foxex: Phew!

The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Wednesday's Headlines

1. U.S. markets rip higher as Trump says Iran is "standing down"

2. Oil prices fall 5% following Trump press conference

3. Apple makes another all-time high

4. These ETFs are rocketing to big gains amid Iran-U.S. conflict

5. Stocks keep climbing walls of worry

Markets Closed

Dow
28,745.09 +0.56%

S&P
3,253.05 +0.49%

Nasdaq
9,129.24 +0.67%

VIX
13.45 -2.47%

Bitcoin
$8,022.47 -0.74%

US 10-Yr Yield
1.874 +2.57%

Markets Today

At midnight on the east coast of the U.S. last night, you would not have thought that today would've unfolded as it did. On Tuesday evening, news broke that Iran had attacked a U.S. airbase with ballistic missiles in response to the fatal U.S. drone attack on Iran's top general last week. U.S. market futures plunged more than 400 points and oil futures spiked 5%. Shortly after the attack, President Trump tweeted "...all is well", as there had been no casualties from the missile attack. The Iranian foreign minister tweeted after the attacks that Iran had "concluded proportionate measures in self-defense." U.S. market futures erased their losses and oil prices fell to a modest 1% gain. The damage had already been done to Asian markets with the Nikkei falling by 2%, but European markets traded higher and U.S. markets opened slightly higher. Around 11:30 am EST, Trump held a press conference confirming there had been no casualties from the attack, promising tough new economic sanctions on Iran, and indicating that the Republic was "standing down". That was enough to push the S&P 500 and Nasdaq Composite to new record highs and erase oil's gains as investors turned the page and bought stocks.

This is 2020.

Headlines

Macy's is reportedly closing 28 stores and one Bloomingdale's location as the legacy retailer struggles with slumping sales. Macy's operates about 680 department stores and 190 specialty stores in the U.S. Same-store sales at the stores it owns and licenses fell 0.6% during November and December. At stores it has owned for at least a year, holiday sales dropped 0.7%, the company said Wednesday.
Apple announced Wednesday that it has paid $155 billion to developers since 2008, up from $120 billion disclosed in January 2019. That means the company's App Store had total sales of up to $50 billion in 2019, assuming developers take 70% of app revenue, and generated about $15 billion in sales for Apple, according to analysis by CNBC.
Germany's new manufacturing orders unexpectedly fell 1.3% in November, according to the Federal Statistical Office. Reuters analysts were expecting a 0.3% rise. This dip was caused by export orders falling 3.1% from the previous month. New orders from the eurozone were down 3.3%, and new orders from other countries decreased 2.8% compared to October 2019.
Wireless speaker maker Sonos has sued Google in federal court for willfully stealing its patented technology. The lawsuit, which lists five patents related to multi-room functionality, says the tech giant gained access to the proprietary technology in 2013 when the two firms worked on integrating Google Play Music into the Sonos platform. It alleges that Google continued with the infringement even after being warned several times and added insult to injury by selling speakers at low costs to fulfill its bigger objective of collecting user data.
The European Union and Britain disagree on how long the transition period following Brexit should last. U.K. Prime Minister Boris Johnson wants trade talks to end by December this year, and EU leadership says negotiations may require more time. President of the European Commission, Ursula von der Leyen, met with Johnson today.
Samsung says its Q4 2019 operating profit likely fell 34% from the same period last year. In an earnings guidance statement, the company said it expects operating profit during the last quarter to be 7.1 trillion Korean won, down from 10.8 trillion last year. It predicts sales for the quarter to be 59 trillion Korean won.
Shares of Apple hit yet another all-time high today on no news at all. The company didn't announce a new product, an update, or even a stock buyback. It's just that when investors want to buy stock, they've been buying AAPL, either directly, or through an index fund or ETF. Here's the last 5 years of performance against the broader market.

chart courtesy YCharts

ETFs Rocketing to New Highs

Speaking of higher highs, the conflict between the U.S. and Iran has been a boon to aerospace/defense stocks as well as cybersecurity stocks. It makes sense given that these sectors would be likely to see higher sales and profits in the event of a prolonged conflict in the 21st century. Today's battles are fought via drone and in the computing cloud as much as they are on the ground through militias and special forces.

The XAR ETF, which holds a basket of large cap aerospace and defense stocks including Northrup Grumman, Aerojet Rocketdyne, Lockheed Martin, and L3Harris, among others. It's up nearly 5% in the past week and notched an all-time high today.

The HACK ETF was the first ETF to focus on cybersecurity. The index it follows splits the industry into 2 types of firms: 1) those that create cybersecurity hardware and software 2) those that provide cybersecurity as a service. Its top holdings include Cisco Systems, Splunk Inc., Palo Alto Holdings, and Ping Identity Holdings, among others. It also notched a new all-time high today as investors look for exposure to the sector across a range of companies.

These gains may not hold, but as long as war is in the air, expect the momentum to continue. Here's the past three years for both ETFs.

chart courtesy YCharts

Markets Continue to Climb Wall of Worries

You can't deny the resilience of the U.S. stock market anymore. There have been dozens of catalysts that could have pushed investors to sell and hide in cash or gold over the past decade, but markets keep grinding higher. Yes, we had a correction in December 2018, and we'll have another one, or even a bear market, at some point. But markets have climbed many walls of worry to reach new high after new high after new high.

As we've mentioned, ultra low interest rates are part of the reason for this as investors seek stocks in search of alpha. Those low rates also lower borrowing costs for companies to expand or buy up a rival. The 2017 tax breaks also put a lot of money into corporate coffers which many companies used to buy back their own shares. That helps boost returns as it increases earnings per share by lowering share count, which attracts investors like bees to honey.

Still, one has to marvel at all of the obstacles that could've tripped up the U.S. stock market over the past decade, but didn't. This gem of a chart from Michael Batnick, Director of Research for Ritholtz Wealth Management and the blogger behind The Irrelevant Investor, puts it into perspective.

More News:

McDonald's Stock May Have Bottomed Out

GM and Ford Shares in Retreat After Weak China Sales

How the Modern Stock Market is Affected by War

(chart courtesy YCHARTS)

Food delivery firm Grubhub shot up over 12% today after it mentioned in a report that it was considering a sale of the company in the face of harsh competition. Telecom infrastructure manufacturer CommScope rose after Bank of America raised its stock to a "Buy" rating.

With oil prices no longer shooting up, a number of energy firms were hit hard today. Companies hit by the no-longer-soaring oil prices include EQT, Centennial Resource Development, and Chesapeake Energy. Home security firm ADT fell after it purchased Defenders, the largest independent retailer of its products.

Word of the Day

Business Consolidation

Business consolidation is the combination of several business units or several different companies into a larger organization. Business consolidation is used to improve operational efficiency by reducing redundant personnel and processes. Also known as an amalgamation, a business consolidation is most often associated with mergers and acquisitions in which several similar, smaller businesses are combined into a new legal entity and the original entities cease to exist. Business consolidation can result in long-term cost savings and a concentration of market share, but in the short-term can be expensive and complex.

Today in History

January 8, 1982

Today in 1982 AT&T and the U.S. Department of Justice signed a consent decree which agreed that AT&T would break up into 7 regional companies, known as the Baby Bells. The breakup, which took effect in 1984, was the culmination of a decade of antitrust enforcement efforts against AT&T, starting when the Justice Department sued AT&T in 1974. AT&T had avoided breakup before, negotiating deals in 1913, 1919, and 1956, making concessions, but avoiding breakup, allowing it to effectively operate as a regulated monopoly. Since the breakup, however, AT&T has re-acquired most of the Baby Bells.

Sources: https://apnews.com/d691cca8e5f4729842784cbd978824cc
https://www.investopedia.com/ask/answers/09/att-breakup-spinoff.asp