Plus, Trump bashed the Fed on Twitter again, China just exempted some products from tariffs, and shares of GameStop are tanking.
Stocks traded slightly higher to start Wednesday with the Dow adding just 18 points, or 0.1%, on the open. The S&P 500 gained 0.1%, and the Nasdaq traded 0.3% higher.
Apple shares extended their gains from yesterday when it unveiled a slew of new products, including three new iPhones, a new Apple Watch, and the company’s new streaming service just months ahead of the critical holiday shopping season. But the big surprise from Apple yesterday was the price of these new products. When the iPhone 11 goes on sale for $699, it will be $50 less than the model it is replacing. And the streaming service? It’ll be just $5 per month, far below the price for other big-name streaming services. “Expectations were low into Apple’s Special Event but the announcements were more compelling for three reasons. First, TV+ pricing is lower than expected and the bundling of 12-months free TV+ with a purchase of most devices creates a competitive advantage in an increasingly crowded streaming video market. Second, Apple didn’t raise prices relative to comparable product launches last year after several years of price increases. What’s more, lower starting prices for iPhone 11 and Watch Series 3 are more attractive for first time buyers,” said Morgan Stanley analyst Katy Huberty. “AAPL is a top pick heading into 2020.” Shares are up nearly 2% Wednesday morning after adding around 1% in yesterday’s session.
China’s Ministry of Finance announced exemptions for 16 types of U.S. products from additional tariffs Wednesday, including food for livestock, cancer drugs, and lubricants. The exempted items were separated into two lists, with items on the first list—which includes cancer drugs, fish meal for feed, and shrimp and prawn seedlings—eligible for refunds for tariffs already imposed, and items on the second list ineligible for refunds on previously imposed tariffs. The second list includes items such as whey for feed and lubricating base oil. The exemptions will go into effect beginning on September 17 and will be valid until September 16, 2020. This announcement comes as officials from China and the U.S. prepare for high-level trade negotiations next month.
President Trump continued his assault on the Federal Reserve in a series of tweets Wednesday morning, urging the central bank “Boneheads” to lower interest rates to a level not typically seen outside periods of persistently weak growth and recessions. According to Trump, the Fed should “get our interest rates down to ZERO, or less,” going beyond his prior calls for rates to be reduced by one percentage point. “We should then start to refinance our debt. INTEREST COST COULD BE BROUGH WAY DOWN, while at the same time substantially lengthening the term,” Trump tweeted. This is the first time the President has suggested the country should refinance its debt, which has grown to $2.6 trillion under his administration. The idea of refinancing federal debt is without any modern precedent. “It’s not viable and could be a significant problem for investors, financial markets and ultimately the economy,” said Mark Zandi, the chief economist at Moody’s Analytics. “The debt is not prepayable. There’s a contractual relationship the Treasury has with investors. This isn’t a mortgage, this is U.S. Treasury debt. I think it would be incredibly disruptive to financial markets, and interest rates would ultimately rise, not fall.” As far as taking rates to zero, Zandi said “The question you have to ask yourself is, if we go down to zero and we actually experienced a recession, then what?”
Uber, Lyft, and other gig economy companies could be forced to reclassify contractors as employees after lawmakers in California passed a bill that grants labor protections to thousands of workers in the state. According to Barclays and Macquarie, it could cost Uber and Lyft an estimated $2,000 to $3,600 extra per driver per year. Shares of Lyft were up 5.26% at the time of writing while Uber shares were up 1.89% after California Governor Gavin Newsom, who has voiced his support for but not yet signed the bill, told the Wall Street Journal this morning that he is still engaged in talks with the two ride-share companies as well as other gig economy businesses about possible negotiations around the bill. Lyft spokesperson Adrian Durbin said the bill could hurt drivers who prefer a flexible work schedule. “Today, our state’s political leadership missed an opportunity to support the overwhelming majority of rideshare drivers who want a thoughtful solution that balances flexibility with an earnings standard and benefits,” Durbin said in a statement. “…We are fully prepared to take this issue to the voters of California to preserve the freedom and access drivers want and need.”
Shares of GameStop are down nearly -13% this morning after the company reported its net loss widened to $415.3 million, or $4.15 per share, from a loss of $24.9 million in the same period last year. Excluding a $400.9 million impairment charge and other items, GameStop’s adjusted loss from continuing operations was $0.32. GameStop reported comparable-store sales fell nearly -12%, and the company cut its sales forecast for the year. “While we experienced sales declines across a number of our categories during the quarter, these trends are consistent with what we have historically observed towards the end of a hardware cycle,” said CEO Jim Bell in a statement. “We will continue to manage the underlying businesses to produce meaningful cash returns, while maintaining a strong balance sheet and investing responsibly in our strategic initiatives.” Shares of Dave & Busters Entertainment were down more than -6% this morning after it cut its guidance and reported a decline in same-store sales of -1.8% for the second quarter. Raymond James downgraded Dave & Busters saying, “We are downgrading shares of PLAY to Market Perform from Outperform as a recent further deterioration in comps offsets the stock’s low valuation and potential activists, in our view. … Amusement comps (high margin) have turned incrementally negative on difficult VR/Halo comparisons while recent F&B value initiatives have failed to gain traction.”
Stocks We’re Watching
Aurinia Pharmaceuticals (NASDAQ: AUPH): Shares of this clinical-stage biopharmaceutical company were up as much as 12% yesterday after Oppenheimer analyst Justin Kim initiated coverage of the stock giving it an Outperform rating and a price target of $14 – 119% higher than current prices. Aurinia’s phase 3 AURORA trial to test the company’s lead product, voclosporin, as a possible treatment for lupus nephritis is fully enrolled and management anticipates being able to share data from the trial in late 2019. The company is also studying voclosporin in two phase 2 trails for treating focal segmental glomerulosclerosis and dry eye syndromes. Success in treating any of these indications could turn the drug candidate into a potential blockbuster drug and would push Aurinia’s stock far higher.
Mesoblast Limited (NASDAQ: MESO): Shares of this biotech have rocketed nearly 32% higher since Monday after Mesoblast announced that it had entered into a strategic partnership with global pain management leader Grünenthal to develop and commercialize its MPC-06-ID candidate. Allogeneic cell therapy candidate MPC-06-ID is currently in a Phase III trial for the treatment of chronic low back pain due to degenerative disc disease in patients that have exhausted conservative treatment options. Under the new partnership, Grünenthal will have exclusive commercialization rights to MPC-06-ID for Europe and Latin America, and Mesoblast will receive up to $150 million in upfront and milestone payments prior to the launch of the new drug as well as further commercialization milestone payments. The cumulative milestone payments could exceed $1 billion depending on the final outcome of the Phase III trial and patient adoption.
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