The stock market took it on the chin on Monday; once again headlines, not fundamentals, triggered investor selling. The biggest loser was technology as Facebook shares face planted, losing more than $36 billion in market value. Semiconductors were also hit. I’d be looking to buy on this dip.
Healthcare stocks also took a hit when President Trump once again promised that drug prices would be lower in the not too distant future. Smaller opioid stocks were hit even harder as the administration vowed to cut addiction and prescription abuse.
S&P 500 Index | -1.42% |
Consumer Discretionary (XLY) | -1.25% |
Consumer Staples (XLP) | -0.98% |
Energy (XLE) | -1.55% |
Financials (XLF) | -0.76% |
Health Care (XLV) | -1.62% |
Industrials (XLI) | -0.80% |
Materials (XLB) | -1.44% |
Real Estate (XLRE) | -0.99% |
Technology (XLK) | -1.98% |
Utilities (XLU) | -0.62% |
EU’s Money Grab
It’s becoming harder for Zuckerberg and company to address pressing concerns with lip service. If management can’t find a way to shore up its lax approach to its fiduciary role with users’ most intimate information, governments on both sides of the Atlantic will.
The latest Facebook scandal also makes it more vulnerable to European regulators that have been desperate to get their hands on cash generated by social media giants.
The market has relied so heavily on a handful of technology names to lead the way that investors have to wonder where leadership might come from. While financials have exhibited some leadership, I’m not sold on if that group would have the coattails to carry the majority of the market higher.
That said, I think technology, even with these kind of publicly embarrassing hiccups and obvious government shakedowns, will lead the market this year and many more to come.
Dow Jones
The Dow Jones Industrial Average finished 158 points off the lows of the session, but off 336 points. Choppy sessions and wild swings have resulted in a pennant chart formation, which suggests a more major breakout in either direction that will happen within days.
Key upside resistance points: 24,950 25,335 25,71 | Key downside support points: 24,540 23,860 |
IPOs to the Rescue
A wave of high-tech initial public offerings are being lined up for their trading debut with Dropbox in the batter’s box. Apparently, there is a major interest and signs that the offering amount will be increased as underwriters exercise rights. There was a time when a slew of hot IPOs would generate the kind of buzz that could spark the entire market, but after the follies of Snap last year, few are sure unicorns can bring instant magic.
Upsetting Elite Applecart
In addition to the mainstream media fanning the flames of Trump firing Mueller and triggering a Constitutional Crisis, there is an undercurrent of anxiety about the level of tariffs the administration will level on China. According to a late report by the Washington Post, early reports of $60.0 billion on Chinese imports will be announced by Friday.
Trade in Goods with China | Exports | Imports | Balance |
January 2017 | 10,071.9 | 41,376.3 | -31,304.4 |
February 2017 | 9,797.8 | 32,763.4 | -22,965.5 |
March 2017 | 9,625.8 | 34,204.7 | -24,578.9 |
April 2017 | 9,839.7 | 37,471.9 | -27,632.2 |
May 2017 | 10,193.3 | 41,801.6 | -31,608.3 |
June 2017 | 9,710.3 | 42,291.9 | -32,581.7 |
July 2017 | 10,045.6 | 43,601.7 | -33,556.1 |
August 2017 | 10,925.1 | 45,819.5 | -34,894.4 |
September 2017 | 10,804.2 | 45,442.0 | -34,637.8 |
October 2017 | 12,967.9 | 48,197.4 | -35,229.5 |
November 2017 | 12,718.2 | 48,148.8 | -35,430.5 |
December 2017 | 13,669.6 | 44,477.8 | -30,808.2 |
TOTAL 2017 | 130,369.5 | 505,597.1 | -375,227.5 |
January 2018 | 9,835.3 | 45,788.0 | -35,952 |
Overall, our trade gap has increased during President Trump’s first year in office, and the lopsided arrangement is getting progressively worse.
Something is going to be done, and Wall Street and China may not like it, and it could hurt all Americans near-term, but the exodus of wealth is worth curbing.
Today’s Session
We have the Fed looming large for tomorrow, and China tariffs looming large Friday, and I think they make the perfect one-two test for the stock market. I think the Fed will commit to three rate hikes this year, including one tomorrow, and I think China will make enough concessions to avoid a so-called Trade War.
Overnight, Premier Li Keqiang told the close of the annual parliament session it could make some trade adjustments including:
-widen access to market
-no longer require transfer of technology to Chinese manufacturers
-protect intellectual property
-improve access to service & manufacturing sectors
-lower import tariffs including on cancer drugs
It’s going to take more than these, but its good start toward something reasonable that could get the Trump administration to back off its rumored threat of $60 billion in new tariffs.
Equity futures are still pointing to indecision, and bias is to the downside despite strong buying of the dip late into yesterday’s session.