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The Zacks Analyst Blog Highlights: Microsoft, JP Morgan Chase and Pfizer

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For Immediate Release

Chicago, IL – February 11, 2020 – announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Microsoft (MSFT - Free Report) , JP Morgan Chase (JPM - Free Report) and Pfizer (PFE - Free Report) .

Here are highlights from Monday’s Analyst Blog:

Coronavirus Update: Global Week Ahead

In the Global Week Ahead, the global economy and China will be reeling from the spread of a novel pneumonia or flu-like coronavirus.

The speed the coronavirus spreads in China — the human toll and damage to that huge economy — is the primary focus.

In 2019, the Chinese mainland economy marked +6.1% y/y real GDP growth. The Economist Intelligence Unit downgraded that growth rate to +4.9% to +5.4% for 2020.

However, follow-on concerns are relevant. These risks rise as the virus spreads to other regions.

On Monday, February 10th, I see 40,637 total cases and 910 total deaths. Mainland China accounted for 40,197 cases and 908 deaths.

  • Japan had 161 cases.
  • Singapore had 43.
  • Hong Kong had 36.
  • Thailand had 32.
  • South Korea had 27.
  • The U.S. had 12.

Thus far, 99% of cases remained in mainland China. But wary traders must consider this: whether the speed of onset, a shortage of testing kits and political factors result in underreporting cases inside mainland China.

Here are global macro-economic declines caused by the coronavirus spread.

  • Sharp declines in oil prices (WTI is at $50 a barrel) negatively impact net oil-producing countries, with direct negative effects hitting domestic income.
  • Business disruption effects, including cancelled travel and conferences.
  • Oxford Economics sees 1.6M less global visitors from mainland China this year. They count a loss of 4M in U.S. hotel room nights alone.
  • Others says the Chinese are going stir crazy, and this is just plain wrong.
  • However, there is heightened consumer unease across the Asian region.

As a result, economists bet on rate cuts in Asia-Pacific the next 2 quarters.

Next, I list Reuters’ five world market themes. Each week, these get reordered by importance to equity traders.

This time around, I made no changes.

(1) How much to cut global GDP growth, given the coronavirus impact?

The coronavirus continues to claim lives, yet the impact on global demand and companies is just starting to be felt.

Recent days have seen an unremitting flow of dire headlines as supply chains from New Zealand to the United States felt the impact of a paralyzed China.

Toyota and Honda are suspending production in China, Hyundai has halted work in South Korea, airlines are grounding flights and reducing staff, and central banks are easing policy.

China’s 2020 growth estimates have been slashed as much as a percentage point from the 6% initially expected. Some factories could reopen in the coming days, while others are expected to stay shut for now.

Some financial markets were quick to recover: Wall Street climbed to records, encouraged by earnings and economic data. Chinese stocks, which lost $700 billion of market value on reopening after Lunar New Year holidays, have now clawed back half those losses. Yet commodity prices such as copper and oil, seen by many as a better signal for the real economy, still have some way to recover.

Investors waiting to get a readout of the economic toll may have to be a bit more patient. Inflation and monetary indicators in China are scheduled for release over the coming days, the latter expected to show some effects of the central bank’s efforts to support suffering firms.

But retail sales and industrial activity will only be published in March, while trade data due out for release on Feb. 7th has been postponed.

(2) Fed Chair Powell testifies on Capitol Hill. He will calm fears on ‘repo’ buying.

That, in all likelihood, will be one of the main messages Federal Reserve Chair Jerome Powell seeks to deliver to U.S. lawmakers in two days of testimony on Capitol Hill.

Given Powell and his Fed crew have been consistent in recent messaging that there is no hurry to resume rate cuts (or hikes) and that they see the economy in “a good place” one topic that might generate fireworks in his appearances on Tuesday and Wednesday is “repo.”

A band of Democrats from the Senate Banking Committee, where Powell heads on Wednesday, has already sent him a list of questions about last autumn’s upheaval in the repurchase agreement market, where banks go to secure funding to meet their reserve requirements. The episode — when a cash squeeze drove overnight repo interest rates to 10% — forced the Fed back into the active bond-buying business for the first time in some five years, and it scooped up more than $300 billion of T-bills since.

The Fed has also become the lender of first resort in the repo market, pumping tens of billions of dollars each day into money markets to ensure liquidity and avoid another squeeze.

Policy-makers believe the repo riot was triggered by having allowed bank reserve levels to fall too low in the roughly two years it had been letting the stash of bonds on its balance sheet dwindle. Reserves are on the upswing again, but just where the sweet spot in reserve levels lies is the big unknown, and Powell will be pressed for answers.

(3) Has Europe’s economy reached a turning point?

European stock markets have already put in a stellar performance in 2020, with many indexes hitting record highs in recent days.

With the results season underway, Stoxx 600 companies are seen reporting 1.2% earnings growth in the fourth quarter, according to IBES Refinitiv, marking the end of a nine-month corporate recession in Europe.

Now it is time to see if GDP readings due out provide any hints of those “green shoots” detected in the recent European PMI readings, which spurred hopes that a long slump in the region’s manufacturing sector could also be bottoming out.

In Britain, recent PMI readings showed a post-election economy bounce in January as services companies enjoyed the strongest influx of new orders since mid-2018. December GDP data, due on Tuesday, is expected to come in at 0.8% in Q4 year-on-year after 1.1% in Q3.

On the continent, flash data out on Friday is expected to show that year-on-year GDP growth across the bloc remained at 1.0% in the fourth quarter, while expansion in Germany is predicted to cool to 0.4% year-in-year from 0.5% in Q3.

Though with potential supply chain disruptions in the wake of the coronavirus outbreak, there could be some new headaches waiting just around the corner.

(4) Reviewing the happy Tesla stockholders.

The end of the week will see a flurry of filings from investment firms as the deadline for 13F forms for the quarterly period ending Dec. 31 falls on Feb. 14.

Investment firms that hold more than $100 million in securities are required to file and disclose their holdings in equity securities and other products, according to the SEC website.

One of the hot stocks to watch out for is electric vehicle maker Tesla, which has seen a spectacular rally of nearly 80% this year. Tesla has been revving up markets as investors bet on Chief Executive Elon Musk’s vision, and on the future for electric vehicles.

So who’s on and who’s off the big Tesla rollercoaster?

Up to now, the biggest institutional shareholders are Baillie Gifford, Capital World and Vanguard, while its top three hedge fund investors are Renaissance Technologies, Gilder Gagnon Howe & Co and Citadel, according to Refinitiv data. One seller in the quarter was Saudi Arabia’s public investment fund, according to a recent filing.

(5) A variety of global central banks meet in the coming week.

A clutch of central banks are set to meet in days to come as the death toll from the deadly virus outbreak has crossed the 900 mark while analysts are still counting the costs to the global economy.

While major global central banks including the Fed and the Reserve Bank of Australia have warned of a significant hit from the virus to economic output in recent days, they have stopped short of loosening monetary policy outright.

But not so their emerging market counterparts. Both Philippines and Thailand cut interest rates unexpectedly this week while Singapore, which controls policy via its currency, said its local dollar has more room to weaken.

Emerging market central banks have more reason to fear the impact of the dreaded virus. China now accounts for a third of global growth compared to only 10% during the SARS epidemic, and the economies with the strongest trade ties with Beijing are feeling the heat.

With multiple channels of exposure including trade, tourism and services, central banks from Sweden to Indonesia will have plenty of food for thought when policy-makers meet in the coming weeks.

Top Zacks #1 Rank Stocks

Microsoft: This is one of the ‘granddaddy’ mega-cap stocks. I see a $184 share price tag creating a $1.4 trillion market cap stock now.

The Zacks Value score is D. The Zacks Growth score is C. The Zacks

Momentum score is D. That sums to a Zacks VGM score of D. Not good.

When a stock like this heads south, worry. Really. Start to worry. The mega-caps drive the broad U.S. large-cap indexes, at this point in market time.

JP Morgan Chase: This is a $137 stock with a market cap of $430 billion. That is a third of Microsoft, and it is the biggest U.S. bank stock.

The Zack Value score is D. The Zacks Growth score is F. The Zacks Momentum score is D.  The sums to a Zacks VGM score of F. Definitely not good.

Again, there are no signs of this stock heading south. When it does, not only worry about the broad U.S. indexes. Worry about the outlook on the U.S. economy.

Pfizer: This is a $38 dollar stock. That gives it a $210 billion market share. Interestingly, the market capitalization is now half the size of JP Morgan.

The Zacks Value score is C. The Zacks Growth score is F. The Zacks

Momentum score is B. That sums to a Zacks VGM score of D. Not good. Once again.

I am trying to get you to create a place in your mind.

That place is this: the U.S. large-cap stock market is overvaluing share prices, and under-appreciating the scant growth outlook for major stocks, whether they are in tech, in banking or in drugs.

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