Altria And Philip Morris Both Closed The Session In The Red

Commenting on today’s trading with stocks closing the session in the red Gorilla Trades strategist Ken Berman said:

The major indices all finished with small losses today, as although stocks opened broadly higher, trade worries and recession fears once again weighed on investor sentiment. The Dow was down 121 or 0.5%, to 25,778, the Nasdaq lost 27, or 0.3%, to 7,827, while the S&P 500 declined by 9, or 0.3%, to 2,869. Decliners outnumbered advancing issues by a more than 2-to-1 ratio on the NYSE, where volume was below average again.

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Q2 hedge fund letters, conference, scoops etc

Following yesterday’s weak bounce bulls were hoping for a more decisive move, but without a positive catalyst, the declining Treasury yields dragged stocks lower as well.  The Treasury market remains at the center of attention, even concerning the intraday trends in stocks, and today, the deepening inversion of the yield curve was clearly behind the morning sell-off, as investors flocked into Treasuries due to the intensifying trade-related woes.

 

Risk sectors

The key risk-on sectors all finished the session in the red, with only the defensive utilities breaking even for the day. Tech stocks gave bulls something to cheer about, closing only marginally lower, but consumer goods were among the weakest issues, and financials remained under pressure. As it has been the case for several weeks, the main safe-haven assets performed very well. The price of gold fished the day above $1550 per ounce for the first time since early-2013, and the 10-year and 30-year yields both hit new closing lows as well, with the latter closing below the psychologically important 2% level.

Although Treasury yields are falling, the dollar continues to shine, since global rates are their all-time lows, and outside the U.S., it’s very hard to find positive government bonds with positive yields. On Friday, the Dollar Index got hit hard in late trading due to the threat of an intervention by the Trump-administration, but thanks to the relatively quiet weekend the currency recovered this week. Even as the fears of a U.S. recession are intensifying, the dollar’s strength remains apparent, and that could mean that the shares of the more export-focused firms will continue to lag behind the major indices.

Tobacco giants close session in the red

Altria Group Inc (NYSE:MO) and Philip Morris International Inc. (NYSE:PM), the two tobacco giants that were one company more than a decade ago confirmed today that they are in talks regarding a re-merger of equals, causing wild swings in the shares of both companies. The announcement comes in a challenging time for the industry, with declining sales in their traditional business and the increased regulatory scrutiny in the e-cigarette segment weighing on profitability. Despite the initial jump in the shares of Altria, both stocks closed the session in the red, meaning that investors don’t see meaningful synergies arising from the merger of the two still closely connected firms.

We will have a relatively quiet day in terms of economic releases following two busy sessions. That could mean that, barring another twist in the trade war saga, this afternoon’s quiet trading could continue, even though the energy sector could see increased activity. The weekly crude oil inventories data will be out after the opening bell, and after last week’s surprising inventory draw, energy bulls are hoping for another bullish release. The price of oil settled down somewhat in recent weeks following months of volatile trading, but as the global economy continues to struggle, the increasing U.S. shale output remains a key risk factor for the sector.

Technical Corner

The technical picture remains mixed, as due to Friday’s rout the short-term trend is still clearly negative on Wall Street, even as the bullish long-term outlook is unchanged. The major indices are all above their rising 200-day moving averages of 7,596 for the Nasdaq, 2,803 for the S&P 500, and 25,616 for the Dow. The benchmarks are still stuck below their flat 50-day moving averages of 2,946 for the S&P 500, 8,051 for the Nasdaq, and 26,596 for the Dow, and the relatively weak industrial average got close to its long-term average as well today.

Small-caps

The Russell 2000, the main small-cap benchmark made headlines yet again today, closing at its lowest level since January, confirming its relative weakness. While technicals are not clearly bearish yet regarding the index, it is well below both its 50- and 200-day moving averages, and on another negative note, its short-term moving average could soon cross below its long-term indicator as well. The ‘death cross’ would point to a long-term trend change, which would cast a shadow on the ongoing bull market in stocks. Stay tuned!




About the Author

Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver