China Trade News Lifts Stocks: Netflix, AmEx, Tesla Lag

Stocks sprung off the starting blocks Friday, joining global markets rallying on China trade optimism, although declines from Netflix (NFLX), Tesla (TSLA) and American Express (AXP) damped early stock market gains.


Netflix trimmed its early losses as analyst price hikes countered disappointing first-quarter guidance. American Express dropped to the bottom of the Dow Jones industrials, also on weak guidance. IBD 50 stock Atlassian (TEAM) was a big early winner following its fiscal second-quarter earnings beat.

Tesla shares plummeted after the company announced a round of layoffs. CVS Health (CVS) climbed after settling a price dispute with Walmart (WMT).

The Nasdaq Composite and the S&P 500 each bolted 0.7% higher at the starting bell. The Dow Jones industrial average climbed 0.6% in early stock market action.

Oil giant Chevron (DWDP) led the Dow, rising after an analyst upgrade. J.B. Hunt (JBHT) posted the Nasdaq 100’s strongest advance, while Tesla sat at the bottom of the list.

Apparel maker VF Corp. (VFC) spiked nearly 14% on a strong earnings report, easily leading the S&P 500. American Express and Eli Lilly (LLY) notched the index’s worst declines. The stock markets will be closed on Monday, in observance of the Martin Luther King Jr. holiday. Normal trading will resume on Tuesday.

Tesla Streamlines Production

Tesla announced plans to lay off 7% of its full-time employees as it continues struggling to meet the target price point on its Model 3 sedan. Chief Executive Elon Musk said the company plans to improve its manufacturing process over the next few months in an effort to increase production of the Model 3, despite the worker cuts. “Higher volume and manufacturing design improvements are crucial for Tesla to achieve the economies of scale required” to reach the Model 3 target price, Musk said in a memo reported by the Wall Street Journal.

Tesla shares opened nearly 8% lower. The stock has been fighting to hold support at its 10-week moving average, below a 379.59 buy point in a cup-with-handle base.

Dow Jones Industrials: The Fight At The 50-Day

As the stock market heads into a three-day weekend, the Dow Jones industrial average begins Friday’s session narrowly above its 50-day moving average. Thursday’s gain left it up 1.6% so far for the week and on track for its fourth-straight weekly advance. It will need some cushion in order to turn that line into proper support for the confirmed stock market rally. The Dow’s prior two rally attempts — in November and December — failed within 1% above the 50-day level.

The S&P 500 is also narrowly above its 50-day line, up 1.5% for the week. The Nasdaq has a slightly wider margin of support, up 1.6% for the week and almost 1.5% above its 50-day. But the market at this point still remains just one bad news day away from being driven back below resistance.

Netflix Earnings Price Target Hikes

Netflix opened to a 1.9% decline. Goldman Sachs maintained its buy rating on the stock, but lifted its target price to 450, from 420. UBS bumped Netflix’ price target to 420, from 410. Instinet ratcheted its target higher, to 463, from 452.

Netflix fourth-quarter earnings topped analyst expectations, while revenue came in just below views. Subscriber growth was much stronger than expected, but first-quarter earnings and revenue guidance was well below consensus views.

Federal Shutdown: 27 Days

The shutdown of federal offices that has left an estimated 800,000 Americans idle enters its 28th day on Friday. A Thursday night meeting between Vice President Mike Pence and Senate Majority Leader Mitch McConnell reportedly produced no progress. President Trump canceled the U.S. trade delegation’s planned trip to Davos, Switzerland for the World Economic Forum. The dates had been set for Jan. 22 to 25. Trump also canceled a military flight arranged to transport a delegation led by House Speaker Nancy Pelosi to Afghanistan.

Earlier in the week, the White House Council of Economic Advisers ratcheted up their estimates for the economic impact of the shutdown. The council now sees economic growth reduced by 1.3% for every week of the shutdown, vs. its initial estimate of a 0.05% reduction per week. On Wednesday, the Federal Reserve’s Beige Book report said the lack of federal crop and commodities data was creating uncertainty in agricultural markets.

Dow Jones: AmEx Lags, Chevron Gains, CVS Settles

Dow Jones stock Chevron climbed 1.3%, after UBS upgraded the stock to buy, from neutral. The note assigned a price target at 135, 22% above Thursday’s closing price. Chevron shares are up 11% from a late-December low, and 17% below their January 2018 peak.

American Express dropped 2%, easily the worst loss among Dow Jones industrial average names. The premium credit card provider reported earnings and revenue below analyst targets for its fourth quarter. Loss provisions and expenses climbed sharply, and the company set a range for full-year earnings with a midpoint below analyst views. American Express stock gained 11% over the last four weeks, but remains down 13% from an early December high.

CVS Health surged 2.6% after announcing it had settled a pricing dispute that had threatened the relationship between Walmart pharmacies and CVS’s pharmacy benefit manager CVS Caremark. CVS shares lost about 9% over the last two weeks, largely on concerns regarding the dispute. Walmart confirmed the agreement. Dow Jones stock Walmart gained 0.6% in early trade.

China Trade Whispers Boost Global Markets

The hint of possible tariff reductions sent import-related issues higher worldwide, lifting markets across Asia and Europe. News reports said Treasury Secretary Steven Mnuchin floated the possibility of easing tariffs in order to facilitate U.S.-China trade negotiations. But Mnuchin has played the dove through the negotiations, in counterpoint to a much more hawkish U.S. Trade Representative Robert Lighthizer, who sits atop the U.S.-China trade effort.

But the glimmer of hope sent the Shanghai Composite 1.4% higher, while Hong Kong’s Hang Seng Index surged 1.3%. Japan picked up the mood, with Tokyo’s Nikkei 225 nailing a 1.3% advance to end 1.5% higher in its first two-week advance since the start of November.

Markets in Europe and the U.K. rallied into their afternoon sessions. Frankfurt’s DAX led the regional benchmarks, up 2.2%. The CAC-40 in Paris climbed 1.7% and the FTSE 100 in London rode a 1.9% gain.

IBD Stocks: Atlassian Exits Buy Range

IBD 50 stock Atlassian jumped 5.5%, moving into new highs and out of a buy range above an 89.92 buy point in a cup-with-handle base. The collaboration software leader, also included in IBD’s Leaderboard stable of premium stocks, reported fiscal second-quarter earnings and revenue above analysts’ expectations late Thursday.

Oil Prices Climb, Rig Count Due

Oil prices jumped early Friday, rising on trade optimism and the impact of production curbs by the Organization of Petroleum Exporting Countries. West Texas Intermediate gained 1.2% to trade just below $53 a barrel. Europe’s Brent crude benchmark ticked 1% to near 62. WTI has been battling technical resistance between $52 and $53, after rising 26% in three weeks off a December low.

Oil prices could see some impact from the release of the Baker Hughes (BHGE) weekly rig survey, due out at 1 p.m. ET. Oilfield services leader Schlumberger (SLB) reported its fourth-quarter earnings results Friday morning.


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