After The Close
Fresh off a three-day holiday weekend, stocks sold off sharply today on renewed concerns about international trade disputes, in conjunction with a retreat in leadership on the part of the tech sector.
China has announced the imposition of increased tariffs on 128 U.S. products, escalating tensions between the world’s two largest economies. The move was not altogether surprising, given the rising rhetoric on trading practices by both sides. But it was nevertheless disappointing. There had been some hope that Treasury Secretary Mnuchin could defuse some of the tensions.
One of the concerns regarding the trade salvos is that they may represent the beginning of a series of initiatives that could slow the wheels of global commerce. In fact, the belief is that the Trump Administration is preparing around round of tariffs to discipline China.
A second worry is that the extent of the negative effects of the trade dispute on corporate profits is unknown. If no further actions were taken by the U.S. or China, the damage might not be all that consequential. But with both sides digging in for what could be a protracted battle, investors are taking profits.
The selling on Wall Street was made worse as sentiment toward technology stocks continued to waver. High-flier Facebook (FB) stock was hurt by concerns that its data was misused, and that some restrictive laws on the use of social media content could be enacted.
In addition, President Trump in a tweet railed against Amazon.com’s (AMZN) business practices, causing investors to worry that some action could be taken against the company.
The technology sector was among the hardest hit today. Tech stocks led the historic bull market higher over the past few years, and their leadership would be hard to replace, since few sectors offer nearly as much growth.
Elsewhere, Monday’s economic news showed strength in the manufacturing sector in March, as reported by the Institute for Supply Management’s (ISM). The ISM’s 59.4 index reading (above 50 indicates expansion) wasn’t quite as big as February’s 60.8, but indicated the economy is still on track. Even here, though, worries surfaced about potential disruption down the road as a result of the initiation of tariffs.
Although stocks finished off their session lows, it was a bad day for investors. The hope is that some positive news on earnings in a couple of weeks could shift the market’s tone.
— Robert Mitkowski
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
12:50 PM EDT
Trade and technology are continuing to play havoc with investors as the second quarter gets under way. To wit, after the Dow Jones Industrial Average and the NASDAQ opened the trading day with nominal losses in, both indexes succumbed to massive selling pressure some 30 minutes into the session.
Indeed, these concerns, specifically about overvaluation in the tech sector, especially among large, high-profile names, and fears about a trade war, following aggressive pronouncements from the President about Mexico and immigration, sent stocks reeling.
In all, as we move into the first part of the afternoon, the Dow is off close to 500 points; the S&P 500 Index, now joining the Dow in correction territory, is down 59 points; and the NASDAQ, under pressure from the unloading of tech stocks is lower by 165 points. Earlier, that index had been down by more than 200 points.
— Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell
Traders were given a bit of a respite on Friday, as the stock and bond markets were closed for the Good Friday holiday. It also marked the beginning of Passover. The break from trading could not have come at a better time, as investors were able to catch their breath after a volatile fortnight of trading that saw the major equity averages seesaw back and forth, with the bears ultimately holding the upper hand during the stretch. There are a number of factors behind the recent heightened volatility in the market, including concerns about trade wars between the United States and China and a more hawkish Federal Reserve. Those concerns are being somewhat offset by continued encouraging data on the U.S. economy.
Last week the U.S. equity indexes staged partial, but uneven, rallies during the abbreviated four-day stretch of trading. That said, the market was not able to erase all of the damage that was done in the final two days of the previous trading week, which saw the Dow Jones Industrial Average tumble nearly 1,200 points. Helping the market last week was another round of supportive data from the business beat, including a better-than-expected final estimate on fourth-quarter GDP, which was revised upward to 2.9%. In addition to the GDP data, we received encouraging reports on consumer confidence and personal income and spending. Further, weekly initial jobless claims fell to a 45-year low for the week ending March 17th, which attests to the strength of the labor market these days. The strong batch of reports on the economy helped provide some support for the stock market, especially on Thursday when the Dow 30, NASDAQ, and the broader S&P 500 Index rallied 255, 114, and 36 points, respectively. The buying was broadbased, with all of the 10 major equity groups finishing well to the upside, and advancing issues leading decliners by a sizable margin on both the Big Board and the NASDAQ.
From a sector perspective, the leadership on Thursday came from the most economically sensitive groups, with large advances in the basic materials, energy, and technology categories. The technology stocks after a phenomenal performance in 2017 have struggled thus far in 2018, but last Thursday was a much needed bullish showing after a difficult two week stretch for the group. There was also some rotation out of the higher-yielding groups to end last week. The utilities, consumer staples, and telecom stocks have been in high demand recently, with the flight to safety on Wall Street and subsequent retreat in fixed-income yields.
Looking at the week at hand, we expect it to be more of the same factors in play for investors. With earnings season still about two weeks away from commencing—JPMorgan Chase (JPM – Free JPMorgan Chase Stock Report) unofficially kicks off the first-quarter reporting season on April 13th—investors will remain focused on the dealings from the nation’s capital, commentary from the Federal Reserve (Chairman Jerome Powell is scheduled to speak about the economy on Friday), and the U.S. business beat. On the latter front, all investors will be eagerly awaiting the latest employment and unemployment data on Friday. That report could have an impact on trading, as investors will be looking at the data for more clues about the strength of the economy and inflation, with average annual wage category of most interest. Prior to the labor market report, we will receive data on the trade gap and manufacturing and nonmanufacturing activity. The manufacturing figures will be released at 10:00 A.M. (EDT) this morning. The data on the manufacturing sector has been every strong in recent months.
Meantime, there was some interesting news from Corporate America to emerge since the closing bell on Thursday afternoon. Specifically, a leading financial daily reported that Walmart Inc. (WMT – Free Walmart Stock Report) is in early-stage talks to possibly acquire health insurer Humana Inc. (HUM). If Walmart were to eventually acquire Humana it would allow the retailing behemoth to tap into Humana's patient population, and expand medical services in its pharmacies to help patients avoid costly ER visits. A potential marriage would also help Walmart to better manage prescription drug use though access to medical records. Shares of the hospitals and managed care providers are pointing lower on the rumor talks.
With less than an hour to go before the commencement of the new trading week stateside, the equity futures are presaging a lower opening for the U.S. stock market. So far overseas, the trading has been mostly positive. The main indexes in Asia were mixed overnight, while the major European bourses are higher, as trading moves into the second half of the session on the Continent. U.S. traders are a bit unnerved this morning by reports that China raised import duties on a $3 billion list of U.S. pork, fruit and other products in an escalating tariff dispute with the Trump Administration. The worry is that the deteriorating trade relations between the world’s two-largest economies might depress global commerce and hurt the global economy. Stay tuned.
– William G. Ferguson
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
