MidWeek Commentary

HI Market View Commentary 11-23-2020

HI Market View Commentary 11-23-2020

HI Market View Commentary 11-23-2020


Market Recap
The S&P 500 index edged down 0.8% last week as investors worried about the potential effects of increased restrictions as governments seek to contain the COVID-19 pandemic, but encouraging vaccine data also brought hope. The market benchmark ended the week at 3,557.54, down from last week’s closing level of 3,585.15, which had been a record close at the time. The S&P 500 closed higher earlier this week, recording a fresh closing high of 3,626.91 Monday, but wasn’t able to top that in the days since then. This week’s slight decline stands in stark contrast to the strong gains posted in the first half of the month. The earlier November gains were so strong, the S&P 500 is still up 8.8% for the month to date. The market shifted to a more cautious tone this week as escalating COVID-19 counts have prompted many governors to resume restrictions in an effort to contain the spread of the virus. Investors are fretting over how well the US economic recovery can withstand the effects of the restrictions. Adding to concerns, the Centers for Disease Control & Prevention issued a sharp warning against Thanksgiving travel. As travelers called off holiday trips, airlines reported an uptick in cancellations. Still, the weekly drop was limited as encouraging vaccine data provided a source of hope. Moderna (MRNA) reported a 94.5% efficacy rate for its COVID-19 vaccine candidate earlier this week and said it intends to submit for an Emergency Use Authorization with the Food & Drug Administration “in the coming weeks.” Pfizer (PFE) and BioNTech (BNTX) followed that with a report that the latest efficacy analysis of their COVID-19 vaccine candidate found it was 95% effective; they said they would file an Emergency Use Authorization application Friday. The utilities sector led to the downside with a decline of 3.9%, followed by a 3.0% drop in health care. All but four sectors were in the red. The four gainers were led by energy, which jumped 5.7%, followed by a 1.1% increase in materials, a 1.1% rise in industrials and a 0.6% edge up in financials. Decliners among utilities stocks included American Electric Power (AEP), which fell 8.2% as Wolfe Research downgraded its investment rating on the stock to peer perform from outperform. In health care, shares of Centene (CNC) slipped 8.8% as the company said it signed an agreement to acquire Apixio, a health-care technology company, for an unspecified amount. The deal is expected to close by the end of the year. On the upside, the energy sector’s climb came as crude oil futures rose. Among the gainers, shares of Diamondback Energy (FANG) jumped 19% on the week as Goldman Sachs raised its price target on the stock to $37.50 from $34.50 while keeping its investment rating at neutral. TechnipFMC (FTI) was also strong this week, rising 13%, as the company said it received a notice to proceed for a contract from Sempra LNG and Infraestructura Energetica Nova at their Energia Costa Azul liquefied natural gas facility in Baja California, Mexico. Among other hot stocks, shares of Boeing (BA) climbed 6.7%, boosting the industrial sector, as the aerospace company’s 737 Max won Federal Aviation Administration approval to fly passengers again. The plane has been grounded since March 2019 following crashes that killed 346 people in Ethiopia and Malaysia. Next week’s schedule of economic data is consolidated into the first three days of the week as the market will be closed Thursday for the Thanksgiving Day holiday and trading hours will be abbreviated Friday. Monday’s reports will include purchasing managers’ indexes from Markit for November while Tuesday’s data include the S&P CoreLogic Case-Shiller national home price index for September and consumer confidence for November. Wednesday will bring a slew of reports including weekly jobless claims; October durable goods ordersnew home salesconsumer spending and core inflation; and November consumer sentiment. Provided by MT Newswires.

Why is the S&P so volatile today? NO volume due to a holiday week

Where will our markets end this week?

Higher – Holiday week

DJIA – Bullish

SPX – Bullish

COMP – Bullish

Where Will the SPX end November 2020?

11-23-2020            +4.0%

11-16-2020            +3.0%

11-09-2020            +2.0%

11-02-2020             +2.0%         


Mon:            KFY, A, CBT, URBN


Wed:            DE



Econ Reports:

Mon:            market Manufacturing PMI, Services PMI

Tues:            FHFA Housing Price Index, Case-Shiller, Consumer Confidence

Wed:            MBA, Initial Claims, Continuing Claims,  Durable Goods, Durable ex-trans, GDP, GDP Deflator, PCE Prices, Personal Income, Personal Spending, New Home Sales, Michigan Sentiment

Thur:            MARKT CLOSED – Thanksgiving

Fri:               HALF DAY – Thanksgiving


Mon –            

Tues –         

Wed –         

Thursday –    


Sunday –       

How am I looking to trade?

The big decision how far to let stocks run into a Christmas Rally ?!?!?!?!?



www.myhurleyinvestment.com = Blogsite

customerservice@hurleyinvestments.com = Email



Baidu’s voice assistant and smart device business is valued at $2.9 billion after cash injection

Arjun Kharpal


  • Chinese internet giant Baidu has raised an undisclosed sum of money for its business division focused on voice assistants and smart devices. 
  • The new funding for Baidu’s “Smart Living Group” (SLG) values that business at 20 billion yuan or $2.9 billion.
  • The outside funding will give a cash injection to one of Baidu’s divisions that could be key to its long-term growth as it faces stiff competition in its core business. 

GUANGZHOU, China — Chinese internet giant Baidu has raised an undisclosed sum of money for its business division focused on voice assistants and smart devices. 

The new funding for Baidu’s “Smart Living Group” (SLG) values that business at 20 billion yuan or $2.9 billion. Citic Private Equity, Baidu Capital (Baidu’s investment arm) and IDG Capital participated in the funding round. 

Baidu runs a platform called DuerOS which it calls a conversational artificial intelligence system. DuerOS allows devices to use Baidu’s voice assistant so users can communicate with hardware by speaking to it. For example, Baidu has its own range of smart devices under a brand called Xiaodu which includes speakers and wireless earphones all equipped with its voice assistant. 

But DuerOS is also an open platform, meaning other hardware makers can also install it on their devices. 

The outside funding will give a cash injection to one of Baidu’s divisions that could be key to its long-term growth as it faces stiff competition in its core business. Baidu is China’s biggest search engine and makes money from advertising.

China’s advertising market has been hit by the coronavirus pandemic. Pre-pandemic, digital ad spending in China was forecast to rise 13% in 2020, according to eMarketer. The research firm now estimates it will rise only 5%, to $75.33 billion.

https://art19.com/shows/bcd08fc3-8958-4c47-bf8e-524432adcd77/episodes/5e3ba422-ba47-4045-85ff-4a5d5ad964bb/embed Over the past couple of years, Baidu has faced rising competition in search as Chinese internet users continue to move away from web browsers to so-called “super apps” like Tencent’s WeChat. These sorts of apps lets users access services and search all within one platform. 

Baidu has its own super app called the Baidu App which continues to grow. Daily active users reached 204 million in June. 

But part of Baidu’s strategy has been to try to diversify its revenue stream, putting an emphasis on areas from artificial intelligence to driverless cars and healthcare. Its Smart Living Group is involved in that effort with voice assistants playing a key role. 

And analysts see potential here for monetization. 

“We believe Baidu remains on-track for double-digit revenue growth over the longer-term,” Mizhuo analysts said in a note earlier this month.

Mizhuo said they “feel comfortable with that goal” as the company has yet to monetize investments such as voice search “which makes up roughly 20% of the search volume and its mini-program platform.” 

Mini-programs refer to apps within the Baidu App. It means users don’t need to go to a separate app store to use certain services. 

Baidu said the investment into the Smart Living Group is expected to be completed in the fourth quarter of 2020. The Chinese company will hold “super voting rights” in the business group and is expected to continue to consolidate the financial results of SLG, as a majority shareholder.

Meanwhile, Baidu is in talks with investors to raise up to $2 billion over three years for a new biotech company, CNBC earlier this month reported. It will be a standalone entity that would focus on using artificial intelligence to create new drugs and make early-stage diagnoses of diseases. 


John Malone says he’s buying hard assets like housing in bet on currency devaluation

Yun Li@YUNLI626


  • Liberty Media Chairman John Malone said he’s increasingly invested in hard assets like housing and commodities.
  • Malone also told CNBC he sees “substantial interests” in multifamily housing.
  • The media icon revealed that he bought irrigated farms.

Liberty Media Chairman John Malone told CNBC that hard assets look attractive as the unprecedented coronavirus stimulus is poised to lead to a depreciation in currencies.

“We’ve survived this [pandemic] because of enormous fiscal and monetary stimulus,” Malone said in an interview that aired Thursday with “Squawk on the Street” co-host David Faber. “And I’ve got to believe this will lead to devaluation of currencies, that hard assets … will increase in value in currency terms. I’m not sure I’m going to call this inflation, but it’ll look like and feel like inflation.”

To support the economy through the pandemic, the Federal Reserve slashed interest rates to near zero and vowed to keep buying assets under its quantitative easing measures. Lawmakers passed a historic $2 trillion coronavirus relief deal in March that provided Americans with stimulus checks and other aid measures.

“I think we’re seeing it in housing — this unrealistically low interest rate environment, which has been necessary now in order to avoid worse problems,” Malone said. “It’s hard for me to believe that it won’t be followed by a period of currency devaluation.”

Malone believes the massive amount of stimulus will lower currency’s value, making hard assets such as real estate and commodities more appealing. The DXY US Dollar Currency Index has fallen more than 10% from a March high.

“I’ve been trying to invest or diversify into hard assets,” Malone said. “You know, I think things I bought this last year, I’ve bought …substantial interests in … multifamily housing, primarily in the U.S.”

Record low mortgage rates are boosting the demand for homebuying. Sales of newly built homes jumped to the highest level in 14 years in August amid the stay-at-home culture of the coronavirus pandemic.

Malone said he’s also getting into assets like farmland.

“I’ve bought irrigated farms because commodities were cheap and farms were at a low cycle in value. And I’d always wanted to have some irrigated farming, so now I’m growing potatoes,” he said.

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Treasury moves to end several crisis-era programs, drawing pushback from the Fed



  • The Treasury Department is looking to extend a handful of the Federal Reserve programs used to get markets through the early days of the coronavirus crisis.
  • However, it is going to end several others that expire at the end of the year.
  • “The Federal Reserve would prefer that the full suite of emergency facilities established during the coronavirus pandemic continue to serve their important role as a backstop for our still-strained and vulnerable economy,” the Fed said in a statement.

The Treasury Department is looking to extend a handful of the Federal Reserve programs used to get markets through the early days of the coronavirus crisis but is going to end several others that expire at the end of the year.

The move drew a swift rebuke from the Fed, which wanted to continue the programs.

Among those that Treasury Secretary Steven Mnuchin asked the Fed to continue for another 90 days are programs that provided short-term “commercial paper” loans to businesses, as well as another for money market functioning and a backstop related to the Paycheck Protection Program.

However, Mnuchin also asked that other programs that were supported by Treasury capital come to an end for now. They include two facilities that bought corporate bonds as well as the Main Street Lending Program, which was targeted towards small- and medium-sized businesses.

The programs were set to expire at the end of the year. They were instituted in early March to open markets that had frozen during a panic-selling frenzy as fear over the pandemic grew.

But they were sparsely used for the most part and the subject of some criticism, particularly the Main Street facility.

“While portions of economy are still severely impacted and in need of additional support, financial conditions have responded and the use of these facilities has been limited,” Mnuchin said in a letter to Fed Chair Jerome Powell.

Mnuchin nevertheless said that “in an abundance of caution” he would like the Fed to keep alive the Commercial Paper Funding Facility and the Money Market Lending Facility, neither of which required Fed approval, and the PPP Liquidity Facility.

While the Fed and Treasury have worked closely through the crisis on the programs, they differed on the fate of them.

“The Federal Reserve would prefer that the full suite of emergency facilities established during the coronavirus pandemic continue to serve their important role as a backstop for our still-strained and vulnerable economy,” the Fed said in a statement.

Market participants also recoiled against the move, with Dow futures falling more than 200 points. Kathy Jones, chief fixed income strategist at Charles Schwab, described the move as “Mnuchin decides to quit and take his toys with him. Wow.”

https://platform.twitter.com/embed/index.html?creatorScreenName=JeffCoxCNBCcom&dnt=false&embedId=twitter-widget-0&frame=false&hideCard=false&hideThread=false&id=1329544995620020224&lang=en&origin=https%3A%2F%2Fwww.cnbc.com%2F2020%2F11%2F19%2Ftreasury-seeks-to-extend-some-emergency-fed-programs-but-end-others-including-main-street-facility.html&siteScreenName=CNBC&theme=light&widgetsVersion=ed20a2b%3A1601588405575&width=550px Those programs that received Treasury collateral under the CARES Act will be coming to an end.

They include the primary and secondary market corporate credit facilities, under which the Fed purchased corporate bonds, as well as the Municipal Liquidity Facility for state and local governments, the Main Street program and Term Asset-Backed Loan Facility, aimed at keeping the market for those securities liquid.

In addition, Mnuchin requested that the Fed return the unused portion of those funds, which totals $455 billion that he said will be reappropriated.

The programs together didn’t come close to their capacity of more than $2 trillion.

In particular, the Main Street program, geared at businesses with fewer than 15,000 employees, went through several changes, none of which created significant interest from either borrowers or lenders. Through early November, Main Street issued just shy of $4 billion in loans, compared to its $600 billion capacity.

“The Main Street Lending program, which was meant to be the low-interest loans to help people stay afloat, has been an absolute failure. I don’t know of a single hotelier in the entire United States that received a Main Street lending loan,” Chip Rogers, chief executive of the American Hotel & Lodging Association, said Thursday on CNBC’s “Power Lunch.”

However, Mnuchin, along with Powell and other Fed officials, have stressed repeatedly that the programs were successful even with their light take-up. Markets are functioning efficiently, and the programs can be restarted if they are needed.

“Do they need to be extended? This is getting a lot of debate, but I’m going to make the case that whether we extend them or now may not be that material to financial markets,” St. Louis Fed President James Bullard said earlier this week. “We can always start up the liquidity programs again in the future.”

The end of the programs did not come as a complete surprise. Sen. Pat Toomey (R-Pa.) has openly questioned whether Congress should continue to subsidize the facilities.

However, markets largely embraced the Fed’s moves, with the corporate bond-buying program considered integral to stabilizing a massive market that had become gummed up in March. Companies have issued debt at a record pace since.


Jim Cramer: Ten ‘up stocks’ to bet on a year-end rally

Tyler Clifford@_TYLERTHETYLER_


  • “We call them up stocks, the ones that go up all the time and barely ever go down,” CNBC’s Jim Cramer said.
  • “I expect these 10 up stock winners to keep winning as we approach the end of the bizarre year that was 2020,” the “Mad Money” host said.
  • “Money managers pile into these up stocks to show their investors how smart they are when they have to reveal their holdings at the end of the year,” he said.

CNBC’s Jim Cramer on Thursday presented a year-end list of what he calls “up stocks” that investors can buy to bet on a market rally through the end of the year.

“We call them up stocks, the ones that go up all the time and barely ever go down,” the “Mad Money” host said.

The comments come one day after the Dow Jones Industrial Average and S&P 500 slid for two straight sessions, pulling back from fresh highs they set earlier this week. Both indexes climbed 0.15% and 0.39%, respectively, higher on Thursday while the tech-heavy Nasdaq Composite advanced 0.87%.

All three averages finished well off their session lows.

“On the rare occasion when there’s a market-wide pullback, like we had this morning before the averages rebounded,” Cramer said, “you have to buy these up stocks hand over fist.”

Cramer recommended 10 stocks that he would be a buyer of on any pullback through the end of 2020. He also suggested that traders who are willing to take on higher risk can place “deep-in-the-money call options.”

“I expect these 10 up stock winners to keep winning as we approach the end of the bizarre year that was 2020,” he said.

The stock picks are likely to continue making gains at least throughout the backend of what’s been a volatile 12-month trading period, he said. Himself a former hedge fund manager, Cramer said this is the time where institutional investors — the big funds that influence stock trajectories — crowd into the shares that have made some of the best gains of the year.

“Money managers pile into these up stocks to show their investors how smart they are when they have to reveal their holdings at the end of the year,” he said. “You buy the up stocks in late November because Wall Street has a herd mentality and you want the herd working for you, not against you.”

Cramer’s year-end stock list

Square – $191.66, up 206% year to date

PayPal – $190.90, up 76%

Tesla – $499.27, up 497%

Roku – $255.67, up 91%

Amazon – $3,117.02, up 69%

ServiceNow – $514.33, up 82%

Okta – $232.45, up 101%

RingCentral – $296.90, up 76%

Twilio – $295.64, up 201%

Target – $171.37, up 34%

Disclosure: Cramer’s charitable trust owns shares of Amazon.


So long doorbusters! Retailers put deepest discounts online after weeks of deals



  • Instead of one-day doorbusters, retailers like Walmart and Lowe’s are rolling out a drumbeat of holiday deals, making it easier for shoppers to get the best sales from their couch.
  • Some of the popular holiday gifts won’t be available at stores at all. For example, at Walmart the sought-after videogame consoles Sony PlayStation 5 and XBox Series X will be online only.
  • “With Covid, this really changed everything,” said Marshal Cohen, chief retail analyst at The NPD Group. “Now, nobody even wants to be standing next to somebody, let alone fighting a crowd to get something.”

On Thanksgiving Day, eager bargain hunters usually head to the store and shoulder their way through crowded aisles to get a jumpstart on their holiday shopping.

Not this year.

Many of those stores will stay shuttered, and even the word “doorbusters” has largely disappeared from circulars and ads.

Retailers including Walmart and Home Depot have swapped one-day store events for a drumbeat of holiday deals. Sales will last longer. More are online. And rushing to a crowded store on Black Friday may feel not only risky, but also obsolete, since many deep discounts are a click away and some popular items are available only online.

“With Covid, this really changed everything,” said Marshal Cohen, chief retail analyst at The NPD Group. “Now, nobody even wants to be standing next to somebody, let alone fighting a crowd to get something.”

Retailers didn’t wait until Thanksgiving dinner to start their big sales. The first wave of deals began in mid-October and coincided with Amazon’s Prime Day.

So far, that early start to holiday sales seems to be giving retail sales a lift. In October, U.S. sales of general merchandise from apparel and beauty items to office supplies and toys grew 14% year over year, according to NPD data. Those gains added up to $2.9 billion in incremental sales over October 2019.

Deep discounts, but with a twist

Nearly every retailer this year has switched their holiday sales approach to motivate a very different kind of behavior. Staggered shopping. Curbside pickup. And having more elbow room, if customers do choose to shop at stores.

At Walmart, for example, the retail giant split up Black Friday into three separate events and has tried to deemphasize the importance of shopping in person by kicking off each one online. The first began Nov. 4.

Some popular holiday gifts won’t be available at stores at all. For example, at Walmart the sought-after videogame consoles Sony’s PlayStation 5 and Microsoft’s XBox Series X — which each cost $499 — will be online only. Other tech-related items, such as the Apple’s AirPods Pro for $50 off and the Apple Watch Series 3 for $60 off, also will be limited to digital deals.

At Best Buy, the videogame consoles will be online only, too — a move to tamp down on long lines and crowds. Almost all of the retailer’s Black Friday deals went live on its website Sunday. They typically appear online Thanksgiving Day.

Home Depot’s holiday gift display will look noticeably different. The retailer ordered more of fewer items and will space them out at the front of the store to allow customers to keep their distance when plucking them off the shelf, Chief Financial Officer Richard McPhail said. It also stretched out its Black Friday specials to nearly two months.

And Target has made it easier for customers to stay out of stores. This holiday season, it’s doubling the number of parking spots devoted to its curbside service, Drive Up, so customers can get their deals online and retrieve them without stepping inside. Drive Up grew by 500% in the third quarter and has exploded in popularity throughout the pandemic.

The upside of no doorbusters

When retailers announced plans for a stretched-out sales season, Julie Ramhold, a consumer analyst for shopping comparison website DealNews.com, said she was skeptical. She expected to see a lot of fillers and fewer deep discounts. Yet as she’s looked through retailers’ ads and offerings, she said there are still great finds.

“This year, as soon as retailers started rolling out their sales and their deals, we were seeing really good deals that were sort of surprising to me,” she said.

She said retailers have still tried to create urgency by serving up different sales items each time. For example, she said, they are highlighting different merchandise categories from home goods to toys or telling customers that the same deal on a flat-screen TV won’t return again in the next round of sales.

“If you see a good deal, it’s not something that you want to sit back and wait on,” she said. “But the fact that they are lasting longer, if it’s something that’s not in super high demand, you might be able to get it three days after the sales start and you don’t have that same pushy sense of panic of ‘I’ve got to go get this right now.’”

Sparking an impulse buy

NPD’s Cohen said retailers have to work harder to entice shoppers. Impulse buys make up about 25% of all holiday purchases, he said, and that’s something that happens more naturally during one-day events.

“You see something you’re getting for your sister and think ‘What a great deal. I’m going to buy it for myself as well,’” he said.

He said it’s harder to nudge customers toward throwing extra items in their basket when they’re at home rather than in a store with Christmas music, eye-catching displays and the bustle of other holiday shoppers.

“You don’t have the impulse. You don’t have the frenzy. You don’t have the panic-buying. You don’t have the excitement,” Cohen said. “The doorbuster deals are there. However, they’re just not doorbusters. They’re just incentives to buy.”

For some, that leisurely pace may feel refreshing.

Ramhold said she typically maps out a specific game plan of where she needs to be on Thanksgiving Day and Black Friday to get the best deals.

“I feel like it’s been less intensive trying to figure out ‘OK, I need to shop the day before Thanksgiving at this place. And Thanksgiving at this place.’ And all of that,” she said. “I kind of wish this would become the norm.”


Five Reasons Return Of Boeing’s 737 MAX To Service Is Important To National Security

Loren ThompsonSenior Contributor

Aerospace & Defense

Twenty months after it was grounded, the latest version of Boeing’s BA +4.3% 737 jetliner has been given the go-ahead by the U.S. Federal Aviation Administration to return to service. The company will still need to go through a series of recovery steps and carriers will have to implement new training procedures for pilots, but routine service is likely to resume early in the new year.

If only these were routine times. While the MAX, as it is called, was being tested and modified, the coronavirus pandemic severely depressed demand for air travel. Boeing’s internal projections indicate that it may take years before the global transport system reverts to trend, meaning 3-5% growth annually.

That’s a conservative estimate though. Depending on how quickly coronavirus vaccines are distributed, travel could bounce back quickly. There might be a surge in demand for 737s as early as 2021, adding to the backlog of 4,000 orders for the plane that the company has already booked.

Boeing needs that surge, because it is struggling. Thousands of workers have been furloughed, with more layoffs to come. But there is a broader dimension to the 737 story, one that encompasses America’s place in the world and its ability to preserve its status as a superpower. 737 MAX is more important to how that plays out than many people, even industry observers, realize.There’s a lot riding on the wings of the returning 737 MAX besides passengers. 

What follows are five ways in which the return of 737 MAX intersects with U.S. national security. I should note up front that Boeing and several of its key suppliers contribute to my think tank.

Boeing is America’s biggest exporter of advanced technology. Commercial transports—jetliners—are among the most complex technological systems ever created. Only two companies, Boeing and Airbus, have managed to meet global demand across the full breadth of product offerings from single-aisle twinjets to jumbo jets. Boeing’s success at doing this has made it America’s biggest exporter for over a decade.

That fact goes a long way in explaining why America remains the global leader in aerospace, at a time when the U.S. has been losing its competitive edge in other technological sectors such as microelectronics. However, 80% of Boeing’s backlog in commercial aircraft is 737s. You can’t sustain a globally competitive producer of jetliners by just making widebodies. Thus, Boeing’s future in aviation and America’s future in aerospace hinges to a significant degree on whether 737 MAX recovers its status as the world’s most popular commercial transport.

Boeing is a world-class aerospace innovator. Very few companies have accumulated the range of skills in aerospace that Boeing has built up over a century. It is a national asset. The company has been recognized by the National Academy of Engineering for creating some of the greatest technological achievements of the 20th century, including the first widebody jetliner (the 747) and the first commercial transport designed entirely on computers (the 777). The 787 Dreamliner is the first jetliner with a fuselage made from composites rather than metal.

Boeing’s ability to innovate in commercial aviation, in military systems, and in space depends on the willingness of shareholders and stakeholders to make bets on new technology that might not pay off for decades. But it also depends on something else: a steady source of revenue to sustain design and engineering teams working on ideas that are not yet profitable. More than any other product in the company’s lineup over the last 50 years, it is the 737 that has provided that steady cashflow. Without 737 MAX—the only version of 737 Boeing still makes—its capacity for innovation would be hobbled.

Boeing sustains thousands of U.S. companies in its supply chain. Although 80% of the revenues generated by Boeing’s jetliners come from foreign customers, over 80% of the suppliers providing production inputs are located in the United States. The company’s commercial transport lines thus play a vital role in sustaining an industrial ecosystem that supports the entire domestic aerospace sector. Many of these suppliers, such as Collins Aerospace and Spirit AeroSystems SPR +4.6%, also provide essential inputs to military programs like the B-21 bomber.

Boeing is not like the typical multinational enterprise that sets up manufacturing wherever costs are lowest. It has elected to concentrate all of its vast manufacturing capacity within U.S. borders, and draws most of its suppliers from within those borders too. Because aerospace skills are fungible across diverse products, Boeing’s manufacturing strategy enables U.S. producers of defense systems to be less dependent on offshore sources, and makes them more likely to secure low prices due to economies of scale.

Boeing defense and commercial businesses are interdependent. When the Cold War ended, Boeing absorbed several major military contractors to become the second-biggest defense company in the world. Its sprawling defense and space business builds fighter jets, aerial refueling tankers, radar planes, missiles, military satellites and unmanned air vehicles. While the defense side bulks larger today than it did at the height of the commercial transport boom, the two sides of the company are functionally and financially interdependent. If the commercial side falters due to a problem with 737 or some other product, the defense side eventually will too—depriving the Pentagon of a key supplier.

This in part reflects the aforementioned fungibility of skills. Boeing’s tankers, radar planes and maritime patrol aircraft are derived from its commercial transports (including 737). More fundamentally, demand cycles for defense and commercial aerospace products tend to vary inversely, so that when defense is up commercial is down, and vice versa. The financial stability of the enterprise over time thus depends on having a presence in both markets. If 737 does not return to routine service and the commercial business decays, the viability of the military side could be impaired in a future defense downturn.

Boeing is a product of free enterprise—unlike Airbus, unlike Chinese aerospace. The United States and China are currently locked in a great-power struggle, with the outcome likely to be determined by which country has the better system for promoting economic progress. Boeing is a preeminent example of how the American free enterprise system can produce world-class companies that lead their industries in market penetration and innovation. The return of 737 to service is critical to assuring that Boeing does not go the same way as other former industrial icons like General Electric GE +4.3% and U.S. Steel.

Boeing’s competitor Airbus has generated confusion in popular culture about the sources of each company’s success. However, the bottom line is simply this: Boeing became a global leader in aerospace largely through its own energy and enterprise, with only modest assistance from Washington. Airbus from its inception was a recipient of illegal government subsidies, without which its existence would have been doubtful. 737 MAX’s return to service is in part a test of whether America’s last surviving builder of commercial transports, a product of the American economic system, can prevail in a world where its chief rivals have chosen to rely on non-market forces for much of their strength. If Boeing doesn’t recover, that is bad sign for America’s future.


DJ Apple Stock Is Falling Because the Price Already Reflects iPhone 12 Demand — Barrons.com

By Connor Smith

A month after Apple introduced the first two models of its iPhone 12, two analysts are staying on the sidelines.

UBS analyst David Vogt maintained a Neutral rating on Apple stock (ticker: AAPL), with a $115 price target. In a note on Monday, he said a UBS Evidence Lab survey of 7,000 smartphone users in the U.S., U.K., China, Germany, and Japan showed that intent to purchase an iPhone in the next 12 months ticked higher. He estimates fiscal 2021 iPhone sales of 210 million units, but thinks about 230 million units are priced in to the stock.

“Purchase intent is similar to the launch of the iPhone X in 2017, the most recent comparable launch of a ‘supercycle’ iPhone,” he wrote. “While the survey data is directionally positive for demand, we believe the positive inflection is already captured in investor sentiment and buy-side expectations.”

Credit Suisse analyst Matthew Cabral maintained a Neutral rating with a $106 price target on Friday. He noted that wait times to purchase an iPhone from Apple online — which he views as a proxy for initial demand — shows wait times for iPhone 12 Pro and Pro Max extending, while iPhone 12 Mini wait times are largely less than a week. The iPhone 12 and iPhone 12 Pro began selling on Oct. 20. The iPhone 12 Mini and iPhone 12 Pro Max came to market on Nov. 13.

Cabral said such trends support his view that this generation will have a stronger high-end mix, which will push the average selling price higher. But that contrasts with potentially softer sales on the lower-end iPhone 12 and iPhone 12 Mini. He said a factor to monitor is potential supply constraints.

Aside from the iPhones, Vogt notes that investors will be focusing on services growth in fiscal 2021. Last week, Apple announced an App Store program to slash its commission in half for businesses that make $1 million or less in sales on the platform.

“Although Apple recently announced a token commission reduction in our view for small businesses, investors should be hyper-focused on the European Commission investigation into Apple’s business practices and in-app purchase system,” he wrote. “Although purchase intent for iPhones ticked modestly higher in the recent survey data, any further incremental changes to the App Store commission structure could partially offset iPhone upside while negatively impacting sentiment.”

Apple stock was down 2.5% to $114.46 near midday Monday, while the broader S&P 500 index was up less than 0.1%.

Write to Connor Smith at connor.smith@barrons.com

(END) Dow Jones Newswires

November 23, 2020 12:14 ET (17:14 GMT)

Copyright © 2020 Dow Jones & Company, Inc.

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