Mayhem and Missiles: Stocks Fall Amid War Jitters
The Trump administration isn’t my first rodeo. I’ve been covering finance and politics for 36 years. I’ve reported on bull and bear markets, economic booms and busts, political scandals, and shooting wars.
I was an analyst toiling in the canyons of Manhattan when the markets crashed in 1987. My jaded eyes have seen a lot. But viewing the market’s ups and downs this year, I can honestly state that I’ve never seen such volatility. Nor have I ever witnessed such chaos in American politics.
On Wednesday, geopolitical risk once again stoked investor fears. Domestic politics intruded as well. The main stock indices today posted sharp losses in choppy trading.
President Trump warned via tweet on Wednesday that American airstrikes on Syria, in retaliation for a deadly chemical attack against its own civilians, were imminent. Trump directed his tweet at Russia, the chief ally of Syrian President Bashar al-Assad in his long civil war against rebel groups.
Trump tweeted today:
Russia vows to shoot down any and all missiles fired at Syria. Get ready Russia, because they will be coming, nice and new and “smart!” You shouldn’t be partners with a Gas Killing Animal who kills his people and enjoys it!
The Kremlin’s spokesman retorted: “We do not participate in Twitter diplomacy.”
Syria’s acts were indeed barbaric and warrant a tough response. But a stock market that wildly gyrates because of a presidential tweet is a precarious (if not surreal) situation for investors.
Another factor that unsettles investors: Uber-hawk John Bolton is the new national security advisor. Bolton is a highly confrontational figure.
Trump makes most of his major pronouncements via Twitter. Indeed, the president hasn’t held a formal press conference since February 2017. Trump has repeatedly shown that he can tank markets by venting his spleen on Twitter. That’s the epitome of headline risk.
Also roiling the waters is Trump’s rage over FBI raids this week of the offices of his attorney Michael Cohen. In response, the president has threatened more firings of law enforcement officials.
Losses accelerated in the final minutes of trading after the release of Federal Reserve minutes showing heightened concern over inflation, which would require more aggressive interest rate tightening.
Amid all these worries, the U.S. dollar languishes near two-week lows. The U.S. Dollar Index (DXY), the benchmark for the international value of the greenback, fell 0.07% today. Gold prices rose 1.05%, as investors sought a safe haven from multiple crises.
The news today that House Speaker Paul Ryan (R-WI) won’t seek reelection also dampened stocks. Ryan has suffered a contentious relationship with hardcore conservatives in the House, as well as with Trump. Ryan’s announced retirement raised further doubts as to whether Republicans can hold onto the House in the midterm elections.
Trade peace appeared at hand yesterday, after Chinese President Xi Jinping offered conciliatory words on tariffs. However, reports surfaced Wednesday that early negotiations had already faltered.
Here’s what the bloviating poseurs on CNBC ignore: China has its own economic problems. It’s true, China cheats on trade. But the caricature of China as an unassailable juggernaut masks underlying weaknesses.
Notably, China shoulders enormous debt. The International Monetary Fund estimates that the country’s corporate debt stands at 145% of gross domestic product, which is extremely high by any measure. State-owned enterprises in China account for 55% of corporate debt. A panic in China could quickly spread into a global financial contagion.
Thumbs down for Congress…
Mark Zuckerberg, CEO of Facebook (NSDQ: FB), on Wednesday wrapped up his two-day testimony in Congress.
Zuckerberg’s much-anticipated appearance before the Senate yesterday, to answer questions over the Cambridge Analytica data privacy scandal, turned out to be something of a farce.
Here’s a taste of Zuckerberg’s exchange with senators:
“How do you sustain a business model in which users don’t pay for your service?” Sen. Orrin Hatch (R-UT) asked.
“Senator, we run ads,” Zuckerberg replied.
The 33-year-old billionaire emerged unscathed during his Senate and House testimony, largely because lawmakers from both parties revealed their ignorance of how the Internet actually works. Facebook shares rebounded today by 0.78%.
Meanwhile, first-quarter corporate earnings are pouring in and the technology sector is expected to post a strong quarter.
According to research firm FactSet, the number of companies issuing positive earnings guidance in the technology sector for the first quarter is 26, far exceeding the five-year average of 11 for the sector.
For technology firms, the tailwind from robust earnings should mitigate damage from reports of privacy breaches. But headline risk looms large.
What shocking headlines await us tomorrow? In our modern-day circus maximus, anything goes. The media fuel drama to boost ratings. You must practice the art of long-term investing in an era of short attention spans.
Elevate cash levels in your portfolio; at least 20% is a sensible rule of thumb right now. Heed my warning: the correction isn’t over.
Wednesday Market Wrap
- DJIA: -0.90% or -218.55 points to close at 24,189.45
- S&P 500: -0.55% or -14.68 points to close at 2,642.19
- Nasdaq: -0.36% or -25.27 points to close at 7,069.03
Wednesday’s Big Gainers
- AeroVironment (NSDQ: AVAV) +17.06%
Drone maker benefits from military tensions.
- Fate Therapeutics (NSDQ: FATE) +13.82%
Cancer drug shows promise in clinical trials.
- Embraer (NYSE: ERJ) +5.04%
Plane maker in merger talks with Boeing (NYSE: BA).
Wednesday’s Big Decliners
- QuinStreet (NSDQ: QNST) -17.69%
Facebook scandal weighs on search engine marketer.
- Analogic (NSDQ: ALOG) -13.22%
Medical device maker succumbs to buyout on weak terms.
- ARMO Biosciences (NSDQ: ARMO) -7.33%
Analysts skeptical over new drug trials.
Letters to the Editor
“Are cybersecurity companies smart investment bets?” — Darrell B.
Above, I highlighted a farcical moment in Mark Zuckerberg’s testimony before Congress. But hacking is no joking matter. Major breaches of personal and corporate data are becoming more frequent and larger in scope.
State sponsored hackers from countries such as China, North Korea and Russia have been breaching commercial and government entities with an alarming amount of success. The financial and personal data of individuals are increasingly at risk. These trends are tailwinds for makers of cybersecurity software.
Got any questions about tech sector opportunities? Send me an email: email@example.com
John Persinos is managing editor of Personal Finance and chief investment strategist of Breakthrough Tech Profits.