Stocks didn’t close at their intraday peaks on Friday, but “higher highs” is not something investors will (or should) ever complain about. A handshake on a trade deal between the U.S. and China was long seen as the next catalyst to propel equities higher. How high? That remains to be seen. But the first part of that scenario seems underway.
On Friday President Donald Trump and Chinese officials gave the market an early Christmas gift, announcing a trade agreement that includes not only rolling back some existing tariffs, it calls for removing further duties that were set to take effect Sunday (today). The trade pact also promises China will increase its U.S. agricultural purchases, to which President Trump said China could buy as much as $50 billion worth of farm goods.
The market, understandably, reacted positively to what — until this week — had been one head-fake after another. On Friday the Dow Jones Industrial Average rose 3.33 points, or about less than 0.1% to close at 28,135.38, albeit lower than its session high of 28,290.73, which included a rise of 158.68 points. The S&P 500 index, meanwhile, rose 0.23 points or 0.01% to 3,168.80. Though not breathtaking in terms of percentage gains, it was a record close for the index. The tech-heavy Nasdaq Composite Index added 17.56 points, or 0.2%, to post a close of 8,734.88.
The fact that the indexes closed off session highs would suggest that investors have some doubts about the details of the U.S.-China Phase One trade deal, which many analysts are calling a “skinny” trade deal. The president said a so-called phase-two deal won’t wait until after the 2020 presidential election, but would be discussed immediately. For now, it will be a wait-and-see approach as to what effect the Phase One deal has and what Phase Two will look like. Here are the stocks that I’ll be watching this week.
FedEx (FDX) – Reports after the close, Tuesday, Dec. 17
Wall Street expects FedEx to earn $2.80 per share on revenue of $17.68 billion. This compares to the year-ago quarter when earnings came to $4.03 per share on revenue of $17.82 billion.
What to watch: Can FedEx bounce back after a brutal first quarter? The stock plunged more than 10% following the Q1 results which included a miss on both the top and bottom lines. FedEx’s earnings is often a proxy on business investment, but it appears the company’s recent performances have lost that connection to macroeconomic conditions. What’s more, FedEx management has been somewhat bearish regarding the quarters ahead. On Tuesday investors will want to see whether that bearishness turns to optimism, particularly as trade risk has been lifted. And to the extent the company can deliver a top- and bottom-line beat, along with confident guidance, the market may see this as a potential catalyst to send the stock higher.
Micron (MU) – Reports after the close, Wednesday, Dec. 18
Wall Street expects Micron to earn 47 cents per share on revenue of $5.05 billion. This compares to the year-ago quarter when earnings came to $3.53 per share on revenue of $8.44 billion.
What to watch: Improved DRAM pricing have re-ignited shares of Micron, which has risen some 55% in six months. The chip giant is also seeing better inventory conditions in various end-markets, which analysts see as a means for improved demand for DRAM during the fiscal first quarter in terms of shipments for the cloud, graphics and PC markets. With the stock surging more than 60% year to date, crushing the 26% rise in the S&P 500 index, investors are expecting more than a top- and bottom-line beat from Micron, which now sits near its 52-week high. On Wednesday the company must affirm this confidence and guide in a manner that suggests the boom-and-bust cyclical of the memory chip business is now on the boom side.
Nike (NKE) – Reports after the close, Thursday, Dec. 19
Wall Street expects the company to earn 58 cents per share on revenue of $10.08 billion. This compares to the year-ago quarter when earnings came to 52 cents per share on revenue of $9.37 billion.
What to watch: Rising some 10% in the past thirty days, Nike shares have been one of the better-performing stocks in retail, thanks to improved trade negotiations between the U.S. and China. An estimated 26% of Nike shoes and apparel are manufactured in China, making that region the company’s second-largest market. As such, Goldman Sachs, which just added Nike to its “Conviction List” sees more upside to the shares. Goldman sees Nike as positioned for “multi year growth, expansion in margins, and higher returns on invested capital.” On Thursday the company’s guidance will need to reflect that level of confidence.
BlackBerry (BB) – Reports before the open, Friday, Dec. 20
Wall Street expects the company to earn 2 cents per share on revenue of $275.73 million. This compares to the year-ago quarter when earnings came to 5 cents per share on revenue of $228 million.
What to watch: BlackBerry shares have plunged more than 30% since Q2 earnings report. Growth in the company’s Enterprise Software Services segment (its largest business) has been significantly lower than investors expected. Segment growth projection is estimated at 11% lower than initial expectations, and may be around 10% for the full year. What’s more, BlackBerry’s COO, who had been on the job less than ten months, recently left the company. With the stock down 20% year to date and trading some 45% below its 52-week high, investors on Friday will want to see more evidence that the bottom has been reached.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.