Plus, jobless claims just delivered a surprise, Saudi Aramco hit a $2 trillion valuation, and Credit Suisse says Apple’s iPhone shipments have dropped by double digits in China.
Stocks jumped higher to start Thursday with the Dow adding 300 points, or 1%. The S&P 500 and Nasdaq both gained 1% as well, with all three major indexes hitting record highs.
President Donald Trump struck a more optimistic tone on trade this morning when he tweeted, “Getting VERY close to a BIG DEAL with China. They want it, and so do we!” The Dow Jones reported that U.S. negotiators are offering to cancel new tariffs on Chinese goods and reduce existing levies by up to 50% on $360 billion worth of imports, though the report also said that the original tariffs would be reimposed should China fail to carry out its end of the bargain. Reuters also reported that Trump is expected to meet with his top trade advisors today to discuss the tariff increase planned for this Sunday, December 15. Trade Representative Robert Lighthizer, Treasury Secretary Steven Mnuchin, and White House advisers Larry Kudlow and Peter Navarro are expected to present divergent views on the repercussions the new tariff hike would have on the U.S. economy, though the final decision as to whether to impose the tariffs will be on Trump.
U.S. jobless claims surged to a two-year high last week, according to the Labor Department. Initial claims for state unemployment benefits jumped by 49,000 to a seasonally adjusted 252,000 in the week ended December 7, the highest reading since September 2017. This comes after claims dropped 203,000 to a seven-month low the week prior. Economists had expected claims would increase to 213,000.
Saudi Aramco briefly hit its target valuation of $2 trillion on its second day of trading on the Saudi Tadawul exchange in Saudi Arabia, marking the first time any company has hit that mark. Bernstein analysts Neil Beveridge and Oswald Clint said in a note from today that Saudi Aramco’s share price is well above fair value considering current oil prices, and that if prices jumped to $100, then the valuation “would possibly be justified.” “Corporate governance has been identified as the key risk for investors, given that the Kingdom of Saudi Arabia will continue to own greater than 98% of Aramco,” the Bernstein analysts, who rate the stock an Underperform, wrote in the note. “Given that Aramco’s 10-year bonds currently trade at a higher yield to international oil companies and some national oil company bonds, a valuation discount to western oil majors seems warranted.”
Apple shares have taken a slight hit this morning following a Credit Suisse report that said iPhone shipments in China dropped -35.4% last month compared to the same month last year. Since the latest generation of iPhones launched, total shipments in China are down -7.4% compared to the year prior, and the Credit Suisse analysts said that they “estimate China iPhone revenue fell by >17.5% y/y over the past three months (Sept-Nov).” The analysts said the looming December 15 tariff deadline is also a cause for concern for the stock as the 15% tariff increase could increase U.S. iPhone costs by nearly $70 per unit. “Our (and we believe investors’) base case continues to factor in a favorable resolution (i.e., no tariffs); however, we think Apple would have a difficult time pushing through tariff-related price increases to U.S. consumers -35% of CY18 iPhone unites, per Gartner) without a commensurate impact on demand.”
While Delta shares are up nearly 4% this morning after it forecast continued revenue growth next year. The airline said it expects revenue to grow by 4% to 6% in 2020 to roughly $49 billion, with per-share earnings coming in between $6.75 and $7.75, thanks to strong consumer spending – especially on premium-class seats. “The U.S. consumer spend is strong, the business spend is strong,” said Delta CEO Ed Bastian. The airline also announced this morning that it is taking a minority stake in Wheels Up, a private aviation startup. “This groundbreaking partnership will democratize private aviation – making the convenience of private jet travel accessible to more consumers,” Bastian said in a statement, adding that this “is the latest step in Delta’s ongoing effort to build partnerships that extend Delta’s brand beyond its core business.”
Stocks We’re Watching
Leidos Holdings Inc (NYSE: LDOS): Leidos shares saw gains yesterday after it was awarded a potential 10-year $6.5 billion contract by the Defense Information Systems Agency to operate and maintain a military telecommunications infrastructure. The award covers technical support services for the DoD Information Network/Defense Information System Network beginning on January 1, the Pentagon said. The contract also includes two two-year option periods and an additional one-year option which could extend the service through December 31, 2030.
LogMeIn Inc (NASDAQ: LOGM): LogMeIn shares have jumped more than 7% in the last week after Bloomberg reported that private equity firms Francisco Partners Management and Elliott Management Corp have patterned in a bid to take the workplace software provider private for more than $4 billion. The two firms are in advanced discussions to acquire LogMeIn and the deal could be announced in the coming weeks, though no final decision has yet been made.