U.S. stocks, overall, didn’t fare all that well, the Fed signaling determination to hike rates in its next FOMC monetary policy meeting. With trade war fears rampant – Trump upping the ante yet again – it was only the NASDAQ that came out unscathed, bucking the trend thanks to the dazzling performance of Apple. Like we noted yesterday, Apple is the stock to watch; nearing $1 trillion, it’s become the stock to own in the current market milieu, other tech stocks facing the backlash of privacy concerns, and offering projections that came out beneath expectations. Apple, though, with Tim Cook at the helm, offered a sanguine forecast of growth to come, the company hitting the nail on the head, growing on all fronts. In a class of its own, Apple singlehandedly carried the market, a market trying to navigate and meander its way through countless minefields. Investors and multinational corporations alike hoping for the end of the ongoing trade war, yesterday, the stakes only got higher!
Trump, yesterday, hoping to add leverage and get China to kowtow his demands, threatened to more than double proposed tariffs on imports. Add to that Congress’s passage of a bill to crimp Beijing’s military and economic activity – especially technological investments in the U.S. – and we had a busy day in the geopolitical sphere. Likewise, on the global front, as the U.S. announced that it was preparing a list of sanctions against Turkey, the lira tumbled to a record low, the country’s 10-year debt likewise seeing a record yield. As for NAFTA, with Trump and China’s Jinping digging in, it seems like progress is being made on the North America front, with a renegotiated pact on the horizon. All of these factors come to show the complexity of international relations and why markets have traded sideways for so long, in a touch and go, inconsistent way.
Throw into the mix a Fed that sees strong economic growth, and makes no mention of the trade war, and investors simply have no clarity about what to expect. In the Fed’s own words, “Economic activity has been rising at a strong rate;” the central bank used the word “strong” on 6 different occasions in its policy statement, both for the economy and the labor market. The Fed’s bankers voting yesterday unanimously to leave rates put, it’s only rational to presume that hikes are on the way. With the economy growing at its fastest annual rate – 4.1%, in Q2 – its best quarterly rate since 2014, now the question is not whether rates will be hiked, but “When?” Inflation is nearing the Fed’s desired 2% clip, now just shy at 1.9%. The question now is whether import tariffs imposed by the U.S. will fuel consumer inflation, with companies far and wide raising prices to make up for higher raw material and input costs. That factor, though, could be offset by a stronger dollar, which may increase U.S. consumers’ purchasing power and quell inflation. China, all else equal, faces the same dynamics and calculus, with a weaker Yuan helping offset the levies imposed by the U.S.
As of now, based on data from S&P Dow Jones Indices, 80% of the S&P 500 stocks reporting have beat profit expectations, far above the historical average of 67%.
Key Private Bank Chief Investment Strategist, Bruce McCain, noted, regarding the overall climate: “It’s hard to separate trade negotiations from escalations in tensions. Both sides have taken shots and made threats, and we have to see how the dust settles. But clearly the risk hasn’t been taken off the table, and the potential for a real escalation with China is much larger than it is with other trading partners.”
One stock of note is Campbell Soup (CPB). After the Wall Street Journal reported that Third Point built a larger than $300 million stake in the company, its stock rose 1.3%. In the hopes of taking an activist role and shaking up things at the slumbering company, we may see continued action down the road.
As for U.S. debt, the 10-year Treasury yield hit 3%, something it had not done since June. Also, keep track of what’s happening with impending mid-terms, Bloomberg reporting that a record number of Democratic challengers are raising more funds than their GOP Opponents. If the Democrats retake the House, we’re sure to see far fewer – if any – massive tax cuts that redistribute funds to the wealthy. The Democrats are more mobilized than ever, anti-Trump sentiment knowing new heights, and we could see a huge shakeup on Capitol Hill, with fiscal policy changing in turn, something all the more palpable, given the Administration’s announcement that it wants to reduce taxation on capital gains by factoring out inflation.
Last but not least, Tesla (TSLA) was a stock to watch yesterday in after-hours trading. In its Q2 report, the company announced stronger than expected revenues. Tesla also assured investors that profitability will become a reality in the second half of the year. Even though the company’s loss per share exceeded analyst expectations, the company was able to leverage its forward guidance to fuel gains. Musk stated that as many as 55,000 Model 3 units could be produced in Q3.
Market Summary: The S&P 500 and the Dow got off to a weak start for August, the NASDAQ carried higher by Apple. The Dow slipped 0.3%, the S&P 500 ending off 0.1%. The NASDAQ tacked on 0.5%, making it the day’s clear winner.
Economic Calendar: At 8:30, weekly jobless claims will be released, followed by factory orders at 10:00. More importantly, on Friday, nonfarm payrolls will be released, along with the unemployment, the duo packing a powerful punch, with the ability to significantly move markets.
Hot Stocks: FIT, WYNN, TRIP, TSLA