Category: Stocks

Major U.S. stock indexes rose slightly Wednesday after President Trump tweeted that Chinese officials were coming to make a deal, injecting some optimism into a market on edge over resurgent trade fears.

Stocks from shares of technology companies to industrial manufacturers gained momentum early in the trading session to pull all three major indexes higher. The gains have so far stopped a harsh two-day stretch of declines after President Trump’s threat Sunday to slap higher tariffs on billions of dollars of Chinese imports….

Brad Katsuyama, the trader turned famous overnight by the Michael Lewis novel Flash Boys, believes his investor-friendly exchange is gaining ground in its battle against the New York Stock Exchange and Nasdaq.

Katsuyama’s IEX Group only launched in 2016, but today it handles $8 billion to $10 billion of equity trading a day. While that trails IEX’s rivals, it’s more than foreign exchanges like the London Stock Exchange, Deutsche Boerse and the Toronto Stock Exchange.

“We use technology to protect pension funds from getting picked off by high-speed traders,” Katsuyama told CNN Business on the sidelines of the SALT Conference in Las Vegas

Katsuyama, who played the leading character in the novel Flash Boys, criticized the establishment exchanges for making more money off high-speed data than in their traditional role of matching buyers and sellers.

“It’s like finding out the electricity company makes more money doing something other than selling electricity,” Katsuyama said.

IEX, which has been profitable since its launch, has drawn takeover interest from Silicon Valley.

“We’ve been approached by bigger tech companies,” said Katsuyama, who declined to say when the negotiations took place nor say which firms.

He added that while an IPO of IEX is not in the short-term plans, it’s definitely a long-term option.

IEX also announced on Tuesday the addition of former Democratic SEC commissioner Kara Stein to its board.

“The SEC’s mission is to protect investors and the public. That’s also IEX’s mission in many ways,” said Katsuyama. 

Nobody likes to fall into a trap. Yet investors may soon be falling into two traps that the stock market has potentially set up.

Let’s explore the issue with the help of a chart.

Please click here for an annotated chart of ETF S&P 500 ETF SPY, +0.06%  which represents the S&P 500 Index SPX, +0.04% Please note the following:

• The chart shows two potential traps that the stock market has set up and investors are slowly falling into.

• The potential bull trap is characterized by the breakout of stock prices above the green line shown on the chart.

• The potential bear trap is shown by stock prices falling below the orange line shown on the chart.

• Only one of these two traps will become valid.

• There is no way to know with 100% certainty which trap will become valid.

• Under these circumstances, investors ought to pay attention to Arora’s Third Law of Investing and Trading: Making investing and trading decisions based on probabilities is the only realistic and profitable approach.

Read: Prepare for a ‘sell the news’ scenario once a U.S.-China trade deal is signed

Ask Arora: Nigam Arora answers your questions about investing in stocks, ETFs, bonds, gold and silver, oil and currencies. Have a question? Send it to Nigam Arora.

Three probabilities

In our analysis at the Arora Report, the following are the probabilities:

• Bull trap coming true: 30%

• Bear trap coming true: 45%

• Whipsaws: 25%

The highest probability is the bears getting trapped. In plain English, this means there is a 45% probability of the market going higher.

Supports and target zones

Please click here to see support and target zones. For details, please see “How to trade stocks as Trump threatens China with new tariffs.”

Stocks to watch

Stocks with little direct exposure to China, such as Google GOOG, -0.26% GOOGL, -0.35%  Amazon AMZN, +0.16% and Facebook FB, +0.08% are likely to be least affected. Stocks with direct exposure to China, such as Apple AAPL, +0.21% Starbucks SBUX, +0.78% Nike NKE, +1.05% and Boeing BA, -0.24% are likely to be most affected. Semiconductor stocks, such as Intel INTC, -0.38% AMD AMD, +2.44% Micron Technology MU, -0.70% and Qorvo QRVO, +5.77% may see wild swings. Chinese stocks such as Alibaba BABA, -0.90% and JD.com JD, -0.65% may also see wild swings.

Portfolio protection

At The Arora Report, we increased portfolio protection Monday. A rebound during the day gave us advantageous fills. How could you have protected your portfolio? Start with Arora’s Second Law of Investing and Trading: Nobody knows with certainty what is going to happen next in the markets.

Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article or may take positions at any time. Nigam Arora is an investor, engineer and nuclear physicist by background who has founded two Inc. 500 fastest-growing companies. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at Nigam@TheAroraReport.com.

As markets tumbled under the threat of a trade war with China, Goldman Sachs told clients there would be one distinct group of winners and one group of losers in the stock market as this foreign policy drama unfolds.

Service-providing companies like Amazon will fare better than goods-producing firms like Apple during a trade war, Goldman Sachs said in a note to clients on Tuesday.

“Services firms are less exposed to trade policy and have better corporate fundamentals than goods companies and should outperform even if the trade tensions are ultimately resolved, as our economists expect,” said chief U.S. equity strategist at Goldman Sachs David Kostin. 

Stocks are getting hammered this week as President Trump threatened new tariffs on China after they reneged on key parts of a developing trade agreement. The Dow Jones Industrial Average is down nearly 540 points this week while the S&P 500, and the Nasdaq are down more than 2%. U.S. trade representative Robert Lighthizer said the U.S. is raising tariffs on $200 billion worth of Chinese goods from 10% to 25% on Friday.

This turmoil will divide the market into two parts, Goldman’s strategy team said. They split the S&P 500 into two baskets: good-producing companies and service-producing companies, evaluating each one’s risk factors during a looming trade war.

During the sell-off, Goldman says service stocks like Amazon, Google and Microsoft have less foreign input costs subject to tariffs and should outperform.

“The trading pattern during the past year of tariff announcements and delays suggests services-providing stocks will outperform goods-producing stocks as long as the trade dispute continues,” the note said.

Plus, these companies have more stable gross margins and stronger balance sheets, the firm points out, which could lead to their outperformance regardless.

On the other side, goods-producing companies like Apple, with $10.22 billion in sales in its Greater China category for the second quarter, along with Johnson & Johnson and Exxon Mobil are more exposed to retaliation by China.

The services basket, containing additional companies like Facebook, Disney, Home Depot, AT&T, and McDonald’s, are expected to grow 2019 sales by 9% and earnings by 7%, Goldman points out.

Other names on the services list that should outperform include Netflix, Comcast, and Wells Fargo, the firm said.

“Counter-intuitively, wage inflation above 3% will provide a slight relative boost to services firms, which commit a smaller share of revenues to labor,” said Kostin.

Plus, Goldman noted that of the 260 companies in the services basket, 175 or 58% of market value, also fall into Goldman’s domestic sector basket, less exposed to China. The goods basket is overwhelmingly international, 193 companies or 85% of market cap fall into Goldman’s global sector basket.

Within the goods basket, companies like Procter & Gamble, Intel, Chevron, Coca-Cola, and Boeing, are estimated to have negative earnings growth of 2% and no sales growth at all this year, the firm said.

“The faster growth rate supports the valuation premium of services, which trades at a 17.5x forward P/E multiple vs. 16.8x for goods,” Kostin said in the note.

Pepsi Co, Broadcom, Honeywell, and NVDIA are also on the goods list and should be avoided, Goldman said.

Disclosure: Comcast is the owner of NBCUniversal, parent company of CNBC and CNBC.com.

Buy this stock-market decline on Monday.

That’s the recommendation of Fundstrat Global Advisors analyst Thomas Lee in a Monday research note, in the wake of a tumble by equity indexes across the globe partly inspired by an apparent escalation of Sino-American trade tensions.

President Donald Trump ramped up conflict between China and the U.S. after he tweeted on Sunday a threat to raise tariffs on $200 billion in Chinese imports to 25%, up from the current 10%, putting a tentative accord between the two countries in doubt ahead of negotiations set to begin this week in Washington.

The unexpected Trump announcement, coming as markets had held out apparent optimism over a near-term resolution, roiled global markets, driving China’s 399106, -0.65% Shenzhen Composite Index to a 7.4% loss, while the CSI 300 Index 000300, -1.43%  tumbled 5.8% and the Shanghai Composite Index SHCOMP, -1.12%  lost 5.6% on Monday.

Domestic markets also got whacked, with the Dow Jones Industrial Average DJIA, +0.08%  , the S&P 500 index SPX, +0.04% and the Nasdaq Composite Index COMP, +0.01% on track for the steepest slides, at their intraday lows, since March 22, according to FactSet data.

Read: Investors are pushing the panic button on U.S.-China trade talks, analyst suggests

However, Lee says there is reason to be a buyer in this downbeat environment.

He points to the fact that markets had been near records already, including the Nasdaq, which finished Friday at an all-time high, with the S&P 500 not far behind. The strategists said that even though some bears might argue that the heightened trade tensions represent an opportune period to take some chips off the table, or sell down holdings, it might be a lost opportunity for bulls because stock-supportive factors remain in force.

“Retail investors have been selling stocks and buying bonds so far in 2019. And hedge fund net long positions are among the lowest levels in 5 years. Hence, only the long only funds are fully exposed to equities. With so much on the sidelines, markets near highs, and with manager underperformance, we see this dry powder as a key dynamic,” Lee wrote.

The Fundstrat analyst also makes the case that the trade spat might prompt the Federal Reserve to remain “market friendly” by holding off on near-term interest-rate increases.

Lee said, “Unlike 2018, where the Fed seemed blinded by data dependency, we believe any mounting financial stress will be met by an eventual Fed response.”

At the start of the year, the Fed adopted a decidedly accommodative policy stance after a raising rates four times in 2018, citing tightening financial conditions and worries about trade wars. That Fed’s U-turn has been partly credited with helping the markets return to fresh records after a selloff late last year culminated in the worst plunge on the trading day before Christmas on record.

Growing optimism about a trade resolution and the softer posture by the Fed have often been viewed as key catalysts for the markets in recent months.

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Match Group, the dating app conglomerate that owns Tinder, Hinge, and more, had to pay Tinder employees $9.4 million in stock compensation this quarter because of the app’s rapid growth. That large number could have implications beyond the company’s finances: it might be consequential in the $2 billion lawsuit the company faces from Tinder co-founder Sean Rad.

Rad claims Match purposely undervalued Tinder in an effort to avoid paying out billions of dollars in stock to the team’s original employees. The bonuses being given out this quarter suggest Tinder’s valuation grew monumentally over the past couple years.

Alex Heath reported in Cheddar that an independent valuation earlier this year valued Tinder at $10 billion, which would trigger performance-based payouts. While Match didn’t announce Tinder’s valuation, the payouts it disclosed this week support Heath’s report.

This new valuation, which comes only two years after Match valued Tinder at $3 billion, could lend Rad’s case some merit. In a comment to The Verge, Rad’s lawyer, Orin Snyder, said today’s news is evidence that “IAC and Match ripped off the Tinder founders and early employees to the tune of billions of dollars.”

Match Group’s spokeswoman Justine Sacco said the company doesn’t “disclose information on internal valuations.”

Match CFO Gary Swidler confirmed that the $9.4 million in stock went to Tinder employees on the company’s earnings call today, and the figure is listed in the company’s earnings release. The announcement follows Heath’s report, which didn’t have the exact payout numbers.

Heath said that, at the time of Tinder’s last valuation, Match gave Tinder employees performance-based stock packages to incentivize them to continue working hard to grow the app.

In the months since Rad’s lawsuit, Match countersued him over claims that he copied internal files and proprietary information before he left the company, violating his employment contract. Match is seeking $230 million, and Rad’s team has filed a motion to dismiss, claiming the contract allowed it.

Online fashion house Farfetch’s CEO Jose Neves and members of the company’s leadership team ring the opening bell to celebrate their IPO at the New York Stock Exchange in New York, September 21, 2018.

Brendan McDermid | Reuters

London-based luxury online marketplace Farfetch is Wells Fargo’s “hidden gem” with major growth potential in China despite heightened trade tensions, the bank said in a note on Tuesday.

Abby Joseph Cohen, advisory director and senior investment strategist at Goldman Sachs, on Wednesday said that policy decisions are the biggest threat to economy and the market, reflecting on the heightened U.S.-China trade conflict that has roiled equity markets around the globe over the past three sessions.

‘I think what we’ve seen over the last few days is that policy decisions and comments are in fact creating havoc not just in our markets but around the world.’

Abby Joseph Cohen

Speaking at a well-attended roundtable in New York at MarketWatch’s sister publication Barron’s — along with Todd Ahlsten, chief investment officer at Parnassus Investments — the pioneering investment strategist said fundamentals of the economy and the financial markets remain solid, noting that S&P 500 index equities weren’t overvalued.

“If one just looks at the fundamentals: ‘How is the economy doing, labor markets, inflation and so on?’ Things look to be in a good way,”

However, she said volatility has resurfaced in otherwise placid markets on the back of political rhetoric that could have a deleterious effect on investors.

Cohen’s comments come as the Dow Jones Industrial Average DJIA, +0.07% on Tuesday tumbled 473.39 points, or 1.8%, to 25,965.09, suffering its largest percentage decline since Jan 3, as President Donald Trump increased pressure on China in a negotiation over trade policy between the world’s largest economies.

Surprising market participants who had expected a resolution between the parties was at hand, the U.S. officials have accused Beijing of reneging on its side of the bargain and have set the stage to raise tariffs on $200 billion of Chinese imports to 25% from 10% at 12:01 a.m. Eastern Time on Friday.

A Chinese trade envoy, featuring Vice Premier Liu He, will head to Washington Thursday to resume negotiations, raising the possibility that a full-blown, stock-market rattling trade war, can be averted.

Stocks were struggling to recover on Wednesday, with the S&P 500 index SPX, +0.05%  trading virtually flat, after dropping 48.42 points, or 1.7%, to 2,884.05 on Tuesday, while the Nasdaq Composite Index  COMP, +0.01% was also trying to gain traction higher after its 2% skid the previous day, with both benchmarks notching their sharpest daily declines since March 22.

Cohen’s comments at the Barron’s event, comes a week after she warned investors to “get into their heads that the period of low inflation, low interest rates and monetary policy continuing to provide nothing but stimulus is over.”

The prominent strategist started working on Wall Street in the 1970s, and became a partner at Goldman Sachs in 1998. She has been hailed at times as the “prophet of Wall Street,” and is, perhaps, best known for her prescient, bullish calls on the market as the 1990s dot-com boom, though she missed signs of the 2008 financial crisis that would bring global investors to their knees.

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Major U.S. stock indexes bounced around the flatline Wednesday as President Trump tweeted that Chinese officials were coming to make a deal, injecting some optimism into a market on edge over resurgent trade fears.

The Dow Jones Industrial Average was recently down 12 points, or less than 0.1%, to 25954 in morning trading, while the S&P 500 also declined less than 0.1%. The Nasdaq Composite was up less than 0.1%.

Stocks…

U.S. shares declined again on Wednesday on the eve of talks between representatives from the U.S. and China, who are prepared to resume trade negotiations in a last chance to stave off more tariff increases. 

The Dow dipped 64 points to 25,900. That follows Tuesday’s decline of 473 points, or 1.8 percent, to 25,966, marking the blue-chip index’s first close below 26,000 since March 29, and a smaller dip on Monday. The broader S&P 500 and technology-heavy Nasdaq composite also opened lower on Wednesday following sharp declines on Tuesday.

The world’s two largest economies have already raised tariffs on hundreds of billions of dollars of each other’s goods in their dispute over U.S. complaints about Chinese technology ambitions. A ramped-up trade war could impact U.S. businesses by increasing their costs for imports, which would either be eaten or passed onto consumers in higher prices. Economic growth, earnings, profits and stock prices could feel the impact, Cumberland Advisors’ David Kotok told Politico.

Trending News

“The trade war risk is now being confirmed,” Kotok said. “That is a healthy realization rather than a fantasy goldilocks scenario. It’s about time markets woke up to the reality that a trade war hurts everyone.”

Trade talks

Washington has accused Beijing of reneging on its commitments and is preparing to raise import taxes on $200 billion of Chinese goods to 25 percent from 10 percent on Friday, and to impose tariffs on another $325 billion in imports, covering everything the country ships annually to the United States.

Trade talks are scheduled to resume Thursday in Washington.

There’s a “high likelihood that the increase in tariffs will temporarily go into effect as threatened,” wrote Jim O’Sullivan at High Frequency Economics, in a Wednesday research note. 

The latest flare-up in trade tensions will likely cool if talks continue as expected, Tianjie He of Oxford Economics said in a commentary. But, he added, “the probability of renewed escalation of the U.S.-China trade war has now risen substantially — which would be a drag on both the economies, especially China.”

China import slump

Adding to the gloom, China reported Wednesday that its exports sank 2.7 percent in April from a year earlier, a reversal from March’s 14.2 percent growth and well below private sector forecasts of growth in the low single digits.

Imports of American goods fell 26 percent from a year earlier to $10.3 billion. Exports to the United States, China’s biggest foreign market, were down 13 percent at $31.4 billion.

Uber, Lyft strike

Many drivers for ride-hailing giants Uber and Lyft are turning off their apps to protest what they say are declining wages at a time when investors are flooding the companies with billions of dollars. Demonstrations are planned in 10 U.S. cities Wednesday, including Chicago, Los Angeles, New York, San Francisco and Washington, as well as some in Europe. 

The protests come in advance of Uber’s initial public stock offering on Friday. Uber aims to raise $9 billion from investors and is expected to be valued at up to $91.5 billion. Lyft shares are down about 18% from their $72 IPO in April, closing at $59.34 Tuesday.