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Now you see them now you don’t. Those Mexican tariffs! U.S. stock indexes gained ground for a sixth consecutive session as investors responded to news that the U.S. is suspending tariffs on imports from Mexico, and that United Technologies and Raytheon agreed to merge in a landmark US$100Bn deal. Five day returns don’t get much better than this and most global equity markets also participated (see below). Investors also seem to be growing more confident that the Federal Reserve will cut interest rates this year particularly given the weak employment report last Friday.

Weekly returns to 11 June 2019
(AUD 5-day return far right- hand column)

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Source: Bloomberg
 


Notable company news

 
Microsoft (NASDAQ: MSFT) - The Trillion Dollar Baby

Microsoft is now the most valuable U.S. company. After a 10% rally last week, the software company’s market capitalisation is now well above US$1 trillion.  Amazon is #2 at US$916Bn and Apple 3rd with a market cap of US$886Bn. Investor optimism about Microsoft’s cloud services business is among the factors behind its shares’ rise. MSFT was literally “dead money” for nearly a decade (see chart) before Satya Nadella took over as CEO in February 2014. Microsoft had missed out on the mobile phone boom, failed to provide any competition whatsoever to Google’s search business and utterly ignored social networking. For years, Microsoft was considered a “PC-centic” company depending on its legacy Windows operating system and Office software.

Under the new CEO, however, the company has rebounded. Nadella has turned the business model on its head with Office 360 and notably brought extra focus on cloud computing, with Microsoft’s Azure offering proving a serious competitor to Amazon Web Services. Microsoft is now the #2 player in the global cloud infrastructure services market with a 17% share in 2018, according to industry research firm Canalys. Market leader Amazon Web Services had a 32% share.

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Source: Bloomberg

Microsoft is held in Macrovue’s High Quality and Tech Stars thematic share portfolios.
 

US Q1 2019 earnings season

A summary for companies we've included in our thematic share portfolios (Vues) can be found here.
 


 
Rates/Commodities

  • 10-Year Treasury yield: +7 bps to 2.15%
  • Gold: +0.2% to US$1328.04
  • WTI crude oil: +0.33% to US$53.42
  • AUD/USD: -0.24% to 69.60
     

 
The week ahead

U.S

The calendar is another full one, including several important reports. Inflation reports (CPI / PPI) are becoming more relevant than ever. Retail sales and industrial production are both expected to show significant rebounds. Consumer sentiment is expected to remain at high levels.

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Source: briefing.com


 
Charts of the week

1. S&P 500 (SPY) and Nasdaq (QQQ) are now back above 200 day moving average.

However, the Russell 2000 (IWM) remains below indicating some caution for investing in small companies. (The Russell 2000 Index is a small-cap stock market index)

190610_4Source: Bespoke

 

2. New 52 week highs in S&P 500 reflects underlying market strength

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Source: Goldman Sachs

 

3. Is Mexico an important source of goods for the U.S.? Definitely!

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