Plus, tech stocks are soaring, questions remain on the U.S.-China phase one trade agreement, and homebuilder confidence surged to its highest level in 20 years this month.
Stocks rose to hit record highs Monday morning with the Dow adding 200 points, or 0.7%. The S&P 500 traded 0.8% higher while the Nasdaq gained 1%.
The tech sector hit a record as the major indexes minted fresh all-time highs. Micron shares are up 4.87% and Western Digital shares have surged 6.4% this morning following upgrades from Susquehanna International Group. Susquehanna upgraded Western Digital heading into the ramp-up of 5G, and said Micron has “an attractive risk/reward profile” for the next year. However, Bernstein’s Toni Sacconaghi says that the sector has gotten too expensive, pointing out that it’s currently trading at 22 times earnings: “Given elevated valuations and elevated expectations for high priced stocks, we believe risk remains high in tech.”
Both the U.S. and China held press conferences on Friday to announce the agreement on a phase one trade deal, though questions still remain. President Donald Trump said the Chinese would buy $50 billion worth of agricultural goods “pretty soon,” while U.S. Trade Representative Robert Lighthizer said that China would buy at least $16 billion more of agricultural products from the U.S. in each of the next two years which could bring total purchases close to $50 billion in 2020 and 2021. Still, “That scale of purchases seems implausible and Chinese officials were reluctant to mention any specific target during their press conference,” said Nomura chief China economist Ting Lu in a note from Saturday. Scott Kennedy, senior advisor and trustee chair in Chinese business and economics at the Center for Strategic and International Studies, called the phase one trade deal announcement “the fifth instance during the U.S.-China trade dispute that a deal has been prematurely declared” as the text, legal review, and translation of the agreement has not yet been finalized and the signing has yet to be scheduled. “With only limited concessions, China has been able to preserve its mercantilist economic system and continue its discriminatory industrial policies at the expense of China’s trading partners and the global economy,” Kennedy said. “Trump could reverse course and renew tariffs, but Beijing has bought itself a likely respite from the daily uncertainty for at least a few months and perhaps for the remainder of Trump’s current term.”
Homebuilder confidence jumped to its highest level in 20 years, according to the National Association of Home Builders (NAHB) / Wells Fargo Housing Market Index. For December, confidence in the market for newly built, single-family homes jumped by 5 points to 76. “Builders are continuing to see the housing rebound that began in the spring, supported by a low supply of existing homes, low mortgage rates and a strong labor market,’ said NAHB Chairman Greg Ugalde. NAHB chief economist Robert Dietz added that homebuilders could likely be doing better if they weren’t facing as many headwinds. “While we are seeing near-term positive market conditions with a 50-year low for the unemployment rate and increased wage growth, we are still underbidding due to supply-side constraints like labor and land availability,” Dietz said. “Higher development costs are hurting affordability and deepening more robust construction growth.”
Boeing shares are down -3.34% this morning after reports that the aircraft maker is considering suspending production of its beleaguered 737 Max plane as the timeline for the jet’s return to service moves into 2020. A person familiar with the matter said that Boeing’s board is considering whether to slow the already-pared down production of the 737 Max or if a full output suspension would be less disruptive. The decision could come as early as today as the company’s board is in day two of its regularly scheduled meeting in Chicago. Boeing said in a statement, “We continue to work closely with the FAA and global regulators towards certification and the safe return to service of the Max. We will continue to assess production decisions based on the timing and conditions of return to service, which will be based on regulatory approvals and may vary by jurisdiction.”
And PG&E shares are down more than -10% this morning after California governor Gavin Newsom rejected the state’s largest power company’s bankruptcy restructuring plan, saying that the plan fell “woefully short” of meeting the requirements of a key state law and insisted on changes including better financing, a new board, and a government takeover option. One of Newsom’s objections was to the company taking on an additional $10 billion in debt, limiting its safety investments and turning the utility into a “junk-bond issuer, saying in a letter that “all of this contributes to a reorganized company, that, in my judgement, will not be positioned to provide safe, reliable, affordable electric service.” “[Newsom’s] list of demands might be hard for the company to accept, putting the whole Chapter 11 timeline in jeopardy,” said Jared Ellias, a bankruptcy law professor at University of California, Hastings. “He could have asked for something akin to changing the drapes. Instead it’s more like he is asking them to change their floor plan.”
Stocks We’re Watching
Synaptics Inc (NASDAQ: SYNA): Synaptics shares jumped more than 10% on Friday on speculation that the chipmaker won new business for the next generation of Apple iPhones. Susquehanna analyst Christopher Rolland noted that Broadcom said in its Q4 earnings report that it lost “a mixed signal customer product” from its largest customer. Rolland went on to say that Synaptics winning the Apple business would make sense considering the company’s recent win with Huawei Technologies, and “the challenges that the company were uniquely able to address with their latest touch controllers.”
Sarepta Therapeutics (NASDAQ: SRPT): Shares of this biotech jumped 38% on Friday after the FDA approved its Duchenne Muscular Dystrophy drug Vyondys 53, a drug that was rejected in August on safety concerns, a decision that Sarepta appealed. “While the news came as a surprise to us,” said SVB Leerink analyst Joseph Schwartz in a note. “It did confirm our theory that Vyondys 53’s complete response letter (CRL) was merely a bump in the road towards approval with the FDA leaving SRPT to twist in the wind for a short while before ultimately approving the drug. …We believe Vyondys 53 approval removes a major overhang for the stock.”