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June 14th, 2019

Oil Disturbs the Markets

By PRATTE
4-nov-en

After several good sessions, investors took a break in order to focus on taking profit. Oil had an eventful week while Beyond Meat continues to surprise. Here is what happened this week in the markets.

Market Brief

The American markets started the week higher, supported by the agreement between Mexico and the United States, thus avoiding new tariffs. “For now, the news is helping the market to continue its rebound from the end of last week,” said Patrick O’Hare of Briefing. Amazon’s stock was up 3.35%, Alphabet (parent company of Google) 2.24%, and Apple 1.86%. This good performance continued until the markets closed; the Dow posted its sixth consecutive increase, finishing up 0.3% while the NASDAQ rose by 1.1% and the S&P 500 climbed by 0.5%.

China’s latest economic support measures have allowed markets to maintain their gains on Tuesday. “The Chinese stimulus brings strength to the market and this, in the midst of the trade war between the United States and China, the first two world economies” said analysts of Charles Schwab. Many Chinese companies listed on the stock exchange benefited from this rise; Alibaba gained 3.53%, JD.com +4.37% and Baidu +4.19%. However, despite this good start, the three leading US indexes ended the day slightly lower. “After five or six consecutive wins, it’s time for digestion,” said Nate Thooft of Manulife AM on Tuesday.

Wednesday, Wall Street started the session lower as investors took a break after several good sessions to closely monitor trade negotiations. The pause continued throughout the session on Wednesday as Wall Street closed down slightly. “There is some concern that the US central bank (Fed) may ultimately not lower interest rates by the summer as it was widely expected, precisely because of the resolution of the conflict with Mexico, “said Quincy Krosby of Prudential Financial.

Stocks were back up on Thursday, thanks to the tech stocks rebound after a bad session on Wednesday. Chipmaker’s stocks were up on Thursday morning; VanEck Vectors Semiconductor ETF (SMH) gained 0.5%. Applied Materials and Micron Technology advanced 0.7% and 0.8%, respectively, while Apple gained 0.4%, propelling the technology sector. The Dow opened with gains of 126 points, supported by Disney’s stock who gained 1%, the S&P 500, meanwhile, gained 0.4% and the NASDAQ advanced by 0.5%.
Wall Street opened lower on Friday after a good session on Thursday. The Dow was down 100 points, pulled down by Intel and Apple stocks while the S&P 500 lost 0.3% and NASDAQ shed 0.6%. A global sell-off from chipmakers after Broadcom reported lower demand for chips after posting disappointing quarterly results came to disturb the markets.

The TSX ended Monday session down 14.70 points. Its weak performance is the result of falling commodity prices. “A slower pace of housing starts in May along with the price of gold falling by the most in a month and oil retreating had an effect on the Canadian market. Canada’s got different issues, one being housing, the other being commodities. Those are two pretty big sectors that drive the Canadian economy,” said Anish Chopra, Managing Director at Portfolio Management. The TSX managed to stay positive on Tuesday thanks to the materials and energy sectors. The oil slide affected Canadian markets on Wednesday. Indeed, the energy sector ended the session down 1.3% while the TSX lost 21 points. Encana Corp. lost 6.6% while Crescent Point Energy Corp. accumulated losses of 5.2%. The TSX opened down Friday, pulled down by the decline in technology stocks.

Amazon Beats Apple and Google

Amazon has become this week the most powerful brand in the world, dethroning Apple and Google. According to BrandZ’s ranking of the Top 100 most valued brands in the world for 2019, the company is now worth $315.5 billion. Last year, it ranked third after Apple and Google who have spent the last twelve years at the top of the list. Apple comes in second place, worth $309.5 billion, followed by Google, with $309 billion.

Doreen Wang, Kantar’s global head of BrandZ, said Amazon’s jump was due to it selling a variety of services. “Amazon’s phenomenal brand value growth of almost $108 billion in the last year demonstrates how brands are now less anchored to individual categories and regions. The boundaries are blurring as technology fluency allows brands, such as Amazon, Google and Alibaba, to offer a range of services across multiple consumer touch points,” she said in a statement emailed to CNBC.

Oil

Crude prices accumulated 45% gains in the first four months of the year from their January low but lost more than 15% since the end of April. According to Goldman Sachs, slowing global growth and expectations of lower oil demand would be “the main factors behind the drop (in oil prices) last month.” Also, the continuing trade tensions between the United States and several of its major trading partners have also had an impact on prices. These factors greatly constrain economic activity and thereby reduce the demand for oil.

Brent is now down nearly 20% from its highest-level last April, while West Texas Intermediate (WTI) is trading down 22% for the same period. On Wednesday, the announcement of a surprise rise in crude oil inventories in the United States also put pressure on black gold, who continued to fall. However, a two-tanker tank attack in the Arabian Sea reduced inventory available, making oil prices go up on Thursday morning. Brent North Sea crude for August delivery rose $1.70 (2.83%) to $61.67, while WTI crude for July delivery advanced $1.38 (2.70%) at $52.52.

Beyond Meat
The stock had a tough week, tumbling 25% on Tuesday after US bank JP Morgan downgraded its outlook on the stock qualifying it as “too expensive.” Then Wednesday, no one on Wall Street recommended buying the stock, a rare phenomenon for a company that has just entered the stock market. This, however, did not seem to affect the stock which, after its fall, resumed tone, closing Wednesday’s session up 12%.
The announcement of a collaboration with Tim Horton gave strength to the stock. In fact, the Canadian company mentioned that it will offer breakfast sandwiches made with “fake meat” Beyond Meat in nearly 4,000 locations in Canada. Beyond Meat had a dazzling start since its IPO, its stock went up more than 500% since its initial price. However, many wonders if the company will be able to increase its offer to meet the demand that continues to grow. This is definitely a stock to follow.

 

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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