Trump Has The World Where He Wants Them On Fair Trade

It was hard to avoid the carnage in the market yesterday, as early strength in Energy and Utilities slipped into the close, leaving Real Estate as the only sector to close higher on the session.

In fact, crude oil attempted to rebound when President Trump tweeted about a report that Saudi Arabia and the Organization of the Petroleum Exporting Countries (OPEC) were considering production decreases. West Texas Intermediate (WTI) turned lower and dragged equities lower in the process.

Overall, it was clear that buyers were never going to show up during the session. 

Apple’s Angst

Suddenly, the succession question has come back around at Apple (AAPL). There is no denying Tim Cook has been a great operator of the business. However, there was a revelation from supplier Lumentum (LITE).  Apple notified the company of a large order cut for 3D sensors (3DS) used in high-end smartphones, which jarred investors back to 2011.

When Steve Jobs passed away in 2011, Wall Street was worried about the magic continuing, as his legacy included the following:

• Mac
• iPod
• iPhone
• iPad

The company had a great product pipeline and executed it perfectly. But the smartphone magic may be fading, and investors are looking for the next act.

• Smartwatches?
• Services?
• Apple Music?

Now, the ghost of Jobs has reemerged, and investors may not have the patience for the next act to materialize despite how well Cook has run the company. The company made a major mistake when it notified investors it would no longer break out iPhone sales. 

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That raised a red flag, and more than likely, added additional pressure to yesterday’s selling as investors are left to assume the worse. Tim Cook probably won’t be swayed by near-term pressure on the stock, but he understands people are looking for some of that legendary Apple magic.

While Apple was the best-selling electronic device during Alibaba’s “Singles Day,” the overall sales grew at a slower rate, which underscores the issue of a slowing global economy. I should point out that LITE management said it would ramp up 3DS from $10m/quarter to $50m/quarter “at some point.” Finisar Corporation (FNSR) made a similar announcement as it received funds from Apple to expand its Sherman, Texas plant.

Maybe, this will be short-lived.

Summation

Apple is 20% of the S&P Technology sector, which is 26% of the S&P 500, and that means the stock carries a lot of weight: 

• 5.2% of the S&P 500
• 5.3% of the Dow Jones Industrial Average
• 12.5% of the NASDAQ Composite

It will be interesting to see how many Wall Street firms come to the defense of the stock. There have been lowered targets, but most analysts remain at buy ratings. It’s clear the broad market will have a tough time without Apple finding some equilibrium. 

I still have it in my retirement account, and I have no plans to close out the position.

Technical Review

With all eyes on the NASDAQ Composite, technicians are excited about a chance to retest the recent low point of 7050.

It’s a dangerous thing to want it to happen, considering the kind of selling we saw in October that made the charts irrelevant. At some point, we will probably see a perfect double bottom, a simple yet extraordinary effect in the chart formation.

There is some speculation President Trump will meet with his trade team to discuss tariffs on European autos. The reality is that this is all about Germany opening its market to U.S. automobiles right now. The barriers include:

• 10% Tariff
• 9% Value-Added Tax (VAT)

I think tariff talks have been overdone in the media. Any move to hit Europe now would hurt the stock market. I think the Trump administration has the world where he wants them on a fair trade, and even paying a fair share. It would be a lot easier to pay up the North Atlantic Treaty Organization (NATO) dues than creating an army that could take on the United States and Europe from damn near scratch.

The economic backdrop is becoming too fragile to toss in more uncertainty.

Today's Session

The futures were up all morning, but way off the highs.  Home Depot  (HD) had good earnings, and was up  2.5%, but has turned around and is now down 2%.