China announces new stimulus move, helping stocks climb in Shanghai Lack of new positive catalysts might be putting pressure on U.S. market Deere earnings tomorrow as dollar continues to rise, posing potential headwind
Today’s question is what can the market do to follow up another record-high close. With catalysts kind of thin, it might be hard to keep the spark in this rally, at least for the moment. Futures had a weaker tone before the opening bell despite positive news about China cutting its primary loan rate.
The China stimulus didn’t seem to have much impact outside of China, where stocks rose nearly 2%. European markets fell, U.S. Treasury yields dropped, and the dollar continued to roll up gains vs. the euro as investors apparently still sought potential safety of dollar-denominated assets. On the plus side, crude has really turned things around this week, with front-month crude futures (/CL) starting the day around $54 a barrel.
We’re approaching the end of another week, so even though this may sound like a broken record, investors might want to stay on their toes today and tomorrow for some potential profit-taking pressure ahead of the weekend. It didn’t really turn into a factor last Friday, and volatility was on the decline yesterday, but being extra careful isn’t a bad thing.
Today doesn’t stand out as far as data, but existing home sales for January come out early tomorrow and could bear watching. They’re expected to come in at a seasonally-adjusted 5.42 million, according to Briefing.com, and follow Wednesday’s 21.4% year-over-year increase in January housing starts—a 13-year high. The big story with existing homes has been falling inventories and rising prices.
Yesterday’s monthly producer prices data caused a little static with the headline number rising more than analysts had expected. As Briefing.com pointed out, however, the 2.1% year-over-year growth is pretty tame. Also, a single month is never a trend, so let’s stay tuned for next month’s data.
The dollar index is knocking on the door of 100 as people keep flocking toward supposedly “safer” assets, though no investment is truly safe. A rising dollar can hurt multinational U.S. companies, but Information Technology and Energy—two areas where some companies have a lot of international exposure—led all sectors on Wednesday.
What Next for Tesla, Walmart Shares After Turbulent Wednesday? Tesla (TSLA) also stayed hot yesterday, but as you’ve probably read, this is a ride where you’ll want to make sure you meet the height requirements. There’s a lot of volatility and no guarantee things won’t take a sharp turn south at some point. It’s hard to be sure if this one is paying much attention to fundamentals now as shares navigate what continues to look like a short squeeze.
At the same time, Walmart (WMT) gave back most of Tuesday’s post-earnings gains on Wednesday after an analyst said that the company’s customer data collecting could raise privacy concerns. It wasn’t a huge drop, but we’ve all seen this sort of privacy focus get more attention over the last few years, and it’s a legitimate concern not just for WMT but for the retail sector in general. These are issues we’ll probably have to look at more and more going forward.
On the plus side for WMT, it does seem to be weathering the coronavirus better than some other major retailers. WMT hasn’t closed a single store in China, compared with Nike (NKE) and Ralph Lauren (RL) temporarily closing some stores. WMT's ability to stay open is important to keep in mind, because that might give it an advantage.
In other corporate news, Deere (DE) reports tomorrow morning. This company is often seen as a good barometer of the farm economy and also of international trade and the dollar. It might be interesting to see if executives do mention the dollar, which might become a headwind.
High Flyers and Safe Havens: Are They Ever the Same? One other potential reason we’re seeing stocks like TSLA and maybe some of the chip companies like Nvidia (NVDA) take off might actually go back to coronavirus.
Notice that TSLA is up 57% since Jan. 29 and NVDA is up 27%. Over that same period, which coincides with the surge in coronavirus cases and headlines, the Shanghai Composite of major Chinese stocks was about flat before surging today. Shares of Alibaba (BABA), one of the best-known and biggest companies in China, are up just 5% since late January. Some analysts think Q1 Chinese economic growth could fall 6% from a year ago due to the virus.
With this in mind, could it be that investors in Asia and elsewhere are piling into shiny U.S. technology names because they’re worried about stocks in China and the rest of the region? For that matter, is it a coincidence that, over this same time period, bitcoin and other cryptocurrencies have seen a bit of a resurgence?
The "high-flyer-as-safe-haven" concept is just one theory, although it seems logical that TSLA, NVDA and other U.S. companies with exposure t...