U.S. equities are trading lower in the pre-open session early Monday morning as investors responded to some tensions between the United States and Japan concerning currency valuations. Specifically, the disagreement on whether or not the yen’s recent moves have been “orderly” and whether that justifies intervention by Tokyo.
Other headlines include more hawkish comments from the Federal Reserve (Boston Fed President Eric Rosengren said recent economic data has been positive) and negative comments from Iran’s deputy oil minister that it has no plans to join any production freeze agreement.
Stocks look vulnerable here, with the Dow Jones Industrial Average trading below its 50-day moving average last week as breadth continues to deteriorate. And it has been more than a year without a new record high in the market.
To be sure, there is a lot to worry about. For one, seasonality sucks (“Sell in May…”). We are also heading into what’s likely to be the ugliest presidential election in the modern era — with the potential for a big status quo shakeup on things like trade, energy policy, immigration, health care and more.
Oh, that’s not all. China’s credit bubble looks vulnerable. U.S. economic data has been uneven. The Federal Reserve has been making surprisingly hawkish noises over the past two weeks — an attempt, it seems, to prepare an unprepared and stimulus-addicted stock market for the possibility of as many as four rate hikes this year; vs. the futures market pricing in only a single hike. And oil’s recent rally looks like a temporary reprieve now that the dollar is strengthening and the Canadian wildfires have died down.
As a result, keep an eye on these three stocks for possible signs of further market weakening:
Monsanto Company (NYSE:MON)
Watch for a big positive open in Monsanto Company (NYSE:MON) shares on Monday after Bayer AG (ADR) (OTCMKTS:BAYRY) announced on Sunday that it pursuing a $122-per-share offer for the company in a deal valued at $62 billion. The offer is all-cash and was made on May 10 when it represented a 37% premium to the currency share price. Bayer believes the deal will be accretive to earnings in the mid-single digits in the first full year after closing, ramping up to double-digits thereafter.
For its part, MON management announced on May 19 — before details of the deal were released — that they are analyzing the proposal. The company is set to release results on June 29 before the bell. Analysts are looking for earnings of $2.38 per share on revenues of $4.5 billion.
Boeing Co (NYSE:BA)
Boeing Co (NYSE:BA) shares have dropped below their 200-day and 50-day moving averages, collapsing out of a two-month trading range on growing concerns about the profitability of the airline industry amid evidence of overcapacity problems. That’s been a boost to the June $130 BA puts recommended to Edge Pro subscribers, up more than 25% since recommended on May 18. Barron’s recently published a negative article on the stock as well, talking up the risks of a slowdown in orders.
The company will next report results on July 27 before the bell. Analysts are looking for earnings of $2.14 per share on revenues of $23.2 billion.
Deere & Company (NYSE:DE)
Deere & Company (NYSE:DE) shares fell 5.5% on Friday despite reporting an earnings beat on better-than-expected equipment sales as investors focused on slowing new equipment pricing and higher credit loss offsets. Profits are down 30% over last year. Management also issued soft guidance that spooked investors as U.S. and Canada equipment sales fell 6% last quarter.
They now expect current-quarter revenue to drop 12% from last year, below expectations.
The company will next report results on Aug. 19 before the bell. Analysts are looking for earnings of $1.10 per share on revenues of $6 billion.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.
