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RoboStreet – June 14, 2018
Big Cap Tech Stocks Charge Ahead in Face of Tariff Turmoil
This week’s upside breakout of the Nasdaq comes at a time when the tough talk on tariffs between the U.S. and China is coming to a head. The Chinese government renewed its threat Thursday to scrap recently won deals with the U.S. that were aimed at defusing a sprawling trade dispute. This new warning came as the White House prepared to release a list of Chinese goods targeted for tariff hikes. President Trump has now upped the ante of his threat that could raise tariffs from $50 billion to $150 billion and will be outlined in a formal release today.
A potential trade war with China seemed to be averted following the June 3 trade talks between U.S. Commerce Secretary Wilbur Ross and China’s top economic official, Vice Premier Lui He. To narrow the trade deficit, Beijing promised to buy more American soybeans, natural gas, and other exports. But Lui He voiced yesterday that all deals were off if Trump’s threatened tariffs went ahead.
The first round of tariff hikes planned by Washington is in response to complaints Beijing steals or pressures foreign companies to hand over technology in violation of its World Trade Organization market-opening commitments. U.S. officials warn that Beijing will resist changing technology development policies Washington dislikes but that Chinese leaders see as successful.
Forcing U.S. companies to hand over intellectual property and the blatant theft of IP to gain access to markets costs American high-tech companies dearly. In a 2017 report from the Commission on the Theft of American Intellectual Property, it found that Chinese theft of American IP currently costs between $225 billion and $600 billion annually. Chinese officials have said that protecting foreign companies’ intellectual property rights is important to China. But quite the opposite is true.
And remember we’re not talking about day-trading here. I’m looking for 50-100% gains inside of the next 3 months, so my weekly updates are timely enough for you to act.
Though the market has elected to trade higher following the bullish comments on the U.S. economy by Fed Chairman Jerome Powell, there could be more bite than bark on a potential trade war this time around. It’s Trump’s nature to lay out a set of measured warnings and then if there is no progress on the dialogue, to put into action those threats. We saw that with the now imposed steel and aluminum tariffs on the E.U., Canada and Mexico, and it is highly probable we’ll see similar action on China.
Add to this fluid situation the ECB announcing they will begin to taper their quantitative easing stimulus program from $30 billion euros per month to $15 billion euros per month starting in September and then end its bond buying purchases altogether in December while keeping interest rates steady until mid-2019. The ECB is seeing economic stability and the rate of inflation nearing their 2.0% target rate and instead of enduring a “taper tantrum” as the U.S. stock market went through, European markets are cheering the news and trading higher.
The CNBC Rapid Update report on forecasted GDP for the second quarter has the economy growing at 3.9%, which bodes very well for earnings season that will begin in earnest the second week of July. So, while there may be a knee-jerk reaction lower for the market upon the announcement of tariffs by the U.S. and retaliation by China on American goods, there is broad investor confidence that the $19.4 trillion U.S. economy which is 25% of the Gross World Product (GWP) will absorb the headlines.
With that said, from a technical standpoint, the market is overbought and is always looking for a reason to take profits. And if trade retaliation escalates over the next few weeks, there could well be a pull back that offers up a very attractive entry point investors to buy the market leaders. The market is betting that the size and current growth prospects of the domestic economy are larger than the impact of a trade war with China to derail the stock market rally, and that might be the case.
While the bullish animal spirits are in control of market sentiment, it should be noted unsurprisingly the market’s leading volatility indicators trading back down to test their historic lows. Typically, when the market is feeling this upbeat, there is a clear and present risk of short and nasty sell off just around the corner that few see coming.
Within the RoboInvestor Portfolio, we continue to harvest profits as the rally extends its gains after testing its major support levels in early May. Most recently, we booked solid 7.3% gain in Electronic Arts (EA) as that stock soared to a new all-time high. My AI platform continues to keep our investment capital busy in stocks that are producing gains in trusted blue-chip stocks that offer investor excellent risk/reward ratios. But as the saying goes, bulls and bears make money, but pigs get slaughtered still holds true even when it seems the market can do no wrong. Just remember, it’s not a profit unless you book it.
And remember we’re not talking about day-trading here. I’m looking for 50-100% gains inside of the next 3 months, so my weekly updates are timely enough for you to act.
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