Monthly Archives: December 2019

New year begins, jobless claims and manufacturing data: 3 things to watch for on Thursday

Trader Peter Tuchman reacts as the final day of trading for the year draws to a close at the New York Stock Exchange (NYSE) in Manhattan, New York, U.S., December 29, 2017.

Andrew Kelly | Reuters

Here’s what you need to know about Thursday before you hit the door for New Year’s Eve.

New year begins

The U.S. stock market had one of its best runs in 2019, and the chance for a follow-up begins on Thursday when markets re-open.

The new year, however, may get off to a bumpy start. Tax-related selling and profit taking could cause a pullback in the early days of 2020, analysts say. And the outlook for the year is modest. The average price target for the S&P 500 among major market strategists is 3,330. This would be an increase of more than 3% for the year.

The most bullish strategist John Stoltzfus of Oppenheimer, projects the index will reach 3,500. That would be a jump of more than 8%.

The trade war with China is likely to be one of the major market stories in 2020. President Donald Trump said in a tweet on Tuesday that he will sign phase one of the trade deal with China on Jan. 15 and then go to Beijing at a later date as part of the phase two negotiations.

Jobless claims

The Labor Department starts off the new year with initial jobless claims data for the final full week of December.

Economists polled by Dow Jones expect the number to be 225,000. This would be a slight increase from the previous week, when there were 222,000 new claims.

The headline numbers for the labor market were strong in 2019, with the main unemployment rate being below 4% every month since January. Wage growth, however, was more tepid.

The states with the biggest increases in initial claims for the last report were West Virginia, Illinois and North Dakota.

Manufacturing data

The latest manufacturing purchasing index from IHS Markit is also slated for a Thursday release. The flash manufacturing reading, which was released in the middle of December and is often used an estimate for the full month, came in at 52.5.

The previous full-month reading for the index was 52.6, with November notching the highest new order growth since January.

Last month’s report also showed increasing demand from overseas and rising backlogs.

In the index, readings above 50 represent expansion in the sector, and readings below 50 represent contraction. The data from Markit has differed recently from a similar survey by the Institute for Supply Management, with the ISM’s index coming in below 50 for four straight months. The ISM report for December will be released later in the week.

Major events (all times Eastern)

8:30 a.m. Initial claims

9:45 a.m. Manufacturing PMI

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After its strongest year in a decade, Apple stock is historically expensive on a price-to-earnings basis

Tim Cook, CEO of Apple Inc.

Getty Images

Apple stock is on pace to close out a year of explosive growth, and another key metric has reached a historic high, too.

Apple’s trailing price-to-earnings, or P/E, ratio steadily climbed this year alongside its stock price. Apple began the year with a trailing P/E ratio just over 13, according to FactSet, below its five-year average of roughly 16, before finishing 2019 around 24.5.

The trailing P/E ratio is the price per share of a stock divided by earnings per share over the last 12 months. Investors often use it as a shorthand metric to determine how expensive a stock is, although it’s not perfect, as it does not account for cash or debt and is based on past performance rather than future expectations.

The company’s forward-looking P/E, which measures price-per-share divided by expected earnings over the next 12 months, is just under 22, which is also historically expensive.

Apple has typically had a low P/E ratio compared with its megacap tech peers.

When Apple’s P/E was around 10 in 2016, venture capitalist Marc Andressen said in a tweet, since deleted, that Apple stock “trades like a steel mill on its way out of business.”

While the current figure is unusually high for Apple, it’s still below the average for the S&P 500 information technology index, which consists of 70 companies, but excludes internet companies including Facebook, Amazon, Netflix and Alphabet. The average P/E ratio in that index is now 26, up from 20 at the start of the year, according to FactSet.

Compared with the other megacap tech stocks, Apple’s P/E ratio ranks among the lowest. Amazon is finishing the year with a P/E above 80, Facebook’s is higher than 32, Microsoft’s is above 29, and Google-parent Alphabet’s is over 28.

An increase in a company’s P/E ratio could mean that investors expect earnings growth in the future, so they’re willing to pay more now. However, it could also be a warning sign that the stock is overvalued.

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Your first trade for Tuesday, December 31

The “Fast Money” traders shared their first moves for the market open.

Steve Grasso was a buyer of Microsoft.

Steve Chiavarone was a buyer of the Russell 1000 Value ETF.

Dan Nathan was a buyer of Goldman Sachs.

Guy Adami was a buyer of Blackstone. 


Trader disclosure: Steve Grasso is long AAPL, ACB, BHC, CAR, EVGN, GE, MSFT, OLN, PFE, SAVE, SHAK, SNAP, T, TSE, WRK Grasso owns Callable Trigger contingent yield note linked to SPX, RTY, and MXEA. Grasso’s kids own EFA, EFG, EWJ, IJR, SPY, TUR. Steve Grasso’s firm is long BIOS, CPB, CUBA, CTVA, DIA, ET, F, GDX, GE, GLD, GOLD, GSK, HPQ, IAU, IBM, ICE, KHC, MO, MSFT, NEM, NYCB, OXY, QCOM, QQQ, SLV, SNAP, SNGX, SPCE, SPY, T, TAP, VIAC, VXX, WAB, WDR, WRK, WRTC. Dan is long TLT March call spread. AMZN Feb put spread.  AXP Jan calls. AAPL Jan puts. SBUX Jan calls. Guy Adami is long CELG, EXAS, GDX, INTC. Guy Adami’s wife, Linda Snow, works at Merck.

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Treasury yields end the year off the lows, but still down big for 2019

The 10-year Treasury yield is still poised to have the biggest decline in six years despite a year-end rebound that’s softened the decline.

The yield on the benchmark Treasury note has risen about 11 basis points in December to 1.89%, but it’s still down 78 basis points on the year, on pace for its biggest annual drop since 2013. Bond yields move inversely to prices.

On Tuesday, the last trading day of the year, the yield on the 10-year Treasury note was slightly higher, while the yield on the 30-year Treasury note rose one basis point to about 2.36%. The bond market will close at 2 p.m. ET.

U.S. rates started 2019 in a downward spiral as investors fled risk assets and flocked to safety amid an escalated U.S.-China trade war and deteriorating economic data. Adding to rates’ downward pressure was the anticipation that the Federal Reserve will lower borrowing costs to combat a slowing economy.

The central bank embarked on what it characterized as a “mid-cycle adjustment,” cutting borrowing costs three straight times, which further pushed rates down.

Over the summer, the yield on 10-year Treasuries dipped below those on two-year securities for the first time since before the financial crisis in 2007, an unusual phenomenon called yield-curve inversion that preceded previous recessions.

“Phase one” trade deal

U.S. government debt yields started to rise across the board in September after the U.S. and China agreed on a truce in their tit-for-tat tariff war and started to negotiate a deal.

Investors began taking on more risk on the back of the optimism over U.S.-China trade relations. At the same time, economic data in the U.S. and overseas showed signs of improvement, which sparked a rally in yields.

Treasury yields are on pace for the biggest monthly climb since September after the world’s two largest economies agreed earlier this month to a so-called “phase one” trade deal. Chinese Vice Premier Liu He, the country’s top trade negotiator, is set to visit Washington later this week to sign the agreement.

For 2020, many expect rates continue to rebound amid an improving economic outlook.

“We’re anticipating a bearish start to 2020 in Treasuries as economic optimism inspires a backup in rates and the hope that the Fed is able to avoid a recession lifts yields to begin the year,” Ian Lyngen, BMO’s head of U.S. rates, said in a note.

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