THE BOTTOM LINE: The iPhone X is here, Nintendo roars back, and what could derail the market

This week:

  • Business Insider CEO Henry Blodget and chief tech correspondent Steve Kovach discuss Apple‘s new iPhone X. Kovach got the phone before its release, and says he loves it, citing the functionality and screen presentation, and praising the Face ID feature. He notes that the muted excitement over the iPhone 8 release just over a month ago might’ve been because people were holding out for the X, which he says suggests people aren’t scared about the $US1,000 price tag.
  • Blodget and Kovach talk about what the iPhone X launch could mean for Apple’s stock, which has historically rallied into new product events. Kovach says that iPhone X sales will easily bleed into next quarter, because of the lead time required to pre-order one. Blodget then runs through some analyst forecasts, including Piper Jaffray, which says that Apple’s stock can hit $US200 backed by an increase in the phone’s average selling price, which would bring its market cap to $US1 trillion.
  • Blodget and Kovach then break down Nintendo, which has seen its stock surge following the release of its new Switch gaming console, which is a huge upgrade over the Wii U. Blodget points out the company’s stock history, which saw shares peak around 2008 after the launch of the original Wii, but has since fallen considerably. Kovach notes that a big selling point for the Switch is that it’s portable for users, something that people have said Nintendo needed to do for years. He also highlights the blockbuster games released by the company, including a new Zelda title, as well as Super Mario Odyssey. Kovach says that the new Mario game in particular is incredibly innovative, despite how long the character has been around.
  • Blodget discusses a recent Jefferies research report on Nintendo, which argues that while the Switch is the company’s near-term driver, its long-term catalyst will be what it does on mobile. Kovach thinks that Nintendo has done well to adjust to mobile, and says that people will pay for reasonably priced games.
  • Blodget breaks down a recent concern being voiced by some strategists on Wall Street, which is that investor cash levels are too low. He notes that previous lows like this have sometimes correlated with a peak in the market, but that Goldman Sachs says that cash holdings are totally normal. Executive editor Sara Silverstein says that she believes Goldman, and that other firms are making the mistake of focusing on private holdings. She argues that people might be putting cash to work in low-risk investments, just so they don’t have to pay to hold cash anymore. Blodget suggests that this could suggest the overexuberance often seen at markets tops, which Silverstein doesn’t buy.
  • For the Fidelity Insight segment, Silverstein breaks down a recent research note from Jurien Timmer, the director of global macro at Fidelity. He notes that earnings have started to decelerate, but says they still look good, while calling fears of a bubble overblown. Timmer does, however, think that a hard landing in China could sour the global earnings picture and price down worldwide stock prices. He also mentions the possibility of the Fed tightening faster than they have previously indicated, or not matching investor expectations.
  • Silverstein speaks with Kristina Hooper, the global market strategist at Invesco, about whether the 8 1/2-year equity bull market still has legs. She says that it can continue for a while, but that every day it stretches on, it gets more vulnerable. She notes lofty valuations, which are high relative to the 10-year average, and says that much of the run-up has been due to investor expectations. Hooper says that the market is currently priced for legislative perfection, and that we might not get close to that. In terms of bullish factors, Hooper says that stocks are being underpinned by continued accommodative monetary policy, as well as global economic expansion.
  • In terms of key legislation, Hooper says the most is at stake with regard to the corporate tax plan. She thinks we’re likely to see a lot of negotiation, but ultimately thinks that a 20% tax rate needs to be preserved, and that we need the immediate expensive of capital investment. Hooper stresses that market stability is dependent on tax reform, and that until we have an official bill, it will remain a guessing game.
  • Hooper says there’s still a lot of value to be had globally, as well as in the US. She highlights the emerging-markets space as having a favourable valuation relative to the US market, as well as higher growth rates, and says it’s a great complement to US exposure. Hooper also mentions international developed markets like Europe, and stresses the importance of global diversification. In the US, she says that there are still tech stocks that look attractive relative to historical valuations, given their growth profile. Then she discusses dividend-yielding stocks, which she thinks will be crucial as the hunt for income continues.
  • Hooper praises outgoing Federal Reserve Chief Janet Yellen, and says that history will be kind to her with regard to data-dependent rate hikes. She says that new Federal Reserve Chair Jerome Powell should have an appreciation for the thoughtful policies that helped us over the past decade.

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