Dow Jones Industrial Average futures rallied in pre-market trading on Tuesday, as progress in negotiations to end the US-China trade war as well as bullish outlooks for FAANG stocks helped the stock market consolidate its recent gains.
As of 8:40 am ET, Dow futures implied an opening bell gain of 195 points or 0.83 percent, S&P 500 futures signaled a 0.71 percent climb, and Nasdaq futures eyed a 0.75 percent bounce from Monday’s close.
The three major US stock market indices had all closed Monday’s trading session in positive territory, with the Dow up 98.19 points or 0.42 percent, the S&P 500 gaining 0.7 percent, and the Nasdaq climbing by 1.26 percent.
Monday’s strong finish helped the market consolidate Friday’s massive gains, which saw the Dow rise nearly 750 points after Federal Reserve Chairman Jerome Powell said that the independently-run US central bank would consider market conditions before imposing interest rate hikes.
One driving force for the recent stock market rally has been strong analyst forecasts for FAANG and the tech sector at large. The five major Silicon Valley companies — Facebook, Amazon, Apple, Netflix, and Google parent company Alphabet — had a rough fourth quarter, but analysts including Pivotal Research Group expect several of these tech bellwethers to experience strong growth in 2019.
According to Pivotal Research, Amazon — which closed the day as the most valuable US company — could jump as much as 21 percent in 2019, putting it in position to end the year with a $1 trillion valuation.
“Despite its current massive size, we see Amazon’s opportunities as mostly unconstrained based on a successful track record of capitalizing on consumer and IT department spending,” analyst Brian Wieser wrote in a research note.
Bill Miller, the founder of Miller Value Partners, added that he expects Amazon shares to double within the next three years, potentially rising as much as 225 percent from Monday’s close of $1,629.51 during that timeframe.
Pivotal and other analysts such as Canaccord are similarly bullish on the outlook for Alphabet, the parent company of Google.
As CCN reported, these firms believe that Google stands to benefit from increased digital advertising spending as marketers redirect their budgets from the traditional mediums of TV, radio, and print. Additionally, analysts believe that Google is well-positioned to adapt to new digital privacy regulations that could be coming down the pike within the next several years.
Canaccord expects that Alphabet shares could see strong growth in the range of 15 to 20 percent, while Pivotal set its GOOGL price target at $1,240, up around 15 percent from Monday’s close at $1,075.92.
Netflix, meanwhile, assembled quite the hot streak to open 2019, rising in each of the year’s first four trading sessions en route to a year-to-date gain of around 17.81 percent. That’s nearly double the January performance of Amazon, whose 9.47 percent return ranks second among FAANG stocks in January.
Cementing its status as the future of the entertainment industry, the video streaming service’s original programs won five Golden Globes, with “The Kominsky Method” and “Roma” earning accolades at the awards show.
Rocked by a revenue guidance cut and worrisome sales in China, Apple has been FAANG’s worst performer during the early days of 2019. Since 2018’s Dec. 31 close, Apple shares have dropped 6.22 percent to $147.93. However, many analysts believe that the company will recover and close 2019 with solid growth.
“This is not the beginning of the end of Apple, said Loup Ventures founder Gene Munster. “On the whole, Apple’s brand continues to be strong and, on the whole, we continue to need tech.”
One outlier in FAANG could be Facebook. Pivotal Research expects that the Mark Zuckerberg-led social media company will undergo significant leadership changes in 2019, which could make investors leery about going long on FB stock. Additionally, the analysts expect that Amazon’s emergence as a digital advertising force will place the squeeze on Facebook, which along with Google oversees a digital ad duopoly.
However, Pivotal Research is itself an outlier in its bearish forecast for Facebook. According to Bloomberg, 41 analysts have a buy rating on FB shares, while eight have a neutral hold rating and just four have slapped it with a sell rating.
Alongside a bullish outlook for the tech sector in 2019, traders are optimistic that the United States and China are making true progress toward signing a new trade agreement before the tariff truce expires on March 1.
US Deputy Trade Trade Representative Jeffrey Gerrish traveled to China this week to resume negotiations, and positive reports have emerged from the discussions.
On Monday, Chinese Vice Premier Liu He — the country’s top economic policymaker — made a surprise appearance at the negotiating table, and representatives from both countries spoke positively of the state of the talks.
“I think there’s a very good chance that we will get a reasonable settlement that China can live with, that we can live with and that addresses all of the key issues,” said US Commerce Secretary Wilbur Ross.
Tuesday’s discussions reportedly extended late into the evening, and China appears to have made a goodwill gesture by approving five genetically modified crops for import, the first such approvals in around a year-and-a-half.
There is much debate about who the trade war is hurting more, but the general consensus is that neither of the world’s two largest economies desires to extend the tariff fight any deeper into 2019 than is necessary.
Featured Image from Shutterstock. Price Charts from TradingView.
This post was last modified (EST) on 08/01/2019 09:07