Trump-Kim Deal To Tariff: Here's What Investors Should Know

This week was an eventful one with some of the major developments having a positive or negative impact on the global stock market. Below we discuss some of the biggest events that dominated the headlines and influenced the market:

Trump-Kim Deal

The historic summit between President Donald Trump and North Korea leader Kim Jong Un in Singapore has created history, possibly ending bitterness that lasted for 68 years. This is especially true as Trump and Kim signed an agreement, which offers undisclosed American “security guarantees” in exchange for a commitment from North Korea to “work toward complete denuclearization of the Korean Peninsula.” Although this is a positive step, lack of details on the denuclearization process and talks of follow-up negotiation have disappointed Wall Street.

Peace talks have pushed the defense stocks down after the summit. Major defense players -- Raytheon (NYSE:T) , Lockheed Martin (NYSE:T) , Northrop Grumman (NYSE:NOC) , Boeing (NYSE:BA) and General Dynamics (NYSE:GD) -- saw rough trading on the day following the announcement of denuclearization. Of these, NOC has a Zacks Rank #1 (Strong Buy) while BA and RTN have a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AT&T-Time Warner Approval

U.S. District Court Judge Richard Leon approved AT&T’s (NYSE:T) $85.4 billion purchase of Time Warner (NYSE:TWX) without any condition. The long-awaited decision has paved the way for a merger frenzy, which will change the landscape of the media industry. This is especially true, as Comcast (NASDAQ:CMCSA) has made a $65 billion or $35 per share bid to acquire the film production and studio assets of Twenty-First Century Fox FOXA. The move resulted in a bidding war with The Walt Disney Company (NYSE:DIS) , which had struck a deal in November to acquire the same assets for $52.4 billion in an all-stock deal. Each of the stocks carries a Zacks Rank #3 (Hold) while FOX downgraded to Zacks Rank #5 (Strong Sell).

Hawkish Fed

As expected, the Fed has raised interest rates for the second time this year by 25 bps to 1.75-2%. This also marks the seventh rate hike since December 2015. The central bank signaled a hawkish outlook with two more lift-offs that would translate into four total increases in 2018. The decision has led to a spike in yields. The two-year Treasury yields, which are most sensitive to shifting expectations of Fed policy, rose faster than that of 10-year and 30-year yields, narrowing the spread between the short-term and long-term yields. In fact, the yields curve flattened to the levels last seen in August 2007.

Generally, a rising rate scenario is highly profitable for banks, as they seek to borrow money at short-term rates and lend at long-term rates, thereby expanding net margins and bolstering banks’ profits. But this is not the case now as short-term rates are creeping higher and long-term rates are moving up slowly, leading to a decline in net margins. Still, Northern Trust (NASDAQ:NTRS) Corporation (NYSE:T) having a Zacks Rank #2 (Buy) and a Momentum Score of A seems an excellent pick as its earnings are expected to grow 33.13% year over year this year.

Dovish ECB

The European Central Bank (ECB), currently buying €30 billion in monthly asset program, plans to reduce its asset purchases to €15 billion from October to December and then finally end the massive program. Additionally, the bank has pledged to keep interest rates at record lows at least through the summer of 2019 pointing to a dovish outlook. The move led to strong gains for European stocks, which are poised for the best week in more than three months, while euro fell sharply.

A decline in euro will actually benefit exporters and the manufacturing industry, resulting in soaring stock prices. As a result, some of the top-ranked European ADRs are poised to outperform in the coming months. Statoil (OL:EQNR) ASA EQNR with a market cap of $89.2 billion and SAP SE (NYSE:SAP) with a market cap of $148 billion have a Zacks Rank #1 and 2, respectively.

World Cup Buying Frenzy

The 2018 FIFA World Cup has kicked off in Russia with the high expectation of driving growth across zones, especially in industrial spaces such as media, advertising, restaurants, hotels and airlines. Some of the top-ranked (#1 or 2) stocks in these spaces include Twitter (NYSE:TWTR) , Marriot Vacations Worldwide Corporation VAC, BJ's Restaurants, Inc. BJRI, Interpublic Group of Companies (NYSE:IPG) , and SkyWest Inc. (NASDAQ:SKYW) that could offer immense upside potential from the month-long event.

Trump Tariff

Trump has approved of a plan to impose significant import tariffs on Chinese goods and is expected to announce today the first round of list for goods targeted for tariff. The move if enacted could lead to retaliation from China. Beijing earlier revealed a list of $50 billion in U.S. products that would face retaliatory tariffs, including beef and soybeans. As a result, meat producers like Tyson Foods Inc. (NYSE:T) and Hormel Foods Corporation (NYSE:HRL) could take a hit. Both stocks have a Zacks Rank #3 (Hold).

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SkyWest, Inc. (SKYW): Free Stock Analysis Report

Time Warner Inc. (TWX): Free Stock Analysis Report

The Walt Disney Company (DIS): Free Stock Analysis Report

Twitter, Inc. (TWTR): Free Stock Analysis Report

AT&T Inc. (T): Free Stock Analysis Report

Interpublic Group of Companies, Inc. (The) (IPG): Free Stock Analysis Report

Northrop Grumman Corporation (NOC): Free Stock Analysis Report

The Boeing Company (BA): Free Stock Analysis Report

General Dynamics Corporation (GD): Free Stock Analysis Report

Lockheed Martin Corporation (NYSE:LMT): Free Stock Analysis Report

Northern Trust Corporation (NTRS): Free Stock Analysis Report

Comcast Corporation (CMCSA): Free Stock Analysis Report

SAP SE (SAP): Free Stock Analysis Report

Raytheon Company (NYSE:RTN): Free Stock Analysis Report

Tyson Foods, Inc. (TSN): Free Stock Analysis Report

Hormel Foods Corporation (HRL): Free Stock Analysis Report

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