Blog

April 12th, 2019

Markets Are Hesitant at the Beginning of the Week

By PRATTE

Bear Bull EN

Investors remained hesitant at the beginning of the week as they waited for the start of the quarterly earnings season with Friday’s release earnings from JP Morgan Chase and Wells Fargo. Applications for IPO continued this week and it was Pinterest’s turn to begin its investor tour. Here is what happened on the markets this week.

Market Brief

Wall Street was hesitant at the beginning of the week, eagerly awaiting the start of the quarterly earnings season while closing Monday’s session without direction. The Dow finished down 0.3% while the Nasdaq advanced 0.2%. The S&P 500 gained 0.1%, its eighth consecutive session on the rise with gains of 15% since the beginning of the year. Tuesday, the Dow was down at the open, driven Boeing’s stock who continued to fall early in the session after the company announced the suspension of the production of its 737 Max jets. The S&P 500 yielded 0.5% while the Nasdaq dropped 0.4%.

Markets opened slightly higher on Wednesday as investors were closely watching several events during the day, including a meeting of the ECB, the Brexit and a hearing of US bankers. The Dow opened up slightly +0.01%, the Nasdaq was up 0.24% while the S&P 500 rose 0.18%. Markets opened without direction Thursday as investors were hesitant on the eve of the release of the quarterly results of major banks. The Dow opened up 34 points, Nasdaq advanced 0.08% and the S&P 500 took 0.10%. Tesla’s stock fell 2.46% at the open while Bed Bath and Beyond housewares’ stock fell by 8.14% after disappointing quarterly results. Apple was also down 0.3% at the open while Chipotle lost 1%.

A good start for the three major US indexes on Friday, supported by strong results from the two largest US banks. The Dow gained 223 points at the open, while the S&P 500 and Nasdaq both advanced 0.5%. Disney’s stock jumped 10% early in the session after the announcement of the launch of its new platform next November pulling Netflix down (-2.9%).

The Canadian stock market closed Monday’s session at its highest level in seven months. It benefited from the rise in crude oil prices, which reached their best peak since November. After ending the day Tuesday down, the TSX resumed tone on Wednesday and closed the day up 59 points. The Toronto Stock Exchange continued its good performance Thursday early in the session, thanks to gains from financial stocks. The TSX started the day Friday with gains of 75 points, helped by rising oil prices boosting the energy sector.

Pinterest

Founded in 2010, the popular photo-sharing application began this week its promotional tour for its IPO that will take place in the upcoming weeks. However, after the Lyft setbacks, investors were less enthusiastic than expected as the valuation of the company deflated. The estimate was around $11 billion but during the company’s last round of private financing in 2017, Pinterest was valued at $12 billion. Like the majority of start-ups planning their IPO debut in the upcoming months, the company has never reported a profit. The entry of Lyft on Wall Street has cooled down several investors as the company’s stock plunged 12% on its second day on the stock market below its $72 introductory price.

The mixed reception to Lyft’s Wall Street debut “showed that public investors are somewhat cautious toward highly valued, unprofitable companies.” Pinterest, which has more than 250 million users, is struggling to monetize its content. The company reported losses of $63 million in 2018, but managed to generate $766 million in sales, up 60 percent from last year. A must watch in the upcoming weeks.

International Monetary Fund (IMF)

The IMF downgraded its outlook for global economic growth from 3.5 percent to 3.3 percent this week. It has also reduced its outlook for several countries, including Canada, the United States, many European countries as well as Japan. The institution has also cited the strengthening of trade tensions as the main reason. “Increasing uncertainty around international trade would further constrain investment and disrupt global supply chains,” said Gita Gopinath, chief economist at the IMF. The slowdown will affect more than “70% of the global economy”, she also said.

Thus, the growth forecast for Canada has been lowered to 1.5%, whereas it was estimated at 1.9% last January. As for the United States, IMF economists have also revised downward their growth forecast for this year, going from 2.9% in 2018 to 2.3%. Same for the euro area, as the IMF’s growth outlook for the 19 countries using the euro has been reduced to 1.6% compared to 1.8% previously announced. However, IMF economists estimate that by 2020, global growth could rebound to 3.6%.

Oil

After peaking last week, oil prices were down earlier this week. This decline is due, among other things, to a decrease in OPEC supply, while many member countries have reduced their production. On the other hand, exports from Venezuela and Iran are being reduced by economic and political crises.

“The oil market shows signs of tightening as we move into the second quarter of 2019, but we see mixed signals in terms of the outlook for demand,” said the Paris-based agency, which advises most major economies. Demand for crude oil coming from the Organization for Economic Co-operation and Development (OECD) countries, including Australia, Canada and Belgium, have declined by 300,000 barrels per day in the fourth quarter of 2018, the group’s first quarterly decline in demand since 2014.

Start of Earning Season

J.P. Morgan and Wells Fargo launched on Friday the “earnings season” in the United States, highly anticipated by investors who expected a downward quarter. However, both companies reported better-than-expected results questioning investors’ fears. JP Morgan, the largest US bank in terms of assets, has reported net profit of $9.2 billion, up 5.4%, for revenue of $29.85 billion (+ 4.7%). Bank CEO Jamie Dimon reported that the US economy “continues to grow, while wages and the labour market are growing, inflation is moderate, financial markets are healthy, while business and consumer confidence are strong.

For its part, Wells Fargo, the second-largest US bank, reported a profit of 5.51 billion dollars up 16.4% in the first quarter. According to several analysts, a strong financial sector could suggest that the US economy has remained resilient to the slowdown in global growth. Wells Fargo’s stock opened up 0.4% while JP Morgan gained 3.3%.

 

 

 

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.
Blog

Want to become a client?

CONTACT US