, added small-format markets in cities like New York, partnered with Disney to offer mini Disney shops inside Target locations, and ramped up its one-day delivery for online sales. Those online sales grew 31% from the prior quarter which helped profit margins. The more Target sells online, the better its margins since it doesn't have to hold inventory for long periods of time.

As a result, Target has found its groove and is steadily outperforming its competitors in retail, as measured by the XLY ETF, the Consumer Discretionary Select Sector SPDR. It has also outperformed Walmart, which is not in that ETF, but has been one of the strongest retail stocks of 2019.

chart courtesy YCharts

Negative Interest Rates Round the World

I mentioned it yesterday, and we've written about it frequently in the past year, but sometimes a chart is worth a thousand words. Developed economies around the world have been steadily lowering interest rates and lending rates throughout 2019 as they try to ignite stalled economies. The U.S. has done so three times this year, and China lowered lending rates twice this week. From Denmark to Thailand, Australia to Chile, and points in between, it's been a game of 'how low can you go'?

Some countries like Japan and Switzerland have been living with negative interest rates for several years and cutting their lending rates to stimulate more borrowing. The stock markets of many of these countries have performed quite well in 2019 (as we showed yesterday) mostly because of these ultra-low lending rates. That's not a recipe for long-term economic success, but it might be the only stimulus they have in their arsenals.

chart courtesy Charlie Bilello

More News:

Why Investors Should Brace for a 50% Volatility Spike and Steep Losses

Top Communications Stocks for December 2019

Caterpillar Stock Could Offer Low-Risk Buying Opportunity

chart courtesy YCHARTS

Department store Target managed to outperform its retail rivals, posting excellent earnings this quarter, and shooting up 14% today. For more on that, see above. Energy firms had a better day today with Schlumberger, ConocoPhillips, and Halliburton posting gains of 5.4%, 3.9%, and 3.2%, respectively.

Investors didn't have high expectations for clothing maker L Brand's earnings announcement after the bell today, and sent stock down 7.1% in anticipation. Nordstrom dropped 4.4%, on the heels of larger drops from fellow department stores Kohl's and Macy's yesterday.

Word of the Day

Negative Interest Rate
Negative interest rates refer to a scenario in which cash deposits incur a charge for storage at a bank, rather than receiving interest income. Instead of receiving money on deposits in the form of interest, depositors must pay regularly to keep their money with the bank. This environment is intended to incentivize banks to lend money more freely.

Today in History

November 20, 1985

Today in 1985, the Windows 1.0 operating system launched. It was a 16-bit graphical interface over MS-DOS, which was based on a command-line interface, that is, the user typed in individual commands. Windows relied on using a mouse when that was still a novel method of using a computer, and even included a game, called Reversi, to help people get used to using a mouse to interact with a computer. The Windows operating system is currently on its 9th iteration, called Windows 10.