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March 15th, 2019

Boeing Shocks Markets

By PRATTE

Blogue 29 sept EN

Boeing’s stock shook the markets earlier this week following the crash of one of its planes. The bull market in the United States was celebrating its 10th anniversary this week while many are wondering if it will end. Tesla’s stock is still affected by Elon Musk’s tweets, which are closely monitored by stock market agents. Here is what happened in the markets this week.

Market Brief

The Dow started the week lower, pulled down by Boeing’s stock who continued to fall after the crash of one of its aircraft. The Nasdaq, meanwhile, started the day in the green, helped by a good performance from Apple and Facebook both up 2.5%. The S&P 500 also opened with gains, as the Nasdaq and the S&P 500 “bounce back after their worst week of the year,” said analysts Charles Schwab. Nvidia gained 2.60% to start the day after the announcement of the acquisition of Mellanox, a US-Israeli supplier of computer network products. The Dow remained fragile Tuesday at the opening, while the recent fall in the Boeing stock (-5.4%) continued to weigh on the index. The Nasdaq continued its good performance, opened up 15.45 points while the S&P 500 gained 0.27%.

On Wednesday, Boeing’s stock advanced 0.18% after losing more than 11% of its value in two days. Thanks to this result, the Dow also opened up 0.33%, while the Nasdaq was up 0.47%, and the S&P 500 was up 0.40%. Doubts about Brexit did not seem to shake investors after the rejection of the new deal. “Some people were worried that such a decision would completely shake the financial markets, but obviously, when we see the London Stock Exchange almost stable and the pound only slightly down, we think that brokers had already integrated into the market,” said Christopher Low of FTN Financial. Wall Street opened without direction on Thursday following the release of declining economic data from China, sowing worries about the country’s economic health. After a long shutdown of Facebook sites as well as the Instagram app on Wednesday, Facebook’s stock opened down 2.4%. Wall Street opened higher on Friday, the Dow gained 40 points supported by a rise in Intel’s share (+ 1.5%), the S & P 500 climbed 0.1% while the Nasdaq advanced by 0.3%.

In Canada, the TSX opened higher on Monday, a sharp rebound for the Toronto Stock Exchange that has been negative over the last three weeks. Energy stocks and rising oil prices led to significant gains. On Tuesday, the index opened at its highest level in the last five months, once again supported by energy stocks. The uptrend continued Wednesday for the Toronto Stock Exchange, helped by shares from the cannabis sector. Aurora gained a few points at the open, thus finding itself at its highest level since October, while Hexo gained 3.65%. The TSX opened lower on Thursday, led by declines in shares of material companies on the back of lower gold prices. On Friday, the TSX started the day up, with material stocks leading the way.

Boeing
Boeing’s stock fell on Monday after one of its planes crashed Sunday, a Boeing’s 737 Max 8, killing 157 people. The stock opened down 7.90% to 389.16 dollars, pulling the Dow lower as Boeing is one of the best-performing stocks of the index. Following the tragedy, several countries, including China, decided to ground the 737 Max 8 aircraft. This crash came just 5 months after a comparable tragedy involving a similar model plane, killed 189 people. The jet 737 Max 8 is one of the most popular aircraft of the company. Boeing delivered 76 models with a total of 5011 orders.

Shares of American Airlines Group Inc., Southwest Airlines Co and JetBlue Airways Corp also fell on Monday as these companies also own planes of the 737 Max 8 models. Boeing’s stock has overperformed almost exaggeratedly for several months now, making things less painful for investors holding this stock for a long time. At the close on Friday, Boeing was up 44% since Christmas Eve. However, the company lost more than 11% of her value in just two days.

Tesla

On February 25th, the Securities and Exchange Commission (SEC), accused the company of failing to honour an agreement signed in October 2018 between Tesla and the group. The agreement stipulates, among other things, that Elon Musk can no longer write tweets that could influence the company’s share price and have its tweets checked before publishing them. However, last February 19th, Elon Musk wrote a tweet in which he boasted Tesla’s production level that would produce “about 500,000” cars by 2019.

Mr. Musk then tried to rectify the situation: “meant that the annualized production rate at the end of 2019 would probably be around 500,000 (units), that is, 10,000 cars a week. Deliveries for this year are still expected at about 400,000 units,” he said as stated in his official forecast. Known as a big Twitter user, his lawyers say restricting Elon Musk’s tweets about his own company threatens his “freedom of speech.” The company’s stock was down 1.9% Tuesday. Then on Wednesday, Goldman Sachs warned its clients to stay away from Tesla shares. The investment bank has also predicted that the demand for its electric vehicles would be lower and that Tesla could experience disappointing quarterly results. Tesla’s stock has lost more than 14% of its value this year.

10-Year rally

The bull market celebrated this week its ten years of almost constant growth. Apart from a few drops here and there, this bull market is the longest in Wall Street’s history. On March 9, 2009, the S&P 500 hit its all-time low, but since then, the index has gained more than 300%. This represents an average annual return of 17.68%. For its part, the Dow climbed nearly 19,000 points, up 300% while the Nasdaq has exploded about 500%.

Despite its ten years of success, the stock market has come close to collapse many times. “We’re close to a new downturn in the market,” said Sam Stovall, head of investment strategy for CFRA. “During the European debt crisis in April-June 2010 and July-August 2011, worsened by the deterioration of US debt by rating agencies; in the summer of 2015 and again in January 2016 in the face of falling oil prices and worries about China; and more recently at the end of 2018.” Several analysts believe that this market should continue unless there is a recession. However, it will be difficult for investors to obtain such a good return over the next ten years.

 

Pratte Portfolio Management is a firm registered with the Autorité des marchés financiers (AMF) and the Ontario Securities Commission (OSC).
Intended to provide general information about markets and securities and not to meet your specific needs, this report is the result of the author’s only work. The opinions (including any recommendations, if any) expressed in this report are those of the author only and do not necessarily represent those of Pratte Portfolio Management and do not constitute securities investment advisory activities designed to meet your specific needs.
The information contained in this report is derived from sources believed to be reliable, but the accuracy and completeness of this information can not be guaranteed and, in providing the information, the author and Pratte Portfolio Management assume no liability whatsoever. This information was current as of the date indicated in this bulletin, and neither the author nor Pratte Portfolio Management assumes any obligation to update it or to report any new developments with respect to this information. This report is intended for distribution in jurisdictions where the author and Pratte Portfolio Management are registered for trading in securities. Any distribution or diffusion of this report in another territory is forbidden. The author, Pratte Portfolio Management, its affiliates and their respective directors, officers and employees, and the companies with which they are associated may, from time to time, hold securities referred to in this report.
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