It was another seesaw session on Thursday that saw the Dow climb off the canvas and give up one hundred points and then finish the session +98 points, but below its 50 and 300-day moving averages. Moreover, more stocks are breaking down with 155 hitting new 52-week lows on the NY Stock Exchange and 136 on the NASDAQ.
Money center banks led by Citibank (C), JPMorgan Chase (JPM), and Bank of America (BAC) helped the S&P Financial sector snap its 13-day losing streak in hopes the Fed would allow generous buybacks and dividend hikes.
While all but one bank passed the latest round of scrutiny, the Fed is putting a lid on payouts for Goldman Sachs (GS) and Morgan Stanley (MS). Their stocks were under pressure from the news. Other banks are reacting to the news with monster distribution news.
Banks | Buy Back | Dividend |
JPM | $20.7 billion | $0.80 +43% |
C | $17.6 billion | $0.45 +41% |
AXP | $3.4 billion | $0.39 +11% |
WFC | $24.5 billion | $0.43 +10% |
China’s Olive Branch
Technology was the best performing sector after China’s State Administration for Market Regulation approved the merger of Marvell Technology (MRVL) and Cavium (CAVM). It was another goodwill gesture as chip stocks bounced nicely on the news.
The angst over trade has generated selling in tech, especially semiconductors. There is a lot of room for chip stock selling, considering the amazing run these stocks have enjoyed.
Philadelphia Semiconductor Index (SOX)
The top five holdings: Intel (INTC), Nvidia (NVDA), Texas Instruments (TXN), Broadcom (AVGO), and Qualcomm (QCOM):
Recommended
- YTD +4.38%
- 1 year +22.7%
- 5 year +179.3%
Summation
I think these stocks are extremely oversold and should rally much higher upon resolution of the trade dispute.
Today’s Session
This morning’s reports that President Trump is prepared to take the United States out of the World Trade Organization (WTO) knocked the bloom off the rose, as a potential 200 point open for the Dow is now looking like a high double digit start.
It’s unfortunate that headline news and negative assumptions have had so much more impact on the market than actual events and sustained trends. Even when the administration pushes back, as it did this morning on the WTO speculation, the market drags.
Meanwhile… the good news keeps coming.
Yesterday, during the Foxconn plant opening ceremony in Wisconsin, we heard Masa Son say, “I'm voluntarily investing $50 Billion in U.S. because I'm impressed by Trump's Passion and Energy." And it turns out that maybe the original pledge has become $72 billion and counting.
The world is investing in America, and American businesses are increasing their investments, and while there is anxiety tied to trade disputes, it’s unlikely any business would make a snap decision to move manufacturing out of America. The more likely, and worst-case scenario would be businesses hitting the pause button.
Even that carries risk, however. Imagine not having supply available as demand is increasing – the worse mistake any business could make.
U.S. incomes rose 0.4% in May as spending increased 0.2%, the street was looking for +0.4% for both. I like the report, as it points to my theory of a more disciplined consumer. While its clear folks have stepped up spending, when savings starts to drift too low there has been self-correction.
At some point very soon, the market will ignore the nonstop barrage of negative speculation and scuttlebutt that will always see the worst possible outcome.
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