(Justin Vaughn, Editor, Options Trading Report)
Stocks in worldwide exchanges slipped downward as worldwide concerns of China’s economy worried all investors and traders. The yuan followed suit, weakening to the dollar and reversing a weeks-long trend. All U.S. markets were closed Monday in observance of Juneteenth, public holiday, with their reaction due out Tuesday. Worsening concerns over the past several weeks about the ability of China to take action on the rapid slowdown, has deeply affected the country’s leadership, and its worldwide status. General consensus amongst economists and market specialists appears to discount China’s recovery, as their economy has sputtered out. China’s premier Li Qiang, along with his cabinet are racing to implement helpful solutions.
Stocks tailed off all day Tuesday, after the off day Monday, playing catch-up to the world markets reactions to China’s critical economic situation. (An article following will highlight corporate exiting of China) As the spillover of China’s crisis hits the U.S. market, reaction is significant, affecting nearly all sectors of the indexes. China, the world’s 2nd largest economy is sputtering, struggling to reach back to pre-pandemic levels. In the 3 years of fighting Covid, China has lost immeasurable ‘ground’ in manufacturing, services and technology sectors, trying to catch up. It is an uphill-battle, as many of their trade customers are looking elsewhere for products during the pandemic slowdown. As the day closed, the Dow Jones Industrial Average was off 200 points, and the Nasdaq Composite and S&P 500 finished flat.
Stocks slid again Wednesday as all eyes were on Jerome Powell, aa he testified before Congress. All three indices were soft, falling little-by-little throughout the day. His testimony continues on Thursday as congressional leaders want answers, specifically regarding all three bank failures, inflation successes, and the continued trajectory of interest rates, with specifics on results. Lawmakers are showing impatience in all above noted situations. So far Mr. Powell has acknowledged that while the rate hikes have stalled inflation he says “much work needs to be yet done.” As the market entered the home stretch, stocks came alive. The Tech-heavy Nasdaq Composite led the ‘way up’ with its tech leading the charge. Maybe the market players have begun to ‘digest’ and ‘accept’ much of the negative news anticipated from Mr. Powell’s second day of testimony. In this topsy-turvy market, “pushing-the -bull” is getting complicated.
Exiting China…A growing number of U.S corporations, U.S. Chinese-Corporations, and many worldwide corporations are electing to exit China. Some of these moves were precipitated by the on-slaught of the pandemic, while the majority of these moves speak to the “wanting to move away from Chinese products” and the influence of the Chinese government and its dictatorial tendencies. As many U.S. companies ease back, and cease business dealings with China, and with the emergence of other nations, such as India, Vietnam, Mexico, Macau, Latin America and Malaysia, stepping up manufacturing, and processing of raw materials, Chinese dependency is falling. Walmart is a sterling example of cutting back on Chinese products, while developing massive manufacturing facilities in Mexico and Vietnam. Geopolitical concerns have escalated in the past years to the point corporations are now more concerned and…doing something about it. Most noteworthy in the past 2 years is the mass exodus from Hong Kong, with China exercising total control and the end of its 99 year lease with the U.K. What was the financial center of the far east, is now a near vacant financial center reduced to a non-important piece of real estate. The road of Chinese manufacturing is now not so smooth, as countries world wide seek to look elsewhere for their goods and services, and high-tech, even…TikTok.
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RUMBLINGS ON THE STREET
Nicholas Colas, co-founder of DataTrek Research, Barron’s “Since stocks discount events six months in the future when determining whether to rise or fall on any given day or week, [the Fed’s] revised [forecasts] did not fundamentally change anything the market already assumed was true, he explains. “In the end, that is bullish for equity markets as long as economic conditions remain stable.”
Carl Riccadonna, chief U.S. economist at BNP Paribas, Barron’s “While there were no dissents, the decision to skip/pause was likely a tough sell to the committee, in our estimation,” writes Mr. Riccadonna. “We suspect more hawkish forward guidance may have been a compromise in response to agreeing to a ‘prudent’ pause in June.”
Jefferey Gundlach, CEO and founder of Doubleline Capital, on CNBC, Barron’s “The stock market, frankly, is exhibiting signs of mania, where you have a very concentrated part of the market driving the entire train.”
Joanne Hsu, Surveys of Consumers director at University of Michigan, Barron’s “Throughout the current inflationary episode, consumers have shown resilience under strong labor markets, but their anticipation of a recession will lead them to pull back when signs of weakness emerge.”