Financial Review

Dead Cat

…Stocks flop in final hour, bouncing off support. More China trade concerns. Tech falters. Bears control Facebook. Brits investigate Cambridge Analytica. Self-driving tech hits the brakes.

Financial Review by Sinclair Noe for 03-27-2018

 

DOW – 344 = 23,857
SPX – 45 = 2612
NAS – 211 = 7008
RUT – 30 = 1513
10 Y – .06 = 2.78%
OIL – 1.22 = 64.66
GOLD – 8.70 = 1345.50

 

Stocks were in positive territory until the final hour or so of trade. The Dow was up 240 points earlier in the session. The Dow was down as much as 493 late in the session. The Dow is still trading above the 200-day moving average, which could be considered the long-term trend line at 23385. So, the Dow has not broken key support but it is looking weak. The 200-day moving average on the S&P 500 is at 2587, and we also have the Feb. 8 closing low of 2581 – this is the key level of support for the S&P. Don’t be surprised to see the 200-day moving average act as strong support; in other words, we could drift into the end of the quarter still trading just above support. Any break below support is significant. Another significant point is that the S&P 500 has moved higher for the last 9 quarters, matching a streak that ended in the first quarter of 2015;  but it looks like the first quarter of 2018 will be a negative and break that streak. If the S&P ends positive for the quarter, marking a 10th straight quarterly advance, that will represent the longest such streak since a 14-quarterly rally that ended in the second quarter of 1998. The Nasdaq Composite looks a little more safe to extend a notable quarterly streak of its own; it’s up 1.5% thus far in the first quarter. However, that only represents its seventh straight quarterly gain. For the month of March, the Dow is down 4.7%, the S&P 500 is off 3.7%, and the Nasdaq has lost 3.6%.

 

Yesterday’s rally was big, the third biggest point gain ever for the Dow, but it was on declining volume. There was no rush of buyers, no conviction.  Yesterday’s bounce looks more like a dead cat bounce today. The news behind today’s flop was that the Trump administration is considering a crackdown on Chinese investments into US companies. The new rules would focus on preventing Chinese investment into emerging technologies like 5G. Other ideas include “reciprocal” limits on investments into industries that China is already protecting. Currently, China limits foreign investment into some industries that its government is trying to grow domestically. So under the new rule, the US would also prevent investment in those industries coming from China to the US. For instance, since China places limits on investment into specialty chemicals, the US could move to do the same.

 

The new possible restrictions would be created using the 1977 International Emergency Economic Powers Act. The administration would place limits under the assumption that Chinese investment in these businesses would constitute an economic threat to US national security. The market reaction was swift and unforgiving, first hitting tech stocks and spreading into other major US indexes throughout the afternoon. The tech-heavy Nasdaq 100 index bore the brunt of selling pressure, tumbling as much as 4.1%. Meanwhile, the benchmark S&P 500 slid more than 2.3% at one point, and the Dow Jones industrial average lost 2%. Semiconductor manufacturer and software companies — two areas with an outsized level of exposure to China — were among the market’s biggest losers on the day. On a single-stock basis, the biggest decliners in the S&P 500 were all tech firms, with Nvidia (-7.7%), Adobe Systems (-6.6%), Netflix (-6.1%), Lam Research (-5.7%), Micron Technology (-5.7%), and rounding out the bottom five. With the recent downturn, the FANG stocks, as a group, have lost a combined $160 billion in market cap. The sidebar play today was a move to the safe haven of bonds.

 

Facebook CEO Mark Zuckerberg is reportedly planning to testify before Congress, possibly at an April 10 session of the Senate Judiciary Committee. The committee also invited Twitter CEO Jack Dorsey and Google CEO Sundar Pichai.

 

In the wake of the Cambridge Analytica scandal, nearly half of Facebook users said they planned to use the platform less or discontinue use altogether, according to a Raymond James survey. Facebook was down almost 5% today. The bears are in control. Facebook is now down 21% from its high on February 1st. Facebook and data analytics firm Cambridge Analytica are at the center of a scandal over harvesting personal data. Zuckerberg has apologized for a “breach of trust”, but said he will not appear before British legislators conducting an inquiry. He will instead send one of his senior executives. The British committee investigating the scandal today heard from former Cambridge Analytica employee Christopher Wylie, who claimed the UK may not have voted for Brexit had it not been for “cheating” by the Leave campaign. Wylie told the committee that Canadian company Aggregate IQ – which has been linked to Cambridge Analytica – received funding from Vote Leave and played a “very significant role” in the referendum result. Cambridge Analytica and Vote Leave have denied the accusations. Wylie said that Cambridge Analytica’s micro-targeting efforts were 10 times more effective than those of rivals. Wylie portrayed Cambridge Analytica and its parent company, Strategic Communication Laboratories, as totally without qualms about breaking laws and undermining democracies around the world.

 

Arizona Governor Doug Ducey has ordered Uber to stop its autonomous vehicle road testing in Arizona following last week’s fatal pedestrian crash involving a self-driving Uber Technologies vehicle in Tempe. Uber had already halted its trial after the accident. Ducey referenced a video released of the incident within his letter. It shows the car’s operator looking down, rather than directly at the road, for about five seconds before the night-time accident. Ducey called the video “disturbing and alarming”. He added that he had ordered officials to suspend the firm’s right to drive autonomous vehicles on local roads pending the outcome of inquiries by national transport safety regulators. The governor’s tone contrasts with a statement given in 2016, when Ducey said he welcomed the company’s self-driving fleet “with open arms and wide open roads”.

 

There are many companies working on self-driving vehicles. The chief of Intel’s rival self-driving program suggested its Mobileye tech would have prevented the accident. the Volvo cars used by Uber feature Mobileye chips and sensors, but their normal driver assistance system was disabled, according to the auto-parts’ supplier. The head of Google’s autonomous car division Waymo has also said its tech would have been “able to handle” such situations. Velodyne – the firm that designed the collision-avoidance sensors that Uber employs – said it was “baffled” by the accident because its equipment was capable of seeing in the dark.

 

Nvidia, the graphics-chip maker that has been seeking to expand in the automotive market, temporarily suspended its self-driving vehicle testing. Nvidia provides technology to Uber.  Nvidia is trying to parlay its dominance of graphics chips, most commonly found in computer gaming machines, into new markets where their ability to perform multiple calculations in parallel can help with artificial intelligence work. Automotive is a key focus because Nvidia says its chips are ideal for running image-recognition software needed to turn camera pictures into driving decisions more quickly than the blink of an eye. While the self-driving testing will be halted, Nvidia introduced a new virtual-reality product that will simulate the conditions automated systems will face on the roads. Nvidia shares dropped 7.7% today.

 

Meanwhile, Tesla fell 8.2 percent,  to the lowest in almost a year, while its non-convertible debt is at a new all-time low. Tesla’s stock and bonds fell as analysts cast doubt on the electric-car maker reaching its production targets for the all-important Model 3 sedan. The U.S. National Transportation Safety Board also announced it’s conducting its second investigation this year into a Tesla car crash.

 

Last week’s autonomous vehicle accident isn’t stopping rival Waymo, a unit of Alphabet, from forging ahead with its own autonomous-driving efforts. Waymo announced a new premium electric fully self-driving car, called the I-Pace, in partnership with Jaguar Land Rover. Waymo said it would add 20,000 I-Pace vehicles to its fleet within the first two years of production. Waymo plans to launch a fully self-driving service in Phoenix this year, through which members of the public will be able to take the cars anywhere in the company’s service area. The initial business model will be ride-hailing. Waymo also has self-driving sedans, minivans, and Class 8 semi trucks.

 

The S&P/Case-Shiller national index of home prices rose a seasonally adjusted 0.5% in the three-month period ending in January, and was up 6.2% compared to a year before. In Phoenix, prices for existing home sales rose 0.3% in January, and are up 5.9% over the past 12 months.

 

The consumer confidence index dipped to 127.7 this month from a revised 130 in February. Americans were a bit less optimistic about current business conditions and the stock market after a recent Wall Street selloff. They said it was somewhat easier to find a job, though they weren’t sure it would still the case six months from now.

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