Elon’s Cybertruck Oops; Schwab Regroups

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Friday Four Play: The “Mutual Respect and Equality” Edition

One day!

I miss one day, and the Great Stuff Trade War Cycle chart swings through “market sells off on trade war fears” and into “administration hints at a resolution.” It’s a conspiracy, I tell you.

Granted, the markets were grinding lower for the past four days, as Wall Street appeared reluctant to sell. It’s clear that it knows the cycle now and was just waiting for the U.S. and/or China to say something positive.

Yesterday’s acceleration in market selling may have been the spark. This morning, both President Trump and Chinese President Xi Jinping came out in defense of the trade talks. Trump told Fox News that the U.S. and China were very close and had a “very good chance to make the deal.”

Meanwhile, Xi said that China wanted to work on a “phase one” agreement “on the basis of mutual respect and equality.” The Chinese president also said that China isn’t afraid to “fight back.”

We’ve heard Trump’s words before … numerous times, in fact. However, Xi’s “mutual respect and equality” language is new, as is the position of fighting back.

I’m torn on this one, folks … and so is the market. Wall Street clearly wants to see this as hope of a trade deal, but there’s caution in the air. And there should be.

If we’re waiting on mutual respect or equality, we could be in for a long wait.

Here’s where the Trade War Cycle chart stands today:

You’ll notice I haven’t moved the needle into “market rallies temporarily on news.” There’s just not enough conviction behind today’s uptick to justify calling this a rally on the news. Then again, the sell-off following the last round of “get tough” was just as muted.

Maybe the market is finally growing immune to all this back-and-forth. That would be a good thing.

And now for something completely different, here’s your Friday Four Play:

No. 1: Nice One, Charles

OK, here’s the plan: We undercut our competitors by offering zero-commission trading. Then, after our competitors follow suit and their stocks tank, we buy one of them. Brilliant!

This completely made-up scenario is what ran through my head yesterday when news broke that Charles Schwab Corp. (NYSE: SCHW) planned to buy TD Ameritrade Holding Corp. (Nasdaq: AMTD) for $26 billion.

So far, neither company has confirmed the deal. But what a deal it would be.

Schwab currently manages about $3.8 trillion in assets, while TD Ameritrade manages $1.3 trillion. The combination would create a discount brokerage behemoth capable of taking on anyone else in the market with ease.

That said, the sheer size of the combined company could be a deal-breaker. Both companies are in the top three among custodians of registered investment advisor (RIA) assets. For RIA firms, this would eliminate two key choices in the market, raising antitrust issues.

One thing’s for certain: With competition heating up in the brokerage market, this won’t be the last such deal we see in this space — especially if the Schwab-TD Ameritrade deal goes through.

No. 2: Oh My Fudge…

Last night, after more than a year of hype, Tesla Inc. (Nasdaq: TSLA) finally unveiled its new “Cybertruck.” Yes, that’s the unfortunate name they’re going with right now.

And … I guess you could call it a truck.

The thing looks like someone grafted a truck bed onto the back of a DeLorean. During the event last night, I expected Libyans to come rushing out to chase CEO Elon Musk for stealing plutonium … or something.

Musk showed off the rugged construction of the Cybertruck by hitting it with a sledgehammer, which didn’t leave a mark. However, the test of Tesla’s armor glass windows didn’t go quite as well. Two metal balls thrown at the glass shattered it, leaving Musk to utter expletives on stage.

But while the Cybertruck drew oohs and aahs at the event, its radical design is unlikely to register with buyers in traditional “truck country.” As Gene Munster, managing partner at Loup Ventures, put it: “It misses the core truck buyer.”

That’s an understatement. There’s no way any serious truck owner back home in rural Kentucky is going to buy one of these things. I just can’t see my uncle running around on the farm in a DeLorean wannabe, no matter how tough it is.

No. 3: StoneCo Crazy, GO!

Financial technology (fintech) company StoneCo Ltd. (Nasdaq: STNE) is on fire today.

The company’s third-quarter earnings report wowed investors, despite earnings of $0.17 per share missing expectations by a penny. Revenue, however, blew past the consensus estimate by 29%, arriving at $169.3 million for the quarter. That’s 129% growth over the year prior!

A little background: StoneCo provides fintech solutions for companies in store, online and on mobile. It services about 270,000 clients, mainly in Brazil.

StoneCo shares are up more than 12% following the report, putting the stock above the average consensus price target of $36.87. In other words, investors might not want to chase STNE right now. Instead, if you’re interested in jumping in, wait for a pullback.

No. 4: High on Hype

Cannabis stocks went on a bender this week, with many gaining double digits following news that the U.S. House Judiciary Committee voted to pass the Marijuana Opportunity Reinvestment and Expungement (MORE) Act.

The MORE Act still has to pass the full U.S. House of Representatives and the U.S. Senate … and get signed into law before any of this truly means anything. Which is why pot stocks are dropping like rocks today.

Oh, and MKM analyst Bill Kirk bashed the group in a bearish note. “Consensus numbers, particularly around profitability, are far too high,” Kirk told clients this morning. He singled out both Canopy Growth Corp. (NYSE: CGC) and Aurora Cannabis Inc. (NYSE: ACB) as companies with particularly hard paths toward meeting expectations.

Once again, the cannabis sector faces an overabundance of bullish sentiment. These companies will grow. We just have to wait for the right time to jump back in.

Great Stuff: Help Your Friends Make Billions!

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I don’t blame you. If I had a financial e-zine with a trading chart that could help me make billions, I’d keep it quiet too.

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Where’s your holiday spirit?

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Until next time, good trading!

Regards,

Joseph Hargett

Great Stuff Managing Editor, Banyan Hill Publishing