The Message of the Market
While the market took a back seat to the Kavanaugh hearing in Washington, D.C., there was some drama as major indices continue to struggle to hold onto early gains.
On Thursday, the Dow Jones Industrial Average rallied to a gain of 171 points at the highest point of the session before drifting into the close. Technicians might point to the fact the Dow is in a perfect double top formation, which is typically bearish.
Overall, the market is struggling for traction, and investors are retreating back to favorites – Facebook (FB), Alphabet (GOOGL), and Amazon (AMZN), none of which are considered tech stocks anymore.
The biggest news of the session was the surge in the trade deficit as U.S. exports plunged 1.6% as imports edged higher (+0.7%). Since trade is one of the four components of the Gross Domestic Product (GDP), this news took a lot of wind out of the sails of the current quarter modeling, including the Atlanta Fed, which cut its forecast to 3.8% from 4.4%.
Ironically, the news might keep the Fed at bay, although I think Powell & Co. have a game plan that won’t derail the economy or the market.
Speaking of which, Jay Powell spoke on Capitol Hill and addressed concerns about tightening the yield curve (no reason to believe the probability of a recession is elevated), and economic bubbles (doesn’t see high vulnerability).
Technology (XLK) rallied without the old stalwarts, and health care (XLV) continues to find seekers of safety, but investors are looking to ride big moves in biotechnology.
S&P 500 Index
Communication Services (XLC)
Consumer Discretionary (XLY)
Consumer Staples (XLP)
Health Care (XLV)
Real Estate (XLRE)
After the Close
As many suspected, The Securities and Exchange Commission (SEC) has filed a lawsuit against Telsa CEO Elon Musk for a tweet posted on August 7, hinting at funding being secured for a potential takeover of the company.
Musk made his false and misleading public statements about taking Tesla private using his mobile phone in the middle of the active trading day. He did not discuss the content of the statements with anyone else prior to publishing them to his over 22 million Twitter followers and anyone else with access to the Internet. He also did not inform Nasdaq that he intended to make this public announcement, as NA.
The tweet sent the shares of the company up 11% to an all-time high of $379 a share. The move is said to have cost shorts close to $3.0 billion less than a week after they suffered a $1.7 billion loss when the company posted better-than-expected earnings (see arrows).
Shares were down more than 10% in after-hours trading.
U.S. markets are off mostly as investors rubberneck the coming collision between Italy and the European Union. The speed of this crash got a lot faster after the Italian government announced its 2019 budget would result in a 2.4% deficit to GDP.
This is significantly higher than the 1.6% EU rules and 3.0% suggested to investors by a government spokesperson not affiliated with the Northern League or Five Star. Let’s see if this weakness stirs up other issues that might be bothersome, but otherwise, it’s not enough to send U.S. stock investors to the sidelines.