The Final Nail In The Coffin In This Whole Yield Curve Inversion Discussion

Stocks rose on the open for the first time in three sessions today with the Dow jumping 424 points, while the S&P 500 climbed 1.6%, and the Nasdaq surged 2.1% higher.

This after the U.S. removed some items from the list of new tariffs on Chinese goods and delayed the additional duty on other goods to December 15. 

Shares of Apple spiked more than 5% on the news after the United States Trade Representative said that items for which the new tariffs would be delayed until December 15 included “cell phones, laptop computers, video game consoles, certain toys, computer monitors, and certain items of footwear and clothing.” This is good news for Apple as they are widely expected to announce their new lineup of iPhones next month. Other stocks that surged on the news include Best Buy, Nike, Macy’s, Nordstrom, and toy makers Mattel and Hasbro.

McDonald’s also jumped nearly 1% this morning after MKM initiated coverage of the Big Mac maker. “We believe the combination of strong domestic and international market’s sales growth are sustainable through its potential uptick in unit expansion and solid SSS generation (through a balanced menu approach and ongoing investments in its stores, systems, technology) and, when coupled with strong cash flow generation and consistent returns to shareholders, is supportive of a premium valuation for the QSR market share leader,” MKM analysts said in a note. MKM rates the stock a Buy and issued a price target of $250, indicating possible upside of 14% over then next twelve months.

But it isn’t all good news as signs of a global slowdown are creeping up everywhere today. Singapore cut its growth outlook to 0 – 1% this year from 1.5 – 2.5% in a signal of just how much the trade war is impacting the region’s most trade-reliant economies. Then in Europe, investor confidence in Germany’s economic outlook worsened for the fourth month in a row after several disappointing numbers raised recession risks in Europe’s largest economy.

And in the U.S., the rate on the 30-year Treasury bond began closing in on an all-time low as investors seek shelter from the worsening global outlook. The spread between the closely watched 2- and 10-year yield also looks set to invert any day now, and is currently at its flattest level since 2007. “It’s the whole idea that the Fed is making a mistake,” said National Alliance’s head of international fixed income, Andrew Brenner. “There’s more fear that the Fed is going to be slow in making moves, and the economy is going to go into recession.” While the market watches the 2- and 10-year note, the Fed watches the spread between the 3-month bill yield and the 10-year note yield which has been inverted. “I don’t know if it matters more than the 3-month to the 10-year, but you can call it the final nail in this whole yield curve inversion discussion,” said Peter Boockvar, Bleakley Advisory Group’s chief investment officer.

Meanwhile, U.S. core inflation hit a six month high in July, with the consumer price index—which excludes food and energy—rising 0.3% above June’s figure, and 2.2% from July of 2018, according to a Labor Department report released Tuesday morning. This is a signal that inflation may be firming ahead of the Fed’s September meeting where Wall Street is broadly expecting another 25 basis point cut following the central bank’s first cut in 11 years in July. While Federal Reserve Chairman Jerome Powell indicated in a press conference last month that the July rate cut was just a “mid-cycle adjustment” and not a signal of further rate cuts this year, Morgan Stanley economist Ellen Zentner said, “Taking a walk through Chair Powell’s checklist of factors the FOMC will be looking at when deliberating policy adjustments going forward, it seems to us there is already a clear need to cut rates further.”

Coming up today, pot leader Tilray is scheduled to report its second-quarter earnings results today. The Street is expecting the company’s gross margin to narrow to 27.8% from 42.9%, and analysts believe the company will have more than quadrupled revenue year-over-year to about $41.1 million with a net loss of $0.25 per share.

Stocks We’re Watching

K92 Mining Inc (OTC: KNTNF, TSXV: KNT.VN): Shares of this small gold, copper, and silver concentrates miner got a boost late last week after analysts at Clarus Securities reiterated their Buy rating on the stock and analysts at Pi Financial raised their price target for the stock from C$2.25 to C$3.00, suggesting possible upside of nearly 20% over the next twelve months.

Planet 13 Holdings (OTC: PLNHF): You may not have heard of this tiny pot stock, but you might want to keep it on your radar. Planet 13 opened its Cannabis Entertainment Complex just off the Las Vegas Strip late last year, and the 16,200 square foot superstore has quickly become the premier dispensary in Nevada. Just last week, the vertically-integrated cannabis company announced that the superstore served an average of 1,937 customers per day in July with an average ticket of $90.41. “We continue to drive impressive results from the SuperStore’s original 16,000 sq. ft. dispensary footprint in advance of the Phase II,” said Planet 13 Co-CEO Larry Scheffler. “In May, we reached an impressive milestone, the SuperStore accounted for 10% of all dispensary sales in Nevada. I’m optimistic we will see this trend continue.” The Phase II expansion will add a coffee shop, bistro, customer-facing production facility, and event space to the superstore, and is expected to help further increase Planet 13’s visitor traffic.

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