Stocks Under $10 Weekly Summary (original) (raw)

As we approached the end of last week, the stock market was poised to move higher week over week, but it finished on a very different note given all of Friday's news. That news spanned from China threatening countermeasures on tariffs set to be instilled on Sept. 1, to the Fed being ready to extend the current recovery even though it remains upbeat about the domestic economy, to President Trump "ordering" U.S. companies to look for "alternative to China" and then raising tariffs on China after the market close.

There was little question, we were once again seeing U.S.-China trade tensions escalate, raising questions as to what it could mean for the next round of trade talks. In other words, as we headed into one of the last summer weekends, U.S.-China trade uncertainty continued. While the market absorbed China’s escalation and Fed Chair Powell’s "at the ready when needed" comment, it was Trump’s latest trade salvo that reversed the market’s direction for the week leading all the major stock indices to finish down for the week. Trump said he would raise existing duties on 250billioninChineseproductsto30250 billion in Chinese products to 30% from 25% on October 1 and increase the 10% tariff on another 250billioninChineseproductsto30300 billion of Chinese goods set to take effect on September 1 to 15%.

The trade drama at the G-7 meeting continued over the weekend, and it appeared the market was going to start this week off with more than a whimper as U.S. stock market futures were down more than 1%. However, like any good drama that has a number of twists, this morning President Trump shared that China wants to make a trade deal, which served to walk back last week’s jump in trade tensions.

Our stance on the trade war has been a combination of hope, patience and details. Hope for a trade deal, patience realizing it would take time to come together and that the details of any trade agreement matter. Despite the purported trade related developments today, our stance remains unchanged.

The Stocks Under $10 Portfolio

All four of the major U.S. stock market indices finished lower last week, with the hardest hit being the small-cap heavy Russell 2000. Last week’s decline for that index, some 2.3% in full, left the Russell down just under 7% quarter to date as of Friday’s market close. That move lower set the tone for the Stocks Under $10 portfolio in recent weeks as well as the last several trading days. There were some bright spots, however, including MoneyGram International (MGI) , which climbed more than 8% last week. Shares of Antares Pharma (ATRS) , CPI Aerostructure CVU, Sutter Rock Capital (SSSS) and Fitbit (FIT) also moved higher week over week.

We used that bump in FIT shares as well as today’s opening strength to exit our position in that Three-rated stock. In addition to that sale, we trimmed back our holdings in MoneyGram and USA Technologies last week, using a portion of the proceeds to add to our holdings in Habit Restaurants (HABT) .

A few weeks ago, we noted there were several reasons to expect the then recent volatility to continue, and it has. Over the last month, all the major domestic stock market indices are down substantially. Despite today’s news, we expect trade and other tensions will continue, which, in our view, means uncertainty will remain as well. Odds are that will keep the reins tight on corporate spending in the near term, and the risk we see is that continues as we move deeper into the 2020 election cycle. With a week to go until Wall Street is "back from the beach," normally we would say it would be a relatively quiet period, but as we have seen, this August has been anything but typical.

We'll continue to hold onto our cash and wait for some market calm to return, hopefully, in September when we have several key monetary policy meetings and, potentially, the next round of U.S.-China trade talks.

The Stock Market This Week

On the corporate earnings front this week, the parade of retail earnings will continue with J.Jill (JILL;Nasdaq), Chico's FAS (CHS) , Tiffany & Co. (TIF) , Best Buy (BBY) , Ulta Beauty (ULTA) , and Dollar Tree (DLTR) on tap to report, among others. Beyond that cohort, we also have Sanderson Farms (SAFM) reporting and it will be interesting to see what it says about the growing prevalence of meat alternatives. In that vein, we’ll be comparing and contrasting results at Campbell Soup (CPG) and Hain Celestial (HAIN) given the shifting preference among consumers for healthier foods and snacks.

Also this week, specialty contractor Dycom Industries (DY) will issue its quarterly results and guidance, both of which should offer a view on 5G network buildout for its key customers that include AT&T (T) and Verizon (VZ) . Given our position in Nokia (NOK) shares, this will be a report worth digging into. Sticking with tech, we’ll also hear from Dell (DELL) and Box (BOX) this week as well.

While number of economic data release last week were relatively light, they did pack quite a punch and that continued today with the July Durable Orders Report. While the headline figure showed a better-than-expected increase, excluding transportation, aircraft and defense to focus on core capital goods, the data revealed a 0.4% rise in July, which followed the 0.9% increase in June. Sucking some of the air out of that improvement, core capital goods shipments in July dropped 0.7%, which will weigh on September-quarter GDP forecasts. Over the coming days, we’ll get several other pieces of economic July data, including trade inventories and Personal Income & Spending reports.

Coming off a better-than-expected July Retail Sales report, we expect investors will be closely watching the July Personal Income & Spending report to gauge the degree to which consumers can be counted on to power the economy in the second half of the year. In addition to the usual monthly economic data, this week will also bring us the second GDP estimate for the June quarter. As focused as some might be on that revision, we’re far more focused on what the continued slowdown in the current quarter means for the market and investors.

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