If booting General Electric (GE) from the blue chip Dow was supposed to be a harbinger of better things to come, the hope is yet to pan out. Even though GE was a very small component of the index seeing that it’s price-weighted, there was hope that something would jog the Dow back onto a winning streak. But that’s not what happened yesterday. Fears of a trade war still prevailed on the industrial heavy Dow, the S&P 500 and the NASDAQ climbing, surmounting – or shrugging off – fears. As we wrote yesterday, live trading was dominated by issues pertaining to the current trade war. While companies have been very vocal in their opposition to a trade war, Apple’s Tim Cook trying to butter up both Trump and Jinping, there still isn’t a clear light at the end of the tunnel.
Tao Wang, head of Asia economics at UBS, noted that it “is difficult to predict the time or conditions for that to happen at this stage, as the U.S. and China have some fundamental differences on key issues, and there does not appear to be a clearly defined set of economic rationales or bottom line from the US side.”
By the same token, tech-heavy NASDAQ notched off a new record, up 55.93 points. A biotech stock rally fueled the gains, the iShares Nasdaq Biotechnology ETF (IBB) ending up 1.7%. The small-cap Russell 2000 (RUT) was up 0.8%, likewise trading at an all-time high. As we’ve noted time in and time out on our online day trading chat rooms, the Russell 2000 reflects geopolitical trends in that it’s an indicator of investor sentiment regarding a trade war breakout. With a high concentration of companies with U.S. operations without major international arms, like gold or any other safe have asset, the Russell represents a place to run when markets get rattled.
That notwithstanding, at times like this, you need a stock market mentor to navigate day trading live; with so many twists and turns live day trading offers no promise now of any trend perpetuating itself. The Dow has been on a Dow trend, but could soar, theoretically, from one day to the next. Fears come and go, and far be it from us to say so, but fundamentals are the last thing that’s dominating this market now. Day trading chat rooms are not focusing on fundamentals, price corrections to fair valuations, but rather, Trump’s next tweet, or China’s next jab. Even oil is now less a matter of organic demand but rather shifting geopolitical alliances, pitting the U.S. against Europe on Iran, with China, now possibly on track to become a large importer of Iranian oil were it to boycott U.S. exports. And throw OPEC’s indecisiveness into the mix – because it’s watching China’s next move which is watching the U.S.’s next move – and frankly put, there’s little advice to offer over and beyond trading individual stocks based on large endogenous or exogenous shocks, and looking to make money off of IPOs which haven’t been lacking of late.
One stock to watch today is Starbucks (SBUX), which got clobbered yesterday, falling 9.1% after announcing that it would be closing more stores in an increasingly crowded U.S. market. There is perhaps more than meets the eye here. Despite the new CEOs announcement that same store sales growth is now projected to be more tepid than earlier expected, it’s not just Dunkin Donuts or McDonald’s increased push into the coffee market that’s crimped Starbucks. It’s also the fact that the company is changing tacks given two evolving trends in its maturation process. Starbuck’s now-famous business strategy was one of clustering, putting a Starbucks on every corner, a stratagem it used to not only fuel its growth but also its perceived popularity, which in its own right fueled growth. For one, Starbucks is aborting that approach given heightened saturation and higher urban occupancy rates, but secondly, wages have gone up, Washington D.C., for example, just approving a minimum wage hike to $15 per hour.
With that said, the company has a chokehold of sorts over the boutique, upscale coffee market in China, hugely popular and growing at a feverish rate of a new store opening every 15 hours. All of this in context, with Schultz’s recent departure, it could be that the market overreacted yesterday. Though the stock fell close to 10% yesterday, the company’s book value certainly didn’t fall by that amount, nor did expected future cash flow or revenues or earnings go down by that amount. Caveat emptor, we could see a correction in the stock today as investors and traders realize that yesterday’s losses were overblown. That notwithstanding, eye the trend, watch the news carefully, and expect movement in the company today.
Economic Diary: Weekly jobless claims will be released at 8:30, the June Philly Fed report coming out at the same hour. The May Leading Indicators Index will be released at 10:00.
Market Summary: The Dow continued its losing streak with its 7th straight day in the red. The S&P 500 traded up 0.17%, the NASDAQ recording a new record with gains of 0.72%.
Hot Stocks: AOBC, SCS, BNED, TRUP, MU
IPOs: APTX, AVRO
Have a great trading day!