Plus, Paul Singer’s Elliott Management just took a new stake in AT&T, Apple will announce new iPhones tomorrow, and shares of Chipotle are climbing.
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Stocks traded higher to start Monday with the Dow adding 100 points, or 0.4%, at the open. The S&P 500 gained 0.2%, while the Nasdaq was flat.
Stocks are approaching record levels and U.S. Treasury yields are climbing this morning amid rising optimism around U.S.-China trade relations. The S&P is roughly 1.6% from its record high set at the end of July, while the Dow and Nasdaq started the session around 2% from their all-time highs. The yield on the benchmark 10-year note was 5 basis points higher at 1.598%, while the yield on the 30-year bond was also higher at around 2.073%. Last week, China offered to increase purchases of U.S. agricultural products if the U.S. eased restrictions on Chinese telecom giant, Huawei, according to a report from Politico. White House economic advisor Larry Kudlow said Friday that trade talks are “going to heat up” when the two countries meet in Washington in early October. New data out of China today showed that exports unexpectedly fell in August with a 16% contraction of shipments to the U.S., indicating further weakness in the Chinese economy and putting pressure on lawmakers there to announce new economic stimulus. According to U.S. Treasury Secretary Steven Mnuchin, the Trump administration has “not yet seen any impact on the U.S. economy” as a result of the trade war, and predicts a “very robust finish of the year” with “no signs of recession” on the horizon. However, the trade dispute has already measurably impacted some industries in the U.S., with agriculture being chief among them.
President Trump’s tweets on trade, the economy, and international relations have caused enough anxiety in U.S. markets for JPMorgan to launch a new “Volfefe Index.” The firm found that Trump’s tweets are having a statistically significant impact and the number of market-moving tweets from the President have ballooned in the past month, with those including words such as ‘China,’ ‘billion,’ ‘products,’ ‘democrats,’ and ‘great,’ most likely to impact prices. “Trade and monetary policy have become an increasing focus for the executive branch, and everything from casual sentiments to seemingly formal policy intentions have been disseminated, globally and instantaneously, via this carefully scrutinized social media platform,” wrote JPMorgan analysts led by Josh Younger and Munier Salem. “In response, a broad swath of assets from single-name stocks to macro products have found their price dynamics increasingly beholden to a handful of tweets from the commander in chief.” Citi is also looking at Trump’s tweets and has found that tweets are generally followed by a stretch of higher volatility across global currency markets, with little sign traders are growing numb to Trump’s messages. “We find little evidence that the market achieves ‘fatigue’ on Trump tweeting,” said Citigroup quantitative foreign-exchange strategist Sukrita Chatterji. “If anything, the opposite has proven true with many of the largest market moves on Trump tweets having occurred recently.”
AT&T shares were up Monday morning after Paul Singer’s Elliott Management announced it had taken a $3.2 billion stake in the underperforming telecom giant’s stock. The activist hedge fund said in a letter sent to the company’s board that AT&T can “improve its business and realize [an] historic increase in value.” The biggest “whoa” moment from the firm’s letter may be that Elliott says the company’s board should consider changes to AT&T’s leadership, stopping just short of calling for the removal of CEO Randall Stephenson. Elliott cited the company’s history of questionable acquisition decisions—including buying DirectTV and Time Warner—and lackluster operational performance under Stephenson’s leadership for its move into the company. President Trump tweeted that he was happy to hear of Elliott’s stake in AT&T, saying that the activist investor could help the CNN-parent curb what he categorizes as “Fake News.” “Great news that an activist investor is now involved with AT&T. As the owner of VERY LOW RATINGS @CNN, perhaps they will now put a stop to all of the Fake News emenating from its non-credible ‘anchors,’” Trump tweeted. “Also, I hear that, because of its bad ratings, it is losing a fortune… But most importantly, @CNN is bad for the USA.” Shares of AT&T were up nearly 3% at the time of writing.
Get ready for new Apple products. Apple CEO Tim Cook will take the stage in Cupertino, California tomorrow to unveil the latest iPhones, including “Pro” upgrades to the iPhone XS and iPhone XS Max and a replacement for the iPhone XR, as well as new Apple Watches. While interest in this year’s event has been lackluster, Piper Jaffray’s Michael Olson says consumers are waiting for an iPhone with 5G capability and would upgrade to a $1,200 5G iPhone the next time they get a new phone, citing a survey from the firm that showed 23% of respondents would upgrade, compared to 18% from the June survey. “We see this as a high level of interest given limited 5G marketing/chatter to date and the high price point suggested in our survey,” Olson wrote. In other Apple news, the tech giant and its manufacturing partner Foxconn confirmed that they had violated a Chinese labor rule by using too many temporary staff following a report from China Labor Watch that also accused the companies of harsh working conditions. Apple said that it had conducted an investigation and found that the “percentage of dispatch workers exceeded our standards,” and that it is “working closely with Foxconn to resolve the issue.”
Shares of Chipotle are up just over 1% Monday morning after Wedbush upgraded the stock to outperform from neutral with a 12-month price target of $980 from $780 – 15% higher than current prices. Wedbush says Chipotle is in a good position to establish a “digital moat” as the industry transitions to a bigger mix of digital transactions. “As the industry transitions toward a larger mix of digital transactions, we believe Chipotle is in a leading position to establish a digital moat,” Wedbush analyst Nick Setyan wrote. “We not only continue to see near-term momentum as management executes toward this transition, we believe Chipotle is poised to sustain outsize same-store sales and earnings per share growth in the medium to long-term in an industry where a dearth of growth is likely to command an interesting premium. … We believe digital sales at Chipotle are on a path toward a 30%-plus sales mix exiting 2021.” Shares of JPMorgan are up more than 2% today after it was reported that the bank is close to winning the lead advisory role for the initial public offering of Saudi Aramco, the world’s most profitable corporation. And shares of Hewlett Packard are down -1% after Bernstein downgraded the stock to “market perform” from “outperform” citing “greater structural headwinds” from a shift to digital communications. “With supplies growth expected to be negative in both 2019 and 2020, and supplies now having declined at a 4% CAGR since 2011, we worry that printing may be facing greater structural headwinds from the shift to digital and increased pressure from cloned/remanufactured supplies,” wrote Bernstein. “In short, there is a higher likelihood the printing business is a ‘melting ice-cube’—despite myriad efforts by HP to improve the business—and the stock accordingly warrants a lower multiple. We set our new price target at $20.”
Stocks We’re Watching
Medicine Man Technologies (OTC: MDCL): Shares of this pot stock are up 160% so far this year and 15% over the last week after the company signed a deal last week to purchase five Starbuds dispensaries in Colorado, and four additional Colorado dispensaries owned by Colorado Harvest Company. Medicine Man is now on pace to operate a total of 27 dispensaries in Colorado following the close of these pending transactions. Co-Founder and CEO Andy Williams said that the four dispensaries being acquired from Colorado Harvest Company will come “with an estimated 35% EBITDA margin, these retail stores are collectively expected to be some of the most profitable in our portfolio.”
Guidewire Software (NYSE: GWRE): Shares of Guidewire are up nearly 14% over the last week after the software provider to the casualty insurance industry reported an earnings beat for its fiscal fourth quarter late last week. Guidewire reported Q4 revenue of $207.9 million, beating analyst projections by $3 million, with non-GAAP earnings per share coming in at $0.56, down from $0.75 per share in the same period the year prior but $0.06 per share higher than analysts’ expectations. Guidewire co-founder and chairman Marcus Ryu highlighted the company’s cloud software efforts saying, “Our strategic priority is to evolve and scale Guidewire Cloud to serve the operational and advanced analytic needs of the global P&C industry. With 65% of our new software sales in fiscal year 2019 from cloud products, we believe the industry is increasingly selecting Guidewire Insurance Platform as its platform of choice.”