Tech tock, tech tock

06/25/19
  • Tech-heavy Nasdaq 100 yesterday traded to within 1.5% of all-time high
  • Tech has been especially locked into trade-war developments
  • Volatile chip sector rebounded in most recent five days

With the S&P 500 (SPX) pushing to new record highs last week, many eyes will be turning to other indexes to see how soon, or if, other milestones could be reached.

And let’s face it, given the central role tech has played in the market’s bull phases in recent history, most of those eyes will be squarely focused on the Nasdaq 100 (NDX). Midday yesterday, the tech benchmark was around -1.5% below its all-time high of 7,851.97 from April 25, a distance the NDX has been known to traverse in a single daily leap when the right catalyst comes along.

Nasdaq 100 (NDX), 4/23/19–6/24/19. Nasdaq 100 (NDX) price chart. Striking distance.

Source: Power E*TRADE


And it just so happens that a certain global economic confab on the horizon—the G20 meeting that begins this Friday in Japan—has a lot of stock-market hopes hanging on it.

And they have nothing to the wonky agreements and statements that are the frequent byproducts of these meetings. The market will likely take its cue from one of the event’s supposed “sideshows”—the one-on-one between US President Trump and Chinese President Xi Jinping, which may dictate whether or not the NDX rallies to new highs—and beyond—in the near term, or retreats to test support.

At the risk of getting bogged down in a Ph.D.–level geopolitical and economic discourse here, there’s a great deal of nuance to such negotiations, and fine calibrations of language in the resulting statements can determine how the world reacts to the outcome, in this case:

Trade agreement = “Good”

No trade agreement = “Bad”

Okay, there is the possibility of a little nuance. Somewhere between “We have a trade deal!” and “We will both fight this trade war to the death” is “We haven’t finalized anything, but we’ve agreed in principle, and we’ll be working out the detail in the next x months.”

First, as regular readers are aware, we’ve been here before. There have been too many hopeful pledges, blown deadlines, ultimatums, tariffs, and counter-tariffs to count at this point—all of which have jerked the market higher or lower to one degree or another.

But this time the stakes appear to be slightly higher, since this meeting was, until fairly recently, not even on the docket; its surprise announcement was enough to send the NDX 1.5% higher on June 181 (see chart). Also, May’s stock-market downturn (amid various wobbly economic readings) is still fresh in traders’ minds, and the Federal Reserve has likely upped bullish expectations by signaling its willingness to cut interest rates.2

S&P 500 tech industry returns, 6/17/19–6/24/19. Semiconductors lead S&P 500 information technology sector

Source: Power E*TRADE


Of course, as regular readers are also aware, tech—especially the semiconductor industry—has been at the center of the trade storm, both because of its importance in the global economy and its more recent role as a bargaining chip in the US-China trade battle. But the chart above shows that, as of halfway through yesterday, semiconductor stocks, which got creamed in May, led the S&P 500 (SPX) tech sector in the most recent five trading days.

If yesterday’s (quiet) market action was any indication, stocks may be laying relatively low until some definitive word emerges from the Trump-Jinping summit. Depending on what that word is, many traders will be expecting tech to react as it has many times in recent months—with an outsized move.

Today’s numbers (all times ET): S&P Corelogic Case-Shiller HPI (9 a.m.), FHFA House Price Index

(9:00 a.m.), New Home Sales (10 a.m.), Consumer Confidence (10 a.m.), Fed Chairman Jerome Powell speaks at Council on Foreign Relations (1 p.m.).

Today’s earnings include: Lennar (LEN), FedEx Corp (FDX), Micron Technology (MU).

 

 

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1 Bloomberg. Trump, Xi Seek to Restart Trade Talks at Japan G-20; Stocks Jump. 6/18/19.

2 Reuters. US STOCKS-S&P 500 hits all-time high as Fed signals rate cuts. 6/20/19.

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