Connect with us

Latest News

Stocks plunge may have been a too fearful reaction to trade, economic worries

Published

on


After sharp gains in the past week amid hopes for a trade deal, stocks fell back into correction mode Tuesday, plunging on worries the trade talks could fail and that global growth is slowing.

But some strategists said the selling, which took the Dow down as much as 800 points intraday, appeared to be overdone and could have also been made heavier by the fact that the stock market is closed for a full day Wednesday for President George H.W. Bush’s funeral. The selloff was also exacerbated by a big move in the bond market, with the trading there flashing warning signs about the economy.

“I don’t think this continues. I think this is people with their hair on fire,” said Steve Massocca, managing director with Wedbush Securities. “You had this rally that was based on this presumption that we had a deal with China. Now it’s clear, we don’t’ have a deal with China. We might have progress, but we don’t have a deal with China.”

The S&P 500 lost 3.3 percent, falling to the psychological 2,700 level, while the Dow Jones Industrial Average was off 3 percent at 25,027. The Nasdaq was down 3.8 percent, falling back into correction territory, and the small cap Russell 2000 lost 4.4 percent, its worst day in seven years.

Selling in the S&P accelerated around midday. when it broke its 200-day moving average at 2,762. Apple, which has been a beacon of market sentiment, was battered, losing 4.4 percent amid more concerns about iPhone sales. Tech was broadly lower, losing 3.9 percent, while the best performing sector, utilities, was barely positive. Regional banks were down 5.6 percent in the worst day since June, 2016, as interest rates sank.

Scott Redler, partner with T3Live.com, said there could have been some selling ahead of Wednesday when the market will be closed since traders won’t have the ability to control their positions. “For me cash is a position. We’ll have to go into Thursday and Friday and see if today had a lot of meaning or not,” he said.

President Donald Trump met with China President Xi Jinping Saturday, and the U.S. said it left the meeting with a standstill on new tariffs and an agreement on agriculture with China. But, reports have surfaced that China has a different version of events without the commitment on farm goods.

The worries about trade have been eating at investors, who have already been concerned that earnings will slow down next year, and so will stock market gains.

So it didn’t help that the bond market was sending its own scary signals about slowing growth. One of the biggest catalysts for the selling Tuesday was the behavior of the yield curve, which shows the relationship between short and longer-term government bond yields. Buyers jumped into the 10-year Treasury note, pushing its yield sharply lower and closer to the 2-year note yield.

Since some short term yields have risen above the 5-year Treasury already, traders speculated that the same could soon happen between the 2-year notes and 10-year notes. That is what the market calls inversion and has been a recession signal for decades. The difference between the 2-year and 10-year yields was at a narrow 11 basis points in afternoon trading.

Paul Hickey, co-founder of Bespoke studied the behavior of stocks and the yield curve, and said he found the stock market did a little better on average over the course of the next three, six and 12 months, when the spread between the 10-year and 3-month bill fell below 50 basis. He said there were eight occurrences since 1962 when the spread fell below 50, and only six of them preceded a recession.

But the narrower, or flatter, the curve gets, “the worse it is for the market,” he said. “Even worse for the market is when it’s below 50 and already inverted.” That spread fell below 50 for the first time in 11 years, and it is the part of the curve the Fed sees as most representative of fed funds.

“When you get the worse performance is after it inverts and gets positive again, and that’s when you really see the market weaken,” Hickey said.

Vinay Pande, head of trading strategies at UBS Global Wealth Management’s Chief Investment Office, said recessions often do follow inversions but there is no consistent pattern. “It’s between 50 to 600 days to an equity market top, going back to the 1980s. This is not a very useful thing,” he said.

Traders have been pointing to the speed at which the 10-year fell from above 3 percent to the 2.87 percent it was on Tuesday. Pande said part of the reason was that there was a large short position, and investors were forced to cover shorts, as well as some weak data points and inflation reports.

“We actually like the equity market here. I think the market has priced in a reasonably bad outcome,” said Pande. Barring a failure of China and the U.S. to find a trade agreement, he said the market should be alright.
“Near term we think you should be buying the dips,” he said.

Ari Wald, technical analyst at Oppenheimer, said Tuesday’s selling was more of the same pullback that roiled the market in October and November, after its reprieve.

“The market is oscillating in that type of range bound manner. I think it’s all suggestive of the same action we’ve really seen in recent months. This bottoming formation that’s trying to take place. The S&P is still below key resistance at 2,815 sot he bottoming continues,” he said.

Redler said the bottom of the range is 2,603 which the S&P hit in October. “The market is in a range. It’s trying to figure out what the bigger picture looks like, while traders navigate the technical points. A contributing factor was that traders got caught in Apple” Monday when it traded higher. “It looked like it had relative strength, but then the Cirrus news came out and it got downgraded. It’s another worm in the Apple.”

Cirrus cut its guidance due to weakness in the smart phone market.



Source link

Latest News

Goldman says U.S.-China not likely to reach trade deal by March and more tariffs are coming

Published

on

By


President Donald Trump (L) and Chinese President Xi Jinping walk together at the Mar-a-Lago estate in West Palm Beach, Florida, April 7, 2017.

Jim Watson | AFP | Getty Images

President Donald Trump (L) and Chinese President Xi Jinping walk together at the Mar-a-Lago estate in West Palm Beach, Florida, April 7, 2017.

Goldman Sachs economists said it’s more likely than not that U.S.-China trade negotiators will not reach a deal in time to head off higher tariffs on March 1, and importers could rush to order their goods in January and February ahead of the deadline.

President Donald Trump and Chinese President Xi Jinping agreed to hold off on further tariffs until March 1 so the two sides could negotiate a trade agreement. China also agreed to remove new auto tariffs on U.S. imports, and Washington reported that Beijing is fulfilling another promise to purchase American soybeans, with its first significant order in six months, amounting to 1.13 million tons.

But they have to show some progress by the March 1 deadline in order to delay further action. “While we think it is a close call, we believe it is slightly more likely that negotiations will fall short of what is necessary for a further delay,” wrote the Goldman economists.

Goldman said international trade data reflect the front-loading of goods ahead of the last round of tariffs, and also the fact that soybean purchases had fallen off dramatically.

The October trade data were the first look at what happened after tariffs on $200 billion in Chinese goods and on $60 billion of U.S. goods went into effect in September. Goldman said imports and exports were both pulled forward before the $200 billion tariff round went into effect Sept. 24, and they both fell after tariffs were implemented, just as they had done after the first round.

Over the summer months, the U.S. had also implemented 25 percent tariffs on $50 billion in Chinese imports, and China responded in kind.

The effect was a widening in the U.S. trade deficit. “Declining exports along side modestly increasing imports pushed the trade deficit with China to an all-time high in October,” the economists wrote.

U.S. imports from China are about $5 billion lower on an annualized basis and exports are about $15 billion lower, due to seasonal factors surrounding soybean exports to China. The economists said there have been sizable shifts in a few large categories, which includes the impact from soybeans. About 60 percent of annual exports of soybeans to China are in the fourth quarter, about 25 percent in October alone.

“Excluding soybeans, exports to China are only modestly lower on a seasonably adjusted basis,” they wrote. As for imports, U.S. imports of electronic circuits and memory components rose ahead of the second round of tariffs and fell sharply after they were put in place

If there is no agreement by March 1, tariffs are scheduled to rise to 25 percent from 10 percent on $200 billion in Chinese goods.

WATCH:How big Harley-Davidson is and why it’s a trade-war target



Source link

Continue Reading

Latest News

‘We are tired of people asking us about target prices’  

Published

on

By


In November, Lee cut his price target from $25,000 to $15,000. A key driver for the revision was bitcoin’s “break-even” point, the level at which mining costs match the trading price.

Bitcoin is closing out a miserable trading year. The cryptocurrency is down 75 percent since January, trading near $3,324 on Thursday, according to data from CoinDesk. From its high near $20,000 in December, the cryptocurrency has lost more than 82 percent of its value.

For bitcoin to stage a price rebound, Lee said user adoption needs to increase, and it needs to be embraced as a real asset class.

But looking out longer term, if the amount of bitcoin users approached even 7 percent of Visa’s total 4.5 billion currently, Lee’s regression model would place fair value at $150,000 per bitcoin.

“Hence, the risk/reward is still strong,” Lee said. “Given the steep discounts of [bitcoin] to our fair value models, the excessive bearish sentiment about fundamentals does not seem warranted.”

Still, Lee said technicals remain important in cryptocurrency trading and as long as bitcoin remains below its 200-day moving average, investors will likely still stay bearish.



Source link

Continue Reading

Latest News

Slower IT spending could reveal Cisco’s ‘imperfections,’ analyst says

Published

on

By


While stronger technology spending across Wall Street and a spell of innovation at Cisco have boosted the stock to post-recession highs, shares now look a little expensive, according to Normura Instinet.

The brokerage downgraded Cisco’s stock to neutral from buy on Friday, arguing that the strong stream of IT purchases that has buoyed shares may reverse in 2019 to “reveal imperfections in Cisco’s story.”

“Through 2018, IT spending growth accelerated materially, Cisco’s new Catalyst 9000 series more than tripled its customer count, and Cisco’s software mix hit about 25 percent of sales. These drivers helped Cisco exceed consensus estimates through 2018,” analyst Jeffrey Kvaal wrote in a note to clients.

“However, spending may be wobbling; comments from Dell, HPE, and Broadcom suggest incremental caution in chief investment officer thinking,” Kvaal added. “Cisco’s ongoing product refresh leaves it insulated, though not immune, from a slowdown.”

The analyst reiterated his 12-month price target of $50, which implies just 5.3 percent upside over the next year from Thursday’s close of $47.47. That price target yields a multiple of about 15 times Nomura’s calendar year 2019 earnings per share expectation of $3.33.

Shares of Cisco fell more than 2 percent in premarket trading following the downgrade; shares are up 23.9 percent this year.



Source link

Continue Reading

Trending

Copyright © 2017 Zox News Theme. Theme by MVP Themes, powered by WordPress.