Alchanati Campbell & Associates
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.