Investor risk appetite has returned. Last week, high-growth technology stocks soared, helping to drive major U.S. indices higher. Tech has been the best performing S&P 500 sector so far this year.
This renewed optimism is being driven by hopes that global central banks are ready to help the markets offset any negative impact coming from a slowing global economy. As well, investors continued to buy shares of some the largest tech companies during the past week even as economic data pointed to a global economy hitting a rough patch. In the U.S., a report released in early March showed manufacturing output shrank for a second straight month in February, followed by a weak reading on Chinese industrial output last week.
Beyond these macro themes, some large cap stocks continued to dominate the headlines. There is a good possibility that these big players will again set the tone for the market in the coming week. Below are the three stocks we're keeping an eye on:
1. Boeing
This next week might bring some clarity on the future of Boeing’s (NYSE:BA) beaten-down stock after regulators around the world grounded the company’s promising 737 MAX 8 airliner, after the jets were involved in two deadly crashes during the past five months.
Shares of Boeing, which were up 37% this year until last Sunday’s Ethiopian Airline crash, gave back nearly 15% of their value during the course of last week, on concerns that it may take years for Boeing to recover from this disaster. Several airline operators around the world have indicated that they will re-consider their Boeing orders.
Analysts are outlining both best and worst-case scenarios for the company which was in the middle of a strong expansion before the last week’s fatal crash derailed it. One potential best case scenario is that the company quickly fixes what's reported to be a software problem and the U.S. allows its 737 MAX jets back in the air, which would then be followed by other regulators.
“We believe if the two crashes are found to be of a similar cause that is a better outcome for Boeing than if not,” Barclays analyst Julian Mitchell said in a report cited by Bloomberg. “We believe an additional discovery would likely entail a longer grounding of the aircraft.”
According to Mitchell's estimates, assuming the company continues MAX jet production, but customers don't take deliveries, Boeing’s monthly cash flow could be hurt by about $1.5 billion to $2 billion, including any potential airline penalty payments.
2. Facebook
It appears that Facebook's (NASDAQ:FB) Mark Zuckerberg, along with other social media executives, could find themselves back in damage control mode this coming week, after a mass shooter, in New Zealand killed 50 people in an attack on two mosques during Friday services, which he was able to live stream on social media. His actions prompted new calls for stricter control over all such platforms.
The video of the killings, which was first uploaded to the alleged shooter’s Facebook account, was readily accessible during and after the attack, along with the suspect’s hate-filled manifesto.
Facebook shares fell more than 2% on Friday to $165.98 after posting a strong rally in 2019 on signs that the company’s ad revenue had remained unaffected by the public uproar against the biggest social media platform. But the latest events in New Zealand will continue pressuring social media companies to stop the use of their networks from spreading hate and violence.
Indeed, Mark Zuckerberg seems busy overhauling his company from both a policy standpoint, but he may need to do so from an executive perspective as well. Last week, his most senior executive, Chief Product Officer Chris Cox announced that he is leaving the social media giant as part of Facebook’s move to integrate its apps more tightly and use more encryption, a big shift from the company’s current focus on public sharing.
Amid these big changes and what appears to be never-ending firefighting, we think the risks to the rally of Facebook shares are once again rising. It will be critical to see if the selling pressure on the stock intensifies.
3. Tesla
There's been no let up in the most recent Tesla (NASDAQ:TSLA) sell-off, even after the electric carmaker unveiled its Model Y crossover on Friday. Investors still sent the company's shares tumbling more than 5% to $275.43, exhibiting concerns over the automaker’s tight cash situation, something we highlighted last week.
One possible explanation for this worst post-launch performance of Tesla shares: investors may not have liked CEO Elon Musk’s plan to collect $2,500 deposits for the crossover, which he plans to start delivering in the next 18 months. The deposit amount is more than double than what he collected for the Model 3 sedan.
The market is taking that as a signal of a potential cash crunch, which Musk is trying to overcome as demand for cars slows and after the company cleared a hefty bond payment in cash early this month. Our view on Tesla stock remains the same: it continues to be a highly risky bet.
With the company’s small cash reserves, its marketing strategy in trouble, and its CEO in what looks like a constant battle with the U.S. Securities and Exchange Commission, we don’t see Tesla shares stabilizing anytime soon. Indeed, in the next week the stock might see additional losses.