Tech Wreck!

Tech wreck!  Stocks closed mixed yesterday as fear surrounding the tech and communications sectors riddled the market. Washington’s recent actions in trade relations are building up pressure on the Fed to reconsider its monetary policy.

 

MY TWO CENTS

 

  1.  Technology and communication services are in the crosshairs.  Tech giants were the mainstays of the current epic bull market and Washington seems ready to step in to put an end to it.  Over the weekend, in yesterday’s session, and WHILE YOU SLEPT, reports that the Federal Trade Commission, the Department of Justice, and a bi-partisan group of lawmakers from the House Judiciary Committee are taking a close look into the trade practices of Google/Alphabet, Amazon, Facebook, and Apple.  While it is too early to tell exactly what, if any action will be taken against the tech behemoths, investors were taking no chances yesterday, selling shares in both the communications services sector and the information technology sector, which were down -2.79% and -1.76% respectively.  The New York FANG+ Index was down -3.54% and the tech-heavy NASDAQ Composite Index fell by -1.61% bringing it into correction territory.

 

  1.  Pressure is mounting on the Federal Reserve. Despite all of the happy rhetoric coming out of Fed governors in their recent speeches, they are surely concerned with the negative effects of what is quickly escalating into a global trade war.  Since the last Fed policy meeting, the Trump Administration has raised tariffs on China, pulled India off a list of emerging nations effectively raising tariffs on its imports, and added a 5% tariff on all Mexican imports to the US.  Trade negotiations with China have all but fallen apart in the past several weeks as both sides are turning up the heat and the Trump administration has taken aim at one of China’s largest communications equipment providers.  The economic fallout has not yet shown up in the numbers but bond traders are not taking any chances as they pile into longer maturity treasuries betting on slow growth and rate cuts.  The buying has effectively caused the 3-month/10-year yield curve to invert, which is a high probability signal of an impending recession.  Yesterday, St. Louis Fed President James Bullard said that a “a rate cut may be warranted soon” and Fed Funds Futures have priced in an almost 70% chance of two 25 basis point rate cuts by October.  That probability was only around 30% a month ago.  The next FOMC policy meeting is 15 days away.

 

THE MARKETS

 

Stocks spent yesterday’s session under pressure as traders sold off technology shares on news of federal scrutiny, manufacturing PMI’s slowed, and construction spending came in flat.  The oversold conditions prompted some late session buying which helped the Dow Jones Industrial Average close up by a slim +0.02% and the Russell 2000 climb by +0.31%, while the S&P 500 slipped by -0.28% and the NASDAQ 100 fell by -2.10%.  Technology is heavily weighted in the latter two indices, which explains the losses.  Bonds climbed again yesterday bringing 10-year treasury yields down by -5 basis points to 2.07%.  The 3-month/10 year yield curve closed out the session at -26 basis, inverted for the 8th straight session.  Crude oil slipped further and gold jumped for a second straight day to $1325/OZ, up roughly +3.5% in the last several sessions.

 

WHAT’S NXT

 

– The US Census Bureau will release Factory Orders which are expected to have declined by -1.0% compared to the prior month’s +1.9% growth.

– Final Durable Goods Orders will come out today as well.  They fell by -2.1% previously.  It is important to note that both the Durables and Factory Orders numbers are for the month of April, which does not account for any of the fallout from the recent tariff increases.

– New York Fed President John Williams, Federal Reserve Chairman Jerome Powell, and Fed Governor Lael Brainard will all speak today.  Traders will pay close attention to Powell as he will have an opportunity to set expectations leading up to the next FOMC meeting.  Powell is due to speak around 10:00 AM.

– Tiffany and Navistar both beat earnings before the bell this morning while Salesforce and Gamestop are scheduled to release after the bell.

daily chartbook 2019-06-04

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