Chip Whip!

Chip whip!  Stocks fell yesterday propelled by fallout from the escalating trade war as the reality of technology sanctions began to set in.  The technology-heavy sectors bore the brunt of selling in yesterday’s session as companies complied with the Huawei ban.

WHAT YOU NEED TO KNOW:

1)  China is not happy!  WHILE YOU SLEPT, the Chinese Ambassador to the EU said that the US undermined all of the past year’s talks with sanctions on Huawei.  He further stated that China is vowing a “necessary response” and that the Country has “unwavering resolve” in the standoff.

2)  Rhetoric is one thing, revenue is something else, completely.  Yesterday, a number of companies announced they would suspend doing business with Huawei in compliance with President Trump’s executive order.  Google/Alphabet will discontinue providing the Android operating system for Huawei’s smartphones and Lumentum will halt sales of its facial recognition technology.  Qualcomm and Intel will also suspend chip shipments to Huawei.  Huawei is the second largest producer of wireless phones in the world and while the ban will certainly have a negative impact on its sales, the US providers will certainly be affected as well.  Shares of semiconductors fell yesterday in response causing the Philadelphia Semiconductor Index (SOX) to fall by -4.02%.  Google/Alphabet fell by -2.02% as well.

3) A new message is starting to emerge from the Fed.  In a speech yesterday, Fed Chairman Jerome Powell acknowledged that the Fed needed to view inflation in a target range rather than a hard target.  Currently, the Fed has publicly set a 2% target for inflation and a recent pullback in price growth has led many to believe that the Fed would have to cut rates in order to move back up to the target.  A target range for inflation would give the Fed more flexibility in its policy and would allow them to compensate for transient changes in prices.  In the same speech, Powell also underscored the risks associated with a negative outcome of US-China trade negotiations, which would be positive news for those traders who are hoping for rate cuts.

THE MARKETS:

Stocks spent the session under water yesterday as the reality of the Huawei sanctions set in.  The Communication Services Sector lost -1.17% and the Information Technology Sector gave up -1.75%. The tech-heavy NASDAQ 100 sold off by -1.69% while the S&P500 traded down by -0.67%, the Dow Jones Industrial Average slipped by -0.33%, and the Russell 2000 dropped by -0.7% (still below its 200 day simple moving average).  Crude oil rose slightly in yesterday’s session as OPEC moved closer to extending its earlier production cuts which were largely responsible for oil’s climb in the first part of the year.  Bonds pulled back slightly in yesterday’s session with ten-year yields climbing by +2 basis points to 2.41%.

WHAT TO LOOK FOR TODAY:

This morning, the National Association of Realtors will release Existing Home Sales which are expected to have grown by +2.7% month over month compared to last month’s fall of -4.9%.  Earlier this morning we heard from a number of retailers and Home Depot and AutoZone beat Wall Street Estimates while JC Penney and Kohl’s both missed.  After the bell we will hear from Nordstrom.  Fed speakers have become increasingly popular with traders in recent weeks and we will hear from Chicago Fed President Charles Evans and Boston Fed’s Eric Rosengren today.  Tomorrow’s release of the FOMC minutes from their last meeting will be the Fed show stopper of the week.

daily chartbook 2019-05-21

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