Real estate, the Koreas, Amazon, billionaires, sweating, and the 10-year Treasury Yield,
The Market. Markets closed mixed. The S&P 500 up a mere .11%, Nasdaq up a mere .02%, and the Dow down a mere .05%. US GDP growth slowed to 2.3% in Q1, but above estimates of 2%. Fears of the stock market being way ahead of economic growth make headlines. The current bull market began 9 years ago on March 9, 2009 with a return of 377%. With crazy growth and returns, and record high valuations, investors have had unwavering bids for equities. US market returns have exceeded economic growth, creating a gap where companies are priced to deliver excellent results into perpetuity.
Real estate booming! Home prices in 20 US cities grew at the fastest pace since mid-2014. The 20-city property values index increased 6.8% year-to-date. Real estate sales got a boost from the strong labor market and from borrowing costs still being low. At the same time, there is a shortage of available and affordable listings sending prices higher. US new-home sales increased in March to a four-month high, with single-family home sales rising 4% month-to-month.
Their first date! So cute. The first summit between the two Korean nations in 11 years took place this week. Kim Jong Un, North Korea’s leader, became the first North Korean leader to cross the border into South Korea. This summit marked “a new history’ and an “era of peace” for these nations. Agreements to resolving their 68-year conflict and defusing Kim’s nuclear arsenal are in the pipeline. Good vibes and high-spirits ended the day with the South Korean won up .4% against the dollar.
Amazon. Amazon released their earnings report on Thursday and more than doubled its profits. They also announced a $20 increase in their prime subscription and made a $130 million deal with the US National Football League to stream Thursday night games online. The forecast beat expectations and sent shares up 7% to a new record high, adding $12 billion to Jeff Bezos’s net worth.
“I think, therefore I am”. Statistically speaking, neither the mindset of visualizing yourself as wealthy nor “just think it and it will happen” are likely to make you wealthy. This placebo effect is part of horoscopes and crystals, a list of things that have never been proven to have much value. But here is a list of what billionaires do believe in: be reality-based, work hard, focus on process, read widely, be lucky, and be humble.
Sweating is now attractive. It is estimated that our ancestors, the apex predators of the planet, began consuming meat about 2 million years ago. But hominids didn’t begin using the tools of stones and sticks until 200,000 years ago. According to research, between 2.3 million and 200,000 years ago humans ran game animals to death. The ability to sweat allowed our ancestors to wear out other animals. Human sweat is arguably the most effective cooling system in the animal kingdom.
3%. The 10-year Treasury yield hit a high of 3% this week.With the treasury yields rising, finance stocks are becoming more attractive.
Recommendation of the week: Spend more time understanding the world and more time traveling around and studying the non-US part of the globe.
The Alchanati Campbell and Associates Team
Time Warner & T, sad day for the EDM world, risk, the rich, veggies, denuclearization, weed, and market strategy.
The Market. As the markets closed, it ended on a negative trend. Equities were dragged down on Friday by tech and concerns over the 10 year yield. Despite the consecutive days in the red, the Dow, S&P, and Nasdaq were all able to squeeze out weekly gains of 40, 50, and 60 basis points, respectively.
Apple and Chips. Apple fell another 4.1% today, marking the third straight day in the red. This is the result of recent news that iPhone sales are below expectations. This week, Taiwan Semiconductor ($TSM) lowered its revenue guidance for the year to roughly $7.8 billion, which was far less than the Wall Street estimate of $8.8 billion. Shares of TSM slid, and along with it went shares of APPL. Taiwan Semiconductor is the largest chip supplier for Apple, so the lower guidance has consumers and, more notably, Morgan Stanley, concerned about demand for iPhones, particularly the iPhone X, which is notoriously expensive. Once this Morgan Stanley concern was made public on Thursday, Apple stock took a dive. Along with it went tech, finishing -1.5%.
Justice? You may or may not be familiar with the current situation regarding Time Warner and AT&T. Allow us to give you bedrock of the situation. Time Warner is attempting to merge AT&T. They agreed on a deal way back in 2016 for approximately $85 billion. The issue is that the Department of Justice is not about to let this unfold and the parties involved have been locked in judicial combat this week. Jeff Bewkes, Chief Executive at Time Warner, played the necessity card, saying that this deal was needed in order for the companies to compete against the behemoths of Silicon Valley who are rich in data and technology. Randall Stephenson of AT&T generally got the same point across as Bewkes, with both officials stating that the DOJ concerns were ludicrous. The officials said that there is no way collusion will take place, as the refusal to offer Time Warner content to AT&T's rival providers will only lead to a loss in revenue for the companies, which would make no sense for them. Should the deal go through? Will the deal go through? Find out next time on Data: The Ongoing Suspicion of Corruption! (You know because Time Warner is a cable company..)
DJ Avicii. Swedish DJ, Time Bergling, passed away this morning. He is a Grammy nominee and an EDM rockstar who changed the world of music. Dead at age 28.
Biggest risk to global growth is the US. The International Monetary Fund projects global growth of 4% this year, and US growth of 2.9%. These are strong growth percentages that beat most estimates, but they do not factor in the risks. The first risk is hiking interest rates which will put stress on economies grown accustomed to cheap money. The second risk is the new enacted Tax-Reform Law and budget which adds to the debt that is 110% of GDP. The third risk is the tension over trade. With President Trump going against America’s longstanding commitment to open markets and liberal trade, he has initiated a trade war that he “expects to win” which would cause stormy weather for world markets.
The rich live longer. If anyone ever tells you, “money isn’t everything”, tell them this: The richest 1% of American women by income live more than 10 years longer than the poorest 1% of women, and for men, the gap between the richest and poorest is 15 years. It costs money to live with expenses like health care that are expected to grow which would cause it to be more expensive to live longer.
[Don’t] eat your vegetables. The US Centers for Disease Control and Prevention has released a warning about an E. Coli outbreak connected to romaine lettuce grown in Yuma, Arizona. 53 people in 16 states have been affected and 31 of those have been hospitalized.
The path of denuclearization. North Korean leader, Kim Jong Un, has announced the closure of their missile testing program and nuclear test sites. North Korea decided to open up a new chapter for their nation that included economic growth.
Just blaze. Today, Chuck Schumer, D-N.Y., announced that he would be introducing a bill to decriminalize marijuana federally. Since the The Controlled Substances Act of 1970, marijuana has been listed as a schedule-I controlled substance alongside heroin and cocaine. Schumer’s proposed legislation would remove marijuana from the list of controlled substances, provide funding for more research on the drug’s public health impact, and maintain federal authority to regulate commercial advertising of the drug. "It's time we allow states, once and for all, to have the power to decide what works best for them," the senator said in a tweet. With 29 states having legalized medical and 9 states legalizing recreational marijuana, a posture of deregulation is becoming more popular, and for good reasons. In a study released this year, the legalization of marijuana was found to have added $58 million to Colorado’s local economy. Wall Street is also rewarding the marijuana business, with cannabinoid drug maker W Pharmaceuticals PL-ADR (GWPH) gaining 1,110 percent since its inception. With decriminalization being introduced federally and legalization passing state by state, a deregulated marijuana market could mean big gains for investors.
Market Strategy. Increased volatility, high valuations, rising interest rates, and a long bull market can cause investors to fear. But this fear should not cause you to not put your money to work in the market. There are three market strategies for deploying large cash allocations into this market:
1) Invest a limp sum and ride the market
2) Wait for the market to fall and invest at a better entry point
3) Dollar cost average into the market and spread your risks
Research has shown that investors would do best by investing a lump sum and that lump sum investing beat dollar cost averaging about 2/3 of the time. But now with this market valuation, the smarter market strategy is dollar cost averaging which will help decrease current market risk.
The Alchanati Campbell and Associates Team
Global debt, the Model Y, divorce, wisdom from the wise, new market strategy, behavior economics, and the impact of higher interest rates.
The Market. As trading day came to its end on Friday the 13th, equities were sitting in the green for the week (though they are down on the day). The Dow, S&P500, and Nasdaq were all positive. Notably, the stock market is almost recouping all of its losses that occurred in the earlier, volatility riddled months of 2018. Lets talk about it.
CPI. The Consumer Price Index was released on Wednesday. There are two main types of inflation measures out there: CPI and PCE. Now, within these two types, there are another two types. Basic vs. Core. When looking at the core inflation, food and energy are excluded from the calculation due to their wild volatility. For the month of March, it put Core CPI at a 2.1% increase year over year (higher than estimated). Core Personal Consumption Expenditures (PCE) came in at 1.6%. Important to note, the PCE is the inflation measure that the Federal Reserve primarily cares about. Moreover, they've held a target of 2% for the PCE. We're not quite there, but many analysts and economists alike believe that it will hit that mark this year for a multitude of reasons, including the tightening labor market, the weakening of the USD, the massive corporate tax cut that came into effect in January, and an increase in government spending.
These higher inflation measures are leading many to believe that the Fed will hike interest rates 3 more times in 2018, not 2 more times as was anticipated.
’Tis the Season. Friday the 13th marks the unofficial/accepted beginning of earnings season. Investors are highly anticipating a strong earnings season, thanks in no small part to the tax plan we talked about previously. Today, JP Morgan Chase (-2.71%), Citigroup (-1.55%), and Wells Fargo (-3.43%). JP Morgan and Citigroup both beat their estimated earnings. Wells Fargo posted a 6% increase in profit, but is facing a $1 billion settlement as they are being investigated. This investigation stems from the opening of fake accounts by their employees.
Zuck vs. The Mob. Facebook CEO Mark Zuckerberg faced Congress this week to address recent concerns over user privacy and the company's overall business model. For two days, Zuck was asked over 600 questions by 100 lawmakers, including questions into whether the company should be regulated, whether it intentionally censors conservative ideas, and whether the Russian government disrupted the 2016 election using the platform. Despite the grilling, Zuckerberg's appearance in the capital seems to have had a positive effect on investors, with Facebook stock increasing 4.5 percent. The future of the stock is unclear. Regulation and a more easily accessible opt-out policy could significantly damage Facebook's quarterly reports. With questions of regulation looming, investors should be skeptical of Facebook bulls.
The Model Y. Tesla plans to begin production of the Model Y in November of 2019; the new all-electric crossover.
Divorce. 54% of baby boomer women and 61% of millennial women leave major investing and financial planning decisions to their spouses. 59% of widows and divorcees wish they had been more involved in finances while they were married. Now after being divorced, the financial decisions become their responsibility and when you had no prior experience with dealing with money management and finances, you can be in trouble.
The New Market. Markets hate uncertainty, but the world is always an uncertain place, When the Ebola pandemic began a couple years ago, US equities dropped 9%. But this can be justified: if millions died and global commerce halted, a 9% correction is reasonable. The stock market engages in catastrophic thinking. When presented with risk, it immediately images the worst. This new view of the market can be seen recently when the risk to trade and protectionism dropped the markets into multiple corrections. This abrupt behavior from the stock market must be considered when investing from now on.
Regret. Senior citizens flashback to their youth and give advice on what they would change about their financial planning. Here are some of the mistakes they made:
“We shape our buildings and afterwards our buildings shape us” -Winston Churchill. Do stock market investors take more risk when working on higher floors? Just like how people are more creative in rooms with high ceilings and just like how people are more likely to donate to charities in brightly lit settings, people are more prone to take more risks when on higher floors.
Higher rates are coming! Global debt reached a record $237 trillion in 2017. Higher interest rates will increase the financial distress for highly indebted corporations and countries, it will generate large losses on existing debt holdings, it will drive investors to invest in bonds than in stocks, it will divert cash from investing to increase economic growth to servicing debt, and lastly, higher interest rates will male it more expensive for the US to deploy fiscal stimulus.
The Alchanati Campbell & Associates Team
The US either has relationship problems and needs to seek couples therapy or it has anger management issues because it is mad at the world! Sparking a trade war with China (“China devotes to fight to the end”), imposing sanctions on Russian tycoons and allies of Vladimir Putin, childish tantrums against Amazon on Twitter, multiple rate hikes this year… let me refer you to my therapist.
S&P500: (-2.19%) Dow: (-2.34%) Nasdaq: (-2.28%) Russell: (-1.92%) 10 Year: (-2.01%) Oil: (-2.50%) Gold: (0.66%).
The Market. That sense of stability that seemed to be poking its head when Larry Kudlow spoke earlier this week is all but vanished. In the blood bath that was April 6th, there wasn’t much left standing. The 3 major indexes were down by over 200 basis points. As a result, the yield for the 10 year treasury bond also was driven down approximately 200 basis points. Remember, bond yield moves inversely to bond price. As equities were taking a beating, investors moved toward debt investments. This caused the price of the bond to go up, which then led to a decrease in yield. Trump unleashed the most recent $100 billion wave of tariff threats to China last night, which only stirred the pot that Kudlow tried to settle earlier this week. China responded by lacing up their figurative boots.
The Tension. Today, President Donald Trump sent the markets into a spiral. Thursday night, the president seemed poised to continue escalating trade tension with China. The White House said that Trump was considering a $100 billion tariff on more Chinese goods. In a statement, Chinese officials threatened to retaliate if Trump's new tariff were to be imposed. Investors may bearish because of the increased cost the tariffs cause for business owners. Many US businesses rely on Chinese products and supply chains to keep costs down. The Beer Institute claims that the 10% aluminum tariff would add $350 million dollars of extra cost to American brewers. Whether for good or for bad, markets look more and more bearish as Trump and China continue to beef. Because China is more of an exporter than an importer and because of the trade surplus China has with the US (China can not impose any more tariffs on the US because they only imported $131 billion in US goods last year and the US announced imposing $150 billion in new tariffs; 150 > 131) Chinese authorities can consider selling a large holding of US Treasuries or limit further access of US companies to Chinese markets. Goldman Sachs recommends buying shares of companies with large domestic sales exposure.
Something to keep an eye on. The Philadelphia Semiconductor Index ($SOX), which attempts to track the semiconductor industry, fell 3.06% today. This can be attributed to fact that, as a whole, approximately 25% of semiconductor industry revenue is from business with China. We don’t need to spell out what could happen should these steep tariffs go into effect without negotiation. The Nonfarm Payroll came out today, which is essentially a more broad measure of unemployment. The results were below estimates, but not necessarily concerning. In March, the U.S. added approximately 103,000 jobs compared to analyst's expectation of 185,000. The unemployment came in at 4.1%, which is consistent with the past few months. Also, the Department of Labor revised their estimates for January and February jobs, with positive and negative corrections. The net change was approximately 50,000 jobs. While this puts our economy at a weaker level than expected, it is not cause for change in regards to the Federal Reserve's anticipated rate hikes. Jerome Powell, Chairman of the Fed, stated that his view of the economy hasn’t changed much with all that’s been going on lately. In regards to the potential trade war, Mr. Powell feels that it is too soon to know how the tension would impact our economy. However, Mr. Powell does know that the Fed needs to keep raising interest rates as expected in order to fight off inflation. The confirmation of more rate hikes this year undoubtedly had a hand in driving the markets down.
Shorting. You’ve undoubtedly heard the someone say "I'm long on XYZ." Being long on something basically means that you think it is going to go up in price. So, if I'm long on a certain stock, I am probably going to invest in that stock. On the other hand, there is shorting. In case the antonyms don’t give it away, being short on something means you think it is going to go down. With all the turmoil in the markets at the moment, some people may think about shorting. There are a few ways to do this:
*This is NOT investment advice. This is simply information on how to bet against the market. But you already know that.
It’s over with confidence. A study proves how a little learning can turn cautious and conscious decision making into confidence that over exceeds accuracy. Knowing very slim amounts of data might cause you to form quick and self-assured ideas. But with increased experience, overconfidence declines. Personal finance can be an example of this. With primary and secondary schools not teaching the basics of financial literacy, people learn by trial and error. As young adolescences age, overconfidence and financial illiteracy decrease.
Your daily dose of sports. Elgin Baylor, who was the "Kobe before Kobe" as the Los Angeles Lakers head coach Luke Walton put it, is finally getting honored with his own statue outside the Staples center, he will be joining lakers legends Magic Johnson, Kareem Abdul-Jabbar, Jerry West, Shaquille O'Neal, legendary announcer Chick Hearn. Baylor, 83, played 14 seasons for the Lakers both in Minneapolis and in L.A. In the world of golf, that guy from Stanford, four-time green jacket winner Tiger Woods, is making his first Masters appearance since 2015, he's currently tied for 41st place; Woods had been listed as the betting favorite at 9/1 odds of winning it all pre-tournament. To the NFL we go, the LA Rams making some serious off season moves, vamping up their already elite offense who tied the Pats last season with 28.9 points per game for second place behind the super bowl winning eagles. Some of their most notable moves have been the additions of Brandon Cooks WR and Ndamukong Suh DT. Finishing on top of the NFC West with an 11-5 record, the Rams look for another playoff run next season.
The Alchanati Campbell and Associates Team
Negotiating, cannabis and soda fighting for sales, auto financing, hedging, building, and VIXing.
Could it be? The VIX tracks fear in the market. Theres fear from the trade war with China, fear from possible tech regulation, fear from huge debt deficit, fear from bad earning reports… there is fear everywhere! But what if this fear were to be eliminated. What if the trade war saga was just a hoax and what if Tech companies didn’t have problems with hackers steeling data. Then would there be economic growth?
The Market. S&P500: (1.16%) Dow: (0.96%) Nasdaq: (1.45%) Russell: (1.29%) 10 Year: (0.14%) Oil: (0.39%) Gold: (-0.15%). As trading began, it seemed as if today would be a continuation of yesterday's bloodbath as China announced further tariffs on U.S. products. Nearly everything was plunging. However, as the second half of the day kicked off, the market bounced back nicely to see the results posted above. The majority of this can definitely be attributed to the words of Larry Kudlow, the newly appointed Chief Economic Advisor for Donald Trump. Essentially, he explained that there isn't a trade war brewing, and that there are currently negotiations taking place between the two global economic superpowers. This, of course, eased the fears held by investors who fled equities in the first half of the day. They went to investments like gold, which was up sizably during the day but ended lower amidst the stability brought by Kudlow. This stability also led to VIX posting a loss of 4.93% after being up at the front end of the day. Coupled with an expected increased inflow into equities as earnings season approaches, the market was able to end the day with a more stable outlook for the near future.
Losers. One such is Boeing (-1.02%). Boeing has been a target for speculation in regards to the tariffs. Since the U.S. announced tariffs on steel and aluminum, Boeing has been down over 9%. The newly announced Chinese tariffs on U.S. goods includes aircrafts, such as an older Boeing model. Boeing's new 737 model is not in the clear yet, as the details of the tariff and its target products are unclear. What is clear, however, is that the new model airplane for Boeing is being counted on as a major revenue generator. Should the tariff include this aircraft, Boeing and the U.S. would suffer, as our country currently is exporting about $15 billion worth of aircraft to China per year. Boeing is definitely a prominent stock to watch as the dance continues between these countries.
Panic…or fear? A survey was recently released by the Institute of International Finance which found that U.S. markets saw $40 billion in equities pulled in the end of March. This could have been due to a number of things including fear of a trade war, or newly hiked interest rates. Either way, the investors responded by pulling out of the equity market. From here, it is easy to see why and how the VIX was climbing. While not one in the same, panic and fear are similar. Fear often leads to panic, but not always. In my opinion, the fear drastically spiked amongst U.S. investors. Investors like a sense of stability, and that stability has been taken from them as new events have transpired. However, there has been little panic. Panic, in my mind, would be to sell everything and stuff your money your mattress (or in a bank account with FDIC insurance, same difference). This was more systematic. While the amount withdrawn was quite large given the magnitude of events and how it is more speculation than hard facts, this is generally what investors do. When equities are having a rough go, investors move to other products like commodities or debt (bonds). So, while there has been an increase in fear amongst investors, that fear has not necessarily led to panic; thus, the U.S. markets should be able to rest easy for now as earning season approaches and two of the global economic powerhouses are sitting down at the table together.
Negotiations? The Trump administration announced that it’s “willing” to “negotiate” with China. Early today, China disclosed an additional 25% tariff on about $50 billion of US soybeans, automobiles, chemicals, and aircrafts.
Pot vs. Pop. The US legal Cannabis Industry has been booming the past couple years with 9 states including Washington D.C. legalizing recreational marijuana use The industry is expected to reach $75 billion in sales by 2030. Soda sales were $76.4 billion last year, and $78.3 billion in 2016. The decrease in sales is caused by the increase in health-conscious consumers. With more than 1 in 5 American adults allowed to smoke and use recreational marijuana in anyway they please, the Cannabis Industry is set to rise in the coming years.
Zero to One hundred real quick. 0% auto loans were very popular in the height of the 2008-2009 recession. Now with rising interest rates, carmakers’s borrowing costs are rising as well. Total 0% auto loan offers fell to 7.4% last month from 11% the previous year. This means that less carmakers are offering 0% interest auto loans (AKA no interest on the money you borrow to buy your car). This month, the average interest rate on new car loans rose to 5.7%; the highest auto loan interest rate average since 2009. One of the most significant indicators is rising debt. Being able to buy a car with a 0% annual percentage rate is very risky for carmakers. This could lead to an increase of buyers who are not creditworthy and who have a higher probability of defaulting on their car payments. With more defaults on auto loans, the already auto-debt market bubble could burst.
Building the wall. Early this week, Trump announced that he will be deploying the military to guard the US-Mexico border. With a lack of funding for “the wall”, Trump said he would resort to the military until “the wall” is built and proper security is met.
When shit hits the fan. When the market crashes, history has taught us that Gold, emerging markets, and International equities are good investments. History says Gold is a safe haven and a hedge. When the market crashes, the US dollar loses its value from increases in money supply from monetary policy and debt expansion from fiscal policy as well as inflation increasing. Emerging markets and International equities are suppose to be a fair safe haven, but now with the trade war between China and the US, are these good hedges against our falling market? Brazil is said to benefit if the trade war continues. Their soy beans will take the markets from the US.
The VIX. The VIX is an index that shows the volatility (the movement) in the S&P 500 index. During the 2008-2009 recession, the VIX spiked about 370% from around 17.00 to 80.00. Recently during the early February correction caused by disappointing Q4 earning results for big Tech firms, the VIX rose about 212% from around 12.00 to 37.50. Maybe its time to look into options trading for the VIX…
Your daily dose of sports. It was reported that a letter from Lebron’s agent was sent to Nick Saban, head coach of Texas A&M’s football team, which claimed that their barber shop show “Shop Talk” violated copyright trademark rights. On Tuesday, Saban said publicly that they are going to continue with the show regardless of James’s legal threats because there’s no copyright infringement’s happening. In the MLB, Shohei Ohtani, a Japanese baseball player who plays for the Los Angeles Angels, had a huge game yesterday and homered in his second straight game today. Wednesday's home run was a two-run bomb in the fifth inning against the Indians. In the NFL, RGIII signs a one year deal with Baltimore after not playing at all last season. In 2016, he had a short stunt with the Browns which ended after he went down due to injury. He’s a great player, you can see it in his play, but he just has to stay healthy and take care of himself.
The Alchanati Campbell and Associates Team
The rebound, please don’t stop the music, Tesla fights back, and the controversy between markets and news.
Lackluster day. S&P500: (1.26%) DOW: (1.65%) NASDAQ: (1.04%) 10 Year: (1.90%) Oil: (0.89%) Gold: (-0.13%). The stock market enjoyed a nice rebound today after plunging yesterday due to a multitude of reasons: newly placed tariffs from China, worries over tech regulation, and an overall outlook of "sell" as we've entered correction territory. With a climb just north of 70 points, the NASDAQ retrieved some of the 2018 gains that were completely wiped out as of yesterday. For those that do not know, the NASDAQ is extremely tech heavy. With tech seemingly leading the market with every climb and plunge, it should be an index of much focus. While this is of course subjective, the NASDAQ may just be the best measure of the market in todays world in which tech becomes more pressing everyday. While the NASDAQ gets most of the heavy hitting tech stocks, that’s not always the case.
Welcome to the party Spotify. Spotify Technology SA (ticker $SPOT) began trading on the New York Stock Exchange today. The minimum set price by the NYSE was $132/share and at opening jumped to $165.90/share, and then closed at $149.01/share. Patience is key.
The President vs. Amazon. One big headline that’s been circulating this past week is President Trump's verbal assault on Amazon. He is attacking them due to his belief that their business with the USPS is costing the Postal Service money, and that they are taking advantage of them. This attack by the White House (along with other reasons) has sent Amazon stock down in the past week. However, White House officials stated that there are currently no plans to take action against Amazon. Shareholders responded by sending Amazon stock up 1.46%. This should be taken as good news for the entire industry, as reluctance to go after a heavy hitting tech company could show that there will be less interference/regulation from the government. However, this country has bore witness to the Trump Administration reversing its views, so tech names shouldn't be patting themselves on the back just yet.
The President vs. Trade. And the plot thickens... President Donald Trump has unveiled a new $50 billion tariff on Chinese semiconductors, car and aircraft parts, and machine tools. The tariff comes as a reaction to yesterday's $3 billion tariff by China. The growing conflict deepens the divide between the world’s two largest economies, the effects likely to impact US supply chains and product prices. The Trump administration is also likely to set quotas on Chinese investment into the US. Traders should expect tech industry and industrial stocks to remain volatile.
Sleeping on the job. Elon Musk, Tesla’s CEO, jokingly tweeted a photo of him sleeping in the Tesla factory on Sunday with speculation of production of the Model 3 not meeting the target level. Today, Tesla announced it built 2,020 of its Model 3 sedans in the last 7 days. The target production rate of 5,000 units per week is the goal Tesla plans too achieve in the next 3 months. With this news, Tesla does not need to raise any equity or debt this year. Tesla was up 6% at closing.
Markets drive news. A very interesting contrary to the widespread belief of news driving prices is prices driving the news. Many believe that all known information is incorporated into prices and we all know how random day-to-day prices can be and how quickly they can reverse themselves. Because of disproportionate coverage, news media can cause a distorted view of the world. The lesson to be learned is: the tendency to pay attention to stories and not real data can be disastrous for investors.
Your daily dose of sports. Last nights Championship game was close throughout the first half. It wasn’t until the second half when Michigan became careless and fancy. Turn over after turnover fueled the Super Nova and Donte DiVincenzo to have a scoring burst to leave behind the Wolverines and seal the second National Championship for the Wildcats in three seasons. More in basketball, the Lakers look to snap their five game losing skid tonight against the Jazz and the number 1 seeded Raptors are in the land facing a three seeded Cavs team who are finally looking like themselves at four o’clock pacific time. Tiger Woods will begin his quest for a fifth Masters on Thursday. Stay tuned and we will keep you updated for more on these contests.
The Alchanati Campbell and Associates Team
Welcome to Q2, what a bloody mess, Apple is not a team player, and China does not like avocado toast.
The Market. S&P500: (-2.23%) DOW: (-1.90%) NASDAQ: (-2.74%) RUSSEL: (-2.41%) 10 Year: (-0.33%). Today, we witnessed a murder of tech. Giant companies such as Amazon, Microsoft , and Tesla saw sizable drops amongst other companies. While there are multiple reasons for declines in the stock price of each of these companies, there is undoubtedly an influence from trade war worries.
Below the 200-day. The S&P 500 fell below its 200-day moving average and this marks the first time it has done this since June 2016. The 200-day is a technical level used to indicate long-term momentum. Before today, the S&P 500 closed above its 200-day moving average for 443 sessions. The Dow Jones and Nasdaq are still able their 200-day moving averages.
Is this Facebook's fault? We say NO. Are they helping the matter? Also, NO. The whole data selling scandal that rocked Facebook in late March is definitely contributing to this tech sell-off, and this sell-off is definitely anchoring the market down. As Facebook is being investigated, we can already smell the freshly printed regulations on tech companies in regards to sensitive consumer information. Okay, Okay. Maybe its not that far along yet, but don’t be surprised if it gets there. Worries of increased regulation on tech companies is a partial cause of the sell-off in tech companies. Investors are worried that if tech companies have more regulation, they will be more limited in the corners they can cut. This would in turn lead to a decrease in profitability and the like. While the Trump Administration did run against regulation, it shouldn’t surprise people to see them act against that view. This sell-off in tech is far too complex to be the result of one event. It is relatively rare to see one event shake the market too this degree (officially in correction territory). It is the culmination of multiple events: The fear of a trade war between two economic superpowers that would shake the entire global economic landscape, the fear of regulation in a sector (tech) that has anchored the U.S. markets to new heights, and the overall fear that one day the U.S. markets would stop climbing on a consistent basis.The common denominator in these events is fear. We suppose that its no wonder that pesky VIX keeps on going up.
The Red Scare. There’s blood in the water. Today, the second largest economy slammed the US with 128 tariffs - including a 25% on pork and a 15% tariff on nuts and fruit (including dried avocado?). The tariffs come as a huge blow to American agriculture, one of the US’s largest export markets to China. Tyson foods is down 4.6%. Coincidentally, the tariffs also target one of Trump's largest voting blocks: rural voters. China's response follows a turbulent March, where president Donald Trump repeatedly provoked threats of steel/aluminum tariffs and “trade war”. Remember, all this started when President Trump expressed his concerns at the growing trade deficit with China. Furthermore, the U.S. is claiming that doing business with China requires partners to sacrifice IP (intellectual property). If this is true (China says no), it can be extremely detrimental especially considering that the U.S. and China are often racing towards the most innovative technology.
Apple to Intel, “Sorry, not sorry.” Apple is planning to use its own processing chips in Mac computers. Their current chip provider is Intel and Apple provides Intel with about 5% of its annual revenue. This is said to begin as early as 2020 and this would be a huge blow for Intel. Intel is down 6% at closing.
Chaos is chaotic. Chaos Theory is the science of surprises of the unpredictable, where we expect the unexpected, where nonlinear things are not impossible to predict, and where chaotic behavior and unpredictability can have perfectly deterministic equations. Was today’s market selloff “chaos”? Some of the principles of the Chaos Theory are the Butterfly Effect and Unpredictability and this is our explanation of why it was chaos:
The Butterfly Effect. When President Trump first announced Tariffs on China at the end of March, a cause of this trade war can be a real nuclear war. Trade wars can cause starvation, wage disparity, and can cause an increased pressure on power struggle. In the countries that are benefiting from the tariffs, the tariffs increase their real exchange rates and increase their currency. The trade war against the US and China has caused the US markets to fall below key indicators, erase returns, and cause a scare for investors. The same effects can be seen in China with Chinese companies and in Europe with their markets being impacted by this. A real nuclear war being an effect from the trade war is due to the zero sum game and the reasons listed above. Zero sum game is a game theory which each participant’s gain or loss is exactly balanced by the losses or gains of the other participants. A trade war can be detrimental for both nations and can get out of hand very quickly.
Unpredictability. President Trump does not know the effects his tweets have on the US economy and the World economy as a whole before he sends them out. Today, the President tweeted criticism against Amazon and how they are destroying the US Postal Service and how they are not paying an appropriate amount of taxes. This is a continuous hatred Trump has towards Amazon. Amazon is down 5% at closing and 12% in the last five trading days.
Your daily dose of sports. With no NBA games scheduled for today, we go straight into the Mens NCAA tournament. Michigan beats Loyola Chicago behind Moe Wagner's stellar performance and Super Nova exploded connecting on 18 treys to set a new NCAA record Saturday night. Kansas never really had a chance, Villanova had eleven threes in the first half; they came out hot. Tonight is the championship game. Two teams left standing, Villanova and Michigan. Now don’t forget, this is college basketball, anything can happen. Even though Nova are the heavy favorites, an eleven seed did make it all the way to the final four and a sixteen seed did upset a one seed. We will be back with the results tomorrow, stay tuned.
The Alchanati Campbell and Associates Team
WHAT'S UP FRIDAY? is a weekly newsletter that will give you a summary of "What's up?" on Wall Street, in the US and around the World written by The Alchanati Campbell and Associates Team. What makes us unique is we focus on long-term knowledge; knowledge that will still be useful to you 10 years from now.