Once again, the big news for the Dow Jones today was all about the U.S.-China trade get together. The result was excellent news for stocks as the major domestic equity benchmarks surged to end the week on news that the world’s two largest economies reached a partial trade accord.
As I’ve been noting over the course of this week, a smaller trade deal was an idea previously eschewed by President Trump, but he appeared to come around to the idea. Earlier today, the president said on Twitter “good things” were happening in the trade talks, even going so far as to describe the talks as “warm.”
That’s a significant, positive departure from Trump’s often bellicose China rhetoric and stocks certainly liked those good vibes.
Those warm and fuzzy trade feelings are critical because the U.S. was set to impose tariffs on some Chinese goods as soon as next week with another batch of levies slated to go into effect in mid-December. Should President Trump sign the deal currently being discussed, those tariffs would be avoided and a broader trade truce could be reached by the two sides.
With trade talks progressing nicely, the Nasdaq Composite surged 1.34%, while the S&P 500 soared 1.09%. The Dow Jones Industrial Average rallied 1.31% to finish the week with 27 of the Dow’s 30 stocks in late trading. The offenders were defensive names — Coca-Cola (NYSE:KO), McDonald’s (NYSE:MCD) and Procter & Gamble (NYSE:PG) — but losses for those names were modest.
Apple at an All-Time High
Shares of Apple (NASDAQ:AAPL) continued their recently scintillating pace, gaining 2.74% to hit a record high. Of course, some today’s Apple ebullience is attributable to good news on the trade front, but there was streaming news to consider as well. That’s important because the Apple + streaming platform is close to its debut.
Apple +, which debuts on Nov. 1, could be a real thorn in the side of rival Netflix (NASDAQ:NFLX) and be a major boon for Apple investors, said Wedbush analyst Daniel Ives in a note out today.
“If Apple is successful with its latest streaming endeavor and reaches some of these potential subs/revenues numbers annually we estimate, this will add roughly $15 per share to our sum-of-the-parts valuation on Apple,” said the analyst.
He raised his Apple price target to $265 from $245. AAPL stock closed around $236 and with Apple in rally mode, expect more upward price target revisions because the average target on the name is just $228.
Stock-specific news was light today for Caterpillar (NYSE:CAT) and Dow (NYSE:DOW), but those cyclical names were the Dow’s top two performers today, each gaining more than 5% on the positive trade news.
In either case, Friday’s rallies in the names isn’t an overreaction because both have displayed high sensitivity to trade headlines. Caterpillar’s surge today was particularly impressive because it occurred on above-average volume.
Straight to the Bank
Third-quarter earnings season is about to ramp up and that means an avalanche of reports from the financial services next week. Yes, the group is heading into earnings amid concerns about lower interest rates suppressing net interest margins, analyst downgrades and negative profit revisions.
However, all of the Dow’s financial services names gained today with JPMorgan Chase (NYSE:JPM), the largest U.S. bank by assets, gaining 1.69%. It’s difficult to say bank stocks are buys right here, but the aforementioned negative factors are widely known and should be priced into these names at this point.
A Swoosh Higher
Nike (NYSE:NKE), another member of the trade-sensitive club, added to recent gains today after Macquarie analyst Laurent Vasilescu reiterated an “outperform” rating and $98 price target on the stock. That implies modest upside from the $94 area Nike closed at today.
“With the broader consumer shift towards digital, we think at some point Nike will rationalize its factory store footprint as it assesses each store’s productivity,” said the analyst.
Bottom Line on the Dow Jones Today
There have been some earnings calls already and one issue that has been popping is currency exchange-traded rates. While interest rates have come down in the U.S., the dollar has been mostly firm this year and that’s problematic for export-dependent sectors.
“Foreign exchange has again been cited on the most earnings calls to date (12) as a factor that either had a negative impact on earnings or revenues in Q2 or is expected to have a negative impact on earnings and revenues in future quarters,” according to FactSet. “More than half (55%) of the S&P 500 companies that have conducted earnings conference calls to date for the second quarter have cited some negative impact from foreign exchange rates.”
Fortunately, part of the trade deal with China includes currency controls. Hopefully China keeps up its end of the bargain and doesn’t devalue the yuan again.
As of this writing, Todd Shriber did not hold a position in any of the aforementioned securities.