Are You Ready to Make A Deal?
We’re staring down the barrel of what could prove to be the most eventful week of the year … and the market is holding its breath. (But don’t hold yours. Seriously, it’s a week. You can’t hold your breath for an entire week!)
What’s so important this week? Central banks and trade war deals, that’s what.
Tomorrow, the U.S. Federal Reserve will begin its two-day policy meeting and decide the near-term fate of U.S. interest rates and monetary policy. After last week’s stellar November jobs report, no one expects any action from the Fed. However, all of Wall Street will look at Federal Reserve Chairman Jerome Powell’s speech for indications of the U.S. economy’s strength.
Expect Powell to indicate a holding pattern for interest rates for the foreseeable future.
Next, we have a policy meeting at the European Central Bank (ECB) on Thursday. New ECB President Christine Lagarde is expected to offer more details on the EU’s outlook, which could be key, as many reports indicate the region is slipping into recession.
The ECB is also not expected to make any big changes this week. But, as with Powell, markets will closely scrutinize Lagarde’s language for insights on the bank’s policy outlook.
Finally, we have the much-anticipated phase 1 trade deal between the U.S. and China. Last week, the infamous “people familiar with the talks” indicated that a deal would be reached before the U.S. implements its next round of tariffs on Chinese goods. Those tariffs are scheduled to go into effect on December 15 — i.e., this Sunday.
OK, so it doesn’t sound all that exciting when I write it out for you. Two central bank reports (where the market isn’t looking for anything at all) and a U.S.-China phase 1 trade deal.
To be honest, the Fed and the ECB only matter if they actually say anything meaningful. Which likely won’t happen.
The trade deal, however, is a big deal. We’ve only been talking about it for the past year … of course it’s a big deal.
Checking in with the Great Stuff Trade War Cycle chart, we find that we are in the “market rallies temporarily on news” phase. This news was last week’s promise that a trade deal would be reached before December 15.
The post-news rally has faded now. The market is essentially flat today as traders wait for more information.
But I have a warning for you that you might not want to hear. You need to be prepared for President Trump to flat-out walk away from a deal this week.
CNBC’s Jim Cramer made an excellent case for this scenario this morning. According to Cramer, investors want to believe in a trade deal because it’s “rational.” It’s good for both sides, so why not do a deal?
Because China has pressed the U.S. for a deal in the media for the past week. Trump is now being publicly pushed and provoked by media coverage of China calling for tariff rollbacks, notes Cramer. This weekend, the country doubled down on the pressure, ordering all state offices to remove foreign computers and software in the next three years.
We all remember what happened the last time Trump was cornered on tariffs by China and the media. He walked away, saying he hadn’t approved any tariff rollbacks.
Trump and the U.S. weren’t dictating the narrative in the past week. And that has to be eating at the U.S. president.
This week, I predict no trade deal … and increased tariffs on $156 billion in remaining Chinese exports. That means a rotation into a market sell-off, according to the Great Stuff Trade War chart. I’ll be happy if I’m wrong, but the situation is what it is.
Good: Tesla to $4,000!
Ridiculous Tesla Inc. (Nasdaq: TSLA) projections have become a “thing” in the past week. On Friday, Morgan Stanley’s Adam Jonas issued a “bull case” target of $500 for TSLA — with a “base case” target of $250 and a “bear case” target of $10. Yes, $10.
But if you thought Jonas’ bull case was over the top, you haven’t seen Catherine Wood’s projections. The Ark Investment Management CEO said that her “bear case” scenario for Tesla was doubling by 2024 — a roughly $700 price target.
In this bear case, Wood says she accounts for Tesla’s market share diving to 6%.
But her “bull case” scenario was a rally to $4,000 per share. In this scenario, Wood sees Tesla holding about 17% market share in the global electric vehicle market.
Now, I’m a bit of a Tesla bull, but $4,000 per share sounds ludicrous … just as ludicrous as Morgan Stanley’s bear projection of $10 per share.
Luckily for us regular bulls, the market largely ignores these extreme bullish and bearish outliers. The last thing Tesla needs right now is more hype.
Better: Running Through the Fire
It looks like PG&E Corp. (NYSE: PCG) might finally be putting the 2017 to 2018 California wildfires behind it.
The company announced today that it has reached a $13.5 billion deal with the victims of those deadly fires, clearing one of the final hurdles for emerging from bankruptcy court. PG&E initially set costs associated with the wildfires at $30 billion.
But, after reaching agreements of $11 billion with insurance claim holders, $1 billion with local governments and $13.5 billion with victims, that total is about $5 billion less than expected.
That said, PG&E isn’t out of the woods yet. The $11 billion settlement with insurance claim holders still needs a judge’s approval.
But that hasn’t dampened investor enthusiasm. PCG shares are up roughly 17% on today’s settlement news.
Best: This Is Biotech!
Last week, I told you about the red-hot biotechnology market and how buyouts and clinical trials were providing a massive boost to the sector. I hope you listened.
Today, we have no fewer than three separate biotech stocks rallying in the triple digits!
- Synthorx Inc. (Nasdaq: THOR) is up 169% after Sanofi SA (Nasdaq: SNY) announced it’s acquiring the cancer-treatment specialist for $2.5 billion.
- ArQule Inc. (Nasdaq: ARQL) is up more than 100% following Merck & Co. Inc’s (NYSE: MRK) $2.7 billion proposal to buy out the experimental cancer biotech.
- XBiotech Inc. (Nasdaq: XBIT) is up 92% after selling Johnson & Johnson (NYSE: JNJ) unit Janssen Biotech the rights to its anti-inflammatory drug bermekimab for $1.35 billion.
Billion-dollar deals are flying all over the biotech sector. So, why are you still holding out?
If you’re unsure of where to start, I’ve got the perfect guy to help you out!
Banyan Hill expert Jeff Yastine has the details on a $450 million biotech company that’s set to soar. And if you act quickly, you can get in on the ground floor … before the Big Pharma firms take notice and snap up this biotech darling.
Today’s Chart of the Week could also double as an entry for Great Stuff’s Comic Corner. What follows is the actual “Tesla Risk Reward Framework” chart that Morgan Stanley sent out to clients … I kid you not:
Now, I’m not familiar with the “snake and flashlight” technical pattern, but it’s apparently commonplace at Morgan Stanley. Remember, people actually pay for this advice. And here I am giving away better stuff … nay, Great Stuff! … free.
I showed this chart to my cat Kylo, and he was not impressed. He’s more into the laser-pointer indicator lately. He’s also really into catnip legalization. (Shhhhh! Don’t tell him it’s already legal — I’ll never hear the end of it!)
Great Stuff: A Guide to Groan-Worthy Gifts
Anyone spend the weekend roaming the post-Black Friday retail wasteland?
Hah, slackers. I got my Christmas shopping done last month … at least according to my bank statements.
Surprise: It’s Disney+ subscriptions for everybody this year! I was going to spring for Teslas, but baby Yoda sealed the deal. How can you say no to that face?
If you’re still checking names off your gift list, you may be interested in what Banyan Hill’s resident pot stock guru, Anthony Planas, chose to do for his loved ones.
Instead of yet another gift card (but then you can buy what you actually want!), Anthony decided to share the gift of keen investing.
Mooooom! Uncle Anthony’s smoking again — he gave us “stocks” for Christmas!
At the risk of becoming that uncle, Anthony shares the heartwarming story of why he gave his baby niece a dream fund of her own — a custodial investment account to jump-start her dreams, goals and ambitions.
Yes, Virginia, there is a Santa Claus, and you can read all about it here: “Skip the Mall: The Most Valuable Gift for Any Child.”
Because nothing says Christmas morning like dividend yields. Though, if Anthony’s niece saves up for the next two decades, she might almost have enough to buy Great Stuff’s No. 1 bad gift: a Peloton bike with matching picture windows.
Finally, what holiday gift list would be complete without Anthony’s latest pot market analysis. Watch the video below:
Until next time, good trading!
Great Stuff Managing Editor, Banyan Hill Publishing