Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Stocks Hit By Weak Tech Earnings And Trade Tensions

Published 18/07/2019, 18:01
Updated 18/05/2020, 13:00

Stocks took a tumble yesterday and the losses carried forward to the start of today’s session with Asia closing in the red and Europe opening in the negative, before bouncing back slightly. US index futures have recovered some of their earlier losses.

Sentiment has turned negative towards stocks amid concerns that this earnings season could be a weak one, especially for technology companies whose valuations are still sky-high. On a macro level, ongoing concerns about the health of global economy have so far been offset by central banks either cutting or promising to trim interest rates.

But unless growth starts to pick up, central banks’ actions will only help to delay the inevitable: a sizeable correction. However, it remains to be seen when that might happen, as the S&P 500 and other major indices are yet print a key technical reversal signal, despite this week’s sell-off.

Tech earnings disappoint

After a positive start to the earnings season from banks, technology companies have let the markets down. This morning saw SAP SE (DE:SAPG), the German software giant, reported disappointing second-quarter profits and its shares dropped 6%.

Europe’s largest software company blamed ongoing US-China trade tensions for its poor performance. It comes after Netflix (NASDAQ:NFLX) missed expectations yesterday, with the streaming company reporting a drop in US customers while growth overseas was much slower than anticipated. Also, IBM (NYSE:IBM) shares turned negative after reporting a forecast-beating profit yesterday, but its revenues declined for the fourth consecutive quarter. So, watch technology stocks closely as earnings in the sector have so far disappointed – and my colleague Ken Odeluga has prepared lovely previews for some of them. Earnings will come in thick and fast.

Among others, we will hear from Microsoft (NASDAQ:MSFT) and Morgan Stanley(NYSE:MS) (NYSE:MS) today.

Growth worries mount

Meanwhile growth worries continue to mount. Japanese exports declined to -6.7% y/y in June, below consensus of -5.6% y/y, and down for the 7th consecutive month. This comes amid a recent flare in trade tensions between Japan and South Korea.

The US and China are still far from reaching a trade truce, judging by Trump’s latest tariffs warnings. But US Treasury Secretary Mnuchin has said that Huawei is not the sticking point in China trade talks and that a call with China is planned for today. The hope is that the calls would eventually lead to a meeting. But we have been there before and the markets are tired of hearing same old news.

S&P drops to test key support

Despite this week’s sell-off, the S&P 500 retains its bullish bias for the time being for it has not created a lower low yet. Indeed, the index is sitting right at the top of a major support zone between 2941 and 2077. The upper end of this range ties in with the 21-day exponential moving average while the lower end was the high from last year.

Thus, a move below here could potentially pave the way for a correction to at least the bullish trend line. But if support holds, then a rebound towards the key short-term resistance at 3000 could be the outcome.

SP 500 Daily Chart

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Original Post

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.