“The secret to being successful from a trading perspective is to have an indefatigable and an undying and unquenchable thirst for information and knowledge.” — Paul Tudor Jones

1. A Newly Identified Virus Originating in Central China has Spread Between Humans — with a diagnostic test available, the number of confirmed cases more than tripled to 218—including in Beijing, Shanghai and Shenzhen—with three deaths from the pneumonia the virus causes. The prospect of human-to-human transmission, rather than just animal-to-human, comes as tens of millions of Chinese crisscross the country for the Lunar New Year holiday—commonly called the world’s largest annual human migration—though more are staying put this year. The virus has already spread outside China, and appeared in South Korea for the first time.
2. France, U.S. Declare Digital Tax Truce — averting another trade war – for now – the U.S. and France have agreed to put aside their digital tax dispute until the end of 2020. Negotiations at the OECD will continue during that period as France postpones the levy and the U.S. delays retaliatory tariffs. The measure had imposed a 3% tax on digital revenues of companies like Google (GOOG, GOOGL), Apple (NASDAQ:AAPL), Facebook (NASDAQ:FB) and Amazon (NASDAQ:AMZN) – which have more than €750M in global revenue, including at least €25M in France – while the U.S. had threatened to place duties of up to 100% on $2.4B of French imports.
3. The Chinese Government Locked Down Cities in an Effort to Stop the Spread of a New Coronavirus — the government locked down Wuhan, the city of 11 million people where the new virus originated. Authorities announced later that nearby Huanggang, with 7.5 million people, was slated for lockdown at midnight. Ezhou, another neighboring city with just over a million residents, said it would enact similar restrictions. Under the lockdowns, all outbound flights, trains, long-distance buses and ferries are halted, and public transportation is shut. Markets, movie theaters and other public places have been closed or had access restricted. The lockdowns constitute a dramatic escalation in the battle to contain a pneumonia outbreak that has killed at least 17 people.
4. Boeing CEO Updates — the new Boeing (NYSE:BA) CEO said the planemaker will not cut its dividend despite the extended grounding of the 737 MAX and expects to resume MAX production “months” before the mid-year return to service. The latest delay was triggered by the company’s recommendation that pilots should undergo simulator training. He’ll also “start with a clean sheet of paper” on a decision whether to launch a new midsize airplane seating 220-270 passengers, effectively halting current plans worth $15B-20B.
5. AAII’s Investor Sentiment Survey — In the span of just two weeks, the percentage of respondents in AAII’s investor sentiment survey reporting as bullish has risen from the middle of the past few years’ range of 33.07% to 45.6% (and from 41.83% last week), the highest reading since early October 2018. Back then, bullish sentiment peaked out just slightly higher at 45.66%, before turning lower as stocks sharply sold off.

In spite of the strong bullish reading, bearish sentiment was actually lower in the final weeks of 2019 and the first week of this year. Now at 24.77%, bearish sentiment is low but still within a normal range of one standard deviation of the past year’s average of 30.04%.

The week ahead — Economic data from Econoday.com:

“When you learn to let go of the need to be right, being wrong gradually lose its power to disturb you.” — unknown

1. Big Tech Dominates the S&P 500 — the recent Big Tech surge is good news for anyone chasing the sector higher, but several strategists highlight it’s a sign investors have lost their risk appetite. The top five publicly traded American companies – Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Alphabet (GOOG, GOOGL), Amazon (NASDAQ:AMZN) and Facebook (NASDAQ:FB) – now make up a record 18% share of the S&P 500 Index’s capitalization. That ratio is higher than the tech bubble, according to Morgan Stanley, amid fears the economic cycle will slow.
2. The U.S. and China signed a trade deal, calling a cease-fire in a two-year trade war — Officials said the eight-part agreement will lead to an increase in sales of U.S. goods and services to China, further open Chinese markets to foreign firms—especially in financial services—and provide strong new protections for trade secrets and intellectual property. But it leaves in place U.S. tariffs on about $370 billion in Chinese goods, and possible tariff reductions will be left to later negotiations that will also cover a host of difficult issues. U.S. business leaders generally applauded the pact, but stressed the need to keep negotiations going.
3. Change in Media Access to Market Data — the Trump administration plans to restrict the news media’s ability to prepare advance stories on sensitive U.S. economic data such as inflation and employment, Bloomberg reports. “Lockups” lasting 30 to 60 minutes are currently hosted in Washington for major reports, where journalists receive data in a secure room and transmit them when connections are restored at release time. The change, which could remove computers from the lockup room, would transform how critical market-moving information is distributed to investors and the public.
4. Nestle Spending Big on Recycled Plastic — vowing to make 100% of its packaging recyclable or reusable by 2025, Nestle (OTCPK:NSRGY) is investing as much as 2B Swiss francs to source more recycled plastics to package its products. It will also try to keep the plastic purchasing neutral on earnings through efficiencies. Rival Unilever (NYSE:UN) has further pledged to halve its use of newly made plastic by 2025 as food and beverage makers increasingly come under fire for polluting oceans and landfills.
5. Google parent Alphabet became the fourth U.S. company to achieve a $1 trillion market value — The milestone punctuated a powerful rally in shares of large internet stocks to start 2020. The search-engine giant joins tech peers Apple, Amazon and Microsoft as the only companies to reach the threshold during intraday trading. The biggest tech companies have continued to soar in value, highlighting how investors favor companies that steadily improve sales despite tepid global economic growth.

The week ahead — Economic data from Econoday.com:

“Commodities tend to zig when the equity markets zag.” – Jim Rogers

1. Boeing Eyes Raising More Debt as 737 MAX Costs Rise — Boeing is examining plans to issue more debt to bolster finances strained by the mounting fallout from the grounding and halted production of its 737 MAX, according to people familiar with the matter. The aerospace giant had about $20 billion in available funds at the end of the September quarter, but costs associated with the MAX crisis are rising. Analysts expect Boeing to raise as much as $5 billion to help cover expenditures that could top $15 billion in the first half of this year. In addition to spending on maintenance for the grounded MAX fleet and finished planes, the company plans to close its $4 billion acquisition of an 80% stake in the Brazilian plane maker Embraer’s commercial airliner business. Boeing also has to repay some existing debt and fund shareholder dividends. In addition, Boeing (NYSE:BA) is reassigning 3,000 workers to other jobs, but does not expect to furlough any staff, as it halts production of its grounded 737 MAX in mid-January. Major supplier Spirit AeroSystems (NYSE:SPR) meanwhile said it would offer voluntary layoffs to some employees due to a lack of “clarity on the timing for resuming MAX production.” The announcements come after American Airlines (NASDAQ:AAL) and Mexico’s Aeromexico disclosed they were the latest carriers to reach settlements with Boeing over losses resulting from the 737 MAX crisis.
2. AAII Sentiment Survey — In the latest survey, the percentage of bullish investors in the weekly AAII survey has fallen for a third straight week down to 33.07%. This is the lowest level of bullish sentiment since the first week of December, when 31.72% of respondents were bullish. Granted, these declines have not brought bullish sentiment to any sort of extremely low level. In fact, it is now just about in line with the average reading of the past year, 33.41%.

Meanwhile, Nearly 30% of investors reported as bearish this week, which was an 8.01 percentage point increase from last week. That marked the third-largest one week jump in bearish sentiment of the past year. Granted, this increase was also about a third and half the size, respectively, of the past two larger increases of 24.14 percentage points in August and 16.11 percentage points in May. Despite the relatively large move higher, bearish sentiment is now right in line with its average of 30.3% over the past year.

3. Iran Admits to Shooting Down Jetliner — For days, Iran’s government had denied responsibility for the crash of a Boeing (NYSE:BA) 737-800 near Tehran, though it’s now calling the incident that killed 176 people a “disastrous mistake.” The country’s air defenses were fired in error while on alert after Iranian missile strikes targeted U.S. bases in Iraq. Local officials had previously pointed to an engine failure as the cause of the crash. The plane’s turbines were made by CFM International, a joint venture between General Electric (NYSE:GE) and France’s Safran (OTCPK:SAFRY).
4. SEC to Propose Exchanges Revamp Data Feed Policies — a proposal advanced by the SEC takes aim at a two-tier system that allows trading platforms like the New York Stock Exchange (NYSE:ICE) and Nasdaq (NASDAQ:NDAQ) to charge their largest customers higher fees for faster proprietary feeds, leaving smaller players to rely on a slower public stream. If the regulator decides to issue an order after receiving public input, the exchanges and FINRA would have to create a new governance plan, which would also be published for public comment before the SEC takes it into consideration.
5. Consumer Electronics Show 2020 Recap — Uber (NYSE:UBER) and Hyundai Motor (OTCPK:HYMLF) are partnering to develop electric air vehicles, joining the global race to make small self-flying cars to ease urban congestion. Samsung Electronics (OTC:SSNLF) demonstrated what it called the world’s first artificial human, Qualcomm (NASDAQ:QCOM) launched an autonomous driving computer and Toyota (NYSE:TM) said it’s building the prototype city of the future in Japan. Amazon (NASDAQ:AMZN) is also teaming up with Lamborghini and Rivian to offer its Alexa voice assistant in vehicles.

The week ahead — Economic data from Econoday.com:

“Don’t blindly follow someone, follow market and try to hear what it is telling you.” “You never know what kind of setup market will present to you, your objective should be to find opportunity where risk reward ratio is best.” — unknown

1. Market Highlights from 2019 — it was another exciting year for investors in 2019 amid a stock market rally that saw the S&P 500 surge 28%, for the biggest gain since 2013. Easing trade tensions with China, a shift in monetary policy at the Fed, and improving economic outlook all renewed investors’ faith, while safer assets like gold and bonds also soared. Other notable highlights: Tech domination, M&A activity, streaming wars, vaping crackdown, American energy independence, hot IPO market, the EV revolution, 737 MAX crisis, record holiday shopping and getting Brexit over the line.
2. Oil Service Firm McDermott in Bankruptcy Talks with Lenders — WSJ reported that the engineering firm is in talks with its lenders to file for bankruptcy within weeks. The group may provide an approximately $2B loan to keep the company’s operations running during bankruptcy, while the financing would afford McDermott the ability to provide letters of credit, most of which expire within a year and need to be renewed for the firm to continue its work on projects.
3. People’s Bank of China’s Injection of Fresh Liquidity into Banking System to Start the New Year — the festivities kicked off in Asia in the new year, where the PBOC slashed its required cash reserve ratio for commercial lenders by 50 basis points, unleashing about 800B yuan ($115B) of liquidity into the financial system. The move to shore up the local economy saw the Shanghai Composite Index end the session up 1.2%, adding to the overall positive sentiment ahead of the signing of a ‘Phase One’ U.S.-China trade deal on Jan. 15.
4. More Drugmakers Hike U.S. Prices as 2020 Begins — the drug price hike of 2020 has commenced, with costs rising for more than 250 medications, according to data analyzed by 3 Axis Advisors. Bristol-Myers Squibb (NYSE:BMY), Gilead Sciences (NASDAQ:GILD), and Biogen (NASDAQ:BIIB) hiked U.S. list prices on more than 50 drugs on New Year’s Day, adding to the couple hundred increases from drugmakers including Pfizer (NYSE:PFE), GlaxoSmithKline (NYSE:GSK) and Sanofi (NASDAQ:SNY). While nearly all of the price increases are below 10% and the median price increase is around 5%, more early year price increases could still be announced.

The week ahead — Economic data from Econoday.com: