U.S. Secures Taiwan Trade Deal, Micron Moves, 'Algo' Alert!

Good morning, my wonderful readers. For today is Friday. You have, against overwhelming odds, overcome a second consecutive five-day workweek. I have no idea how some of you managed. Congratulations. This Monday, as the third Monday in January, will be observed by the federal government as Martin Luther King Jr Day... In recognition of the non-violent civil rights leader's birthday, financial markets will be closed. After this, there won't be another federal holiday until Feb. 16, so after this one, you'll have to work five days a week for almost a month. I know we can do it. Hang in there. We're all pulling for you.

Such a Deal...

On Tuesday, the U.S. Commerce Department announced that a definitive trade agreement had been reached between the United States and Taiwan. As part of this deal, the reciprocal tariff on goods imported into the U.S. from Taiwan will drop from 20% to 15%, as section 232 duties on auto parts, and wood (timber, lumber, wood-derivatives) will be set at 15%. Generic pharmaceuticals, aircraft components, and specified natural resources will not face any tariffs at all.

The agreement also lays out the plan that Taiwanese companies will make investments of at least $250 billion to build, develop and expand upon advanced semiconductor, energy and AI production capacity inside the U.S. The Taiwanese government will provide credit guarantees of at least $250 billion to help said companies make said investments.

Taiwanese semiconductors, mainly fabricated by Taiwan Semiconductor  (TSM) , which was up 4.4% on Thursday, will face section 232 duties. But those duties will be offset by credits, should the Taiwanese producer build new facilities inside U.S. borders. TSM manufactures its highest end and the majority of its chips in Taiwan, but is developing new and expanding existing facilities in Arizona.

In addition, Taiwanese companies will be able to import up to 2.5 times the chips of planned future U.S. capacity without paying duties during periods of construction. No word just yet on how this news was received in Beijing.

Remember...

When I told readers that I had taken my profits in Micron Technology  (MU)  too early and was waiting for a selloff to get back into the stock? Apparently, there are folks closely linked to the company who see no problem with current price levels. On Thursday, in a regulatory filing, Director Teyin Liu, disclosed that he had purchased 23,200 shares of common stock at prices ranging from $336.63 to $337.50 per share adding up to $7.8 million spent. This brought Teyin Liu's holdings up to 25.910 shares.

On Thursday, analysts Atif Malik of Citigroup, Aaron Rakers of Wells Fargo and Thomas O'Malley of Barclays (all rated at five out of five stars by TipRanks) increased their respective target prices for MU from $330, $335 and $275 to $385, $410 and $450 in that order. Wow.

Thunderstruck

I was caught

In the middle of a railroad track (thunder)

I looked 'round

And I knew there was no turning back (thunder)

My mind raced

And I thought, what could I do? (thunder)

And I knew

There was no help, no help from you (thunder)

Sound of the drums

Beating in my heart

The thunder of guns

Tore me apart

You've been

Thunderstruck

- Angus Young, Malcolm Young (AC/DC), 1990

Marketplace

Though Treasury debt securities suffered a very mild selloff on Thursday, equities did quite well, in a broad sense. Yes, the rotation that our very own James "Rev Shark" DePorre has been discussing was still in play, but not really at the expense of high-tech or the AI trade. The broader rally still outperformed that trade, but that trade still showed gains. It was as if some cash may have come off of the sidelines on Thursday.

While the majors plodded along (The S&P 500 gained 0.26%, while the Nasdaq Composite added 0.25%), the mid-majors took over yet again. The S&P Small Cap 600 gained 1.44%. as the Dow Transports added 1.81%. The KBW Banks finally fought back and gained 1.66% as Morgan Stanley (MS)  led the group on a long touchdown drive.

Interestingly, the Philadelphia Semiconductor Index roared for a gain of 1.76%, bringing the AI trade back to life. That group was led by equipment providers such as KLA Corp  (KLAC)  and Applied Materials  (AMAT) who both have significant business relationships with Taiwan Semiconductor. Software stocks have continued to get pummeled.

Breadth

Breadth was sloppier than one might think with all of the green on the screen. Largely due to weakness in those software stocks and the drop in the price of crude oil. 

Winners beat losers by better than two-to-one at the NYSE and by a rough five-to-four at the Nasdaq. Advancing volume did take a majority share (55.1%) of composite NYSE-listed trade, but only a minority share (46.7%) of composite Nasdaq-listed trade. 

Aggregate trading volume took a day off too, contracting sharply from the day prior across NYSE-listings, across Nasdaq-listings and across the membership of the S&P 500.

Economic Improvement?

It's sure starting to look like it. The Atlanta Fed revised its GDPNow model for the fourth quarter up to growth of 5.3% from 5.1% q/q, seasonally adjusted annual rate on Tuesday. On Wednesday, the weekly report on initial claims for state-level unemployment benefits printed well below consensus while two regional manufacturing sector surveys surprised to the upside.

Both the Empire State and Philadelphia Fed Manufacturing Surveys pleasantly surprised economists on Thursday. New Orders and Shipments accelerated in January for manufacturers based in both the New York and Pennsylvania regions. However, all is not easy like Sunday morning across the board.

Process paid and prices received remained elevated across both regions and this next item is quirky. Number of employees and average workweek both improved in the Philly area but continued to contract in New York.

Algo Alert

Keyword-reading algorithms will likely react at some point on Friday to an expected directive from the White House proposing an emergency power auction where tech companies would bid for new plants to be built. Under this directive, it is expected that power grid operators such as PJM Interconnection will be instructed to hold a power auction. Tech companies will bid for 15-year contracts to build new power plants. Power producer stocks connected to the PJM grid that could do well should such a directive occur might be Vistra  (VST) , Constellation Energy  (CEG) , and NRG Energy  (NRG) .

Economics 

(All Times Eastern)

08:30 - Industrial Production (Dec): Expecting 0.2% m/m, Last 0.2% m/m.

08:30 - Capacity Utilization (Dec): Expecting 0.2% m/m, Last 0.2% m/m.

10:00 - NAHB Housing Market Index (Jan): Expecting 40, Last 39.

1:00 p.m. - Baker Hughes Total Rig Count (Weekly): Last 542.

1:00 - Baker Hughes Oil Rig Count (Weekly): Last 409.

The Fed

(All Times Eastern)

11:00 - Speaker: Reserve Board Gov. Michelle Bowman.

3:30 p.m. - Speaker: Federal Reserve Vice Chair Philip Jefferson.

Today's Earnings Highlights 

(Consensus EPS Expectations)

Before the Open:  (MTB)  (4.47),  (PNC)  (4.23),  (STT)  (2.84)

At the time of publication, Guilfoyle was long TSM equity.