Market Overview

28 May 2020

Markets Are Keeping a Stiff Upper Lip While Still Buying Any Dips

The US composite Nasdaq index, which combines the leading companies of the global high-tech sector, declined during the New York trading session yesterday to its lowest level of 9177.1 for the last ten days. This initial sentiment was born by expectations of continuing profit-taking from some overbought and relatively expensive stay-at-home stocks, including the so-called FAANG names, i.e. Facebook, Amazon, Apple, Netflix and Google shares.

The Nasdaq futures dropped 430 points or 4.47% of fresh three-month highs. However, all the above mentioned companies immediately had great demand, when most of the market participants considered their price already very cheap by technical gauges of recent movements.

Amazon, the largest e-commerce conglomerate in the world, picked up near $2,330 and immediately pushed up above $2,400 per share, probably with an eye on the absolute historical peak reached recently at $2524. Netflix, a streaming giant, was bought out as soon as the price fell below $400, while the bottom level was around $397.50, and at the close of the day it was trading at almost $420. As for Apple Co, zealous adepts of the "buy and hold" strategy have not yet allowed the shares to fall even to $310 after recent highs near $324 at the beginning of the week, although the company's capitalisation is now almost at absolute record values again. Google and Facebook also lost their price only slightly and for a short time, therefore yesterday's trading ended for both of them with a doji candle leaving just a long shadow below.

Threats by US President Donald Trump did not prevent some social media assets to rise as he said he is eager to regulate or shut down social media companies after Twitter Inc - for the first time - added a warning to some of his own (!) presidential tweets prompting readers to fact check. Trump reiterated his accusations of political bias by such technology platforms by tweeting: "Republicans feel that Social Media Platforms totally silence conservative voices. We will strongly regulate, or close them down, before we can ever allow this to happen." And also, “Big Tech is doing everything in their very considerable power to CENSOR in advance of the 2020 Election. If that happens, we no longer have our freedom.” He added: "Clean up your act, NOW!!!!" Trump is going to sign an executive order on social media companies, White House officials said yesterday. But this news affected only the shares of Twitter itself, which fell by 2.76%.

The Nasdaq index also ended Wednesday trading in a positive territory, but since it consists not only of these five FAANG companies it may take a short pause until the end of the month, maintaining an encouraging mood for further updating the tops soon. Yet, the S&P500 broad market index and the Dow Jones industrial average index, which were lagging behind earlier, confidently overcame the corresponding resistances that prevented their rise before yesterday. These indexes both declined less noticeably but then rose better. So, the peloton, i.e. the main group or pack of riders in bicycle racing terms, moves closer to the yellow jersey leader.

It's remarkable that bank stocks were among the drivers as they continued to extend gains, overshadowing non-payment crisis concerns. JPMorgan Chase rose by about 5.8%, Goldman Sachs was up 6.90% and Citigroup jumped 8.5%. Moreover, Goldman Sachs rose steeply for the second day in a row to the levels of early March, and Citigroup jumped over the well-marked two-month technical resistance on the charts. JPMorgan Chase & Co's head of its corporate and investment banking division, Daniel Pinto, speaking at a virtual conference hosted by global asset manager Alliance Bernstein, said he expects investment banking fees in the second quarter to be "up by a percentage in the mid- to high teens", while mergers and acquisitions will be "probably 15-20% down." He added that second-quarter revenues for its markets unit are on track to be up more than 50% higher than the same period last year thanks to extremely strong fixed income and equities trading revenues. Mr Pinto remarked that trading volumes, which hit record-highs across Wall Street banks in March and April, are beginning to return to more normal levels, and he expects trading volumes to ultimately finish 2020 flat from 2019.

Boeing rose in price by 3.88% above $149.50 on the official announcement from the company that it is resuming production of the Boeing 737 Max. Macy's, an American department store that met many structural problems and tried to re-organise itself even before the pandemic, jumped as the retailer announced it will be raising more than $1 billion in a new bond offering by more than 19%. Even after this, the Macy's shares have not yet been able to overcome the technical resistance formed after reaching the bottom in March, and all these big fluctuations did not push prices that are still at low levels, almost six times cheaper than last year's peaks, remaining in a long downtrend. Nevertheless, the fact that even off-line business is attracting investments these days is remarkable.

Catching this wave, the European markets opened higher too, as the UK FTSE100 index opened up with 73 points surplus, the German Xetra DAX30 was up by 146 points and the French CAC40 opened 58 points higher compared to Wednesday's closing futures prices.

Stock exchanges tend to ignore the topic of the American-Sino potential tension for now, while US Secretary of State Mike Pompeo told Congress on Wednesday that Hong Kong no longer qualifies for its special status under US law, potentially dealing a blow to its status as a major financial hub. China had undermined Hong Kong’s autonomy so fundamentally, Pompeo said, that he could not support its recertification for its special pre-1997 trading status. On Thursday China’s parliament quickly approved the decision to go forward with national security legislation for Hong Kong that democracy activists in the city and Western countries fear could derail its freedom and its special global role.

China's authorities say the legislation will aim to tackle secession, subversion, terrorism and foreign interference in the city but the plan, unveiled by Beijing last week, triggered the first big protests in Hong Kong for months. Riot police were out in force in Hong Kong as its lawmakers debated another piece of legislation, a bill to criminalise disrespect of China’s national anthem, despite the US administration pressure aimed at preserving the city’s autonomy.

US President Donald Trump has a long list of possible responses, including visa and economic sanctions, David Stilwell, the State Department’s assistant secretary for East Asia, told reporters. Reuters is citing the unknown "people familiar with the matter" as they said that the Trump administration was considering suspending Hong Kong’s preferential tariff rates for exports to the United States as part of its response to China’s plan. Trump could also opt for targeted sanctions against particular Chinese officials, government entities and businesses involved in enforcing the new legislation, according to "one of the sources, who spoke on condition of anonymity". Trump himself said on Tuesday that Washington was working on a strong response that would be announced before the end of the week.

Yet, the markets take it all as a storm in a tea-pot for now as they do not believe in Trump's desire to be involved in deep economic and trade disputes with China less than six months before the presidential election. In case of possible corrections in the market, if this US-China saga could finally induce them, it seems that traders would rather try to use another opportunity to buy fresh dips.


Disclaimer:

Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.


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