We're Going Nowhere Fast - That's OK by the Bulls: Taking Stock

(Bloomberg) -- It’s lather, rinse, and repeat with this market. Stocks sell off one day on some form of trade or geopolitical tension wrinkle, they bounce the next because people want to buy the dip, they pull back again as things get sticky over those same two issues, and they recover again because this market just doesn’t want to break down. In the end, we’re going absolutely nowhere fast, and that’s just fine by the bulls, who are hoping to ride out this week’s moral victory until the closing bell.

So far today the S&P futures are up more than ten handles, and at session highs, after a monster rally in Europe (Stoxx 600 headed for biggest gain in a month) while Italy’s benchmark surged by almost 3%, and the Italy ETF EWI is indicated up after a sizable recovery in the past two days. Semiconductor stocks are looking up today (Reuters reporting that China still reviewing NXP Semi/Qualcomm deal may be helping) while Lululemon is poised to open at a record (up ~7% pre-market) after beating already sky-high expectations.

The 2,700-2,740 range on the S&P 500 that people are eyeing is still a thing, though its looked precarious at times this week -- we tested the low end yesterday afternoon and dipped as far as 2,677 on Italy panic Tuesday -- and we are closing out the week with a bang, from the jobs & wage figures to auto sales (see our preview) to JPMorgan CEO Jamie Dimon presenting at Bernstein’s conference to the start of the gargantuan ASCO conference (see our preview) that should make waves in biotech land.

Key events for next week include Wilbur Ross back in Beijing for more trade talks (Putin will also travel to China), Japan’s Abe meets with Trump to discuss the on-again off-again North Korea summit, the G-7 Leaders’ Summit in Quebec, several big tech earnings (AVGO, PANW, DVMT), a few multi-day conferences (BofAML tech, Deutsche Bank industrials, Jefferies healthcare), Apple’s annual Worldwide Developers Conference (thought this usually doesn’t do a whole lot for AAPL shares), Tesla’s shareholder meeting where Elon Musk’s role as chairman and CEO is up for debate, Altice USA’s spinoff, and Bloomberg’s "Invest New York" event in New York.

About Yesterday’s Session

Trade fears finally took control of the market for the first time in this holiday-shortened week, thanks to the steel and aluminum tariff announcement that has wide ranging implications, both tangible (implications of a European response) and sentiment shifting (what this means for Nafta and China negotiations).

The market responded positively to some clarity in Italy’s political situation, but that shook out as the day wore on and the S&P 500 closed down ~19 handles with the trade proxies Boeing and Caterpillar selling off 1.7% and 2.3%, respectively.

Aside from trade reverting back to the topic du jour, market participants were also very focused on the supremely weak action in the European financial sector after "problem bank" Deutsche Bank crumbled more than 8% at one point to a record low (shares have bounced big time since, and are up 3.8% today, even after its credit rating was cut by S&P and its stock rating was downgraded to an underperform by RBC). The freefall isn’t new, as the stock’s value has been chopped by ~40% year-to-date, but will likely be paid even more attention to with all the focus on the European asset blowout from earlier in the week.

Notes From the Sell Side

Some of the biggest calls so far..

Plenty of tech notes to sort through, starting with UBS boosting its target on AAPL to $210 after a smartphone survey ("results indicate weak iPhone buying intentions but a rising mix, so continued unit pressure but potential for a flat-to-up ASP")..

Barclays sees potential for a Sites TAC relief trade in GOOGL, saying that the last time Sites TAC went through sharp deceleration set the stage for one of the best moves in shares in the past few years..

MKM Partners is lifting price targets on TWTR, to $43 as the World Cup "could be a much larger deal than in 2014," and FB, to $255 and still top pick as Street is "overly conservative in forecasting revenue deceleration."

Mizuho is recommending clients to buy MU on the pullback (shares sank 8% on Thursday after Morgan Stanley’s downgrade) on DRAM strength from data center and inline NAND.. meanwhile Stifel is bumping up its target on AMD to $17 positive on likely market shares gains for its Epyc processor..

And lastly, Imperial Capital is making some rating changes on the airlines (upgrading AAL and downgrading LUV), arguing that the group needs to reduce capacity in the post-Labor Day shoulder period to improve valuations. Morgan Stanley also has a call on capacity, saying domestic capacity needs to be 3%-4% vs current ~6% for the stocks to work, "an unlikely level in the near to medium term."

Tick-by-Tick Guide to Today’s Actionable Events

  • Today -- Automakers report monthly U.S. sales
  • Today, and through the weekend -- ASCO starts (may impact CELG, BLUE, NKTR, TSRO, and a bunch of other biotechs)
  • Today -- FCAU capital markets day (may impact SC)
  • Today -- Perspecta (PRSP) to start trading regular way
  • 7:30am -- ANF earnings
  • 8:00am -- CL, JAZZ at Bernstein Strategic Decisions CEO conference
  • 8:30am -- Nonfarm payrolls, unemployment, wages
  • 8:30am -- TVTY analyst day
  • 8:33am -- Janus’s Bill Gross on Bloomberg TV
  • 8:40am -- Domino’s Pizza CEO J Patrick Doyle on Bloomberg TV
  • 9:00am -- JPM, LRCX, VVV, ALNY at Bernstein conference
  • 9:45am -- Markit PMI
  • 10:00am -- ISM Manufacturing, Construction Spending
  • 10:00am -- KKR, SABR, ALLY at Bernstein conference
  • 11:00am -- FFIV, SPR, BR at Bernstein conference
  • 1:15pm -- WMT business update
  • 10:30pm -- Winning bidder of auction for lunch with Warren Buffett will be announced

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