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FAANGs Can Weather Storm With Confident Zuckerberg: Taking Stock

FAANGs Can Weather Storm With Confident Zuckerberg: Taking Stock

(Bloomberg) -- Stock futures are holding on to their overnight gains fueled by a bout of relief after the Chinese president’s keynote -- "With Xi’s speech positioning China as conciliatory, the chances of a damaging trade war appear a shade lower," according to Bloomberg Economics -- and as an added bonus, Fed’s Kaplan said this morning that he is "optimistic" that many U.S.-China tariffs won’t be implemented.

The optimism from Xi’s speech, and lack of a major retaliatory push on tariffs, appears to be giving a bid to the trade war proxies like Boeing (shares up ~2%) and GM (up 2.6%), the latter aided by China’s call to cut import tariffs on vehicles this year. We should also expect decent action in the semiconductors (more on this below) thanks to the seemingly easing trade tensions.

Though how confident can investors be that this rally will stick and won’t fade by mid-morning or into the close by the latest, given how this tape has been acting of late? I mean, we’re only half a day removed from an FBI raid of Trump’s personal lawyer and potentially ticks away from forceful action in Syria. We even have another wary story about trade talks breaking down between the U.S. and China over high-technology industries.

Yesterday’s Monster Reversal

Yesterday’s massive rally in the morning followed by the savage reversal, a more than 40-handle swing on the S&Ps, needs to be put in context as it occurred on the lowest daily volume that we’ve seen on the consolidated tape in a month and a half and the second lowest for all of 2018.

Some pointed to a lack of retaliation from China after Trumped upped the ante with the $100 billion tariff call, while others said the afternoon breakdown was tied to uncertainty ahead of Xi’s speech and the report that the FBI raided the office of Trump’s lawyer -- though the latter hit with ~5 minutes to go in the session, when the tape had already pulled back extensively.

These reasons all make some sense, but it’s tough to pin any particular move to one headline or incremental piece of information given how little conviction there was in either the upside or downside moves (except perhaps the lifting of bids once the FBI raid news hit) and the fact that this market appears to want to swing one to two percent nearly every day at this point.

Tech Will Dominate the Afternoon

A hoodie-less Zuckerberg steps up to the plate at 2:15pm for the first of two congressional hearings over the next two days. How he handles the grilling should dictate the direction of Facebook’s stock (up 0.8% pre-market) and possibly the entire tech tape, given how the Cambridge Analytica scandal in mid-March served as a catalyst for profit taking, precarious trading and negative sentiment (WSJ headline yesterday: "Hedge Funds Turned Bearish on Tech Giants") in the space.

Since the beginning of April, though, FB has outperformed most FAANGs after finding near-term support at $150 per share, and the sell-side remains firmly on the long end of the trade with 44 out of 48 analysts recommending a buy.

And JPMorgan’s Internet analysts are out with a big note today saying to buy FB, AMZN, TWTR, and YELP on the recent pullback, citing strong fundamentals beneath headlines and regulatory risk.

Semis and memory stocks may catch a bid after a big Morgan Stanley note titled "The Data Era Becomes Investable" hit last night, where the firm upgraded both NVDA +3.9% and STX +0.8% to overweight and had positions mentions of MU, CSCO, AMZN, GOOGL, BABA, among others. The analysts’ gist is that the "dawning data-centered computing cycle can double incremental enterprise tech investment over the next 10 years and speed broader productivity growth for the first time in 20 years."

Fintech is in the spotlight after PAY received a take-private offer with a massive premium of ~54% and total value of $3.4 billion, including debt. The deal impacted French peer Ingenico +6.6% and should lift a few U.S. peers like SQ and NCR.

Aside from tech, keep an eye on the airlines after UAL gave March traffic & 1Q forecasts ahead of DAL’s earnings on Thursday. Also the banks acted well yesterday, considering the late-day selloff, as traders position ahead of this Friday’s earnings deluge; note that Bernstein assumed GS with an outperform and MS with an underperform after the bell.

And Russian-levered names should remain volatile after the U.S. sanctions throttled the country’s market (bouncing back ~1.5% today after plunged more than 8%) and anything that has exposure to it -- keep an eye on the ruble, which is falling like a rock, down almost 5% to its weakest level since December 2016.

The plays here are VanEck’s RSX, which sank 11% yesterday and is the ETF play with the highest market value. There is also the iShares’ ERUS, the small-cap focused RSXJ, and the three-times levered bull RUSL and bear RUSS. And stocks on the radar should include YNDX, commonly referred to as "Russia’s Google," and VEON, formerly known as Vimpelcom.

Tick-by Tick Guide to Today’s Actionable Events

  • Today -- Day two of IPAA Oil & Gas Conference includes CRC, PXD, UPL, WLL), World Copper Conference, and Bloomberg New Energy Finance summit
  • Today -- Cargurus (CARG) IPO lockup expiry
  • 8:30am -- March PPI
  • 8:30am -- LXRX investor day
  • 8:30am -- SELB data update call
  • 9:00am -- MMP investor meeting
  • 9:30am -- ETH investor meeting
  • 9:40am -- Saba Capital’s Boaz Weinstein speaks at Grant’s Spring Conference
  • 10:00am -- Wholesale Inventories
  • 11:15am -- Oaktree Capital’s Howard Marks speaks at Grant’s conference
  • 12:00pm -- WASDE grains report
  • 2:15pm -- Facebook’s Zuckerberg at Senate hearing
  • 2:45pm -- Tocqueville Asset’s John Hathaway speaks at Grant’s conference
  • 4:15pm -- LAYN earnings
  • 4:20pm -- Passport Capital’s John Burbank speaks at Grant’s conference
  • 4:30pm -- API oil inventories
  • 9:30pm -- China PPI and CPI

To contact the reporter on this story: Arie Shapira in New York at ashapira3@bloomberg.net.

To contact the editors responsible for this story: Chris Nagi at chrisnagi@bloomberg.net, Joanna Ossinger

©2018 Bloomberg L.P.