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Aug 21, 2018

MARKETS I THE WALL STREET JOURNAL

The Wall Street Journal.
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Hello, I'm Amrith Ramkumar with The Wall Street Journal, walking you through today's pre-market moves.
Kohl's reported earnings for the second quarter Tuesday morning that beat expectations and raised its full-year guidance, as investors were waiting to see if the S&P 500 will make a run at a fresh record close. The index is 0.6% below its January all-time high. 
Plus, I look at why airline stocks have begun to rebound. 
 

Markets in a Minute

Markets Data
 

Overnight Developments

  • Global stocks gained on Tuesday as the U.S. dollar ticked lower after President Donald Trump complained about the Federal Reserve's rate increases.
  • Read our full market wrap here
 

Beaten-Down Airline Stocks Start to Recover

Analysts say lower projections for capacity have boosted sentiment.
Shares of airline operators are no longer in free fall.
Company projections for the number of passenger seats that are offered have come down—a development that has helped boost sentiment. Investors tend to worry about passenger seats offered because airplanes flying with too many unsold seats are less profitable and quicker-than-expected expansion can lead to lower ticket prices.
Worries that a rise in passenger capacity would lead to emptier planes and fee competition had hurt airline shares before the most recent earnings reports. The NYSE Arca Airline Index fell 20% from its January peak through late June, hitting its lowest level since late 2016.
But airline stocks have clawed back some of those losses lately, with the group adding 9.9% since hitting its June 28 low. In the past month alone, Southwest Airlines shares have added 15% and Delta Air Lines is up 10%.
On Monday, the group continued its recent surge. American Airlines Group was the S&P 500’s second-best performer, climbing 5.8%, and every airline stock in the index added at least 3%.
Industry analysts say the drop in capacity projections was enough to give the stocks a boost, even with fuel expenses continuing to threaten profitability.
“Sentiment on U.S. airline stocks has recovered somewhat,” Raymond James analysts said in a note to clients earlier this month.
That could brighten the outlook of analysts who look at shares of airlines and other transportation companies as an economic indicator because their performance is typically tied to global growth. Although continuing trade tensions have dinged growth-sensitive assets recently, the Dow Jones Transportation Average is at its highest level since January and has risen in five straight sessions.
Airline companies and other large industrial companies generally reported favorable second-quarter demand despite worries about protectionism.
Another potential positive for airline stocks: Energy prices have started to come down. After a monthslong rally that analysts say caught airline companies off-guard, U.S. crude has declined 10% from its June multiyear high. 

Still, after months of investor jitters over capacity, some analysts think investors will want to see sustained share performance and future projections before taking a fresh look at beaten-down airliners.
“While this is an encouraging first step, all eyes will be on 2019 plans,” the Raymond James analysts said.

Market Facts

  • The Dow Jones Industrial Average on Monday rose to its highest level since Feb. 1, climbing for a third straight session. 
  • The last time hedge funds and other speculators had as many net short positions in copper as they do now, late in 2015, the red metal rallied 19% in the next three months and 37% over the next year, according to Jefferies. 
On this day in 1999, a record price was paid for a membership seat on the New York Stock Exchange: $2.65 million. That was a substantial rise from the record low price for a seat, set in 1942, of $17,000.

Key Events

There are no key events today.
 

Must Reads

President Donald Trump feared that the Federal Reserve’s moves to raise interest rates could hurt the economy. PHOTO: MANDEL NGAN/AGENCE FRANCE-PRESSE/GETTY IMAGES
President Trump complained about the Fed’s interest-rate increases. At a fundraiser Friday, Mr. Trump told donors he is unhappy with the Federal Reserve’s recent moves and raised doubts about the man he placed in charge, Jerome Powell. The dollar weakened today after also falling Monday against other major currencies following the report of Mr. Trump’s comments.
The U.S. is moving toward new tariffs on China. The Trump administration is pursuing levies on $200 billion of Chinese goods at the same time as it is relaunching talks to scrap tariffs. The twin initiatives, from the U.S. Treasury Department and the office of the U.S. trade representative, are both moving ahead with the approval of President Trump.
Total is struggling to exit a natural-gas project in Iran. The company is having difficulty unloading its stake in a $5 billion project in the country to a Chinese partner, after stopping work earlier in the year due to U.S. sanctions.
Some Tesla suppliers are worried about getting paid. The auto maker’s tumultuous year has fueled concern about its financial strength after Model 3 production drained some of its cash. In an email to the Journal, CEO Elon Musk said, “We are definitely not going bankrupt.”
Microsoft found Russian hackers targeting the U.S. Senate. Hackers linked to the 2016 election cyberattacks on the Democratic Party are widening their target for the coming midterms to include the Senate and well-connected conservative groups.
Correction: Yesterday's newsletter included an incorrect figure for the size of the Fed's balance sheet. The correct size is $4.5 trillion, not $4.5 billion.
 

What We've Heard on the Street

"The imperative to grow its exposure to fast-growing, healthier beverages is so strong that it makes sense for Pepsi to pay up for SodaStream, even if other strategic benefits fail to materialize."
—Heard on the Street columnist Aaron Back
 

Stocks to Watch

Tesla—Up 1%: Some Tesla suppliers are worried about the auto maker’s financial strength after production of the Model 3 car drained some of its cash, The Wall Street Journal reported late in Monday's session. 
Fabrinet—Up 5.1%: The optical equipment specialist exceeded revenue expectations in its most recent quarter. 
Snap—Unchanged: The social-media firm fell for the fifth straight session Monday, its longest streak of consecutive declines since early May. 
Hertz—Unchanged: Hertz selected Jamere Jackson, the former finance chief of Nielsen, to lead its finance team and succeed Thomas Kennedy, who resigned to pursue the next stage of his career. 
Bank of America—Unchanged: Bank of America's brokerage arm Merrill Lynch will pay $8.9 million to settle charges it failed to disclose a conflict of interest, the Securities and Exchange Commission said Monday.