Tech Moves to the Frontlines of the Trade Conflict

The White House’s decision to cut off Chinese telecom giant Huawei from U.S. suppliers took a big bite out of tech on Monday.

All three major indices declined, continuing last Friday’s losses that spoiled a chance to pull that week into the green. However, stocks did again come off their lows by the closing bell.

The tech-heavy NASDAQ understandably saw the worst loss, plunging 1.46% (or nearly 114 points) to 7702.38. That’s more than the index lost all of last week (-1.3%), though a dramatic improvement from last Monday’s 3.4% plunge.

The S&P slipped 0.67% to 2840.23 while the Dow dropped 0.33% (or about 84 points) to 25,679.90. The latter index had plunged more than 200 points at its worst. These indices were each off less than 1% last week.

News reports today stated that Google has suspended selling certain hardware and software services to Huawei due to the Trump administration’s recent decision to limit the relationships between U.S. businesses and the telecom. Several other companies are also limiting ties.

Such moves would be a problem for Huawei, but it’s also disconcerting here at home as it is further escalation in the trade conflict with China. Worst of all, there are still no plans for the two sides to get back in the boardroom to try and figure something out.

Well, at least today’s decline probably didn’t ruin the whole week like last Monday. Remember that selloff in the wake of China’s retaliatory tariffs?

The NASDAQ plunged by more than 3% while the other two dropped more than 2%. Stocks rallied for the next three days and were in striking distance of fully recovering on Friday, but it slipped again to finish the week.

Today’s losses will be easier for the market to overcome. But what would it rally on? Earnings season is pretty much over and there’s no reason to think any trade talks will be scheduled in the coming days.

We will be getting comments from many Fed officials this week, including Chair Jerome Powell tonight. We’ll be watching to see what these folks have to say in the coming days, while also keeping our eyes on any new trade headlines.

Today's Portfolio Highlights:

Black Box Trader: The portfolio swapped out three names this week. It sold Hartford Financial (HIG, +2.2%), Sysco (SYY, +2.1%) and Quanta Services (PWR). These names were replaced with the additions of Devon Energy (DVN), Leidos Holdings(LDOS) and Xerox (XRX). Read the Black Box Trader's Guide to learn more about this computer-driven service designed to take the emotion out of investing. 

Counterstrike: "The supply chains and sales of U.S. tech companies are going to be hurt by this Huawei blacklisting. Google already cut them off and others are starting to follow suit. Investors will be nervous how tech adapts to a major player in the space basically getting crushed by the U.S. government. While the long-term ramifications are not clear, the short-term is extremely uncertain, which will lead some people to sell first and ask questions later.

"People are getting out of this market slowly, but they aren’t panicking like we have seen in the past. The slow and methodical selling is often met with a positive headline bringing us back higher, which is only to be sold again. So does this mean we can expect more selling? I do think the odds we see the 200-day moving average are fairly high. How the market acts from there is what will be important.

"Despite the down move, it was a rather calm day. This was a nice relief for traders, but stocks weren’t feeling the same way. A move below today's lows should start a bigger move down to 2780, the 200-day moving average. I want to test that level and get it out of the way, so we can see whether its “safe” to buy again. Until that happens, I remain hesitant to put our cash to work. But as I said above, there are some stocks that are too good to pass up. Expect a few new positions within the next 48 hours." -- Jeremy Mullin

Have a Good Evening,
Jim Giaquinto

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