Week in Review
The market slid last Friday after a strong employment report raised doubts over the certainty of a Fed rate cut later in the month.
Stocks closed the week down, while Treasury yields bounced back from last week’s multi-year low.
It seems counter-intuitive that a strong economy report is sending stocks lower, but the market is banking on a July rate cut so any news that weakens the case for a cut will likely hurt stocks.
With China talks back on track, a ‘No-Cut’ July is the stock markets greatest fear.
The S&P 500 closed the week up nearly 2% but encountered strong resistance at 2,995, a new all-time high.
Currently, the chart looks favorable but that could change in a heartbeat if sentiment changes regarding the certainty of this month’s expected rate cut.
Asian markets closed on a decline, possibly reacting to a strong U.S. jobs report last Friday.
S&P futures contracts are currently predicting a 0.16% decline on the open.
NASDAQ futures are pricing in a 29-point drop, a 0.38% decline.
DJIA futures are pricing in a 69-point, 0.26% decline
No notable earnings or IPO action in the pre-market.
Market Moving News
Powell Set to Appear Before Senate & House
Federal Reserve Chairman Jerome Powell is set to appear in front the House Financial Services Committee on Wednesday, and the Senate Banking Committee on Thursday, to answer questions regarding Federal Reserve policy and the state of the U.S. Economy.
It gives Powell two highly visible opportunities to clarify policy going into the July Board of Governors meeting, where the market is expecting a 25-point interest rate cut.
Wall Street will be listening closely so expect to see some volatility around these two announcements.
How to Play It:
It’s pretty simple, the market wants a cut and it’s going to have a temper tantrum if it doesn’t get one.
Any dovish commentary from Powell will likely lift stocks, but anything that suggests the contrary could incite short-term selling.
The best thing to do is to listen in yourself and get a better feel for Powell’s stance going into the month’s policy meeting.
A 25-point cut is pretty much priced in at this point, but that could change if Powell sounds hawkish when he goes in front of legislators this week.
If we don’t get a cut, expect a short-term sell-off. A 25-point cut may cause a mild reaction, but is definitely bullish in the big picture. If we get a 50-point cut, we could be in store for a nice rally.
Since the economy looks to be in good shape, a cut tells us that the Fed is prepared to use policy to keep the bull market running and, with the White House pushing hard for low rates, it could be a good sign for the market moving forward.
It’s a slow week for earnings, so we’re highlighting last week’s biggest momentum movers instead. Here are the ticker symbols for the companies reporting earnings this week:
$PEP, $DAL, $AZZ, $BBBY, $LEVI, $FAST, $MSM, $INFY, $LNN, $ANGO, $WDFC, $HELE, $NTIC, $PSMT, $AIR, $EXFO, $SLP, $SAR, $ASPU, $YRD
These momentum movers led the market last week, and that could carry over into this week. Keep an eye on these big winners from the previous week:
Corvus Pharmaceuticals Inc. (CRVS)
Performance This Week: +91.74%
Last week’s biggest momentum mover, shares of Corvus sky-rocketed last week by over 90%. In its most recent PR, the biotech firm released promising clinical results for its new immuno-oncology therapy at the 2019 American Society of Clinical Oncology. According to company PRs, CPI-006 is an “anti-CD73 antibody” that targets specific varieties of cancer cells.
The initial results from CPI-006’s Phase 1/1b clinical trials are promising. The initial data from a dose-escalation study showed a “trend toward longer disease control with higher doses of CPI-006, and enhanced disease control with CPI-006 in combination with ciforadenant (CPI-444) compared with monotherapy, in patients with advanced, refractory cancer.”
There hasn’t been much news for Corvus since that announcement, but recent short interest data showed an increase in short positions as of June 14th. Those short positions were almost certainly vaporized in last week’s 90%-plus rally. Currently, RSI is creeping towards overbought but currently rests around 66.
Omnova Solutions (OMN)
Performance This Week: +53.31%
Special materials manufacturer Omnova is up over 50% after the company announced it had reached an agreement to be acquired by U.K.-based Synthomer for roughly $455 million in an all-cash transaction.
If the deal stands, it would pay a 58% premium on top of shares prices from the close of the day preceding the announcement. Prices quickly moved to correct the gap and gained over 53% in the wake of the announcement.
Several law firms are suing Omnova’s board, alleging that the deal is not fair to shareholders. It’s unclear how those lawsuits will play out but where there is uncertainty there is an opportunity.
There may still be room for gains in this one if you can time your entry & exit precisely and exercise good trade discipline.
One Stop Systems, Inc. (OSS)
Performance This Week: +38.82%
One Stop Systems produces cutting-edge computing equipment for companies with special needs. The firm recently announced a blockbuster deal with Disguise Systems Limited to produce media and entertainment servers.
The deal is worth $60 million over a 5-year period. OSS will retain exclusive manufacturing rights for all system-level products sold to North & South America, Japan, and South Korea.
The co=mpany’s high-performance computers are used for a variety of advanced applications, including machine learning, AI, defense, finance, and entertainment.
If this firm continues to successfully close deals, it could be worth keeping an eye on. The high-powered computers that OSS manufactures will likely play a key role in the development of AI, machine learning, and other advanced applications.
If its success can continue, the stock presents a potential opportunity for exposure to several powerful macro trends.
Ovid Therapeutics Inc. (OVID)
Performance This Week: +47.28%
Ovid Therapeutics received an ‘orphan drug designation'(ODD) from the European Union last week for OV101, a clinical-phase treatment of Angelman syndrome. The EU awarded the designation after OV101, aka gaboxadol, posted promising results on its Phase 2 STARS trial.
OV101 is the only treatment being developed to treat Angelman syndrome and there are currently no effective treatments on the market. Angelman is a rare disease. An estimated 24,000 people living in the U.S. suffer from Angelman syndrome.
ODD status provides several benefits for companies that are developing treatments to rare diseases, including reduced fees, centralized authorization, and competitive protection for 10 years from the date of marketing approval.
Those are significant advantages for the treatment, which is already the only game in town for sufferers of Angelman. It tells me that the EU is behind this therapy and is willing to help push it along. It could be a sign of good things to come for Ovid and gaboxadol.
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